Starting a business in Spain or any foreign country for that matter, requires a deep understanding of the legal and tax implications. One of the key decisions that a foreign company needs to make is whether to register a branch or establish a subsidiary in Spain. In this detailed guide, we will explore the differences between these two options, focusing on their legal and tax aspects. We will also touch upon the services provided by House of Companies, a leading firm that offers a seamless and efficient platform for branch registration in Spain.
Introducing Branch and Subsidiary
Firstly, let’s understand what a branch and a subsidiary are. A branch, often known as a ‘sucursal’ in Spanish, is essentially an extension of the parent company. It lacks its own legal personality and is completely reliant on the parent company.
On the other hand, a subsidiary, or ‘filial’, is a separate legal entity, owned by the parent company but functioning independently. It has its own legal personality and enjoys a certain level of autonomy.
Key Differences Between a Branch and a Subsidiary
Understanding the key differences between a branch and a subsidiary is crucial to making an informed choice. Here are some distinguishing factors:
Legal Structure
A branch is not a legal entity and shares the same legal identity as its parent company. Consequently, the parent company is entirely responsible for the branch’s activities, including all liabilities and claims.
In contrast, a subsidiary operates as an independent local entity. Although controlled by its parent company, it has its own legal identity, which offers a layer of protection to the parent company against liabilities incurred by the subsidiary.
Capital Requirements
To establish a subsidiary in Spain, there’s a minimum capital requirement. This is not the case for a branch office. In the case of a limited company, also known as ‘Sociedad Limitada’, you require at least €3,000 as capital.
Management and Governance
A branch office is managed by a representative resident in Spain. This representative acts on behalf of the branch and the parent company. Conversely, the management of a subsidiary is undertaken by a shareholders’ meeting and a managing body.
Tax Implications
Both a branch and a subsidiary are subject to Spanish tax regulations. However, their tax liabilities differ. A branch is liable for Non-Resident Income Tax, requiring the parent company to file all relevant foreign tax documents for tax returns in Spain. A subsidiary, on the other hand, pays corporate income tax in Spain and can deduct payments made to its foreign parent company in the form of royalties, interest, or management commissions.
Advantages and Disadvantages of a Branch and a Subsidiary
Each type of establishment comes with its own set of advantages and disadvantages.
Branch
The major advantage of opening a branch in Spain is the simplicity of its daily operations. It also facilitates easy capital transfers as they come directly from the parent company.
The downside, however, lies in the fact that a branch can’t make independent decisions. Moreover, the parent company is wholly responsible for the branch’s activities, including all liabilities and claims.
Subsidiary
A subsidiary, being an independent entity, allows for smoother daily operations. It handles its accounting and taxes separately, making it a more convenient option.
However, setting up a subsidiary requires a resident with a tax ID or a local employee to run the business in Spain. In addition, there are minimum capital requirements that must be met.
The Registration Process
The process of setting up a branch or a subsidiary involves several steps, including obtaining a resolution from the parent company, naming a representative, opening a bank account, signing the branch deeds at the notary, and registering the branch with the Spanish Commercial Registry.
House of Companies: Simplifying Branch Registration in Spain
For entrepreneurs looking to expand their business in Spain, House of Companies provides a self-governance portal that streamlines the process of branch registration. This platform offers the convenience of setting up a branch office in Spain without the need for a physical visit. Furthermore, it ensures transparency with a fixed yearly fee, making it a cost-effective solution for businesses.
Founded by Dennis Vermeulen, House of Companies has been empowering entrepreneurs with legal processes and has successfully set up over 10,000 entities across Europe and Dubai. Their vision of ‘Globalisation as a Service’ is focused on making legal processes more understandable and actionable.
Wrapping Up
Choosing between setting up a branch or a subsidiary in Spain involves considering multiple factors. The nature of your business, your long-term goals, and your capacity to handle administrative and legal obligations all play a crucial role.
By offering a comprehensive range of services and a supportive community, House of Companies is committed to being an indispensable partner for those looking to expand their business in Spain. So, if you’re ready to take the plunge, start your branch in Spain now!
