Damalion Spain desk
DOING BUSINESS IN SPAIN
When talking about credibility, Spain ranks high. It is a beautiful country, with an incredible culture, a rich history, and interesting customs. The country is home to a population of 46.8 million people and it receives upwards of 82 million tourists each year. Spain is known, among other things, for its education, language, safety, and tolerance, and the economy is booming. In fact, the country is home to the 164th-largest economy in the world, and the sixth-largest economy within the European Union (EU).
Also, the introduction of a sequence of expansive domestic structural reforms by its government has increased labor flexibility and sparked new business growth, making Spain more competitive and a more desirable setting in which to conduct international business.
Here is a list of considerations when doing business in Spain:
- Spain is ranked 30 among 190 economies in the ease of doing business, according to the most recent World Bank annual ratings.
- Being open and tolerant, Spain has, in the last two decades welcomed and integrated into society, over seven million migrants from every continent.
- Foreign direct investment is welcome in Spain and it plays a significant role in Spain’s economic relations.
- Spain has a vital strategic location and deep trade partnerships, with access to the markets of the EMEA (Europe, Middle East, North Africa) region and ties and trade relations with Latin America.
- Spain has signed bilateral and multilateral social security-related agreements with several countries.
- The country also has several Free Trade Agreements and is a member of both the World Trade Organization (WTO) and the General Agreement on Tariffs and Trade (GATT) — both of which have boosted Spain’s trade position significantly.
- Spanish authorities offer companies a wide range of financial aid and incentives to promote investment, competitiveness, and economic development.
The main advantages of doing business in Spain
Spain has become the land of opportunities for investors looking to start new business projects, primarily but not limited to the following reasons:
- Due to its location, Spain sits in a very well-connected position which enables it to be an open and competitive market.
- Spain offers a great quality of life for its citizens and for those foreign nationals that live there.
- There are several financial and tax incentives available for any activities which extensively contribute to the country’s economy, including non-refundable subsidies, soft loans, and even a hybrid of the two.
- Spain is one of the safest countries in the world, and it provides an important framework for developing rights, freedoms, and economic growth.
- Spain is also a strategic location for investors from Africa and Europe, facilitating easy transactions for individuals to and from these continents.
- Spain has a low minimum share capital requirement for company formation and it offers political and economic stability.
- There are plenty of government incentives offered for foreign companies incorporated in Spain.
SPAIN LEGAL SYSTEM
Spain has a vital legal system that does well in ensuring that day-to-day rights are protected and that commitments are met.
Spain’s legal system is a civil law legal system based on legal codes and laws embedded in Roman and Germanic law. The law understood in the sense of any written law is its main source, including international treaties, which become inner law once they have been signed, approved, and published in the Official State Journal, and EU law.
These legal codes – Civil, Criminal, Commercial Codes, etc – form the backbone of the law. And this can be compared with common law systems, the intellectual framework of which comes from judge-made decisions founded upon a looser framework of laws passed by parliament.
Civil law is applied throughout the whole territory of Spain, but there are independent communities that have their civil law system, which prevails in relation to certain legal issues.
The main types of law in Spain
- Commercial law: this legislates companies and businesses.
- Constitutional law: this refers to the organization of the constitutional bodies and the practice of the citizen’s basic rights and freedoms.
- Financial and tax law: this is the organization or study of the resources that comprise the finances of the State and other public bodies.
- Civil law: this legislates individual rights, family, personal assets, contractual relations, and civil liability.
- Labor law: this legislates the relationship between employees and employers.
- Administrative law: this legislates the organization and functioning of the powers and bodies of the state, and their connection with individuals.
- Other laws include Criminal law, Process law, and International public and private laws.
Entering Spain business market: Entity choice
Spanish law offers investors and entrepreneurs multiple options – business entities – when looking to set up a business. Each entity has a different set of legal and fiscal responsibilities, and business founders will choose one based on their needs. Listed below is an outline of all general business legal forms that foreign legal entities can choose from when setting up a business in Spain:
Sole Trader (Empresario Individual)
This is the most common business entity in Spain. This business is the same as the individual running it. For this reason, the liability for debts is unlimited, and thus the sole trader will be personally responsible for the business’s debts. The business owner doesn’t have to file any special tax forms and it may be registered at the Spanish Corporate Registry (Registro Mercantil).
Public Limited Company (Sociedad Anónima)
This is a highly structured and regulated company in which its shareholders are not responsible for debts incurred by the company.
Features of the Public Limited Company (Sociedad Anónima – S.A.):
- The S.A. is planned for companies of a specific size or where partner rotation is expected.
- The S.A. are generally used in Spain for investments in major projects.
- The minimum share capital is € 60,000. And contributions may be made in the form of money, goods, or intellectual property.
- An S.A. can consist of one person and partner liability is restricted to the capital contributed.
- S.A. is essentially an open company
- S.A. must file with the Mercantile Registry.
- It is liable for Corporate Tax.
- An S.A. must have a Board of Directors and a Shareholders’ General Meeting.
- Any amendment to the by-laws must be authorized at a Shareholders’ General Meeting.
Limited Liability Company in Spain (Sociedad de Responsabilidad Limitada)
The Limited Liability Company is another type of Spanish stock company.
It is an autonomous legal entity and shareholders are not responsible for debts incurred by the company.
Features of the Limited Liability Company (S.L. or S.R.L)
- The S.L. is the most widespread company for SMEs and companies with very few partners.
- All LLCs must pay Corporate Income Tax.
- The Limited Liability company can be formed with less than 3,000 euros of share capital, which is less than for a Sociedad Anónima.
- The Limited Liability Company may be created by a single founder.
- Partner liability is restricted to the capital contributed.
- The minimum capital requirements are € 3,000, which must be fully subscribed at the time that the company is set up.
- The set-up process can generally be done online.
- It has a more flexible management and legal system than an S.A.
- It is also liable for Corporate Tax.
- Only one shareholder is required, however, there is no limit on the number of shareholders.
Worker owned Company (Sociedad Laboral)
This is a special type of Public Limited Company OR Limited Liability Company. The shares are held by workers, (in this case the clase laboral), or/and those who do not work for the business,(clase general).
Features of a Sociedad Laboral
- The Sociedad Laboral is established and governed as either a Sociedad Anónima or Sociedad de Responsabilidad Limitada, but with a few exceptions.
- Minimum capital is not required
- The deed of the corporation must be registered at the Cooperatives’ Registry of the Spanish Labor Ministry.
- Workers are not accountable for company debts unless otherwise stated in the bylaws.
The branch is an organization that depends on its parent company, which is located overseas.
Features of a Branch office in Spain
- It has the same legal personality as its parent company and runs related activities.
- It is independent to some extent in managing the business, and thus, has its own installations and organization, separate from the parent company.
- A branch has to be registered at the Corporate Registry.
- A branch liability extends to the parent company and it must file with the Mercantile Registry.
- It is subject to Non-resident Income Tax which refers to Corporate Tax regulations.
Partnership (Sociedad Civil)
This is a business association formed by two or more individuals who contribute to a business and divide the profits amongst themselves according to a predetermined agreement. Therefore, any financial responsibilities will be divided amongst the parties.
For details on how to start a business in Spain, let’s go ahead and contact your Damalion experts now.
Banking in Spain is relatively inclusive and it is well-integrated into the global financial system. With respect to the global community in Spain, Spain has invested in a large range of financial institutions that cater to the needs of everyone. This ensures a creative and efficient banking system that can fit different needs and preferences.
Bank of Spain (Banco de España) is the main banking authority in Spain and is assigned with supervising the Spanish banking system, however, its activities are regulated by the Law on the Autonomy of the Bank of Spain.
Do I require a bank account in Spain?
If you’re living in Spain, setting up a company in the country, or as an expat who is looking to move to the country permanently, it’s advisable to open a resident/non-resident account as it will make things easier for you.
Opening a bank account in Spain
Opening a bank account in Spain is quite easy as you can open an account either before you move or once you arrive in the country. To open an account in Spain before you move, you have to set up a non-resident account. For this, you may require a certificate of non-residency. Other documents needed when opening up a bank account in Spain either as a resident or non-resident are proof of ID, proof of address, plus your NIE number if you are a resident.
Spain banking system
A healthy and strong banking system is important in both good and bad times as it urges economic growth. Due to a number of reasons, Spain’s banking system is an indication of one, which means, irrespective of who you are, entrepreneur or student, Spain’s banking system will handle your need adequately.
Would you like advice on a specific banking issue or need help with opening your bank account in Spain?, contact your Damalion expert now.
In Spain, you will find everything that you require: incredible food, perfect weather, rich culture and a varied landscape combined with nice people. But that is not all, Spain also attracts numerous foreign investors, entrepreneurs, and professionals that want to set up and facilitate their businesses in the country.
Spanish law promotes the process of their (and their families) move to Spain through a Residence Program – this grants residence to foreign nationals from outside the EU, to bring in investment and talent.
This program authorizes the holders and their families to live and work the Span without the National Employment Situation application. It also allows them freedom of movement in the Schengen Area. In addition to this, the process is quick and easy.
The different types of authorizations for foreign nationals
The Golden Visa is one of the most demanded residency cards available in Spain. This is issued to individuals who invest in the country, and that investment is usually undertaken through the purchasing of a property.
The immigrant needs to invest at least 500.000€ in Spanish real estate, possess 1M€ in shares of a Spanish company, or a public debt worth a minimum of 2M€.
In addition to that, the immigrant will need to prove that he/she has enough financial means to support him/herself and family. The Golden Visa may be one of the easiest ways to start living in Spain.
Business visa/entrepreneur visa
The business visa is for foreign residents who intend to develop a business activity of economic interest for Spain. To get the permit under this visa, the immigrant will require pre-approval from the ministry of economy, which can be quite intricate, so carefully working on your business plan will be important.
This a visa program for companies that require foreign professionals, either directors or graduates from renowned universities and business schools.
This section is for companies and other entities that want to hire researchers, scientific personnel, or school teachers to perform training, research, or development activities. As long as the foreign national wants to carry out research activities in Spain, the residence permit for researchers will be the right choice. It will also allow the foreign national to include his/her relatives too.
Visa for nomad and remote workers
This is for foreign nationals who come to Spain to carry out remote work or an activity for companies located abroad, through the limited use of computer and telecommunication means. It is a 3-year permit that can be applied for directly at the Spanish consulate.
This is an excellent option, as foreign nations can apply for it both from his/her country of origin and Spain in addition to paying less taxes as a holder of this permit.
How to apply for residency permits in Spain
From outside of Spain, investors, entrepreneurs, and digital nomads can apply for a visa at the Spanish diplomatic mission or consular office in their country.
But for qualified professionals and researchers, the applications must be submitted in Spain, at the UGE-CE (Unit for Large Companies and Strategic and Economic Sectors) by the legal entity that wants to contract the immigrant.
From temporary residency to permanent residency in Spain
After 5 consecutive years of living in Spain, the foreign national will be able to get permanent residency. The requirements for this are quite easy to meet. Just your passport, current permit, and the proper form filled.
Note that each residence permit is different, as each type of visa has its own requirements and varies in terms of the documentation you needed to send to the Spanish Immigration Office. However, your Damalion experts are here for you.
We will help you get your residence permit, making things relatively easy for you.
Liability to taxation is specified by the residency of individuals or companies, the location of properties, and the source of income.
Spanish tax for residents and non-residents
If you live in Spain for 183 days or more of the calendar year or have your central vital interests in Spain, then you are categorized as a Spanish resident for tax purposes. But If you live in Spain for less than 183 days in a calendar year, you are a categorized non-resident and only pay taxes on the income from Spain. Residents of Spain pay tax on their universal income, whereas non-residents are subject to tax on Spanish-sourced revenue.
Taxes in Spain are charged by national, regional, and local governments.
And a vast range of taxes are charged on different sources, the most significant ones being the following:
- income tax,
- corporate tax,
- social security contributions,
- value added tax
- property transfer tax,
- inheritance and gift tax and
- real estate property tax
The tax rate in Spain
Personal income tax in Spain, known as IRPF (Impuesto Sobre la Renta de las Persona Físicas), was introduced in 1900, and it represents almost 38% of government revenues.
Spain’s income tax system follows a pay-as-you-earn policy, where a percentage of the tax is withheld from your paycheck monthly. This system is progressive, which means higher tax rates pertain to higher salaries. Spanish income taxes are divided between state and region.
Individual residents are liable to personal income tax based on their income from around the world. While non-residents are subject to income tax only on their Spanish-sourced income. The general income tax rate for non-residents in Spain is 24%, or 19% for citizens of a country in the European Economic Area (EEA) or the European Union (EU).
Corporate income Tax in Spain
The corporate income tax in Spain is a tax on the profits of companies. All OECD countries charge a tax on corporate profits, but the rates and bases differ from country to country. The common rate of corporate tax in Spain is 25% of corporations’ worldwide income. But as of recently, newly-formed companies pay will only 10% for the first two years of business. Companies must file tax returns within six months and 25 days after the end of the estimation period.
Social Security contributions
The majority of employment income is subject to social security contributions, by the employee and the employer. The regular rate for the employee is 6.35%, but the employer will pay what corresponds to 29.90% of the employee’s salary. Workers living in Spain are expected to pay contributions to Social Security in exchange for government benefits.
Value added tax
VAT (IVA – impuesto sobre el valor añadido or impuesto sobre el valor agregado) is charged on any supply of goods or services sold in Spain.
The VAT standard rate in Spain is 21%. But specific goods and services are taxed at 10%, 4%, or exempt. Among the goods and services that are exempt from VAT are financial and insurance transactions, welfare, education, and health services, among others. Within Spain, VAT does not apply in the Canary Islands, Melilla, or Ceuta.
Spanish property tax (IBI)
If you are a resident or non-resident and own a property in Spain, you must pay a local property tax or IBI (Impuesto sobre Bienes Inmuebles ). Property taxes in Spain apply to the assets of an individual or a business. The amount is the rental value times a tax rate set by the local authorities.
Also, if you sell a property in Spain, you have to pay a property transfer tax, ITP (Impuesto Transmisiones Patrimoniales).
Inheritance and gift tax in Spain
In Spain, non-residents from within the EU/EEA have been regarded the same as residents when it comes to inheritance and gift tax. The Inheritance and gift tax in Spain ranges from 7.65% to 34%, but it may be higher in some independent regions.
The information about Spanish tax given here provides a general overview but it isn’t an exhaustive list. Also, you should always get professional advice concerning your specific situations. In other words, contact Damalion for your tax-related issues.
Intellectual property refers to the legal rights which result from intellectual activity in the scientific, industrial, literary, and artistic areas.
In other words, Intellectual property is the series of rights that inventors and other owners have over the works and advantages that arise from their creation.
Intellectual property is dedicated to protecting creations of the mind in which the author’s personality is captured, and that are different creations, not industrially or mass-produced.
These creations can be literary and artistic works such as novels, films, musical works, artworks, paintings, sculptures, or architectural designs, as well as rules for games or computer programs.
In Spain, the Intellectual Property Registry handles intellectual property rights.
Holders of intellectual property rights
- Copyright holders: this is an author who creates any literary, artistic, or scientific work. And all his/her original creations come under intellectual property. The intellectual property of a literary, artistic, or scientific work belongs to the author solely by having been created. The status of the author cannot be taken away, cannot be transferred, and ‘does not lapse with time.
Holders of other intellectual property rights include performers or performing artists, producers of phonograms, producers of audiovisual recordings, broadcasters, takers of ordinary photographs, and protection of certain editorial productions.
Rights of the author of a work
- To claim the acknowledgement of the quality of the author of the work, and respect the integrity of the work.
- To avoid any revision or harm brought to the work, or to modify the work
- To decide in what way and when the work will be available to the public.
- To specify under what name the work will be communicated to the public, and take back the work.
- After the author’s death, moral rights are disseminated through inheritance.
The author of a work has the sole patrimonial right to specify in what way and when the work will be used or influenced. The author of the work has the exploitation rights of his work during his whole life plus an extra 70 years.
The Intellectual Property registry and registration
Registro de la Propiedad Intelectual (Spain Intellectual Property Registry) is the executive body that protects the intellectual property right of authors of artistic, literary, or scientific works in Spain. It is connected to the Ministry of Education, Culture, and Sports.
The owners of intellectual property rights may apply for the registration of their works, and the registration will be effective from the date of application.
The registration of the works is not a condition for the author to profit from copyright protection, but it is a formality intended to make a public record of the fundamental fact of a particular copyright.
Do you require help regarding your IP in Spain? Contact Damalion now.
LABOR AND EMPLOYMENT
The employment law in Spain is regulated nationally and is planned to provide rights and protection to employees. Also, the Spanish labor market provides a legal framework that favors labor-management relationships, promotes job creation, and stable employment, and fosters entrepreneurial activity.
Employment in Spain is lawfully legislated through general rules and collective bargaining agreements which differ by sector.
However, the main piece of employment legislation in Spain is the Estatuto de Los Trabajadores (Workers’ Statute), which deals with many factors of employment relations, individually and collectively.
Employment contracts in Spain
An employment contract is an agreement that connects companies and workers. It may be open-ended, which is virtually endless or have a time limit. Employment contracts for an endless term are encouraged by incentives that may differ between regions, banking on the activity of the company and the situation of the employee.
Employment contracts must be in writing compulsorily in most cases in Spain.
In Spain, all employees and self-employees must be covered by social security. Workers registered in Spain’s General Social Security Program are required to pay contributions to the Social Security System and their employers are accountable for withholding the percentage of earned income that the employee is obliged to contribute.
Employment of people that are not registered at the Social Security Office and do not have a written contract can lead to serious consequences for the employer, including heavy fines in some situations.
Hiring incentives in Spain
Government incentives for hiring primarily amount to decreases in the employer’s social security contribution but might include other such as health insurance. The purpose of this is to facilitate new permanent or open-ended hiring that can result in substantial savings for the employer.
Wage costs in Spain
A minimum wage is specified by law in Spain and applies to all workers equally. The wage costs in Spain are very competitively correlated to those in neighboring countries. The minimum wage in Spain is set by the Ministry of Employment and Social Security and is modified each year based on several characteristics including employment figures and national productivity. Employees must be paid the minimum wage at least once a month, but this must be paid in currency.
Employee benefits in Spain which are compulsory entitlements are prescribed by law, and it generally includes but not limited to the following
- Employees in Spain are privileged to a minimum of 30 days per year of paid vacation which amounts to 22 working days per year.
- Both men and women are guaranteed 16 weeks of parental leave after the birth of a child.
- Spanish employees are privileged to sickness benefits for a maximum of 365 days, although this can be prolonged by a further 180 days in specific situations.
- Companies must ensure the health and safety of their workers and the prevention of occupational threats must be part of the business management system.
Employment termination in Spain
Employment termination in Spain will depend on the judge’s determination of grounds for discharge, whether all situations for firing have been met, and if the legal process has been followed. An employer in Spain can dismiss an employee through Objective, Disciplinary, or Collective Dismissal. But note, employers must have established grounds for dismissing employees as there are strict laws in place that protect employees against unreasonable dismissal.
If you are looking to expand your business operations in Spain, your Damalion expert is here for you. We can provide everything you require when hiring employees in Spain.
Our services aren’t limited to hiring employees only, we assist in setting up a business in Spain, we help with the opening of bank accounts for residents and non-residents, and we provide vital business solutions, including compliance, entity management, accounting, taxation, payroll support, and many more across Spain.
If you wish to learn more about our services in Spain, contact us now and our Damalion Spain Desk will answer you shortly.
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