What Is a Foreign Branch?
A Foreign Branch is an unincorporated unit through which a company operates abroad, generally taxed there as a permanent establishment under treaty and national rules.
Also known as: Overseas Branch, Foreign Permanent Establishment.
How Foreign Branch works
A Foreign Branch is created when a company carries on business abroad through its own office, staff or other fixed place without forming a local subsidiary, so the branch shares the legal personality of the head office while the host country generally taxes the profits attributable to the branch as a permanent establishment. The head-office country then either taxes worldwide profits with a foreign tax credit or exempts branch profits; the United Kingdom offers an elective exemption under section 18A of the Corporation Tax Act 2009, irrevocable once effective. Registration duties, branch profits taxes and transfer pricing for dealings with head office vary by country.
Foreign Branch vs Foreign Subsidiary
Unlike a foreign subsidiary, which is a separate company resident in the host country, a Foreign Branch remains part of the head-office company, so liabilities and losses generally belong to the parent.
Example
Illustrative example: A software company resident in Country A opens a sales office in Country B. Country B taxes the profits attributable to the office, and Country A either credits Country B tax against its own charge or, under an exemption election, leaves the branch profits out of the company's taxable profits.
Common misconception
Myth: Operating abroad through a branch rather than a company keeps the activity outside foreign tax.
Reality: A Foreign Branch generally constitutes a permanent establishment, so the host country can tax the profits attributable to the branch under treaty and domestic rules.
Frequently asked questions
Is a foreign branch a separate legal entity?
A Foreign Branch is generally not a separate legal entity; the branch belongs to the head-office company, although the host country may require local registration and treat the branch separately for tax.
How are foreign branch profits taxed?
Foreign Branch profits are generally taxed in the host country as permanent establishment profits, while the head-office country either grants a foreign tax credit or exempts the profits, depending on national law and treaties.
Related terms
- Permanent Establishment (PE) — Tax concept under which branch profits are taxed
- Foreign Corporation — Subsidiary alternative to operating through a branch
- Attribution of Profits — Method for allocating profits between branch and head office
- Branch Profits Tax — Extra tax some countries levy on branch profits
- Foreign Tax Credit (FTC) — Home-country relief for tax paid by the branch
Related guides
- Incorporation options for location-independent entrepreneurs — Choosing between branches and companies abroad
- Tax treaties and international taxation — Treaty allocation of branch profits
Sources
Last verified: 2026-10-08. This entry is general information, not tax or legal advice; rules vary by country and change over time.
