How to Open a Branch Office in Spain: a 5-step process for branch office registration
There are a variety of options for multinational companies that want to begin doing business from a permanent establishment in Spain. A vital decision to be made is whether to form an independent company, open a branch office, or open a subsidiary.
This article will explore the main characteristics of the branch office and offer a comparison with the other structures for managing this type of operation in Spain. We will also look at the steps to opening a branch, as well as the different levels of corporate taxation that apply.
Forming a Branch Office in Spain
A branch, known in Spain as a sucursal, is an establishment, other than the main office, which is owned by a parent company in a different country. The parent company is ultimately in control of the branch. This type of structure does not have a formal administrative body and operates via an appointed local representative.
A branch does not have a legal personality and is subordinate to the parent company, although it is considered independent in terms of managing day-to-day business activities.
There is no minimum capital requirement as a branch is backed by the parent company. Likewise, in terms of liability, creditors can settle any costs incurred, such as fines, with the parent company. A branch is subject to corporate tax regulations, but the configuration differs depending on the origin country. It is also required to keep accounting documents for the activities that take place within the branch.
5 Steps to Follow for Branch Registration
The process of opening a branch has many similarities to forming a new company. However, a branch is not required to obtain a certificate of uniqueness from the Commercial Registry regarding the company name.
The 5 steps for opening a branch office are:
- Appoint a representative of the parent company who is either an individual or legal entity residing in Spain. They will represent the parent company in any dealings with the Spanish Tax Authority. This person must obtain the branch NIF number, which is the tax ID number, from the Agencia Tributaria, which is the Spanish tax agency.
- Document any representations by the beneficial owner, if there are capital investments made.
- Sign the deed to record the opening of the branch before a Spanish notary. The notary will request documents that include the representative’s identification, power of attorney given by the parent company, declaration of the beneficial owner, and proof of payment. The deed may also contain the declaration of foreign investment.
- Make an application to register the branch with the Commercial Registry, which must be made within two months of signing the deed.
- Complete the opening formalities, which include the registration for Tax on Economic Activities (IAE), VAT via the Agencia Tributaria, and registration of the branch for Spanish social security purposes with the TGSS.
The steps for company formation can be found in our article How to Set Up a Company in Spain: The 2021 Guide.
Registering a Branch Vs. Forming a New Company or Registering a Subsidiary
In comparison to registering a branch, opening a subsidiary or forming a new company does require a capital investment equal to 3000 euros for a limited liability company (Sociedad Limitada or SL), or 60,000 euros for a public liability company (Sociedad Anónima or SA). This of course does mean that there is no limit to the liability of the parent company of a branch, whereas the liability of the independent company or subsidiary is limited only to their capital contribution.
In the case of legal personhood, the branch has the same legal personality as the parent company. However, both an independent company and a subsidiary are considered to be legal persons in their own right.
Finally, when it comes to management and governance, the Spanish representative of the parent company has responsibility for a branch, while an independent company or subsidiary is run by the shareholders and managing body.
What are the Differences in Spanish Taxation Between a Branch and a Subsidiary?
Both a branch and a subsidiary pay tax on 100% of their net profits at the general rate of corporate income tax in Spain, which is 25% .
If the parent company is established in the European Union, no withholding taxes are paid. If the parent company is resident outside the EU but in a country where there exists a tax treaty with Spain, then usually no withholding taxes are paid by a branch. A subsidiary will be liable for a 7.5% withholding tax on dividends.
On the other hand, if a parent company is established outside the EU and resident in a country where there is no tax treaty with Spain, then withholding taxes must be paid at a rate of 14.25% for both branches and subsidiaries.
With regards to shares of any parent company overheads, it is usually easier for these expenses to qualify as deductible for a branch than for a subsidiary.
Which is the Best Option for Your Business?
A company may be perceived as more stable than a branch as it has a legal personality and limited liability. Furthermore, the forming of a company is generally regarded to be cheaper and simpler due to the reduced number of tax inspections.
Nonetheless, multiple reasons will likely influence the choice for an organisation to create a branch, subsidiary or SL in Spain. In the end, it is a business decision, with the location of the company headquarters and the overall type of business structure likely to have a significant impact.
The team of business and legal experts at Strong Abogados is at your service to advise on the best type of entry into the Spanish market for your business. Contact us below to schedule a consultation.