When a foreign company decides to operate in Spain, the choice between a subsidiary and a branch determines its taxation, its legal liability, and its operational capacity. Understanding the differences from the outset avoids costly and difficult-to-reverse mistakes.
What is a subsidiary in Spain?
A subsidiary is an independent legal entity incorporated under Spanish law, usually in the form of a Limited Liability Company (S.L.). It has its own legal personality: it signs contracts, hires employees, and assumes obligations in its own name. The foreign parent company owns the shares, but the subsidiary operates autonomously from a legal standpoint.
This separation is precisely its main advantage: the parent company is protected from debts and liabilities generated in Spain, except in exceptional cases of piercing the corporate veil.
What is a branch in Spain?
A branch (sucursal in Spanish) is not an independent entity. It is an extension of the foreign company operating in Spain under the legal umbrella of the parent company. It must be registered with the Spanish Commercial Registry and appoint a representative with sufficient powers, but it does not have its own legal personality.
All rights and obligations assumed by the branch fall directly on the parent company. This implies unlimited exposure to legal risk in Spain.
Subsidiary vs branch: full comparison
Most common option
Subsidiary
Limited Liability Company (S.L.)
Independent entity under Spanish law. Operates independently from the parent and provides protection vis-à-vis third parties.
Branch
Extension of the parent
No independent legal personality. The parent is directly liable for all obligations incurred in Spain.
| Aspect | Subsidiary (S.L.) | Branch |
|---|---|---|
| Legal personality | Own | Depends on the parent |
| Liability | Limited to the subsidiary’s assets | Unlimited — parent liable |
| Taxation in Spain | Corporate tax as resident (worldwide income) | Corporate tax only on Spanish-source income (non-resident PE) |
| Repatriation of profits | Dividends (possible withholding depending on treaty or EU Directive) | Allocation of profits (not treated as dividends) |
| Employment | Yes, directly | Yes, but in the name of the parent |
| Local image and credibility | High — perceived as a Spanish company | Lower — perceived as a temporary presence |
| Incorporation complexity | Higher — deed, bylaws, tax ID, capital deposit | Lower — registration and powers |
| Minimum capital | €3,000 (S.L.) — fully paid since 2023 | No minimum capital required |
Tax implications in detail
Both structures are subject to Corporate Income Tax (CIT) in Spain, but with relevant differences that may have a significant impact on international tax planning.
Subsidiary — taxation as resident
The subsidiary is taxed as a Spanish resident company on its worldwide income, although double taxation treaties (DTTs) signed by Spain usually limit the effective burden on foreign-source income. The general CIT rate is 25%, with reduced rates of 15% for newly created companies during the first two years with positive taxable income.
The distribution of dividends to the parent may be subject to withholding tax (generally 19%), although the EU Parent-Subsidiary Directive eliminates this withholding when the participation is equal to or greater than 10% and certain holding period requirements are met. DTTs with third countries may also reduce or eliminate this withholding.
Branch — permanent establishment
The branch is taxed exclusively on the income attributable to its activity in Spain, as a permanent establishment (PE) of a non-resident entity. The tax rate is also 25%, but the taxable base is calculated only on the results of the PE, which may be advantageous if the Spanish activity represents a limited part of the global business.
Unlike a subsidiary, the transfer of profits abroad is not classified as a dividend, which may simplify repatriation. However, some jurisdictions apply a branch remittance tax or equivalent mechanisms that should be analyzed on a case-by-case basis.
Incorporation process: steps and timelines
The time and procedures required differ considerably between both options.
Incorporation of a subsidiary (S.L.)
1.- Obtaining the tax ID (NIF) of the foreign company and its shareholders
Non-resident shareholders must obtain their NIE or NIF before the Spanish Tax Agency prior to signing the deed.
Estimated time: 1–3 weeks
2.- Negative certificate of company name
Application to the Central Commercial Registry to reserve the company name.
Estimated time: 3–5 business days
3.- Opening a bank account and paying in the capital
Minimum deposit of €3,000 in a Spanish financial institution. The bank issues a certificate required for the deed.
Estimated time: 1–2 weeks
4.- Execution of the public deed before a notary
The bylaws, corporate purpose, and appointment of directors are formalized before a Spanish notary.
Estimated time: 1–3 days (prior power of attorney if shareholders are not present)
5.- Filing ITPAJD and obtaining provisional tax ID
Self-assessment of Transfer Tax (corporate operations) and application for tax ID before the Tax Agency.
Estimated time: 1–2 days
6.- Registration in the Provincial Commercial Registry
The company acquires full legal personality upon registration.
Estimated time: 1–3 weeks
Total estimated time: between 4 and 8 weeks, depending on the speed of each step and notarial availability.
Registration of a branch
The process is simpler: a public deed of opening before a Spanish notary is required, accompanied by apostilled documentation of the parent company (incorporation deed, current bylaws, appointment of directors, and powers of the representative in Spain). The usual timeframe is 2 to 4 weeks once all documentation is available.
Practical cases: which structure fits best?
Case 1 — German tech company
A German software company wants to hire a development team in Spain and operate with local clients on a permanent basis. It needs to sign contracts, issue invoices in euros, and project a solid image before Spanish corporate clients.
Recommendation: subsidiary (S.L.) — Operational autonomy, local image, and limitation of liability make the subsidiary the natural option for a structural and long-term presence.
Case 2 — US consulting firm with a specific project
A New York-based consultancy has won a two-year contract with a Spanish company. It does not intend to establish itself permanently or hire local staff on a stable basis.
Recommendation: branch — For a temporary presence with low legal risk, the branch avoids the costs and complexity of incorporating a company that will likely be liquidated at the end of the project.
Case 3 — Group with operations across the EU
A group based in the Netherlands is deploying subsidiaries in several EU countries to benefit from the Parent-Subsidiary Directive and optimize intra-group dividend repatriation.
Recommendation: subsidiary (S.L.) — The subsidiary structure allows the application of withholding tax exemption on dividends between EU companies, making it the most tax-efficient option for group structures.
When to choose each option?
The subsidiary is preferable when:
The company plans a long-term presence and stable operations in Spain.
It needs to hire staff, sign its own contracts, and operate with full autonomy.
Limiting the parent company’s liability vis-à-vis third parties is a priority.
The company seeks local credibility before clients, suppliers, and financial institutions in Spain.
There is an EU group structure allowing application of the Parent-Subsidiary Directive.
The branch may be appropriate when:
The activity in Spain is temporary, specific, or limited in scope.
The parent wants full control without creating an independent entity.
Administrative simplicity is a priority and legal risk in Spain is low.
International tax analysis favors taxation as a non-resident PE.
Frequently asked questions
Can a branch hire employees in Spain?
Yes. A branch can hire staff under Spanish labor law, although the employment relationship is formally with the parent company. In practice, this may create complications in case of labor disputes or insolvency of the parent.
What is the minimum capital required to incorporate an S.L. in Spain?
Since the 2023 reform, the minimum capital is €3,000, which must be fully paid at incorporation. Previously it could be contributed in installments, but this option was removed by the new regulation.
What taxes does a foreign subsidiary pay in Spain?
Corporate Income Tax at the general rate of 25% (15% for new companies during the first two years with positive taxable income), VAT on its operations, and payroll withholdings. If it distributes dividends to the parent, a 19% withholding may apply, unless exempt under a DTT or EU Directive.
Is it possible to convert a branch into a subsidiary later?
There is no direct legal conversion mechanism. In practice, a new company is incorporated (the future subsidiary) and contracts, assets, and employment relationships are transferred from the branch. The branch is then closed through deregistration. This is a process that should be planned in advance to avoid operational disruptions.
Do I need a local lawyer or advisor to set up a company in Spain?
Technically it is not mandatory, but in practice it is highly advisable. Obtaining NIE/NIF for non-resident shareholders, coordinating with notaries, the Commercial Registry, and the Tax Agency, and drafting bylaws adapted to the business require knowledge of the Spanish system. Mistakes can delay the process by weeks.
Conclusion
The choice between a subsidiary and a branch is not a mere formal step: it determines taxation, legal liability, and operational capacity in Spain. In most cases, the subsidiary offers the most balanced combination of protection, flexibility, and local credibility. However, the branch may be the most efficient solution when the presence in Spain is temporary or when international tax analysis so advises.
The key is to analyze the structure before starting operations, not after. A decision taken with legal and tax knowledge saves time, cost, and risk in the long term.
Do you have doubts about which structure is most suitable for your company? At Ferrer-Bonsoms we advise you at every step of your entry into Spain.