Should I open a branch or a subsidiary in the other country?
There is no general answer, only an ordered one. A branch is the same legal person as the head office, so its results consolidate upward and early trading losses may be usable at home, while the parent itself sits inside the foreign system. A subsidiary is a separate person: liability stops at its own balance sheet, and in exchange you take on withholding when profits come home, transfer pricing between the two companies, and a second set of statutory accounts to prepare and file. The headline tax rate is rarely what decides it. What decides it is usually whether the early years are expected to produce losses, and whether the group is willing to have the parent answer directly to a foreign authority.
Can head office use the losses my overseas branch makes?
It may be able to, and that possibility is one of the main reasons groups choose a branch for an early-stage operation. Because a branch is not a separate legal person, its results form part of the head office's own results rather than sitting in a company of their own. Whether the loss is actually relieved depends on how the home country treats foreign branch results, which is neither uniform nor automatic, so establish the position before you commit: the answer shapes the whole structure. A subsidiary's losses stay with the subsidiary until it makes profits of its own to absorb them.
Can we start as a branch and incorporate a subsidiary later?
Often, but treat it as a transaction rather than a form-filling exercise. Converting means the head office hands a running business to a new legal person, and both systems will ask what was transferred, on what terms and at what value. Customer contracts, staff, equipment and any local registrations all have to move, and each of those moves can have its own consequence. The point to take from this is timing: the cost of converting later belongs in the original decision, not in a review two years after the fact. Ask what the exit looks like before you choose the entry.
Does a branch expose my parent company to foreign tax authorities?
Yes, and that is the trade. Because a branch is the same legal person as the parent, the foreign authority is dealing with the parent when it deals with the branch. Its enquiries, assessments and collection powers point at one company, not at a local subsidiary with its own balance sheet. Groups that are comfortable with that exposure get simpler consolidation and, in the right circumstances, earlier use of losses. Groups that are not comfortable with it incorporate locally and accept the extra accounts, the transfer pricing and the withholding that come with a separate company.
Why does a subsidiary cost more to run each year?
Because it is a company, and companies have their own obligations. A subsidiary needs its own statutory accounts and its own local return, so you are maintaining a second set of books to a second country's standard. Transactions between it and the parent are transactions between separate persons, so they need commercial terms and documentation to support the prices charged. Getting profit back to the parent is a payment from one company to another rather than an internal transfer, so withholding enters the picture. None of that is unmanageable, but it is a standing annual cost and it belongs in the comparison from the start.
What order should we work through the branch or subsidiary decision?
Start with where the losses are expected to arise and who can use them, because that usually points one way straight away. Then take liability: what the local operation can be sued for and whether the group is willing to have the parent stand behind it. Then repatriation: how profit gets home and what it costs in withholding when it does. Then the running cost of accounts, local filings and transfer pricing documentation. Rate comparisons come last, because they move the least. Each step narrows or preserves the options in the next, which is why doing them out of order tends to produce a structure nobody would have chosen deliberately.
Branch or subsidiary — which should we use to expand?
A branch keeps one taxpayer: results consolidate at home, losses are usable sooner, and the exposure is that the branch is a permanent establishment whose profit the host country taxes, sometimes with a branch tax on repatriation. A subsidiary is a separate taxpayer with limited liability and local rates, at the cost of withholding on dividends home and transfer pricing on everything between them. The deciding facts are usually expected losses, liability and exit plans. See branch against subsidiary.
Is GILTI computed at the CFC level or the shareholder level?
Both, in sequence. Tested income, tested loss and the qualifying asset base are measured company by company. They are then aggregated at the US shareholder, which is where the netting of losses across companies happens and where the inclusion, the deduction and the credit are determined. That order matters in practice: a loss in one foreign subsidiary can reduce the inclusion caused by another, but only for a shareholder who owns both. See the GILTI inclusion and Form 8992.
