The main differences between a subsidiary and a branch of a foreign company
A branch has no separate legal personality. Although it acquires a tax registration number and may also acquire a social security number for employing workforce, the lack of separate legal personality means that the legal entity which has the rights and obligations vis-à-vis third parties (debtors, creditors, employees, the state) will be the foreign company i.e. the head office in the home country. In the case of a subsidiary, the “parent” entity owns shares in a separate newly incorporated company which will be subject to rights and obligations in its own name. This means that the local business will be “ring-fenced” and the rights and obligations do not extend to the “parent” entity, which is only a passive shareholder of the local subsidiary. In the case of a branch, the head office is a direct owner of the business operated by it.
The establishment of the branch is made subject to the laws of both the country of the head office ” and of Greek laws. In simple terms, Greek law allows for the establishment of branches of foreign companies but the process from the head office’s side is made according to the decision-making process of the country of origin. In practice, this means that the corporate documents that must be prepared in draft by a Greek lawyer and then adapted to the formalities applicable in the home country of the head office. All documents must be translated into Greek and be apostilled. Any change in the level of the head office must be notified/filed also to the Greek authorities. This creates an unnecessary administrative burden which may not be related with the Greek operations.
In the case of a subsidiary, the owner of the Greek business will be the Greek company (subsidiary), and the “parent” entity will indirectly own the Greek business by controlling the subsidiary. This makes it easier for the Greek business to be sold, though the sale of the shares of the subsidiary. Equally, it is a lot easier to enter into agreements with local partners, who may join the local subsidiary as shareholders, without any participation in the capital of the “parent” entity.
Because the branch has no legal personality, it has no capital of its own. So, all the financing is made directly by the head office. In the case of a subsidiary, the financing is totally separate from the “parent” entity, which finances not the operations directly, but in the form of capital contributions in exchange of shares (both for the formation of the initial share capital upon incorporation and through capital increases in the future, if needed) or through intra-group lending.
The branch of a foreign company has more simplified corporate governance. In essence, one or more persons are appointed as local representatives of the branch, with full power to pursue the business object and bind the head office for the Greek operations. In the case of a subsidiary, the corporate governance rules depend on the form of the company to be chosen. For example, the S.A. has a Board of Directors with one or more executive directors, and the IKE has one or more director (no board of directors).
The liability of the subsidiary is limited to the share capital of the subsidiary. In the case of a branch, the liability extends to the share capital (assets) of the head office.
The tax treatment of the two options is very similar. The branch and the subsidiary are taxed in the same way (22% on the net profit as the law stands), with the exception that in the case of a subsidiary, the profits are distributed to the shareholders and there is a further 5% tax on the distribution, which is tax imposed to the shareholder. However, the tax treatment must be examined in the light of the provisions relating to parent-subsidiaries (for EU companies) and any applicable Double Tax Treaty provisions.
* The information is accurate to the best of our knowledge as at the time of writing. We have no obligation to update it. We accept no responsibility against any third party who is not a client of the firm and has not signed the terms of our engagement.