Let’s look at the differences between a branch office and a subsidiary.

1) Branch office

A branch is an extension of the parent company, managed by a representative appointed by the headquarters. While maintaining a direct connection with the parent company, the branch has its own customer base and autonomy to manage its operations, as long as it is involved in the same business as the headquarters.

The opening of a foreign branch is usually a straightforward process, primarily involving administrative procedures. It is considered the first step towards creating a subsidiary, which we will discuss later. This allows the company to establish a presence in a foreign market before making more complex and long-term decisions.

In order to open a foreign branch in Brazil, the company must have a head office in the country. In addition, it must comply with certain requirements contained in art. 1,134 of the Civil Code and art. 1 of DREI Normative Instruction no. 77, of March 18, 2020. Under no circumstances can the company operate without the express authorization of the Executive Branch.

One advantage of establishing a branch is the opportunity to test projects or expand the company internationally in a cost-effective manner. The costs associated with creating and operating a branch are typically lower than those of a subsidiary, making expansion easier and reducing financial risks involved.

However, it is important to note that opening a branch does not exempt the company from the legal and regulatory obligations of the foreign country. It is necessary to comply with local laws and ensure that the branch’s operations are in accordance with the applicable legal requirements.

2) Subsidiary

A subsidiary is an independent legal entity that has the capacity to acquire assets and operate in its own name. From a tax point of view, it is autonomous and is responsible for paying taxes on profits earned in the country in which it is established.

It is important to highlight that a subsidiary is a company in which the parent company owns more than half the shares, exercising control over its operations and strategies. This ownership relationship allows the parent company to influence and guide the activities of the subsidiary according to its objectives and interests.

The new company can be created from scratch or through the acquisition of a local company.

Foreign-Owned Company

Foreign-Owned Companies are established with capital that comes wholly or partly from foreign investors. This participation can occur through the shareholding presence of the foreign investor (buying shares of the company) or through direct investments. It is important to mention that these companies are also subject to the regulations and laws of the country where they operate.

Important: after the incorporation of the company in Brazil, it is already liable to submit tax obligations to the authorities, even in cases where the companies have not yet started operations and/or have no revenue. These deliveries happen in a simplified way, but they are extremely important so that the company does not become inapt for delivering obligations, besides avoiding the application of fines and interest generated as a result of not delivering these tax obligations within the legal deadline.

Whatever your choice when it comes to expanding your company globally, count on Pryor Global to be your partner in Brazil. For over 27 years, we have acted as legal representative for multinational companies established in the country, ensuring that all their activities comply with local laws and regulations.