Opening a Branch Office in the U.S.

Many foreign corporations choose to do business in the United States simply through a branch office.

Advantages. By operating as a branch office of a non-U.S. corporation, many of the organizational burdens associated with the other forms are avoided.

Disadvantages. Operation as a branch subjects the foreign parent company to liability for the debts of its branch.

Tax Considerations. A foreign corporation with a U.S. branch generally is taxed in the same manner as a U.S. corporation on income derived from the branch's U.S. operations. However, under the normal rules of taxation applicable to U.S. corporations, a U.S. branch of a foreign corporation would have a tax advantage over a foreign owned U.S. corporation conducting the same business operations. That advantage results because the earnings of the U.S. corporation would be subject to taxation in the U.S. at the standard corporate rate and would be further subject to taxation again when distributed to the foreign shareholder as a dividend. Although the U.S. earnings of the U.S. branch of a foreign corporation would also be subject to U.S. taxation at the applicable corporate rate, internal distributions of the after tax profits would not constitute dividends subject to the second layer of tax. To eliminate that disadvantage for foreign-owned U.S. corporations, the U.S. has imposed a branch profits tax under which amounts deemed to be the equivalent of dividend distributions by the branch to its home office are subject to U.S. tax at the 30 percent rate generally applicable to dividends. Like the withholding tax imposed on dividends, the branch profits tax is subject to reduction or elimination pursuant to the terms of applicable tax treaties.

Please contact our office for more details. Tax information provided by the Offices of Spot-Lucy in San Francisco.

Lord-Black Law Offices
50 California Street, Suite 1500
San Francisco, CA 94111
www.kathleenlord.com