A branch is not a separate legal entity but a part - extension of the main company and can be located in the same country as the main company or abroad. The main company and its directors are responsible and liable for the branch.
If a company from abroad operates in England does not necessarily means that the subsidiary must be registered too (if this is an option).
As a general rule, registration is required when there is actual physical presence (for example, if there is an office, especially if it is indicated with a sign. There are exceptions to this rule, such as when there is a representative, or middleman, which is a method used by many when they first expand their company’s services in England. In this case, the company is considered to be cooperating with England and not actually operating in England.
Process to form a branch
You will be required to present several documents of the main company, officially translated into English by a certified translator. The documents will need to be submitted to the Companies House.
The main documents required are those relevant to the forming and any recent amendment (for example, the article of association and any recent changes regarding the shareholders). You will also be required to present documents frequently submitted, such as periodic VAT statements, annual financial statements etc.
In short, the financial statements, tax return forms and other relevant documents of the main company will have to be translated and submitted in England as well. Please note that in some cases these documents should have been signed by an external auditor.
Regarding UK required documents, the main is the form OS IN01.
The entire process to form a branch usually takes around 1 month.
In contrast to the branch, a subsidiary company is an individual legal entity and is individually taxed based on its revenue.
To form a subsidiary is simpler and can be done faster. And you would need to submit the same documents as you would normally do for an English Limited Company (LTD).
However, since the parent and the subsidiary company are closely linked in term of accounting, they should be operated based on the Arm’s Length Principle. The difficulty here would be finding situations between the two companies that can be compared, which is vital in applying the principle.
Another aspect to consider is a possible dissolution of the subsidiary, as it would be necessary to assign this to a certified liquidator.
If someone simply wishes to try his luck in the UK market, compared to a subsidiary, a branch is more complicated to form but its closure is easier.
If the main company wishes to maintain its anonymity, it will be more difficult with a branch since the main company would be obliged to disclose information in England as well. For a subsidiary on the other hand, you will be required to submit - disclose only the documents relevant to the subsidiary itself and not the main company as well.
Taking into consideration any consequences related to tax is also important as they are not always obvious. The reason for this is that defining a company’s tax residence is not only based on each country’s legislation but also the regulations of various organisations, such as the OECD (Organisation for Economic Cooperation and Development).
You should also consider the interstate agreements (Tax Treaties) to avoid double taxation. Accounting treatments can also have both advantages and disadvantages, for example the interest rate for a loan between two entities in the case of a subsidiary is tax deductible, but if it’s a branch, not.
The costs related to forming as well as managing a subsidiary and branch are also a point to consider. Generally speaking, a subsidiary has some advantage here, as the process to form it and manage the accounting affairs is simpler.
Translated / Edited by, Apostolia Nestoratou.
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This article intends to give only a general informative picture and should not, in any case, be taken as a rule. It is strongly recommended to seek a full and professional guidance specifically for your circumstances before making any decisions.