1. Why Spain?

  • Spain is the world’s 14th largest economy in terms of GDP and 5th largest in the European Union.
  • Spain ranks 9th in the world as a destination for direct foreign investment and is currently the country that growths more among the biggest EU countries.
  • Spain is the 13th country as recipient of foreign investments in the world, highlighting the major role of foreign investment in its economy.
  • Spain offers business opportunities to companies in sectors and activities of high    added value, which is extremely attractive for FDI due to its strong growth potential. Over the last 5 years, 1 in 3 projects received have been in sectors of high technological value.  In the field of innovation, it is worth highlighting the existence of over 80 Technology Parks, home to over 7,736 technological companies.
  • Spain has a modern economy based on knowledge, in which services represent almost 75% of business activity.
  • The Spanish language is growing in importance in the business world, being the official language in over 20 countries only in the American continent, including the United States. Overall, there are over 550 million Spanish speakers in the world.
  • Spain is a modern, innovative and competitive country; its human and technological resources make it very attractive to the international business community.
  • Spain has a highly developed and sophisticated infrastructure: the leading European network of high-speed trains, motorways, as well as three of the busiest container ports and two of the largest airports in Europe.
  • The country has also a generous system of grants and incentives at European, national, regional and local level, which can benefit investors.
  • Spain enjoys an strategic position with access to a potential market of over 1.2 billion consumers in Europe, Latin America and North Africa.
  • The Spanish market is one of the largest in Europe with 47 million consumers and additional 75 million tourists that visit Spain every year. Spain enjoys a strategic position with access to a potential market of over 1.2 billion consumers in Europe, Latin America and North Africa.
  • Spain has around 19,000 foreign companies. They all benefit from an attractive business climate and a tax system that stimulates investment.
  • The Spanish government undertook labour reforms that are contributing substantially to the creation of a more flexible labour market.

2. Setting up a business in Spain

2.1. Options for setting up a business

  • Opening a branch or a representative office.
  • Incorporating an Spanish company: traditionally, the most-used corporate form has been the limited liability companies (S.L.).
  • Associating with other businesses already established in Spain: joint ventures are a common way of setting up business in Spain, since they enable their members to share risks and pool resources and experience. Spanish law provides for different types of joint venture.
  • However, creating a new entity or associating with pre-existing entities is not the only way to invest in Spain. It is possible to gain a foothold in the Spanish market without having to physically set up a center of operations in Spain by:

- Making distribution agreements.
- Operating through an agent.
- Operating through a commission agent.
- Establishing a franchise.

2.2. Types of Corporate Entity

2.2.1. Limited Liability Company (S.L.)

Flexibility is one of the main hallmarks of this kind of company, since it gives the shareholders considerable leeway to define the S.L.'s internal rules of governance in the bylaws.

The minimum capital is €3,000 and must be fully paid in at the time of formation. The capital must be divided into shares (known as "participaciones"). In general, these shares cannot be transferred (unless to other shareholders, ascendants, descendants, or companies of the same group) unless otherwise provided in the bylaws.

Unlike an S.A., no independent expert's report is required for non-cash contributions. The shareholders' meeting is the ultimate managing body and has authority to appoint and remove the directors of the S.L. The executive management body of an S.L. is made up of one or more directors, who need not be shareholders or Spanish nationals.

2.2.2. Corporation (S.A.)

The minimum capital required to set up a corporation is €60,000. The capital stock must be fully subscribed and at least 25% of the par value of the shares must be paid in. No minimum number of shareholders is needed to incorporate an S.A. The shareholders’ meeting is the ultimate managing body of an S.A., with authority to appoint and remove its directors. The executive managing body of an S.A. is made up of one or more directors, who need not be shareholders or Spanish nationals.

2.2.3. Branch

To open a branch, a public deed must be signed and registered at the Mercantile Registry. Under Spanish foreign investment legislation, the branch must have allocated capital, although there is no minimum capital requirement.

The branch must have a legal representative with authority to manage its affairs. It does not have any formal managing or administrative bodies as such, and it largely operates as if it were a company in its commercial dealings with third parties.

The choice between forming a branch or a subsidiary in Spain may be influenced by commercial considerations (e.g., a company might provide a more “stable” presence than a branch) or by considerations of legal certainty (a subsidiary limits the shareholder's liability).

2.2.4. Representative Office

A representative office is not a separate legal entity from its parent company, and it does not have any formal managing bodies, since management duties are delegated to the office's representative. In principle, a representative office cannot trade and its business activities are essentially coordination, assistance, etc. The non-resident company is liable for the debts incurred by its representative office.

3. Taxes

The Spanish tax system is modern and pro-business. The tax burden in Spain, (i.e. tax and social security contributions as a percentage of GDP), is approximately five points lower than in neighbouring countries (UE-27).

3.1. Companies

Corporate income tax applies to entities that are tax resident in Spain. Tax-resident entities are taxed on their worldwide income.

An entity is considered resident in Spain for tax purposes if it has been formed in accordance with the laws of Spain, or if it has its registered office, or its effective place of management, in Spain.

From the different amendments introduced by the tax reform, it should be highlighted the companies tax reduction down to 25% for fiscal years commencing in 2016.

3.2. Individuals

Personal income tax applies to individuals who are tax resident in Spain. Personal income taxpayers are taxed on their worldwide income.

A taxpayer is considered to reside in Spain if he or she spends more than 183 days in Spain during a calendar year, or if his or her principal center or the base of his or her business or professional activities or of his or her economic interests is in Spain.

3.3. Non-Residents

Individuals and entities non resident in Spain are liable for non-resident income tax on the income and/or gains they obtain in Spain. The key to ascertaining how non-residents will be taxed in Spain lies in whether or not the non-resident has a permanent establishment (PE) in Spain.

3.4. VAT

The standard rate, which applies to most supplies of goods is 21%. The reduced rate, which applies to certain supplies of goods and services is 10%.
There is also a super-reduced rate of 4% which applies, among others, to basic foodstuffs, books, newspapers and magazines, etc.
Within Spain, VAT does not apply in the Canary Island, Ceuta and Melilla.

3.5. Transfer and Stamp Tax

This tax is levied on a limited number of transactions, including most notably: some corporate transactions, as contributions made by shareholders that do not imply a capital increase, etc., transfers of real estate ,transfers of movable property and administrative concessions, certain rights, certain public deeds .

4. Competitive business environment

4.1. Generous incentives for investment

  • Extensive and comprehensive system of aid and incentives developed by the central government and other government bodies, with a special emphasis on promoting permanent employment, productive investments and research, development and technological innovation (R+D+I):
  • Training and hiring incentives for certain types of workers, offering business owners significant savings on labour costs, recently reinforced for entrepreneurs and SMEs.
  • Numerous financial and fiscal incentives to promote innovation, technological improvements and R&D projects in sectors which are considered key due to their growth potential and impact on the Spanish economy.
  • In addition, as an EU member, Spain has access to European aid programs targeting depressed areas. These supplement development plans financed by the Spanish government.
  • Spain is leader in Europe in broadband usage by companies, with 97% of them having internet access and 99% of them using broadband. 64% of all companies already have a web-site, and 70% contact and arrange matters with the Public Administrations online.
  • Strong support from public bodies to the development of the Information Society in recent years, allowing the country to reach and exceed the average level of development in EU-27 countries.
  • E-Government services in Spain are among the best worldwide, being 9th in the world in the e-Readiness ranking and third in the e-Participation index of the UN, outstanding both in the availability of the services and in their degree of sophistication.

4.2. Foreign Investment Regulations

Spain has deregulated practically all transactions in this area, being the most noteworthy aspects the following:

  • Foreign investments do not require government prior approval and, as a general rule, are registered after the transaction has been done, with the next exceptions:

- Investments from tax havens.
- Foreign investments in activities directly related to national security.
- Real estate investments for diplomatic missions by States that are not members of European Union and require “prior verification”.

  • Unless expressly provided, there is no obligation for foreign investments to be notarized in the presence of a Spanish public authenticating official.
  • There is no need to report certain foreign investments after the event if they are below €3,005,060.52 (unless the investment comes from a tax haven).
  • Investments in industries relating to air transportation, radio, television, telecommunications, gambling, raw materials, minerals of strategic interest and mining rights, private security, the manufacturing, marketing or distribution of arms and explosives, and in activities related to national security, are all subject to additional industry-specific legislation.

4.3. Change Controls

As a general rule, all acts, businesses, transactions and operations between residents and non-residents which involve or may involve payments abroad or receipts from abroad are completely deregulated. This deregulation includes payments or receipts made either directly or by offset of the underlying transactions, as well as transfers to or from abroad and variations in accounts or financial debtor or creditor positions abroad. It also covers the import or export of means of payment.

  • In certain cases, in order to calculate the Spanish balance of payments and to maintain statistical control of monetary flows, there are certain formalisms and registry obligations, which includes prior registration of the origin, destination and holding of funds when some means of payment are made.
  • In this regard, the regulations recently approved, eliminates from its entry into force, i.e. from 1 June 2012, the registered entities obligation of sending information not immediately available, keeping the obligation to send which is immediately available.
  • Nevertheless, in certain cases some formalisms are required, it stands out the notification of foreign loans and credits provided by non-residents to residents requires (prior to the first draw-down of funds of the loan or credit provided) the resident borrower concerned to obtain a financial transaction number (“NOF”) when the amount thereof is equal to or higher than €3,000,000 (it is not necessary to file any returns for lower amounts).

4.4. Intellectual Property

  • In general, the principle of registration prevails: there is no right in an invention (patent), distinctive sign (trademark), industrial design, or computer software unless and until it is registered.
  • Unlike countries such as the United States, Spain uses the first to file system: the first party applying to register has priority; in other words, use alone does not give any right against others, except in the case of well-known trademarks.
  • The principle of territoriality also prevails: protection is only afforded in the countries in which the trademark or patent is registered.
  • Elsewhere, the trademark or patent can be freely used by others, since it is understood that it is in the public domain. Accordingly, trademark or patent registration in the country of origin does not grant protection in other countries.
  • Patent and trademark rights are property rights and can therefore be assigned or charged or transferred by any legally permitted means. License agreements are most often used for this purpose.
  • Spanish intellectual property laws are harmonized with those of the other EU Member States and Spain has ratified the main international treaties in this field.