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Do you know the difference between Branch, Subsidiary, Holding Company and Representative Office?

The Difference?

Branch, Subsidiary, Holding Company & Representative Office.



What is a Branch?

A Branch is ultimately an extension of the existing head office/parent company. A branch is not a separate legal entity; it falls under the parent company.


A branch must carry out the same operational activities as the parent company with the same parent company name. In the UAE, "BR" is used after the parent company's name to identify it as a branch.


The main benefit of opening a branch is to operate from a different location to the parent company/head office. This usually favours a certain criterion of business sectors such as retail, restaurants etc.


Branches are most common for international companies entering the UAE market for the first time; this maintains the same corporate structure globally for the parent company, which is expanding into different international markets—a key benefit of the global branch's responsibility accounting and taxation by keeping everything in one place.


What is a Subsidiary?

A subsidiary is legally an independent company. However, its shares are held by another company (either locally or internationally). Another common term is a new company (NewCo) owned by a 'corporate shareholder' rather than an individual owner(s).


A subsidiary can carry out different operational and business activities from the parent company/head office and use a different brand name.


A good example of a subsidiary is Instagram which is owned by Facebook (Meta), and The Walt Disney Company, which owns Marvel Comics. Subsidiaries are very commonly born and integrated out of mergers and acquisitions by larger corporations.


What is a Representative Office?

A representative office is essentially an extension of an already existing business. Although this sounds similar to a branch, a representative office carries very different characteristics. A branch can conduct business and operational activities like its parent company. A rep office can not conduct commercial activity, invoice, or generate a profit.


The main benefit of a representative office is normally dictated by office location and rent price (P/SQFT) for back office support staff. The employees based in the rep office do not need to be client-facing to generate commercial activity. Therefore cheaper office locations and regions are favoured for these business operations.


What is a Holding Company?

A holding company is a financial vehicle for owning and controlling assets, such as real estate, company shares & equity and intellectual property (IP).


Using a holding company creates a legal separation between the assets and the owners and reduces the owners' liability if one of the holdings encounters financial trouble.


A great characteristic of a holding company is that it allows external individuals and corporations to invest in overall asset portfolios at the top level of a holding company. It also opens up the freedom of investing in the holding companies' subsidiaries and assets, a layer or several layers below the holding company, without having the control and transparency of the overall asset portfolio and shareholders' separate interests.


Conclusion

It is important to identify what corporate structure and company type you need before choosing the correct UAE government jurisdiction, either freezone or onshore mainland. This will be detrimental to accessibility and expansion. Financial and global taxation savings accompanied her in the long run.


Each of the above types of companies carries an extensive list of advantages and disadvantages. It's important to get impartial professional advice whilst incorporating your 1-5 year plan to determine your most beneficial corporate structure.

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