Entity Setup
Entity Setup for Global Expansion: Choosing the Right Structure
Selecting the right legal entity is crucial when expanding internationally. This article walks through structures, tax impacts, and planning strategies.
By NomadicTax Research Team • 5-8 min read • September 5, 2026
## Comparing Business Structures Across Jurisdictions
When you scale globally, what entity you choose affects liability, tax, and compliance. Common structures include:
- **Branch / Permanent Establishment (PE):** An extension of the parent company; profits taxed in host country for activities with sufficient permanence.
- **Subsidiary Company:** Separate legal entity; taxed as a resident in host country, potentially benefiting from local incentives.
- **Holding Company:** Holds ownership of other companies; designed to consolidate profits, dividends, and reduce withholding tax exposure.
Each has trade-offs in cost, administration, and tax treatment.
## Tax Implications to Consider
### Withholding Taxes & Dividends
Many countries **tax outbound dividends, interest, and royalties** via withholding. Choosing a holding company jurisdiction or using DTAs can **reduce or eliminate** this. For example, many EU countries benefit from the Interest & Royalty Directive or Parent-Subsidiary Directive to remove or reduce such withholding. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/taxation/business-taxation/interest-royalty-directive_en?prefLang=sv&utm_source=openai))
### Permanent Establishment Risks
If you operate through side offices or long-term contracts abroad, you may trigger a PE. PE status exposes you to **corporate tax obligations and local compliance**.
### Minimum Taxes and Anti-Avoidance
Global frameworks—like **Pillar Two minimum tax rules**—are increasingly integrated. Also consider Controlled Foreign Corporation (CFC) and transfer pricing rules that could erode structuring benefits.
## EU Tax Simplification Package and Its Effects on Entity Structures
The EU has introduced a **Tax Simplification Package**: Omnibus on Direct Taxation and a recast of the Directive on Administrative Cooperation (DAC). Among changes:
- Abolition of withholding taxes on dividends, interest, royalties **between EU companies**. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/european-commission-proposes-landmark-tax-simplification-package-streamline-compliance-and-boost-2026-06-24_en?utm_source=openai))
- Expansion of Parent-Subsidiary Directive to include pension institutions. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/european-commission-proposes-landmark-tax-simplification-package-streamline-compliance-and-boost-2026-06-24_en?utm_source=openai))
- Harmonisation of CFC regimes and interest limitation rules under ATAD (Anti-Tax Avoidance Directive). ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/european-commission-proposes-landmark-tax-simplification-package-streamline-compliance-and-boost-2026-06-24_en?utm_source=openai))
These changes affect decisions on using EU-versus non-EU holding entities, especially when structuring flows between group companies.
## Actionable Steps for Entrepreneurs and Tax Advisors
1. Map all potential jurisdictions: consider access to treaties, local corporate tax rates, withholding regimes, compliance burdens.
2. Test entity types under different projected flows: profits, royalties, dividends. Model tax **net return after withholding and corporate tax**.
3. Keep corporate formalities strong: substance, offices, boards, local staff—structures without enough substance may be ignored by tax authorities.
4. Monitor policy changes: global minimum tax, DAC recast, new EU Omnibus rules, and anti-avoidance legislation may change expected benefits quickly.
## Example Application
**GlobalTech GmbH**, based in Germany, plans subsidiaries in Italy and Poland, with a holding company approach.
- Under proposed EU Omnibus changes, dividends and royalties paid intra-EU will be free of withholding tax.
- Their German headquarter set up a holding company, and they assign R&D and IP licensing to entities in Poland. Under **immediate expensing for R&D tangible assets** (proposed in Omnibus), their investment returns improve.
- They maintain board meetings and minimal substance in each subsidiary to satisfy anti-abuse rules.
By evaluating structure types in light of the most recent EU proposals, GlobalTech optimizes after-tax returns while maintaining compliance.