Branch vs Subsidiary: Liability, Tax and Set-Up When Expanding Abroad

What is the difference between a subsidiary and a branch?

A subsidiary is a separate company incorporated under local law and owned by the parent; a branch is the parent company itself, registered to do business in another country, with no separate legal personality. Singapore's Accounting and Corporate Regulatory Authority (ACRA) puts the distinction plainly in its guide to the ways foreign businesses can set up: a branch is "a direct extension of the parent company", for which the parent remains fully liable, while a subsidiary is a separate company whose liability is limited to its own assets.

Everything else follows from that single point. Because a branch is not a separate person, its contracts are the parent's contracts, its debts are the parent's debts and its profits are, in the first instance, the parent's profits. A subsidiary, by contrast, has its own board, its own accounts, its own tax residence and its own creditors, and it pays money back to the parent through dividends, interest, royalties or service fees, each of which carries its own tax treatment.

The tax treaties that most countries sign reflect the same split. The OECD Model Tax Convention lists "a branch" among the examples of a permanent establishment in Article 5(2), so a foreign company that operates through a branch is taxable in the host country on the profits attributable to it. Article 5(7) states the opposite rule for groups: the fact that a company controls, or is controlled by, a company resident in the other state "shall not of itself constitute either company a permanent establishment of the other". In short, a subsidiary is taxed as a local company, and a branch is taxed as a foreign company with a local permanent establishment.

Branch vs subsidiary at a glance

The table below compares the four common entry routes on the points that usually decide the question. It reflects general principles; the detail varies by country and is covered in the country sections that follow.

Factor	Branch	Subsidiary	Representative office	Employer of record (EOR)
Legal personality	None: part of the parent	Separate local company	None	None for the client: the EOR is the legal employer
Liability for local debts	Parent fully liable	Limited to the subsidiary's assets, unless the parent guarantees	Parent fully liable	Contractual, under the EOR agreement
Can trade and earn income?	Yes	Yes	No (in Singapore, by definition)	Client trades from abroad; staff work locally
Local tax position	Permanent establishment of the foreign parent	Local tax resident	Usually no taxable presence if activity is preparatory or auxiliary	Permanent establishment risk if staff conclude contracts
Profit repatriation	Internal transfer, not a dividend	Dividends, possibly subject to withholding tax	Not applicable	Not applicable
Local directors	Authorised or permanent representatives	Board required; resident director in some countries	Head of office	None
Typical use	Regulated or contract-led businesses, testing a market	Long-term operations, local hiring, ring-fencing risk	Market research and liaison	First hires before any entity exists

Liability: who pays when things go wrong

Liability is the clearest reason to choose a subsidiary: its creditors can look only to its assets, whereas a branch's creditors can pursue the whole parent company. Germany's Limited Liability Companies Act (GmbHG) expresses the rule in one sentence in section 13(2): "The company assets alone serve to discharge the company's obligations vis-à-vis its creditors", according to the official English translation. Singapore's ACRA takes the same line for branches and representative offices, for which the parent is fully liable.

In practice the ring-fence is narrower than it looks. Landlords, banks and large customers often ask a new subsidiary for a parent company guarantee, which hands back much of the protection. Directors of the subsidiary also owe their duties to that company, not to the group: in the UK, sections 171 to 177 of the Companies Act 2006 include the duty to promote the success of the company, the duty to exercise independent judgment and the duty to avoid conflicts of interest. A finance director seconded from head office to sit on a local board needs to understand that those duties can pull against group instructions, particularly if the subsidiary runs short of cash.

Separate personality also does not insulate a group from every claim connected with its overseas operations. Litigation in the United States, discussed in our analysis of the Anti-Terrorism Act claims against MTN, shows how claimants target the wider group over conduct in its markets. Structure manages risk; it does not remove it.

Tax: permanent establishment, profits and withholding tax

For tax, the branch vs subsidiary question turns on three things: whether there is a taxable presence at all, how profits are measured and taxed locally, and what it costs to bring the money home. The answer to the first question is the permanent establishment (PE) test. Under Article 5 of the OECD Model, a PE is "a fixed place of business through which the business of an enterprise is wholly or partly carried on", and it includes a place of management, a branch and an office. A building site counts only if it lasts more than twelve months, and activities that are solely preparatory or auxiliary, such as storage, display or collecting information, do not create a PE.

Agents matter as much as premises. The UK definition in section 1141 of the Corporation Tax Act 2010 treats a foreign company as having a UK PE if it has a fixed place of business in the UK or if a person acting on its behalf habitually concludes contracts, or habitually plays the principal role leading to contracts routinely concluded without material modification. That agent limb was substituted by Schedule 7 to the Finance Act 2026 for chargeable periods beginning on or after 1 January 2026; section 49 of that Act says the schedule gives effect to certain provisions of the OECD's 2017 Model. A sales director working from home in Manchester for an overseas parent can therefore create a UK taxable presence without any office being opened.

Once there is a presence, the headline rates are the same for branches and subsidiaries in most countries. In the UK the main rate of corporation tax is 25%, with a 19% small profits rate for profits of £50,000 or less and marginal relief between £50,000 and £250,000, according to HMRC's published rates. Germany Trade and Invest notes that German permanent establishments of foreign corporations are subject to the same corporate income tax as a GmbH.

The difference shows when profits move. A subsidiary pays dividends, and the host state may withhold tax on them. Article 10 of the OECD Model caps source-state tax on dividends at 5% where the beneficial owner is a company holding at least 25% of the payer's capital, and 15% in other cases, though actual treaties vary. Germany's domestic rate is 25% plus solidarity surcharge, reduced under treaties and, within the EU, removed for most corporate parents holding more than 10%, according to Germany Trade and Invest. A branch remits profits internally, which is not a dividend, so dividend withholding does not normally arise; some countries impose a separate branch profits tax, which an adviser should check.

Incentives can also tilt the answer. The Inland Revenue Authority of Singapore taxes companies at a flat 17%, but a foreign company or its Singapore branch cannot claim the tax exemption for new start-up companies because it is not incorporated in Singapore; the branch remains eligible for the partial tax exemption. Large groups have a further layer: the global minimum tax rules, explained in our piece on domestic minimum top-up taxes in the Gulf, apply to branches and subsidiaries alike.

Transfer pricing and the arm's length principle

Whichever structure you choose, dealings between the parent and the local operation must be priced as if the parties were independent. Article 9 of the OECD Model allows a tax authority to adjust the profits of associated enterprises where their commercial or financial conditions "differ from those which would be made between independent enterprises", and it requires the other state to make an appropriate corresponding adjustment.

For a subsidiary this means a written intra-group agreement for every recurring flow: management charges, licence fees for brands and software, interest on shareholder loans and the price of goods bought from the parent. For a branch, the same discipline applies to the attribution of profit to the PE, which is why a branch still needs its own accounts and an allocation of capital and costs. The Finance Act 2026 also reformed the UK's transfer pricing legislation, alongside the PE changes, so groups with UK entities should check that their documentation reflects the new provisions.

Two practical points save money later. First, start-up subsidiaries often make losses in their first years, and tax authorities ask whether a low-risk distributor or service provider should be loss-making at all; a cost-plus service model may be easier to defend. Second, intra-group agreements need a governing law and a dispute clause; our analysis of the seat and venue of arbitration explains why the clause wording matters. Speak to specialist tax advisers before the first invoice is raised.

Representative offices and employer of record: the lighter options

A representative office or an employer of record lets a company test a market without a branch or subsidiary, but each comes with limits that are often underestimated. ACRA describes a representative office as "not a separate legal entity" and "a temporary setup" suited to market research: it cannot earn income, and the parent is fully liable. The OECD Model's exclusion for preparatory or auxiliary activities explains why such offices usually avoid tax, but the moment staff negotiate and close deals, the exclusion falls away.

An employer of record is a third-party provider that employs staff in the target country on the client's behalf, running local payroll, tax and social security. It is the quickest way to make a first hire, and searchers compare "employer of record vs subsidiary tax" and cost for that reason. The risks are legal rather than administrative. A June 2026 decision of Ireland's Workplace Relations Commission noted that "an Employer of Record is not currently defined in Irish employment legislation" and treated the arrangement as temporary agency work, with the EOR as the employment agency and the client as the hirer; the worker's claims failed on their facts, but the classification carries obligations of its own. Other countries regulate labour leasing more tightly still.

Tax risk does not disappear either. If an EOR employee habitually concludes contracts for the client, the client may have a PE under rules such as the UK's revised section 1141, even though it has no entity. An EOR suits a handful of hires in non-sales roles; once a team is selling, a branch or subsidiary is usually cleaner. EU employment rules also follow the workforce, not the structure: see our tracker of the EU Pay Transparency Directive, and talk to employment lawyers in the target country before signing an EOR contract.

United Kingdom: UK establishment or limited company

In the UK, a foreign company chooses between registering a "UK establishment" at Companies House and incorporating a UK private limited company. Companies House guidance on overseas companies registered in the UK defines a UK establishment as "a place of business or branch of an overseas company in the UK" and requires registration once the company has some degree of physical presence. The overseas company must file form OS IN01, a certified copy of its constitution and, where its home law requires them, its latest accounts "within one month of the opening of the UK establishment". Changes must be notified within 21 days, and accounts follow rules that depend on what the home country requires.

The costs are modest. The Companies House fee schedule, last updated on 25 September 2026, sets £100 for incorporating a private limited company online and £124 for registering a UK establishment on paper, with an annual confirmation statement fee of £50 online. The OS IN01 form page now asks each director to verify their identity and give a Companies House personal code.

Identity verification is the newest compliance layer. It became a legal requirement on 18 November 2025, which started a 12-month transition for existing companies, according to the Companies House guidance; existing directors verify when the company files its next confirmation statement. Under the timing rules, people with significant control who are not directors must provide their code within the first 14 days of their birth month, and overseas companies must confirm that all directors have verified by the anniversary of the UK establishment's registration. The prosecutions announced in September carried small fines, but the Insolvency Service was explicit that "there is no option to opt out". For a group appointing directors from abroad, verification belongs on the set-up checklist; the UK lawyers and advisers in our directory handle it routinely.

Germany: GmbH or Zweigniederlassung

In Germany the usual subsidiary is a GmbH, and the branch is a registered Zweigniederlassung of the foreign company. A GmbH needs share capital of at least EUR 25,000 under section 5(1) GmbHG, and its articles require notarial form under section 2(1). Before registration, a quarter of each cash share must be paid in, and at least half of the minimum capital, EUR 12,500, must be covered. The Act sets no residence requirement for managing directors, though the registration must state a domestic business address.

A branch of a foreign company is registered with the court where the branch is located under section 13d of the Commercial Code (HGB). For a foreign limited company, the application must prove the company's existence and name the persons authorised to represent it, and an officially certified copy of its statutes must be filed, with a certified German translation if needed. There is no minimum capital and no German notarised articles, which is why branches are faster to open. Our sister publication Global Law Experts estimates two to six weeks for a GmbH and one to three weeks for a branch, while stressing that the parent is fully liable for branch obligations.

Tax is broadly neutral between the two. Germany Trade and Invest gives a corporate income tax rate of 15%, a solidarity surcharge of 5.5% of that tax (about 15.8% together) and a municipal trade tax, for an average burden of around 30%. Following a 2025 reform, the corporate income tax rate will fall by one percentage point a year for five years from 2028, and the federal government expects the combined rate to average 25% by 2032. The real differences are dividend withholding on GmbH distributions, the cost of formation and the liability shield. Members in our Germany directory can advise on which suits your activity.

Singapore and the UAE: branch, subsidiary and free zones

Singapore offers all three classic routes, and every foreign business must engage a corporate service provider to set up. A foreign company branch must have a locally resident authorised representative and a Singapore registered office, costs S$300 to register, and is usually approved soon after payment, though complex applications can take up to 15 working days and those needing another authority's approval 14 to 60 days. A local company costs S$315, made up of a S$15 name application fee and a S$300 incorporation fee, according to ACRA. Section 145(1) of the Companies Act 1967 requires every company to have "at least one director who is ordinarily resident in Singapore". ACRA adds that a branch is not a Singapore tax resident unless the foreign company is controlled and managed in Singapore. Global Law Experts' comparison of distributors and branch offices in Singapore makes the same practical point: a branch generally cannot access incentives restricted to locally incorporated companies.

The UAE has run a federal corporate tax since financial years beginning on or after 1 June 2023. The official UAE government portal gives a 0% rate on taxable income up to AED 375,000 and 9% above it, and the Ministry of Finance confirms that foreign legal entities with a UAE permanent establishment are taxable persons, while non-residents without one may be subject to withholding tax at 0%. The structural choice is as much about where you set up as how: Global Law Experts' guide to setting up a foreign subsidiary in the UAE explains that full foreign ownership is available on the mainland for a broad range of activities under Federal Decree-Law No. 32 of 2021, that free zone companies generally cannot trade directly onshore without a local distributor or onshore presence, and that bank due diligence is frequently the longest single step. Our Singapore and UAE directory pages list members on the ground.

Beneficial ownership, KYC and banking

Whichever vehicle you pick, regulators and banks will want to know who ultimately owns and controls it, and the rules differ between registers. In the UK, people with significant control of a UK company now verify their identity with Companies House on the timetable described above. In Singapore, every company must state whether it is exempt from keeping a Register of Registrable Controllers and, if not, provide its controllers' details on registration.

The EU is in transition. In Joined Cases C-37/20 and C-601/20, decided on 22 November 2022, the Court of Justice held invalid the provision of the anti-money laundering directive that made beneficial ownership information "accessible in all cases to any member of the general public". The EU's new anti-money laundering package, adopted by the Council on 30 May 2024, applies from 2027, according to the European Commission. A German GmbH or branch will meet these rules through national registers and through its bank.

Banking is where timetables slip. A local subsidiary needs its own account, opened after the bank has checked the group chart, the beneficial owners and the source of funds; a branch can sometimes operate through the parent's existing banking for a period, but local customers and payroll usually require a local account. Prepare a certified group structure chart, identity documents for directors and controllers, and the parent's constitutional documents and accounts in advance, and run account opening in parallel with registration. Banking and finance specialists can smooth the process, and intra-group data sharing for KYC should respect the transfer rules discussed in our piece on the EU-US Data Privacy Framework.

Setting up a subsidiary abroad: timelines and official costs

Official registration fees are small next to legal, tax and banking costs, but timelines differ more than fees. The table sets out the published official figures; adviser fees, notary costs, translations and capital are extra.

Country	Subsidiary: key official requirements	Branch: key official requirements	Official registration fee	Timing indicators
United Kingdom	Private limited company; directors verify identity before appointment	UK establishment registered within one month of opening (OS IN01)	£100 online (company); £124 paper (UK establishment)	Branch registration deadline one month after opening
Germany	GmbH, EUR 25,000 capital, notarised articles	Registration at the local court with proof of existence, representatives and certified statutes	Notary and court fees vary	GLE estimate: GmbH two to six weeks, branch one to three weeks
Singapore	At least one director ordinarily resident in Singapore	Locally resident authorised representative; Singapore registered office	S$315 (company); S$300 (branch)	Most approved soon after payment; complex up to 15 working days
UAE	Mainland or free zone company; ownership and activity rules apply	Branch of a foreign company with a local service agent in some structures	Varies by emirate and free zone	GLE: bank due diligence often the longest step

Two points sit behind the table. First, the corporate service provider, notary or formation agent you use will usually need the parent's documents legalised or apostilled and translated, which can take longer than the registration itself. Second, tax registration, payroll registration and VAT or GST registration follow incorporation and have their own deadlines; build them into the plan rather than discovering them after the first invoice.

Exit: closing a branch or a subsidiary

Exit is easier from a branch than from a subsidiary, which is one reason companies testing a market start with a branch. In the UK, an overseas company closes its UK establishment by filing form OS DS01, after which, in the words of Companies House, "the company no longer needs to file documents for the UK establishment". A solvent UK subsidiary can apply to be struck off the register for £13 online, but it must first settle its liabilities and observe the statutory restrictions; a members' voluntary liquidation is the more formal alternative.

Germany is slower by design. A GmbH that is wound up must invite its creditors to come forward, and under section 73(1) GmbHG no distribution to shareholders may be made until one year after that notice, so a German exit typically spans more than a year. A German branch, by contrast, is deregistered by the foreign company. In every country, employees, leases, tax clearances and the transfer of contracts take most of the time, so the structure chosen at entry shapes the cost of leaving.

Branch vs subsidiary: how to choose

The right answer depends on what the local business will actually do, for how long and with what risk. As a working framework:

• Choose a branch if you are testing a market, the activity is contract-led and low-risk, early losses can be used by the parent, you want quick set-up and a simple exit, and local customers or regulators do not insist on a local company.
• Choose a subsidiary if you plan to hire a team, hold local contracts, own assets or take on product or regulatory liability, need incentives restricted to locally incorporated companies, or may later bring in local investors, sell the business or list it.
• Choose a representative office if the work is genuinely limited to market research and liaison, and you will move to a branch or subsidiary before staff negotiate or close sales.
• Choose an employer of record if you need one or a few non-sales hires quickly, accept that labour leasing rules may apply, and have a plan to transfer those employees to your own entity.

Tax rarely decides the question alone: the headline rate is usually the same for a branch and a subsidiary. Liability, local credibility, regulatory licences and the cost of exit tend to matter more. For groups expanding into several markets at once, cross-border advisers can help set a consistent group policy.

What to ask a local corporate lawyer and tax adviser before you choose

A short scoping call with local advisers before you commit will usually save more than it costs. These are the questions worth asking:

1. Does our planned activity create a permanent establishment here, and could a home-based employee or agent create one before we register anything?
2. Which structure do our customers, landlords, banks and regulators expect, and will any licence require a local company?
3. What withholding taxes apply to dividends, interest, royalties and service fees paid to our parent under the relevant tax treaty, and is there a branch profits tax?
4. Which incentives, grants or start-up exemptions are available, and are they restricted to locally incorporated companies?
5. Do we need a resident director, authorised representative or local service agent, and who will provide that person?
6. What beneficial ownership filings and identity checks apply to our directors and controllers, and on what timetable?
7. What transfer pricing documentation and intra-group agreements must be in place from day one?
8. How will we hire, and do employer of record or secondment arrangements trigger agency or immigration rules?
9. How long will bank account opening take, and what will the bank need from the parent?
10. What will it cost, and how long will it take, to close the structure if the market does not work out?

The Corporate INTL directory lists vetted lawyers and advisers in more than 150 jurisdictions, including corporate and commercial lawyers and tax specialists. If you would rather we made the introduction, use the form below this article to tell us the country you are expanding into and we will put you in touch with a member.

Frequently asked questions

What is the difference between a subsidiary and a branch?

A subsidiary is a separate company incorporated locally and owned by the parent, with liability limited to its own assets. A branch is the parent company itself registered to operate in another country, with no separate legal personality, so the parent is fully liable for its debts and its profits are taxed as those of a foreign company's permanent establishment.

Is it better to set up a branch or a subsidiary?

It depends on the activity. A branch is quicker to open and close and suits testing a market or contract-led work. A subsidiary ring-fences liability, is often expected by customers, banks and regulators, and can access incentives restricted to local companies. Most groups planning long-term operations with local staff choose a subsidiary.

Do branches pay corporation tax?

Yes. A branch is normally a permanent establishment of the foreign company, and the host country taxes the profits attributable to it. In the UK the main corporation tax rate is 25%, and Germany taxes German permanent establishments of foreign corporations under the same corporate income tax as local companies.

What is the definition of an overseas company in the UK?

An overseas company is a company incorporated outside the UK. If it opens a place of business or branch in the UK, Companies House treats that as a UK establishment, which must be registered on form OS IN01 within one month of opening, together with a certified copy of the company's constitution and, where required, its accounts.

Do overseas company directors need to verify their identity with Companies House?

Yes. Directors of an overseas company with a UK establishment must verify their identity, and new directors must do so before their appointment can be registered. For existing UK establishments, the company must confirm that all directors have verified by the anniversary of the establishment's registration. Verification is free online through Companies House, or it can be done through an authorised corporate service provider.

Can a representative office make sales?

Generally no. In Singapore a representative office cannot earn income and is described by ACRA as a temporary setup for market research. Under the OECD Model, an office limited to preparatory or auxiliary activities does not create a permanent establishment, but negotiating and concluding sales takes it outside that exclusion.

What is an employer of record arrangement?

An employer of record is a third-party provider that legally employs staff in a country on a client's behalf, handling payroll, tax and social security. It avoids setting up an entity, but it can be treated as agency work, as Ireland's Workplace Relations Commission did in June 2026, and it does not remove permanent establishment risk.

How long does it take to set up a subsidiary abroad?

Registration itself can be quick: ACRA approves most Singapore registrations soon after payment. Global Law Experts estimates two to six weeks for a German GmbH. The longer steps are usually legalising and translating parent documents, opening a bank account and completing tax and payroll registrations, which can add several weeks.

Are dividends from a foreign subsidiary subject to withholding tax?

Often, unless a treaty or EU rule removes it. Germany's domestic rate on dividends to a foreign parent is 25% plus solidarity surcharge, but EU parents holding more than 10% are generally exempt and treaties reduce the rate. The OECD Model caps source tax at 5% for company shareholdings of at least 25%.

Sources

1. Insolvency Service and Companies House: Directors warned to verify identities following first prosecutions (17 September 2026)
2. Companies House: Verify your identity for Companies House
3. Companies House: When you need to verify your identity for Companies House
4. Companies House: Overseas companies registered in the UK
5. Companies House: Register a UK establishment of an overseas company (OS IN01)
6. Companies House: Companies House fees (updated 25 September 2026)
7. HMRC: Corporation Tax rates and reliefs
8. Corporation Tax Act 2010, section 1141 (permanent establishments)
9. Finance Act 2026, section 49 (permanent establishments)
10. Companies Act 2006, Part 10, Chapter 2 (general duties of directors)
11. OECD: Recommendation of the Council concerning the Model Tax Convention on Income and on Capital
12. Germany: Limited Liability Companies Act (GmbHG), English translation
13. Germany: Commercial Code (HGB), English translation
14. Germany Trade and Invest: Corporate taxation in Germany
15. Court of Justice of the EU: Press release 188/22, Joined Cases C-37/20 and C-601/20 (22 November 2022)
16. European Commission: Anti-money laundering and countering the financing of terrorism at EU level
17. ACRA: Ways to set up foreign businesses in Singapore
18. ACRA: Registering as a foreign company branch
19. ACRA: Choosing a business structure
20. Singapore Companies Act 1967, section 145 (directors)
21. IRAS: Corporate income tax rate, rebates and tax exemption schemes
22. UAE Government portal: Corporate tax
23. UAE Ministry of Finance: Corporate tax
24. Workplace Relations Commission (Ireland): ADJ-00056342 (25 June 2026)
25. Global Law Experts: GmbH vs branch in Germany (2026), tax, liability, FDI screening, which to choose (June 2026)
26. Global Law Experts: Distributor vs branch office in Singapore, which is better for market entry? (July 2026)
27. Global Law Experts: How to set up a foreign subsidiary in the UAE 2026 (September 2026)

About this article

This analysis was researched and written by The Corporate INTL Newsroom, which covers cross-border legal, regulatory and business developments for lawyers, professional advisers and financiers in over 150 jurisdictions. It has been checked against Companies House and HMRC guidance, UK, German and Singaporean legislation, the OECD Model Tax Convention, Germany Trade and Invest, ACRA, IRAS, the UAE Ministry of Finance and government portal, the Court of Justice of the EU, Ireland's Workplace Relations Commission and guides published by our sister publication Global Law Experts. Fees, rates and processing times are those published at the date of review and change frequently; adviser, notary and translation costs vary and are not covered. This article is general information, not legal or tax advice; for advice on a specific expansion, consult a qualified adviser in the country concerned. Last reviewed 12 October 2026. For more analysis like this, visit the Corporate INTL newsroom or subscribe to Corporate INTL.