The first structural choice in a new market is usually between a branch, which is part of the foreign company and taxed as a permanent establishment, and a local subsidiary, which is a separate taxpayer. Holding company location then depends on treaty network, participation exemptions, substance and minimum tax exposure. Hybrid mismatch rules now neutralise structures that exploit differences between countries, and a day-one registration plan avoids penalties.
Branch or subsidiary
A branch is simpler to open and lets early losses sit with the head office, but it exposes the parent directly to local liabilities and can be taxed differently from a local company. In India, for example, a foreign company with a permanent establishment pays a basic rate of 35%, compared with 25% or 30% for domestic companies and concessional rates of 22% or 15% for domestic companies that qualify. In Saudi Arabia, income tax at 20% falls on the share of profit attributable to non-Saudi owners, while zakat applies to Saudi and GCC ownership.
A subsidiary ring-fences liability, is often required for licences and local contracts, and makes dividends rather than branch remittances the route home. The choice should weigh local rates, withholding on remittances or dividends, the treatment of start-up losses and regulatory needs.12
Holding company location
A regional holding company is worth having only if it does real work: managing investments, providing services or holding intangibles with people to match. Location factors include the corporate tax rate, participation exemption on dividends and gains, withholding tax on outbound dividends, treaty network, substance requirements, CFC exposure for the parent and, for large groups, Pillar Two. The UAE taxes at 9% above AED 375,000, and Singapore at a flat 17%, but for groups above EUR 750 million revenue both apply domestic top-up taxes to 15%.
Treaty benefits through a holding company depend on genuine residence and anti-abuse tests, so a holding company with no substance may deliver nothing.34567
Hybrid mismatch rules
Hybrid mismatches arise when two countries treat the same entity or instrument differently, for example as debt in one and equity in the other, producing a deduction with no matching income or a double deduction. Since 1 January 2020, EU Member States deny the deduction in such cases or, failing that, tax the income; a reverse hybrid rule followed from 1 January 2022, and dual-resident companies face a separate rule. Structures built around entity classification elections or hybrid instruments should be reviewed against these rules.8910
Registrations to plan on day one
Most penalties in a new market come from late registration rather than tax underpaid. Before trading, list each entity's corporate tax registration, VAT or GST registration (remembering that non-residents often have no threshold), payroll registrations, e-invoicing onboarding and any domestic top-up tax registration. In the UK, a non-established business must register for VAT before making taxable supplies; in the UAE, non-residents have no VAT threshold; and Saudi resident taxpayers must issue e-invoices through compliant systems.111213
| Factor | Branch (permanent establishment) | Subsidiary |
|---|---|---|
| Legal liability | Parent directly exposed | Limited to the subsidiary, subject to guarantees |
| Corporate tax rate (India example) | 35% basic rate for foreign companies | 25% or 30%, or 22%/15% concessional if eligible |
| Profit tax base (Saudi example) | Income tax 20% on non-Saudi share | Income tax 20% on non-Saudi share; zakat 2.5% on Saudi/GCC share |
| Start-up losses | May be usable by head office, depending on home-country rules | Stay in the subsidiary unless group relief applies |
| Profit repatriation | Branch remittance; withholding depends on local law | Dividends; withholding subject to treaty |
| Hybrid and CFC exposure | Disregarded or exempt branch income can be caught by hybrid rules | Low-taxed subsidiary can be caught by parent CFC rules |
| Day-one registrations | Corporate tax, VAT/GST, payroll, e-invoicing | Same, plus company registry filings |
Decisions to make
- Branch or subsidiary for the first year?12Compare local rates for branches and companies, use of start-up losses, liability exposure and licensing needs.
- Do we need a regional holding company at all?347Only if it will have substance and a business role; weigh rate, treaty, CFC and Pillar Two effects.
- Are any entities or instruments treated differently in two countries?810If so, the hybrid mismatch rules may deny deductions or tax income.
Documents usually needed
- Group structure chart with entity classification in each relevant country
- Business plan with projected profits, losses and cash flows per entity
- Board resolutions and constitutional documents for each new entity or branch
- Registration checklist per entity covering corporate tax, VAT/GST, payroll, e-invoicing and minimum tax
- Intra-group agreements (services, licences, loans) in place from the first transaction
Common mistakes
- Opening a branch to save time without checking that the branch rate is higher than the company rate, as in India.
- Setting up a holding company for treaty rates without staff or decision-making.
- Ignoring how the parent's country classifies a foreign entity, creating a hybrid mismatch.
- Registering for corporate tax but missing a VAT registration that applies to non-residents from the first sale.
- Relying on a free-zone or low-tax rate without checking Pillar Two exposure.
Questions businesses ask
Should we enter India through a branch or a subsidiary?
From a corporate tax angle, a foreign company with a permanent establishment pays a higher basic rate (35%) than a domestic company (25% or 30%, or 22% under the concessional regime if eligible). Regulatory approvals for branches and liability also weigh toward a subsidiary for most trading businesses.1
What this guide does not yet confirm
These points need checking with a qualified local professional before you rely on them.
- The OECD Model Tax Convention permanent establishment definition and treaty anti-abuse rules could not yet be checked; no claims are made on them.
- Branch remittance taxes (for example in Saudi Arabia) and participation exemptions for holding companies in the UAE, Singapore, the UK, Germany and France were not confirmed.
- Indian, Saudi, UAE and Singapore rates in this module rely on secondary sources; confirm on incometaxindia.gov.in, zatca.gov.sa, mof.gov.ae and iras.gov.sg.
- UK hybrid mismatch rules and US entity classification rules were not researched in this part.
Sources and review status
Each statement is numbered to the source it was checked against. We use official sources where we can, and each statement says whether it was checked against an official or a secondary source. Sources last checked on 18 October 2026. None of it has been professionally reviewed yet: it is research checked against official and secondary sources by WONE Global, not legal or tax advice.
In India, the basic corporate tax rate is 35% for foreign companies with a permanent establishment (such as a branch), compared with 25% or 30% for domestic companies and concessional rates of 22% (and 15% for qualifying new manufacturers) for domestic companies that opt in. Rates before surcharge and health and education cess; effective rates range from about 26% to 38.22%. Concessional regimes carry conditions.
Secondary source; confirm against the Income-tax Act, 2025 and the Finance Act, 2026 on incometaxindia.gov.in.
In Saudi Arabia, income tax of 20% applies to the share of net adjusted profits attributable to non-Saudi owners, while zakat at 2.5% applies to the zakat base attributable to Saudi and GCC owners. Mixed-ownership companies pay both on the respective shares.
Secondary source; ZATCA pages not yet checked for this point.
UAE corporate tax applies from financial years beginning on or after 1 June 2023 at 0% on taxable income up to AED 375,000 and 9% above that amount. Mainland businesses and non-qualifying free zone income; qualifying free zone income is taxed at 0%.
Secondary source: Ministry of Finance and FTA pages blocked automated access.
Singapore taxes corporate income at a flat rate of 17%. Partial exemptions and incentives can lower the effective rate.
Secondary source; IRAS page rate-limited.
The UAE Domestic Minimum Top-up Tax is effective for financial years starting on or after 1 January 2025, imposing a 15% minimum effective tax rate under Federal Decree-Law No. 60 of 2023. In-scope multinational groups (EUR 750 million threshold).
Secondary source: the Ministry of Finance announcement page stating the effective date blocked automated access.
Singapore's Multinational Enterprise (Minimum Tax) Act 2024 applies an income inclusion rule (called the Multinational Enterprise Top-up Tax) and a Domestic Top-up Tax for financial years starting on or after 1 January 2025. In-scope multinational groups; the Domestic Top-up Tax applies to Singapore constituent entities with an effective tax rate below 15%.
Secondary source: the IRAS page could not yet be checked. Confirm on iras.gov.sg.
A UAE Qualifying Free Zone Person pays 0% corporate tax on qualifying income and 9% on non-qualifying income. Free zone entities meeting the qualifying conditions, which include maintaining adequate substance in the free zone; the conditions are set by Cabinet and Ministerial Decisions.
Secondary source; the page refers to its free zone section for the substance conditions, which could not yet be checked. Official Ministry of Finance and FTA pages blocked automated access.
Under ATAD as amended, where a hybrid mismatch produces a deduction without inclusion, the payer's Member State denies the deduction, and if it does not, the payee's Member State includes the payment in income. Article 9(2) of Directive 2016/1164 as amended by Directive 2017/952; double-deduction outcomes are handled under Article 9(1).
The EU hybrid mismatch rules in Articles 9 and 9b applied from 1 January 2020, and the reverse hybrid rule in Article 9a from 1 January 2022. Transposition deadlines 31 December 2019 and 31 December 2021.
Under ATAD as amended, where a dual-resident taxpayer's deduction is allowed in two jurisdictions, the Member State denies it to the extent the other jurisdiction allows it to be set against income that is not dual-inclusion income. Article 9b (tax residency mismatches).
A business based outside the UK must register for UK VAT regardless of turnover if it makes, or expects to make within the next 30 days, taxable supplies of goods or services in the UK. Non-established taxable persons; no registration threshold applies.
Saudi e-invoicing Phase One (generation) has applied since 4 December 2021 to all taxpayers except non-resident taxpayers, and Phase Two (integration with ZATCA's systems) has been rolled out in waves since 1 January 2023. Resident VAT taxpayers and parties issuing invoices on behalf of VAT-registered suppliers; wave selection is notified by ZATCA.
UAE-resident businesses must register for VAT when taxable supplies exceed AED 375,000 (voluntary registration from AED 187,500), while no registration threshold applies to non-resident businesses making supplies on which UAE VAT must be charged. Mainland and free zone businesses alike, subject to designated zone rules for goods.
Secondary source; confirm on tax.gov.ae. The 12-month measurement basis for the threshold is not stated here.
Under the EU Anti-Tax Avoidance Directive, an entity is a controlled foreign company where the taxpayer, alone or with associated enterprises, holds directly or indirectly more than 50% of its voting rights, capital or profit entitlement. Control test in Article 7(1)(a); applies to foreign entities and permanent establishments whose profits are not taxed or are exempt in the parent's Member State.
Questions on this topic
7 statements on choosing the structure: branch, subsidiary and holding company
