Set up a business in Spain: representative office, branch or subsidiary?

A representative office, a branch or a subsidiary are legal forms that enable foreign investors to expand their activities in Spain. The representative office and the branch are simple extensions of a company based in Spain, whereas a subsidiary has its own legal personality.

The main differences between these three legal forms are set forth below as follows:

Representative office Branch Subsidiary
Legal personality Does not have its own legal personality, (Its legal personality is the same as the mother company). Does not have its own legal personality. Has its own legal personality.
Autonomy It is dependent on the mother company. It is a relay institution between the mother company, its customers and the suppliers on the spot. It is dependent on the mother company legally speaking and in terms of taxation. The branch is directed by a representative of the mother company. However, it has its own customers as well as a certain freedom in deciding the management of the company. It is an independent legal person, independent from the mother company and liable for all legal consequences which arise from it. It is entitled to its own rights and obligations, independently from the mother company. The mother company determines the objectives, nevertheless the subsidiary has the power to decide on the actions.
Incorporation formalities In general: no formality is required, no entry in the Commercial Register.
Exceptions : Regarding taxation, labour and security it may be necessary to sign a public deed (or a document signed by a foreign public Notary applying the Hague Apostille or another applicable authentication system) in which appear the incorporation of the representative office, the release of the funds -if applicable-, or the tax representative´s identity (a natural or legal person registered in Spain) as well as his/her capacities.
The signature of an authentic deed is required, which must be registered in the Commerce Registry.
No minimum capital is required for its incorporation. However, this does not stop the mother company from allocating an amount of share capital that it considers appropriate.
Less formalities and less costly than a subsidiary.
The signature of an authentic deed is required, which must be registered in the Commerce Registry.
Minimum share capital is of €3 000 or of €60 000, depending on whether it is a limited liability company (S.L.) or if it is a limited company (S.A).
Obtained tax identification number (NIF) of the foreign investor and the Spanish subsidiary.
Administrative organ Legal representative with the legal right to deal with the administration of the representative office (acts as an agent using the powers which have been given to him by the mother company and including his/her limits). Legal representative with the legal right to deal with the administration of the branch. General meeting of corresponding shareholders, members and administration organs (sole director, several /joint administrator or board of directors).
Activities Activities limited to coordination and collaboration. It cannot carry out an economic activity and therefore cannot expand the core activity of the foreign company. The representative office enables to challenge the local market and enhances a network of contacts on the spot. Carries out economic activities on behalf of the mother company included within the mother company’s corporate purpose. These activities could include representation, prospecting, order-taking, follow-up on sales, and so on. Carries out economic activities included within the mother company’s corporate purpose.
Liability Limited liability: the mother company is liable for all the representative office’s debts. Limited liability: All obligations contracted by the branch are legally binding for the mother company. Limited liability to all contributions: the subsidiary is liable out of its own assets for all contracted by the subsidiary itself. In theory the mother company shall not be liable for the debts of the subsidiary.
Taxation No corporate tax liability as the representative office does not carry out economic activities. It shall only pay its social responsibility and its employees’ wages. The corresponding convention on double taxation applies. If none is applicable, the branch is subject to non-resident income tax for revenues contributed in Spain, with a 25% rate. The branch has the possibility to deduce the tax costs from management and administration expenses. The subsidiary shall always be liable to Spanish corporate taxation, which consists in a 25% tax rate. As opposed to a branch, the subsidiary can deduce costs paid back to the mother company such as fees, royalties, interests or commissions.

Which to choose between a representative office, a branch or a subsidiary?

This decision will mainly depend on your project. A subsidiary is a more stable choice given the limited liability and the greater autonomy. It is a good option to start with since the formalities and the expenses are less costly than setting up a branch. A representative office on the other hand is a milder form of setting up abroad. In daily practice, it is particularly useful to test the water of the local market and establish connections before setting up more significantly.

Should you need legal advice to choose the best legal form to set up your business in Spain, please do not hesitate to contact us.

Anaïs Curtet & Manuel Álvarez-Sala

This article is not considered as legal advice

Manuel Alvarez

Manuel Álvarez-Sala graduated from the Complutense University of Madrid with a Law degree. His practice areas are energy law, commercial law and civil procedural law. Manuel Álvarez-Sala