LEGAL FORMULA FOR INTERNATIONALISATION

Accelerate your business with these expert tips on the "Legal formula for internationalisation". Take a look and discover this TIP!

Which tax law formula can we use to set up abroad?

We have already identified the country in which we want to internationalise (if you have not chosen the country I recommend you to before this TIP (+). We start from the assumption that the reasons for doing so in a certain country or another is because the opportunity to set up in that country is already known and has been analysed, either because one has a friend, relative, partner or ally, or also because one has visited or known about that market due to various circumstances.

Against this background, before going into the detail of the establishment cost analysis, it is important to reflect on how you should set up and operate abroad.

When I have already achieved a stable sales volume or a customer base in a country, I have to consider having a permanent establishment (+) in the country, and in what legal form.

SOME OF THE POSSIBLE FORMULATIONS MAY BE AS FOLLOWS

• Joint Venture with a local company already established in the country. You may find it helpful to follow these tips on key partners (+).
• Commercial representation or agency.
• Simple representative office of the parent company (a virtual office in a business centre).
• Incorporating a commercial company, among other possibilities. 
• As a branch, without legal personality.
• As a subsidiary (+).
• Holding.

The major legal difference between a subsidiary and a branch lies in the lack of legal personality of the latter, and the consequent personal, direct and unlimited liability of the parent company for the acts of the branch, which does not exist in the case of acting through a subsidiary.

Doing it one way or the other can have a major influence on implementation costs, as well as on risk and investment control.

OPENING A BRANCH ABROAD

Any non-resident company wishing to carry out economic activities or business in any European country for a period of more than one year must open a branch or permanent establishment and comply with a series of formal requirements.

Firstly, and as a general rule, the non-resident company must appoint a local representative, duly empowered to carry out the necessary formalities for the opening of the branch.

Generally, branches (or permanent establishments) of foreign companies are subject to ordinary corporate income tax in the country of residence and on profits earned in that State that are attributable to that branch, in the same way as domestic companies.

The branch may deduct from its tax base the expenses and costs it incurs in connection with its operations (provided they are incurred and accounted for in the State of residence), as well as the expenses incurred with the Spanish parent company, provided they are valued and accounted for at the prices that would be agreed between independent companies.

CREATION OF A FOREIGN SUBSIDIARY

Normally, the most commonly used corporate forms are the public limited company and the limited liability company. However, each State has its own different types of companies and a detailed analysis will have to be made in each individual case as to which company form will suit the specific needs of the planned investment.

IN GENERAL, THE PROCESS OF SETTING UP ONE AND THE OTHER CAN BE SUMMARISED AS FOLLOWS:

• Obtaining the company name in the relevant register.
• Drafting of the Articles of Association.
• Payment of the share capital.
• Execution of the deed of incorporation before a foreign notary.
• Registration of the deed in the Commercial Register.
• Publication in the Official Journal.

In addition, the corresponding certificates of commencement of activities, registration with the Social Security, merchant's certificate, legalisation of official books, authorisation of office hours, etc., must be obtained from the different administrations involved.

The subsidiary, having legal personality, acts with its own legal liability, subject to the ordinary legal regime of the host State, and is liable to third parties up to the amount of its share capital.

It can obviously carry out all kinds of acts and contracts vis-à-vis third parties with complete autonomy and its activity is carried on in its own name and on its own account. The subsidiary is taxed in the State of residence on its full profits at the general rate of taxation for resident companies.

HOLDING

Successful internationalisation means that companies' profit and loss accounts are increasingly dominated by income from foreign markets. As a result, the effects of double taxation are exacerbated, as companies are taxed at source and also at destination, since the Corporate Income Tax Act taxes the worldwide income of taxpayers.

A holding company is a company whose corporate purpose is limited, not to the direct conduct of commercial or industrial activities, but to the mere holding or participation in other companies. They are normally used because of the tax benefits derived from them in certain territories, especially as regards the taxation of dividends and capital gains derived from the sale or disposal of their holdings. Foreign establishment by setting up a holding company is subject to the declaration procedure.

SPANISH DOMESTIC LEGISLATION ON EXTERNAL FINANCING

There are two generic sources of financing a company, either by financing it through equity (from the company's own resources or those of the shareholders) or by borrowing funds from third parties (e.g. via a loan).

When the loan is arranged with persons resident outside our borders, we are talking about foreign financing. And this is a subject that raises numerous legal, fiscal and administrative problems. In short, it is important to comply with all the regulations relating to foreign investments, which are controlled and supervised not only by the Treasury but also, and mainly, by the Bank of Spain.

How can I use Artificial Intelligence (AI) to find out which legal form you are interested in in each country for internationalisation?

You can ask ChatGPT a specific question, indicating the countries you are interested in and the characteristics of your company.

For example, you could ask "What would be the best legal form to establish my company in Mexico and Colombia, considering that my company is a technology startup and I have no local partners?" or "What is the best legal option to establish a branch in Spain if my company is based in the United States and already has operations in Latin America?".

The ChatGPT will use its knowledge to provide you with an answer based on the available data and its analytical skills.