Subsidiary vs. Branch in Slovakia
Subsidiary vs. Branch in SlovakiaUpdated on Wednesday 06th May 2020
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Foreign investors in Slovakia have two options for setting up their business in the country. The choice between a subsidiary or a branch depends on the size of the company, its budget to enter the Slovakian market and the desired scope of the activities that will be performed in the country.
The main difference between a branch and a subsidiary is that the first is not a separate legal entity from the foreign company. The legal requirements for doing business are largely the same, although the branch has lighter reporting requirements. Our Slovak lawyers can give you detailed information about the particularities of each business type and can help you choose the best-suited one.
Our lawyers can also help the representatives of foreign companies seeking to open subsidiaries or branches in registering any of them in Slovakia. If you need assistance in registering a company in Slovakia, our lawyers are at your disposal with complete services.
Here is a simple scheme created by our lawyers in Slovakia about the two options available for expanding a foreign business in Slovakia and about the main differences between branches and subsidiaries.
The branch in Slovakia
The branch office in Slovakia will be an extension of the mother company abroad. It acts on behalf of the original company, it is founded by it and the foreign corporation is liable for all the debts and liabilities of its Slovakian branch.
In order to operate in the country, the branch will need to be registered with the Slovakian Commercial Register. An individual will act as the branch representative in the country. He is commonly referred to as the branch manager and will also have to be registered with the Commercial Register in order to act on his behalf, not only on the behalf of the company while doing business in the country.
The advantages of the branch include no requirements for a minimum share capital, a faster registration procedure, and less operational costs.
The following documents need to be filed with the authorities in Slovakia upon the registration of a branch office:
- the parent company’s certificate of registration issued by the Companies House in its home country;
- the parent company’s Articles of Association or statutory documents, as provided by the law in its country of origin;
- information about the parent company’s directors and representative in the branch office in Slovakia;
- the application form issued by the Slovak Trade Register for the registration of the branch office;
- the legal address of the branch in Slovakia and the trade name certificate issued by the Registrar.
With respect to the company name, the branch office can only complete its activities in Slovakia under the parent company’s trading name. Even so, a certificate in this sense must be obtained. This implies the same procedure as when opening a domestic company in Slovakia.
When the parent company is a foreign entity, all the documents issued by the authorities in its country of origin must be translated and certified copies are to be filed upon the incorporation of the Slovak branch office.
Our lawyers in Slovakia can be appointed to manage the registration of a branch through a power of attorney. We can draft and file all the documents required for setting up a branch in Slovakia.
The subsidiary in Slovakia
The subsidiary is a newly formed Slovak company, one that will be independent of its parent foreign company and one that will be able to perform additional commercial activities apart from the ones the foreign company is registered to perform.
The subsidiary can be registered as:
- a limited liability company,
- a joint-stock company,
- general or limited partnership.
The limited liability company is the most popular business form because of its lower share capital requirements and less stringent reporting and corporate governance requirements. Any chosen type of company must be registered with the Commercial Register no later than 90 days after it has been established. The minimum share capital will depend on the type of company and it is larger in the case of joint-stock companies.
The main advantage of the subsidiary is that the parent company is in no way liable for the actions of its Slovak counterpart.
Compared to the branch office, the following documents are required when opening a subsidiary in Slovakia:
- the parent’s company statutory documents in original and certified translated copies;
- the subsidiary’s Articles of Association which must be drafted according the Slovak Company Law;
- information about the Slovak company’s directors, registered address and bank account;
- information about the representative of the parent company appointed for the subsidiary in Slovakia;
- other information, in accordance with the activities to be completed in Slovakia by the subsidiary.
Our law firm in Slovakia can help the representatives of foreign companies prepare the documents required to set up a subsidiary in this country.
The Slovak branch vs the subsidiary from a liability point of view
Even if foreign companies have the possibility of choosing between several business forms when deciding to set up operations in Slovakia, among which there are also joint ventures and liaison offices for marketing purposes, the branch and the subsidiary are the most selected types of structures. This is because the liability of the parent company is very well defined under these two business forms.
In the case of the branch office, the liability will rest entirely on the parent company, meaning that the foreign business will be the sole responsible for the actions of the Slovak branch office. Also, if the Slovak business registers debts, these will need to be paid by the parent company.
The subsidiary company, on the other hand, gives more power of decision to the Slovak company. The subsidiary will be treated as a local company, and even if the parent company will draw the business line of its subsidiary, the latter can decide about the activities it will undertake in Slovakia. This places the entire liability on the Slovak company, the parent company being freed from any responsibility from this point of view.
How can the representatives of a foreign company choose between Slovak branch and subsidiary? The decision should be made based on the liability the parent company wants in the Slovak entity and on the activities to be completed. However, if you need more guidance in choosing between a branch office and a subsidiary, our Slovak lawyers can help you.
The subsidiary and the branch in terms of activities in Slovakia
Another comparison often made between the creation of a subsidiary and a branch in Slovakia is based on the activities which can be undertaken by these two business forms. We ought to mention from the beginning that not only foreign companies can set up these two structures, as Slovak companies can also register branches and subsidiaries in other cities of the country. In terms of activities, the obligations remain the same: the branch can complete the activities of the parent company, while the subsidiary can undertake the same, other, or both similar and other activities of the parent company.
Considering the activities which can be undertaken, it is good to know that branch offices are usually used by foreign banks, insurance companies and other financial companies with limited domains of activities.
For some companies in the financial sector, a license from the Slovak National Bank can be required.
The subsidiary, on the other hand, is often used by trading companies, businesses in the retail and services industries because they can sell other goods or provide other services than the parent company. From this point of view, the subsidiary has more advantages than the branch office.
Our law firm in Slovakia can offer more information on the activities which can be completed by branches and subsidiaries.
Licensing requirements for subsidiaries and branches in Slovakia
From a licensing point of view, it is safe to say that it is easier to obtain the necessary licenses for a subsidiary because it will be treated as a domestic company. The branch office, however, will require one license depending on the activity to be undertaken. For certain companies in the EU, no licenses are required where EU directives apply. These directives can significantly simplify the licensing procedure.
From the point of view of obtaining the license, the procedures are the same in terms of document requirements and timeframe.
It is important to know that the licensing procedure of both branches and subsidiaries in Slovakia is the same when considering similar industries. In other words, a foreign company which decides to complete financial activities under a branch in Slovakia and an overseas business which selects the subsidiary for the same activities, will undergo the same licensing procedure.
Our solicitors in Slovakia can help the representatives of foreign companies apply for the necessary licenses no matter the chosen business form. You can also rely on us for VAT registration in Slovakia.
Taxation of branches and subsidiaries in Slovakia
When it comes to taxation, the differences between subsidiaries and branches in Slovakia are substantial. This is because the subsidiary will be treated as a local company and thus be subject to the Slovak corporate tax. The branch office, on the other hand, will be subject to the corporate tax in Slovakia only on the income earned here.
The corporate tax rate in Slovakia implies a rate of 22%. Various grants and incentives are available for companies operating in certain industries. These are available no matter the chosen business form.
Other aspects which should be considered when setting up branches and subsidiaries in Slovakia are related to the accounting documents and filing requirements with the Slovak tax authorities. From this point of view, the branch office and its parent company must comply with the accounting requirements imposed by the Slovak authorities, while the subsidiary alone need to respect these requirements in the case of foreign companies choosing this business form. It is important to know, however, that the parent company will need to file certain documents no matter the chosen business form.
In order to offer complete solutions, our Slovak law firm works with professionals in the accounting field and thus your company will benefit from extended services which cover all the legal and accounting aspects of running a company in this country.
Domestic companies vs. foreign companies in Slovakia
Most of the times the subsidiary and the branch are compared from the residency point of view, as the subsidiary is deemed as a domestic business. The branch office will be considered a domestic company only with respect to the incomes it generates in Slovakia. The decision to set up a subsidiary or a branch office in Slovakia can be made based on this aspect, especially when the taxes to be paid in the parent company’s home country are higher than in Slovakia.
Choosing between a subsidiary and a branch in Slovakia
When having to choose between a subsidiary and a branch in Slovakia, the following aspects need to be considered:
- the subsidiary is considered a separate legal entity in its relation to the parent company, compared to the branch office which has no distinct legal personality;
- both types of companies need to obtain specific license for the activities they will undertake in Slovakia and the procedure is the same;
- from a taxation point of view, the provisions of Slovakia’s double tax treaties cover both types of companies, but to different extent;
- the activities of the branch office are limited to those of the parent company, while the subsidiary can complete additional activities;
- the costs of registering a branch office are lower than those for creating a subsidiary in Slovakia.
In numbers, foreign direct investments in Slovakia represent:
- in 2017, foreign direct investments amounted to 2.2 billion USD in Slovakia;
- in the same year, the stock represented by these investments was 58.4% of the country's GDP;
- according to the Economic Intelligence Unit, FDI in Slovakia is expected to grow by 42% in the years to come;
- in 2019, Slovakia occupies the 42nd position in terms of ease of doing business out of 142 countries.
You can contact our lawyers in Slovakia for more detailed information about the company registration procedure as well as legal assistance and representation for business owners in the country.