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Branch vs subsidiary – comparing apples with pears?

You’ll find plenty of information about the differences between a branch of a company and a subsidiary but often that’s legal jargon, so let's dig a little deeper

15 May 2024

You’ll find plenty of articles out there that talk about the differences between a branch of a company and a subsidiary but often that’s legal jargon. Despite all that information, this is a question I am asked all the time, by clients, contacts and even colleagues because it really isn’t that straight forward.

So, let’s start with that question. Are branches and subsidiaries like comparing apples with pears? Yes, they are very different to one another.

What is a branch?

It’s often formed by mistake. Your business might look to expand overseas, maybe you hire someone in another country to start doing some work on assessing the market, maybe they even start to find business and conclude contracts? You have almost certainly formed a branch and you haven’t even realised it.

A branch is an arm of your existing business. For example, Company A Limited, incorporated in the UK, starts undertaking business in France. Company A Limited is still a UK company, that’s not changed, and it is a standalone company, not a group, but Company A Limited now has a French branch.

What is a subsidiary?

A subsidiary is another company, a company controlled by your company (the parent) that is itself incorporated. For example, Company A Limited, incorporated in the UK, decides that it wishes to trade in France. It forms a company, Company B Limited, incorporated in France, with Company A Limited is the shareholder to form a group, as follows:-

What are the consequences of these differences?

Branches can be a easy way to expand overseas especially in the first instance until there is enough substance to warrant forming a company in that jurisdiction, but they can also be formed by mistake and may create a tax liability in another country without you realising, which means there is the risk of penalties and unpaid tax liabilities.

A branch and a subsidiary are treated differently for tax and accounting purposes and there are pros and cons to each, so careful consideration should be made before embarking on expanding your business to ensure the structure is the most suitable for you.

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