Going global is rarely a single decision. It is a series of smaller ones — where to go, what to sell, who to hire, and, most importantly, what legal form the overseas presence should take. For many growing companies, the branch office looks like the easiest answer. It is quicker to open than a subsidiary, it carries the parent’s name and credit standing, and it avoids the cost of building a new company from scratch. What it does not avoid is consequence. A branch changes the tax position, the funding position, the reporting position and the risk position of the entire company back home. Understanding those effects before the first invoice is raised is what separates a smooth expansion from an expensive correction.

One company, two locations

The single most important point about a branch is also the simplest: it is not a separate company. A branch is the same legal person, operating from another address in another country. There is no new shareholder, no new share capital and no corporate veil between the overseas operation and the parent.

Everything else follows from this. A contract signed by the branch binds the parent. A claim filed against the branch can reach the parent’s assets. A regulatory penalty imposed abroad sits on the parent’s balance sheet. Equally, the branch’s profits are the parent’s profits, and its losses are the parent’s losses. This “one entity” character is the branch’s biggest advantage and its biggest exposure at the same time.

Funding the branch: exchange control comes first

Money cannot simply be wired abroad because the board approved it. Because a branch has no separate legal identity and no limited liability of its own, it is not treated as an overseas company for investment purposes — so the usual overseas investment route does not apply. Instead, funding flows through the authorised dealer bank under the foreign currency account framework, and it comes with ceilings.

Broadly, remittances for initial set-up costs are capped at fifteen per cent of average annual sales, income or turnover of the last two financial years, or twenty-five per cent of net worth, whichever is higher. Recurring expenses are capped at around ten per cent of that same average annual sales or income figure. Companies without a two-year track record, or those needing to exceed these limits, generally need prior approval. There are also standing conditions: the branch must carry on the normal business of the parent, it must not create financial or contingent liabilities for the parent beyond what is permitted, surplus funds should be repatriated rather than parked or invested abroad, and the overseas bank account must be reported to the bank at home. These are not formalities. Breaches sit under exchange control law, where penalties are calculated as a multiple of the amount involved.

Direct tax: worldwide income, and tax in two places

A company that is resident at home is taxed on its worldwide income. The moment a branch starts earning, that income is part of the parent’s taxable profits, whether or not a single unit of currency has been sent back.

The host country will usually tax the same profits too. A branch is, almost by definition, a permanent establishment — a fixed place of business — so the host jurisdiction gets the first right to tax whatever is attributable to it. Some countries go further and levy a separate branch profits tax on remittances to the head office, which mimics the withholding tax that would have applied to a subsidiary’s dividend.

Relief comes through the double taxation treaty, if one exists, and through a foreign tax credit claim at home. That credit is not automatic. It has to be claimed in a prescribed statement, filed within the prescribed window, supported by proof of foreign tax paid, and it is capped at the lower of the foreign tax and the domestic tax on the same income. Note also that the credit form itself has changed with the new income tax legislation that took effect from 1 April 2026 — Form 67 continues to apply for earlier years, while Form 44 applies for tax years beginning on or after that date. Miss the timing or the documentation, and the company pays tax twice on the same profit.

Attribution and pricing between head office and branch

Because head office and branch are one entity, they do not “sell” to each other in the ordinary sense. Yet the host tax authority still needs to decide how much profit belongs to the branch. This is done by attribution — allocating revenue, costs, assets, people and risks between the two locations.

This is where disputes are born. Head office charges, management fees, cost allocations, interest on internal funding and shared technology costs are all examined closely, and many countries restrict deductions for such internal charges. Clean documentation of who does what, who bears what risk, and how costs were split is the practical defence. It should be prepared at the time of setting up, not reconstructed during an audit three years later.

Indirect tax: the point most companies miss

Here is a consequence that surprises many finance teams. Under goods and services tax law, an establishment at home and an establishment abroad belonging to the same person are treated as distinct persons. The effect is twofold.

First, services supplied by the parent to its own overseas branch do not qualify as export of services, because the supplier and recipient are merely establishments of the same person. That means no zero-rating and no refund of accumulated input credit on that stream — a real cash impact for technology, engineering and professional services businesses that were previously exporting the same work to third-party customers. Second, services received by the parent from its overseas branch can be taxable in the reverse direction, on a reverse charge basis, even where no money changes hands.

Importantly, this treatment applies to branches specifically. A separately incorporated overseas subsidiary is not an establishment of the same person, and supplies to it can still qualify as exports. For a services-led business, this single distinction can be the deciding factor between a branch and a subsidiary.

Accounting, audit and company law

The branch’s transactions are not a separate set of books that sit quietly abroad. They form part of the parent’s financial statements, line by line. That brings in foreign currency translation — the branch’s functional currency has to be identified, results and balances translated at appropriate rates, and translation differences taken to reserves or to the profit and loss account depending on how the operation is classified. Exchange movements will therefore show up in reported earnings, sometimes with more volatility than management expects.

Company law adds its own layer. Books of account may be kept at the overseas office, but summarised returns have to be sent periodically to the registered office and kept available for inspection. The statutory auditor has a right of access to branch records, and in many cases a branch auditor is appointed locally, with the main auditor dealing with that report. Local law abroad will separately require registration, filings, and often an audit and tax return in its own right — obligations that continue every year, whether or not the branch is profitable.

People, payroll and practical operations

Employees at the branch are employees of the parent. Payroll withholding, social security, pension contributions, visa sponsorship and end-of-service benefits follow local law in the host country. Where employees are seconded from home, the position becomes more layered — residency, treaty relief, social security agreements and the risk of creating additional taxable presence all need to be mapped in advance. Banking, invoicing and customs registrations in the branch’s name also take longer than most project plans allow for.

The upside, honestly stated

None of this means a branch is the wrong choice. It is often the right one. Early-stage overseas losses can generally be set against domestic profits, because it is all one entity — something that is not possible with a subsidiary, where losses are trapped. Profits can usually be repatriated more simply, since moving funds from branch to head office is an internal transfer rather than a dividend requiring distributable reserves. The branch inherits the parent’s balance sheet strength, track record and credit history, which matters when bidding for large contracts or satisfying tender eligibility. And for a project-driven or contract-specific presence, the branch is faster to open and cheaper to close.

Branch or subsidiary?

The choice is not about which structure is better in the abstract. It is about which risks the business is willing to hold. A branch offers loss relief, simpler cash movement and speed, at the cost of unlimited liability, indirect tax leakage on internal services and full visibility of the parent to foreign regulators. A subsidiary offers ring-fenced liability, cleaner export treatment and a separate credit profile, at the cost of trapped losses, dividend taxation and higher maintenance. The correct answer depends on the sector, the contract pipeline, the expected profitability curve and the exit plan.

Whatever is chosen, the decision should be modelled before it is executed — with numbers, not instincts.

How SRC Chartered Accountants can support you

SRC Chartered Accountants advises businesses on every stage of setting up and running an overseas branch. Our team can help you compare a branch against a subsidiary on a like-for-like basis, work through exchange control approvals and permitted remittance limits with your bankers, structure profit attribution and head office cost allocations defensibly, manage the tax position in both countries including foreign tax credit claims, assess the goods and services tax impact on cross-border services, and put in place the accounting, translation, audit and annual filing framework that keeps the structure compliant year after year.

If you are evaluating an overseas branch — or already operate one and want a health check on its tax and regulatory position — our team would be glad to help you plan it properly from day one.