Subsidiary vs Branch in Spain: Which Structure Is Best for a Foreign Company?

When a foreign company decides to expand its operations into the Spanish market, it faces a critical structural decision: whether to establish a subsidiary company or open a branch office. Although both structures allow the permanent conduct of business activities, their legal nature, liability regime, and tax treatment differ substantially, directly impacting the foreign parent company.

This decision should not be based solely on administrative simplicity. Factors such as parent company liability, international taxation, employee hiring, permanent establishment risks, and future business expansion can significantly influence which structure is the most efficient.

In our guide on how to establish a company in Spain as a foreigner, we analyse the main stages, risks, and strategic considerations that international companies should assess before setting up operations in Spain.

What is the difference between a subsidiary and a branch office?

The main difference between these two structures lies in their legal independence.

A subsidiary is a Spanish company with its own legal personality. A branch office, on the other hand, has no separate legal personality and operates as a direct extension of the foreign company.

This apparently formal distinction has important consequences in areas such as corporate liability, taxation, day-to-day operations, and employment matters.

Therefore, the choice between one structure or the other should be made considering the company’s business model and the type of activities it intends to carry out in Spain.

 

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What is a subsidiary in Spain?

A subsidiary is a commercial company with its own independent legal personality, separate from its sole shareholder or foreign parent company. It is usually incorporated as a Limited Liability Company (SL) or Public Limited Company (SA), although the SL is generally the most common structure for international expansion projects.

• Legal autonomy: It has its own assets, management bodies, and legal capacity. Unlike a branch office, a subsidiary operates independently from the parent company.
• Liability: The parent company’s risk is generally limited to its capital contribution. There is a separation of assets that protects the parent company’s assets from debts incurred by the subsidiary in Spain, except in exceptional cases where the corporate veil may be pierced.
• Management: It is governed through a General Shareholders’ Meeting and a management body (sole director, joint directors, several directors acting jointly and severally, or a Board of Directors), in accordance with Article 210 of the Spanish Companies Act.

Corporate image and operations

A subsidiary often conveys a stronger image of stability to:

• Customers.
• Suppliers.
• Financial institutions.
• Public authorities.

In addition, it generally facilitates commercial and operational growth in Spain.

What is a branch office in Spain?

A branch office is a secondary establishment with permanent representation and a certain degree of management autonomy through which the parent company’s activities are carried out, either wholly or partially.

• No separate legal personality: A branch office is not a separate legal entity. It is an extension of the foreign company. As a result, any contract signed by the branch directly binds the parent company.
• Unlimited liability: The parent company is directly liable, with all its assets (present and future), for obligations assumed through the branch office in Spain. Unlike a subsidiary, there is no limitation of liability.
• Representation: Instead of directors, the branch office is managed by attorneys-in-fact or legal representatives appointed by the parent company, whose powers must be recorded in the incorporation deed (Article 297 of the Spanish Commercial Registry Regulations).

Tax comparison: tax resident entity vs permanent establishment

Taxation is perhaps the area where the distinction is most significant, particularly regarding the determination of the taxable base and the application of international tax treaties.

Taxation of a subsidiary

A subsidiary is considered a tax resident entity in Spain for tax purposes (Article 8 of Spanish Corporate Income Tax Law 27/2014).

• Tax: Subject to Corporate Income Tax (CIT) on its worldwide income.
• Tax rate: Generally 25%.
• Dividends: Profit distributions to the parent company may be exempt from withholding tax under the Parent-Subsidiary Directive (for EU companies) or Double Taxation Treaties (DTTs).

Taxation of a branch office

A branch office is considered a Permanent Establishment (PE) of a non-resident entity.

• Tax: Subject to Non-Resident Income Tax (NRIT) only on income generated in Spain (Article 13 of the Non-Resident Income Tax Law).
• Management expenses: Unlike a subsidiary, a branch may deduct a proportional share of the parent company’s management and general administrative expenses, provided strict continuity and accounting rationality requirements are met.
• Additional taxation: For parent companies outside the EU, an additional tax may apply to profits transferred abroad (commonly known as branch tax), unless prohibited by an applicable Double Taxation Treaty.

Comparison table: subsidiary vs branch office in Spain

	Subsidiary	Branch Office
Legal personality	Yes	No
Parent company liability	Limited to capital contribution	Direct and unlimited
Applicable regulations	Spanish Companies Act	Commercial Registry Regulations
Minimum capital	Yes (€3,000 for an SL and €60,000 for an SA)	No (requires allocated funds)
Tax regime	Corporate Income Tax (Resident)	NRIT – Permanent Establishment (Non-Resident)
Management bodies	Directors / Board of Directors	Legal Representative / Attorney-in-Fact
Hiring employees	Yes	Yes
Corporate image	Stronger	More limited
Operational autonomy	High	Dependent on parent company
International tax risk	Lower and more controlled	Potentially higher
Future growth	More flexible	More limited

Risks of creating an unintended permanent establishment

One of the most important considerations for foreign companies is avoiding the unintentional creation of a permanent establishment in Spain.

This risk may arise when a company carries out ongoing economic activities in Spain without properly structuring its local presence.

For example:

• Permanent sales teams.
• Managers residing in Spain.
• International remote working arrangements.
• Or habitual authority to conclude contracts.

Although a permanent establishment may also exist when operating through a subsidiary, branch structures often require particularly careful analysis.

Poor planning may lead to:

• Tax reassessments.
• Penalties.
• Tax audits.
• Significant tax contingencies.

You may also be interested in our guide on working remotely from Spain for a foreign company.

Which structure offers greater operational flexibility?

In practice, a subsidiary generally provides greater flexibility for long-term international projects.

Especially when the company plans to:

• Hire local teams.
• Launch new business lines.
• Acquire customers in Spain.
• Or develop long-term operations.

In addition, many financial institutions, corporate clients, and suppliers perceive a subsidiary as a more solid and stable structure.

As a result, in many international expansion projects, a subsidiary ultimately becomes the most efficient option from an overall business perspective.

However, each case must be analysed individually.

The most appropriate structure will depend on factors such as:

• The volume of activity.
• The operating model.
• International tax considerations.
• The company’s strategic objectives.

When is a subsidiary usually the best option?

Although each project should be assessed individually, a subsidiary is generally the preferred option when:

• There is a long-term establishment strategy.
• Commercial growth is expected.
• Local hiring is planned.
• Significant operational activities will be carried out.
• Or the parent company wishes to limit its liability.

It is also usually more efficient when the company aims to build a strong commercial presence and reputation in Spain.

 

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When can a branch office be useful?

A branch office may be useful in certain specific situations.

For example:

• Temporary market entry projects.
• Limited operations.
• Highly centralised structures.
• Or early stages of international expansion.

However, before choosing this structure, it is essential to properly assess the tax and regulatory implications.

Particularly regarding permanent establishment risks and international liability.

Common mistakes when choosing a structure

One of the most common mistakes is selecting a structure based solely on administrative simplicity or speed of incorporation.

Many international companies fail to adequately assess:

• International taxation.
• Employment obligations.
• Regulatory risks.
• Or future business growth.

Other frequently underestimated aspects include:

• Opening bank accounts.
• International document management.
• Accounting coordination.
• Compliance obligations.

For this reason, it is advisable to carry out a comprehensive analysis before beginning any expansion project.

In our complete guide on how to establish a company in Spain as a foreigner, we examine the main mistakes and strategic considerations to evaluate before commencing operations in Spain.

How Adlanter can help

At Adlanter, we help foreign companies analyse, structure, and establish their operations in Spain.

Our team combines expertise in:

• International taxation.
• Corporate law.
• Global mobility.
• Employment management.
• Payroll.
• And compliance.

We also recommend reviewing some of our success stories and international projects.