Comparison of Taiwan Branch and Subsidiary
When a foreign company decides to set up an operation in Taiwan to carry out business activities, it could choose either a limited liability company (or a company limited by shares) or a branch office. A limited liability company is a separate legal entity independent from its parent company, whereas a branch office is merely an extension of the operation of the head office. This article introduces briefly the difference between a limited liability company and a branch office in Taiwan.
1. Definition and Main Differences Between a Branch and a Subsidiary
A subsidiary is incorporated pursuant to the Company Act and is an independent legal entity. A subsidiary can be listed in the stock market and is entitled to various tax incentives. When a subsidiary distributes dividends to its foreign shareholders, it is subject to 20% withholding tax.
A branch is also incorporated pursuant to the Company Act and can run its business independently; however, from a legal point of view, the branch is dependent to its head office. If there will be any lawsuit against the branch, the head office will also be involved. In addition, a branch cannot be listed in the stock market and is not entitled to various tax incentives. When a branch distributes the profits back to its head office, there is no 20% withholding tax.
2. Tax and Accounting Obligations
Both subsidiary and branch are subject to the Business Accounting Act in Taiwan and are required to maintain book of records in accordance with local generally accepted accounting principles. The book of records shall be maintained in local languages and denominated in local currency; however, if the book of records is maintained in a foreign language, a translation from that foreign language to local language upon request can be acceptable to the tax authorities. Both subsidiary and branch are required to file annual corporate income tax returns and VAT returns on a bi-monthly basis. If there are any payments that require withholding of income tax from the recipients, both entities are required to do so to comply with the law.
3. Registration Formalities
For a subsidiary, the registration procedures are:
(1) Chinese company name reservation
(2) Foreign Investment Approval
(3) Capital Examination
(4) Company Registration
(5) Tax Registration
4. Standard Legal Obligations and Formalities for a Branch
Once Recognition is obtained, the branch will have the same rights and obligations and will be subject to the same jurisdictional authority as a domestic company. In running businesses, a branch is an independent entity; however, from a legal point of view, a branch is dependent to its head office.
For a branch, the registration procedures are:
(1) Chinese company name reservation
(2) Recognition & Branch Registration
(3) Capital Examination
(4) Tax Registration
Comparison Chart of Branch and Subsidiary in Taiwan
Structure |
Branch Office of Foreign Company |
Subsidiary |
|
Limited Company |
Company Limited by Shares |
||
Company Name |
Translate foreign company name into Chinese language and apply for name verification. |
Name company & apply for name verification |
|
Minimum Number of Shareholders |
N/A |
1 |
1-2 (Note 1) |
Minimum Number of Directors |
1(2) |
1 |
3 |
Minimum Number of Supervisors |
N/A |
N/A |
1 |
Corporate Directors Permitted |
No (Note 2) |
No |
|
Requirement for Local Directors |
No |
||
Requirement for Local Supervisors |
N/A |
No |
|
Requirement for Registered Office |
Yes |
||
Requirement for Local Meeting |
No |
Yes |
|
Minimum Authorized Capital (Note 1) |
Depends on company's policy |
||
Requirement for share certificates |
N/A |
No |
Yes |
Requirement for Income Tax Return |
Yes |
||
Requirement for Audited Accounts |
Yes |
||
Company Income Tax |
17% |
||
Dividend Distribution Tax |
None(4) |
20% (of Income after Company Income tax) |
|
Duration of Set Up Procedures |
30-60 Days |
||
Independent Entity |
No |
Yes |
|
Obligation |
Any unperformed obligation of branch office shall still be performed by foreign company. |
When the assets of company are not sufficient to meet its liabilities, the company shall apply for a declaration of bankruptcy. |
Note:
1. 1 for corporation; 2 for nature persons (adult)
2. Representative / Managing Officer.
3. The authorized capital shall be transfer into the company’s bank account from where head office/shareholder lives, shall not be paid in installments nor solicited from outsiders.
4. Amendment to 20% from none is expected in the future. When enacted, the tax burden will be the same as a subsidiary.
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