With your business booming, the obvious next step for any entrepreneur is to expand into new markets. If your local market loves your products and services, why wouldn’t people in other corners of the world? It’s time to open a Branch office in Spain.
Some locations offer a springboard into entirely new regions. Spain is a great hub for rapidly growing businesses as it has:
- an attractive startup climate
- and is culturally and linguistically linked to South America.
Investors should ask themselves what kind of legal structure they should use when extending their business to another country. In Spain, there are many structures, and in this post, we will talk about one of the most relevant structures. The Branch Office in Spain.
What is a Branch Office in Spain?
A Branch Office in Spain is the secondary establishment of a foreign company on Spanish soil. However, it operates with a degree of autonomy and through which the parent company carries out its economic activity.
This relationship is dependent on the parent company and therefore lacks its own legal personality. This implies that the foreign company assumes the Spanish business’s liability and/or debt, should any arise.
Another element to take into account is its corporate purpose. A Branch office in Spain limits exclusively to activities that carry out the same corporate purpose specified in the bylaws of the parent company.
How do Taxes work for these entities?
The Spanish government will tax any branch operating in Spain based on the profits obtained in-country. This is Non-resident Income Tax and it is 25% of the total profits during the financial year
The branch office in Spain will also have to pay taxes when remitting profits to the parent company. In this case, you should consider certain regulations, such as Double Tax Treaties. These are agreements signed between Spain and the countries where parent companies are located.
The tax rate for default is 19% if there is no treaty. However, there are exemptions for parent companies based in the EU.
What are my other options?
For some businesses, a subsidiary isn’t the right approach and they opt for a subsidiary instead. This is a completely independent company, with at least 50% of its shares owned by another company. This is one of the main entry vehicles for foreign investors into the Spanish market.
Its main characteristics are as follows:
- Purpose: The LLC, or (SL – Sociedad Limitada in Spanish) is not restricted by the parent company’s purpose. As an independent entity, it can perform any activity as long as they are specified in its Articles of Association.
- Legal Personality and Liability: Therefore, the liability is framed to the Share Capital of the Spanish Entity.
- Minimum capital required: The subsidiary requires an initial capital share of €3,000.
- Governing Body: The Company Director must be Sole Director; a Joint Director or one of several Directors.
- Taxation: The Subsidiary is subject to a Corporate Income Tax of 25% of the company’s annual profit.
What are the main advantages of a Branch Office in Spain?
In contrast to the Subsidiary Office, a Branch Office in Spain has the following advantages:
- Proven Track Record: The main disadvantage of a subsidiary is that it has no history. Even if a foreign entity with extensive experience in its sector owns the company, it is still a new company. A lack of direct, provable records can lead to distrust with third parties and investors.
Whereas another entity already consolidated abroad essentially creates a Spanish extension through a Branch Office. This includes its track record and experience, which has a strong influence on many aspects, including better access to financing.
- Operability: The subsidiary is an independent entity, while a branch operates autonomously. However, a branch’s final decisions are completely subject to the parent company’s supervision.
This allows the latter to have full control over the branch. This includes its decisions and other activities like accounting and tax obligations.
- No Minimum Share Capital: A branch office in Spain requires no initial capital outlay whereas a subsidiary requires €3,000.
- Tax Deductions: A branch may be subject to tax deductions. Any expenses relating to the management and administration of the permanent establishment may be deductible. These expenses need to be reflected in the company’s accounts.
Creating a Branch Office in Spain is an attractive option when you consider expanding your business activities into Spain as a European hub or springboard in South America. The team at Lexidy LegalTech Boutique offer full legal support when establishing a Branch or considering another corporate structure.
Contact one of our corporate lawyers today to understand the best option for you and your business.
