What taxes are involved in running a subsidiary in Spain?

If you’re thinking about going global with your business and expanding your operations to Spain, you have two options: starting a subsidiary company or opening a branch. In this post, we’re going to focus on the first of these two options to get you acquainted with the taxes associated with a subsidiary and the sort of relationship it has to its parent companies.

What is a subsidiary company?

A subsidiary is a business that has been set up as its own legal entity in Spain and is controlled either directly or indirectly by a parent company located abroad.

The basic difference between a subsidiary and a branch is that the latter isn’t a separate legal entity from the parent company (unlike a subsidiary). It depends on the parent company at all levels, as it is an extension of the foreign company in Spain.

What steps must you take to create a subsidiary?

The procedures for creating a subsidiary are very similar to the requirements for creating a company in Spain. Nevertheless, some particularities for this situation stem from the fact that the partner is a non-resident.

The steps are outlined below:

• Obtain a certificate from the Commercial Register or its equivalent from the foreign country where the existing parent company is based that contains identifying information for that company and its administrative body, or the parent company’s Articles of Incorporation and Corporate Bylaws. The documents must be translated into Spanish and must be notarized or bear the Hague Apostille.
• Transfer power of attorney to the individual who will represent the parent company when signing the Certificate of Incorporation for the subsidiary company. The document must be translated into Spanish and must be notarized or bear the Hague Apostille.
• Obtain a Spanish NIF for the non-resident parent company that will be the subsidiary’s partner and a NIE for the representative, should there be any.
• Apply for a name certification not already registered at the Central Commercial Register.
• Deposit capital stock in a bank.
• Sign the Certificate of Incorporation before a Notary.
• Apply for a provisional NIF.
• Pay the Property Transfer Tax and the Title Registry.
• Register the subsidiary with the Commercial Registry.
• Submit the subsidiary’s Articles of Incorporation to the Register of Foreign Investments under the Ministry of Economy.
• Submit the final NIF application.

Taxation on subsidiaries

As subsidiaries are independent of their parent company, even if it controls them, they are subject to the tax regulations in their state of residence (in this case, Spain). They will therefore be taxed on the following, among other things:

• Corporation tax.
• Value-added tax.
• Income tax.

They must also submit their ledgers and yearly accounts to the Commercial Register, just like any other company in Spain.

Exemption from profit-sharing for subsidiaries

Should profits from the subsidiary be shared with the non-resident parent company, they may be exempt from taxation in Spain, regardless of taxation on those partners in their country of residence. In any case, they must check whether or not they meet the requirements for this exemption.

Outside the Community, they must check to see if there are double tax agreements that Spain has signed to avoid double taxation on those dividends.