Subsidiary vs branch in Switzerland: the seven-criterion decision

Subsidiary vs branch in Switzerland: the seven criteria

The Code of Obligations (SR 220) and Switzerland's commercial-register rules together define the seven points that actually decide which form fits. The table below scores each criterion; the sections that follow explain the mechanics behind each score. Read it as a decision map, not a verdict: criteria 1 and 2 (legal personality and liability) carry the most weight for most groups, while criteria 4 and 5 (tax and treaty access) become the deciding factors for holding and group-service structures.

Criteria 6 and 7 are often underweighted by first-time entrants. They discover their force when the bank or a local client asks questions a branch cannot answer as easily as a subsidiary can. That asymmetry is one reason the branch-to-subsidiary conversion is a common path once a presence matures. The liability calculation goes wrong most often when a parent opens a branch to save the time and capital of a subsidiary, then lets it grow until it carries employment obligations and client contracts the parent would never have accepted directly in its own name.

Three situations where each form wins

Three recurring situations tip the balance decisively. The subsidiary wins where liability must be ring-fenced, treaty access is required, or local standing matters; the branch wins where the presence is provisional, early losses must flow through, or speed outweighs the cost of unlimited parent exposure.

When a subsidiary is the right choice

The Swiss presence is permanent and the liability must be contained. A manufacturing or professional services group with a substantial Swiss operation cannot sustain unlimited parent exposure as the activity grows. The subsidiary's ring-fence, correctly capitalised and genuinely governed in Switzerland, is the structural answer. The capital is not a cost to be avoided; it is the price of the liability shield. A group that reaches this conclusion after operating as a branch for several years pays a higher conversion cost than one that formed a subsidiary from the start.

The group needs Swiss treaty access for the Swiss entity specifically. A holding structure or a group-services company that relies on the treaty between Switzerland and the dividend destination country needs the Swiss entity to be a Swiss resident in its own right. A branch cannot supply that position because it is not a Swiss entity; it is the foreign parent in Switzerland. A subsidiary with genuine substance here can access the treaty; the substance is not optional but a condition of the access.

Local standing with banks and counterparties is commercially significant. Clients in certain sectors, and Swiss banks onboarding the entity for an operating account, respond differently to a Swiss AG or GmbH than to a branch of a foreign company. Where the difference in perception matters for winning business, accessing credit facilities or satisfying due-diligence requirements from local counterparties, the subsidiary's commitment signal is doing real commercial work, not just satisfying a legal formality.

When a branch is the right choice

The group is testing the Swiss market and the presence may not be permanent. A branch avoids the capital commitment of a full subsidiary before the Swiss market's potential is confirmed. If the test does not produce the expected result and the group withdraws, closing a branch is a simpler exercise than dissolving a subsidiary and recovering its capital through the statutory liquidation process. The branch is the lower-commitment entry point precisely because it does not require the group to form and capitalise a separate Swiss company.

Early branch losses are usable against parent profits in the home country. Where the parent's home jurisdiction allows foreign branch losses to offset parent taxable income (which some do, depending on their controlled-foreign-company and loss-consolidation rules), starting as a branch means early-stage Swiss losses flow through to the parent rather than accumulating inside a separate entity that cannot yet use them. Once the Swiss operation reaches profitability and the liability exposure justifies a ring-fence, the branch-to-subsidiary conversion is made. This is a planned two-stage entry strategy, not a compromise.

The parent accepts unlimited Swiss liability and speed matters. Where the Swiss activity is low-risk, the parent is well-capitalised and accepts the liability exposure that a branch carries, and the group needs a Swiss presence quickly without the capital mobilisation required for a subsidiary, the branch is operationally lighter and reaches the commercial register on a comparable timeline. The resident representative is provided in the same way a subsidiary's resident director would be, and the operation is up and running from the first day after registration. This is the valid use case for a branch: low-risk, time-sensitive, genuinely provisional.

Legal nature under the Code of Obligations

The Code of Obligations draws the line between the two forms precisely at legal personality. A subsidiary is a new Swiss company, formed as an AG or GmbH, with its own legal personality from the moment it is entered on the commercial register. It has its own articles of association, its own share or quota capital, its own board of directors or managers, its own accounts and its own Swiss tax number. The parent owns the subsidiary but is not the subsidiary; the two are separate legal persons.

A Swiss branch office (Zweigniederlassung) is the opposite in structure. It has no legal personality of its own. In law it is the foreign parent operating in Switzerland through a registered fixed place of business. It can trade, contract, employ and be sued in Switzerland, and it appears on the Swiss commercial register under the parent's name with a branch designation, but it is not a separate entity. That single fact produces every other difference between the two forms.

Both require a commercial-register entry before they can operate. A subsidiary is incorporated: the parent's corporate documents are prepared, the share capital is paid into a blocked account at a Swiss bank, a formation deed is notarised, and the company is entered in the commercial register of its canton of seat. A branch is registered: the parent's existing register extract, articles and a board resolution to open the branch are filed, usually legalised or apostilled and translated into an official language, and the branch entry is made in the canton where it will operate. Both timelines are broadly similar in length, two to four weeks, with the branch registration's pace set mainly by how long the parent's home-country documents take to obtain and authenticate.

Liability: what parent exposure looks like in practice

Liability is the central practical difference between the two forms, and it runs in opposite directions. The separate legal personality of a Swiss subsidiary limits the parent's exposure to the capital it invested. If the subsidiary incurs a claim, the creditor's recourse is to the subsidiary's own assets; the parent's other assets, in Switzerland and abroad, stand behind a corporate veil. That veil holds where the subsidiary is adequately capitalised for what it does, genuinely governed in Switzerland and dealt with at arm's length. A subsidiary that is undercapitalised for its activity, or run as a mere extension of the parent with the parent pulling every management string from abroad, creates the conditions in which the ring-fence is weakened and the parent's exposure re-opened.

A branch carries no such protection. Because it has no legal personality of its own, it is the foreign parent doing business in Switzerland. Every contract the branch signs is a contract of the parent; every debt it incurs is a debt of the parent; every Swiss claim reaches through to the parent's assets without limit. There is no minimum capital to exhaust, no corporate structure to interpose. A parent that cannot accept unlimited Swiss liability cannot safely use a branch for activities that generate real commercial claims, and that is the point at which the capital a subsidiary requires starts to look less like a cost and more like liability protection with a price on it.

In our advisory practice, this calculation goes wrong most often when a parent opens a branch to save the time and capital of a subsidiary, then lets the branch grow until it carries employment obligations, client contracts and lease liabilities that the parent would never have accepted directly in its own name. At that point the branch-to-subsidiary conversion is more complex than forming the subsidiary at the start would have been, and the window during which the parent was unknowingly exposed cannot be undone.

Tax treatment: permanent establishment vs resident taxpayer

Switzerland's tax rules treat the two forms differently from the first day of operation. A subsidiary is a separate Swiss-resident company, taxed on its own profits at the combined federal, cantonal and communal corporate rate. Its accounts stand alone; its profits are computed and taxed independently of the parent. When it distributes a dividend upstream to the parent, a 35% Swiss withholding tax applies under the Federal Act on Withholding Tax. A foreign parent recovers that withholding under the applicable double-taxation treaty between Switzerland and the parent's country of residence, to the extent the treaty permits. Dealings between the subsidiary and the parent must be at arm's length and documented, because transfer pricing is a live issue from the first related-party transaction: the structure and pricing must be defensible before any audit.

A branch is a permanent establishment. Switzerland taxes only the profit attributable to the Swiss branch, while the rest of the parent's global profit is taxed in the parent's jurisdiction. The attribution of profit between the branch and the head office follows arm's-length principles, so the discipline is not absent, but it applies to the allocation question rather than to a standalone corporate tax return. Under the Federal Act on Withholding Tax (SR 642.21), which applies to distributions from Swiss legal entities rather than to internal branch-to-head-office flows, there is no withholding tax on remittances from the Swiss branch to the foreign head office. This can make a branch advantageous in specific structures. A branch's early operating losses may also be usable against parent profits in the home country, depending on that jurisdiction's rules on foreign-branch losses, which is a planning point worth modelling before the choice between forms is made.

The treaty dimension is consequential for groups with particular treaty requirements. A Swiss subsidiary of a foreign company accesses Switzerland's tax-treaty network in its own right, as a Swiss-resident entity, once it has genuine substance here: a resident board that takes decisions in Switzerland, a real office and actual activity. A branch's treaty position runs through the parent. It cannot independently access a treaty between Switzerland and a third country, because it is not a Swiss resident. For a group that needs the Swiss entity to benefit from a specific treaty, only the subsidiary delivers that position.

Branch registration, substance and Swiss banking

Both a Swiss branch office and a Swiss subsidiary must appear on the commercial register before they can operate, but the filing requirements diverge in form and in what they ask of the foreign group.

For a subsidiary, the register entry requires the company's own articles of association, share capital paid into a blocked account (CHF 100,000 for an AG, at least CHF 50,000 paid in, or CHF 20,000 for a GmbH, fully paid), at least one director or officer resident in Switzerland with signing authority (Art. 718 CO for an AG; Art. 814 CO for a GmbH), a registered office in the canton of seat. After registration, the company must open and maintain its share register and beneficial-owner register as required by the Code of Obligations and applicable AML rules. For the branch registration on the commercial register, the requirements are the parent's existing register extract, its articles of association and a resolution to open the branch, filed legalised or apostilled and translated, together with the resident authorised representative and the registered office in the branch's canton. No capital is deposited. The branch entry names the parent and carries a Swiss-branch designation on the register.

Substance matters for both, though for different reasons. A subsidiary that is not genuinely governed in Switzerland, with a resident board that takes decisions here and accounts that reflect real Swiss activity, is exposed on tax residence and treaty access. A substance-light subsidiary is exposed in two directions at once: it carries the cost of a company without the protection those costs are supposed to buy. A branch must keep accounts for the activity attributable to it in Switzerland, supporting the Swiss tax return and the arm's-length attribution of profits to the branch. In both cases the registered office must be a real address in the relevant canton, not a post-box.

Banking follows the form of the entity. A Swiss subsidiary, presenting as a local AG or GmbH, sits in a category that most Swiss banks understand and have standard onboarding processes for. A branch must present the parent's documents and explain the basis on which it operates in Switzerland, which makes the due-diligence file longer and the bank's assessment more complex. In both cases the beneficial owner's identity, source of funds and business rationale are the centre of the KYC, and both can face delays where the file is thin or the bank's risk appetite does not match the activity profile. Starting the bank onboarding alongside the registration, not after it, is the consistent practical lesson for both forms.

Converting a branch to a subsidiary

A branch-to-subsidiary conversion is a well-defined progression and a common one. The typical pattern follows a clear logic: a foreign company registers a Swiss branch office to test the market with lower initial commitment, the branch's activity grows, and the liability exposure, substance requirements and banking constraints of the branch form start to bind more than the original convenience justified. At that point the right structural answer is to form a subsidiary, transfer the branch's activity to it, and close the branch entry on the commercial register.

The transition is a planned restructuring rather than a simple amendment, and the Swiss operation continues without a gap in customer relationships or employment. Forming the subsidiary requires the full incorporation process: articles, notary, capital into a blocked account and the commercial-register entry. The branch's contracts, employees, leases and other assets are transferred to the new Swiss company, with attention to employment law notice periods, contractual assignment requirements and the tax treatment of any asset transfer. The register entries for the subsidiary's formation and the branch's deletion are separate filings; both must be completed before the branch closes.

The reverse path, from subsidiary to branch, is rare. Groups that have formed a subsidiary to contain liability rarely find it structurally advantageous to remove that protection later, and the tax implications of dissolving a subsidiary and replacing it with a branch add further complexity. The branch-to-subsidiary direction is the planning route; the reverse is an edge case that arises almost only in the context of a wider group reorganisation.

When neither form applies: the limits of the choice

A foreign company falls outside both forms unless it crosses the permanent-establishment threshold: a fixed place of business in Switzerland through which its business is wholly or partly carried on. A company that supplies goods or services to Swiss clients entirely from abroad, without any fixed place of business here, has no obligation to register either a branch or a subsidiary and is not subject to Swiss corporate income tax on that activity. Cross-border supply of services or goods, invoiced and delivered from the home jurisdiction, sits outside the Swiss commercial-register requirement.

An office, employees working physically in Switzerland, or an agent in Switzerland with authority to conclude contracts in the parent's name are the most common indicators that the threshold is crossed. Once it is crossed, operating without a registered presence is not a lighter option; it is non-compliance with commercial-register obligations and a Swiss tax exposure that has no framework for managing or reporting it.

Two further limits are worth stating. First, VAT registration in Switzerland is required once worldwide turnover from taxable supplies reaches CHF 100,000, regardless of whether the company is a subsidiary, a branch or a foreign company supplying cross-border. The corporate structure does not determine the VAT obligation; the activity level does. Second, larger groups subject to global minimum-tax rules (Pillar Two) should take specialist advice on whether the Swiss substance requirements for the chosen form interact with the top-up charge in their home jurisdiction. These are fact-specific questions that belong in the structure decision, not afterthoughts once the registration is made.