Spain
Incorporation Services

Registering a Branch in Spain

A Foreign Investor Can Invest in Spain by:

Opening a branch or representative office

Forming a Spanish company: traditionally, the most-used corporate form has been the corporation (S.A.); however, in recent years the formation of limited liability companies (S.L.s) has also become commonplace.

Associating with other businesses already established in Spain: joint ventures are a common way of setting up business in Spain, since they enable their members to share risks and pool resources and experience. Spanish law provides for different types of joint venture.

However, creating a new entity or associating with pre-existing entities is not the only way to invest in Spain. It is possible to gain a foothold in the Spanish market without having to physically set up a center of operations in Spain by:

Making distribution agreements.
Operating through an agent.
Operating through a commission agent.
Establishing a franchise.

Forming a Branch in Spain

To open a branch, a public deed must be signed and registered at the Mercantile Registry. Under Spanish foreign investment legislation, the branch must be allocated capital, although there is no minimum capital requirement.

The branch must have a legal representative with authority to manage its affairs. It does not have any formal managing or administrative bodies as such, and it largely operates as if it were a company in its commercial dealings with third parties.

The choice between forming a branch or a subsidiary in Spain may be influenced by commercial considerations (e.g., a company might provide a more “stable” presence than a branch) or by considerations of legal certainty (a subsidiary limits the shareholder’s liability).

Formalities
To Register a Branch in Spain

Broadly speaking, the requirements, formalities and costs related to opening a branch are very similar to those for forming a subsidiary.

From a legal point of view, the most important differences between a branch and a subsidiary are as follows:

	SA	SL	Branch
Concept	Company of a commercial nature engaging in a business with its own capital		Permanent establishment, enjoying certain degree of management independence. Vehicle for parent company’s activities. Lacks separate legal personality from its parent company.
Stock Capital	Minimum of €60,000	Minimum of €3.000	Not required
Cash and non-cash contributions	Cash contributions in euros. In the case of an S.A., non-cash contributions require a report from an independent expert appointed by the Mercantile Registrar.
Registration	Public deed must be registered at the Mercantile Registry.		Together with the public deed creating the branch, the documents attesting the existence of the parent company, its by-laws in force, its Directors and the decision of opening the branch, duly legalized, must be registered at the Mercantile registry.

Tax Consideration:

30% Corporate Income Tax rate is applicable to both, the branch and the subsidiary, on their net income. However, certain aspects must be taken into account:

The remittance of income from a branch, or the distribution of dividends from a subsidiary to a parent company not resident in the EU or in a country that has a tax treaty with Spain, is taxed in Spain at 19% (21% for tax years 2012 and 2013). If the parent company is resident in the EU, the remittance/distribution is usually tax exempt.

If the parent company is resident in a non-EU country that does have a tax treaty with Spain, any dividends in the case of a subsidiary will be taxed at the reduced treaty rate, whereas any remittance of income in the case of a branch will not be taxed in Spain (under most tax treaties).

General cost-sharing arrangement with the parent company: in practice, it is usually easier for general costs to be considered deductible in the case of a branch than in the case of a subsidiary.

Interest on loans from the foreign parent company to its Spanish branch is not, in principle, tax deductible by the branch. Interest on loans from the shareholders of a subsidiary is usually deductible by the subsidiary, provided that it is at an arm’s-length rate and the ratio of net remunerated indebtedness is not exceeded (note that the ratio does not currently apply to entities resident in the EU).