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Expand your business internationally (IV): Subsidiaries in other countries

The guidelines related to establishments in a foreign country by means of a branch or permanent establishment, (we refer to features that are not operating with own legal nature), have already been exposed with previous postings. The incorporation of a subsidiary company abroad (or in Spain being a foreign company) takes us one step further.

What is a subsidiary company

The RSA Glossary defines that a subsidiary company is a feature that is controlled by another company. Unlike a permanent establishment, the decision to incorporate a company abroad implies that the entity is autonomous, with legal personality and therefore responsible for its own debts. It will have its own articles of association, its own management and administrative board. Moreover, it may -or it may not- distribute dividends to the parent company. The parent company will have control of the subsidiary by holding shares, but both will be legally and fiscally independent.

Therefore, the foreign subsidiary (or Spanish subsidiary in the case of a foreign parent company that wants to set up here) will be considered as resident in the established territory, unlike its parent company (obviously, a subsidiary can be established within the same country, but that is another case). Why is this interesting? There are multiple strategic reasons; to separate responsibilities, to divide production, to segment markets, to diversify risks... and also for tax optimisation.

Holding Corporation

The parent company will be the holding corporation, which can operate as a "pure" holding company. It also may have its own business line.

Each case is a particular one, we therefore recommend to review the scenario and territory for a set-up thoroughly, before performing. Double taxation agreements of the different countries in relation to the operations between parent and subsidiary must be analysed.

Setting up a subsidiary will entail formal and tax obligations, almost identical to those of a normal company. But it represents benefits on strategical scopes, that will result in profits on monetary terms, too.

Do you own a subsidiary company or would like to establish one? Contact us. Carrillo Asesores International Department will be glad to help you.

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