Are you planning to open your business in Spain but not sure which is the best option? In this article we will go through everything you need to know to open a branch in Spain. We will analyze the main advantages of this business structure vs a subsidiary or limited liability company, which are the tax obligations you will incur after opening a branch, legal incorporation requirements and constitution process step by step, and much more!
What is a branch office?
A branch office is a permanent establishment located in the Spanish territory that is owned by a parent company located outside the country, and who wished to expand by launching its operations abroad with this limited-autonomy unit.
So if you have your company abroad but would like to enter the Spanish territory, you have two different options: opening an S.L. (limited liability company), which would be a separate entity from your existing company; or you may decide to open a branch, as it can be much more beneficial for you.
Because this branch is completely attached to the parent company as it does not have its own autonomy and it’s not a legal entity by itself. This completely eliminates many of the legal needs and responsibilities any company should respond to in Spain, makes running daily operations something much more simple, but at the same time still enables the branch to benefit from the strengths and assets of the main business (with capital influxes, brand recognition, etc.).
Then, when is a brand office is preferred to an S.L.?
The answer depends on many factors. But usually, if the business needs a big cash influx for its daily operations, a branch office is a wiser solution, as transfers from the parent company are much easier (they share the same capital structure).
Is it the same as a subsidiary?
This a common misconception many business owners have. Because both can be great options when moving your business to Spain and expanding overseas.
A subsidiary is not the same as a branch. Whereas the former is totally autonomous and independent from the parent company (fully responsible for its own actions and liabilities), the latter depends fully on it (without that responsibility).
But there are two important distinctions extra.
The first one is related to the constitution process. A subsidiary operates like a regular limited liability company in Spain. Hence, it must possess a minimum of 3.000€ in share capital for its constitution, something that is not necessary when setting up a branch.
The second one has to do with the company’s management. The body in charge of governing a subsidiary is the sum of all its shareholders, whereas for the branch office we are just talking about the parent’s company representative. This can be useful to centralize and speed up the decision making process.
Nor should we confuse a branch office with a representative office.
Although none of them have their own legal personality and depend almost 100% on the parent company, their purpose and the activities that they can perform are completely different.
The representative office can only perform supplementary or auxiliary tasks in Spain, such as market research or contract management tasks.
But under no circumstances may these be economic activities (which the branches perform).
Which is the law that regulates this type of business in Spain?
It is the Mercantile law through is the Royal Decree 1784/1996.
As we have mentioned, the main responsibilities of the business in Spain are assumed not by the branch itself, but by the foreign parent company.
This lack of responsibility makes it much easier to run day-to-day operations.
For example, it will be the parent company the one in charge of submitting the required financial reports (balance sheet and profits & losses) to the Spanish authorities every year.
On the other hand, any legal obligations like tax fines or employee payments required will be the responsibility of the parent company too.
So as you can see, a branch can focus on its operations without suffering from many of the most tedious hassles any business must go through.
Also, when registering the branch there is no minimum legal share capital required. The parent entity already has those assets under its structure, and as they are an indivisible entity, there is no need to register any extra amount. Nevertheless, the headquarters have the obligation to allocate a minimum monetary amount to the branch (even though there’s no specified amount).
But not everything is positive.
The main downside of this general relationship is that many of the most important decisions can’t be made by the branch itself: it must receive the approval of the parent company. So, in that sense, decision making is partially limited, even though the branch is the unit that has the vast majority of information regarding the market and has direct contact with customers.
Which are the obligations of the branch office?
Even though the vast majority of legal responsibilities fall under the parent company’s back, that does not mean a branch office doesn’t have to meet certain obligations.
Which are those?
First of all, it must keep track of its accounting, as it will be necessary to submit its books to the parent company so it can file the corresponding financial statements yearly (consolidated accounts).
It must pay taxes like any other company in Spain. We are talking about quarterly VAT tax returns and corporate income tax on net income as a non-resident company.
In that sense, one of the main upsides is that management and administrative expenses can be deducted (something that does not happen with a limited liability company).
On the other hand, paying Spanish Social Security on behalf of the branch’s employees is another requirement to be met.
Talking about specific taxes here is somewhat complicated. And that is because it intensely depends on the country in which the parent company is resident and whether that country has a double treatment convention with Spain (that helps avoid paying the same tax twice).
That is why, before opening your branch, it is 100% recommended to talk to a tax advisor and explore the situation. Our team is at your complete disposal to study your case and find out which are the specific taxes you will end up paying and how to optimize them:
How to register a branch in Spain?
Let’s see which are the incorporation requirements and how does the process look like.
Everything will start with a resolution from the parent company’s board of directors in which they specify their willingness and authorization to open that specific branch in Spain. They will then name a representative who will possess the authority to make decisions and who must be granted power of attorney to formalize the whole constitution procedure.
The next step is opening a bank account in Spain. For that, the branch owner needs an NIE number, which can be obtained by submitting his passport and motivation letter (explaining that he needs it to open the branch).
Then, it is necessary to go to the notary to sign the public deed. During that appointment, a public statement must be signed, including:
- The name of the branch (which must be the same as the parent’s one, but you will need to verify its availability in Spain first)
- Which are the specific activities it will carry out when launching
- Its representatives and corresponding power/authority level
- Which is the registered office of this branch
It is also necessary to provide documentation that proves the existence o the foreign parent company and how this branch is related to the parent one (articles of association).
*Any foreign document must be legally translated and legalized with The Hague Apostille.
All those documents will be deposited at the Mercantile Registry, and this institution then has 5-6 days to incorporate them.
You will also request to the Tax Agency your tax ID number (also called NIF, “Número de Identificación Fiscal). It will start by the letter W. Then, you must register the company in the business census by filling out model 036.
Once the operations of the branch start running, you must notify the city hall.
Legal assistance when opening your branch
As you can see, the branch constitution process can be a bit tedious.
There are several steps to go through, and planning is key. You must clearly understand which are your tax and legal obligations before starting your operations in Spain, and as each case is different, you may be having many doubts.
That is why getting assistance from an expert business and tax lawyer is highly recommended and crucial to avoid any kind of roadblock.
Our team at Balcells Group has helped many foreigners throughout the business constitution process, and now we would like to help you out too.
Send us an email and we will get in touch in less than 24 hours: