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The options for a foreign company that wants to establish itself and carry out a business activity in Spain are the permanent establishment, the branch or the subsidiary. However, there are important differences between them.
Permanent establishment
Of the options mentioned above, permanent establishment is the simplest.
The permanent establishment consists of the possibility of carrying out activities in Spain by a foreign company without creating any new entity.
If the foreign company is established in a State of the European Union (EU) it can operate in Spain directly, without requesting permits, unless the activity it is going to carry out requires controls or special requirements.
The figure of permanent establishment exists mainly to be able to apply the corresponding taxes to the benefits that have been generated in Spanish territory. If there is no permanent establishment, the tax company in the territory where it is located.
The permanent establishment does not have legal personality or separate autonomous responsibility, rather everything falls on the foreign company that operates in Spain, assuming responsibility for all the actions of the permanent establishment.
Although it does not have legal personality and is not regulated by commercial regulations, the permanent establishment must request the tax identification number from the Tax Administration and communicate the existence of the workplace and the contracts with employees to the Social Security. However, it does not need a public deed to be incorporated, nor to register in the registry nor to prepare and deposit annual accounts.
The permanent establishment does not have its own administrative body or manager, although there may be attorneys with powers granted in the state of origin, so the administration will be the same as that of the foreign entity.
Regarding the activities that can be carried out by the permanent establishment, they must be the same as those carried out by the foreign entity, not being able to do different ones.
Branch
The branch is the way to carry out activities in Spain that is between the permanent establishment and the subsidiary.
To operate through a branch, it is not necessary to create a legal personality separate from that of the foreign company, but it does have a specific commercial regulation. and requires a public deed for its constitution, in addition to registration and deposit of annual accounts.
Although the branch has a specific recognition, the responsibility for everything still falls entirely on the foreign entity, similar to what happens with the permanent establishment. Regarding the activities that can be carried out in Spain, it can only carry out those that the foreign entity has included in the corporate purpose.
Another aspect in which the branch and the permanent establishment differ is that in the former there is its own administrative body, the manager, who must be registered in the Mercantile Registry. The manager must have all the powers to represent the branch.
In relation to taxation, the branch works in the same way as the permanent establishment, and must also request a NIF.
As we can see, there are few differences between a permanent establishment and a branch, the main one being the possibility or not of having a manager in Spain who has all the powers of representation.
The obligation or not to deposit the annual accounts is not very important when deciding because in both cases they have to pay taxes in Spain and, therefore, they will keep an accounting control of the establishment.
Subsidiary
The subsidiary is a way of operating in Spain that does require the constitution of a new company different from the foreign entity and that has its own legal personality. This is the main difference with the permanent establishment and the branch.
To constitute it, a public deed and registration is necessary, in addition to meeting all the formal requirements of companies, such as the deposit of annual accounts and the application for CIF.
By having its own legal personality, the responsibility for everything no longer falls on the foreign entity, which will only be responsible for the contributions to the new company, if not for the subsidiary.
In relation to the activities that can be carried out in Spain, they are not limited to those that the foreign entity has in its corporate purpose, but can include some similar, the same or different ones, since it has its own legal personality.
The taxation of the subsidiary is done separately, since it is an autonomous company. Thus, the foreign company will assess whether this form of taxation is more interesting for tax purposes or that of permanent establishments and branches.
Knowing the differences between a permanent establishment, a branch and a subsidiary is essential when carrying out activities in Spain. The permanent establishment and the branch do not have their own legal personality, it is not necessary to create a company, the responsibility for everything falls on the foreign entity and its activities are limited to those that it has in its corporate purpose, the main difference being that the branch It has its own administrative body. To operate with a subsidiary, it is necessary to establish a company, it is responsible for its operations, it is taxed separately and it can carry out different activities from the foreign company.
Further information
This article is part of our service Business consulting. Visit this section where you will find all the useful information on this topic, including a complete guide on How to start a business in Spain as a foreigner.
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