Branch refers to the branch under the jurisdiction of the company in terms of business, funds and personnel. Have no legal personality. It is a branch under the jurisdiction of the parent company. Refers to the organization established by the company outside its residence and engaged in activities in its own name. The following are the main differences between branches and subsidiaries, hoping to help you!
The difference between a branch and a subsidiary:
(1) The subsidiary is an independent legal person with its own name, articles of association and organization, and conducts activities in its own name. Creditor's rights and debts incurred in the course of operation shall be borne independently by itself. The branch does not have the qualification of enterprise legal person and has no independent name. Its name should be preceded by the name of the affiliated company, which is established according to law and is only a branch of the company.
(2) The parent company's control over its subsidiaries must meet certain legal conditions. Generally, the parent company does not directly control its subsidiaries, but more indirectly controls them, that is, it affects the production and operation decisions of subsidiaries by appointing and dismissing board members and making investment decisions. However, branch offices are different. Its personnel, business and property are directly controlled by affiliated companies and engaged in business activities within the business scope of affiliated companies.
(3) Different ways to assume debts. As the largest shareholder of the subsidiary, the parent company is only responsible for the debts in the operating activities of the subsidiary to the extent of its capital contribution to the subsidiary; As an independent legal person, subsidiaries are liable for operating liabilities with all their property. Because the branch company does not have its own independent property, it is accounted for together with the affiliated company economically, so the liabilities in its business activities are paid off by the affiliated company, that is, the affiliated company is liable for the debts in the operation of the branch company to the extent of all its assets.
The main differences between branches and subsidiaries:
Because of different capital contributions, the legal status of branches and subsidiaries is also different, so it is very important to identify clearly for prosecution, otherwise the litigant will be mistaken and the lawsuit will lose in procedure. To correctly identify, please grasp the following points:
A, the characteristics of the branch:
According to Article 39 of the Regulations on Registration Administration of People's Republic of China (PRC): "Branch refers to an organization established by a company outside its domicile to engage in business activities. The branch does not have legal person status. " According to this regulation, branches have the following characteristics:
1, a branch of the company;
2. Have business qualifications;
3. Not qualified as a legal person.
Second, the characteristics of the subsidiary:
A subsidiary refers to a company whose shares are held by and controlled by other companies. It is the parent company that holds the shares of other companies and can hold them. The parent company and its subsidiaries are economic relations controlled by shares, and the subsidiaries have legal personality. The characteristics of subsidiaries are:
1. A certain number of shares of subsidiaries are held and controlled by one company.
2. This subsidiary has independent legal personality.
Third, it is helpful to identify the similarities and differences between branches and subsidiaries.
Similarities: all have business qualifications and have their own office space;
Difference:
(1) The branch company does not have the qualification of an enterprise legal person, so it cannot bear civil liability independently, and its civil liability shall be borne by the company that established the branch company. Subsidiaries have independent corporate qualifications and can independently bear civil liabilities according to law. The parent company is not responsible for the debts of its subsidiaries.
(2) The names of enterprises are different. The branch puts the name of the branch in front, followed by the company with a certain place name; A subsidiary can name itself without adding the name of the parent company.
(3) The content of the enterprise's industrial and commercial registration in the Administration for Industry and Commerce is different, which is embodied in the capital contribution. Its legal basis is the stipulation in Article 13 of China's Company Law: "A company may set up a branch, which does not have the qualification of an enterprise legal person, and its civil liability shall be borne by the company. A company may set up a subsidiary, which has the status of an enterprise legal person and independently bears civil liability according to law. "
Differences between branches and subsidiaries:
First, the concept of branches and subsidiaries
(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.
Second, the advantages and disadvantages of setting up branches and subsidiaries
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 in general, the most important difference between these two organizational forms is:
A 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. 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.
note:
A subsidiary refers to a company in which the same company has an equity in another company, and the equity can be 100%, but at least not less than 50%; A branch means that more than 50% of the shares of overseas companies and companies in the United States are held by the same person or institution as a third party.
A subsidiary refers to a company whose shares are owned by another company or actually controlled by another company through an agreement.
Three. Changes of subsidiaries and branches
(1). Turning a branch into a subsidiary is equivalent to the parent company reinvesting in a new company. You can conduct assets verification and asset evaluation of branches, provide sponsors' agreement or investment agreement, articles of association of the new company, relevant certificates of sponsors, verify capital, and fill in relevant forms to register with the industrial and commercial departments. However, the name of the original branch must be verified by the industrial and commercial department and may not be extended.
(2) When a subsidiary becomes a branch, it must go through liquidation, taxation, and industrial and commercial cancellation. After the formal cancellation, the parent company will apply to the local industrial and commercial department to set up a branch.
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