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Tax Planning Setting Up a Branch or Subsidiary 涉税安排:分公司还是子公司

Definition of Branch and Subsidiary




According to Article 39 of the regulations of the <PRC on the Administration of Registration>, "a BRANCH refers to an institution set up by a company outside its domicile to engage in business activities, and does NOT have the status of a LEGAL PERSON."




A subsidiary is a company in which a certain amount of shares are held and controlled by the parent company. Generally speaking, if the holding proportion of the parent company reaches more than 50%, it can be called "absolute holding"; If the holding proportion of the parent company is the highest among all shareholders, but it does not exceed 50%, it can be called "relative holding".




The Difference of a Branch and a Subsidiary:



1. A Branch has no legal person status. A Subsidiary has independent legal person status.

2. A Branch does not have an independent name, while a subsidiary has its own independent name.

3. A Branch is an extension of the parent company, and its business activities are completely subject to the parent company. A Subsidiary is legally independent from the parent company, and has an independent and complete company management system, which has greater independence and certain flexibility in operation.

4. The property and funds of a Branch company are entirely owned by the parent company, and a Subsidiary has its own independent property.

5. The civil liability of a branch shall be borne by the parent company, and a subsidiary shall independently bear its own civil liability








Therefore, tax related differences:



l   Different Taxpayer Identities纳税人身份不同:


n   A Subsidiary is an independent taxpayer, 

n   A Branch may be an independent taxpayer (such as Value-Added Tax), and may not be one (such as corporate income tax)




l   Independent accounting: 是否独立核算:


n   A Subsidiary must be independent, 

n   A branch is not necessarily




Then the Tax Planning, mainly regards what kind of Tax



l   VAT Planning: both Branch and Subsidiary can be realized



l   For example, subsidiaries and branches can arrange enterprises to enjoy some preferential tax policies for general taxpayers + small-scale taxpayers. Because branches can become VAT taxpayers alone, for example, subsidiaries are small-scale taxpayers, and branches can be general taxpayers; The reverse is also possible.



Reminder: for taxpayers who meet specific conditions, after approval, the VAT can be collected and paid by the headquarter; and the branches pay in advance according to the approved proportion.



Enterprise Income Tax arrangement: separate on specific conditions



l   For example, the preferential policies for high-tech enterprises and small low profit enterprises are enjoyed according to the caliber of the head office and branches: parent and subsidiary companies can enjoy them respectively.



l   Another example is the preferential policies for the development of the West in Hainan Free Trade Zone, which can be enjoyed by branches and head offices, as well as parent and subsidiary companies.



Individual Income Tax arrangement个人所得税安排

l   A Branch has made tax registration and can withhold individual income tax separately; 

l   A Subsidiary must withhold individual income tax separately




l   Article 8 of the <Individual Income Tax Law> stipulates that "the unit or individual that pays the income shall be the withholding agent for individual income tax". Therefore, the individual income tax payment places of branches will be different.



l   In practice, in order to avoid being verified and levied personal income tax by the tax authorities operating in different places, part-time enterprises can arrange the full withholding detailed declaration of all employees of the branch company, and of course, the full withholding detailed declaration of all employees of the head office and branch company respectively.




Property Tax Arrangement房产税安排


The obligor of the property tax is the owner of the property right. The collection authority is the tax authority of the place where the house is located in the area. The division of labor is applicable to the property location of the head office. Oh story, declare and pay the property tax in the place where the house is located.




In the end, the choice to make, to set up a branch or a subsidiary:



At the initial stage, most of the subordinate enterprises will incur losses. If a branch company is established at this time, the income tax can be reduced by offsetting the profits of the original company with the original company in the "consolidated statements", but if setting up a subsidiary, it cannot enjoy this benefit.



If the enterprise is very confident and can turn losses into profits or make direct profits soon after its establishment, then setting up a subsidiary is better than branch. As the subsidiary can enjoy the convenience of independent operation, as well as the benefit of deferred tax on undistributed profits.



When the parent company enjoys preferential tax policies but the branch does not, it is still better to choose the branch company, as the company can also enjoy them. If the branch also has local tax incentives, its registration can be altered to be a subsidiary after the branch makes profits, which can make the tax saving effect greater.





l   A Branch cannot enjoy the preferential policies as a small low profit enterprise separately. For branches, they should be incorporated into the parent company to collect and pay enterprise income tax. If the summarized data meet the conditions for small low profit enterprises, they can enjoy the preferential policies for small low profit enterprises as a whole.



l   If the branch does not integrate into the parent company for consolidated tax payment, but chooses to pay tax separately according to independent taxpayers, it cannot enjoy the preferential policies of small low profit enterprises, and can only make tax declaration at the basic tax rate of 25%. 



l   If the parent company calculates itself and all branches together, such as the combined annual taxable income, the number of employees, and the total asset indicators meet the regulations, it can enjoy the preferential income tax policies for small low profit enterprises. Even if the indicators of a single branch meet the requirements, it cannot enjoy the discount. 



l   The branch company does not need to calculate the tax payable by itself, nor does it need to adjust the tax matters when filling in the annual tax return during the final settlement process. It only needs to make up tax or refund tax locally according to the actually paid tax calculated and distributed by the head office.



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