Your company's doing well and has momentum. Now, you're thinking it might be time to expand. New markets. New countries. Exciting stuff. But before you get swept up in the romance of international success, there's this thing you have to deal with first: compliance. The not-so-glamorous part.
And here's where it starts: you need a legal presence in the place you want to go. That might mean setting up a company there, or maybe hiring contractors, or using a service that lets you hire people across borders without technically being in the country. There are options.
At some point, you hit a big question: Do you open a foreign branch, or do you create a subsidiary? One sounds simpler. The other gives you more autonomy. They both come with unique challenges.
For most companies, this isn't a huge dilemma. There's usually a clear path. But, and this is important, the decision you make here shapes your future growth, how you hire, and how you operate. It's worth slowing down and thinking it through. Because the right move is not just about what works now; it's also about what's going to work five years from now.
Foreign branch vs. subsidiary
A foreign branch is another location of your company that operates entirely in another country. Think of it as an extension of your main office, similar to adding on an extension to your current office, but on a global scale.
A foreign subsidiary is a new business in a foreign country. It is considered a separate legal entity, which has several distinct pros and cons, depending on your foreign growth goals and what internal resources you have available to manage this new entity. A subsidiary may have an entirely different business purpose than its main parent company, while a branch is a mere extension of the parent company. Your corporation must own more than half of all available voting stock with a subsidiary.
Learn more: What Is a Foreign Subsidiary? Pros & Cons for Global Employers
The pros and cons of branches and subsidiaries
One of the main advantages of opening a foreign branch is a more straightforward tax process. Because a branch office is considered an extension of your primary location, you typically do not need to file a separate tax return.
If your branch office is in a foreign country, there is usually a tax agreement between your parent company and the country, so you avoid being taxed twice.
This topic of tax compliance also brings up one of the major benefits of a subsidiary over a foreign branch: the former enjoys a far greater separation of risk than the latter. When you open a foreign branch, if that branch experiences a local compliance issue, it could easily create a ripple effect that negatively impacts the rest of the company.
With a wholly-owned subsidiary, any risk (and the consequences of those risks) is separate from the parent company.
Of course, this also means that your tax structure is more complicated, and it takes additional time and effort to make sure that the subsidiary is compliant with all local tax laws and regulations.
This time commitment could limit the number of countries you can expand into because each country comes with its own set of tax codes, and your company must maintain compliance.
Learn more: The Hidden Costs of Entity Establishment
Avoid the burden of establishing a branch or foreign subsidiary
There is another option that has benefits over both a branch and a subsidiary, and that is choosing a global hiring solution, such as an employer of record (EOR).
An EOR partner enables your company to compliantly hire in almost any country without establishing a foreign legal entity. This partner acts as your legal employer of record, which means they hire talent on your behalf and manage all payroll, benefits, risk mitigation, and compliance while you maintain day-to-day control of your supported employees.
Learn more: What Is an Employer of Record (EOR)?
The benefit of an EOR over a branch or subsidiary office is that you establish a foreign presence quickly and compliantly. Your company can leave any market just as fast in the future if it proves not to be a viable part of your global growth goals.
An EOR partner helps your teams navigate different tax requirements, saving time and bandwidth that many companies do not have internally.
While an EOR has several benefits, it may not be a viable option for every company looking to expand overseas. For example, if your company is looking to hire a high headcount in a specific country, this solution is typically not cost-effective.
Using an EOR may also not be a viable option if your company is in certain industries that need to hold fixed assets in a country, such as manufacturing or real estate. Companies that must own physical property or have a more prominent legal presence in a country will likely need to open a branch or foreign subsidiary to be compliant.
Which global expansion option is best for you?
Choosing the right global expansion strategy for your business is a complex decision, and there are many factors to consider. Establishing a subsidiary, a foreign branch, or using a global EOR are just a few options. Each hiring method has different pros and cons that you must carefully consider before moving into foreign markets, or you risk being non-compliant with local laws.
FAQs
What is a subsidiary of a company?
A subsidiary is a company where more than 50% of ownership and control belongs to the parent or holding company.
Why do companies have subsidiaries?
The purpose of a subsidiary is to establish a separate brand identity, as well as separate legal, tax, and regulatory responsibilities from the core business.
What is the difference between a subsidiary and a branch?
A foreign branch is another location of your company operating in another country, while a subsidiary is a new business in a foreign country.
Tough decisions? Pebl has the answers
The thing is, you don't have to figure all of this out on your own. If you're staring down the decision of whether to open a foreign branch, set up a subsidiary, or use an EOR, Pebl can help. We've done this before. We know the landscape. The regulations. The weird, unexpected stuff that doesn't show up in the brochures.
We've got a whole team for that, full of global expansion experts, real people. Reach out today to figure out what actually makes sense for your business, not just what sounds good in theory.
Disclaimer: This information does not, and is not intended to, constitute legal or tax advice and is for general informational purposes only. The intent of this document is solely to provide general and preliminary information for private use. Do not rely on it as an alternative to legal, financial, taxation, or accountancy advice from an appropriately qualified professional. The content in this guide is provided "as is," and no representations are made that the content is error-free.
© 2025 Pebl, LLC. All rights reserved
Topic:
Global Growth
