It is a legal identity independent of the parent company, that is, an extension of the same company, but in a different country. Control of the subsidiary belongs to the parent company, as it holds a significant percentage of the shares and capital of the company. However, the subsidiary operates independently of the parent company taking its own risks and taking into account the regulations and standards of the country in which it is located. On the other hand, subsidiaries are genuine commercial companies with their own legal persons, capital, articles of association, management and administrative bodies, etc. A branch does not have its own “legal personality” of the registered office. They are both components of a larger company. This means that the branch manager reports directly to the registered office, all transactions are carried out on behalf of the company at large, and the company as a whole is responsible for all actions of the branch. Both are legal forms with the aim of expanding companies internationally Subsidiaries, as mentioned above, are independent of the parent company and therefore have their own legal personality and name, which are different from the main company. They thus retain their autonomy, even if they are subject to the same tax regime as the other chambers of commerce in the territory in which they are established. On the contrary, branches are not another company and are not independent of the parent company and they do not have their own legal personality, although they must legally register in the commercial register. On the other hand, they can be created by individual entrepreneurs or by commercial companies, but they will always depend on them.
Unlike a branch, a subsidiary has a completely different legal personality from that of the parent company. This means that it can conclude contracts in its own name and that it has a different tax liability than the parent company. This also means that the parent company is not automatically liable for the activities carried out by the subsidiary. There are more and more Spanish companies that want to expand their activities internationally, this is probably a goal that you also have for your company in the future. Nowadays, running an international business for another country is much easier thanks to tools such as the Internet that transcend borders and allow you to operate in a global market. To do this, you need to choose the most convenient legal form, branch or subsidiary. Very often, we confuse the two terms, as both serve to broaden the horizons of your business so that you can conquer new markets. However, there is a big difference between the branch and the subsidiary, not only in the legal and tax aspect of things, but also in the layout, organization and landing page. If both concepts are defined, which form of business is best suited to broaden your company`s horizons? The answer depends on your interests.
Before deciding between one alternative and the other to take the step towards the internationalization of your company, you need to consider the differences between the subsidiary and the industry in the practical area. These distinctions are based on certain legal and tax aspects that are essential to choose the form that best suits the needs of your business. Below, we look at the pros and cons of choosing a branch or subsidiary. These notes have been supplemented by Community legislation, case law and the regulatory authority “Dirección General de los Registros y del Notariado” (Directorate-General of Registers and Notaries/DGRN), so that we can define branches as follows: it could be said that any permanent establishment is a branch, since it is a physical establishment or a place of work where the company in a country in which the holding company to which it belongs but is not domiciled. Today, not all permanent establishments can be considered a branch. Remember that independent internal management should be considered a branch. However, that circumstance need not necessarily coincide with that concept. Although setting up a branch is often a more demanding process than setting up a new business, branches bring with them a number of interesting tax advantages: therefore, and as with branches, permanent establishments do not have their own legal personality, independence from responsibilities, etc.
In many cases, the branch performs exactly the same activities as the head office. It is headed by a “branch manager” (or in some cases a “country manager”) who reports directly to the head office. The relative advantages of setting up a branch over a subsidiary differ considerably depending on the company concerned and the country of expansion. This means it`s important to hire an international expansion partner to explain which option is best for your business. The liability of the branch is not independent of the legal entity that creates it, whereas a priori, if such independence or autonomy exists in terms of liability between the holding company and the subsidiary. In Spanish law, there is no definition of a branch that goes beyond the provisions of Article 295 of the Commercial Register Regulation. This law introduces certain characteristic remarks for the purpose of its entry in the same register. A branch is a more independent entity that does business on its own behalf, but still acts on behalf of the company. A branch is not legally separate from the foreign parent company and is therefore also subject to the local laws that govern the foreign parent company. As it is not a new business entity, it does not have its own designation different from that corresponding to the holding company; Therefore, it is necessary to add an identification index that identifies the branch in commercial traffic. It is perhaps not surprising that the advantages of setting up a subsidiary are closely correlated with the disadvantages of setting up a branch. These benefits include: 4.
Any company considering international expansion should consider all possible options for setting up abroad. In addition to branches and subsidiaries, this means considering affiliates, mergers and acquisitions, representative offices and global PEOs. Branches are the most common way to expand a business across multiple locations in the same jurisdiction (for example, HSBC Bank has nearly 600 branches across the UK serving individual population centres). There is no single extension solution that is correct in all cases. For a more permanent presence, a subsidiary`s compliance, security, and credibility can be helpful. If the extension is rather temporary or temporary, the opening of a branch may be appropriate. As we expected, the main difference between branches and subsidiaries is that the former are not commercial companies. Consequently, branches do not have their own legal personality separate from their holding company. It is also worth considering other options that might be available alongside a branch or subsidiary. Consider, for example: any company legally established in a European country can open a secondary establishment such as an office, agency, branch or subsidiary in another EU Member State.
Here we look at the advantages and differences between setting up a branch and setting up a subsidiary. Overall, the registered office, activities, representatives and authorities of the branch must be indicated in the published constitutional document (as well as in the corresponding entry in the commercial register). A branch can be distinguished from a “representative office” or RO, which carries out only very limited activities on behalf of the company (i.e. not core activities). It`s much easier to do business through an independent legal entity, and a subsidiary or limited liability company usually gives a company more credibility vis-à-vis third parties such as banks, service providers, and partners. The advantages of setting up a branch include: From a tax point of view, subsidiaries are subject to the legislation of the state in which they are located, so they pay their taxes at the place where they have their registered office. Therefore, they are required to display their accounts in the commercial register and, like taxpayers, to pay corporation tax, on the other hand, branches pay either corporation tax or income tax for non-residents. Once the difference between the branch and the subsidiaries is clear, many companies choose an industry to run their business internationally, so once it has grown and made a profit, they can turn it into a subsidiary. Similarly, it is important to choose a solid starting point for the basis of expansion and consider the interests of the company before making the final decision.
In Lexington, we offer you the opportunity to run your business wherever you are, through our virtual offices. Therefore, you will be able to organize your business with absolute flexibility and without having to worry about unnecessary expenses. Depending on the legal form chosen for the subsidiary, the relevant legal provisions must be complied with; For example, registration in the commercial register, regulations on minimum capital and business registration. The subsidiary is the most popular structure that can be integrated in Europe.