Subsidiary versus Branch in Spain - Updated Guide for 2023
Subsidiary vs. Branch in Spain
Updated on Tuesday 28th March 2023
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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 alegal entity and it has the right to manage its activity on its own. Furthermore, the subsidiary in Spain is treated as a Spanish company, from a tax point of view.
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 and our team of lawyers in Spain can assist in these procedures.
Main differences between branches and subsidiaries in Spain
The table below is a guideline on the main differences between a branch and a subsidiary in Spain.
The branch is not an independent legal entity but has some autonomy when doing business in Spain. The foreign company is liable for its debts and obligations.
The subsidiary is a resident legal entity in Spain that acts in its own legal capacity.
Requirements for Incorporation
The branch needs to be registered with the Mercantile Registry and must appoint a representative (individual or company) to represent it
The subsidiary is subject to the same requirements as the SRL, must have its Articles of Association drawn up in Spain and be registered with the Mercantile Registry (subject to fees as per the procedure)
There is no mandatory minimum share capital for a branch, however, investors are advised to use an amount similar to that in the case of the SRL
The minimum share capital for a subsidiary that is incorporated as a limited liability company (SRL) is 3,000 EUR
The branch is subject to corporate income tax on its net income derived from Spain. The provisions of an applicable double tax treaty can influence the withholding tax on dividends, interest and royalties.
The subsidiary is a resident company in Spain and subject to corporate income tax on net income (worldwide income) as well as other taxes.
Our team of lawyers in Spain can give you additional details about these differences and can offer you a complete consultation in order to determine which business form will suit your needs.
What is the tax system for Spanish branches and subsidiaries in 2023?
The owners of both the branch and the subsidiary must pay thecorporate income tax. The rate has decreased from 30% in 2014 to 28% in 2015. At the moment, the corporate tax in Spain is imposed at therate of 25%. Thistax 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 anEU resident.
If there is a double tax treatysigned 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. At the moment, Spain has signed 103 treaties for the avoidance of double taxation, but out of these, only 95 are in force.
If you want to open a company in Spain in 2023, you must know that the business can be charged with a lower corporate tax, of only 15%, in certain conditions. Companies in Spain can also be charged with the business and professional activities tax, imposed at a rate of maximum 15% of the profits of the company. However, exemptions from this tax can apply.
Those who want to set up a business here in 2023 can be exempted from this tax if the company's net turnover for the last financial year was of less than EUR 1 million.
The dividendscan beexempted from taxation in specific conditions. For example, the regulation is applicable if the parent-company holds at least 5% of the Spanish subsidiary for minimum one year. Other situations can qualify for dividend tax exemption and our team of Spanish lawyerscan provide you with in-depth assistance on the taxation of this business forms.
What are the requirements for opening a branch or a subsidiary in Spain?
When opening a branch in Spain, there is no need to pay 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 branch may perform any business activity in Spain, however, it is important to note that the company abroad will be liable for its debts incurred in Spain. The representatives of the branch in Spain should provide a set of documents, such as:
a copy of the certificate of incorporation of the parent company and a copy on the certificate of good standing, issued for the parent company;
a copy of the articles of association and memorandum of the parent company;
the Spanish tax identification number and a notarized power of attorney;
it is also necessary to obtain a Digital Certificate in the name of the company, a document which will be used for electronic communication with the local authorities;
another requirement is to appoint a representative for the branch office in Spain, who must be the owner of a residency certificate in this country.
The Spanish tax identification number is issued by the Tax Office in Spain and it is necessary for further registration for value added tax (VAT) purposes. Although the branch office is not required to file annual accounts, it must submit VAT returns on a quarterly basis.
The subsidiary can be registered as alimited liability companyor a joint stock company and the liability of the shareholders is limited to their contributions to the capital. In the case of a limited liability company, the minimum share capital is set to EUR 3,000. The liability, in case of a branch, belongs to the parent company, but only to the extent to which the parent-company participated with at the company’s minimum share capital.
What are the procedures for opening a Spanish subsidiary in 2023?
A Spanish subsidiary will be registered following the same procedure, regardless of the business form that was selected for registration. As a general rule, the registration lasts for a period of 6 or 7 weeks, a period in which our team of Spanish lawyers can provide step-to-step assistance. Since the subsidiary represents a more complex way to carry a business activity, more documents and more steps – compared to the registration of a branch office, are to be concluded, as presented below:
as a foreign investor opening a subsidiary, it is necessary to obtain a tax identification number;
register with the Spanish Commercial Registry, which will issue a certificate of denomination;
it is necessary to open a corporate bank account in which the investors will deposit the required capital, depending on the selected company type;
notarize a set of company documents in front of a Spanish public notary, such as the deed of incorporation or the statutory documents;
if the subsidiary is set up by a foreign company, it is necessary to know that the investors have to complete the Form D1-A;
the Form D1-A represents a declaration of foreign investments and it has to be deposited with the Registry of the Directorate General for Trade and Investments, operating under the Ministry of Economy and Competitiveness;
the company is legally required to pay a set of taxes, such as the transfer tax and the stamp duty;
register the subsidiary with the relevant authorities for various corporate matters – social security, value added tax and obtain a public deed of incorporation, which must be issued by the Commercial Registry in Spain.
What are the main characteristics of a branch office in Spain?
After presenting the manner in which branch offices or subsidiaries can be registered in Spain, the investors can make an informed decision regarding which business form is more suitable to their investment plans in this country. When talking about branch offices, the following characteristics should be considered:
legal personality – the branch office does not have a legal personality, as it is just a sub-division of a local or foreign company;
minimum share capital – the branch office does not require any minimum share capital during its registration steps, thus being a less expensive manner to start a business here– at least during its set up procedure;
governing body – in a branch office, the main governing body is given by the branch office representative, the person who has received the right from the parent company to act in its name on the Spanish market;
liability matters – in terms of liability, the parent company will be held responsible for any types of debts incurred while developing business activities in Spain;
taxation – although several taxes applied to branch offices are the same as in the case of a subsidiary, the main tax requirements derive from the double tax treaties signed here.
Those who will arrive here for business purposes in 2023 have access to more than 90 treaties for the avoidance of double taxation.
Please known that, starting with January 2023, Spain will apply new regulations for 50 double tax agreements currently in force between Spain and other countries. This is given by a new law that was enforced in January 2022.
Thus, in 2023, those who are interested in the tax procedures applicable under certain tax treaties must observe the rules established by the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting.
You must also know that, in 2023, Spain applies under its tax treaties a withholding tax charged at a rate of 19% or 24% (the first is generally applied to EU and EEA residents while the 2nd applies to 3rd party nationals).
We invite you to watch a video about the differences and similarities between a branch and a subsidiary in Spain:
What are the key aspects of a subsidiary in Spain?
The subsidiary is a recommended commercial vehicle for starting a company in Spain in the situation in which the parent company wants to make a clear distinction between the two entities, as, under the Spanish legislation, the subsidiary is considered an entity with legal personality (thus, having a wide range of rights and obligations deriving from the Spanish commercial law). Other relevant characteristics of the Spanish subsidiary are presented below:
Minimum share capital
In the case of a subsidiary, it is required to deposit a capital of minimum EUR 3,000 (if the company is set up as a limited liability company) or a capital of EUR 60,000 (when registering a public limited company)
A subsidiary is managed by the general meeting of the shareholders and a board of directors
As the subsidiary represents a separate legal entity from its parent company, it will be personally responsible for its debts;
Since the subsidiary is incorporated as a separate legal entity in Spain, it will fall under the tax regulations prescribed for Spanish commercial enterprises
If you need more details on establishing a branch or a subsidiary, you may contact our lawyers in Spain. Our Spanish law firm will help you register a company even if you are abroad, as the presence of the investors is not compulsory in this case.
Both the subsidiary and the branch provide certain tax advantages and various benefits when it comes to the management of these structures.
If you want to set either entities in the city of Barcelona, we invite you to address to our lawyers in Barcelona, who will represent you in all the registration stages.
Our attorneys have the legal expertise in helping foreign companies setting up a liaison office in this country.
This type of office is useful when a foreign entity/company wants to analyze a foreign market or to establish partnerships with the local businesses.
Please know that, unlike the branch office or the subsidiary, the representative office is not allowed to develop commercial activities. You can learn more concerning the advantages if this type of establishment from our lawyers in Madrid.
Also, you can rely on our team if you want to purchase a property here and not just to rent one. For this, you will need the professional legal services of our real estate lawyers in Spain.
If you want to purchase a property in Madrid, the most expensive area is currently Salamanca, where a square meter of property is estimated at EUR 5.320, while the cheapest can be found in Villaverde (EUR 1.890).
Meet us in Madrid
Federico Richardson is a lawyer experienced in dealing with international clients interested in doing business in Spain especially in corporate and real estate sectors. He is a graduate of the University of Navarra, took part in various businesses and now he coordinates the engagements at Lexidy Law Boutique SLP. Contact us for details
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