Establishing a subsidiary company in Spain: guide for 2023
With globalization on the rise, an increasing number of businesses and investors are looking to internationalize their operations by establishing subsidiaries, branch offices, or representative offices in foreign countries. Amongst the myriad of potential locations, Spain stands out as a convenient and attractive destination, offering a variety of benefits for those considering the establishment of a subsidiary company. This article aims to provide a comprehensive guide on the ins and outs of setting up a subsidiary in Spain: from the steps to open one, to the benefits and costs.
What is a subsidiary company?
Before delving into the steps of how to set up a subsidiary in Spain, it is important to understand the definition of this business entity. A subsidiary company, or simply a subsidiary, is a type of company that is wholly or partially owned and controlled by another, usually larger, company known as the parent company or holding company.
When a foreign company opens a subsidiary in Spain, it is essentially creating a separate legal entity, which though under the control of the parent company, operates independently in the Spanish market. A Spanish subsidiary of a foreign company has its own legal status, distinct from that of the parent company, and is subject to Spanish laws, compliance standards, and regulations.
Setting up a subsidiary company in Spain involves an investment in the form of share capital, the minimum of which varies depending on the type of business entity chosen. This investment is the parent company’s liability, which typically limits the parent’s financial responsibility to the amount of capital invested.
Understanding these concepts is vital as they play a significant role in the operation, management, and financial structure of a subsidiary in Spain.
When should you set up a subsidiary in Spain?
There are several circumstances under which an organization may consider setting up a subsidiary in Spain:
- Seeking to enter the Spanish or European market: having a subsidiary in Spain can enhance commercial relations with customers and suppliers in Europe, thanks to the country’s access to the Single Market.
- Needing to isolate specific business activities: a subsidiary provides perfect asset independence, as the shareholders of the Spanish subsidiary will never be held responsible for the company’s debts.
- Looking to obtain a bank account in Euro or another currency: a subsidiary in Spain can help in opening a bank account in Euro or other desired currencies.
- Engaging in specific sectors: certain sectors like banking, insurance, and trading may necessitate having a subsidiary for better governance and compliance.
- Strengthening credit recovery: from a psychological perspective, debtors tend to be more inclined to settle their debts knowing their creditor is Spanish.
Establishing a subsidiary in Spain can be a strategic move, providing a foothold in the European market while offering financial and legal autonomy.
What business forms can a Spanish subsidiary adopt?
A subsidiary can adopt two primary business structures in Spain: Sociedad Limitada (S.L.) or Sociedad Anónima (S.A.). Here are some factors to consider when choosing the right form:
- Sociedad Limitada (S.L.):
- This form is the most common for subsidiaries of foreign companies.
- It requires a minimum share capital of 3,000 euros.
- It’s suitable for businesses with a small number of shareholders.
- The transfer of shares is somewhat restricted, providing more control to the original shareholders.
- Sociedad Anónima (S.A.):
- This form requires a minimum share capital of 60,000 euros, of which at least 25% must be paid up at the time of incorporation.
- It is more appropriate for larger companies with a high number of shareholders.
- The shares are freely transferable, making it easier to raise capital.
In general, if the subsidiary is of a foreign company, an S.L. is often advisable and sufficient. It provides a simpler and more affordable option, while an S.A. might be excessive and unnecessary unless the company anticipates a broad shareholder base or plans to go public. Choosing the right form when establishing a subsidiary in Spain depends largely on the specific needs and circumstances of the foreign parent company.
At Lawants we can help you set up your subsidiary company in Spain in less than a week. Contact us today for more information.
Requirements to open a subsidiary company in Spain
Setting up a subsidiary company in Spain requires adhering to several key requirements:
- Minimum Share Capital: This depends on the type of the company being established. A Sociedad Limitada (S.L.) requires a minimum share capital of 3,000 euros, while a Sociedad Anónima (S.A.) demands a minimum of 60,000 euros.
- Legal Representative: The subsidiary company must have a legal representative who is authorized to act on its behalf.
- Bank Account: A Spanish bank account must be opened in the name of the company. This account will be used for the initial deposit of share capital and for all subsequent company transactions.
- Independence: Although a subsidiary is owned by the foreign parent company, it must operate as an independent entity with its own assets, liabilities, and legal obligations.
Although not explicitly stated in the law, it is crucial to have a local administrative body. There should be an administrator who is a fiscal resident in Spain, or at least a person fiscally resident in Spain with administrative powers. Without this, the Tax Agency may conclude that the company does not carry out activities in Spain. For instance, having a local administrator is a prerequisite for the registration of the company’s VAT number for intra-community transactions (VIES).
Setting up a subsidiary in Spain: what are the steps?
Setting up a subsidiary in Spain involves several critical steps similar to those required to start a business in Spain, and the process can be completed in less than seven days. The assistance of corporate lawyers is crucial during this process, given the legal complexities involved. The key steps are as follows:
- Obtain a Tax Identification Code (Código de Identificación Fiscal): This is essential for all shareholders and can require legalisation and translation of documents.
- Obtain the Business Name Certificate: This can be applied for online at the Central Commercial Registry (Registro Mercantil Central), and typically takes around 48 hours.
- Open a Bank Account: Though opening a bank account can be avoided to save time, and the company can open it once established. For more information, consult with our team of professionals.
- Define the Company Bylaws: This is a crucial step where our team of professional lawyers can offer tailored advice based on your company’s specific needs.
- Sign the Deed of Incorporation before a Notary: This involves getting the NIF (Número de Identificación Fiscal) the same day.
- Register with the Commercial Registry (Registro Mercantil).
- Report to the Tax Agency (Agencia Tributaria) and start your operations.
It’s worth noting that it is not necessary for the client to be physically present to set up a new company in Spain. By providing us with power of attorney, our professionals at Lawants can handle all these steps swiftly and professionally.
Taxes and tax deductions for Spanish subsidiaries in 2023
What taxes are subsidiaries in Spain subject to? The Spanish taxation system is relatively straightforward, making it easier for foreign subsidiaries to understand and comply with local tax laws. A basic understanding of these taxes can help you plan your finances better and take advantage of available tax deductions.
- Corporate Tax: In general, the corporate tax rate in Spain is 25% on the company’s profit for the fiscal year. However, in certain cases, start-ups may benefit from a reduced corporate tax rate of 15% for their initial years of operation.
- Tax Deductions: Most expenses necessary for the company’s economic activity are deductible, as long as they are not personal expenses or employee expenses not required for the business operation.
Value-Added Tax (VAT): The standard VAT rate in Spain is 21%. However, there are lower rates at 10% and 4% for certain goods and services.
Moreover, Spain has double tax treaties with 90 countries worldwide, for example the US-Spain double taxation agreement. These treaties can provide tax exemptions or lower tax rates on certain types of income such as dividends, capital gains, and royalties.
Having a clear understanding of these tax principles and regulations can be instrumental in maximizing the financial efficiency of your Spanish subsidiary. However, it is recommended to consult with a tax professional to understand the specific implications for your company. Our tax experts at Lawants can advise you on the benefits contained in the International Treaties to avoid double taxation, helping you to regularize your tax situation.
How long does it take to set up a subsidiary in Spain?
Establishing a subsidiary in Spain is a straightforward process that, with the help of experienced professionals, can be completed in a few days. At Lawants, we specialize in setting up foreign subsidiaries and can help you get your Spanish company and NIF number set up without the physical presence of clients being required.
However, this efficiency does not come without an essential preliminary consultation. Our professionals work closely with each client to understand their specific needs and structure a tailored solution that fits perfectly with their business strategy.
A common mistake that clients make is to rush into establishing a subsidiary without first understanding how they intend to operate within the Spanish jurisdiction. Spain has its own set of legal rules, often unfamiliar to foreign investors. It is therefore critical to secure the help and support of a team of professionals with international experience who can understand your project and guide you in its implementation. This consultancy is a service of immense value that goes beyond simply setting up a subsidiary; it’s about creating a solid foundation for your business operations in Spain.
Benefits of subsidiaries in Spain
Opening a subsidiary in Spain presents several benefits that can contribute significantly to your company’s growth and strategic positioning. Here are some of the key advantages:
- Limited liability: A subsidiary company in Spain limits the liability of its shareholders. This means the shareholders will never be liable for the debts of the parent company.
- Anonymity: Importantly, the identity of the shareholders of an SL (Limited Liability Company) in Spain does not appear in the Commercial Registry. This ensures the anonymity of shareholders from third parties.
- Single Market Access: A Spanish subsidiary allows for seamless operation within the European Single Market, which is a considerable commercial advantage.
- Market Entry: A Spanish subsidiary offers an effective way to enter the Spanish market and from there, expand operations across Europe and even beyond, to other non-European countries.
- Tax Advantages: Spain offers attractive fiscal conditions and has signed numerous double taxation treaties with countries including the United States, countries across Latin America, the United Arab Emirates, and others. This significantly reduces the tax burden for companies operating in multiple countries.
- ETVE Regime: Spain also offers a special fiscal regime called “ETVE”, which is particularly beneficial for companies operating across multiple international markets.
- Flexible Capital: Spanish subsidiary companies offer two options for capital – either €3,000 or €60,000, providing businesses with flexible choices to suit their individual needs.
- Part of an EEIG: A Spanish subsidiary can become part of a European Economic Interest Grouping (EEIG), providing further opportunities for collaboration and business expansion.
A Spanish subsidiary allows your company to operate within a favourable fiscal environment while limiting liability and maintaining shareholder anonymity. These benefits, coupled with access to the European Single Market and potential for expansion beyond, make opening a subsidiary in Spain a strategic move for any international business.
What is the difference between a branch office and a subsidiary in Spain?
The choice between establishing a branch office in Spain or a subsidiary largely depends on a company’s individual business goals and legal considerations. These entities have their unique features, and understanding these differences is crucial for making an informed decision. Below, we present a comparison to highlight these key distinctions:
|Branch Office||Subsidiary (SL/SA)|
|Legal Independence||A branch office is not a separate legal entity from the parent company. It is considered an extension of the parent company.||A subsidiary (either SL or SA) is a separate legal entity from the parent company, with its own rights and obligations.|
|Liability||The parent company is fully liable for the activities and obligations of the branch office.||The parent company is not liable for the subsidiary’s debts or obligations beyond its equity investment.|
|Incorporation Requirements||Generally, less bureaucratic paperwork and lower costs involved in setting up a branch office.||The incorporation of a subsidiary involves more formalities, including the drafting of bylaws, and tends to be more expensive and time-consuming.|
|Minimum Capital Requirements||No minimum capital requirement for a branch office.||For an SL, the minimum capital requirement is €3,000. For an SA, it’s €60,000.|
|Taxation||Branch offices are liable for taxation on their worldwide income in Spain, just like any other Spanish company.||Subsidiaries are subject to Spanish Corporate Tax, but only on their Spanish-sourced income and worldwide income remitted to Spain.|
|Management||The branch office is managed by a legal representative appointed by the parent company.||Subsidiaries have a more complex management structure, typically with a Board of Directors.|
In essence, a branch office is simpler and less costly to establish, but a subsidiary provides more legal protection and independence. The key differences between SL and SA were covered in a previous paragraph, but the choice between a branch office and a subsidiary should be based on the specific needs, strategy, and long-term goals of the parent company. It’s crucial to carefully evaluate all these factors to make the right decision for your business.
Spain Subsidiary Laws
Setting up a subsidiary in Spain is subject to several legal requirements and regulations to ensure the subsidiary operates within the confines of Spanish law. Some key laws and regulations include:
- Corporate Law: The creation and operation of a subsidiary, whether it’s an SL (Sociedad Limitada) or SA (Sociedad Anónima), are governed by Spanish Corporate Law. This law outlines the necessary steps to establish a subsidiary, including minimum share capital requirements, drafting bylaws, appointment of directors, and more.
- Tax Law: Spanish Tax Law governs the taxation of subsidiaries. They are generally subject to corporate tax on their worldwide income. They may also be eligible for certain tax deductions and benefits, depending on various factors.
- Labor Law: Spanish Labor Law applies to the employment of staff within the subsidiary. It dictates matters such as minimum wage, working hours, health and safety regulations, and social security contributions.
- Commercial Law: Commercial Law governs the subsidiary’s commercial activities, including contracts, trade, sales, and consumer protection.
- Data Protection Law: If the subsidiary handles personal data, it must comply with the Spanish Data Protection Law, which is aligned with the General Data Protection Regulation (GDPR) of the European Union.
- Foreign Investment Law: In certain cases, foreign investment in Spain, such as through a subsidiary, may be subject to Spanish Foreign Investment Law. This law might involve certain notification or authorization requirements.
Remember, these laws are complex, and non-compliance can result in penalties and legal consequences. Therefore, seeking professional legal advice when setting up a subsidiary in Spain is highly recommended to ensure you fully understand and comply with all relevant laws and regulations.
In this section, we aim to provide concise and direct responses to frequently asked questions about opening a subsidiary in Spain.
What is a subsidiary?
A subsidiary is a separate legal entity owned by another company, known as the parent or holding company. It enjoys its legal status, separate from the parent company.
How much does it cost to open a subsidiary in Spain?
The cost can vary, but the minimum share capital for an SL (Sociedad Limitada) is €3,000, and for an SA (Sociedad Anónima), it’s €60,000. Additional costs include legal, notary, and registration fees.
What is the corporate tax rate for subsidiaries in Spain?
The standard corporate tax rate is 25%. However, certain startups may qualify for a reduced rate of 15% for the first years of operation.
How long does it take to set up a subsidiary in Spain?
With professional assistance and if all required documents are in order, it’s possible to set up a subsidiary in Spain in less than seven days.
Can I open a subsidiary in Spain without being physically present?
Yes, it’s possible to set up a subsidiary without being physically present in Spain. The process can be managed through power of attorney and professional legal assistance.
What is the difference between a subsidiary and a branch in Spain?
A subsidiary is a separate legal entity from the parent company, while a branch is not. They have different legal, financial, and tax implications. It’s essential to consider these differences when choosing the appropriate structure for your business in Spain.
What are the costs of opening a subsidiary in Spain?
The cost of opening a subsidiary in Spain can vary, depending on several factors such as the specific operations of the company, the number and nature of the shareholders, and the documents required. Our firm is highly experienced in optimizing these costs: contact us for a more detailed and personalized cost estimate, tailored to your specific business needs and goals.
Can a foreigner set up a subsidiary in Spain?
Yes, foreigners can indeed set up a subsidiary in Spain. There are no limitations imposed based on nationality. Any person or legal entity, regardless of their country of origin, can be a shareholder or administrator of a company in Spain. This inclusivity makes Spain an attractive destination for international businesses looking to expand their operations. Whether you’re an individual entrepreneur or represent a multinational corporation, the Spanish business environment is open and welcoming to all.
What documentation is needed to establish a subsidiary in Spain?
When setting up a subsidiary in Spain, the following documentation is required:
- If the shareholder is an individual: A copy of the identification document (or passport) and the NIE (“Número de identificación Extranjero” – Foreigner Identification Number).
- If the shareholder is a legal entity: A copy of the company’s registration document authenticated by a Notary and certified with the Apostille of The Hague, and a copy of the legal representative’s identification document. You will need to apply for the company’s NIF (Tax Identification Number) and the legal representative’s NIE.
What is the minimum capital required to set up a subsidiary in Spain?
The minimum capital required to establish a subsidiary in Spain varies depending on the business form adopted. For a “Sociedad Limitada” (S.L.) the minimum required capital is €3,000. However, if you plan to establish a “Sociedad Anónima” (S.A.), the minimum required capital is €60,000.
What are the regulations for Spanish subsidiaries with a non-EU parent company?
Spanish subsidiaries with non-EU parent companies are regulated under the “Real Decreto Legislativo 1/2010, de 2 de julio, por el que se aprueba el texto refundido de la Ley de Sociedades de Capital”. This legal document contains all the regulations governing capital companies, including subsidiaries with parent companies outside the European Union. You can access the complete text here.
Can a subsidiary in Spain form an EEIG?
Indeed, a subsidiary in Spain, or a subsidiary that is a tax resident of another European Union (EU) member state, is eligible to form a European Economic Interest Grouping (EEIG). This opportunity extends even to non-EU companies, as long as they operate through a subsidiary within the EU, which is governed by EU regulations and maintains central management at the community level. The fundamental prerequisite for establishing an EEIG is that the participating companies must originate from different EU nations, implying at least two of the companies must be from different EU countries.
How Lawants can help you set up your subsidiary company
Lawants is here to streamline your journey of setting up a subsidiary in Spain. We are equipped to help you establish a Spanish subsidiary in less than a week, and we do this without the need for the physical presence of partners in Spain. However, what truly sets us apart is our commitment to providing comprehensive preliminary consultancy services.
Before we set up your company, we work closely with you to ensure that you are fully aware of how to use and operate your subsidiary in Spain. We aim to make doing business in Spain as swift, comfortable, and professional as possible for foreign companies. Consider us as your home away from home in the world of Spanish business. Our team of English-speaking lawyers is at your disposal, ready to offer the guidance you need to navigate this new business landscape effectively.
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