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 holds 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 to the parent company and with regards to 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 convention may be extremely important when assessing the fiscal impact of one or the other option.

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:

CONCLUSION

When establishing a company in Spain you must carefully evaluate what legal form it will take. The tax, 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 moves on to become an 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 Wordwide and are specialised in International Consulting.

Whatever you need to make your international business a success MORE INFO