Subsidiary vs. Branch in SpainUpdated on Wednesday 10th August 2016
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The foreign investors who are interested in doing business in Spain may choose to open a branch or a subsidiary of their company in this country. There is a main difference between the two entities – the branch has no legal personality and it is dependent on the parent company, while the subsidiary is a legal entity and it has the right to manage its activity on its own.
In order to establish a branch in Spain, the entrepreneur needs to register a public deed with the local Trade Register. The branch needs a legal representative who is entitled to negotiate on behalf of the entity with other business partners. The costs and formalities for establishing a branch are nearly similar to those for opening a subsidiary.
Taxation for branch and subsidiary in Spain
The owners of both the branch and the subsidiary must pay the corporate income tax which rate has decreased from 30% in 2014 to 28% in 2015 and it will go down until 25% starting 2016. This tax is calculated on the net income of the branch or the subsidiary and the profits and dividends are tax exempt if they are sent to a foreign company that is an EU resident. In case of a non-EU company, the profits/ dividends will be taxed at 21%.
If there is a double tax treaty signed between Spain and the non-EU country where the company that receives the dividends/profits has its residence, then the dividends will be taxed at a reduced rate and the profits that will be sent to the parent company will not be taxed in Spain.
Differences between a branch and a subsidiary
For opening a branch in Spain, there is no need for a share capital for the incorporation. The subsidiary is a legal entity, while the branch is not and it is subordinated to the parent company. The subsidiary can be registered as a limited liability company or a joint stock company and the liability of the shareholders is limited to their contributions to the capital. The liability, in case of a branch, belongs to the parent company.
If you need more details about establishing a branch or a subsidiary, you may contact our lawyers in Spain. Our local law firm will help you register a company even if you are abroad and you don’t want to come to Spain.
We invite you to watch a video about the differencies and similarities between a branch and a subsidiary in Spain: