Setting-up a branch vs. subsidiary in Spain
A branch and a subsidiary are the two main legal forms through which a foreign investor can develop their activity in Spain. While a subsidiary is an independent and autonomous legal entity, different from its parent Company, for which it participates in the market on its own account and risk, a branch is a secondary establishment completely dependent on its parent Company, being a mere extension of the latter on Spanish territory.
Branch vs. Subsidiary
Even though establishing a branch and a subsidiary generally follow a very similar process – the granting of a Public deed of incorporation before a Notary and registration in the corresponding Spanish Commercial Registry requirements are the same- both entities have a number of differences which one should necessary consider when making the decision between one and the other. The most significant differences are the ones summarized in the table below:
| Branch | Subsidiary | |
| Legal personality | Does not have its own legal personality (it is the same legal entity as its foreign parent Company). | A subsidiary does have its own legal personality. It is for all legal purposes a legal entity, independent from its foreign parent Company. It is subject to the rights and obligations it contracts independently from the ones undertaken by its parent Company. |
| Minimum share capital | Does not require a minimum share capital or economic allocation at the time of its establishment. Nonetheless, this does not prevent the parent Company from deciding on the attribution of the capital it considers appropriate for its branch. | 3.000 € or 60.000 €, depending on whether it is established as a Limited Liability Company (LLC) or a Public Limited Company (PLC) respectively. |
| Board of administration and governing body | The representative of a branch (acts as an agent within the limit of the powers granted to him by the parent Company). | General meeting of Partners/Shareholders and a corresponding governing body (sole director, joint or solidary directors or Board of directors). |
| Liability of the parent Company | Unlimited liability: a foreign parent Company must assume, without limitation, the responsibilities contracted by its branch. | Liability is limited to the contributions made: a subsidiary itself is liable with all of its assets for the debts it has contracted without affecting, in principle, its foreign parent Company. |
| Taxation | First, the rules of the corresponding Double-Taxation Agreement apply. In its absence, a branch is subject to the Income of Non-Residents for all the income obtained in Spain, the applicable general tax rate being 25%. As a distinctive feature, a branch may fiscally deduct the corresponding general administration and management expenses. | The subsidiary is always subject to the tax on Spanish Companies whose general tax rate is 25%. Unlike a branch, a subsidiary can deduct the payments made to its foreign parent Company in the form of royalties, interests or commissions. |
To be advised on the decision to invest in Spain through a branch or a subsidiary, do not hesitate to contact Mariscal Abogados, your legal advisers in Spain.
José María Mesa
