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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.

 


JOS BUENA RESOLUCIÓN

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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 + 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.

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Conclusions:

  • 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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