First, the difference between tax planning of branches and subsidiaries
Subsidiaries and branches are important forms of business organization of modern large companies. Why does a company arrange some of its subsidiaries as subsidiaries and others as branches? I'm afraid this is mainly analyzed from the perspective of tax planning, because under the increasingly fierce market competition, all legal measures that are conducive to improving the economic benefits of enterprises are the focus of enterprises' consideration, and choosing the organization form that is conducive to tax preference is one of the important ways to achieve this goal.
Countries around the world (including China) have many different regulations on tax treatment of subsidiaries and branches, which provides a choice for enterprises or multinational companies to set up affiliated enterprises.
Generally speaking, the establishment of a subsidiary has the following advantages:
1. In the host country, it also has only limited debt liability (sometimes it needs the guarantee of the parent company);
2. The subsidiary company reports the enterprise results to the parent company only in terms of production and business activities, while the branch company reports the overall situation to the head office;
3. The subsidiary is an independent legal person, and its income tax is levied independently. Subsidiaries can enjoy the tax preferential treatment provided by the host country to their resident companies, including tax exemption period, while the host country is mostly unwilling to provide more preferential treatment for subsidiaries because they are sent abroad as part of the enterprise;
4. When the application tax rate of the host country is lower than that of the country of residence, the accumulated profit of the subsidiary company can get the benefit of deferred tax payment;
5. It is much more flexible for the profits of subsidiaries to be remitted back to the parent company, which means that the investment income and capital gains of the parent company can be kept in the subsidiaries, or can be remitted back when the tax burden is light, so as to obtain additional tax benefits.
6. Many countries provide for the reduction or exemption of withholding tax on dividends paid by subsidiaries to parent companies.
The benefits of setting up a branch office are generally:
1. branches are generally easy to operate, and the requirements of financial accounting system are relatively simple;
2. The cost borne by the branch company may be less than that of the subsidiary company;
3. If the branch is not an independent legal person, the turnover tax will be paid at the place where it is located, and the profits will be consolidated and taxed by the head office. In the initial stage of operation, branches often suffer losses, but their losses can offset the profits of the head office and reduce the tax burden;
4. The profits delivered by the branch company to the head office are usually not subject to withholding tax;
5. The capital transfer between the branch company and the head office does not involve the change of ownership, so there is no need to pay taxes.
Subsidiaries and branches are important forms of business organization of modern large companies. Why does a company arrange some of its subsidiaries as subsidiaries and others as branches? Which is the best choice for a company to set up branches, a subsidiary or a branch? Before answering these questions, let's take a look at the characteristics of branches and subsidiaries:
Second, the branch
Branch is a concept corresponding to the head office or the company. The businesses of many large enterprises are distributed all over the country and even in many countries, and the branches or subsidiaries set up by the company are directly engaged in these businesses. These branches or subsidiaries are the so-called branches. The company itself is called the head office or the company.
Although the relationship between the branch and the head office is somewhat similar to that between the subsidiary and the parent company. However, the legal status of a branch company is completely different from that of a subsidiary company, and it has no independent legal status.
A branch is a branch or subsidiary directly engaged in business activities under the head office. Although the branch has the word company, it is not a real company. Because the branch does not have the qualification of an enterprise legal person, does not have an independent legal status, and does not bear civil liability independently.
The characteristics of the branch are as follows:
1 The branch does not have its own independent property, but the property actually occupied and used is part of the property of the head office and listed in the balance sheet of the head office.
2 branches do not independently bear civil liability.
A branch company is not a company, and its establishment need not be in accordance with the company establishment procedures, as long as it can be established after performing simple registration and business procedures.
A branch company does not have its own articles of association, and there is no corporate decision-making and business execution organ in the form of a board of directors.
Name of branch, just add the word branch after the name of the head office.
Third, subsidiaries
Subsidiary is a legal concept corresponding to parent company. A parent company refers to a company that owns more than a certain proportion of shares in another company or can actually control another company through agreement. A subsidiary refers to a company whose shares are owned by another company or actually controlled by another company through agreement. A subsidiary has legal person status and can bear civil liability independently, which is an important difference between a subsidiary and a branch.
1, the subsidiary is actually controlled by the parent company. The so-called actual control means that the parent company has the actual decision-making power over all major matters of the subsidiary, especially the composition of the board of directors of the subsidiary. Without the consent of others, the parent company can appoint many directors of the board of directors by exercising its power. Although some trust institutions own a large number of shares in the company, they do not participate in the actual control of the company's affairs, so they do not belong to the parent company.
2. The control relationship between parent company and subsidiary company is based on the ownership or control agreement of equity. According to the majority voting principle of shareholders' meeting, the more shares you own, the more you can get the decision-making power on the company's affairs. Therefore, if a company owns more than 50% of the shares of another company, it is bound to be able to control the company. But in fact, due to the dispersion of shares, as long as you have more than a certain proportion of shares, you can get the majority of voting rights in the shareholders' meeting and gain a controlling position. In addition to share control, the relationship between parent company and subsidiary company can also be formed by concluding some special contracts or agreements to make a company under the control of another company.
3. The parent company and subsidiaries are independent legal persons. Although the subsidiary is under the actual control of the parent company, many aspects should be managed by the parent company, and some are even similar to the branches of the parent company, legally, the subsidiary is still an independent company with legal person status. It has its own company name and articles of association, and conducts business activities in its own name. Its property and the property of the parent company are independent of each other and each has its own balance sheet. In terms of property liability, subsidiaries and parent companies also bear their own property liabilities to the extent of all their own property, and they are not associated with each other.
A company that controls other companies by holding more than a certain percentage of their shares is also called a holding company. Parent company and holding company are two concepts that can be used in general. Subsidiary companies can also become holding companies by controlling more than a certain proportion of shares of other companies, and the controlled companies become Sun * Company. The parent company has become a huge company group by controlling many subsidiaries and Sun * Company. As long as the parent company uses less capital, it can use the capital of its subsidiaries to buy other companies and form a pyramid-shaped company group model.
Fourth, the difference between a branch and a subsidiary
According to the Company Law, a company may set up branches, which do not have the qualification of enterprise legal person, and their civil liabilities shall be borne by the company. A company may establish subsidiaries, which have the status of enterprise legal persons and independently bear civil liabilities according to law. The differences between subsidiaries and branches are as follows:
(1) The subsidiary is an independent legal person, with its own independent name, articles of association and organization, and conducts activities in its own name. The creditor's rights and debts incurred in the course of operation are independently borne by itself. A branch does not have the qualification of an enterprise as a legal person and has no independent name. Its name should be preceded by the name of the affiliated company, which is established according to law, and it is only a branch of the company.
(2) The parent company's control over its subsidiaries must meet certain legal conditions. Generally, the parent company does not control its subsidiaries directly, but more indirectly, that is, it affects the production and operation decisions of subsidiaries by appointing and removing members of the board of directors and making investment decisions. However, a branch company is different. Its personnel, business and property are directly controlled by the affiliated company and engage in business activities within the business scope of the affiliated company.
(3) There are different ways to bear the debts. As the largest shareholder of the subsidiary, the parent company is only responsible for the debts of the subsidiary in its business activities to the extent of its capital contribution to the subsidiary; As an independent legal person, a subsidiary is liable for its operating liabilities to the extent of all its own property. Since the branch does not have its own independent property, it is accounted for economically with the affiliated company, so the liabilities in its business activities are paid off by the affiliated company, that is, the affiliated company is responsible for the debts of the branch in its operation to the extent of all its assets.
It can be seen from the above that the tax benefits of subsidiaries and branches are quite different, and companies and enterprises should carefully compare, make overall consideration and plan correctly when choosing organizational forms. But overall, the most important difference between the two organizational forms is:
A subsidiary is an independent legal entity, which is regarded as a resident taxpayer in the country of establishment, and usually bears the same comprehensive tax payment obligations as other companies in that country. A branch is not an independent legal entity, and it is regarded as non-resident taxpayer in the country where it is established, and only bears limited tax obligations. The profits and losses of branch companies should be combined with the head office, that is, the "consolidated statement". China's tax law also stipulates that the income paid by the company's subordinate branches has two forms: one is to declare and pay taxes independently; First, it is merged into the head office to collect taxes. The form of tax payment depends on the nature of the company's branches-whether they are independent taxpayers of enterprise income tax.
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