A subsidiary is an independent enterprise with independent legal personality. As an independent legal person, a subsidiary is regarded as a resident enterprise in the country where it is established. Usually, they have to fulfill the same comprehensive tax obligations as other resident enterprises in the country, and they can also enjoy tax holidays or other preferential tax policies provided by the host country for newly established companies.
However, the establishment of subsidiaries generally requires complicated procedures, strict financial system, independent account books, complicated examination and certification. Operating losses cannot offset the profits of the parent company, and transactions with the parent company are often the focus of tax authorities' anti-tax avoidance review.
Second, public companies.
A branch is an integral part of an enterprise and has no independent legal personality. By summarizing tax returns, the summary calculation and payment of income tax can be realized. The implementation of enterprise income tax system in China is not only the result of introducing and drawing lessons from international practices, but also the inevitable choice to realize the income tax adjustment function.
Article 50 of the Enterprise Income Tax Law stipulates: "If a resident enterprise establishes a business institution without legal person status in China, it shall calculate and pay enterprise income tax on a consolidated basis."
The enterprise income tax system requires that the head office and branches combine to calculate and pay enterprise income tax. Therefore, if a branch is established, so that it does not have the legal person qualification, the income tax can be paid by the head office. In this way, the profits and losses between the head office and the branches can offset each other, and the tax burden can be reasonably reduced.
Extended data
Advantages of establishing subsidiaries by multinational groups;
1. The subsidiary is an independent legal person, and its income tax is levied independently. Subsidiaries can enjoy preferential tax treatment given by the host country to their resident companies, including tax exemption period. However, as a part of the enterprise, the branch companies are sent abroad, and most of the host countries are unwilling to provide them with more preferential treatment.
2. It is much more flexible to repatriate the profits of subsidiaries to the parent company, which means that the investment income and capital gains of the parent company can stay in the subsidiaries or be repatriated when the tax burden is light, thus obtaining additional tax benefits.
3. In many countries, dividends paid by subsidiaries to parent companies can be exempted from withholding tax.
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