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1. What is a branch?
A branch is a secondary business created by a parent company. It is often located in a different geographical area than the head office of the parent company: in another city, in another region or in a foreign country.
The branch is completely legally and fiscally dependent on its parent company. It is one of its extensions.
Indeed, it does not have legal personality. It has no share capital or own assets separate from the parent company.
It has no legal identity or autonomy. It only acts on behalf of the parent company. It is therefore the parent company that is responsible for the actions carried out by the branch.
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2. How does a branch work?
A branch is managed by a parent company representative.
Having the same activity as the parent company, it nevertheless has a certain freedom in its daily functioning: commercial choices, goods management, logistics, etc. It also has its own customers.
To note: The branch has commercial lease status.
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3. What is the taxation applied to the branch?
The benefits of a branch are taxed in its country of establishment even if they are paid directly to the parent company. Indeed, it is up to the parent company to indicate the liabilities and assets of the branch in its own declarations.
For example, all branches located in France are subject to French profit tax.
Good to know: Even if it does not have separate assets, the branch must keep its own accounts.
In order to avoid double taxation of profits, France has concluded numerous bilateral agreements with other countries. These define the taxation rules between the country of the parent company and the country where the branch is located.
In the absence of legal personality, the branch is often considered to be non-resident of the country of establishment. As a result, she may face a higher tax rate than residents and may have to pay interest and royalties. In addition, his financial expenses are not deductible.
Like all establishments, the branch has its own SIRET number and is liable for VAT.
On the other hand, not being a company, it does not have to file your annual accounts with the registry of the commercial court.
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4. What is the social security regime for employees working in a branch?
The manager of a branch is a subordinate of the parent company. He is his employee and falls under the labor law rules of the country of origin of the parent company. If he is in a foreign branch, he has the Expatriate status.
Good to know: In France, there is the “branch manager” status defined inArticle L7321-1 of the Labor Code. It is an independent trader who benefits from the collective status of labor law. It is intended for franchisees, agent managers and tenant managers.
As for the employees of a branch, they are subject to the labour law rules of the country in which the branch is located.
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5. What is the difference between a branch and a subsidiary?
As we have seen, a branch is considered to be a secondary establishment of the main company. On the other hand, a subsidiary is a genuine company.
Indeed, it has a legal personality and assets separate from the parent company (holding). So she has more autonomy than a branch. She acts on her own behalf and can sign contracts independently.
However, it is controlled by its parent company. This one has at least 50% of the subsidiary's share capital. As a result, it generally imposes on it a commercial policy and objectives to be fulfilled and is responsible for appointing management bodies.
To note: For tax purposes, a company can be considered a subsidiary when a holding holds 5% of its shares or shares.
Unlike the branch, the subsidiary is treated as a “resident” of its country of establishment. Its profits are taxed according to the tax regime of the country of establishment.
France has put in place two advantageous tax regimes for subsidiaries:
- fiscal integration: the holding company becomes the only person liable for the taxes of the group formed with its subsidiaries. The parent company must hold at least 95% of the capital of the subsidiaries and not be more than 95% owned by another company subject to corporate tax;
- the mother-daughter regime: it allows the parent company to benefit from an exemption on dividends received from its subsidiaries. It must hold more than 5% of them.
These regimes apply to all companies subject to corporate tax in France.
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6. How do I create a branch?
All businesses have the right to set up a branch.
The decision to open a branch is made by the parent company's governing body: board of directors or manager for example.
Since they do not have legal personality, the creation formalities are simple and fast.
In France, all you need to do is file an application with the Trade and Companies Register (RCS) on the site of One-stop shop for business formalities. Your request will then be sent to the competent bodies (INSEE, commercial court registry, etc.).
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7. Why create a branch?
The creation of a branch is very interesting when you want to set up in a new geographical area, in particular to have a first experience in a market or to launch a new product or service.
The formalities of establishment are simplified, which allows you to test a new market without taking significant risks. In case of economic difficulties, the branch can be helped by its parent company.
A branch can thus become a real asset and give you an advantage over the competition. It gives you the possibility to set up quickly and, for example, to conquer an emerging market before a competitor.
Finally, some destinations may be fiscally advantageous since the branch's profits are taxed according to the rules of its country of establishment.
In conclusion, the branch is a secondary establishment of a parent company. Unlike a subsidiary, it does not have legal personality and is dependent on the main company. Its creation is generally used to test a new market or to launch a product.
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