Spain is a business-friendly and economically strong nation that welcomes foreign companies. Over the years, many corporations have established a presence owing to the simple business setup methods, deep talent pool and easy access to other European markets.
You can establish a local subsidiary if you wish to expand your business in Spain. The Spanish laws treat a subsidiary entity separately from the parent company. The entity alone is responsible for the taxes and other matters, reducing your risk.
Below are a few things you should know before starting a subsidiary business in Spain.
What Are the Types of Subsidiaries in Spain?
The most common subsidiary structure in Spain is Sociedad de Responsabilidad Limitada (S.L.), similar to a private limited liability company. This entity has better flexibility and lower financial requirements. The second company type is a Sociedad Anónima (S.A.), equivalent to a public limited liability company.
Depending on your preference, Spain has three separate incorporation processes:
- Ordinary regime: Both a limited liability company and a corporation are eligible
- Simplified regime: Only applies to limited liability firms that meet specified shareholder, share capital, and management requirements
- Super simplified regime: Only limited liability firms that meet specified requirements for shareholders, share capital, and bylaws are eligible
The first step in forming a subsidiary in Spain is deciding the type of entity of your business.
Differences between a branch and a subsidiary
Separate legal presence: In the eyes of the Spanish laws, a subsidiary has its own legal personality while the branch does not. The subsidiary is subject to the corresponding rights and liabilities, independent of those of the parent company, because it has its own legal existence.
Minimum capital requirement
The subsidiary must contribute a minimum amount of capital stock at the time of incorporation. Depending on whether the subsidiary is a private or public limited company, the minimum capital stock is either €3,000 or €60,000. However, the parent business may give funds to allow the branch to function in Spain.
On the other hand, a branch does not have to provide a minimum amount to establish its legal presence.
Representation and governance
A branch has a representative who acts as a proxy for the parent company. However, subsidiaries have partners or shareholders, and a governing body comprising a single or a board of directors.
The parent company is held responsible for their branch’s debts and risks. However, subsidiaries have limited liability and do not impact their parent companies.
A branch can use the Double Taxation Agreement or the Non-Residents Income Tax, while a subsidiary only pays the corporate tax. The tax authorities analyze each entity to calculate the taxes and returns.
Setting Up A Subsidiary in Spain?
You need the following documents to set up a subsidiary in Spain:
- An official Spanish VAT number for European transactions
- An NIE number. If you are a citizen of Spain, your NIF number will be present instead of your NIE number. An NIE application can be submitted at a processing facility for foreign nationals (Oficina de Extranjeros) at a Spanish police station (comisaría) located throughout the country.
- A sworn translation of the parent company’s documents
- The Hague Apostille, a stamp that certifies the authenticity of the signatures on a document issued in one of the countries who signed the Hague Convention
- Form 036, for registering a company with the Spanish Tax Agency
Benefits of Setting Up a Spain Subsidiary
- Spain is the 4th largest economy in the European Union(EU) and has strong ties with neighboring countries, giving business easier access to the continent and an opportunity to grow
- A subsidiary is treated as a separate entity from the parent company. The subsidiary alone is liable for all the debt and risk, shielding the parent company from any legal trouble.
- Subsidiaries qualify for government tax benefits and incentives
- Spain is one of the most sought-after countries for expats and the labor law provides them robust protection. Hence, companies have access to a vast talent pool.
- You can explore the business landscape of Spain without a significant investment
- Boosts the international profile of the parent company
What business forms can Spain subsidiaries take?
A subsidiary could be a “Sociedad Limitada” (S.L.) or a ”Sociedad Anonima” company depending on the following:
- Share capital
- Type of shareholders
- Terms for transferring the shares
- The operational issues of the business
Spain Subsidiary Laws
If you choose to form your Spain subsidiary as an S.L., you must meet several requirements. Spain subsidiary rules mandate a minimum investment capital of 3,000 EUR, to be paid in full at the time of incorporation. The shares of an S.L. are not readily transferable, and the corporation is not permitted to issue bonds.
Regarding management, S.L. requires a minimum of three directors and a maximum of twelve. There are no nationality or residence-related qualifications. The government does, however, have strong accounting and auditing requirements. All businesses must file annual financial statements with the Mercantile Register, although some can file shortened financial statements if they meet certain criteria.
Taxes on Subsidiaries in Spain
Spanish subsidiaries must follow the corporate tax rules, which apply to all companies in the country. They are liable to pay the following taxes:
Most of the businesses in Spain pay a 25% corporate tax on their global income. New companies pay only a 10% tax rate for the first two financial years in which they earn a profit. However, this exception does not apply to companies who are a part of a national or international conglomerate.
Businesses also have to pay professional activities tax at a maximum of 15% of their profits. If the company’s turnover during the tax year is less than one million euros, they are exempt from this tax.
A few other corporate tax rates include:
- Bank and credit institutions: 30%
- Tax-protected cooperatives: 20%
- Entrepreneurs: 15%
- Foundations and associations: 10%
- ZEC entities (Canary Islands): 4%
- Investment companies: 1%
Spain applies VAT (Impuesto sobre el Valor Añadido or IVA) on all goods and services, including imports and services within the EU. There are three tiers of IVA:
- Ordinary rate for regular goods and services: 21%
- Reduced rate for basic amenities like food, agricultural products: 10%
- Extremely reduced rate for very basic amenities like bread and medicine: 4%
There is also a withholding tax, either excluded or charged at 19%. Spanish tax legislation sets the same tax rate thresholds for royalties withholding tax, although it can also impose a tax rate of 24 percent.
Other Important Things You Should Consider
- The process of setting up a Spanish subsidiary is tedious and time consuming. The authorities demand a number of documents as original and photocopies. Furthermore, most of the registration process requires a representative to visit various offices and obtain the document in person.
- Subsidiaries pay the same taxes as a corporation. However, they must evaluate the accurate amount by considering the industry, earnings and years of activity. It’s important to take legal and accounting consultancy from local experts before setting up the entity.
- There are numerous rules that govern taxation for Spanish subsidiaries with a non-EU parent company. The parent company might have to pay double taxes in the absence of a treaty between their home country and Spain.
- All business entities must respect the labor laws of Spain and maintain full compliance. They must adapt to the changes and align with the regulations to avoid legal hassles and penalties.
How Multiplier’s EOR solutions Can Help You Hire & Expand in Spain?
Setting up a subsidiary in Spain can be a challenging task. The sheer number of laws and regulations pertaining to registering a subsidiary business in Spain, onboarding employees, processing payroll and maintaining compliance might be overwhelming for an internal team.
With Multiplier, you can seamlessly hire, manage and pay your global employees and grow your team. Our experts guide you in establishing your international teams’ processing and legal aspects. Our digital platform lets you hire employees in minutes, pay them in local currency and return relevant taxes. Connect with us to hire beyond borders.