Foreign companies doing business in Spain:
There are several options available to foreign investors or companies wishing to do business in Spain. Today we will explain them.
Situation (1): Setting up a subsidiary:
A Spanish subsidiary is set up with a separate legal entity and legal representative. The subsidiary is a Spanish company and therefore has some facilities to carry out business activities in the EU. It is possible to apply for an EU tax code (VAT).
Subsidiaries set up by foreign companies are subject to the same taxation as local Spanish companies (i.e. corporate tax) and are taxed at the same rate.
According to Spanish law. The most commonly used corporate forms are the Company (S.A.) and the Limited Liability
Company (S.L.). The formation of a subsidiary has the following characteristics:
The assets of the parent company are separate from the assets of the subsidiary. It means that if something goes wrong with the subsidiary, such as a large compensation or fine, the assets of the parent company are not implicated, so that the risk can be better controlled.
S.L. registration capital is relatively low, currently only €3.000.
There are relatively many steps to incorporate a company. Registration with the commercial register is required. If the parent company is a foreign company, a foreign investment filing is also required.
If the parent company intends to expand its business in Spain or to operate on a permanent basis, then the formation of a subsidiary is more appropriate.
Situation (2): Establishment of a permanent establishment :
A permanent establishment does not have a separate legal person and therefore does not need to appoint a legal representative. The economic activity and legal liability of the permanent establishment will always be directly linked to the main company. The debts of the permanent establishment will be borne by the parent company.
The permanent establishment may carry out commercial activities in Spain on behalf of the parent company. The corresponding income and expenses are subject to non-resident taxation, not corporate taxation, as required by law.
The following issues need to be taken into account when setting up a permanent establishment:
-You must have a place of business. It can be an office, a factory, a warehouse, a shop, etc.
-It is less expensive to set up and does not need to be registered in the commercial register, just with the tax office.
-A tax representative needs to be appointed. The representative is obliged to represent the parent company for tax purposes in Spain.
A permanent establishment is a good option if the business is not extensive in Spain or if you are in the early stages of market development.
In addition, there is another form of branch office in between the subsidiary and the permanent establishment. A branch office is characterised by the absence of a separate legal personality, although it needs to be registered with the Spanish Commercial Register.
Situation (3): Representative office:
The main characteristic of a representative office is that it cannot actually operate, but can only do some auxiliary work, such as market research, promotion work, etc.
A representative office has no separate legal personality and the principal company is fully liable for the debts incurred by the representative office.
As a representative office cannot operate, it is theoretically income-free in Spain and is therefore not subject to taxation.
The way to set up a representative office is relatively straightforward and simply involves registering with the tax office and applying for a Spanish tax number.
