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Establishing an International Business in Spain. Representatoin Offices, Subsidiaries and Branches
The difference between a subsidiary and a branch: 2 ways to reach a new market.
Having a clear idea of the strength your expansion strategy is based on will help you decide between these two options. However, it’s a good idea to know the difference between a subsidiary and a branch since your obligations will be different in each case. Did you know that one of these options doesn’t have its own legal identity? Were you aware that the other option requires a minimum share capital investment of several thousand euros?
The following aspects outline the difference between a subsidiary and a branch:
- Legal identity: A subsidiary has its own legal identity. It is an independent company and usually has a different name from the parent company. This is not the case with a branch, which is merely a delegation of the parent company. It is an administrative division located in a different territory, without a legal identity.
- Administration and responsibility: In the case of a subsidiary, the Shareholders General Meeting and the corresponding body are responsible for its administration. The parent company has no responsibility for the subsidiary. With a branch, on the other hand, responsibility for its administration lies with the company’s main representative in the territory where it is located.
- Tax obligations:A subsidiary is always be taxed according to the applicable corporation tax and is obliged to present its accounts in the commercial register. A branch will pay either corporation tax or non-resident income tax. As far as tax contributions are concerned, regardless of whether a subsidiary or a branch, there are particular regulations that must be adhered to in either case. In the case of a subsidiary, although it is permitted to deduct payments made to the parent company, the parent company may not compensate the losses of the subsidiary. In the case of a branch, when calculating its taxable income, it is not permitted to deduct payments made by the parent company, whether in the form of interest, fees or commissions (even though they may have been justifiably made by management and be recorded in the company’s books).
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