Updated
GL-B-06
01 / In 30 seconds
The short answer
- Branch
- A division of the same company in another country, not a separate legal entity
- Subsidiary
- An independent company owned by the parent
- The main difference
- The whole company is liable for a branch’s debts; a subsidiary is liable for its own
- Parent
- The company that controls the subsidiary through its shareholding
- How to choose
- By level of risk, tax regime and local regulatory requirements
02 / In plain words
What Branch / Subsidiary / Parent means
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.
A case from practice
An entrepreneur was entering a new market and considered a branch as the simpler option. After reviewing the risks and tax consequences, the choice shifted in favour of a subsidiary: the line of business was new, and limiting liability proved more important than saving on registration.
When this choice arises
- Expanding the business into a new market
- Establishing a presence after relocating
- Hiring employees in another country
- Business immigration options
- Ring-fencing a risky line of business
- Restructuring an international group
03 / What it covers
What is compared when choosing
Branch
- Not a separate legal entity
- Simpler to set up
- Liability of the whole company
Subsidiary
- A separate legal entity
- Its own liability
- Full registration
Taxes
- Regime in both countries
- Permanent establishment
- Profit repatriation
Practice
- How counterparties perceive it
- Opening an account
- Regulatory requirements
04 / How it works
How the decision is made
Assess the risk level of the business line
Calculate taxes for both countries
Check local requirements
Choose the form of presence
Register and launch
05 / Key facts
What you need to know
01
A branch is not a separate legal entity
02
The whole company is liable for a branch’s debts
03
A subsidiary limits the parent’s risk
04
A branch may create a permanent establishment
05
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
06 / Expert advice
How to prepare in advance
The decision is made on three criteria at once: the level of risk of the line of business, the tax consequences in both countries and local regulatory requirements for the chosen activity. The practical side is looked at separately — how the form is perceived by banks and counterparties in that market.
What we do for you. If your business is the basis of your income and of evidencing the source of funds, its structure becomes part of the immigration picture. We review the form of presence together with the tax consequences of your move, not separately.
Dmitry NagyTax consultant, international taxation and compliance (ex-Big4)
07 / Questions
Frequently asked questions
A branch is a division of the same company, not a separate legal entity. A subsidiary is an independent company owned by the parent.
The whole company, including its assets in other countries. This is the key risk of this form.
A branch is usually simpler and cheaper to set up. But the savings on registration may not offset the difference in risks and taxes.
A tax concept: a presence that gives a country the right to tax a foreign company’s profits. A branch often creates one.
By the level of risk of the line of business, the tax consequences in both countries and local regulatory requirements for your activity.
Yes. Business immigration programmes may have requirements on the form of presence, the activity and jobs.
INITIAL ASSESSMENT
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We will design a solution for your case, choose the country and the right status, and take the whole process through to the result.
