A branch office represents one of the ways through which a foreign company can establish its presence on a given market. The branch office is seen as a dependent structure to its parent company, thus any decisions and liabilities of the branch fall under the responsibility of the parent company.
When opening a branch office in a foreign country, there are numerous aspects that should be considered, such as the legislation that regulates that activities of this type of company. Regardless of the country in which the branch office will be set up, it will be necessary to register the legal entity with the authorities of the chosen jurisdiction, as the example given below related to the incorporation of a branch office in Singapore.
Also, it is necessary to have a registered office and to hire employees following the employment law in the respective state, and it could also be required to obtain special permits and licenses.
The advantages of opening a branch office
Although the branch office is a subordinate entity to its parent company, it has the right to conduct business activities in an independent manner and it has to be registered with the Commercial Registry in the country in which resides, although the main legislation under which it is regulated is the one of the parent company.
A branch is used for conducting business activities as well, but it is generally more suitable for gaining credibility on the respective market and it has lower registration and operational costs, this being an advantage when the investors’ business plans include a lower capital for the expansion on a foreign market. It is generally suited for projects that incur a lower risk and, in the eventuality in which the branch office needs to be closed down, the winding up procedure is much simpler, as it is the case in Europe, for example.
The disadvantages of a branch office
On the other hand, opening a branch office in a foreign company does have several disadvantages, besides the full liability of the parent company towards the branch. Depending on the country in which the branch office is located, its administrative costs can be similar with the ones of a local based company, a situation met in Germany.
Regardless of the country of incorporation, a branch needs to have a person who is responsible for its activities and the respective representative, who is generally required to be either a citizen of the chosen country, either a person who has received a residency permit from the local authorities, has a high level of responsibility if the company will meet financial difficulties.
It is also necessary to know that when setting up a branch office in Europe, regardless if the parent company resides in a country that is a member state of the European Union or not, the branch is legally required to disclose a set of information, as per 11th Council Directive 89/666/EEC.
Register a branch office in Singapore
In Singapore, the branch office has to be registered with the Accounting and Corporate Regulatory Authority (ACRA), a requirement which is imposed to any business that is set up with the purpose of obtaining profits on the country’s territory.
Some of the main requirements foreign investors should satisfy when registering a Singapore branch office are the following:
- the company’s trading name has to be the same with the one of the foreign company;
- appoint a local representative who is a resident in Singapore (the representative can also be a foreigner who has obtained an employment permit in Singapore);
- the activities of the branch office have to be same as the one stated in the parent company’s incorporation documents.
It is important to know that the registration procedure can’t be handled only by the representatives of the parent company, as the local legislation states that it is compulsory to hire a local specialist who is entitled to perform the procedure in the name of the foreign entity.
The registration procedure can be completed in 24 hours, provided that the foreign company offered all the required documents (a certified copy of the certificate of incorporation of the parent company, the certified copy of the constitution, the latest version of the audited financial statements of the parent company and others).
In terms of taxation, the branch office will be seen as a non-resident company and it will not be able to benefit from the tax incentives available for Singapore based companies, but the company’s operational activities in Singapore can be started after the registration with ACRA.