Tax and Accounting Issues to Understand Before Entering the U.S.

May 2, 2026

As Korean brands in K-beauty, K-food, and K-content increasingly expand into the United States, our office has seen a marked increase in consultations about U.S. entity formation. During these discussions, however, we often find that companies carefully prepare the visible aspects of their U.S. business while overlooking the foundations of tax and accounting. Many enter the U.S. market after years of preparation only to face serious setbacks from unexpected tax issues. Today, we outline the key tax and accounting matters Korean businesses should understand before U.S. expansion.

▶ Entity Structure Is the Starting Point for Tax Planning

The first question when starting a U.S. business is what type of entity to establish. Options include a C Corporation, S Corporation, and LLC; a C Corporation is appropriate in most cases for a U.S. subsidiary of a Korean company. However, companies that select an LLC solely because formation costs are lower often encounter unexpected complexity in tax treatment involving Korean headquarters. Entity structure is not merely an administrative formality: it is a key decision shaping the tax framework for years to come and should be reviewed with a professional.

▶ Transfer Pricing Is an Obligation, Not an Option

Transfer pricing refers to the prices applied when products, services, licenses, or funds move between Korean headquarters and a U.S. subsidiary. The IRS closely monitors whether these transactions are conducted fairly at market-level prices. Without a transfer pricing policy or proper documentation, an IRS audit can result in substantial additional tax and penalties. Pricing for intangible services, such as royalties, management advisory fees, and marketing support, is particularly scrutinized. Establishing a transfer pricing policy and systematic documentation from the beginning is the most reliable way to minimize future risk.

▶ Do Not Underestimate the Differences Between US GAAP and K-IFRS

Korean companies maintain their books under K-IFRS or Korean standards for nonpublic entities, while US GAAP applies in the United States. There are significant differences in revenue recognition, lease accounting, inventory valuation, and other areas. The U.S. subsidiary’s financial information may need to be converted to K-IFRS for Korean headquarters’ consolidated financial statements, requiring considerable time and expense. It is important to understand these differences from the outset and establish accounting systems and professional staffing capable of handling them.

▶ Remember That Tax Laws Differ by State

In addition to federal taxes, each U.S. state has its own taxes. California’s corporate tax rate of 8.84% is among the highest in the country, and sales tax, payroll tax, and other state taxes apply as well. The concept of nexus deserves particular attention. Even without a physical office, sales above a specified amount in a state can create a tax filing obligation there. K-commerce businesses selling nationwide through Amazon, Shopify, and other online platforms should be especially mindful of this issue.

▶ Hiring and Payroll: Employee or Independent Contractor?

The distinction between employees and independent contractors is crucial for U.S. tax purposes. Misclassification can lead to several years of payroll taxes and substantial IRS penalties. California also has some of the country’s strictest independent contractor standards under AB 5. Businesses that initially classify all workers as contractors to save costs often face large tax burdens later.

The U.S. market offers opportunity alongside complex regulations and tax systems. Thorough advance preparation and close cooperation with professionals provide the strongest foundation for successful U.S. expansion.