Companies wishing to sell their products in Europe, can market them through a permanent structure: the branch (or agency). This mode of implementation is a good solution to wait prior to the establishment of a subsidiary.
What is a branch?
It is a secondary company, opened by a parent company abroad, to facilitate the geographical extension of its activities and its relations with the customer.
• Its activity is identical to that of the parent company.
• It is exercised in geographically separate premises from those of the parent company.
• Its leadership is provided by a representative of the parent company (Manager), which has the power to deal with third parties.
• It enjoys a certain independence in the management of the branch (responsibility for goods, initiative in carrying out commercial activity) while remaining under the control of the parent company.
• It has a clean base which deals with it directly. But it always acts on behalf of the parent company.
How to create it?
The decision may be taken by the Board of Directors of an SA, the Manager of a limited liability company, etc., without requiring a special procedure.
The formalities are reduced and vary depending on the country concerned. Most often, the opening of a branch must subject to an advertisement in the register of trade and companies of the location. In France, the rules are as follows:
- Deposit at the registry of the commercial court of 2 copies updated statutes of the parent company, of the application for registration of the branch, graduates or permissions (regulated activity), a copy of the proof of enjoyment of the premises where the establishment is installed and the certificate of appointment of the head of the branch. These documents must be certified compliant and translated into French.
- Registration of the branch to the RCS in the 15 days after its opening.
- Regulation of foreign investments: according to its nature, foreign investment in France may be subjected to administrative declaration, administrative authorization or statistical reporting. In the case of French investment abroad of more than 15.000.000 euros, a statistical declaration must be done with the Bank of France.What is its legal status?
The branch has no legal autonomy, no moral personality.
It has therefore not distinct heritage from that of the parent company, of own property, separate name, capital, etc.
The parent company is responsible for financially on all of its properties (domestic and foreign) and commitments made in the context of the branch.
The rights acquired by the branch directly benefit the parent company.
The branch is included in the pledge of the creditors of the parent company because it is part of the heritage of the latter.
What is its tax status?
Its profits are taxed in the country of implementation and according to its own rules.
They are not the subject of a second taxation in the country of origin, if the latter concluded with the host country a bilateral agreement aimed at avoiding this double taxation.
Unlike a subsidiary, the branch is considered tax resident of the host country. It thus subject to discriminatory measures in the tax plan: non-deductibility of certain financial expenses, interest and royalties, tax rates higher in some countries.
The Accounting parent company shall be fill, and file each year at the registry of the commercial court of the place where it is registered with 2 copies of its accounting documents (French rules).
The branch must keep accounts which are clean although it has no separate specific assets of the company to which it is attached.