Liaison office - branch: we explain everything

Globalization and the opening up of international trade are leading many companies of all sizes to take a close look at the growth potential offered by international expansion.

Establishing a foothold in a distant country is not always easy, and company directors have to choose between several solutions to develop their commercial activities there. 

What is a liaison office?

Liaison offices, also known as representative offices, give French companies a foothold abroad to explore new business opportunities and develop their activities.

Increasingly established in Asia and Africa, they are an invaluable relay enabling companies to take the pulse of the local market. They can deploy one or more employees to get to know the market better, build up a network of contacts and partners, and advertise with local players.

Its role is to act as an intermediary, preparing for the conclusion of commercial contracts between customers, suppliers and the parent company. Under no circumstances can it carry out any commercial activity itself.

All administrative documents and invoices are issued and signed by the parent company. The liaison office has no legal status of its own, with no assets, share capital or property of its own. Its representative must be appointed by the parent company. 

The formalities involved in setting up a company are simplified and far less cumbersome than for a traditional business. Certain additional formalities are required, depending on the host country.

The liaison office is not liable forincome tax, since it does not perform any services directly. As it makes no sales, it is not liable for VAT. It will, however, be subject to local and payroll taxes, which are paid directly to the parent company. All members of the liaison office are considered as employees, and the rules of the destination country apply in terms of social protection, unless they haveexpatriate status. 

There is no legal limit to the duration of a liaison office's existence. However, it is not intended to be permanent, as its activities are generally discontinued after 3 years.

The company can then decide whether to continue its investigations in the foreign market, or to cease all activity there. 

Liaison offices are observation posts for gaining a better understanding of a market, and building up a network of local contacts.

What is a branch? 

It does not have its own legal entity, share capital or assets. It enables the parent company to move closer to a foreign market, while carrying out business activities there through its branch office.

Its main activities are sales representation, prospecting, order taking, sales follow-up and local market information gathering.

All these activities are carried out in the name and on behalf of the parent company, which may deploy one or more employees. Considered as employees, they often have expatriate status, enabling them to benefit from the legislation of their country of origin. Otherwise, the labor code of the host country applies. 

The branch facilitates a company's geographic expansion and its relations with foreign customers.

Setting up a branch is relatively straightforward, although some additional formalities may be required depending on the host country. The decision to set up a branch is taken by the Board of Directors, who must then register the company with the Registrar of the Commercial Court. You are strongly advised to consult a specialist lawyer to find out exactly what rights your company will have in the host country. Depending on existing international agreements and the host country, the law of the parent company's country may apply to the branch. 

It remains subject tocorporate income tax, together with the parent company. Its profits are taxed in the host country. 

What's the difference?

The branch manages a business that is separate from the parent company. It can be organized independently, without having its own assets. 

A branch is a taxable entity with a fiscal personality in the host country. It is therefore considered as a company and subject to corporate income tax. 

With more prerogatives on site, the branch is better able to provide operational support in defining and implementing the company's sales policy abroad. 

Deciding whether to set up a representative office or a branch depends on the type of business you wish to develop abroad.

Although setting up and running a liaison office is simpler, the yellow line of prohibition on commercial practices must be scrupulously respected.

Companies can also take advantage of a number of administrative, legal and tax breaks, depending on the international agreements signed with foreign countries.