A subsidiary is a company controlled by another legal entity located in a different country. Along with the branch, these are the two manners in which a foreign company can expand its activities to another country. The most common type of company chosen for incorporating a subsidiary is the limited liability company. We present a short guide to opening a subsidiary abroad, along with the main issues to take into consideration when deciding to expand a business in another jurisdiction.
The characteristics of the subsidiary
The first and foremost characteristic of the subsidiary is that it is distinct from the parent company abroad. This is not the case of the branch and it is often a key motivation to choose the subsidiary over the branch. In essence, the subsidiary is the same as a locally registered company in that jurisdiction.
For example, a foreign company looking to expand to the Asian market can set up a subsidiary in Singapore. This will guarantee that the Singapore company is an independent one, and is compliant to the local taxation and corporate governance laws. On the other hand, the parent company abroad still has a controlling interest in the Singaporean subsidiary. Foreign investors who would like to expand their business through other business forms, should know that they can also open a branch office in Singapore.
Expanding to Asia is a target for many companies and foreign business owners who are interested in other locations apart from Singapore can look for local aid on how to open a Hong Kong subsidiary.
How to open a subsidiary
The actual company incorporation process depends on the chosen jurisdiction. Entrepreneurs will follow the general company formation rules that include choosing the type of company and company name, preparing the company’s constitutive documents and finally filing for registration with the local company registry. In most cases when opening a subsidiary, it is not mandatory to obtain the shareholder’s approval.
When opening a subsidiary in another country, it is important to know not only the local corporate and business laws but also the tax, accounting, and annual reporting requirements. Some of the jurisdictions presented in this article are known for having low tax rates, and this alone can be a determining factor when choosing where to incorporate.
Opening a subsidiary means expanding the corporate family and can bring numerous advantages for an existing business. We recommend that investors carefully consider this step and prepare for the expansion of the business.
