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Incorporation

Setting up a company in Spain

When setting up a company you may want to consider these factors:

  1. Business Factors

    Generally, Spain does not impose any specific requirements on foreigners wishing to establish a business presence in the country. However, it is worth noting that the Directorate-General for Trade and Investments (“DGCI”) may require Spanish companies with foreign shareholders, and Spanish branches of non-resident persons to file an annual report with it on the status of their foreign shareholders. The shareholders may also be required to provide additional information if necessary.

    In deciding on whether to invest in Spain, you may also want to consider the following when making your decision :-

    • The industry and type of business that will be conducted
    • Nationality of the headquarters / individuals (s)
    • Presence of existing trade agreements or relationships
  2. Location

    Location will be another factor. Separate cities and regions may have different rules, costs and availability. It is always recommended to seek advice from relevant professionals, such as business or legal advisors, accountants and others depending on your needs.

  3. Regional Language

    Regional language may be an influence. Although Spanish is the national language, different locations in Spain may use different languages, such as Catalan in the northeastern regions of Catalonia and the Balearic Islands, meaning some terminology may be different in various regions.

Your Options

There are four types of business forms available to foreign companies in Spain. Each of these business forms has distinct advantages and disadvantages, as well as differing scope of business activities, registration requirements and minimum capital requirements. In most cases it will depend on the degree of commitment a company has to Spain and the planned business activity.

When setting up a company in Spain, you have the following options:-

  • Corporation
  • Branch Office
  • Representative Office
  • Joint venture

This article provides a general guideline for foreign businesses on entering Spain for business purposes. In particular, it looks at common pathways to establishing a business presence in Spain, generally through a corporation, branch office, representative office or joint venture. In addition, various economic, tax and regulatory factors are provided throughout as a source of useful information to assist those who will enter the Spanish economy. The guide also looks at some immigration requirements such as obtaining appropriate visa status.

Data is based on the time of writing, August 2015 or closest available dates.

Corporation

Incorporation in Spain is a long and regimented procedure. However, there are several regimes in place that foreign investors may be able to take advantage of if the entity being set up is less complex.

In Spain, there are two main types of corporations that can be set up:

  • Sociedad de responsabilidad limitada (S.L.) [equivalent to a private limited liability company]
  • Sociedad Anónima (S.A.)
    [equivalent to a public limited liability company]

The most commonly selected option is the S.L. due to its organisational flexibility and lower capital requirements, however the choice largely depends on the expected activity level in Spain.

Types of corporations

1. Sociedad de responsabilidad limitada  (S.L.)

The S.L is usually the vehicle of choice for smaller to medium sized companies due to its organisational flexibility and lower capital requirements.

Investment Capital Requirements

Minimum of €3,000 which must be paid up in full at the time of incorporation. S.L.s may be founded by a single partner.

No independent expert’s report is required for non-monetary contributions. However, the founders and shareholders are jointly and severally liable for the authenticity of any contributions made.

S.L. shares are generally not freely transferable (unless acquired by other shareholders, ascendants, descendants or companies within the same group). In fact, unless otherwise provided in the bylaws of the company, Spanish law provides that the other shareholders or the company itself have a preemptive right of acquisition of the shares in question in the event of a transfer to persons other than those referred to above. S.L.s are also not permitted to issue bonds.

Management 

Minimum of 3 and maximum of 12 directors. Directors may be elected for an indefinite period of time. No nationality or residency requirements apply.

Accounting / auditing requirements

All Spanish companies are required to prepare annual financial statements and file these with the Mercantile Register. Companies are required to file their financial statements within a month after their approval in the General Meeting. The approval must not be later than 6 months after the date of the balance sheet.

Companies may have the option to file abbreviated financial statements e.g. condensed balance sheet, no statement of cash flows is required and less notes disclosures. No management report is also required. Companies falling within 2 of the 3 limits listed below for two consecutive years can file abbreviated financial statements:-

a) Balance sheet total not exceeding€4,000,000.

b) Net turnover not exceeding€8,000,000.

c) Average employees during the year not exceeding 50.

Companies falling within 2 of the 3 limits listed below for two consecutive years are not required to have their financial statements audited:-

a) Balance sheet total not exceeding€2,850,000.

b) Net turnover not exceeding€5,700,000.

c) Average employees during the year not exceeding 50

However, regardless of the size of the company, a company may still be required to be audited if it is contained in its charter, or an audit is requested by at least 5% of the shareholders.

2. Sociedad Anónima (S.A.)

A S.A. is ideally used where an enterprise conducts business of substantial scale and where there are a significant number of investors, making it the preferred vehicle of choice for medium to larger-sized enterprises. Only a S.A. may be listed on the stock exchange.

Investment Capital Requirements

Minimum of €60,000. Authorized capital must be fully subscribed and at least 25% of the face value of each share must be paid up at the time of inscription in the Mercantile Register. The remaining 75% may be paid up within the period specified in the company’s bylaws. No minimum number of shareholders is required for an SA, although a special reporting and registration system applies to single shareholder companies. Shareholders can be individuals or companies of any nationality and residence.

S.A. shares are generally freely transferable unless otherwise provided for in the company’s by-laws. S.A.s are also permitted to issue bonds.

Management 

Minimum of 3 directors, with no maximum. Directors may be elected for a maximum term of 6 years. No nationality or residency requirements apply.

Nevertheless, many foreign controlled companies prefer to appoint a Spanish national to serve as secretary or non-director secretary of the board of directors. A director needs not be a shareholder unless stipulated in the bylaws.

The company may opt for a board of directors or an administrator system made up of a sole or several administrators.

Accounting / auditing requirements

Please refer to the accounting / auditing requirements for S.L.s above. SAs must undergo external audits by a registered auditor, except for SAs that may submit abbreviated annual accounts.

Incorporation process 

Spanish law allows for three types of incorporation regimes depending on the structure of the entity in question: ordinary, simplified and super simplified.

a. Ordinary regime

Applicable to any kind of limited liability company or corporation.

b. Simplified regime

Applicable only to limited liability companies with:

  • Shareholders that are exclusively individuals
  • Share capital not exceeding €30,000, and
  • Managing body: sole director, various directors acting severally or two joint directors (therefore excluding boards of directors).

c. Super simplified regime

Applicable only to limited liability companies with:

  • Shareholders that are exclusively individuals
  • Share capital not exceeding €3,100, and
  • Bylaws in line with any of those approved by the Ministry of Justice

The steps under each regime are largely similar. For full details on the steps for each type of regime, please refer to here. The entire incorporation process for a Spanish entity takes approximately 6-8 weeks.

Step 1: Obtain certification of the proposed company’s uniqueness of name (certificación negativa de la denominación social) from the Mercantile Register

Applications are made to the Central Commercial Registry (which may contain up to three alternative corporate names). The Central Commercial Registry will issue a name reservation certificate for the new company. Names are reserved for a maximum of six months from the date of issue of the certificate. Once the certificate’s validity has expired (3 months), the certificate can only be renewed once, after which a new certificate must be requested.

Agency: Central Commercial Registry

Time: 2 days

Cost: €16.25

Step 2: Application for a provisional tax identification number (N.I.F.)

Any individual or legal entity with economic or professional interests in Spain must hold a tax identification number (in the case of legal entities) or a foreigner identity number (for individuals). A foreign investor must apply for a  N.I.F./N.I.E. when a direct investment in made in Spain or in the case of a shareholder or director of an entity resident in Spain or for a foreign entity’s permanent establishment located in Spain.

The following documents are required when submitting an application:-

  • Form 0363 (declaration of registration on, amendment to, or deregistration from the census of parties subject to tax obligations, box 110), signed by a representative of the company holding a N.I.E or Spanish national identity card 4.
  • Copy of the N.I.E. or Spanish national identity card of the signatory.
  • Name search certificate from the Central Commercial Registry.
  • Agreement of intent to form a company.

Agency: State Tax Agency

Time: Same day

Cost: No charge

Step 3: Opening a bank account

Contributions can also be directly given to the Notary Public before whom the deed of incorporation is going to be granted so that the notary can directly deposit them in the Company’s bank account. Once the founding shareholders have paid in the capital, the bank must issue payment certificates.

Step 4: Execution of anti-money laundering and terrorist financing declaration 

In accordance with Law 10/2010, the founding shareholders must execute a document containing representations by the beneficial owner under the Prevention of Money Laundering and Terrorist Financing Act.

Step 5: Execution of public deed before the Notary Public

The founding shareholders must execute a public deed before a notary, containing:

(i) Evidence of the identity of the founding shareholders. If any of the shareholders is represented at the act of formation, a notarized power of attorney to represent the shareholder must be produced to the notary. If the power of attorney is issued abroad, it must be duly legalized.

(ii) Representations by the beneficial owner (see requirement 4 above).

(iii) Evidence of contributions and whether they are to be made in cash or in kind (if applicable) using the corresponding bank documentation, as well as details of the capital stock subscribed by the shareholders.

(iv) Clear name search certificate issued by the Commercial Registry (see requirement 1 above).

(v) Company bylaws.

(vi) Identification of and acceptance by the company directors.

(vii) Subsequent declaration of foreign investment to the Register of Foreign Investment of the Directorate-General for Trade and Investment (“D.G.C.I.”) of the Ministry of Economy and Competitiveness. In some cases, limited mainly to foreign investments from countries or territories deemed to be tax havens, a prior declaration must be made.

(vii) Identification of the economic activity code describing the activity in accordance with the National Classification of Economic Activities (CNAE).

Time: Under the ordinary regime, the deed has to be executed within 3 months of issue of the clear name search certificate, however this is usually done on the same or following day under the simplified regimes.

Fees: Notary fees for company formation are charged on a sliding scale based on the capital stock. For guidance purposes, the official rates amount to approximately €90 for the first €6,010, after which rates of between 0.03% and 0.45% are applied to amounts of between €6,010,121 and €601,012.10. For any amount in excess of €6,010,121.10, the notary will receive the amount that is freely agreed upon by the executing parties.

Step 6: Registration of the office at the Commercial Registry

Deed of formation can be submitted in person or telematically.

Agency: Commercial Registry

Time: 15 days (ordinary regime), 3 days (simplified) and 7 business hours (super simplified regime)

Cost: €6.01 for the first €3,005, after which there is a sliding scale ranging from 0.005% and 0.10% for capital in excess of €6,010,121. The total fee is capped at €2,181.

Step 7: Obtain a definitive N.I.F. once the company is set up and registered

Documents required:

  • Form 0366 (declaration of registration on, amendment to, or deregistration from the census of parties subject to tax obligations, box 120), signed by a representative of the company holding a N.I.E or Spanish national identity card.
  • Original and photocopy of the power of attorney evidencing the representative authority of the person signing form 036.
  • Copy of the N.I.E. or Spanish national identity card of the signatory.
  • Original and copy of the deed of formation bearing the registration stamp.

Agency: State Tax Agency

Time: 10 business days

Cost: No charge

Alternatively, the Commercial Registry officer is able to send the company’s registration details to the State Tax Agency by telematic means. The State Tax Agency will notify the notary and registrar of the N.I.F. number.

Step 8: Other notification procedures

a. Registration for the Tax on Economic Activities through submission of the Form 036. Companies being set up must describe the activities they are going to pursue and the reason why they are exempt from this tax. Legal entities are exempt for the first 2 years of their operations, as well as  entities whose net turnover is less than one million euros. This step must be completed before the company commences operations.

b. Registration for Value Added Tax (V.A.T.).

c. Submit a notification of start of operations (declaración responsable) to a private agency authorized by the municipality (ECLU)

Agency: Town Council

Time: 1 day

Cost: €360, however this varies with the company’s location and size of premises

d. Registration of the company for Spanish social security and occupational accident insurance purposes, and registration of the hiring of employees for social security purposes.

e. Procedural formalities at the provincial office of the Ministry of Employment and Social Security:-

i. Registration with the Spanish social security authorities and obtaining a social security contribution account code: Registration must take place prior to commencement of activities. Registration is done with the Social Security General Treasury by submitting the relevant official form and documentation (deed of formation, document issued by the Ministry of Finance and Public Administration stating the company’s tax identification number and company’s economic activity, powers of legal representation of the company, document of affiliation to the occupational accident and disease mutual insurance company, among others).

ii. Notification of hiring employees: Must be done once the company has been registered with the social security authorities and before the employees commence work. Notification is generally made electronically using the RED electronic document submission system.

iii. Legalisation of the labor inspection visits book: Employers are required to have visits book available for each workplace, which are open for inspection by labour and social security inspectors. This book must be “legalised” at the Provincial Labour Inspectorate.

iv. Notification of opening of workplace: Notification of the commencement of activities at the workplace must be made to the labour authorities within 30 days of its opening in each Autonomous Community. An occupational risk prevention plan must usually also be attached.

Branch Office

Foreign corporations operating in Spain can operate as a branch office without the need to incorporate. However, it is generally advisable to incorporate rather than set up a branch office in Spain, given the numerous drawbacks associated with having a branch office. Having said that, foreign enterprises wanting to set up a branch in Spain for lower levels of activity are allowed to do so.

Branches are used primarily by oil companies (for prospecting) and by service enterprises, including banks, construction and engineering firms, insurance companies and shipping lines.

Branch Investment Capital Requirements

No minimum capital requirements.

The parent company is fully liable for the liabilities of the branch.

Management

Representative (who acts as attorney of the branch in the name and on behalf of the parent company).

Accounting requirements

The branch will have to include a legalised copy of the registration of the annual accounts of the parent company in its country of residence. As such, it must have a legalised copy of the accounts drawn up in accordance with the accounting principles in that country. These documents do not need to be translated into Spanish. However, the signatures of the directors need to be legalised by a notary and with a note of the Hague Convention.

Things to do upon Incorporation 

Generally, incorporation of a branch takes between 6-8 weeks.

Step 1: Obtain certification of the proposed company’s uniqueness of name (certificación negativa de la denominación social) from the Mercantile Register

Same procedure as for a company.

Step 2: Application for a provisional tax identification number (N.I.F.)

Same procedure as for a company. The branch will also need to appoint an individual or legal entity residing in Spain to represent the parent company in dealings with the Spanish tax authorities regarding its tax obligations.

Step 3: Execution of anti-money laundering and terrorist financing declaration 

Step 4: Execution of public deed before the Notary Public

Documentation requirements:-

(i) documentation similar to that required for a subsidiary (that is, evidence of the identity of the person who appears before him, his power of attorney to represent the parent company, declaration of the beneficial owner, evidence of payment and whether it is to be made in cash or in kind (if applicable);

(ii) sufficient proof (translated, legalized and/or certified by apostille, as appropriate) of the existence of the parent company, its bylaws and the names and personal details of its directors; and

(iii) the resolution to form the branch adopted by the competent body of the parent company. The deed may also contain the subsequent declaration of foreign investment to the Register of Foreign Investment of the Directorate-General for Trade and Investment (“D.G.C.I.”) of the Ministry of Economy and Competitiveness.

Step 6: Registration of the office at the Commercial Registry

Same procedure as for a company

Step 7: Other notification procedures

a. Registration for the purposes of the Tax on Economic Activities (same procedure followed as for a company).

b. Registration for the purposes of Value Added Tax (V.A.T.)

c. Payment of opening license tax

d. Registration of the company for Spanish social security purposes

 

Representative Office

This is the easiest and least expensive type of foreign investment structure to set up and has no registered capital requirements. The defining characteristic of an RO is its limited business scope.  An RO is generally forbidden from engaging in any profit-seeking activities, and can only legally engage in purely marketing or informational activities relating to commercial, financial and economic matters but does not actually conduct any actual business.

 

 

ROs are generally considered very useful for potential investors, as it allows them to perform information gathering without having to comply with too many legal formalities. A representative office is, therefore, the ideal vehicle for conducting market research, studying the level of competition existing in the industry in which it intends to invest, compiling financial projections and profit estimates for the investment or negotiating the acquisition of companies via purchase of shares or of assets and liabilities.

Management 

Representative offices have no formal managing bodies; the representative of each office performs the activities of the representative office by virtue of the powers granted to that representative.

Things to do upon Incorporation 

In general, no commercial requirements need to be met for a representative office to be opened. However, a public deed (or document executed before a foreign notary public, duly legalized with the Hague Apostille or any other applicable form of legalization) may have to be executed, recording the opening of the representative office, the allocation of funds, the identity of the tax representative (an individual or legal entity resident in Spain) and its powers. Representative offices do need to be registered at the Commercial Registry.

Joint Venture

A significant number of joint ventures use corporations and limited liability companies as vehicles. Please refer to the section on ‘Corporations’ above.

Joint ventures may also be set up as:

  • An Economic Interest Grouping (E.I.G.) and a European E.I.G. (E.E.I.G.).
  • A Temporary Business Association (“Unión Temporal de Empresas” or U.T.E.).
  • Under a type of silent partnership arrangement peculiar to Spanish law (“cuenta en participación”) with one or more Spanish entrepreneurs.

1. Temporary Business Association (“Unión Temporal de Empresas” or U.T.E.)

Under Spanish law, U.T.E.s are defined as temporary business alliances set up for a specified or unspecified period of time, for the sole purpose of carrying out a specific project or service. U.T.E.s allow several companies to operate together on one common project. This form of association is very common for engineering and construction projects but can be used in other sectors as well.

U.T.E.s are not companies in the strict sense and have no legal personality. In order to qualify for the special fiscal transparency regime provided for U.T.E.s, they must be formed by notarial deed and registered on the Special Register of U.T.E.s at the Spanish Ministry of Finance and Public Administration. They must also comply with the bookkeeping and accounting requirements similar to those of Spanish companies.

U.T.E.s. may be also registered at the Commercial Registry. Formalities for formalization of a U.T.E are similar to those for a company or branch, adjusted to reflect the special characteristics of this type of arrangement.

2. Economic Interest Grouping (E.I.G.) / European E.I.G. (E.E.I.G.)

E.I..G.s were created with a view to facilitating the pursuit or enhancing the profitability of the activities of their members. E.I.G.s may not act on behalf of their members nor may they substitute them in their operations. They are most commonly used to provide secondary services, such as centralized purchasing, sales, information management or administrative services, within the context of a broader association or group of companies.

A key difference between E.I.G.s. and U.T.E.s is that unlike U.T.E.s, E.I.G.s are commercial entities with a separate legal personality.

Spanish law sets out certain requirements for the formation of E.I.G.s:

1. They may not interfere with their members’ decisions on personnel, finance or investment matters, nor are they allowed to manage or control the activities of their members.

2. They may not directly or indirectly hold stakes in their member companies, unless it is necessary to acquire shares or holdings in order to fulfill the E.I.G’s purpose, in which case the shares or holdings must be transferred immediately to its members.

3. They must be formed by notarial deed and registered at the competent Commercial Registry.

E.I.G. members are personally and jointly and severally liable for the entity’s debts.

E.E.I.G.s are also entities with a separate legal entity. Their characteristics are regulated by EU Council Regulation (EEC) 2137/85, which establishes the basic rules governing E.E.I.G.s.

3. Silent Participation Agreement (C.E.P.)

C.E.P.s are not subject to any legal requirements.

In essence, C.E.P.s are simply a financial collaboration where one or more entrepreneurs (silent partners) take an interest in the operations of another (the active partner) by contributing an agreed portion of capital to the active partner and sharing in his/her profits or losses. The contributions, whether cash or in kind, do not qualify as capital contributions as such, but rather simply represent the right of the silent partner(s) to share in the results of the business concerned.

Silent partners are not considered as shareholders of the active partner.

As provided for in the Commercial Code, this type of agreement does not require any legal formality to be fulfilled (public deed or registration at the Commercial Registry). However, in practice, the parties to the C.E.P. still tend to record the agreement in a public deed.

Other types of entities

Other types of entities or arrangements that may be considered for operating in Spain include:

1. Limited liability entrepreneur (ERL)

2. Distribution, agency, commission agency and franchising agreements

 

Outsourcing Employment Through a GEO Employer of Record Service

Whether to incorporate in Spain, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.

If the company intends to have staff in Spain they must also decide whether they will administer that employment internally or use a Global Employment Organization to handle payroll and Employer of Record responsibilities. A GEO Employer of Record solution is an attractive alternative where

  • the company is looking to setup an office quickly
  • the company wants to work within a defined budget
  • the company wants to limit its initial commitment in Spain
  • the company needs help with tax, employment, immigration and payroll compliance in Spain

The complexity of employment regulations in Spain makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.

Shield GEO provides a comprehensive service in Spain allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf in Spain.

Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Spain. Read more about outsourced employment through Shield GEO.

Glossary of terms

  • Sociedad de responsabilidad limitada (S.L.) – equivalent to a private limited liability company
  • Sociedad Anónima (S.A.) – equivalent to a public limited liability company
  • Unión Temporal de Empresas” or U.T.E. – Temporary Business Association
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