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Having decided to do business in Spain, it may be convenient to establish a branch office locally rather than by incorporating a limited company. This will mean that the branch profits will be subject to taxation as a non-resident company and any applicable double taxation treaty. As a non-resident company, the branch need not have a minimum share capital of 3000 € as does a Spanish limited company.
1. Initial steps
In order to set-up a branch it is firstly necessary to expressly agree, in the country of origin of the company, according to the rules established by that country, to create a Spanish branch. In the document that creates the Spanish branch, it is necessary to specify who will be the officers - Managing Director, board of directors - as well as a legal representative in Spain. This latter individual must be resident in Spain.
Later, the Spanish branch of the company is created via the issuing of the corresponding public deeds of incorporation before a Spanish public notary. To begin with, before the notary, the Spanish legal representative of the company should be present and the legal representative should have, among other documentation, the deeds of incorporation of the parent company, in order that they may be transferred to the Spanish branch, the agreement to create the Spanish branch and the agreement to appoint the Spanish legal representative.
It should be noted that all of the documentation should be translated by an Official translator, and legalised with the Apostille from the relevant Spanish Consulate or Embassy.
2. Tax registration
The Spanish branch, once incorporated must obtain a CIF (Fiscal Identification Number) in Spain and should be inscribed in the Mercantile Registry. In addition it is necessary to open a bank account in the name of the Spanish branch and register with the Spanish Tax system. Registration with the Spanish tax system is a requirement for any legal entity before it may begin trading in Spain.
At the same time, it is necessary to register locally for the Economic Activity Tax, at least 10 days before beginning economic activity, though it should be stressed that for tax purposes the branch will be considered as non resident . The fiscal rules that apply to the Spanish branch will depend on the Double Taxation Agreements applicable in the specific circumstances, and if there are none, Company Tax shall apply.
Among other duties the Branch must keep it’s own accounts and the parent company must submit the annual accounts to the Spanish mercantile registry.
3. Legal liability
Legally, it is necessary to highlight that, regarding branches of foreign based companies, they do not have their own ‘legal personality’, that is to say, that they are not a company distinct from the original parent company, even though they be inscribed in the mercantile registry with their own registered number. Accordingly, the founding company is legally responsible for the actions and obligations that may be derived from the activity of the branch, that basically means that the liability of the parent company is unlimited.
As an alternative, and to avoid this issue, a limited company may be established in Spain.