Entity choice, state selection and the founder's own relocation decide the tax bill of a US expansion long before the first invoice is sent.
The scenario repeats itself in our practice with remarkable regularity. A French company has been selling into the American market for two or three years. Revenue grows, a first hire is discussed, the founder plans to spend more time on site, perhaps to move altogether. Someone suggests copying the setup of a friend of a friend: an LLC, formed in a state chosen by reputation, owned directly by the founder. Eighteen months later, the structure produces double taxation, an unusable tax credit, or a French reassessment, and unwinding it costs more than designing it properly would have.
The American expansion of a French business raises three questions that must be answered in order, not in parallel: when does US activity become a taxable presence, which vehicle should carry it, and how should the founder's own relocation be sequenced. Each question has a French mirror, because the France-United States tax treaty of 31 August 1994, as amended in 2004 and 2009, allocates the taxing rights, and because French territoriality determines what leaves the French tax base when an American operation begins.
This article sets out the roadmap we apply. Part I addresses the threshold question of taxable presence. Part II compares the three vehicles: LLC, C-Corporation and branch. Part III separates state-selection myths from realities. Part IV sequences the founder's own move.
I. Before the entity: when does US activity become taxable presence?
A. The treaty threshold: permanent establishment
Under the treaty, the business profits of a French company are taxable in the United States only to the extent they are attributable to a permanent establishment (établissement stable) situated there. The concept follows the classic architecture: a fixed place of business such as an office or workshop, or a dependent agent who habitually exercises the authority to conclude contracts in the company's name. Conversely, the treaty preserves a space for market testing: activities of a preparatory or auxiliary character, storage, display, the mere purchase of goods, and selling remotely into the United States without any fixed foothold do not, by themselves, create a permanent establishment.
This threshold is the founder's first strategic tool. A prospection phase run from France, with travel, trade shows and remote sales, can legitimately remain outside US business taxation. But the line is factual, not declarative: a home office made available to a US-based employee, a sales representative who negotiates the essential terms of contracts, or a warehouse that goes beyond storage can each tip the analysis. Our rule: the permanent establishment question is examined before every operational change in the American market, not after the first IRS letter.
B. The French mirror: territoriality
What the United States gains, France gives up, and this is where the French system is more favorable than founders expect. French corporate income tax is territorial: it is assessed, in substance, only on profits realized in enterprises operated in France and on those whose taxation is allocated to France by treaty (CGI, art. 209, I). The profits of a genuine American operation of a French company therefore leave the French corporate tax base. There is no French worldwide consolidation to fight against, and the planning question is not how to escape French tax on US profits, which territoriality already handles, but how to avoid creating two taxable presences for one stream of profit, and how to repatriate the American result efficiently.
C. Why this couple structures everything else
The permanent establishment threshold and French territoriality together dictate the roadmap's logic. Below the threshold, no US structure is needed at all, and creating one prematurely only manufactures compliance costs. Above the threshold, the question is no longer whether the United States taxes the activity, but through which vehicle, at what combined rate, and with what treatment upon repatriation. That is the object of Part II.
II. Choosing the vehicle: LLC, C-Corp or branch
A. The LLC: built for US residents, treacherous for French ones
The LLC owes its American popularity to its default transparency: under the entity classification rules (the check-the-box regulations, elected on IRS Form 8832), a single-member LLC is disregarded and a multi-member LLC is treated as a partnership, its profits taxed once, at the member's level. For a founder who is a US tax resident, this is simple and efficient. For a member who remains a French tax resident, it is a hybrid-entity trap. The United States sees a transparent entity and taxes the French member directly on the business profits. France sees, in general, an opaque foreign company whose distributions are dividends. The same profit is thus taxed in the United States in year one at the member's level and risks being taxed again in France upon distribution, with a tax credit mechanism that fits imperfectly because the two countries do not tax the same person on the same income in the same year. Our position is blunt: the single-member LLC held directly by a French tax resident is, in most configurations, the worst available vehicle, and its popularity in online forums is inversely proportional to its suitability.
B. The C-Corporation: the default for a real operating expansion
The C-Corporation pays federal corporate income tax at the flat rate of 21% (IRC section 11), plus any state corporate tax where it operates. Distributions to a French parent company or French individual shareholder bear a US withholding tax capped by the treaty: 15% as a standard rate and 5% for corporate shareholders meeting the participation conditions of Article 10, with the mechanics confirmed by the French administration's own commentary (BOFiP, BOI-INT-CVB-USA). The combined burden is predictable, the entity is what every American counterparty, bank, landlord and investor expects, and the founder's personal exposure is contained by the corporate veil, a point whose value becomes obvious the first time an American dispute letter arrives. For an operating expansion with hiring and premises, the C-Corp, held by the French operating company or a French holding rather than by the founder personally, is our default recommendation.
C. The branch: honest, exposed, and rarely optimal
The third route is no entity at all: the French company operates in the United States through a registered branch, its permanent establishment. Fiscally, the branch pays the 21% federal tax on its attributable profits and, in addition, the branch profits tax on the deemed repatriation of those profits, imposed domestically at 30% but capped at 5% for a qualifying French company by the treaty (IRS, US-France treaty and Treasury technical explanation). The combined rate is thus comparable to the C-Corp with dividend flows. The decisive difference is legal, not fiscal: a branch is the French company itself, so the entire French balance sheet stands behind every American liability. In a jurisdiction of jury trials and contingency fees, that exposure is a price no tax refinement justifies. We reserve the branch for regulated situations that require it, and treat the separate subsidiary as the pare-feu it is.
III. State selection: myths and realities
A. The incorporation myth
The most persistent myth of the French founder is that the state of incorporation determines the tax treatment. It determines almost nothing for an operating business. A company incorporated in a famously business-friendly state but operating elsewhere must register as a foreign entity in every state where it actually does business, pay both states' annual fees, and, crucially, pay income, franchise and sales taxes where its operations create nexus, not where its certificate of incorporation was stamped. The prestige jurisdictions earn their reputation on corporate law, chancery courts and investor practice, considerations that matter for venture-financed capital structures and matter very little for a wholly owned operating subsidiary. We will devote a full analysis to these state-selection myths in a forthcoming article; the short version is that reflexively incorporating where everyone else does buys duplication, not savings.
B. The operating reality: you are taxed where you operate
The real state question is operational: where will the people, the premises and the customers be? That choice drives state corporate income or franchise tax, payroll taxes, sales tax obligations on the company's products, and the founder's own state income tax once resident. The spread between states is material, from zero-income-tax jurisdictions to combined burdens approaching double-digit points, and unlike the federal layer it is entirely a matter of location strategy. The correct order of analysis is therefore the reverse of the popular one: choose where to operate on business and personal grounds, measure that state's full tax profile, and then incorporate, in most cases, precisely there.
IV. The founder's own move: sequencing the relocation
A. The French exit comes first on the calendar
A founder who transfers tax residence out of France with a substantial shareholding triggers the French exit tax: taxpayers domiciled in France for at least six of the ten preceding years are taxed on transfer on the latent gains of their securities where their holdings represent at least 50% of a company's profits or exceed 800,000 euros in aggregate value (CGI, art. 167 bis, I). A deferral of payment applies, automatic for departures to states bound to France by adequate assistance conventions, and the tax is discharged if the securities are still held after a statutory period of two years, extended to five years for portfolios above 2.57 million euros (CGI, art. 167 bis, IV et VII). The regime is survivable, but it is unforgiving on sequence: valuations, deferral conditions and the holding clock all crystallize on the day residence transfers. The move date is therefore a tax parameter, not a moving-company parameter.
B. Equity instruments travel badly
Stock-options and French BSPCE deserve their own line on the roadmap, because mobility splits their tax fate: gains are generally sourced to where the activity that earned them was exercised, so a departure between grant and exercise leaves the founder with a French-source fraction taxed under French rules and an American fraction taxed under US rules, each with its own timing. Exercising, selling or restructuring before the move is sometimes decisively cheaper than after, and sometimes the reverse; the only universal rule is that the arithmetic must be run before the residence transfer, when every option is still open. We will return to executive mobility in detail in a dedicated analysis.
C. Our position: structure first, mobility second
The order of operations that avoids the classic wrecks is fixed. First, decide the operating question: permanent establishment or subsidiary, which state, which capitalization. Second, install the vehicle and let it live: contracts assigned, transfer pricing documented between the French and American entities, repatriation route tested. Third, and only then, move the founder, on a date chosen for the exit tax, the equity calendar and the US residency start, with the pre-departure clean-up done: French deferrals secured, portfolios purged of instruments the American system punishes, and the family's reporting obligations mapped on both sides, from foreign accounts to any trust in the family's orbit, subjects we have treated separately for US persons in France. Founders who invert the order, moving first and structuring later, negotiate every subsequent choice from the weakest possible position: already resident, already taxable, already late.
Conclusion
An American expansion is won or lost at the drawing board. The treaty threshold of the permanent establishment decides when the United States may tax at all, and French territoriality ensures that what becomes American leaves the French base: the founder's task is to cross that line deliberately, once, with the right vehicle. In most operating configurations that vehicle is a C-Corporation held by the French company or a French holding, incorporated where it actually operates; the LLC belongs to founders who are already American tax residents, and the branch to situations that truly require it.
The practical instruction: run the three questions in order, presence, vehicle, mobility, and never let the founder's personal move precede the corporate structure. A misfitted entity costs a restructuring; a mistimed relocation costs an exit tax event, a broken equity calendar and years of double-reporting friction. Both are avoidable with the same tool: sequence.
Frequently asked questions
Can I test the American market from France without paying any US tax?
Largely yes, within the treaty's limits. Selling remotely into the United States, traveling for prospection and attending trade shows do not by themselves create a permanent establishment, so your business profits remain taxable only in France. The line moves the day you acquire a fixed place of business or a dependent agent who habitually concludes contracts in your name. Have the configuration reviewed before hiring anyone on American soil.
Everyone tells me to just open an LLC. Why do you advise against it?
Because the advice usually comes from US residents, for whom the LLC works. For a member who remains a French tax resident, the LLC is a hybrid entity: transparent for the United States, generally opaque for France. The same profit is taxed in the US when earned and risks French taxation again when distributed, with imperfect credit relief. A C-Corporation held by your French company avoids the mismatch in most operating configurations.
Should I incorporate in a state with no income tax to save on taxes?
Incorporating there changes almost nothing: an operating company pays state taxes where it operates, not where it is incorporated, and it must register in its operating state anyway. What genuinely matters is where you locate the operations and, if you move, your own residence, because that choice fixes the state layer of tax for the company and for you. Choose the operating state first, then incorporate there.
I plan to move to the United States with my company. What must be settled before I leave France?
Three things, in order. The corporate structure, installed and functioning before your departure. The exit tax analysis: with holdings above 800,000 euros or 50% of a company, your latent gains are taxed on transfer, with deferrals whose conditions and holding periods depend on the destination and must be secured before the move. And the pre-departure clean-up: equity instruments arbitraged, portfolios purged of investments the US system penalizes, and both countries' reporting obligations mapped for the family.