Will dividends from our foreign subsidiary be taxed twice?
The subsidiary pays tax on its own profit where it operates, the country it sits in may take a slice of the dividend at source, and the parent's country then looks at the receipt. Whether that adds up to double taxation depends on the relief available to the parent, which is usually limited by country and by category of income. The point to take from it is that the dividend route has to be priced before the group commits to it, because relief that is unavailable cannot be created afterwards by rewriting the paperwork.
Do we need transfer pricing documents for a small subsidiary?
Size changes what the documentation has to look like, not whether the transactions have to be priced. A subsidiary that buys from the parent, uses the parent's systems, or has its costs met centrally has related-party dealings, and those have to be on terms independent parties would accept. Formal reporting thresholds are a separate question from the underlying obligation. The least elaborate version of this is an intercompany agreement, an explanation of how the price was arrived at, and enough evidence to show the work was actually done.
Should we fund our subsidiary with a loan or share capital?
Both are used, and the mix is the real decision. Interest is generally deductible where the subsidiary operates, which is why groups lend, but the deduction is usually limited by rules on how much debt an entity can carry relative to its equity, and interest leaving the country commonly attracts withholding. Share capital carries none of that and none of the deduction either, and getting it back out again is a corporate act rather than a repayment. The answer follows from the subsidiary's profitability, its local rules, and how the group expects to recover the funds.
Does our liability really stop at the subsidiary?
For general trading liabilities, that ring-fence is the main reason a separate company is used. Tax is where it leaks. Directors can be personally exposed for unremitted payroll and indirect taxes in many systems, the parent can be drawn in where it has given credit support behind the subsidiary's borrowing, and a parent support undertaking is itself a related-party transaction that has to be priced. So the protection is solid for commercial claims and narrower than expected for tax. That distinction is worth checking in each country the group operates in.
Who is responsible for the subsidiary's local accounts and returns?
The subsidiary is a separate person, so the obligations are its own and fall on its directors, whoever prepares the numbers. That has two practical consequences for a group. The local statutory accounts are prepared on the local basis and will not match the figures the subsidiary reports into group consolidation, so a reconciliation has to exist and be kept current. And a local director appointed for convenience is carrying real filing and payment responsibility, which is worth explaining to that person before they sign anything.
Can we charge management fees to our overseas subsidiary?
Yes, and it is ordinary practice, but the charge has to survive two questions in the subsidiary's country: was a service actually provided to this company, and would an independent party have paid this for it. A fee set as a share of turnover with nothing describing what was delivered fails the first. The deduction is also often reduced by withholding on the fee leaving the country and by limits on related-party charges. What makes such a charge stand up is a written scope, a price built from the cost of delivering it, and evidence of delivery.
What is a totalization agreement and how do I use one?
A social security agreement that stops you contributing to two systems for the same work, and lets periods in both count towards benefit eligibility in either. Which system you stay in depends on the agreement's rules for your situation — a seconded employee usually remains in the home system for a set period, a locally hired one usually joins the host system. You evidence it with a certificate of coverage obtained before or shortly after the assignment starts. See certificates of coverage.
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.
