Starting a Branch Office vs. a Subsidiary

The branch office and the subsidiary are common ways to start a business as a foreign company expanding on a new market. The branch office and the subsidiary are business entities that are available for registration in Europe, but these structures can also be set up in other foreign countries, such as the ones available on the Asian market. 

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Setting up a branch office or a subsidiary in Europe can be an attractive idea, considering that the member states of the European Union (EU) benefit from a harmonized legislation on the matter.

Since the branch office or the subsidiary are seen as secondary offices of the foreign company, investors must observe the tax considerations that are applicable for each structure, as there are certain differences between the two. 

For example, the branch office is not a separate legal entity from its parent company abroad, but it will still need to register for value added tax purposes and social security in the country where it is set up. Besides this, investors should also know that the parent company is fully responsible for the activities of the branch office on a foreign market, but an advantage of this structure is that it benefits from a simpler registration procedure compared to the subsidiary and it can be set up without a share capital (thus, having lower initial costs than the registration of a subsidiary). 

A subsidiary, on the other hand, is seen as a separate legal entity than its parent company and it must be incorporated following the commercial legislation available in the country where it is set up.

As a general rule, most of the subsidiaries are registered as limited liability companies. In Poland, for example, the subsidiary is also incorporated as a joint stock company, but this option is generally employed by large businesses, as the legal entity itself is designed for large corporations.  

The registration of a branch office in Poland contains the information mentioned at the beginning of the article, but the parent company must also appoint a local representative; this person, however, will not have the right to take management decisions. When starting a subsidiary, this regulation will not apply. Some of the most important aspects when opening a subsidiary are presented below: 

• drafting the company’s articles of association;

• depositing the minimum share capital, in accordance with the selected legal entity;

• a Polish subsidiary registered as a limited liability company must have a share capital of PLN 5,000;

• register the legal entity with the National Court Register;

• apply for a value added tax number;

• register for social security.