Have you thought about setting up a business in Spain? If so, it is important you are aware of the preparatory obligations required to begin trading in Spain. Here we explain the different ways a company can be set up in Spain and the corresponding requirements for each set up.
Different ways to start a business in Spain
Before going any further, it is important to note that the most common legal constitution steps taken by foreign companies to start a business in Spain are to set up a subsidiary company or a branch office. As we explain in this video, there are important differences in the mercantile obligations between these two legal constitutions. The main differences between a subsidiary and a branch are as follows:
- Subsidiary companies are an independent legal entity from the parent company, whereas a branch is not independent.
- A subsidiary company must have a minimum capital investment of 3,000 EUR. Branch offices do not require capital investment.
- A subsidiary is a limited liability company that does not impact upon the parent company’s responsibility. As such, a subsidiary is legally independent and therefore is wholly (both for rights and responsibilities) a separate legal entity from the parent company. Foreign companies with branch offices are fully liable for debts held by their branch office in Spain.
- A subsidiary can have a sole trader business structure, or an equal partnership, or joint administrators, or a board of directors (which may have a CEO) made up of a minimum of three members and maximum of twelve. For branch offices, there is no need for a specific governing body, but they must have a legal representative who holds a power of attorney granted by the foreign company.
Another way of starting to trade in Spain, apart from the two structures mentioned above, is to open a representative office in Spain. This is useful if you wish to carry out market research, for example. Another option is to sign a collaboration agreement with a Spanish company.
In order to decide which structure best suits your aims and to ensure that all obligations are met when setting up a business in Spain, it is important to rely upon advice from business advisors in Spain who can advise upon the applicable laws and regulations that must be met, as well as providing advice on the most suitable Spanish business model for your company.
Obligations that must be met when starting to trade in Spain
As we explain in this video, there are several obligations upon those who set up a business in Spain. These obligations vary depending upon the business structure chosen. The legal, corporate and tax obligations that must be met include:
- The subsidiary must file yearly financial statements at the Companies Registry, meaning that they are in the public domain and can be accessed by third parties. A branch office only needs to provide proof that the parent company has met with annual accounting obligations in their country, meaning that third parties will not have knowledge of the branch’s accounting in Spain.
- Both branch offices and the subsidiary businesses must file official ledgers at the Companies House (daily ledger, inventory records, yearly financial statements, minutes book, shareholders register, VAT records, etc). Filing the official ledgers means that these documents are readily available, but not that they are open to the public. Accounts must be filed within six months and twenty-five days of the close of the previous financial year of the business. If the previous financial year ended on the 31st of January, accounts are to be filed by the 25th of July.
- As for tax obligations, both subsidiary companies and branch offices must file VAT returns and Corporation tax. VAT is filed quarterly on the 20th of April, July, October and January of each year via form 303. An annual report is also filed in January. Corporation tax is an annual tax of 25% that is filed between the 1st and 25th of July. This tax must be filed via form 200 even if no activity has taken place and there has been no income. Once form 200 has been filed, the payments due by your company for Corporation tax will be deducted in three payments the following year, in the months of April, October and December.
- When transactions over a certain amount of money take place between associated companies, the Spanish Tax Agency may request to see the price list applied for transfers between the related businesses so as to ensure that a market price was applied to the transaction.
- As mentioned before, it is vital that a branch office has a legal representative in Spain.
- Furthermore, the foreign parent company must have a Non-Residents’ Tax Code (NIF) and a VAT number.
As we have seen, there are important obligations for those who wish to begin trading in Spain in order to meet with legal requirements and avoid headaches.