Establishment of branches and subsidiaries

More and more companies are internationalising their business and opening a branch or subsidiary in Spain. Many organisations start their activity in Spain with a branch and, once they understand the market better and have begun to develop their activity, they open a subsidiary.

Before making the decision to open a subsidiary or branch in Spain, it is important to analyse the following aspects:

• Assessment of market opportunities. It is essential to know the Spanish market in depth and to analyse if there is an opportunity for your business venture. This requires analysis of the sector in which you want to work, as well as the competitors in the sector.
• Taxation analysis. It is important to be aware of the taxes and tax returns this venture will involve.
• Knowledge of the legal framework. Each country has different regulations governing the development of business by foreign companies and these must be understood and complied with.

The most common ways in which foreign entrepreneurs bring their business to Spain are opening Spanish branches and subsidiaries. Below, we analyse what each of these activities consists of, the differences between them and what procedures must be followed to open a branch or subsidiary in Spain.

1. What is a branch?

Branches and subsidiaries are ways in which foreign entrepreneurs can develop their business ventures in Spain.

The concept of a branch of a company is established in Article 295 of the Commercial Registry Regulations as follows: a branch is understood to be any secondary establishment with permanent representation and a certain degree of management autonomy, through which all or part of the company’s activities are carried out.

The definition of a branch has also been refined by Community regulations, case law and the Directorate General for Registers and Notaries, so that the characteristics of the branch are as follows:

• It is a secondary establishment (not a trading company).
• It does not have its legal personality.
• It is permanent.
• Its corporate purpose is the same as that of the parent company.
• It has an independent headquarters, some operational autonomy and a permanent representative.
• It is subordinate to the guidelines of the parent company.

2. What is a subsidiary?

A subsidiary is an entity that is controlled directly and indirectly by a parent company. Control generally derives from the parent company owning more than 50% of the subsidiary shares, which enables it to control voting rights and decision-making.

A parent company and the subsidiaries controlled by the parent company form a group of companies.

A subsidiary is characterised by:

• Having its own legal personality.
• Being controlled by the parent company.
• Being commercial company.
• Being autonomous.

3. The main differences between subsidiaries and branches

There are several differences between branches and subsidiaries:

• Own legal personality. The branch does not have its own legal personality and the subsidiary does. Having its own legal personality means that the subsidiary is subject to the corresponding rights and obligations, independently of those of the parent company.
• Minimum capital stock. The branch does not have a minimum capital stock that must be contributed at the time of establishment, and the subsidiary does. The minimum capital stock of the subsidiary is €3,000 or €60,000 depending on whether it is a private or public limited company. Notwithstanding the above, the parent company may allocate capital so that the branch can operate in Spain.
• Representation and governance. Another difference is that the branch has a representative who is a proxy for the foreign parent company, who limits its powers. In contrast, the subsidiary has a partners or shareholders’ meeting, and a governing body which may be a single director, joint and several directors, or a board of directors.
• Responsibility. Branches have unlimited liability, or responsibility, and this will be assumed by the parent company. Subsidiary liability is limited to the capital contributed and, in principle, does not affect the parent company.
• Taxation. In the case of the branch, the corresponding Double Taxation Agreement or the Income Tax Non-Residents will be applied. The subsidiary is taxed for Corporate Income Tax. Nevertheless, each case will be analysed for tax purposes in order to accurately determine the taxes and returns to be filed.

4. What are the steps for setting up a subsidiary?

Setting up a company’s subsidiary involves obtaining the necessary official documentation:

• The parent company must have an official Spanish VAT number (intra-community VAT number required for transactions with other professionals or companies within the European Union).
• Shareholders must hold an NIE.
• A sworn translation of the parent company’s official documents must be requested.
• The Hague Apostille. This is a stamp that is included on public documents and that certifies the authenticity of signatures on a document that has been issued in one of the countries that have signed the Hague Convention.
• Form 036. This is the form that is presented to the Spanish Tax Agency to register a company in the tax register of businesspersons for purposes of taxes related to VAT or Business Activities Tax.

Formation of the limited company:

In general, the two most common types of commercial companies are the private limited company (SL) and the public limited company (SA). The main differences between the two are as follows:

• The minimum capital stock in an SL is €3,000, whereas a SA requires €60,000.
• The capital stock of an SL is divided into SL shares and that of a SA is divided into SA shares.
• In an SL, the transfer of shares cannot be done freely, unlike in a SA.

The limited company is the most common type of company for entrepreneurs to form and can be defined as a type of commercial company in which the capital stock comprises the contributions of the shareholders and is divided into shares. It is regulated by Royal Legislative Decree 1/2010 of 2 July, which approves the revised text of the Capital Company Act.

The procedures to be followed for the formation of a limited company in Spain are as follows:

• Applying for a non-registered name at the Commercial Registry. It is advisable to request several alternative company names so that if one is already in use, you can request another one. The certificate issued by the Commercial Registry is valid for six months.
• Depositing the capital stock. The minimum company capital stock (€3,000 euros), must be deposited in a bank account opened in the name of the company.
• Drafting of corporate bylaws. The bylaws must include at a minimum:
  • The name of the limited company followed by ‘Sociedad de responsabilidad limitada’, SRL or SL.
  • Activity which the company will carry out.
  • Capital stock, shares in which it is divided, value of each share and numbering.
  • Company management system, which could be: sole director, joint and several directors, or board of directors).
• Drafting of the notarial deed of incorporation of the company. The deed must contain:
  • Identification of all shareholders.
  • The willingness to incorporate a limited company.
  • The contributions made by each shareholder and the numbering of the shares.
  • The Corporate bylaws.
  • The identity of the initial administrators.
  • Information related to the way in which the management of the company will be organised.
• Signing the public deed of incorporation of the company before a Notary. All shareholders must attend the granting, either in person or by proxy. In addition, the following documentation must be provided:
  • The Corporate bylaws.
  • Company name availability certificate.
  • Bank certification verifying the deposit of the capital stock in a bank account in the name of the company.
  • Original DNI or NIE of each shareholder.
  • If one of the partners is a foreigner, the declaration of foreign investments will be necessary.
• Applying for the tax ID (NIF). This is requested at the Spanish Tax Agency and will be a provisional NIF.
• Registering for Business Activities Tax. This is a local tax that taxes the activity of companies.
• Filing of Form 036. This form informs the tax authorities of the commencement of the limited company’s activity.
• Registering of the deed of incorporation in the Commercial Registry. The registration must be made within two months from the date of granting of the deed of incorporation of the company and must include:
  • A copy of the deed of incorporation of the company.
  • Company name availability certificate.
  • A copy of the provisional NIF.
• Application for definitive NIF. This is also requested at the Spanish Tax Agency once the company has been registered in the Commercial Registry.
• Social Security registration. Directors must register with the special self-employed social security regime and if workers are to be hired, the employer’s number must be requested.
• Application for digital certificate. The digital certificate guarantees the identity of a person online. It must be used for certain administrative procedures, especially with the Spanish Tax Agency, with which in various cases it is essential to file tax returns digitally.

5. What are the steps for setting up a branch?

Setting up a branch involves obtaining the necessary official documentation:

In this case the documentation is the same as for a subsidiary.

• The parent company must have an official Spanish VAT number.
• A sworn translation of the parent company’s official documents must be requested.
• The documents must include the Hague Apostille.
• Filing of Form 036 to the tax register of businesspersons
• Digital certificate of the company to be able to carry out procedures with the administration.

Opening a branch in Spain involves the following steps:

• Agreement to open a branch by the Board of Directors of the parent company. The parent company’s Shareholders’ meeting must agree to open a branch in Spain.
• Obtaining the NIF and appointment of the parent company’s representative before the Spanish Tax AgencyIt is necessary to appoint a natural or legal person with residence in Spain to represent the parent company before the Spanish Tax Agency. To obtain a NIF, the branch’s legal representative in Spain must attend.
• Formalisation of the deed of incorporation of the branch before a Spanish notary. The deed of incorporation of the branch formalises the agreement adopted by the competent body of the parent company. For this, the Notary will request:
  • Documentation verifying the identity of the persons appearing before it.
  • Legal representative of those acting on behalf of the parent company, or other natural or legal persons.
  • Proof of the existence of the parent company (the documentation must be translated, legalised and include the Hague Apostille), of its bylaws and of the directors’ contact information. In addition, the agreement of the governing body of the parent company to establish the branch must be provided.
  • Declaration of foreign investment issued by the Registry of Foreign Investment.
• Registration of the branch in the Commercial Registry. The branch must be registered in the Commercial Registry. Registration is regulated by Article 297 of the Commercial Registry Regulations, which establishes the following:

1. • The entry made on the sheet open to the company shall state the establishment of the branch, indicating:

• • • Any mention that, where appropriate, identifies the branch.
    • The address of the same.
    • The activities that, in its case, would have been entrusted to it.
    • The identity of the representatives appointed on a permanent basis for the branch, with an expression of their powers.
  • The first entry of the sheet open to the branch shall include, in addition to the above, the company name and the names of its directors, indicating the position they hold.
• Registration with the Spanish Tax Agency. This is done using Form 036 for tax purposes, such as VAT or Business Activities Tax.
• Social Security registration. As in the case of the subsidiary, you must apply for registration with Social Security if you wish to hire employees.

6. Conclusions

Opening a branch or a subsidiary in Spain involves various procedures, as we have seen, and a thorough knowledge of Spanish law from a commercial, tax and labour perspective, among others.

However, opening a branch or subsidiary is a great way to develop international business ventures in Spain.

To ensure regulatory compliance when carrying out these complex procedures, it is always advisable to request the help of advisors and lawyers in Spain who are familiar with the regulations and have experience in setting up company branches and subsidiaries.

At llia Consulting we offer you:

• A complete service. Count on the support of one of our dedicated experts to you meet all of your objectives – no need for multiple advisors. throughout the procedure. You advisor will take care of everything so that your branch or subsidiary is operational as soon as possible.
• Over 40 years’ experience. Our expertise in the formation of companies, branches and subsidiaries ensures that we carry out procedures safely and in compliance with all applicable regulations.
• Personalised treatment. You will be assigned an expert who will be at your disposal to solve any doubts you may have.
• Specialists in international cases. We have set up numerous subsidiaries and branches of foreign companies in Spain, so we understand the needs of entrepreneurs who wish to set up businesses in Spain. Additionally, to facilitate the procedures, we can provide our services in various languages, such as English, French or Italian.

If you need a partner to develop your business in Spain, you can count on us. We will be with you every step of the way. Our goal is to make your business successful in Spain. Your success will be ours.