The branch (Sucursal), the permanent establishment (Establecimiento permanente) and the subsidiary (Filial) are forms of company suitable for foreign companies wishing to establish and do business in Spain.
The activities that can be carried out with the above-mentioned companies are basically similar. However, there are differences on the legal side.
Branch (Sucursal)
The branch office (sucursal) does not have its own legal personality, but is subject to the legal entity of the foreign company to which it belongs. In this case, the liability is assumed by the foreign entity in a mandatory and unlimited manner. The scope of its activities is limited to the corporate purpose of the main company abroad.
The branch has its own rules of procedure. Furthermore, there is a managing director who exercises powers granted to him from abroad within the scope of his power of attorney. His registration in the Commercial Register is required.
The double taxation treaty applies in principle. If none exists, the branch is subject to taxation of non-resident income earned in Spain. Here the applicable rate is 25%. A NIF (Número de identificación fiscal) is required.
No share capital or minimum allotment is required for incorporation. However, the execution of a public deed regarding the incorporation, the registration in the Commercial Register and the filing of annual financial statements are required.
Permanent establishment (Establecimiento permanente)
The permanent establishment (Establecimiento permanente) is a legal entity that carries out activities in Spain through a foreign company without creating a new company. Thus, it does not acquire a new legal personality, since the foreign one is maintained.
The foreign entity assumes liability for all acts of the permanent establishment. The scope of activities is limited to those of the foreign entity, just as in the case of the branch.
If the foreign company is duly incorporated and registered in an EU member state, it can automatically operate in Spain without the need for further authorizations, unless there are administrative controls on the activity sought.
Profits are taxed in the country/territory in which they are earned.
Unlike the subsidiary and the branch, the permanent establishment does not require the execution of a public deed. Likewise, there is no entry in the Commercial Register and no filing of annual accounts. The existence of the permanent establishment in legal relations is due to tax regulations, social insurances and contractual relations. A NIF must nevertheless be applied for.
Subsidiary (branch)
The subsidiary (branch) has its own legal personality and acts as an independent legal entity. Thus, in principle, it is liable with its own contributions. In the case of the subsidiary, in contrast to the branch and the permanent establishment, a different corporate purpose may be provided for than that pursued by the foreign company.
The subsidiary is taxed separately as a separate company and is therefore subject to the Spanish corporate income tax rate of 25%. However, expenses incurred by the foreign company in the form of royalties, interest and commissions are tax deductible.
A share capital of €3,000 in the case of limited liability companies (SL) or €60,000 in the case of public limited companies (SA) is required for its establishment. For their establishment, as for the branch, an execution of a public deed is required, as well as an entry in the Commercial Register and the preparation and filing of annual accounts. A NIF is required.
Author:
Dr. Dominic John Patrick Porta, LL.M.
Attorney at Law (Düsseldorf Bar Association n° 52954)
Abogado (ICAIB n° 6645)
dominic.porta@anwaltmallorca.eu
www.anwaltmallorca.eu
