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How an Indian LTD can register a branch in Spain

Overview of Legal and Regulatory Framework for Registering a Branch in Spain

When considering registering a branch in Spain, it is essential to understand the legal concept of a branch as a permanent establishment owned by a separate entity in a different country. For example, if an Indian Limited company wishes to establish a branch in Spain, it would be seen as an extension of the parent company in a foreign jurisdiction, allowing for business operations within Spanish territory. This distinction is vital because while a branch does not create a separate legal entity, it operates as an arm of the parent company, impacting the parent company's liability and obligations.

Moreover, delving into the tax implications and liabilities associated with operating a branch in Spain is crucial for informed decision-making.

For instance, unlike a legal entity, a branch is subject to specific tax regulations, including Spanish corporate income tax, VAT tax, Social Security contributions, and withholding tax. Understanding these tax obligations is paramount to avoid any financial or legal repercussions and to ensure compliance with Spanish tax laws.

By comprehensively grasping the legal and regulatory framework for registering a branch in Spain, foreign companies can navigate the process effectively and establish a successful presence in the Spanish market.

Legal Structures in Spain

When a foreign company decides to establish a branch in Spain, it enters a legal landscape with diverse structures that have varying minimum capital requirements. For instance, a Limited Liability Company (SL) in Spain requires a minimum share capital of €3,000, whereas a Public Limited Company (SA) mandates a minimum share capital of €60,000.

These differences highlight the importance of selecting the appropriate legal structure based on the intended business activities and financial resources.

Moreover, in Spain, legal entities are subject to specific criteria for audits to ensure compliance with regulations and financial transparency. For example, an SL in Spain must undergo an annual audit if it meets two of the following three conditions: assets exceeding €2 million, net turnover over €4 million, or an average workforce of over 50 employees.

Limitations for non-EU or Indian companies to register a branch in Spain

European company law, and nation 'Trade register' regulations typically don't prevend any non-EU companies to establish a representative office, or branch office in any EU country, such as Spain or The Netherlands. In some cases, some extra filing requirements might be relevant if the parent company is not based in the EU, such as a abbreviated financial report of the parant company.

Indian companies establishing a branch in Spain are required to present their own reports of losses and profits, balance sheet, and deposit financial statements, similar to any ordinary Spanish company. They are also subject to the same financial reporting regulations as Spanish companies, including the obligation to maintain detailed financial records for a minimum of six years.

The branch established in Spain must register for VAT, maintain proper account records, and comply with tax obligations, similar to any other Spanish company. Additionally, the branch must also present its own (Indian) financial statements and pay VAT like any ordinary Spanish company.

It must be considered that English documents, such as your statutory documents of your Indian company, are not allowed.

Registering a Branch in Spain

You need to follow these steps in order to successfully open a branch in Spain:

  1. First prepare the procedure properly, by collecting your statutoty documents, passport copy, proof of address, and a recent extract of your parent company. They will be required in official Spanish translation, with apostille. The extract may not be older then 30 days.

  2. Along with the branch deeds, it is necessary to provide proof of the current services, and shareholders for the parent company. This proof of identity serves to establish the parent company's legitimacy and its relationship to the branch. It is crucial to demonstrate that the parent company has the necessary authority and resources to support the branch's operations. 

  3. The first step is to obtain(or prepare, based on the template available in our Business Portal) a resolution from the parent company, granting permission to open a branch in Spain. This resolution is crucial as it serves as the official authorization for the establishment of the branch.

  4. Once the resolution is obtained, the next step is to name a representative who will be responsible for overseeing the operations of the branch. It is important to grant this representative power of attorney, which will enable them to act on behalf of the parent company in all legal matters related to the branch. You could appoint a representative of House of Companies.

  5. It is essential to register the branch with the Spanish tax authorities in order to obtain a tax identification number. This number is crucial for fulfilling tax obligations and ensuring compliance with the Spanish tax system. By following these steps diligently, you will be able to successfully open a branch in Spain and establish a presence for your parent company in the country. Some lawyers claim this is the last step, but House of Companies can obtain the tax number before you sign the branch deed at the notary.

  6. The next step involves signing the branch deeds at a notary. These deeds serve as the legal documentation that establishes the branch as a separate entity from the parent company. It is important that the deeds include essential information such as the name of the branch, its activities, registered office, and the name of the representative.

  7. In order to operate in Spain, it is necessary to open a bank account specifically for the branch. This bank account will be used for all financial transactions related to the branch's operations. Additionally, the representative will need to obtain a NIE (fiscal number), which is a unique identification number required for tax purposes in Spain.

  8. After completing the previous steps, the branch needs to be registered at the Company Registry (Registro Mercantil). This registration process typically takes around five days and involves submitting the necessary documentation to the registry. The registration serves as official recognition of the branch's existence and its compliance with legal requirements.

When registering a branch in Spain, the formal process includes the creation of a public deed that needs to be registered at the Commercial Registry, ensuring legal compliance and transparency. For example, if an Indian Limited company wants to establish a branch in Spain, it must follow these steps to operate within the legal framework of the country. The branch is required to have a legal representative in Spain to act on its behalf and fulfill necessary obligations, such as signing legal documents and representing the branch in legal matters.

This legal representative plays a vital role in liaising between the branch and the Spanish authorities, ensuring smooth operations and compliance with regulations.

Moreover, the decision-making process between choosing to establish a branch or a legal entity in Spain involves considering several factors.

For instance, an Indian Ltd. deciding to register a branch in Spain might opt for this structure to maintain more control over the operations while benefiting from autonomy in decision-making processes, but also to simplify restructuring, which can be done on a parent level in India.

Tax Implications and Obligations for Branches

When considering the tax implications and obligations for branches in Spain, it is essential to note that Spanish branch offices are taxed based on the income they earn within the country. This means that any profits generated by the branch are subject to corporate income tax in Spain. For example, if an Indian LTD establishes a branch in Spain and generates revenue through its operations in the country, it will be required to pay corporate income tax on those earnings.

Moreover, one significant advantage for branches operating in Spain is the benefit of double taxation treaties. These treaties aim to prevent the same income from being taxed twice, both in the country where the branch is located and in the foreign parent company's home country. For instance, if a double taxation treaty is in place between Spain and India, the branch can benefit from reduced withholding tax rates when repatriating income back to the parent company in India. This can help optimize the tax efficiency of the branch's operations and facilitate smoother financial transactions between the branch and its parent company.

Example Tax Compliance Timeline for Spanish Branches

When a company establishes a branch in Spain, there are several tax-related obligations and timelines that need to be adhered to. Below is a typical tax timeline for a company that has recently registered for taxes in Spain and started its activities in January 2024:

Start of Activities: The company starts its business operations in Spain.

February 2024

VAT Registration: The company needs to register for VAT with the Spanish tax authorities within one month of starting its activities.

March 2024

- VAT Filing: The company is required to file its first VAT return for the activities conducted in January 2024 by the 20th of March. Subsequent VAT returns are typically due on a monthly or quarterly basis, depending on the company's turnover.In Spain, companies have access to an online tax portal known as the "Agencia Tributaria" (Tax Agency) to submit their VAT returns. The Agencia Tributaria provides a digital platform where businesses can fulfill their tax obligations, including submitting VAT returns and making payments. The first VAT return for the activities conducted in January 2024, as mentioned in the selected text, can be submitted through this online portal by the 20th of March. Subsequent VAT returns, which are typically due on a monthly or quarterly basis, can also be filed through the Agencia Tributaria's online tax portal. This digital platform streamlines the process of tax submission and payment for businesses operating in Spain.

April 2024

- Payrolling of Staff:  Access the National Social Security Institute's website for the registration process, which is further simplified in our playbooks.

If the company has hired employees, it needs to ensure compliance with Spanish labor and payroll regulations. Obtain a Contribution Account Code (CCC) for social security registration with the National Social Security Institute (Seguridad Social) before any employee commences work.

This includes registering employees with the social security system, withholding and paying payroll taxes, and issuing payslips. This process can be done online, without involving an accountant in Spain, using our Business Portal.

 June 2025

- Filing the Corporate Tax Return: The deadline for filing the corporate tax return in Spain is typically within 6 months and 25 days after the end of the (Spanish) company's fiscal year. Therefore, if the fiscal year coincides with the calendar year, the corporate tax return for 2024 will be due by June 25, 2025.

When an Indian LTD with a branch in Spain already drafts financial statements, the following limitations and extra requirements apply to the preparation of financial statements for the branch:

 Filing Annual Accounts:

   - The branch must file its annual accounts with the Commercial Registry in Spain, in accordance with article 375 of the Commercial Registry Regulation.

   - If the parent company's country legislation does not prescribe the preparation of accounts or prescribes them differently from Spanish legislation, the branch must prepare and deposit its accounts in relation to its activity with the Commercial Registry [2].

 Verification by Spanish Registrar:

   - The Spanish Registrar's qualification is limited to verifying whether the parent company has already deposited the accounts in the registry corresponding to the Indian company. If so, the Spanish Registrar's role is to confirm this information [2].

Deadline for Filing

   - The deadline for filing the annual accounts of the branch with the Commercial Registry is typically December 31st of the year following the financial year for which the accounts are filed [2].

Compliance and Consequences:

   - Non-compliance with the regulations and the failure to file annual accounts within the established deadline can lead to serious problems for the branch and the parent company. This includes the closure of the registry record sheet for the branch, which can impede various legal actions such as the registration of powers of attorney [2].

It's important to note that despite the parent company already drafting financial statements, the branch must adhere to these specific requirements to fulfill its financial reporting obligations in Spain.