What are the tax rules for foreign company branches located in Spain?
What is considered a branch in Spain?
According to corporate law, a branch is a secondary establishment that has permanent representation and a certain autonomy to manage itself, through which the activities of a company are fully or partially developed (RRM Article 295).
What distinguishes it from a subsidiary?
The subsidiary of a foreign company is a Spanish company, independent from the parent company that shares in its capital and has its own legal standing.
A branch, on the other hand, is simply an establishment that is part of the foreign company itself, so it is not a separate or legally independent company.
This distinction has very clear consequences in terms of the extent of its responsibility, the parent company and the activity carried out in Spain.
In regard to taxes, the subsidiary is a resident entity and the branch is an entity subject to Non-Resident Income Tax.
Subsidiaries can generically deduct expenses incurred from the activity with their parent company, as well as interest payments, royalties, etc., but cannot compensate for their losses. An analysis of the applicable double taxation agreement may be extremely important when assessing the fiscal impact of one option or the other.
What are its main obligations?
The branch is effectively a non-resident entity but acts through a permanent establishment. This is why they are subject to the following obligations:
- Creation: It is established through a public deed and must be registered in the Mercantile Registry.
- Investment: The constitution and extension of branches is considered foreign investment in Spain. In general, this will involve its subsequent communication to the Ministry of Economy and Finance Investment Registry
- Identification: They must obtain a tax identification number and register with the census.
- Accounting: Branches must keep separate accounts that refer to the business operations carried out and to the assets assigned to it.
- Formalities: They are subject to the same procedures, registration and accounting obligations, as well as filling out tax declarations that entities resident in Spain are under Corporation Tax regulations.
- Retentions: They have withhold taxes, make payments in instalments and are subject to retentions under the same terms as resident entities subject to Corporation Tax.
- Legalisation of accounting ledgers: this is obligatory and must include a report that reflects any management and administration expenses charged to it.
- Information sheets: They must present information statements to which resident entities are also subject.
- VAT: Any operations that are carried out on the territory are subject to Spanish VAT. They must file the corresponding tax returns.
- Financial Statements: They must submit the annual accounts of the foreign company to the Mercantile Registry as well as, where appropriate, the consolidated accounts that have been prepared in accordance with its legislation
Conclusion
When establishing in Spain, you must carefully evaluate the legal forms. The fiscal, formal, or legal liabilities and consequences of either option must always be taken into account. This analysis should be continuous, so, for example, it might be feasible to start off as a branch but once the business volume or income of the establishment increases, the company changes it to a subsidiary.
The fiscal, commercial and accounting compliance of a branch is sometimes more complex than it is for a Spanish company.
At Àmbit, if you are considering establishing a company in Spain, we can help you make the best decision and provide advice to ensure you comply with your business obligations.
We are members of MGI Worldwide and are specialised in International Consulting.
Do you have any questions about this topic?
Our team of expert advisors will help you resolve any problem related to our services.
Contact now
Licenciado en Derecho y Máster en Dirección Fiscal y Financiera de la Empresa por la Universidad de Barcelona, cuenta también con el Postgrado en Derecho de Nuevas Tecnologías de ESADE. Es especialista en derecho fiscal y mercantil societario.
Antes de su incorporación de como gerente de Àmbit Assessor en 1999, trabajó como responsable del departamento Fiscal-Contable del bufete Busquets Terradellas.
Durante años compaginó su trabajo con la docencia, como profesor de Hacienda Pública y Derecho Fiscal de la Universitat Oberta de Catalunya.
Latest posts by Marc Ivars Iglesias
(see all)
Relacionado
