Branch or subsidiary: how an Italian company expands into Spain

An Italian company that wants to operate in Spain picks one of two routes: open a sucursal (a branch, an extension of the Italian company itself) or set up a filial (a new Spanish company owned by the parent). The difference is not a detail. It sets who answers for the debts, how much tax gets paid, and which deeds you sign before a notary. Here is how each one works.

Branch: the same company, based in Spain

The branch (sucursal) is not a separate company. It is the same Italian company operating on Spanish soil through a stable establishment, with some management autonomy but no legal personality of its own.

The consequence is heavy: the Italian parent answers for the branch's obligations, with its whole estate. There is no ring-fence between what happens in Spain and the parent company. If the branch runs up debts, creditors go after the Italian company.

In return, setting it up is lighter. It needs no minimum share capital. You do need a public deed (escritura pública) before a Spanish notary, the parent's board resolution deciding to open it, and registration at the Registro Mercantil (Commercial Registry) of the province where it sits.

Subsidiary: a Spanish company with limited liability

The subsidiary (filial) is a Spanish company in full, almost always a sociedad de responsabilidad limitada (SL, the equivalent of a private limited company), whose shares belong to the Italian company. It has its own legal personality, its own name, its own NIF (tax number).

This changes how the risk is split. The parent answers only up to the capital it has put in. The Italian company's estate stays, in principle, shielded from what happens in Spain. That is why the subsidiary is the usual route when you expect ongoing activity, hiring staff, or serious commercial exposure.

The minimum capital of an SL is 3,000 euros, paid in when the company is formed.

The steps to set up a subsidiary

Forming an SL subsidiary follows a fairly fixed order:

1. Name clearance. You ask the Registro Mercantil Central (Central Commercial Registry) to confirm the chosen name is free.
2. NIF for the Italian parent. The Italian company needs its own Spanish tax identification number as a shareholder.
3. Bank account and capital deposit. You pay in the 3,000 euros and the bank issues a deposit certificate.
4. Public deed before a notary. It holds the bylaws and the appointment of directors.
5. Foreign investment declaration. Filed with the Registro de Inversiones Exteriores (Foreign Investment Registry) at the Ministry of Economy.
6. Tax settlement and registration. After the deed, the company is entered in the Registro Mercantil and gets its final NIF. Review and registration carry a general deadline of 15 days.

Some of these steps can be signed from Italy through powers of attorney, so you don't have to travel for each one.

The tax: non-resident income tax for the branch, corporate tax for the subsidiary

Here is the difference that surprises people most, because the result is similar but the path is not.

The branch is taxed as a establecimiento permanente (permanent establishment) under the non-resident income tax (Impuesto sobre la Renta de no Residentes, IRNR). It taxes the profit earned in Spain at the same general rate as companies: 25%. In fact, it files with the same form, modelo 200.

The subsidiary, being a Spanish company, pays corporate tax (Impuesto sobre Sociedades, IS). The general rate is also 25%, but companies with turnover between 1 and 10 million euros apply a reduced rate of 23% in 2026 (a path that keeps falling to 20% by 2029). Micro-companies, under one million in turnover, are taxed on a scale of 19% on the first 50,000 euros and 21% on the rest.

One point remains, on sending profit back to Italy. When a branch remits its profit to the parent, there is in theory an extra charge of 19% on income transferred abroad. For a company in the European Union, like the Italian one, that additional levy does not apply. In the subsidiary, dividends paid to the parent are covered by the Spain-Italy double taxation treaty (signed in Rome in 1977), which caps withholding at 15%, and often by the EU parent-subsidiary directive, which can bring it to 0% when the holding is significant and held over time.

Annual accounts

Both file accounts at the Registro Mercantil, but not in the same way. The subsidiary files its own, like any Spanish company. The branch, under articles 375 and following of the Reglamento del Registro Mercantil (Commercial Registry Regulation), files the Italian company's accounts; if Italian law does not require accounts equivalent to the Spanish ones, it has to draw up and file accounts covering the branch's own activity.

So which one fits?

It depends on the risk you are willing to take and how long the project will run.

The branch suits a light presence, a market test, or a project with a set horizon, accepting that the Italian parent answers for everything.

The subsidiary suits cases where you want to shield the parent's estate, hire people, sign weighty contracts, and stay in Spain for the long run.

The choice also touches commercial image, the relationship with Spanish banks and clients, and how easily you can sell or restructure later. That is why it pays to decide the structure before you start operating, not after.

If you have any doubts, Riondato & Partners is here to help

With over 45 years of experience between Italy and Spain, at Riondato & Partners we guide Italian companies that want to establish themselves in Spain and choose the structure that best fits their project. If you are weighing a branch against a subsidiary, get in touch with us.

Sources

• Spanish Tax Agency: non-resident income tax with permanent establishment
• Spanish Tax Agency: corporate income tax rate
• Belzuz Abogados: differences between subsidiary and branch for the foreign investor
• Mariscal & Abogados: filing annual accounts of foreign branches
• Spain-Italy double taxation treaty (BOE)