Find out what the regulations are for branches of foreign companies in Spain
What is considered a branch in Spain?
According to commercial law, a branch is any secondary establishment with permanent representation and a certain degree of management autonomy, through which the activities of the company are carried out, totally or partially (RRM art.295).
What distinguishes it from a subsidiary?
A subsidiary of a foreign company is still a Spanish company, independent of the parent company that participates in its capital and has its own legal personality.
The branch, on the other hand, is simply an establishment of the foreign company itself, and is therefore not a separate or legally independent company.
This distinction has very clear consequences regarding the extent of responsibility, to the parent company, for the activity carried out in Spain.
For tax purposes, the subsidiary is a resident entity and the branch is an entity subject to Non-Resident Income Tax.
Subsidiaries can generally deduct expenses incurred in connection with their parent company, as well as payments for interest, royalties, etc., but they cannot offset the parent company's losses. An analysis of the applicable double taxation treaty can be crucial in assessing the tax implications of each option.
What are your main responsibilities?
The branch is indeed a non-resident entity, but it operates through a permanent establishment. Therefore, it is subject to the following obligations:
- Creation: It occurs through a public deed and must be registered in the Commercial Registry.
- Investment: The establishment and expansion of branch offices is considered foreign investment in Spain. Generally, this will require subsequent notification to the Investment Registry of the Ministry of Economy and Finance.
- Identification: They must obtain a tax identification number and register in the census.
- Accounting: Branches must keep separate accounts, referring to the operations they carry out and the assets that are related to them.
- Formalities: They are subject to the same formal, registration and accounting obligations, as well as tax declaration, as entities resident in Spain under the Corporate Income Tax rules.
- Withholdings: They must withhold taxes, make installment payments, and are subject to withholding under the same terms as resident entities subject to Corporation Tax.
- Legalization of accounting books: it must be carried out, including a report in which the management and administration expenses charged to it are reflected in the accounting records.
- Informative: They must submit the informative declarations to which resident entities are subject.
- VAT: They are subject to Spanish VAT on transactions that take place within the territory where the tax applies. They must file the corresponding tax returns.
- Annual Accounts: The annual accounts of the foreign company and, where applicable, the consolidated accounts prepared in accordance with its legislation must be filed with the Commercial Registry
Conclusion
When establishing a business in Spain, it is advisable to carefully evaluate which legal structure is most suitable. The tax, formal, and legal liability consequences of each option must be taken into account. This analysis should be maintained over time; for example, it may sometimes be advantageous to initially set up as a branch and, once the business volume or profitability of the establishment warrants it, to transform into a subsidiary.
The tax, commercial and accounting compliance of a branch is sometimes more complex than that which would arise for a Spanish company.
At Àmbit we can help you make the best decision if you want to establish yourself in Spain, as well as advise you on compliance with your business obligations.
We are members of MGI Worldwide and specialize in International Consulting.
A graduate in Law and with a Master's degree in Tax and Financial Management from the University of Barcelona, he also holds a Postgraduate Diploma in New Technologies Law from ESADE. He specializes in tax and corporate law.
Before joining Àmbit Assessor as manager in 1999, he worked as head of the Tax and Accounting department at the Busquets Terradellas law firm.
For years, he combined his work with teaching, serving as a professor of Public Finance and Tax Law at the Open University of Catalonia.
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