Branch vs Subsidiary in Switzerland: What are the differences?
Creating a commercial presence in a new market or expanding operations abroad is a crucial step for growing companies. When it comes to choosing between establishing a subsidiary or a branch, companies must carefully weigh the advantages, disadvantages, and legal and tax implications of each option. This article explores the key differences between a branch and a subsidiary in Switzerland and presents a case study to illustrate these concepts in action.
Legal Autonomy:
- Subsidiary: A separate and independent legal entity from the parent company, possessing its own legal personality. This means it can engage in actions in its own name, own property, sign contracts, and be subject to its own legal and tax obligations.
- Branch: An extension of the parent company without a separate legal personality. It operates under the name and authority of the parent company, which remains responsible for the branch’s debts and obligations.
Taxation:
- Subsidiary: Subject to tax in the country of establishment on the profits it generates locally. Tax rules depend on local legislation and may offer advantages for foreign investments.
- Branch: The profits of the branch are taxable at the level of the parent company, according to the tax rules of the country of origin, but may also be subject to tax in the country of establishment according to tax treaties between the two countries.
Risks and Responsibilities:
- Subsidiary: The parent company’s liability is limited to its investment in the subsidiary’s capital. This provides a separation of financial and legal risks.
- Branch: The parent company is fully responsible for the actions and debts of the branch, which can increase its risk exposure.
Case Study: Global Tech SAS
Background:
Global Tech Inc., a software company based in France, was considering entering the Swiss market. After thorough analysis, the decision was made to establish a commercial presence in Geneva.
Chosen Option:
Global Tech SAS opted for the creation of a subsidiary in Switzerland, named Global Tech (Switzerland) GmbH.
Reasoning:
- Operational autonomy: Global Tech SAS wanted its presence in Switzerland to have some independence in its operations, management, and market strategies.
- Limitation of liability: The goal was to limit the financial and legal exposure of the parent company to the Swiss operations.
- Tax advantages: Switzerland offers attractive tax incentives for companies, and having a local legal entity allowed Global Tech (Switzerland) GmbH to fully optimize them.
Result:
The subsidiary allowed Global Tech SAS to firmly establish itself in the Swiss market by adapting its products to local needs and effectively navigating the regulatory and tax landscape in Switzerland.
The subsidiary structure also facilitated local partnerships and reinforced the Global Tech brand as a committed player in the Swiss market. The choice between a branch and a subsidiary depends on several factors, including the company’s strategic objectives, tax considerations, legal risks, and the desire to operate independently in a foreign market.
As illustrated by the Global Tech SAS case study, a Swiss subsidiary can offer greater flexibility and better protection for companies looking to establish themselves internationally while minimizing risks to the parent company.
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