Does opening a branch abroad make our whole company taxable there?
Not the whole company, but the exposure runs to the company itself rather than to a separate entity, which is the part people miss. A branch is the same legal person as the head office, so the foreign authority assesses your company, asks your company for records, and can look at your company's affairs to work out what belongs to the branch. What is taxable is the profit attributable to the activity carried on in that country. What is exposed, procedurally, is the entity. That is the trade for being able to consolidate the results.
Can we set branch losses against head office profits?
Generally yes, and it is the main reason a branch is chosen for a loss-making start-up phase abroad. Because the branch is not a separate person, its results form part of the company's own, so early losses reduce profit at home in the year they arise rather than waiting inside a foreign company until it becomes profitable. The cost sits at the other end: once the operation is profitable that profit consolidates too, and moving it into a local company later is a transaction with its own consequences. The choice is about timing as much as tax.
When does our activity in another country become a taxable branch?
When it crosses from preparation into doing business there, judged by what people actually do rather than by what the contract or the sign on the door says. A fixed place used for the business, staff with authority to commit the company, work carried out over a sustained period on a site — these are the facts that decide it, and they can be satisfied without anyone registering anything. Businesses are usually across the line before they look it up. The useful exercise is to write down what your people do in that country, month by month, and test that.
What accounts does a foreign branch need of its own?
Enough to answer the only question the foreign authority is really asking: how much of the company's profit belongs to the activity in its country. In practice that means a ledger for the branch that reconciles to the company's own accounts, a basis for any head office costs charged in, and support for the revenue treated as earned there. Keeping the branch inside the group ledger and extracting a figure at year end is where files come apart, because the extraction has to be explained again every time somebody asks.
Is turning our branch into a local company a taxable event?
Usually it is treated as a transfer of the branch's assets and business to a new person, which is exactly the kind of event tax systems price. Both countries have a view: the foreign one on what left the branch, the home one on what the company disposed of. Relief may be available, and it generally depends on the form of the transaction and on filings made at the time rather than afterwards. This is why the conversion cost is worth estimating when the branch is opened, not when the operation has become valuable.
Is there a tax on sending branch profits back to head office?
Several systems impose a charge on branch profits intended to match the withholding a local company would suffer on a dividend, so that the choice between a branch and a subsidiary is not driven by that difference alone. Whether it applies to you, and at what point it bites, depends on the country and on the treaty. Because a branch has no dividends, such a charge is usually computed on a measure of profit rather than on an actual transfer, which surprises businesses that have left the funds in place.
Should I use a branch or a subsidiary abroad?
A branch is the same legal entity operating in another country, so its profits and losses sit with the parent and it is taxed there as a permanent establishment. A subsidiary is a separate company, taxed in its own right, with dividends and withholding on the way home. Losses, repatriation cost and liability usually decide it, and the answer differs by country pair. See branch vs subsidiary.
What counts as foreign income, and what is a foreign tax?
Foreign income is income sourced outside the country you are filing in — where the work was done, where the property sits, where the payer is resident, depending on the type. A foreign tax, for credit purposes, is a levy imposed by another country that functions as an income tax and that you were legally required to pay. Consumption taxes, property taxes and most social contributions are not, however real the cost. Sourcing is decided by rule, not by which bank received it. See the foreign tax credit.
