(1) branch
Although the relationship between the branch and the head office is somewhat similar to that between the subsidiary and the parent company. However, the legal status of a branch company is completely different from that of a subsidiary company, and it has no independent legal status. A branch is a branch or subsidiary directly engaged in business activities of the head office. Although a branch has the word company, it is not a real company. Because the branch does not have the qualification of an enterprise legal person, does not have an independent legal status, and does not bear civil liability independently.
(2) subsidiaries
Subsidiary is a legal concept corresponding to parent company. A subsidiary has the status of a legal person and can bear civil liability independently, which is an important difference between a subsidiary and a branch. The parent company and subsidiaries are independent legal persons, and the subsidiaries are actually controlled by the parent company. According to the majority voting principle of the shareholders' meeting, the more shares you own, the more you can get the decision-making power on the company's affairs. The control of a parent company over a subsidiary company is usually based on an ownership or control agreement. The parent company has the actual decision-making power over all major matters of the subsidiary, especially the composition of the board of directors of the subsidiary. In addition to share control, the relationship between parent company and subsidiary company can also be formed by concluding some special contracts or agreements to make one company under the control of another company.
(C) differences in tax angle
There is a big difference between setting up a branch and setting up a subsidiary through holding. Because the branch is not an independent legal person, its profits and losses should be combined with the head office to calculate and pay taxes, while the subsidiary is an independent legal person, and the parent and subsidiary companies should pay taxes separately. The subsidiary can only distribute dividends according to the shares held by shareholders in the after-tax profits. Generally speaking, if the company is profitable from the beginning, it is more advantageous to set up a subsidiary. When the subsidiary is profitable, it can enjoy various tax benefits and other business benefits provided by the local government. If the established company loses money at the initial stage of operation, it is more advantageous to set up a branch, which can reduce the tax burden of the head office. Subsidiaries and branches are important organizational forms of modern large companies. Why does a company arrange some subsidiaries as subsidiaries and others as constituent companies? I'm afraid this is mainly from the perspective of tax planning, because in the increasingly fierce market competition, all legal measures that are conducive to improving the economic benefits of enterprises are the focus of enterprises' consideration, and choosing the organization form that is conducive to tax incentives is one of the important ways to achieve this goal. Countries all over the world (including China) have many different regulations on the tax treatment of subsidiaries and branches, which provides an option for enterprises or multinational companies to set up affiliated enterprises.
1, advantages of establishing a subsidiary:
(1) In the host country, it is also a limited liability (sometimes the parent company guarantees);
(2) The subsidiary only reports the enterprise results to the parent company in terms of production and operation activities, and the branch company reports the overall situation to the head office;
(3) The subsidiary is an independent legal person, and its income tax is levied independently. Subsidiaries can enjoy the preferential tax treatment provided by the host country to their resident companies, including tax-free period, but most of the host countries are unwilling to provide more preferential treatment for subsidiaries because they are sent abroad as part of the enterprise;
(4) When the applicable tax rate in the host country is lower than that in the country of residence, the accumulated profits of subsidiaries can benefit from deferred tax payment;
(5) 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.
(6) In many countries, dividends paid by subsidiaries to parent companies can be exempted from withholding tax.
2, the benefits of setting up a branch.
(1) branches are generally simple to operate and the requirements of financial accounting system are relatively simple;
(2) The cost borne by the branch company may be less than that of the subsidiary company;
(3) If the branch is not an independent legal person, the turnover tax shall be paid in the place where it is located, and the profits shall be paid by the head office. In the initial stage of operation, branches often suffer losses, but their losses can offset the profits of the head office and reduce the tax burden;
(4) The profits delivered by the branches to the head office usually do not need to be subject to withholding tax; (5) The transfer of funds between the branch and the head office does not involve the change of ownership, so there is no need to pay taxes. As can be seen from the above, the tax preferences of subsidiaries and branches are quite different, so companies and enterprises should carefully compare, make overall consideration and plan correctly when choosing organizational forms. But generally speaking, the most important difference between the two organizational forms is that the subsidiary is an independent legal entity, which is regarded as a resident taxpayer in the country where it is established and usually bears the same comprehensive tax obligations as other companies in that country. Branches are not independent legal persons, and are regarded as non-resident taxpayer in the country where they are established, and they only bear limited tax obligations. The profit and loss of the branch company should be merged with the head office, that is, the "consolidated statement". China's tax law also stipulates that there are two forms of income paid by subsidiaries of the company: one is to declare and pay taxes independently; First, it is merged into the head office to collect taxes. The form of tax payment depends on the nature of the company's branches-whether they are independent taxpayers of enterprise income tax. It must be pointed out here that the combined calculation of profits of overseas branches and head offices affects the tax burden of the host country. As for the host country where the branch is located, it is often necessary to tax the income belonging to the branch itself, which is the so-called income source tax jurisdiction. However, the establishment of domestic branches does not exist this problem, and enterprises should pay attention to this point in tax planning. So about the choice of branches and subsidiaries. There is a big difference between setting up a branch and setting up a subsidiary through holding. Because the branch is not an independent legal person, its profits and losses should be combined with the head office to calculate and pay taxes, while the subsidiary is an independent legal person, and the parent and subsidiary companies should pay taxes separately. The subsidiary can only distribute dividends according to the shares held by shareholders in the after-tax profits. Generally speaking, if the company is profitable from the beginning, it is more advantageous to set up a subsidiary. When the subsidiary is profitable, it can enjoy various tax benefits and other business benefits provided by the local government.