Last reviewed October 7, 2026 · By the NYBACS advisory team
Short answer
A subsidiary is a separate company owned by the parent, so its liabilities and tax stay mostly ring-fenced in the new country. A branch is the parent company itself registered to operate abroad, so the parent is directly liable and taxed locally on branch profits. A representative or liaison office is a limited presence that can promote and research but generally cannot earn revenue or sign sales contracts.
Key takeaways
- Only a subsidiary is a new legal person; a branch and a representative office are both extensions of the parent company.
- A parent is directly exposed to the debts and lawsuits of its branch, while a subsidiary's liabilities generally stay within the subsidiary.
- In the US, a foreign company operating through a branch files Form 1120-F and can owe branch profits tax on top of regular corporate tax.
- The US has no federal 'representative office' registration; a foreign company that does business in a state registers there as a foreign corporation.
- Representative offices in countries that recognise them are usually barred from invoicing, trading or concluding sales contracts.
Three presences, three legal relationships
The distinction is about who the legal person is in the new country.
- Subsidiary: a new company incorporated under local law, with its own registration, board, bank accounts and tax identity. The parent owns its shares.
- Branch: the parent company itself, registered to carry on business locally. Contracts are signed by the parent, and the branch's assets and debts are the parent's.
- Representative or liaison office: a registered presence permitted only to carry out preparatory or supporting work such as market research, promotion and acting as a communication channel for the parent. It generally cannot earn income locally.
Because a branch and a representative office are not separate entities, the parent's own constitutional documents, accounts and sometimes audited financial statements are filed with the host country's authorities.
Side-by-side comparison
| Factor | Subsidiary | Branch | Representative office |
|---|---|---|---|
| Separate legal entity | Yes | No | No |
| Parent liability | Generally limited to its investment | Unlimited for branch obligations | Unlimited, but activities are narrow |
| Can invoice customers and sign sales contracts | Yes | Yes | Generally no |
| Local tax | Taxed as a resident company on its own profits | Taxed on profits attributable to the branch; some countries add a branch profits tax | Usually no taxable profit if it stays within its permitted scope |
| Parent documents disclosed locally | Limited | Often parent accounts and constitution | Often parent accounts and constitution |
| Credibility with customers and banks | Highest | Moderate | Limited to promotion and liaison |
| Exit | Sell shares or liquidate the subsidiary | Deregister; parent remains liable for residual claims | Close the office with the authority |
The permitted scope of a representative office and the paperwork for a branch vary widely by country, so the local rulebook matters more than the label.
How the United States treats each option
Subsidiary. Most foreign groups use a US C-Corp, often in Delaware or the state where they operate. It files Form 1120 and, when at least 25% foreign-owned, Form 5472 for each related party it transacts with. Dividends to the foreign parent attract US withholding tax unless a treaty lowers it.
Branch. A foreign company can register with a state as a foreign corporation and operate directly. Federally, it files Form 1120-F on income effectively connected with its US trade or business and may owe the branch profits tax, which mimics the dividend withholding a subsidiary would pay; treaties can reduce or remove it. The parent's worldwide balance sheet becomes exposed to US claims.
Representative office. There is no US federal registration category for one. A foreign company whose US staff only do preparatory or auxiliary work may not need to register, but once US personnel negotiate deals or habitually conclude contracts, the company risks being treated as doing business in the state and engaged in a US trade or business. In practice most foreign companies that want a durable US presence choose a subsidiary.
Which one fits your stage
- Testing a market with one person doing research and introductions: a representative office where the country recognises one, or a light subsidiary where it does not.
- Selling, hiring and contracting locally: a subsidiary in most cases, because customers, banks and landlords prefer a local counterparty and the parent's balance sheet stays ring-fenced.
- Regulated or capital-heavy businesses such as banks or airlines: a branch is sometimes required or preferred because the regulator wants the parent's capital to stand behind local operations.
- Moving executives or specialists: US L-1 rules recognise parent, branch, subsidiary and affiliate relationships, so the presence chosen shapes the evidence the immigration attorney will need.
The choice also determines what the parent must disclose abroad and how profits come home, so it should be made with both the host-country and home-country tax position in view.
Common mistakes to avoid
- Letting staff in a representative office negotiate and sign customer contracts, which can create a taxable presence and a regulatory breach.
- Choosing a US branch to save formation cost, then exposing the parent's whole balance sheet to US litigation.
- Forgetting that a branch may require the parent's audited accounts and constitutional documents to be translated, certified and filed locally.
- Assuming branch profits are taxed only once, without modelling branch profits tax or the home country's foreign tax credit rules.
- Converting a branch to a subsidiary late, after customer contracts, leases and employees are all in the parent's name.
NYBACS 360° support
How NYBACS helps
- Compares subsidiary, branch and representative-office routes for your target country, including what the parent must disclose and file.
- Forms US subsidiaries and handles state foreign-corporation registrations when a branch is the chosen route.
- Sets up bookkeeping that separates branch or subsidiary results for Form 1120, Form 1120-F and Form 5472 reporting.
- Prepares the corporate records an immigration attorney needs to document a parent, branch or subsidiary relationship.
Frequently Asked Questions
Can a branch be converted into a subsidiary later?
Usually yes, by forming a subsidiary and transferring the branch's business, assets, contracts and employees into it. The transfer can trigger tax in the host or home country and requires counterparties to consent to contract assignments, so it is more work than starting with a subsidiary.
Does a representative office need its own bank account?
Often it does, for paying rent and local salaries funded by the parent. Banks will expect the account to show only parent remittances and operating expenses, not customer receipts.
Is a US branch cheaper to run than a US subsidiary?
Formation can be simpler, but ongoing costs are often similar because the branch still needs US bookkeeping, a Form 1120-F and state filings. Separating branch income from the parent's worldwide accounts can make the accounting more complex, not less.
Which option do banks and enterprise customers prefer?
Generally a subsidiary, because it is a local legal entity with its own registration, tax number and financial statements. A branch can work but invites questions about the foreign parent's documents.
