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. Furthermore, the subsidiary in Spain is treated like 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.
Register a branch 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;
•a copy of the articles of association and memorandum of the parent-company;
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.
Taxation for branch and subsidiary in Spain
The owners of both the branch and the subsidiary must pay the corporate income tax. The rate has decreased from 30% in 2014 to 28% in2015. At the moment, the corporate tax in Spain is imposed at the rate of 25%. 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.
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.
The dividendscan be exempted 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 with in-depth assistance on the taxation of this business forms.
Differences between a branch and a subsidiary
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 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.
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.
We invite you to watch a video about the differencies and similarities between a branch and a subsidiary in Spain:
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