Establishing a U.S.-based subsidiary is a challenge unlike any other. Managing it is a close second. Subsidiaries are assets to their parent companies—they enhance group value, build gross revenue and allow entrance into a new market. There is, however, one risk that is common among all parent organizations and their subsidiaries: poor management. The most difficult part of managing a subsidiary is finding the correct balance between oversight by the parent and oversight by the subsidiary.
Here are some key considerations for managing your U.S. operations:
Start by deciding whether the team responsible for the start-up and growth of your U.S. operation will be based in the U.S. or abroad at the parent company. Keep in mind that if you find someone who is already in the U.S. to manage your subsidiary, they will require training. Alternatively, if you send an experienced expatriate employee from your parent company, they will require an immigration visa. As your company grows, determine when it makes sense for your U.S. subsidiary to have their own management structure.
During early expansion, consider outsourcing U.S. accounting to allow key U.S. and parent company resources to focus on operational growth in the U.S. You should also determine who needs access to the U.S. accounting software, who the authorized signers for your U.S. bank account will be and what type of reporting is required. Make sure your U.S. team, parent company management and outside accountants are aware who is responsible for approving customer invoices, paying vendors and processing U.S. payroll.
You can minimize your risk of exposure to tax adjustments and penalties for U.S. federal and state income requirements when you work with an accountant with foreign direct investment experience, but you must also have a U.S. corporate officer review and sign the U.S. tax filings. It’s important to coordinate documentation and execution of group pricing policies for your U.S. company’s transactions with foreign affiliates. You should also identify the key U.S. and foreign contacts who will coordinate information and decisions for the group’s domestic and global tax positions.
Since payroll requirements are different in the U.S., consider outsourcing the HR function of your U.S. subsidiary. It’s important to manage this area correctly from the start of operations, even if you only have a few employees. The location of your employees and customers determines where you are required to register for and pay U.S. income tax, sales tax and payroll tax so make sure you properly track activity throughout the year. Cyber security is another operational area to pay attention to, especially due to the recent increase in cyber security threats. Your U.S. systems and processes must be set up to protect your company from losses to the greatest extent possible.
If you need support managing your U.S. subsidiary, we can help. As a leader in global expansion consulting, we can add great value to your expansion planning process. Contact us today to learn more. We look forward to speaking with you soon.