US market entry for life science SMEs: What needs to be clarified first

The US Market: Attractive, but Not to Be Underestimated

The USA is the largest single market for medical devices, pharmaceuticals, and biotechnology worldwide. For DACH companies with a validated product or approved technology, the thought is obvious: if it works in Europe, it will work in the USA, only with much better margins and future profits.

The reality is more nuanced. Different rules apply regarding regulation, taxation, and operations. Those who understand these differences early on and make the right structural decisions can scale significantly faster and more cost-effectively. Those who ignore them pay later – in the form of back taxes, liability risks, or structural reorganization costs.

Legal Form and Corporate Structure: The First Strategic Decision

The most common question when entering the US market is: What legal form should the US unit have? The common options – LLC, C-Corp, or Branch Office – each have different tax and corporate law consequences, both in the USA and for the DACH parent company.

Some practice-relevant differences:

• LLC (Limited Liability Company): Flexible and administratively lean. Tax-transparent in the USA, but beware: in Germany, an LLC can very easily be classified as a corporation, which can lead to double taxation risks.
• C-Corporation: The standard form for growth-oriented companies with investor ambitions. Treated as an independent subject for tax purposes. For life science companies with a planned US listing or venture capital financing, it is often the more suitable choice, as changing or adding new shareholders is easiest.
• Branch Office: No independent legal personality – the DACH parent acts and is liable directly. Rarely recommended for operational activities, but conceivable for initial market exploration and early sales activities in certain constellations.

The choice of legal form should never be made in isolation – it determines the tax structure for years and can only be changed later with considerable effort.

Transfer Pricing: The Underestimated Risk Between DACH and the USA

As soon as a DACH parent company provides services to its US unit or vice versa the topic of transfer pricing comes into play. This concerns license fees for IP, management fees, service billing, internal financing, and the provision of personnel.

Both the German tax authorities and the US Internal Revenue Service (IRS) audit intra-group transactions for arm’s length compliance. If reliable transfer pricing documentation is missing, there is a risk of tax assessments on both sides of the Atlantic – plus interest and penalties.

For life science companies, the topic is particularly sensitive because the values to be transferred – patents, clinical data, know-how – are difficult to value. Early planning and careful structuring pay off.

FDA Approval: What Needs to Be Prepared on the DACH Side

The actual FDA approval, whether 510(k), PMA for medical devices, or NDA/BLA for pharmaceuticals, is in the hands of specialized regulatory affairs experts and US attorneys.

However, what can and should be prepared on the DACH side:

• Technical documentation and clinical data in a format that is adaptable for FDA submission
• Clear IP structure: Who holds which rights, and how are these transferred or licensed to the US unit?
• Budget and time planning: FDA approval processes take time, financial runway planning must take this into account
• Liability structure: Product liability in the USA is significantly stricter than in Europe, the corporate shielding of the DACH parent must be guaranteed from the start

Scaling: Once the Initial US Structure Is in Place

For companies that have already established a US presence, other questions arise: How is the capital structure of the US subsidiary optimized? How are profits repatriated without unnecessary tax burdens? How do you scale the US team without administratively overburdening the DACH parent company?

These questions have no universal answers, they depend on the legal form, industry, sales volume, and long-term strategy. However, they have one thing in common: the earlier they are structured, the greater the room for maneuver.

Conclusion: DACH Homework Determines US Success

A successful US market entry for a life science SME does not begin in the USA. It begins with the right decisions on the DACH side: legal form, tax structure, IP positioning, and transfer pricing. Those who set these courses correctly create the foundation for a sustainable and legally secure development of the US business.

Rödl supports DACH companies from the life science sector in the legal, tax, and commercial preparation of their US market entry – from the choice of legal form to the transfer pricing structure and ongoing compliance. For specific legal questions regarding US law, we coordinate with experienced local correspondent attorneys.