Branch / Subsidiary/ Parent

In plain words

When a business expands into another country, there is a choice between two forms of presence. A branch is a division of the same company: no separate legal entity is created, and the branch acts on behalf of the head company. A subsidiary is an independent legal entity registered under local law and owned by the parent company.

The fundamental difference is liability. The whole company, including its assets in other countries, is liable for the obligations of a branch. A subsidiary is liable for its own debts, and the parent’s risk is limited to the capital invested. For risky lines of business and new markets, this is the decisive argument in favour of a subsidiary.

The second layer is taxes and administration. A branch is usually simpler and cheaper to set up, but its profits are taxed under rules linked to the head company and it may create a permanent establishment. A subsidiary requires full registration, reporting and management, but provides a clear separation and often a more straightforward tax regime. The choice is made with a tax adviser covering both countries at once.

When this choice arises

What is compared when choosing

How the decision is made

1. 01Assess the risk level of the business line
2. 02Calculate taxes for both countries
3. 03Check local requirements
4. 04Choose the form of presence
5. 05Register and launch

What you need to know

• A branch is not a separate legal entity
• The whole company is liable for a branch’s debts
• A subsidiary limits the parent’s risk
• A branch may create a permanent establishment
• Certain activities require a specific form

Common mistakes

• ✕Choosing a branch only because registration is simpler
• ✕Not taking into account the risk to the whole company’s assets
• ✕Ignoring the question of permanent establishment
• ✕Calculating taxes for only one country
• ✕Not checking local regulatory requirements on the form

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