Published: July 1, 2026
I. Introduction
Spain is one of the leading destinations for foreign investment in Europe, which makes it essential for companies seeking to establish themselves in the Spanish market to properly plan their operational structure from a legal perspective.
In this context, one of the first decisions is whether to conduct the business by opening a branch of the foreign company or by incorporating a Spanish company (hereinafter, the“Subsidiary”). Although both alternatives allow for stable operations in Spain, they are based on different legal models and have significant implications regarding liability, corporate structure, and business operations.
The decision between establishing a branch and a subsidiary should be made after analyzing the characteristics of the investment project and the legal implications associated with each option. This article examines the key factors that must be taken into account to facilitate an efficient and legally sound establishment in Spain.
II. Choosing an Investment Vehicle: Subsidiary vs. Branch
The Spanish legal system essentially offers two alternatives for a foreign company to conduct business on a stable basis in Spain: (i) opening a branch of the foreign company or (ii) incorporating a Spanish company, typically in the form of a limited liability company (hereinafter, “SRL”) or a corporation (hereinafter, “S.A.” and, together with the SRL, “capital companies”), both governed by Royal Legislative Decree 1/2010, of July 2, which approves the consolidated text of the Capital Companies Act (hereinafter, the “LSC”).
II.1 Branch in Spain of a Foreign Company
A branch is a secondary establishment with permanent representation and a certain degree of managerial autonomy, through which a foreign company conducts all or part of its business in Spain[1].
However, it is important to note that, unlike corporations, a branch does not have its own legal personality; therefore, it is not a separate legal entity from the parent company, but rather an extension of the parent company within Spanish territory.
This configuration has the following main features:
Liability: Since it lacks its own legal personality, the branch does not have separate assets that could serve as a limit on its liability to third parties. Consequently, the obligations incurred in the course of its business are directly incorporated into the parent company’s assets, which is liable for them with all of its present and future assets[2], without any possibility of segregating or isolating the risk arising from the Spanish operations.
Corporate Governance: Unlike corporations, a branch does not have its own corporate bodies, as it does not constitute a separate entity for the allocation of rights and obligations distinct from the parent company. Consequently, its operations are managed through a permanent representative—an individual or a legal entity—whose powers must be specifically defined in the power of attorney granted by the foreign company and registered with the Commercial Registry[3] (hereinafter,“RM”).
This simplified structure reduces corporate compliance burdens (such as calling meetings, formalizing minutes, and filing financial statements, among others), although this simplicity is directly linked to the absence of separate assets noted in the previous section.
Capital: Spanish law does not require a branch to have a minimum share capital. This exemption is based on a strictly conceptual reason: in the context of corporations, share capital serves as a guarantee against third parties, which only makes sense when there is corporate equity separate from that of the shareholders; since such a separation of assets does not exist in a branch—given that it is merely an extension of the parent company—this guarantee function is unnecessary, as it is the foreign company’s own assets, in their entirety, that back the obligations assumed in Spain.
II.2 The Subsidiary as an Investment Vehicle
Unlike a branch, a subsidiary is a legal entity that is separate and independent from the parent company, with its own assets, governing bodies, and liability.
Its main features include the following:
Limited Liability: The LSC establishes, as a fundamental principle of corporations, that shareholders are not personally liable for the company’s debts; their liability is limited to the amount of capital they have contributed[4]. This limitation of liability is possible precisely because, unlike a branch, a subsidiary has its own separate corporate assets that serve as the exclusive source of funds for satisfying the company’s creditors: it is the subsidiary’s own assets—and not those of its parent company—that back the obligations incurred in Spain.
In practice, this circumstance is one of the main factors driving foreign investors’ preference for this structure, in that it allows them to isolate and limit the risk arising from their Spanish operations
Corporate Governance: The existence of separate legal personality requires, accordingly, the establishment of a distinct corporate governance structure, comprising, at a minimum, the General Meeting[5] and a board of directors, which may adopt any of the forms provided for in the LSC[6]. This structure entails compliance with a set of periodic corporate obligations, including, notably, the maintenance of corporate books, the preparation and approval of the annual financial statements by the General Meeting, and their subsequent filing with the Commercial Registry (RM); failure to comply with these obligations may result in registry-related consequences and, where applicable, liability on the part of the directors.
Share capital: In the context of corporations, share capital serves as a guarantee against third parties, which is inherent to the aforementioned limitation of liability. In the case of a limited liability company (SRL), the Companies Act (LSC) allows for its incorporation with a minimum share capital of one euro; however, as long as such capital does not reach three thousand euros (€3,000), the enhanced regime provided for in Article 4 of the LSC will apply, which imposes certain additional safeguards to protect creditors—including the obligation to allocate an amount equal to at least twenty percent (20%) to the legal reserve and a regime of joint and several liability of members in the event of liquidation, in the absence of sufficient assets. For its part, the SA requires a minimum capital of sixty thousand euros (€60,000), of which at least twenty-five percent (25%) of its par value at the time of incorporation[7], with the remaining amount subject to deferral in accordance with the provisions of the articles of incorporation.
Operational autonomy: The Subsidiary’s status as a separate legal entity grants it full capacity to act in legal and commercial matters, allowing it to pursue commercial, financial, and human resources policies distinct from those of the parent company, in accordance with its own decision-making bodies. This autonomy is particularly relevant in cases where the company plans to bring in new partners—whether domestic or foreign— securing its own bank financing, or entering into joint ventures with third parties, insofar as the Subsidiary can act as an autonomous legal entity without directly compromising the parent company’s legal or financial position.
II.3 Key Corporate Differences
The main differences between a branch and a subsidiary can be summarized as follows; evaluating these aspects is essential for determining which of the two structures is best suited to the investment project.
| Appearance | Branch | Subsidiary |
| Legal Personality | It doesn’t have one; it’s an extension of the Matrix | Yes, it does; it has independent legal personality. |
| Heritage | There is no separate estate | Equity, separate from that of the partners |
| Liability | Unlimited; it falls directly on the parent company. | Limited to the capital contributed (Art. 1.2 of the LSC) |
| Minimum Capital | Not required. | 1 € (S.L., subject to the enhanced regime under Article 4 of the LSC up to 3,000 €) / 60,000 € (S.A., minimum paid-in capital of 25%, Article 79 of the LSC) |
| Internal Governing Bodies | It does not have one; it acts through a permanent representative with registered powers of attorney. | General Meeting and governing body (sole administrator, joint and several administrators, or board of directors). |
III. Criteria for Choosing Between a Branch and a Subsidiary: When Is Each Option More Appropriate?
There is no one-size-fits-all answer to the choice between a branch and a subsidiary; rather, the decision must be made based on the specific circumstances of each investment project. Factors such as the level of risk involved in the business, the size of the investment, the group’s expansion strategy, and the degree of autonomy intended for the Spanish entity are key to identifying the most appropriate structure. However, based on practical experience, certain guiding criteria can be identified.
III.1 Situations in Which a Branch May Be More Appropriate
In general, a branch is an appropriate alternative when one or more of the following circumstances apply:
- The launch in Spain is part of an initial or exploratory phase of the project; no final decision has yet been made to establish a permanent presence.
- The planned activity involves a limited level of legal, operational, or financial risk, so the parent company’s direct liability is not a determining factor.
- The aim is to maintain close operational, accounting, and management integration with the parent company, thereby avoiding the creation of separate corporate bodies and reducing organizational complexity.
- The goal is to establish a simple structure with lower setup and maintenance costs, as it does not require its own share capital or an independent corporate structure.
- The structure is based on the group’s organizational and planning criteria, which call for centralizing operations within the parent company.
III.2 Situations in Which a Subsidiary May Be More Appropriate
Conversely, establishing a subsidiary is usually preferable when any of the following circumstances apply:
- The aim is to limit the parent company’s financial liability with respect to obligations assumed in Spain, thereby benefiting from the limited liability regime.
- The investment is intended to be long-term and growth-oriented, with plans for stable operations, the hiring of staff, or the development of the company’s own commercial or production structure.
- The plan calls for bringing in new partners or investors, securing local financing, or participating in public bids—situations in which the existence of a Spanish company with its own legal personality typically facilitates operations.
- The aim is to grant the organization in Spain greater legal and operational autonomy.
IV. Conclusion
The decision to establish a branch or incorporate a subsidiary is a strategic matter that should be resolved before commencing business operations in Spain. While both options allow a foreign company to conduct business in the Spanish market, each has distinct characteristics and implications from a corporate, operational, and organizational perspective. Consequently, it is advisable to conduct a case-by-case analysis of each project, taking into account both its commercial and tax implications, in order to select the legal structure that best aligns with the parent company’s strategy, interests, and specific needs.
If you are considering establishing your business in Spain and need advice on whether it is better to operate through a branch or to incorporate a limited liability company, at Gentile Law we have a team of experts in this field ready to advise you.
Contact us:
Marta Gavín Hermosilla
Corporate Legal Advisor at Gentile Law
Ana García Ginés
Tax Associate at Gentile Law
anagarcia@gentile.law
+34 604 512 160
This publication is for informational purposes only and should not be construed as legal advice.
[1] Article 295 of the Commercial Registry Regulations (hereinafter “RRM”)
[2] Article 1911 of the Civil Code.
[3] Article 297.4 of the RRM.
[4] Article 1.2 of the LSC.
[5] a deliberative body that expresses the will of the company, in accordance with Articles 159 et seq. of the LSC.
[6] sole director, joint or collective directors, or board of directors.
[7] Article 79 of the LSC.