A subsidiary is a company that is owned or controlled by another company, known as the parent, but is itself a separate legal entity in its own country. When a business expands abroad, setting up a subsidiary is the most established way to create a full local presence. The subsidiary can hire, sign contracts, and pay tax in its own name, while the parent holds ownership and overall control. Its separate legal status also limits the parent's liability.
How does a subsidiary work?
A subsidiary is a distinct company that the parent owns in whole or in part. That separateness is the defining feature and shapes how it operates.
- Separate legal entity: the subsidiary is its own company, with its own registration, accounts, and obligations.
- Parent ownership: the parent owns a controlling stake, often all of the shares, and sets overall direction.
- Local operations: it can employ people, enter contracts, and pay taxes locally in its own name.
- Limited liability: because it is separate, the parent's liability is generally limited to its investment in the subsidiary.
Why do companies set up subsidiaries?
A subsidiary is the route of choice when a company wants a deep, lasting presence in a market rather than a light footprint. The reasons usually cluster around control and scale.
- Full local presence: a registered company that can operate fully and build a brand in the market.
- Control: the parent directly controls hiring, operations, and strategy in the country.
- Liability protection: the separate structure helps ring-fence risk from the parent.
- Scale: for a large, long-term local workforce, a subsidiary can be the most efficient base.
Subsidiary vs branch vs EOR
A subsidiary is one of three main ways to have people and operations in another country. The others are a branch office and using an employer of record. They differ in legal separation, liability, and effort.
| Option | Separate entity | Setup effort |
|---|---|---|
| Subsidiary | Yes, limited liability | High |
| Branch office | No, parent is liable | Medium to high |
| EOR | No entity of your own | Low |
This information is for general guidance. Consult legal and tax experts for your specific situation.
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