Setting up a subsidiary in Spain: a step-by-step guide

Expanding to Spain opens doors to new markets and growth opportunities within the European Union. But what’s the best way to do it? Setting up a subsidiary or branch in Spain? While the first is an independent company, the latter isn’t – and both have upsides and downsides.

Understand the process and find the answer to your most common questions.

What You’ll Learn:

• Setting up a subsidiary in Spain: why you should consider it

  What is the difference between a branch and a subsidiary in Spain?
  What are the 2 types of subsidiaries?
  1. Limited Liability Company (LLC) - Minimum share capital of €3,000
  2. Public Limited Company (PLC) - Minimum share capital of €60,000
  What is the tax system for subsidiaries in Spain?
  What are the requirements for setting up a subsidiary in Spain?
  Can a non-resident set up a subsidiary in Spain?
  Should I open a branch or a subsidiary?
  What are the disadvantages of subsidiary companies?

• Setting up a subsidiary in Spain: final features to consider

Setting up a subsidiary in Spain: why you should consider it

Expanding overseas is always an adventure. Before thinking about doing it, you must choose the country (or countries) you want to set foot in – and now that you’re considering Spain, one thing is sure: the process isn’t as complex as in other countries.

So, congratulations on your decision. 

Now, you must have many questions. Should you open a subsidiary or a branch in Spain? What’s the best option? Will it take forever or not? How much tax will you pay? What is the procedure, and where should you begin?

Though we advise you not to do it alone, we’re here to answer all your questions.

What is the difference between a branch and a subsidiary in Spain?

Setting up a subsidiary in Spain is one of the options available for your business. But that comes with one of the most common questions: should you move forward with a subsidiary or focus on setting up a branch office there? 

Here’s how they differ:

• Legal independence: a subsidiary is an independent legal entity, different from its parent company. When you open a subsidiary in Spain, the country will see it as a Spanish resident one, subject to local laws and taxes. On the other hand, a branch isn’t an independent entity but an extension of the parent company – with its liabilities directly tied to those foreign headquarters.

• Incorporation requirements: a subsidiary must meet the exact requirements of a Limited Liability Company (LLC). Its Articles of Association must be drawn up in Spain and registered in the Registro Mercantil Central. When registering a branch, you must do it in the Registro Mercantil Central and name a representative (an individual or a company) to act on its behalf.

• Minimum investment: the minimum share capital for a subsidiary registered as an LLC is €1. However, a branch doesn’t have a mandatory minimum share capital – though investors are advised to use a similar amount to an LLC.

• Taxation: as a Spanish resident company, a subsidiary pays corporate income tax on worldwide earnings, amongst other taxes. In turn, a branch pays corporate income tax on the income earned in Spain. 

As always, we advise you to rely on professional help when setting up a subsidiary in Spain.

What are the 2 types of subsidiaries?

We thought you’d never ask!

Foreign companies in Spain typically establish 1 of 2 types of subsidiaries, each with distinct requirements and benefits:

1. Limited Liability Company (LLC) - Minimum share capital of €3,000

Also known as Sociedad Limitada (SL) in Spain, an LLC is designed to engage in commercial activities and can operate in different sectors. One of the features that best describes it is its autonomía patrimonial perfecta, which translates to perfect asset autonomy. 

LaWants, a Spanish lawyers and accountants firm, explains exactly what an LLC is: “(...) shareholders are not personally liable for the company’s debts; their financial risk is limited to the amount they have invested as share capital. This structure provides a protective layer for investors, allowing them to engage in business activities without jeopardizing their assets, making the SL one of the most advantageous types of company in Spain.”

2. Public Limited Company (PLC) - Minimum share capital of €60,000

Also known as Sociedad Anónima (SA) in Spain, it’s a go-to solution if you run a large business serving different purposes – which happens with holding companies or stock corporations. You can open a PLC on your own or with multiple shareholders. It also allows for publicly traded shares.

Another interesting fact is that shareholders must pay at least 25% of the total share capital at the time of the company’s registration.

Remember that there isn’t a straight answer to all companies out there. If you’re considering setting up a subsidiary in Spain, you must analyze your business goals, wants, and needs in a foreign country.

Your ideal option for opening a subsidiary in the country may not be the best for another similar company. That’s why you should ask for professional advice before taking the first step.

What is the tax system for subsidiaries in Spain?

Subsidiaries in Spain must pay the corporate income tax of 25%. However, in certain cases, start-ups may benefit from a reduced corporate tax rate of 15% for their initial years of operation.  The profits and dividends are tax-exempt if sent to a foreign EU resident company.

If a double tax treaty is signed between Spain and a non-EU country, the dividends will be taxed at a reduced rate, and the profits sent to the parent company won’t be taxed in Spain. 

On top of that, subsidiaries in Spain can also be charged with the business and professional activities tax – known as Impuesto sobre Actividades Económicas (IAE) in Spain – and they can pay a maximum of 15% of the profits. 

But some exceptions apply. For example, you can be free from this tax if your company’s net turnover (of the previous year) is less than €1 million. And there’s more.

The dividends can be exempted from taxation under specific conditions. So, if the parent company holds at least 5% of the Spanish subsidiary for a minimum of 1 year, you won’t be taxed on dividends.

What are the requirements for setting up a subsidiary in Spain?

Setting up a subsidiary in Spain involves many administrative steps and legal requirements, as in other countries. Here’s an overview of the essential requirements:

• Ask for a Tax Identification Number: for the foreign parent company to facilitate tax and legal activities in Spain.

• Register the subsidiary’s name: your subsidiary must have a unique name (meaning nobody can use the same at the moment of registration). Once you decide, go to the Registro Mercantil Central to register it. And know that this certificate is valid for 6 months.

• Open a bank account and make a deposit: you must open a local bank account under the subsidiary’s name and deposit the minimum share capital (depending on the type of subsidiary you’ve chosen). For a Limited Liability Company (LLC), the average value is €3,000, while a Public Limited Company (PLC) requires €60,000 (but only 25% of this needs to be deposited initially).

• Public deed of incorporation: gather all the documents to be notarized, including the Articles of Association, managers’ identification, and the capital certificate.

• Foreign investment statement: submit a D1-A Form statement for foreign investment and hand it to the Ministerio de Economía, Comercio y Empresa.

• Register the public deed of incorporation: do it in the Commercial Registry in Spain, a process that generally takes 15 days.

• Deal with the final tax and labor registrations: register the subsidiary with Spain’s tax authorities, apply for VAT, and enroll in Social Security if hiring and employing workers.

Can a non-resident set up a subsidiary in Spain?

Yes, non-residents can set up a subsidiary in Spain. The presence of the parent company’s representatives isn’t necessarily required during the registration process – which means foreign investors can establish a subsidiary remotely. 

However, the subsidiary must comply with local legal requirements, including appointing a legal representative with Spanish residency to handle specific administrative tasks.

Should I open a branch or a subsidiary?

It all comes down to your business goals, liability concerns, and overall tax strategy. You should choose a subsidiary if you:

• Look for a legally distinct entity (which limits liability)

• Want the tax benefits available to Spanish resident companies

• Seek fully, day-to-day independent operations from the parent company

  In turn, you should choose a branch if you:

• Prefer simpler and quicker registration steps (with fewer requirements)

• Want to test the market with less financial commitment, as branches have no minimum capital requirement

• Are prepared for the parent company to be 100% responsible for the branch’s activities

Don’t rush your decision. You must know your goals and how you want to achieve them. Even though no process is linear, learning this type of information upfront is an advantage few can enjoy.

What are the disadvantages of subsidiary companies?

While subsidiaries have benefits, there are some downsides to consider:

• Complex setup process: establishing a subsidiary involves more administrative steps and legal requirements than setting up a branch.

• Higher initial costs: as you know, subsidiaries require a minimum share capital, which could be a serious financial commitment, especially if establishing a Public Limited Company (PLC), known as Sociedad Anónima (SA), in Spain.

• Additional reporting obligations: subsidiaries must maintain annual accounts and are subject to regular audits, adding to the administrative burden and potential costs.

Though it may seem like a risk, the truth is that many foreign entrepreneurs are taking advantage of the Spanish Startup Law while expats are betting on the Beckham Law. We can’t lie: Spain has been working (a lot) on attracting foreign investment.

Setting up a subsidiary in Spain: final features to consider

We don’t want you to leave with a single doubt in your mind, so here’s a wrap-up of the subsidiaries’ main features:

• Minimum share capital: you must deposit a minimum of €1 for an LLC or €60,000 for a PLC;

• Governing body: shareholders and/or a board of directors;

• Liability: as a separate legal entity from its parent company, a subsidiary will be fully responsible for its debts;

• Taxation: as a legal entity in Spain, a subsidiary must follow the same tax regulations as other Spanish companies.

Setting up a subsidiary in Spain offers valuable opportunities for businesses looking to expand to the European Union and, more specifically, Iberia – though there are many differences between employing in Portugal or Spain. 

By creating a subsidiary, your business can operate as an independent legal entity with benefits like liability protection and favorable tax treatment. However, the process does require careful planning and compliance with local regulations. 

And you guessed that right: it’s a very complex process. So, asking for professional guidance (like the one BRIDGE IN provides) is essential to ensure that your expansion to Spain is as smooth and strategic as possible.