Branch vs. Subsidiary in Georgia - Let Us Help You Choose the Right Structure
Branch vs. Subsidiary in GeorgiaUpdated on Wednesday 12th May 2021
Rate this article
based on 1 reviews.
based on 1 reviews.
Georgia is an appealing investment destination in Europe with the main focus of foreign investors on the tourism sector. However, there are many other activities that can be undertaken here which is why the number of overseas companies interested in establishing operations here increases by the year.
Foreign companies seeking to operate on the Georgian market have three main types of legal entities they can use. These are the subsidiary company, the branch and the liaison or representative office. The latter, however, does not enable them to carry out economic activities which makes the first two more appropriate for commercial purposes.
Below, our lawyers in Georgia make a comparison between the subsidiary and branch office in order for business owners to make their decisions easier. We are at your service no matter the type of entity you settle on creating in Georgia.
The subsidiary and the branch office under the Georgian legislation
The Company Act and the Commercial Code are the main laws that provide for registering legal entities and doing business in Georgia and the branch office and subsidiary are two of the vehicles that can be used by foreign enterprises seeking to operate in this country.
From a legal point of view, the main difference between a branch and a subsidiary is that the former is a dependent business form, while the latter is an independent one.
The choice of setting up a branch or a subsidiary depends on the relation the parent company plans on having with the Georgian-based entity.
Our lawyers in Georgia can offer more information on all the types of companies available for incorporation in this country. They can also help register any of them.
The Georgian branch office – main features
The branch office can be defined as a satellite or dependent business form that falls under the control of the parent company. Both foreign and local entities can operate branches in Georgia and full decision-making powers and liability over the obligations of their subordinate entities.
The main characteristics of the branch office are:
- it must bear the same name as the parent company (previous verification of the trading name is required prior to registration);
- it must complete the same activities as the parent company;
- it will be fully controlled by the mother company which will also apply for the necessary licenses on behalf of the branch;
- it is bound to respect the Georgian legislation while complying with the regulations imposed by the parent company;
- it does not have any liability, as all obligations fall onto the parent company.
Most of the times, branch offices are suitable for companies with a single business activity, which is why they are usually used by financial institutions.
If you consider the branch as a main expansion option, our lawyers in Georgia can help you register it.
The subsidiary company in Georgia
The opposite of the branch, the subsidiary is considered an independent legal entity fully liable for its debts and obligations, thus exonerating the parent company from any responsibility.
The creation of a subsidiary in Georgia implies registering a local legal vehicle and most foreign companies decide to run their operations under private and public limited liability companies.
The main features of a subsidiary in comparison with a branch in Georgia are:
- it can complete the parent company’s activities, as well as other undertakings;
- it will have its own trading name (the only requirements is for it to be unique);
- it must apply for its own licenses and business permits;
- all liability of its operations will rest the Georgian company;
- from a taxation point of view, it will be treated as a domestic business.
If you decide on a subsidiary company, our law firm in Georgia can help you register it.
Choosing between a branch and subsidiary in Georgia
There are various aspects to consider when choosing between the creation of a branch and a subsidiary in Georgia, among which:
- the branch office needs to have a representative who resides in Georgia;
- the subsidiary, on the other hand, is not bound to have a local director;
- from a taxation point of view, the subsidiary will pay the corporate tax on its worldwide income;
- the branch office will pay the corporate tax on the income generated in Georgia.
Both legal entities must register with the Revenue Service in Georgia.
Other aspects to consider about the two business forms are:
- the corporate tax rate they are imposed with is 15%;
- the branch office can be registered in approximately 4 weeks;
- the subsidiary can be registered in about 1 week.
For assistance in choosing between a branch and a subsidiary, please contact our Georgian law firm.