Setting Up a Subsidiary in Spain – 2024 Guide

Due to its extremely stable economy, Spain has emerged as a land of chances for international investors looking to launch new business ventures. With a current GDP of €1,328,922 million, Spain is now the sixth-largest economic force in Europe. Since the financial crisis’ effects, which caused the country’s economy to decelerate between 2008 and 2014, it almost seems as though the nation has recreated itself.

Apart from its economic benefits, Spain has a more laid-back corporate and general culture. As you get acclimated to conducting business in Spain, you’ll start to experience the positive aspects for yourself and realise that setting up a subsidiary in Spain is the right move. 

If you are planning to grow your brand by establishing a subsidiary in Spain, you will need to know the legal requirements and steps involved in the process. In this article, we will guide you through the process of opening a subsidiary in Spain and answer some frequently asked questions (FAQs) about starting a business in Spain. 

How to Set Up a Subsidiary in Spain

The first step in establishing a subsidiary in Spain is to decide what kind of entity you want to form. Spain has four basic business categories, each with advantages and disadvantages. 

You must consider your business operations, the registration procedures, the minimum capital requirements, and your level of commitment to the nation to determine which is best for you. The four business options include corporation, representative office, branch office, and joint venture. 

Sociedad de responsabilidad limitada (S.L.) is the standard subsidiary structure in Spain. It is the equivalent of a private limited liability entity. The second common structure is Sociedad Anónima (S.A.), similar to a public limited liability firm. S.A has more stringent capital requirements and less organisational flexibility than S.L. 

Depending on your chosen option, Spain has three different processes of incorporation. These include ordinary regime, simplified regime, and super simplified regime. 

Ordinary regime is applicable for a corporation and a limited liability company while simplified regime is only applicable to certain limited liability entities that meet standard requirements related to share capital, managing directors, and shareholders. Super simplified regime is only applicable to limited liability entities that meet established requirements related to bylaws, share capital, and shareholders. 

Steps to Registering Your Subsidiary in Spain 

• Register Yourself 

As a foreign investor establishing a subsidiary, you must obtain a tax identification number. You will have to register with the Spanish Commercial Registry to acquire it. 

• Company Name 

You must choose and register your firm name with the Corporate Register of Spain to acquire a certificate of uniqueness. 

• Acquire the Company CIF 

The next step involves acquiring the business tax identification number. You will also have to open a bank account in your firm’s name at this point. 

• Obtain Licences and Permits 

Depending on the industry, you may be required to acquire certain licences and permits from the local authorities in Spain. 

• Register with Social Security

You must also register the subsidiary with the Spanish Social Security system and obtain a Social Security number for employees.

• Comply with Tax Obligations 

Comply with Spanish tax obligations, including corporate income tax, VAT, and payroll taxes.

Spain’s Subsidiary Laws

You must consider certain conditions if you choose to set up your Spanish subsidiary as an S.L. The minimum investment capital required by Spain’s subsidiary regulations is €3,000, and you must pay it in full at the time of incorporation. An S.L. cannot issue bonds, and its shares are not freely transferable.

Your S.L. requires a minimum of three directors for management, with a maximum of twelve. Spanish subsidiary law does not specify citizenship or place of residence. The country does have rigorous accounting and auditing requirements. All businesses are required to submit their annual financial accounts to the Mercantile Register, while some are permitted to do so if they stay within defined parameters.

Frequently Asked Questions (FAQs) 

What are the Benefits of Opening a Subsidiary in Spain? 

• International Hub for Trade 

Spain is able to maintain its status as an accessible and competitive market because of its location in Europe and connectivity with other countries. Moreover, the Spanish trade market is widespread in Northern Africa, Central America, and the Middle East. The ties of these regions with each other are strong, and they support Spain’s corporate and economic development. 

Spain has experienced steady development in its foreign trade sector over the last five years, mostly attributable to increases in the nation’s productivity and wage moderation. Spain is a signatory to several free trade agreements and a part of the General Agreement on Tariffs and Trade, which have improved its position in the international market.

• Strong Focus on Research and Development 

Spain takes pride in its investment frameworks and its continuous research and development (R&D). For any actions that significantly boost the nation’s economy, there are several tax and financial incentives in place, including soft loans, non-refundable subsidies, and even a combination of the two.

The nation places a major priority on promoting long-term employment, technical innovation, and profitable investments. While Spain does not invest as much in R&D as other EU members—its expenditures amount to about 1.43% of GDP—there is still a solid emphasis on innovation, which has boosted the nation’s rising competitiveness in the open markets.

• Open to Foreign Direct Investment (FDI)

Spain welcomes FDI, which is important to the economic relationship with other European nations. The Spanish government has taken a pro-free-trade and pro-investment stance, easing business regulations and offering incentives to attract companies from other countries. 

Other factors contributing to the influx of foreign investment include an updated financial sector, a thriving tourist industry, a well-developed transportation network, and a focus on renewable energies and global research.

Read more about Advantages of Setting up a Branch in Spain and Portugal

What are the Challenges of Operating a Subsidiary in Spain? 

• Emigration 

Between 2007 and 2017, a wave of highly skilled professionals fled Spain for other EU countries, totalling 87,000. The main reason behind this was job uncertainty. The government of Spain has pledged to address the issue by providing greater job opportunities to persuade highly trained young employees to return home.

• Unemployment 

Unemployment is another major issue in Spain. The country’s unemployment rate rose to 12.87 percent in the fourth quarter of 2022. A high unemployment rate makes talented workers leave the country. Therefore, finding skilled employees for your subsidiary can be challenging in Spain. 

What are the Main Taxes You Must Pay in Spain for Doing Business? 

A number of corporate taxes that apply to businesses operating in Spain also apply to their Spanish subsidiaries. All Spanish businesses are subject to capital gains and corporate income taxes. These are levied at a rate of 25%. In addition, businesses are required to pay the withholding tax, which is levied on dividends, interest, and royalties. 

The withholding tax is often either waived or applied at a rate of 19%. The same tax rate thresholds are set forth by Spanish tax legislation for the withholding tax on royalties, although a tax rate of 24% is also an option.

Value-added tax (VAT), which is imposed on businesses as well, is levied at a standard rate of 21%. However, lesser VAT rates—available at 0%, 4%, and 10%—can be applied depending on the services or goods the business provides on the local market.

The tax base of businesses registered in Spain may also include additional taxes such as social security contributions, real estate tax, transfer tax, and stamp duty.

Final Thoughts 

Spain can be a great location for expanding your brand. Opening a subsidiary in this country will allow you to tap into a new market and potentially grow your presence in other neighbouring European nations. Spain could be the first stepping stone, forging a path towards sustainable growth.

The process of opening a subsidiary in Spain isn’t complicated. There are some basic requirements you must comply with, and if everything works out smoothly, you will receive the operating licence to do business in the country. If you need assistance navigating the process of setting up a subsidiary in Spain, contact Start Company Formations. 

We can be the perfect partner for your venture. Our experts will handle everything while you focus on running your business. You won’t have to worry about handling the paperwork; we will do the job for you. Once we are done, you will have a subsidiary in Spain. We also offer tax and accounting services in case you need our assistance in these areas.