Expand your business internationally(V): Branches, formal permanent establishments

Our previous post stated that one of the options allowing the expansion of business into a country that is not the companies’ original country of residence, is a permanent establishment. This facility does not have its own legal personality, but as far as the performance is concerned, it is quite independent, (regarding tax criteria, but not in terms of management). Its income and expenses run separately from those of the parent company.


Differences between branches and permanent establishments


The differences with the permanent establishment are basically those that arise between the tax and commercial regimes. In other words, we may say that every branch is a permanent establishment, but not every permanent establishment is a branch. In fact, the Law on Non-Resident Income, where permanent establishments are defined in its Article 13, states:


"Management headquarters, branches, offices, factories, workshops, warehouses, shops or other establishments, mines, oil or gas wells, quarries, agricultural, forestry or livestock farms or any other place of exploration or extraction of natural resources, and construction, installation or assembly works whose duration exceeds six months shall be understood to constitute permanent establishments".


In commercial terms, permanent establishments do not exist, since it is a purely fiscal concept, but branches in Spain are mainly governed by Royal Decree 1784/1996, of 19th of July, which approves the Regulations of the Commercial Register, specifically in Articles 295 and subsequent. The incorporation of a branch involves a series of commercial formalities. These end with the signing of the deed of incorporation at the notary's office. This incorporation is registered in the Commercial Register, the same pursuits as for the incorporation of an ordinary company or a foreign subsidiary apply.


Registering a Branch


However, in views of the lack of legal personality and subsequent liability (the parent company is responsible), it is crucial to bear in mind that there are a series of additional commercial commitments, such as the fact that once the branch has been incorporated and registered, the application of several files required by the Commercial Register referring to its foreign parent company, among others, will be compulsory: - the change of name or registered office is one of them.

  • The renewal, appointment and removal of board of managing directors.

  • Dissolution, appointment of liquidators, termination of liquidation and bankruptcy or insolvency proceedings of the foreign parent company.

In most of the cases, those companies being resident in a state differing to the state of its permanent establishment for tax terms, but aiming to grant a wider management autonomy (besides other eventual market reasons, such as providing local brand identity to the non-resident company in that territory or transparency, such as filing accounts in the Register of that country), should approach a formal incorporation of a branch with a representative who is given powers of attorney. This pursuit is not a fiscal obligation. Its nature as a permanent establishment will allow the profits to be taxable in the country where benefits are born, regardless if it is formally a branch.


From our International Department at Carrillo Asesores we can help you establish yourself abroad. Contact us. we will be delighted to assist you.




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