When entering a foreign market, a company decides between an organisational unit, that is a branch, and setting up a separate subsidiary. A branch has no legal personality of its own, is part of the parent company, and the parent is liable for its obligations with its entire assets. Setting one up tends to be faster and cheaper, but accounting is kept according to the rules of both countries. A subsidiary is a separate entity that is liable for itself, which separates the risk, but its establishment and administration are more costly, and profit is taxed at the place of its registered seat, with further taxation on payment of a dividend. The choice depends on the level of risk, the planned volume, and whether a local legal form matters to customers and public procurement. It is worth taking advice on the decision in the target country.
See also: VAT registration abroad, Choosing a target market, Local distributor and partner.
