Its time to expand your business overseas. Before you open your doors, you must make a critical choice, whether to register as a subsidiary, a branch, or a representative office, What is the right choice to make?.
A branch is a commercial, industrial or service provider structure owned by a company or natural person. When a branch is owned by a foreigner, it must be contributed to a company in existence or to be created, governed by the laws of one of the Member States no later than two years after the branch is set up, unless this obligation is waived by order of the minister in charge of trade in the Member State in which the branch is located.In the event of non-compliance with these requirements, the registrar or the competent authority in the member state may cancel the registration of the branch in the trade and personal property register based on the ruling of the competent court on the petition of the latter or of any interested person.
Why and Why Not
A branch has a degree of autonomy in its management. In as much as a branch is easy to set up, it is not a separate legal entity thus offers no liability of protection for the holding company and we know the implications. However, a branch is advisable for small and medium-sized companies who will like to taste the waters of foreign markets.
A representative office, on the other hand, will be in charge of liaising with the foreign company and the market of the state where it is located.
Why and Why Not
Doesn’t have autonomy of management and is limited to the activities of the holding company. It doesn’t have a legal personality thus can not enter into transactions and contractual matters.
Meanwhile, A subsidiary or daughter company is a company that is owned or controlled by another company, which is called the parent or holding company.A Subsidiary is an entirely separate legal entity with the parent company holding more than 50% of shares in the entity’s voting shares.
Why and Why Not
The fact that a subsidiary has its own legal personality completely protects the holding from liability. Also, the subsidiary can enter into transactions and contractual matters and carry out divergent activities to that of the holdings, A subsidiary may open access to capital from banks and investors more comfortable to invest in a local company.
Most importantly, subsidiaries are taxed under local laws on their own income, thus shielding the parent company’s profits from taxes in a foreign country.
The tax regime applicable for the above type of companies
The tax regime applicable for the branch will be applicable for the representative office as the tax regulations in Cameroon do not provide for a specific tax regime for the Representative office The branch is however subjected to the business license tax and the company income tax. And a Subsidiary of the simplified tax system, system of the flat-rate tax, the real tax system depending on the companies turnover.
Without proper due diligence, a company may choose an entity that slows down rather than encourages overseas growth. Executives need to be aware of the compliance, tax, and liability issues that accompany a branch office or subsidiary and choose the one that will help them avoid expensive surprises.
Choosing a trusted legal adviser can allow your company to smoothly navigate a host of compliance issues, provide insights on planning for an international location and help you create and register a legal entity when you’ve chosen the right one for your company. All the best.
By Shella FRU Esq
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