A company can expand its business activities on a foreign market through a branch office, a subsidiary or by incorporating one of the legal entities that are available for foreign investors. As a general rule, foreign businessmen use the branch office or the subsidiary, and the decision of choosing one of these structures relies in a set of aspects.
As a general rule, the registration of a branch office is comprised of simpler procedures compared to registering a subsidiary. In Europe, the registration of these structures follows the same principles and legal requirements, but differences can appear, based on the national commercial legislation of a given European country.
For example, in Poland, the registration of a branch office follows the principles stated by the Freedom of Business Act. Regardless of the country where the branch office operates, the investors must know that this entity is considered a sub-division of the parent company and that the parent company bears the full responsibility for the activity conducted by the branch in a given country. Another characteristic, which is also available for a branch office in Poland, is that this structure may only engage in the business activities developed by the parent company. The following also apply:
- a business in Poland registered as a branch office must also take the name of the parent company;
- its registered name must include the words branch office (which, in Polish, are represented by “oddzial ”);
- the registration formalities differ based on the tax residency of the foreign company;
- thus, companies located in the European Economic Area (EEA) and those originating from countries that are part of the European Free Trade Association (EFTA) benefit from a simplified procedure.
In the case of businessmen from the EEA or EFTA countries, who are interested in opening a branch office in Poland, the local legislation stipulates that the registration procedure can follow the same principles that are available for Polish citizens. Non-EEA and non-EFTA foreign companies are allowed to set up a branch office in Poland only as long as the reciprocity principle applies, which means that they may set up a business entity here if a Polish business form can register a company in the respective non-EEA or non-EFTA country.
The branch office is a legal structure that can be found in all European countries, including in the Isle of Man. However, opening a business in the Isle of Man can also be done through domestic companies, such as the limited liability company or the legal entities designed for offshore activities.