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To open a branch, a public deed must be signed and registered at the Mercantile Registry. Under Spanish foreign investment legislation, the branch must be allocated capital, although there is no minimum capital requirement.

The branch must have a legal representative with authority to manage its affairs. It does not have any formal managing or administrative bodies as such, and it largely operates as if it were a company in its commercial dealings with third parties.

The choice between forming a branch or a subsidiary in Spain may be influenced by commercial considerations (e.g., a company might provide a more “stable” presence than a branch) or by considerations of legal certainty (a subsidiary limits the shareholder's liability).

Formalities

Broadly speaking, the requirements, formalities and costs related to opening a branch are very similar to those for forming a subsidiary.

From a legal standpoint, the most important differences between a branch and a subsidiary are as follows:

	S.A.	S.L.	Branch
Concept	Company of a commercial nature engaging in a business with its own capital		Permanent establishment, enjoying certain degree of management independence. Vehicle for parent company's activities. Lacks separate legal personality from its parent company.
Stock capital	Minimum of €60,102	Minimum of €3.006	Not required
Cash and non-cash contributions	Cash contributions in local currency. In the case of an S.A., non-cash contributions require a report from an independent expert appointed by the Mercantile Registrar.
Registration	Public deed must be registered at the Mercantile Registry.		Together with the public deed creating the branch, the documents attesting the existence of the parent company, its by-laws in force, its Directors and the decision of opening the branch, duly legalized, must be registered at the Mercantile registry.

Tax Consideration

30% Corporate Income Tax rate is applicable to both, the branch and the subsidiary, on their net income. However, certain aspects must be taken into account:

• The remittance of income from a branch, or the distribution of dividends from a subsidiary to a parent company not resident in the EU or in a country that has a tax treaty with Spain, is taxed in Spain at 19%. If the parent company is resident in the EU, the remittance/distribution is usually tax exempt.
• If the parent company is resident in a non-EU country that does have a tax treaty with Spain, any dividends in the case of a subsidiary will be taxed at the reduced treaty rate, whereas any remittance of income in the case of a branch will not be taxed in Spain (under most tax treaties).
• General cost-sharing arrangement with the parent company: in practice, it is usually easier for general costs to be considered deductible in the case of a branch than in the case of a subsidiary.
• Interest on loans from the foreign parent company to its Spanish branch is not, in principle, tax deductible by the branch. Interest on loans from the shareholders of a subsidiary is usually deductible by the subsidiary, provided that it is at an arm's-length rate and the ratio of net remunerated indebtedness is not exceeded (note that the ratio does not currently apply to entities resident in the EU).

For more information you can download the following documents:

Establishing a business in Spain (1758kb.)

Company and commercial law (2007kb.)

The Spanish financial system (3048kb.)

Accounting and audit issues (2121kb.)

Prepared by Garrigues

 

Last updated: 19|02|2010