Ways for a foreign when investing and operating in Spain
Written by Josep Conesa
Labor and bankruptcy lawyer
To create a Limited Liability Company ("Sociedad de responsabilidad limitada"), with its own legal personality.
To operate through a branch ("sucursal") or a representative office ("establecimiento permanente"), without own legal separate personality.
The main differences between such entities are the following:
1. Limited Liability Company in spain
Personal Liability of the shareholders: generally limited to the amount of the capital stock contributed by each of them (except abuse of law).
Minimum capital stock: 3000 € (payment in full upon incorporation).
No minimum number of shareholders is required. Shareholders can be individuals or companies.
Governing bodies: a) Shareholder's meeting (the supreme governing body): The Ordinary shareholders meeting takes place within the first six months of the financial year to approve, if appropriate, the annual accounts of the prior year; b) Director/s (the governing body, which may be entrusted to a sole director several directors acting on a a several or joint basis or a board of a minimum of three directors). Directors do not need to be Spanish citizens and do not need to be shareholders.
Shares can be transferred through a public deed.
Financial statements: Annual accounts and the distribution proposal of profit proposed by directors are approved by the ordinary shareholders' meeting within six months of the fiscal year ended. Annual accounts of the Spanish company must be registered at the Trade Register.
Dividend distribution: The profit can be distributed by dividends to the shareholders in proportion to the capital they have contributed. Its is also possible the payment of interim dividends.
Steps for the incorporation: to obtain a Certificate issued by the Central Commercial Registry with the corporate name, to open a bank account, to prepare the articles of association, to execute a public deed before a Public Notary, to submit the public deed to the Trade Register. To obtain the NIF of the Spanish Company, to obtain the electronic signature certificate of the company. To register the company before the Spanish Tax Agency, the Tax Agency of Cataluña and before the Social Security Office. To inform the Ministry of the Economy about the foreign investment.
Tax: liable for the corporate income tax (rate of 15 % for the two first periods in which they have taxable incomes and a rate 25 % from the third and following)
2. Branch in spain
Secondary establishment with a permanent representation and certain management independence.
Liability: no limit to the parent company's liability, that is, their activity and legal liability will be directly related to the parent company of the foreign investor.
There is no capital required (however it is advisable for practical reasons).
A branch does not have decision-making body in the form of a board or meeting. It is needed a representative resident in Spain, who acts as attorney of the branch in the name and on behalf of the parent company, specially for tax matters (tax representative).
A branch can not be transferred because it does not have legal personality.
Financial statements: The branch must keep their own accounts with respect to the transactions they perform and their assets. The branch must deposit the annual accounts of the foreign parent company at the Spanish Trade Register.
Dividends distribution: dividends do not exist, because profits pertain strictly to the parent company.
Steps for the incorporation: Public deed creating the branch (with some documents of the foreign head office) which must be registered at the Trade Register. To open a bank account. To grant special powers to act with Spanish banks to the tax representative or others.To obtain the Spanish Tax Identification Number (NIF).To obtain the electronic signature certificate of the branch. To register the branch before the Spanish Tax Agency, the Tax Agency of Cataluña and before the Social Security Office. To inform the Ministry of the Economy about the foreign investment.
Tax: liable for the non resident income (in general terms, are taxed at the same rate as Spanish companies, 25 %).
3. Representative office in spain
It does not have its own legal personality independent from the parent company (no limit to the parent company's liability). The steps of incorporation are the same that for a branch except that there is not need to grant a public deed and it is not necessary to register the representative office at the Trade Registry. It is necessary to appoint a tax representative resident in Spain.
In principle, the activities of a representative office are limited, essentially coordination, collaboration etc.
The steps and cost of incorporation, formal obligations, cots of maintenance (tax, quickbooks, and labour issues) are almost the same for all entities. That's why we consider that the best option seems to create a limited liability company. In fact, the basic difference is the more or less independence (and liability) with regard to the parent company.
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The remittance of branch profits and the payment of a subsidiary's dividend to a non EU parent company resident in non-treaty country are taxable in Spain at the rate of 19%. if the parent company is resident in a non EU country with which Spain does have a tax treaty, the dividends would be taxable at the reduced treaty rate (under the most of treaties, the remittance of branch profits would be exempt from tax in Spain).
Its is usually easier to qualify parent company overhead as deductible expenses in the case of a branch that in the case of a subsidiary.
The interest on loans from the shareholders of a subsidiary is usually tax-deductible for the subsidiary (subject to certain requirements). The interest on loans from a foreign parent company to its Spanish branch is not tax-deductible for the branch.
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Labour formalities to open a branch or a subsidiary
It is necessary to record the company/ branch/representative office before the Spanish Social Security authorities (and to obtain a social security contribution account code), to notificate the hiring of employees with the social security authorities before workers start work. Moreover, it is necessary to notify to the labour authorities the start of activities at the workplace.
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. Documents required:
- Certificate of the Trade Register where the parent company is incorporated, legalized by a Notary and apostilled, with a sworn translation.
- Copy of the passport of Director (or tax representative) in Spain of legalized by a Notary and duly certified by apostille.
- Copy of the passport of Director of the parent company legalized by a Notary and duly certified by apostille.
Please do not hesitate to contact to our Lawyer in Barcelona for further information.
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