Opening of a branch

In general terms, the requirements, procedural formalities and costs of opening a branch in Spain of a foreign company are very similar to those for the formation of a subsidiary (as a company). The main legal steps and costs are summarized below, highlighting the main differences with respect to the formation of a subsidiary.


As a general rule, setting up a branch takes between 6 and 8 weeks (Table 12).

Table 12


1. Clear name search certificate

Same procedure followed as for a company.

2. Obtainment of the N.I.F and appointment of the representative of the parent company in dealings with the Spanish tax authorities
Same procedure followed as for a company.

Appointment of an individual or legal entity residing in Spain to represent the parent company in dealings with the Spanish tax authorities regarding its tax obligations.

3. Document containing representations by the beneficial owner

Same procedure followed as for a company.

4. Execution of the deed recording the opening of a branch before a Spanish notary This step consists of the public formalization before a notary of the resolution to open a branch previously adopted by the competent body of the foreign parent company.

The notary will request (I) documentation similar to that required for a subsidiary (that is, evidence of the identity of the person who appears before him, his power of attorney to represent the parent company, declaration of the beneficial owner, evidence of payment and whether it is to be made in cash or in kind (if applicable); (II) sufficient proof (translated, legalized and/or certified by apostille, as appropriate) of the existence of the parent company, its bylaws and the names and personal details of its directors; and (II) the resolution to form the branch adopted by the competent body of the parent company.

The deed may also contain the subsequent declaration of foreign investment to the Register of Foreign Investment of the Directorate-General for International Trade and Investments (“DGCI”) of the Ministry of industry, trade and tourism. In some cases, as with subsidiaries, prior declaration is required (see Chapter 1, section 8 for further information).

5. Application for registration at the Commercial Registry Same procedure followed as for a company.
6. Opening formalities Registration for the purposes of the Tax on Economic Activities: same procedure followed as for a company.

Registration for the purposes of Value Added Tax (VAT.): same procedure followed as for a company.

Payment of the charge for processing of the opening/operating license or solemn declaration (and, as the case may be, for processing of any industry authorization (at state or regional level) that the planned activity may require): same procedure followed as for a company24.

Registration of the company for Spanish social security purposes: (see Chapter 5, section 13 for further information).


The main differences between a branch and a subsidiary to be taken into consideration from a tax and legal standpoint are summarized below (Table 13).

Table 13



Minimum capital stock:

No minimum required.

S.A.: 60.000 €

S.L.: 3.000 €25

Legal personality:

No (no separate legal personality but rather the same legal identity as its parent company).


Managing and government body:

Representative resident in Spain (who acts as attorney of the branch in the name and on behalf of the parent company for all purposes, particularly tax purposes26).

Shareholders’ meeting and the managing body.

Shareholder liability:

No limit to the parent company’s liability.

The liability of the shareholders of a subsidiary formed as an S.A. or S.L. for the debts of the subsidiary is limited to the amount of their capital contributions (with the exceptions analyzed in Appendix I, section 3).

From a tax standpoint, both the branch and the subsidiary are, in general terms, liable for Spanish corporate income tax (subsidiary) or nonresident income tax (branch) at 25% on their net income (rate applicable from 2016 onwards).

The following aspects in relation to the tax treatment of branches and subsidiaries and of the income paid or remitted by them should be noted:

—  The remittance of a branch’s profits to its head office or the payment of a subsidiary’s dividend to its parent will be taxed in Spain depending on the country of residence of the parent company or head office:

  • If it is not resident in an EU country and is also not resident in a country with which Spain has a tax treaty, remittances or dividends will be taxed in Spain at a rate of 19% from 2016 onwards.
  • If it is EU-resident, remittances or dividends are usually tax-exempt. If the exemption cannot be applied to dividends, the reduced rate under the relevant tax treaty with Spain will apply. If there is no tax treaty with Spain (which is only the case with Cyprus) and the exemption cannot be applied, the applicable rate will be 19%.
  • If it is resident in a non-EU country with which Spain does have a tax treaty, the dividends will be taxable at the reduced treaty rate and the remittance of branch profits will, under most treaties, be exempt from tax in Spain.

  A branch is a permanent establishment for the purposes of nonresident income tax. Nonetheless, a branch is not the only form of permanent establishment. In order to identify whether or not a permanent establishment exists, consideration must first be given to whether or not a tax treaty has been signed between Spain and the country of residence of the interested party.

a. If a tax treaty has been signed between Spain and the taxpayer’s country of residence, regard must be had to the definition of permanent establishment in that treaty. In general, the tax treaties currently in force are in line with the definition set forth under Article 5 of the OECD Model Convention, which distinguishes between two forms of permanent establishment.

The first form of permanent establishment is the fixed place of business. This is a place through which the business of an enterprise is wholly or partly carried on. In general, a fixed place of business will therefore exist where the following requirements are met:

  the facility, center or site must be used to carry on the business;

  the facility must be fixed or related to a specific place or space, with a certain degree of permanence over time;

  the activity must be productive and must contribute to the enterprise’s global income.

This definition of permanent establishment excludes a fixed place of business from which certain auxiliary or preparatory activities, listed in the tax treaties, are carried on.

The second form of permanent establishment is the dependent agent. This is an agent who acts on behalf of the nonresident entity, who has and exercises powers to bind such entity, and who does not have independent agent status.

b. If there is no applicable tax treaty, regard must be had to the definition of permanent establishment set forth in Spanish domestic law. Article 13.1.a of Legislative Royal Decree 5/2004, approving the revised Nonresident Income Tax Law has, to a great extent, been brought into line with the aforesaid definition of permanent establishment according to the OECD Model Convention.

  • The Directorate General of Taxes has ruled on a number of occasions that the Special Rules regulated under Title VII of the Revised Corporate Income Tax Law are applicable to permanent establishments located in Spain and belonging to nonresident entities, inter alia, the special rules applicable to small entities (For further information on the special rules, see Chapter 3).
  • Share of parent company overheads: In practice, it is usually easier for these expenses (if any are imputed) to qualify as deductible in the case of a branch than in the case of a subsidiary.
  • Interest on loans from a foreign parent company to its Spanish branch is not tax-deductible for the branch. By contrast, the interest on loans from the shareholders of a subsidiary is normally tax-deductible for the subsidiary, provided that the transaction is valued on an arm’s-length basis and subject to certain requirements, subject to the limits on deductibility established in corporate income tax legislation. The general limit is 30% of the subsidiary’s EBITDA, although deductibility is prohibited in some cases, for example, where the debt is used to acquire holdings in entities from other group entities (unless they are acquired on valid economic grounds) or where the finance costs do not generate any income, or generate tax-exempt income or income taxed at less than 10% at the recipient, due to such income not being classed as a financial return.


Below is a simple example of how Spanish corporate income tax and nonresident income tax is calculated on the profit obtained by a Spanish subsidiary or by the branch in Spain of a foreign company, respectively. (For further information, on these taxes, see section 2.1. of Chapter 3) (Table 14).

Table 14


Profit of Spanish subsidiary 100 100 100
Spanish income tax (25%)(2) 25 25 25
Dividends 75 75 75
Withholding tax on dividends  (4) 7.5(5) 14.25(3)
Total tax in Spain 25 32.5 39.25
Profit of Spanish branch 100 100 100
Spanish income tax (25%)(2) 25 25 25
Profit remitted to the parent company 75 75 75
Withholding tax (4) (6) 14.25(3)
Total tax in Spain 25 25 39.25
(1) Spain has tax treaties in force with all EU countries except Cyprus.

(2) The general corporate income tax rate is 25%.

(3) Withholding tax rate = 19%.

(4) Exempt, provided certain conditions are met

(5) The withholding tax rate on dividends used in this example is 10% (the most common rate in the tax treaties entered into by Spain).

(6) The branch profit tax will apply if provided for in the corresponding tax treaty (e.g. the U.S., Canada and Brazil).


Apart from through a corporation or a branch, a foreign investor in Spain may operate, among other options, through a representative office.

In light of the lack of specific regulations in this respect, a definition may be found in the tax treaties signed by Spain with third countries: a representative office is understood to be a fixed place of business, established by a nonresident company, that pursues purely marketing or informational activities relating to commercial, financial and economic matters but does not conduct any actual business. They are governed by treaties signed with Spain or, where there are no treaties, by Spanish legislation and representative offices are considered permanent establishments.

This form of establishment in Spain allows investors to obtain all kinds of information on which they can base their investment decision, without having to comply with too many legal formalities. A representative office is, therefore, the ideal vehicle for conducting market research, studying the level of competition existing in the industry in which it intends to invest, compiling financial projections and profit estimates for the investment or negotiating the acquisition of companies via purchase of shares or of assets and liabilities.

Representative offices have, inter alia, the following key characteristics:

  • Representative offices do not have separate legal personality from their parent.
  • The nonresident company is liable for all debts assumed by the representative office.
  • Representative offices cannot themselves conduct commercial transactions.
  • In general, no commercial requirements need to be met for a representative office to be opened, although mainly for tax, employment and social security purposes a public deed (or document executed before a foreign notary public, duly legalized with the Hague Apostille or any other applicable form of legalization) may have to be executed, recording the opening of the representative office, the allocation of funds, the identity of the tax representative (an individual or legal entity resident in Spain) and its powers. Representative offices need not be recorded at the Commercial Registry.
  • Representative offices have no formal managing bodies; the representative of each office performs the activities of the representative office by virtue of the powers granted to that representative.

As regards the main employment and tax aspects of representative offices, please see the corresponding sections in Chapters 3 and 5.

24 In accordance with the provisions of Law 12/2012 on Urgent Measures to Deregulate Trade and Certain Services, permanent establishments used for commercial retail purposes and the provision of certain services provided for in the Schedule to the Law with a useful sales and display area of up to 750 m2 will not generally be required to obtain an opening and operating license beforehand, but rather to submit a solemn declaration or prior communication. However, the establishment of a large retail outlet requires the prior obtainment of authorization from the competent body of the regional government.
25 Except in the case of an entrepreneurial limited liability company. For these purposes, please see section 4.2.4 of Annex I.
26 Article 10.1 of Legislative Royal Decree 5/2004, of March 5, approving the revised Nonresident Income Tax Law.