Taiwan company registration is becoming an increasingly popular option for company owners looking to diversify their business operations and gain access to wider international markets. Being ranked 15th in the world and 4th in the East Asian-Pacific region for its ease of doing business according to the World Bank’s 2020 index, Taiwan business registration represents a viable option alongside traditional candidates for business registration like Singapore and Hong Kong. There are two main options when starting business in Taiwan as a foreigner, forming a subsidiary or a branch office. However, there are a few differences between branch office and subsidiary in Taiwan that we will explain so that you can choose the company structure that best fits your business needs and activities.
Tetra Consultants is experienced in incorporating both structures and will also provide advice on the optimum company structure to suit your business needs and activities based on several factors, including liability protection, the flexibility of management and ownership, as well as tax implications for your business.
5 differences between branch office and subsidiary in Taiwan
#1 Superior liability protection of subsidiaries
- Since subsidiaries are independently established as a limited liability company, they are a separate legal entity from their parent business. This allows the parent business to be protected from the debts and obligations incurred by the subsidiary in its business dealings. Therefore, if winding up were to occur or any other event that would lead to an inability of the subsidiary to meet its liabilities, the parent company would not be implicated. The same thing would apply if the parent company were to be the one in financial trouble. Creditors of the parent company would only be able to lay claim to the assets of the branch office, but not the independently incorporated subsidiary company.
- On the other hand, since a branch office is formed with its parent company as the sole corporate shareholder, it behaves as an extension of the parent company’s legal entity, as opposed to being a distinct legal entity that a subsidiary is.
- Companies that have riskier business dealings and activities might prefer to establish a subsidiary instead. However, they should take note to establish their subsidiary as a limited company in order to enjoy the liability protection mentioned. Subsidiaries established as unlimited companies will not offer the same protection. Companies that do not have risky business dealings but are more risk-averse may also choose to do the same.
#2 Business activities and needs
- Apart from what was mentioned earlier with respect to the level of risk being a key consideration factor in choosing between branch offices and subsidiaries, the activity undertaken by the company will also be a key consideration.
- Companies that are keen to invest or hold stocks of other companies as in the case of merger and acquisition companies should opt for a subsidiary company instead. This is because branch offices are not allowed to register property or land to their own company, and instead must register it to their parent company. Apart from its implications on liability protection, it would face much more regulations, restrictions, and scrutiny as compared to a subsidiary company that can independently hold property and stocks.
- Additionally, only subsidiaries are granted additional tax subsidies of up to 15% to cover their innovation and research costs. They can also qualify for additional tax subsidies as defined in the Statute for Industrial Revolution.
- Thus, companies that are operating in the above-mentioned industries of real estate investment or investment holdings, as well as any industry which would incur innovation and research costs would be better suited to be incorporated as a subsidiary instead.
#3 Greater flexibility of incorporation for subsidiaries
- These two forms of companies also have differences in their respective incorporation processes and requirements.
- Subsidiaries require minimally one director and one shareholder. There are no nationality or residency requirements for either of these positions. This also offers an opportunity to distribute equity between multiple shareholders, this option of having multiple owners is not open to branch offices since they have neither directors nor shareholders and are simply wholly managed and owned by their parent company.
- Branch offices are only required to have one resident manager and are also subjected to stricter company names, as their company name must contain that of their foreign parent company. This could lead to issues in mistranslation and the shared name between the two companies might even cause confusion or reputational overlaps.
#4 Greater tax obligations for subsidiaries
- Both forms of companies are subject to the standard corporate tax rate of Taiwan (17%). All companies incorporated in Taiwan are automatically considered to be residents of Taiwan, and thus liable for tax. However, non-resident companies that have a fixed place of business in Taiwan are also required to file corporate tax for their domestically sourced income. Non-resident companies without a fixed place of business will only be subject to withholding tax on their domestically sourced income.
- When subsidiaries transfer their profits to their foreign parent company, they are also subject to an additional 20% withholding tax after corporate income tax. However, branch offices will not incur this withholding tax since it is considered to have directly earned the income and thus profits can be distributed tax-free back to the parent company. In general, a subsidiary will have greater tax obligations as compared to a branch office.
#5 Stricter compliance requirements for subsidiaries
- Subsidiaries also face stricter compliance requirements. Being a separate legal entity altogether, essentially means that your foreign parent company has to deal with two distinct sets of compliance requirements. Tax filing is also a lot more complicated as opposed to a branch office as mentioned previously.
- Subsidiaries must also host an annual general meeting, a requirement that branch offices are exempt from. This makes the compliance cost of branch offices lower as compared to a subsidiary.
Summary of the differences between branch office and subsidiary in Taiwan
The main differences between branch office and subsidiary in Taiwan can be summed up below.
- Liability protection
- Incorporation requirements
- Tax obligations
- Compliance requirements
In general, a subsidiary established as a limited liability company will offer greater liability protection and greater flexibility in incorporation, but at the cost of higher tax obligations and stricter compliance requirements. Ultimately, companies should consider the nature and scope of their business activities since this will determine if the liability protection is worth the additional costs. Certain business activities are also better carried out by subsidiaries.
Need help navigating the differences between branch office and subsidiary in Taiwan?
The Taiwan company registration process is smooth and hassle-free if you are familiar with the steps you need to undertake. With Tetra Consultants at the wheel, you will be able to dedicate your time and resources to other more important channels.
With our lean-and-mean mentality, you can rely on our team of experts to provide you a seamless experience throughout the whole process of Taiwan business registration. Regardless of whether you are setting up a branch office or subsidiary, our ultimate goal is for your Taiwan company to be operationally ready within the stipulated time frame and to make starting business in Taiwan as a foreigner as accessible and easy as possible.
Our comprehensive service package includes everything you may require to incorporate your business in Taiwan:
- Taiwan company registration with the Ministry of Economic Affairs (MOEA)
- Local company secretary and registered address
- Resident manager services
- Corporate bank account opening
- Business and financial licenses application
- Translation and notarization services
- Annual accounting and tax services