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Create a Branch or Permanent establishment in spain

PERMANENT ESTABLISHMENT IN SPAIN

  • A Permanent Establishment is a fixed place of business (a centre from which to carry out the business or a dependent agent).
  • It is a Fiscal concept regarding tax benefits in Spain.
  • In principle, the activities which a representative office can carry out are limited, essentially coordination, collaboration etc.

Josep Conesa. abogado laboralista (Barcelona)

 

Written by Josep Conesa

Labour and bankruptcy lawyer

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Separate legal personality:

  • No.
  • Its legal liability extends to the parent company.
  • Subordinated to the parent company (legally and economically)

Formalities for incorporation:

  • Document of parent company deciding to create the permanent establishment. No incorporation in the Commercial Register.

Minimum capital stock:

  • No capital is required.

Annual accounts in Commercial Register:

  • No.
  • It must keep separate accounts regarding its activities.

Managing and government body:

  • No. (The Director is that of the parent company).

Tax representative:

  • Representative resident in Spain for tax purposes, who is jointly responsible for the payment of any taxes.

Tax:

  • Spanish non-resident income tax at 25% on their net income. (= branch)


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BRANCH IN SPAIN

A branch is a permanent establishment, enjoying a certain degree of management independence.

Separate legal personality:

  • No.
  • Its legal liability extends to the parent company.
  • Subordinated to the parent company (legally and economically).

Formalities for incorporation:

  • Public Deed + Commercial Register.

Minimum capital stock:

  • No capital is required.

Annual accounts in Commercial Register:

  • Yes.
  • It must keep separate accounts regarding its activities.

Managing and government body:

  • Director resident in Spain with authority to manage its affairs (and who acts as attorney of the branch in the name and on behalf of the parent company for all purposes).

Tax representative:

  • Representative resident in Spain for tax purposes who is jointly responsible for the payment of any taxes. Usually this is the same person as the Director.

Tax:

  • Spanish non-resident income tax at 25% of their net income.
  • If the parent company is resident in a non-EU country which hasn’t got a tax treaty with Spain, the remittance of a branch’s profits to its head office will be taxed in Spain at a rate of 19%.
  • If the parent company is resident in a non-EU country with which Spain has a tax treaty, under most treaties the remittance of branch profits will be exempt from tax in Spain.
  • In practice, it is usually easier for expenses (parent company overheads) to qualify as deductible in the case of a branch rather than in the case of a subsidiary.
  • Interest on loans from a foreign parent company to its Spanish branch is not tax-deductible for the branch.

requirements when setting up a branch in spain

When setting up a branch in Spain you/we will need:

  1. Name of the parent company, address and registration number.
  2. Beneficial owner of the parent company, if any: That is to say, the natural person(s) who ultimately owns or controls the parent company through direct or indirect ownership or control over a percentage of 25% plus one share.
  3. Certificate of incorporation of the parent company, legalised and/or certified by an apostille of the Hague Convention.
  4. Certificate of the Commercial Registry proving the existence of the parent company, address, and the names and personal details of its directors certified by an apostille of the Hague Convention.
  5. Passport of the director/legal representative of the parent company certified by an apostille of the Hague Convention.
  6. Name of the individual residing in Spain who will represent the parent company in dealings with the Spanish tax authorities regarding its tax obligations.
  7. Copy of the Passport and NIE number of the individual residing in Spain who will represent the parent company.
  8. Name of the individual residing in Spain who will be the Director of the branch in Spain and copy of his or her Passport and NIE number.

Moreover, we will prepare some documents and forms, including the parent company's data. These documents will also need to be signed and legalised by apostille of the Hague Convention in the parent company country. 


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SPANISH COMPANY – S.L. S.A.

Separate legal personality:

  • Yes.
  • The liability of the shareholders for the debts is limited to the amount of their capital contributions.

Minimum capital stock:

  • €3,000 for S.L. and €60,000 for S.A.

Formalities for incorporation:

  • Public Deed + Commercial Register.

Annual accounts in Commercial Register:

  • Yes.

Managing and government body:

  • Shareholders’ meeting and the managing body.

Tax representative:

  • No.

Tax:

  • Spanish corporate income tax at 25% of their net income.
  • If the parent company is resident in a non-EU country which hasn’t got a tax treaty with Spain, the payment of a subsidiary’s dividend to its parent will be taxed in Spain at a rate of 19%.
  • If it is resident in a non-EU country with which Spain does have a tax treaty, the dividends will be taxable at the reduced treaty rate.
  • The interest on loans from the shareholders of a subsidiary is normally tax-deductible for the subsidiary, if the transaction is valued on an arm’s-length basis and subject to certain requirements, subject to the limits on deductibility established in corporate income tax legislation.

online company formation in Spain Online redondito

How Long does it take to set up a limited liability company in spain?

  1. Application for the administrator’s NIE in their country of origin.
  2. Preparation of the POA (Power of Attorney) to apply for  the NIF (tax ID code) of the company who will be shareholder of the Spanish one.
  3. Preparation of the POA to set up the Spanish company and open a bank account for depositing the share capital of the company.
  4. Legalisation and apostille in the country: the POA + the Certificate from the Commercial Register + administrator’s passport.
  5. Application for the Spanish company’s NIF in Spain – approximately 10/15 days once we receive the original apostilled documents.
  6. Preparation of the company by-laws.
  7. Opening a bank account.
  8. Signature of the public deed of the incorporation of the new company at a Spanish Notary's Office.
  9. Obtaining the provisional NIF of the new Spanish company.
  10. Registration of the public deed before the Commercial Register in Spain + obtaining definitive NIF = approximately 15 working days.
  11. Completion of form 036 (Tax Office activity registration) + Registration of the Company in the General Treasury for Social Security – This takes approximately 2/3 days.

 

professional employer organization (PEO) IN SPAIN OR IN EUROPE

The PEO figure or Professional Employer Organization (PEO) is a solution that some HR consulting firms are offering to the market, and it works in such a way that the HR consulting firm hires the employee with the promise that it is cheaper, fast, and done in accordance with local labor laws. But this figure is not legal in Spain, nor even in Europe according to European Directives: Article 43.2 of the Employment Labour Law in Spain states that it's illegal for any company to provide workers to another (except in the case of Temporary Employment Agencies (TEA)).

Those PEO Agencies enroll your employee within their company, carrying out the contract, payrolls and tax obligations, even though the employee will be managed by your company's team, representing your company exactly as if he or she were your employee working to meet your requirements in that country. Nevertheless, this is against national and european employment laws which only allow Temporary Employment Agencies (TEA) to provide this kind of service, and for temporal contracts. If this is not the case, the PEO is committing illegal assignments of workers and both companies, the PEO Agency and the Company could be responsible to the Spanish Employment Inspeccion for employment sanctions, and the employee could sue and make a claim against both companies.

Both companies could be liable in case of accidents, for instance, and there is the possibility that neither Social Security nor the Insurance company would cover medical expenses, incapacity benefits or damages.

We strongly recommend other legal routes, such as a permanent establishment in Spain or an agency contract, which need not be expensive.

 

Conclusions

  • PEO Services are not legal, neither in Spain nor in Europe, given that only Temporary Employment Agencies may provide workers to other companies and only for temporary contracts.
  • The choice between forming a branch or a subsidiary in Spain (Spanish company - S.L. or S.A.) may be influenced by commercial considerations (a company might provide a more “stable” presence than a branch and clients may prefer to invoice a Spanish company) or by legal considerations (a subsidiary limits the shareholder's liability).
  • The most important difference between the permanent establishment and a branch comes down to the post of Director (which exists only in the case of a branch), but both need a liable tax representative in Spain.
  • In fact, the basic difference between the three structures is that of the amount of independence (and liability) with regard to the parent company.
  • In all cases, shareholders (companies or individuals) and directors/tax representatives of companies/branch need to obtain a Spanish Tax Identification Number (NIF), in the case of foreign companies, or a foreigner tax identification number (NIE), in the case of individuals.
  • From the labour payroll and social security perspective, all options are possible, we only need a company NIF, but the Social Security Agency also needs a resident representative in the case of a Permanent Establishment and Branch.

 

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Publication date: 18 December 2020

Last updated: 12 March 2024