When setting up a Branch, be cautious of the local-country taxation risks the parent company may face. Employment exposure is another serious concern that could cause significant exposure for the parent company. For these reasons, it is often wise to interpose an international holding company between the parent company and the local Branch. However, some countries such as Japan do not allow the interposition of a shell company.

A Branch is also not always appropriate or feasible. For example, in Brazil forming a Branch requires prior approval from the federal government and such approval must come from the president himself as a decree. For foreign investors it is much easier and cheaper to set up a company or acquire an existing entity. In many countries, when operating via a Branch, companies also face recruiting challenges as a Branch is cheaper and faster to close.

Because foreign employees know this, recruiting the right personnel may be harder. Another challenge is the “Branch Income” agreements that are needed to define the profits for a Branch, which is a taxable entity. Nair & Co.’s dedicated Branch Registration team sets up entities in more than 40 countries and puts in place an appropriate benchmarked tax infrastructure. Nair & Co. also has a dedicated shut down team that closes down defunct foreign entities.