Your Current Site:

 News & Articles » U.S. subsidiary or branch?...

Information:

This article and this website is for informational purposes only and does not constitute legal advice. This information provided should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter and not rely on the content of this article. Nothing on this site is intended to create an attorney-client relationship and nothing posted constitutes legal advice. We cannot guarantee that the information is accurate, complete or up-to-date. 

News 2016:

08/2016: Austria Appoints Orlando resident As Honorary Vice Consul
The Republic of Austria recently appointed German American attorney Carl Christian Thier as Honorary Vice Consul for its Orlando Consulate, to work jointly with Honorary Consul, Toby Unwin. Mr. Thier is a member of the German Bar, the New York Bar and the Bar of Great Britain ("SRA") and is fluent in both German and English.
Read More...

CONTACT US:

* = required field(s):

By submitting this form I agree to the Terms of Use

U.S. subsidiary or branch?

German companies in the U.S.

German companies which want to expand into the U.S. have the choice of operating their distribution center as a branch or as a U.S. subsidiary of the German parent company.

U.S. subsidiary:
The federal corporate income tax a U.S. subsidiary would have to pay ranges between fifteen to thirty-five percent depending on the amount of profit. The U.S. subsidiary can deduct payments to the German parent company for several expenses, such as royalties, interest and management fees. No withholding tax payment is required here. A withholding tax is however incurred when repatriating a cash dividend to the German parent company.

To avoid inadvertent treatment of the German parent company itself as a U.S. permanent establishment and because the U.S. subsidiary is subject to U.S. taxation, all U.S. activities should be transferred to the subsidiary. Otherwise, the consequence could be a double taxation (U.S. tax by the parent company in addition to the tax payable by subsidiary).To avoid the inadvertent treatment as a U.S. permanent establishment some precautions should be taken:

The sales office at the U.S. distribution center should not be used by employees of the German parent company. However, there is an exception from the treatment as a permanent establishment when only used as a warehouse, as stated in the German-United States Income Tax Convention of 1989 (called Treaty). To avoid the treatment of an inadvertent permanent establishment, the employees of the parent company involved in the build-out of the U.S. distribution center should only contribute to the initial set-up for a short term and strictly project-based.

Furthermore, the subsidiary should not have any preferred transfer pricing exposure. The pricing practices should be documented as required by the regulations.

Please note this specific constellation:
If an employee of the German parent company has the authority to contract on behalf of the German parent company in the U.S. and uses this authority “habitually” (this term is not defined in the Treaty; the exercise of this authority once or twice probably constitutes “habitual”). The treatment as an inadvertent permanent establishment could hardly be avoided under this circumstance.


U.S. branch:
The situation is different if the U.S. activities are undertaken as a branch of the German parent company. The U.S. branch as a permanent establishment would incur federal income taxes ranging from fifteen to thirty-five percent. Deductions appropriate to the taxed activities can be taken by the branch. A perquisite is that the branch benefits from the German parent companies expenditures, which include general and administrative expenses between the branch and the German parent company.

As a non-corporate entity the branch is not able to deduct payments for royalties, interest and management fees to its German parent company. The branch profits tax is designed similar to the U.S. subsidiaries’ withholding tax for dividends to its foreign shareholders. Please note that the U.S. branch’s earnings need to be segregated from other earnings of the German parent company.

In addition to the U.S. corporate income tax on the effectively connected income, the U.S. branch has to pay a treaty rate on its profit tax. However, the German parent company can avoid double taxation (the German tax and both U.S. taxes on the branch’s effectively connected income) through a foreign tax credit in Germany.

An advantage of operating as a branch is the permission of reducing the taxable income of the German parent company to offset the U.S. losses if occurred.

With all fiscal optimization you still have to consider the fact that through operating as a U.S. branch the German parent company becomes fully liable. Within the scope of legal conflicts with third parties, the U.S. subsidiary offers fairly broad protection. Through operating as the U.S. branch, the German parent company would become immediately liable.

Due to the above, most of our clients choose the option of operating the distribution center as a U.S. subsidiary.

Information:

This article and this website is for informational purposes only and does not constitute legal advice. This information provided should not be used as a substitute for obtaining legal advice from an attorney licensed or authorized to practice in your jurisdiction. You should always consult a suitably qualified attorney regarding any specific legal problem or matter and not rely on the content of this article. Nothing on this site is intended to create an attorney-client relationship and nothing posted constitutes legal advice. We cannot guarantee that the information is accurate, complete or up-to-date. 

News 2016:

08/2016: Austria Appoints Orlando resident As Honorary Vice Consul
The Republic of Austria recently appointed German American attorney Carl Christian Thier as Honorary Vice Consul for its Orlando Consulate, to work jointly with Honorary Consul, Toby Unwin. Mr. Thier is a member of the German Bar, the New York Bar and the Bar of Great Britain ("SRA") and is fluent in both German and English.
Read More...

CONTACT US:

* = required field(s):

By submitting this form I agree to the Terms of Use

Orlando, Florida

Orlando, Florida Attorneys

200 S. Orange Avenue, Suite 2000
Orlando, Florida 32801
Phone: +1 (407) 245-8352
Fax: +1 (407) 245-8361

Contact...

Palm Beach Florida

Palm Beach, Florida Attorneys

205 Worth Avenue, Suite 3071
Palm Beach, Florida 33480
Phone: +1 (561) 293-2509
Fax: +1 (561) 293-2510

Contact...

Ojai, California

Ojai California  Attorneys Law Firm

323 East Matilija Street, Suite 215
Ojai, California 93023
Phone: +1 (626) 899-4696
Fax: +1 (626) 899-4697

Contact...

Munich, Germany

Attorney Munich Germany

Romanplatz 12
D-80639 Munich / Germany
Phone: +49 (0) 89 173 002 22
Fax: +49 (0) 89 173 002 20

Contact...

Aachen, Germany

Attorney Aachen Germany

Wilhelmstr. 58
D-52070 Aachen / Germany
Phone: +49 (0) 241 91 26 626
Fax: +49 (0) 89 173 002 20

Contact...

London, Great Britain

London - England Attorney

Greenwood House,
4-7 Salisbury Court
London, United Kingdom
 EC4Y 8AA
Phone: +44 020 3744 0564
Fax: +44 020 3744 0565

Contact...