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Lawyer advice for setting up branch - permanent establishment in Spain

PERMANENT ESTABLISHMENT IN SPAIN

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

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 establisment. No Trade 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. (It is the Director 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 nonresident income tax at 25% on their net income. (= branch)

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BRANCH IN SPAIN:

A branch is a permanent establishment, enjoying 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 + Trade 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 (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 it is the same person as the Director).

Tax:

  • Spanish nonresident income tax at 25% on 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, the remittance of branch profits will be exempted from tax in Spain, under most treaties.
  • 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.

What it's needed when setting a branch in spain:

When setting 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, 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 legalized and/or certified by apostille of the Hague Convention.
  4. Certificate of the Companies Registry proving the existence of the parent company, address, and the names and personal details of its directors certified by apostille of the Hague Convention.
  5. Passport of the director/legal representative of the parent company certified by apostille of the Hague Convention.
  6. Name of the individual residing in Spain to 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 her Passport and NIE number.

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


JOS BUENA RESOLUCIÓN

"USK US LEGAL COSTS FOR SETTING UP A COMPANY IN SPAIN"

 

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 + Trade 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% on 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 has 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

 

professional employer organization (PEO) IN SPAIN OR IN EUROPE:

The PEO figure or Professional Employer Organization (PEO) is a solution some HR consulting firms are offering to the market, and it works in a way that the HR consulting firm hires the employee with the promise it is cheaper, fast, and done in accordance with local labor laws. But this figure is no legal in Spain, even in Europe according to European Directives: Article 43.2 of the Employment Labour Law in Spain says it's illegal that any company can provide handwork to other (except Temporary Employment Agencies (TEA).

Those PEO Agencies enrolls your employee within their company performing the contract, payrolls and tax obligations although the employee will be managed by your company team, representing your company exactly as if he or she were your employee working to meet your requirements in that country. Nevertheless, this against national and european employment laws which only enables to provide this kind of service to Temporary Employment Agencies (TEA) 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 in front of the Spanish Employment Inspeccion for employment sanctions, and the employee can sue and claim to both companies.

Both companies could be responsible in case of accidents, for instance, and there is the possibility neither the Social Security or the Insurance company would cover medical expenses, incapacity benefits or damages.

We strongly recommend other legal figures that not necessary must be expensive, like a permanent establishment in Spain, or an agency contract

Conclusions:

  • PEO Services are not legal in Spain, neither in Europe since only Temporary Employment Agencies may provide handwork to other companies only for temporary contracts.
  • The choice between forming a branch or a subsidiary in Spain (Spanish company - S.L. 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 is the post Director (which exist only for branch), but both need a liable tax representative in Spain.
  • In fact, the basic difference between the three structures is the more or less 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) for the foreign companies and a foreigner tax identification number (NIE) for the persons.
  • From labour payroll and social security all options are possible, and we only need a company NIF, but the Social Security Agency also needs a resident representative in case of Permanent Establishment and Branch.

 

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Fecha de publicación: 18 December 2020

Última actualización: 17 April 2021