Setting up a branch office in Spain: the steps of the registration process
The prospect of expanding your business operations into Spain can be both exciting and rewarding. This guide aims to navigate you through the intricacies of opening a branch office in the thriving Spanish market. Spanning from the preliminary decision-making to understanding the legal framework, this article will equip foreign businesses and entrepreneurs with essential knowledge for their strategic investment, delving in each step required to set up a branch company in Spain.
What is a branch office?
A branch office, or “sucursal” as known in Spain, serves as an extension of the parent company, devoid of its own separate legal status. However, it does possess a fiscal personality. This distinction implies that a branch office does not exist as a separate legal entity – there are no shareholders, no administrators, and no meetings conducted. The entire structure, instead, is simply an extension of the foreign company in Spain.
A branch office, in Spain as in many other countries, features several key characteristics, including aspects of liability, taxation, initial capital, and the need for a local representative. Particularly, it’s important to note that a branch must have a fiscal representative in Spain who will be responsible for all tax debts of the branch with the Spanish Tax Agency. This represents an extreme risk for the individual assuming such representation, making a branch office less suitable for companies planning to operate in Spain in the medium to long term.
Difference between a branch office and a subsidiary in Spain
A key strategic decision for any foreign business planning to operate in Spain revolves around choosing amid the numerous types of company in Spain and decide whether to establish a branch office, a subsidiary, or a representative office. Each has its distinctive advantages based on the nature and duration of the planned business activities.
A branch office can be a strategic choice for companies undertaking specific, time-bound projects in Spain and who are not interested in the process of forming and later dissolving a full company in the country. In contrast, if the foreign company has ongoing operational interests in the country, there is no doubt that a full-fledged subsidiary in Spain (a separate company) should be established.
Alternatively, a representative office in Spain involves obtaining a simple tax identification code, known as NIF “N”, to hire employees or for specific commercial operations like “consignment stock”. However, this type of office does not carry out any activity in Spanish territory and is not considered to have a branch or a permanent establishment.
To summarise, a foreign company wishing to obtain an identification code in Spain (NIF “N”: representative office) will not be subject to any tax obligations and will not be considered a resident for VAT purposes. However, if a company needs to carry out a specific activity and issue sales invoices to customers, it will need to open a branch office in Spain and will be assigned NIF “W”. This structure will be subject to VAT declarations and the Corporate Tax (“Impuesto de Sociedades”).
Requirements for establishing a branch office in Spain
The process of establishing a branch office in Spain comes with its specific requirements, just as opening or buying a business in Spain. Although it is possible to sign the act of opening and establishing a branch in front of a Notary in Spain, this step is not strictly necessary.
If the establishment of the branch is justified by a specific, time-bound operation (for example, the construction of a wind or green energy park), it will suffice to justify the purpose of the branch with a private document and request the NIF “W” directly from the Tax Agency.
Please note that the complexity of the procedures and the specific needs of your business might require further clarification and assistance. To get a comprehensive understanding and to analyse your specific case, we highly recommend getting in touch with our team of experts.
Steps for branch office registration in Spain
Opening a branch office in Spain, while similar in many respects to starting a business in Spain, has its unique steps and procedures. A branch does not have bylaws, an administrative body, or legal personality and therefore does not have a corporate name different from the foreign company. It functions as an extended arm of the foreign company reaching into Spain.
If you decide to establish a branch by signing in front of a Notary (a choice we generally do not recommend), you will need the resolution of the company to open the branch abroad, as well as a power of attorney in favor of the person who will be appointed as the fiscal representative in Spain.
If, however, you choose to simply obtain the NIF “W” from the Spanish Tax Agency, a simple power of attorney in favor of the fiscal representative and a private document justifying the need to open a branch will be sufficient.
Key steps to open a branch in Spain include:
- Application for the necessary documentation, including a certificate of incorporation, a foreigner identification number (NIE), and a digital certificate.
- Reservation of the branch name (note that the branch does not have a different name from the parent company).
- Appointment of a fiscal representative in Spain.
The estimated time frame for the entire process can vary based on various factors and specific business needs.
Important to note: A branch, or ‘sucursal’, does not have a legal representative in Spain, but only a fiscal representative who will be responsible for all the TAX branch’s debts.
At Lawants we can help you swiftly set up your branch office in Spain. Contact us for our tailored services and start operating in the spanish market.
Advantages of opening a branch office in Spain
Establishing a branch office in Spain offers certain benefits and advantages, but it’s crucial to understand that there are no specific fiscal incentives or tax benefits associated with this form of business setup. Unlike other legal entities, the branch office has a complex tax structure.
The branch office will pay corporate tax in Spain for the activities carried out within the territory. However, the parent company abroad must also declare the same income produced in Spain in its home country. This circumstance results in double taxation that needs to be resolved (in the home country of the company) based on international treaties to avoid double imposition, such as the US-Spain double taxation treaty.
In the absence of such a treaty with Spain, the tax effect can be extremely heavy, and for this reason alone, operating with a branch in Spain may not be feasible. It’s therefore crucial to fully comprehend the implications and consult with tax professionals before deciding to establish a branch office in Spain.
At Lawants, our tax experts can advise you to understand the specific implications for your company and advise you on the benefits contained in the International Treaties to avoid double taxation.
Taxation, accounting and legal obligations of a branch office in Spain
A branch office, or “sucursal” in Spain, despite not being a separate legal entity, has several taxation, accounting, and legal obligations that must be met.
From a tax perspective, a branch office in Spain is subject to the same tax laws as Spanish companies. The branch office must pay corporate tax, similar to any company based in Spain. The branch must also fulfill Value Added Tax (VAT) obligations, manage withholdings, and submit corporate tax returns. These tax implications are part of the regular tax compliance that all entities conducting business in Spain must comply with.
Moreover, the branch is obligated to maintain proper accounting records. These records must align with Spanish accounting standards and be made available for auditing purposes. Regular financial statements must also be prepared and filed.
In terms of legal obligations, while the branch does not have the same requirements as a corporation, given its lack of separate legal personality, it is nonetheless required to operate within the laws and regulations of Spain. This includes labor laws, commercial laws, environmental laws, and any other relevant legislation.
Given the complexity of these obligations, foreign entities establishing a branch office in Spain should consult with local experts to ensure they are in full compliance with these requirements.
When considering opening a branch office in Spain, various questions often arise. Given the unique legal status of a branch office, or “sucursal”, it’s essential to understand what this entails and how it could impact your business operations. Here, we address some of the most frequently asked questions regarding the establishment of a branch office in Spain. The specific questions and detailed answers will follow in the subsequent paragraphs.
How to employ from a branch office in Spain?
The process of hiring is similar to other businesses in Spain. A point to note however is that foreign companies don’t necessarily need to establish a branch office or subsidiary to employ personnel in Spain. It’s possible to employ workers directly under the foreign company itself, provided that the company identifies itself with an NIF “N” (Non-Resident) and establishes a representative office.
How much does it cost to set up a branch in Spain?
The costs to set up a branch office in Spain can vary depending on the specifics of the operation. Generally, potential costs could include:
- Notary fees (if necessary)
- Legal and professional advisory services
- Costs related to the acquisition or rental of office space
- Costs related to compliance with local regulations (labor law, tax, etc.)
- Operational expenses, such as utilities, office supplies, etc.
What is the difference between a limited company and a branch in Spain?
A Limited Liability Company (Sociedad de Responsabilidad Limitada, S.L.) and a branch office (sucursal) in Spain represent two entirely different entities: a Limited Liability Company is a separate legal entity with its own legal personality; it has shareholders, a management body, and legally exists as a distinct entity. On the other hand, a branch office is effectively an extension of the parent foreign company it doesn’t possess its own legal personality but instead operates under the legal umbrella of the foreign company.
What is the difference between a representative office and a branch office in Spain?
A branch office (sucursal) and a representative office (oficina de representación) in Spain have distinct characteristics and operational frameworks. A branch office operates as an extension of the foreign parent company. It does not possess its own legal identity but instead assumes the legal status of the foreign parent company in Spain. Importantly, a branch office is considered a stable organization for VAT and corporate tax purposes, meaning it is subject to the same tax obligations as Spanish companies, despite being a foreign entity. In contrast, a representative office does not reach the status of a stable organization in Spain. As such, it has more limited functions and carries fewer fiscal obligations.
What are the office facilities when opening a branch?
When establishing a branch office in Spain, the company needs to set up a physical location to carry out its operations. This does not come with any specific facilities included; instead, the foreign parent company is responsible for establishing and maintaining these based on its specific needs.
Here are some potential office facilities:
- Registered Office: This is the official address of your branch where all formal communications will be sent. It is a legal requirement to have a registered office in Spain.
- Serviced Office: This is a fully equipped and managed office space which is rented out to businesses. It includes essential office facilities such as desks, chairs, internet connection, telephone lines, meeting rooms, and reception services.
- Virtual Office: This is an option for businesses that don’t require a physical space but still need a business address and potentially other services like mail forwarding or telephone answering.
- Co-working Space: This is a shared workspace where multiple companies or self-employed individuals work together in a communal setting. It offers facilities like shared utilities and services, meeting rooms, and networking opportunities.
- Own Premises: The company may choose to purchase or lease its own building or office space, in which case it would be responsible for setting up and maintaining all required facilities.
Remember, the choice of office facilities will largely depend on the nature and needs of the business operations in Spain.
Are there any disadvantages in opening a Spanish branch office?
Opening a branch office in Spain, like any business decision, comes with its own set of challenges and disadvantages. These include:
- Double Taxation: As noted earlier, branch offices pay corporate taxes in Spain for their activities conducted within the country. However, the parent company must also declare the same income in their home country. This could lead to double taxation if there is no treaty between Spain and the home country to avoid this issue.
- Limited Autonomy: Branch offices do not have their own legal personality separate from the parent company.
- Liability: Unlike subsidiaries that have limited liability, branch offices do not offer this protection. The parent company is fully liable for the debts and obligations of its branch office in Spain.
- Complex Management: Managing a branch office can be complex, especially when it comes to accounting and tax compliance. These offices must comply with Spanish laws, which might differ considerably from those of the parent company’s home country.
- Image Perception: Sometimes, a branch office might not be viewed as a local entity, which can impact relationships with clients, suppliers, or other businesses. A local subsidiary company may be more favorably received by local business partners and customers.
How LaWants can help your company
At LaWants, we understand the complexities involved in establishing a branch office in Spain. With our wide array of services tailored to meet your specific needs, we stand ready to assist you at every step of the way.
- Legal Procedures and Documentation: Our team of experienced professionals can guide you through the legal procedures required to set up your branch office in Spain. We can assist you with all necessary documentation, from obtaining the certificate of incorporation to applying for the necessary tax identification numbers.
- Compliance with Spanish Laws: It is crucial to ensure your branch office is in compliance with all Spanish laws and regulations. Our knowledgeable team can advise you on these matters, helping you understand and navigate the complex Spanish legal and tax landscape.
- Representation Services: With the absence of a legal representative in a branch office, the appointed fiscal representative plays a crucial role. We can act as your fiscal representative in Spain, shouldering the responsibility for your branch’s debts and ensuring all tax obligations are fulfilled.
- Tailored Solutions: Every business has its unique needs. At LaWants, we take time to understand your specific situation and offer solutions tailored to your requirements. Whether you aim to establish a branch office, a representative office, or a subsidiary, we can provide expert advice to help you make the best decision for your business.
Trust LaWants to make your venture into Spain smoother and more efficient. Contact us for further details and let us help you transform your Spanish business aspirations into reality.