Expanding abroad through a branch or a subsidiary
A branch is the company itself trading abroad, so its whole balance sheet stands behind it and both countries can tax the profit, while a subsidiary is a separate company that ring-fences the risk and is taxed where it is run.
The concepts this turns on
Follow the chain in order, or open any term for the full definition and its legal basis.
- 01BranchStructure
A place of business through which a company trades in another country without forming a separate company there. The branch is the company itself abroad, so the whole company stands behind its liabilities, and the country where it trades can tax the profit attributable to it.
- 02
A fixed place of business, or a dependent agent, through which a company carries on business in another country. Creating a PE can give that country the right to tax the profits attributable to it, even without a local company.
- 03Holding CompanyStructure
A company whose main purpose is to own shares in other companies rather than trade in its own right. A holding structure centralises ownership, can simplify governance across a group, and may allow qualifying dividends and gains to pass between companies efficiently.
- 04Corporate Tax ResidenceStatus
The test that decides which country has primary taxing rights over a company, usually based on where it is incorporated or where its central management and control sits. A company can be resident in more than one country, which double taxation agreements then resolve.
- 05Withholding TaxTax charge
Tax deducted at source from cross-border payments such as dividends, interest, or royalties before they reach the recipient. The rate is often reduced by an applicable double taxation agreement.
- 06
A treaty between two countries that allocates taxing rights and provides relief so the same income is not taxed twice. DTAs are central to structuring cross-border dividends, interest, royalties, and employment income.
- 07
A foreign subsidiary whose profits may be attributed back to, and taxed in, the parent’s home country under anti-avoidance rules. CFC regimes are designed to stop profits being shifted into low-tax jurisdictions.
Other situations
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