Belzuz Abogados is frequently asked by clients from outside Spain to advise them on the creation of "corporate" vehicles, which allow them to develop their business in Spain in an effective manner. Mainly, this task is usually carried out through two alternative ways: I) the incorporation of a commercial company (subsidiary) in Spain; or II) the creation of a branch of the main company with headquarters in Spain.

In this article, we intend to summarize the differences between the two routes, as well as mentioning the basic steps and formalities required in both cases.

Brief overview of the nature of the Permanent Establishment

Firstly independently of the vehicles that will be dealt with in this article, subsidiary and branch, there is also the figure of the so-called Permanent Establishment, which would essentially consist of the development of the commercial activity of a foreign entity directly in Spain, without the creation of any entity or corporate vehicle of any kind. Thus, it would be the foreign company that would assume all the responsibility derived from the activity carried out by the Permanent Establishment.

The Permanent Establishment is a concept that has arisen more from tax legislation than from corporate legislation and its purpose is to prevent the profits that may be generated in Spain by companies established mainly in an EU Member State and which operate under the principle of free movement of goods, services, etc., from remaining untaxed in Spain.

Thus, Permanent Establishments would be regulated by tax legislation. In particular, in the Consolidated Text of the Non-Residents' Income Tax Law (Article 13).

MAIN CHARACTERISTICS AND LEGAL DIFFERENCES BETWEEN THE ESTABLISHMENT OF A SUBSIDIARY AND A BRANCH IN SPAIN

As mentioned above, in general, the main vehicles through which a foreign company carries out its activity in Spain are the incorporation of a subsidiary and the creation of a branch.

By setting up a subsidiary, an independent entity is created, autonomous and distinct from its main foreign company, thus acting in the market under its own responsibility and assuming its own risk and risk of loss in the activity it carries out.

On the other hand, the branch is an ancillary and totally dependent establishment of the main entity, being therefore an extension of the latter in Spanish territory and, therefore, the responsibility for the activity it carries out falls fully on the main foreign entity.

Similarities between the incorporation of a subsidiary and the creation of a branch office

As regards incorporation in the case of subsidiaries or creation in the case of branches, both have certain similarities at a basic level. In both cases, it is necessary to notarize the corresponding incorporation or creation agreements in a public deed before a notary and in both cases, it is compulsory to register them in the corresponding Companies Register.

However, there are substantial differences between the two legal forms, which must be considered when choosing between the two legal vehicles. The most relevant differences are included in the following comparative table:

Incorporation of a subsidiary

The steps for setting up a subsidiary are, broadly speaking, as follows:

· Agreement of the administrative bodies of the parent company agreeing to the incorporation of the subsidiary.

· Application for a negative certificate of denomination at the Central Mercantile Register, to ensure that there is no other company with the same name.

· Opening of a bank account in the name of the company and deposit of the share capital.

· Execution of the deed of incorporation of the company before a notary.

· Foreign Investment Declaration.

· Obtaining the provisional Spanish Tax Identification Number (NIF), registration for Business Tax and census declaration.

· Registration in the Mercantile Register.

· Application for the definitive Spanish Tax Identification Number (NIF).

Establishment of a branch

Competent body for setting up a branch

Firstly, as regards the competence to establish a branch, the management body is usually competent to agree on the establishment of a branch. However, in the case of the establishment of a branch by a foreign institution, the national law of that institution and the provisions of its Articles of Association should apply.

Name of branches

The opening of a branch does not imply the creation of a new legal entity, therefore, the name of the branch may be the same as that of the main institution, adding, where appropriate, a reference that identifies the branch and sufficiently individualizes it during business.

Obtaining the necessary Tax Identification Numbers (NIFs)

Prior to the registration of the branch in the Mercantile Register, it is necessary for both the main foreign entity, the branch manager, and the branch itself to obtain a Spanish tax identification number.

Registration of the branch in the Mercantile Register

In the case of the creation of a branch of a foreign entity, it is not the foreign company itself that enters the Mercantile Register, but its establishment in Spanish national territory. The registration of the branch must be made in the Mercantile Register corresponding to the place of domicile established for the branch.

Permanent legal representative, manager, of the branch

The foreign entity must appoint one or more persons to permanently represent the branch in Spanish territory.

Foreign investment in Spain

When a branch is created with an endowment or the extension of such endowment, the investment must subsequently be declared to the Register of the Directorate General for International Trade and Investments of the Ministry of Industry, Trade and Tourism.

Creation of a bank account in a Spanish bank entity in the name of the new branch

Although it is not initially necessary, given that a deposit of share capital is not required, the creation of a bank account will in practice be necessary to develop the branch's activity independently from its main entity and to be able to make payments and receive transfers independently from that of the main company.

It should not be forgotten that each potential business to be developed in Spain may give rise to multiple variants that must be considered when planning the creation of the appropriate specific corporate vehicle.

Therefore, if your business project requires an analysis of which form of developing your business in Spain is most convenient in all aspects, do not hesitate to contact Belzuz Abogados for advice.

  Igor Orozco Román

Departamento Derecho mercantil y societario | Madrid (España)

Belzuz Abogados SLP

La presente publicación contiene información de carácter general sin que constituya opinión profesional ni asesoría jurídica. © Belzuz Abogados, S.L.P., quedan reservados todos los derechos. Se prohíbe la explotación, reproducción, distribución, comunicación pública y transformación total o parcial, de esta obra, sin autorización escrita de Belzuz Abogados, S.L.P.