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Branch vs. subsidiary in Luxembourg

Updated on Thursday 14th April 2016

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branch_vs_subsidiary_in_luxembourg.jpgForeign investors and companies that wish to develop their business and open a company in Luxembourg have a number of business entities that they can choose from. Entrepreneurs who want to grow their business can also choose to establish a branch or a subsidiary in Luxembourg. The two structures are very different, although their main purpose is to continue the company’s activities abroad.

Setting up a branch

Establishing a branch in Luxembourg can be easily accomplished and it requires less preparation and time as opposed to establishing a subsidiary. The set-up time represents one of the major differences between the two business formats.

For establishing a branch in Luxembourg the entrepreneur needs to have a business permit and afterwards register the company at the Trade and Companies Registrar. An initial capital is not mandatory for a branch in Luxembourg.

Setting up a subsidiary

A subsidiary opened in Luxembourg is considered a legal entity, unlike the branch. This gives the subsidiary a certain amount of independence from the parent company, but it also means that the legal process for establishment will take longer than for the branch.

Most commonly, subsidiaries in Luxembourg take the form of a private limited liability company or a joint stock company. They both have minimum share capital requirements and they both need special licenses before incorporation.

Differences between branches and subsidiaries

The most important difference between the two forms of legal entities is the degree of independence towards the parent company.

A branch office has a certain degree of independence, but it is not legally separated from the parent company. The advantages of a branch are fewer administrative procedures for company registration, as opposed to the subsidiary, and fewer administrative and operational procedures. The main disadvantage of a branch: the parent company has full responsibility and liability.

A subsidiary is a company that is legally independent form the parent company. This is the main advantage for a subsidiary: the parent company has limited liability. Disadvantages for a subsidiary include more complicated administrative and operational procedures compared to those necessary for a branch office.

Taxes

Another difference between a branch and a subsidiary is given by tax characteristics. There are no taxes for branches in Luxembourg. Profits are immediately taken by the head office. However, the branch must provide the Luxembourg Inland Revenue with annual financial data regarding the parent company.

A subsidiary is subject to income tax in Luxemburg. A subsidiary can choose to distribute its profits and it can repatriate or distribute net profits with low or no withholding tax on dividends.

If you need further tailored information regarding the available options for company formation in Luxembourg, please contact our company formation team in Luxembourg.

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