When a foreign company operates through a branch in a country, it is subject to a special tax known as branch profits tax. This tax is in addition to the regular corporate income tax that is imposed on the branch's income. Essentially, the branch profits tax is equivalent to the tax on dividends that would be due if the branch had been a subsidiary of the foreign company and had distributed its profits as dividends. Therefore, it is important for companies to understand the implications of this tax when considering setting up branches in foreign countries.
