The branch profits tax
US Branch of a Foreign Company
A US branch is taxed on its US business income and then faces a second, separate charge on top.
GCC business setup specialists
There is a second tax that catches people out
A foreign corporation operating directly in the United States files a US return and pays tax on its income effectively connected with US business. On top of that sits a branch profits tax, charged on the amount treated as repatriated to the home country — an additional layer designed to mirror the withholding a subsidiary’s dividends would suffer. Once that is understood, most groups choose a subsidiary instead.
- The branch profits tax explained before you choose the route
- Honest comparison against a US subsidiary
- Registration and filing obligations set out in full
20+
Mainland, free zone and offshore jurisdictions we file in — so the recommendation is based on your activity, not on which authority we happen to be registered with.
7,000+
Companies successfully established.
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Compare the routes
Branch against subsidiary
The second tax is the deciding factor.
| Question | Branch | Subsidiary |
|---|---|---|
| Separate legal entity? | No | Yes |
| Who carries liability? | The foreign parent | The subsidiary |
| Income tax | On US-connected income | On its own income |
| Second-layer charge | Branch profits tax | Withholding on dividends |
| Parent exposure to US filing | The parent files | The subsidiary files |
| Typical choice | Rarely preferred | Usually preferred |
Branch taxation, the branch profits tax and treaty modifications to it are set by federal law and treaty and change. These are matters for a US tax adviser. We handle US formation and compliance set-up and co-ordinate with a US tax adviser where advice is needed. We do not give US federal or state tax advice.
How it works
If a branch is still the answer
We will compare it honestly first.
01
Compare the two
What a branch and a subsidiary each mean for tax layers, parent exposure and filing. Most groups change their mind here.
02
Register where you operate
The foreign corporation qualified in each state where it does business, with a registered agent appointed.
03
Establish the filings
Federal and state returns, bookkeeping that isolates US-connected income, and the branch profits position tracked.
What is required
To register and operate a branch
The parent itself becomes a US filer.
- Parent certificate of good standing from its home jurisdiction
- Parent constitutional documents
- Certified translation where not in English
- Registered agent in each state of operation
- US business address
- Description of US activities
- Appointed US representative
- Federal tax identification number
- Bookkeeping isolating US-connected income
- States where activity will occur
- Parent financial information
- Existing US tax advisers, if any
Scope
What is included, and what is not
Stated plainly, so nothing is added once the engagement starts.
Included in the service fee
- Branch against subsidiary comparison
- State qualification filings
- Registered agent arrangements
- Tax identification number application
- Bookkeeping set up to isolate US income
- Federal and state filing calendar
- Co-ordination with a US tax adviser
- Guidance on converting to a subsidiary later
Not included, quoted separately
- State filing fees, paid at cost
- US federal and state tax advice
- Branch profits tax computation and advice
- Tax return preparation unless quoted
- Certified translations
- Parent-company accounts
- Treaty position opinions
- Bank account opening decisions
Verify independently
Relevant US authorities
We file directly with these bodies on your behalf.
Internal Revenue ServiceSecretary of State of the state of formationState departments of revenueUnited States Patent and Trademark OfficeCounty recorder and clerk officesFinancial institutions and their compliance functions
Questions
US branch — FAQs
What is the branch profits tax?
An additional charge on the amount treated as repatriated from a US branch to its foreign home office, intended to mirror the withholding that dividends from a subsidiary would attract.
Can a treaty reduce it?
Treaties can modify the position, and eligibility depends on the parent itself. That needs confirming with a US tax adviser before you choose the branch route.
Does operating a branch expose my parent company?
Yes. The parent itself becomes a US filer and carries the liability of the US operations directly, which is the other main argument for a subsidiary.
Is a branch ever the right answer?
Occasionally, for a short defined project or where the home jurisdiction’s treatment favours it. We would want a US tax adviser to confirm that before you proceed.
Can a branch be converted to a subsidiary?
It generally means forming the subsidiary and transferring the business, with its own tax consequences. Choosing correctly at the outset avoids that.
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