What Life Science Firms Need to Know Before Expanding to the U.S.

For foreign life sciences companies, the decision to establish a presence in the United States often begins with a strategic imperative—a clinical trial site near an academic research center, access to venture funding, or proximity to biopharma partners. But once the strategic rationale is clear, the operational path is less so.

Before hiring a single scientist or securing lab space, companies must navigate a highly structured series of legal, tax, and regulatory requirements. Establishing a U.S. entity is not a single task but a sequence of tightly connected steps, each dependent on the one before it. The U.S. market offers enormous opportunity, but entry demands careful planning and precise execution.

AAFCPAs advises that companies understand the timing and implications of each step in advance. In the life sciences, where funding cycles, grant requirements, and clinical milestones drive business decisions, delays in setup can have downstream effects—costing time, resources, and credibility.

The Importance of Forming a Separate Entity

Establishing U.S. operations starts with a defined process—one that, when thoughtfully structured, creates a strong foundation for growth. The first step is to form a legal entity and obtain an Employer Identification Number (EIN), which then allows the company to open a U.S. bank account and engage a third-party payroll provider. With these elements in place, you are ready to begin hiring and compensating your U.S.-based team.

The U.S. Tax Environment is Layered

In addition to federal requirements, companies must comply with state and local rules based on where they operate and where they are incorporated. For example, your company may register in Delaware but run operations in Boston or San Diego—each with separate registration and filing obligations.

Advance planning helps avoid delays and supports compliance across jurisdictions. AAFCPAs works closely with clients to develop timelines and filing schedules, allowing you to meet requirements confidently while maintaining momentum. With the right structure in place, your team can move quickly knowing the operational foundation is built to support scale.

Structure That Supports Growth

Legal Structure Selection

Choosing the right legal structure is about more than compliance; it can protect your broader business strategy. As noted above, a U.S. subsidiary is a separate legal entity, distinct from the parent, which helps isolate U.S. activity for tax purposes and avoids exposure to the branch profits tax. It also supports clean financial reporting and better positions your U.S. entity for investment, grants, and contractual partnerships.

Common U.S. Entity Types for Foreign-Owned Companies

Most foreign-owned companies form a U.S. C corporation, which allows for clear separation from the parent company and eligibility for venture capital investment. While other structures such as LLCs or S corporations exist, these are generally less common for nonresident owners due to tax limitations and ownership restrictions.

Financial Segregation and Documentation

Separate books and records, distinct bank accounts, and defined intercompany agreements for tracking transactions with the foreign parent company provide clarity both for the business and for regulators. These are especially important when intellectual property is involved or when revenue-generating activities begin to scale.

Ongoing Compliance and Employment Considerations

Once operations begin, day-to-day compliance becomes critical. U.S.-based employees must be properly classified and set up through a domestic payroll provider. Benefit offerings should meet regulatory standards and align with market expectations. In addition, payments to U.S.-based vendors and contractors must be accurately tracked and reported to ensure compliance with IRS Form 1099 and related requirements.

Recording and Characterizing Funding

For both initial contributions and ongoing operating infusions, it is essential to properly record how the U.S. subsidiary is funded—whether from the parent company, external investors, or a combination of the two. When funding is provided by the parent company, many U.S. subsidiaries are required to comply with transfer pricing rules. Whether funds are recorded as capital contributions or intercompany loans depends on whether repayment by the U.S. entity is anticipated. The characterization has important tax implications and must be supported by formal agreements. Interest-bearing loans, in particular, require appropriate documentation and internal oversight. When interest is paid, companies may also face U.S. withholding requirements and a related Form 1042 filing obligation.

Transfer Pricing and Intercompany Transactions

After the initial capital infusion, transfer pricing for ongoing operating activities should also be addressed early. Transfer pricing is the practice of setting prices for transactions between related entities within the same multinational group to ensure they reflect market-based (arm’s-length) values. This helps prevent profit shifting and supports accurate tax reporting across jurisdictions.  IRS rules require that intercompany transactions—including shared services, transfer of goods, licensing arrangements, R&D cost-sharing, or back-office support—reflect an arm’s-length standard. A properly structured agreement will reduce risk and help avoid audit challenges down the line. In addition, foreign-owned U.S. entities are required to file Form 5472, which discloses reportable transactions with the foreign parent.

Governance and Approval Processes

To maintain transparency and control, we recommend a dual-approval process for intercompany transactions, with roles designated at both the parent and subsidiary level. This supports sound governance and ensures that transactions are consistent with both business goals and regulatory expectations.

Tax Treaty and Withholding Implications

Tax treaty provisions should also be reviewed carefully, as they may affect withholding rates, filing requirements, and overall tax exposure. When structured intentionally, your U.S. presence becomes not only operational but also strategic.

How We Help

Establishing a U.S. presence and hiring a U.S.-based team is a meaningful step toward global growth—and one that requires careful coordination. Each decision, from entity structure to payroll setup to intercompany agreements, carries tax and regulatory implications. AAFCPAs helps life sciences companies enter the U.S. market with a clear strategy and a strong foundation.

AAFCPAs’ Outsourced Accounting & Fractional CFO practice provides the day-to-day financial management support that helps companies build U.S. operations with confidence, from transactional accounting to reporting and cash flow planning. Meanwhile, our International Tax practice provides comprehensive inbound and outbound tax planning, consulting, and compliance solutions for global organizations. We assist foreign-owned businesses with entity formation, U.S. tax registration, transfer pricing, and cross-border structuring to help you meet your objectives while remaining compliant with IRS and state regulations. If your company has already hired employees or started operations, we can assess your current position and recommend next steps.

In addition, life sciences companies exploring strategic partnerships or acquisitions benefit from our M&A Tax Advisory practice. We perform tax due diligence for buy- and sell-side transactions and advise on structuring to support your long-term plans, whether entering the U.S. through acquisition or expanding post-transaction.

These insights were contributed by Bella Amigud, CPA, MST, Tax Partner, Destiny J. Flood, CPA, Commercial Partner, Outsourced Accounting & Fractional CFO, Terri Delaney, Consulting CFO, and Scott Goffstein, CPA, International Tax Partner.

Questions? Reach out to our authors directly or your AAFCPAs partner.

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