A branch office is an extension of a parent company in another country that carries out business there but is not a separate legal entity. Unlike a subsidiary, a branch is legally part of the parent, so the parent is directly responsible for its activities, debts, and liabilities. A branch can be a way to operate in a market with a registered presence, but the lack of legal separation makes it a heavier commitment than it first appears.
How does a branch office work?
A branch lets a foreign company operate locally under its own name, but everything the branch does is legally the parent's. That single fact drives most of its characteristics.
- Not a separate entity: the branch is legally the same company as the parent, just operating in another country.
- Parent liability: the parent is fully liable for the branch's obligations and debts.
- Local registration: the branch must still register locally and meet the country's tax and reporting rules.
- Defined activities: some countries restrict what a branch may do compared with a locally incorporated company.
What are the pros and cons of a branch office?
A branch can be simpler to establish than a subsidiary in some places, but the lack of a liability shield is a serious drawback. Both sides deserve weight.
- Pro, direct control: the parent runs the branch directly as part of the same company.
- Pro, sometimes simpler: in certain countries a branch is quicker to set up than a full subsidiary.
- Con, unlimited liability: the parent is exposed to all of the branch's liabilities, with no separation.
- Con, restrictions and tax: activities may be limited and tax treatment can be less favorable than a subsidiary.
Branch office vs subsidiary vs EOR
If the goal is simply to employ people in a country, a branch is often the wrong tool. Comparing the three common options shows why.
| Option | Liability | Best for |
|---|---|---|
| Branch office | Falls on the parent | Specific local operations |
| Subsidiary | Limited to the subsidiary | Large, long-term presence |
| EOR | Employment sits with the EOR | Hiring without an entity |
This information is for general guidance. Consult legal and tax experts for your specific situation.
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