A subsidiary is a company that is controlled by another. For that reason, it is included in the category of limited liability company (LLC). Likewise, the firm that is at the helm of the economy is called the parent company.
The direction or control is carried out through the shareholding package owned by the parent. In other words, its shares give it the necessary votes to determine the composition of the subsidiary's administrative body and thus be able to exercise control.
This strategy gives rise to the commonly assumed idea that achieving 50% plus one of the shareholders is enough to create a subsidiary. However, there are other variants where business control can occur by applying much more complex business dynamics.
Ultimately, the subsidiary company depends on the parent company. However, this relationship can vary in degree. Thus, the link between both companies -the subsidiary and the parent- can go as far as absolute control, where the subsidiary is limited to writing down the decisions and operations that are arranged in the parent (a situation also defined in English as wholly owned - full property).
However, in other cases, the corporate union between said subsidiary and parent company may be characterized by completely independent management in which the subsidiary is autonomous and only informs the parent company of its results and, eventually, of the dividends or profits that are distributed. among shareholders.
Regulation of subsidiaries
The subsidiaries are well differentiated entities in terms of legal, fiscal and regulatory conditions. For this reason, they differ from divisions, which are fully integrated businesses within the parent company.
However, the subsidiary in a country of a foreign company must follow the same procedures for its creation as any local firm, plus some additional previous procedures because it is an investment from a foreign entity.
In this way, the foreign company must adopt, through the administrative body recognized by the legislation of the country of origin, the corresponding agreement to create the subsidiary.
For example, if the firm is entering Spain, it must request a certificate from the corresponding Spanish consulate stating that the parent company is incorporated in accordance with the laws of its country and that it carries out its business activity legally.
Taxation of a subsidiary
In terms of taxation, a subsidiary is governed by the laws of the country where it resides.Thus, in this area, the subsidiaries operating in Spain are subject to corporation tax, with their own benefits for small companies.
However, when the subsidiary distributes dividends to the partners, who will be foreign companies, it will be dividends obtained by non-resident companies. Then, these transfers must pay general taxes via withholding.
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