How to operate in Spain for foreign companies

How to operate in Spain

Throughout this article, we will explain the basics to understand how to operate in Spain. If you are thinking of either operating or setting up a company in Spain, it is of the uttermost importance to know the different options.

1. Developing an economic activity in Spain

When a foreign company wants to operate in Spain and perform an economic activity in such territory, it has 3 different ways through which it can do so:

Permanent Establishment
Branch Office
Subsidiary Company

A – Permanent Establishment

A permanent establishment is the easiest and fastest way to develop an economic activity in Spain. This form consists simply of the direct performance of activities in Spain by the foreign company, without the creation of any new entity. Its existence in legal transactions is due to only tax regulations.

A permanent establishment in Spain does not constitute a new legal entity but maintains the foreign company, which operates in Spain. Therefore, the permanent establishment does not have separate autonomous liability either and, therefore, it is the foreign entity that assumes all liability arising from the actions of the permanent establishment in Spanish territory.

Given that the permanent establishment does not have legal personality nor is it regulated by trading or commercial legislation, its legal existence is observed in its relations with:

– Tax authorities (to which it must apply for a tax identification number, «NIF»).

– Social Security authorities (to which it must notify the existence of the work centre, and with contractual relations, such as employment contracts, lease contracts, contracts with suppliers and customers, and so on.

Consequently, the permanent establishment does not require a public deed for its incorporation, it does not need to be registered nor it does need to prepare and deposit annual accounts.

Another peculiarity of the permanent establishment is that it does not have its own administrative body, the administration is the same as at the foreign entity. In other words, the establishment has neither its own administrator nor its own manager, although there may be proxies, whose powers are granted by the state of origin.

B – Branch Office

A Branch office is a legal form of operation that lies between the permanent establishment and the subsidiary. Although the branch does not create an independent legal personality of the foreign company, in this case, there is a specific commercial regulation (so, the first difference in comparison with a permanent establishment).

In addition, it requires its constitution by public deed, its registration and the preparation and deposit of annual accounts (requirements that are not needed for a permanent establishment constitution).

Despite specific recognition of the existence of the branch, the responsibility remains entirely with the foreign entity, in the same way as with the permanent establishment.

Another difference between the branch office and the permanent establishment is that the branch must have a manager, who is the branch’s administrative body who must be registered with the Commercial Registry. Such a manager must have all the powers to represent the branch, so it is compulsory to appoint him or her through a power of attorney.

Regarding the taxation of the branch, it works in the same way as for the permanent establishment and it is also mandatory to obtain a tax identification number (NIF-W).

Because of the few differences between establishment and branch, the main element to be considered when deciding between one figure or the other is the question about whether to have a manager in Spain with all the powers attributed or not.

C – Subsidiary Company

The subsidiary, unlike the permanent establishment and the branch, is a new company incorporated in Spain, different from the foreign entity and, therefore, with its own independent legal personality.

Its incorporation requires a public deed and registration in the Spanish Commercial Registry, and all the formalities of a company must be completed, such as formalizing and depositing the annual accounts, obtaining a tax ID number NIF and so on.

As the subsidiary has its own legal personality, the responsibility is directly that of the subsidiary, not of the foreign entity. Therefore, the foreign entity is only liable for the contributions made to the new company.

2. NIF Application by the foreign company

To obtain the Spanish tax number (NIF) for a foreign company, the following documentation must be submitted to Spanish Tax Authorities:

Certificate issued by the relevant authorities in the origin Country in which it is stated that the company exists, its identification details (constitution, legal address, share capital), current board of directors and a specific statement for which the Investor is not insolvent. That document should be duly legalized through the Hague Apostille and officially translated into Spanish (sworn translation).
Full copy of the Articles of Association. Those articles must be translated into Spanish, even though it is not necessary that the translation is official.
Power of attorney signed in front of a notary by means a representative is appointed to apply for the NIF on behalf of the company.

Based on the above, if you are a foreign company that is thinking about operating in Spain, we can help you in complying with all the formalities to do so we can help you in complying with all the formalities to do so as we have broad experience in advising clients in this matter.