There are several possible options that offer different degrees of establishment. Therefore, the first thing is visiting a trusted advisor to help us understand the different options and the one that best suits our specific needs.
1. Operating in Spain through a representative office
This formula can be interesting, at least initially, because it requires a lower degree of establishment and involves minimal costs. It is used primarily for situations in which the establishment is not clear, if there are doubts about the viability and continuity of the project.
The representative office implies having a fixed place of business in Spain but only with the objective of developing an activity of advertising, promotion, supply of information, conducting market research or carrying out activities of an auxiliary or preparatory nature for the non-resident company. The representative office works for your parent company.
The representative office may have employees but it is NOT allowed to directly (partially or totally) do any economic activity.
The economic activity must be developed directly by the parent company. Neither the representative office nor the workers of the representative office will have direct contracting or negotiation capacity with the clients; contracts with clients must be signed directly by the parent company (if they want to have this capacity, it is necessary to rely on the figure of a permanent establishment (point 2) or a company incorporated in Spain (point 3)).
The representative office does not have its own legal personality or responsibility (the legal personality and responsibility are held by the parent company). No public deed is required for its incorporation, nor a registration in the Spanish commercial register, although a tax representative with fiscal address in Spain must be appointed before a notary. It does not pay Corporation Tax and the VAT paid in Spain can be recovered by requesting the refund as non-resident.
If there are employees you will have to manage the payroll, withholdings and contributions to social security in accordance with Spanish regulations. The representative office can be withdrawn at any time without further formalities.
2. Operating in Spain through a permanent establishment
As in the previous case, the permanent establishment does NOT have its own administrative body nor does it have its own legal personality independent of the parent company. However, it must be registered in the Spanish Commercial Registry and it requires greater requirements for its incorporation, since the administrative body of the foreign parent company must approve the establishment of the branch in Spain and the appointment of a tax representative residing in Spain.
The permanent establishment can directly develop its economic activity, hire and invoice its clients. It relies entirely on the parent company (since it has no independent legal personality or its own administration body), but its degree of autonomy is higher than that of the representative office.
The permanent establishment will keep its accounting individually and will be taxed in Spain under the Corporation Tax (currently 25%), the parent company will incorporate into its accounting the result of the permanent establishment and will apply the deductions to avoid double taxation (exemption method for the income obtained and taxed in Spain).
The permanent establishment will issue its invoices and will charge VAT for the income obtained and will deduct the paid VAT; that is, it submits VAT declarations like any other resident in Spain for the transactions carried out in Spain.
The branch can be closed when the parent company agrees.
3. Operating in Spain through a company incorporated in Spain
In this case, the Spanish company that will be incorporated will have its own legal personality, its own administrative body and will operate as a company legally independent of the parent company.
This formula has higher costs both for incorporation and maintenance. However, it is a commonly used formula when you are convinced of the consistency of the project.
It works like any other Spanish company, both in terms of taxation and administrative and management level.
At TIKA ABOGADOS we can help your company in all the necessary procedures for the correct establishment of your business in Spain, whatever the form of establishment you choose.
Sara Sala Alcaide
Lawyer
Tika Abogados