Spain

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Spain has one of the most attractive domestic markets in Europe, with 46 million potential consumers, on top of the 60 million tourists who visit this country every year. Indeed, Spain is the world’s 13th largest economy in terms of GDP and 5th largest in the European Union.
Moreover, it must be highlighted that, in terms of purchasing power, Spain’s per capita income is significantly higher than that of some other major economies ranked above Spain. In other words, in terms of purchasing power, the Spanish market is larger than many of the more consolidated and dynamic emerging economies.

Solvency, competitiveness and growth potential. These are just some of the reasons to invest in Spain highlighted by financial advisory firms. We must add to these qualities a geographical position which gives potential access to more than 1.3 billion consumers in Europe, North Africa, the Middle East and Latin America.

  • Spain is the thirteenth largest economic power in the world and ranked fifth in the European Union in relation to gross domestic product.
  • Spain is an excellent gateway to the European continent from South American countries as well as from Europe to Latin America, with a unique geographical position privileged to serve as international platform for trade.
  • It has a highly qualified and competitive business and professional environment.
  • Is has highly developed infrastructures and communications: Spain is the second country in the world and the first in Europe with regard to high speed rail networks, ranked first in the European Union for its network of motorways and roads, and excellent sea connections.
  • The country enjoys mild climate favourable when locating businesses and operations.
  • Spain offers an excellent quality of life to both residents and visitors.
Population: 46.5 million
Form of government: Unitary parliamentary constitutional monarchy
Official & spoken languages: Spanish (spoken Aragonese, Astur, Leonese, Basque, Catalan, Calician, Occitan)
Currency: Euro €
Time zone: CET (UTC +1), Canary Islands +0)
GDP (PPP): $ 1,636 trillion (16th)
GDP (PPP)/per capita: $ 35,269 (29th)
Public debt: 1,085,488,500,000 € (94% of GDP)
Average salary: 1735€/mo
Unemployment: 20%
Major trading partners: France, Germany, Portugal, UK, Italy, Marocco, Algeria

 

Advantages

  • Size of market – Spain is the 5th largest market in European Union. Consequently, local businesses will be able to market their goods/service to a market of 47 million people.
  • Location – Spain’s strategic location provides Spanish businesses the advantage of access to 700 million potential customers across the EU and North Africa. Furthermore, Spanish businesses find ti easy to do business with South American countries due to their common language.
  • Tourism – Spain is the 2nd largest tourism market in the Europe and the 5th largest in the world. Consequently, Spanish businesses will have access to 58 million foreign tourists annually

Disadvantages

  • Taxes – Taxation is Spain is punitive with a) corporate tax of 25% b) VAT rate of 21% c) a branch office remittance tax of 21% d) the employer’s social security contribution is 24% and personal tax rate between 19% and 27%.
  • Labor laws – It is difficult to hire full-time employees is Spain because he labor laws interfere with simple employer-employee relationship. A resident company cannot easily dismiss poor performing employees.
  • Language – Only 30% the population speaks English and all business documents are written in Spanish. Consequently, foreigners might find it difficult to communicate with Spanish firms and employees.

The World Banks “Ease of doing business ranking”: Spain

Overall rank 2016: rank 33rd (+1 since 2015)
– Starting a business: rank 82 (average processing time 14 days)
– Dealing with construction permits: rank 101 (average processing time 205 days)
– Getting electricity: rank 74 (average installation time 107 days)
– Registering property: rank 49 (average processing time 12.5 days)
– Getting credit: rank 59
– Protecting minority investors: rank 29
– Paying taxes: rank 60 (average company tax from profits 50%, average time used for taxation 158 hours per year)
– Trading across borders rank 1
– Enforcing contract: rank 39 (average 510 days, average cost from standing amount 18.5%)
– Resolving Insolvency: rank 25 (Average time processing bankruptcy: 1.5 years)

New businesses registered in 2015: 91,544 new limited liability companies

Who can start a new business in Spain:

  • Any person or legal entity who can provide documentation required by the law for incorporation

Who can own property or shares of Spanish company:

  • Any legal entity (Companies, private individuals, trust or fund)

Who can act as a director or member of the board:

  • Any person who can provide documentation required by the law for incorporation

Business entities in Spain

  • S.L (Ltd)
  • Public limited company
  • Partnership
  • Joint Venture
  • Trust
  • Sole Proprietorship

Opening a bank account for Spanish company:

  • Incorporation documents and articles of association (Certificated in Spain)
  • Registration certificate (Certificated in Spain)
  • Board of directors meeting minutes
  • Proof of identity, address and skills of signatories
  • List of shareholders and directors (Certificated in Spain)
  • Certificate of Good Standing (if company is older than 1 year)

Public register of shareholders, directors or signatories:

  • Directors: Yes
  • Owners: Yes
  • Signatories: Yes

Accounting and reporting regulations in Spain:

  • Spanish company must store it´s accounting material in registered address
  • Spanish companies must file accounts

How funds can be withdrawn from company

  • Company may transfer money to another company based on sales of services and goods.
  • Company can lend money to another company and / or person given that loan agreement with minimum interest and payment terms have been made. Owners cannot owe money for the company in the end of the book year.
  • Company can pay dividends from it´s own capital to shareholders after end of the book year
  • Company can pay salary to it´s employees given it has registered in the Tax Administration´s employer register. Employer is obliged to pay tax withheld at source from all wages paid to employees, along with making employer´s social security contributions.
  • Company can pay tax free allowance, such as kilometer allowance for using they own car, per diem and meal money, to owners in order to cover their temporary business travel expenses as defined in the official Decision of the Tax Administration on Allowances for Travel Expenses
  • Company can pay meeting allowances for its directors, members of the board and owners
  • Profits may be transferred (if certain requirements are met) between group companies through group contribution system
  • Company can invest in shares, funds or real property.

Can you transfer Spanish company to another jurisdiction?

  • No

How to terminate business in Spain?

  • Company may be sold
  • Skipping renewal of company yearly registration
  • Filing bankruptcy
  • Company liquidation

Advantages

  • High quality of life – Weather, beaches, outdoor activities, food, culture… There are so may reasons why people are planing to move Spain.
  • Cost of living – Housing, food and services are generally cheap compering in other Western European countries.
  • Infrastructure – Spain has an excellent road and railway network

Disadvantages

  • Government – Bureaucracy, corruption, racism, arbitrary police … There are so many ways government workers can rule a beautiful country with a lots of potential and filled with generally friendly people.
  • Crime – Burglaries and pick-pocketing are common any where in Spain
  • Language – Speaking Spanish is almost mandatory to live normal life in the most of regions in Spain

Freedom Index: Spain

Overall rank 2016: 45th (62/100 points)
– Property rights: 70/100 points
– Freedom from taxes: 54/100 points
– Freedom of speech/religion: 94/100 points
– Limited government: 39/100 points
– Gun rights: 26/100 points
– Drug rights: 60/100 points
– Freedom from corruption: 59/100 points
– Freedom from inflation: 80/100 points
– Business freedom: 77/100 points

Corporate taxation in Spain 2016

A company is resident in Spain if it is incorporated under Spanish law, has its registered office in Spain or its effective management is in Spain.

Resident companies are subject to corporation tax on worldwide income. Nonresident companies are taxed only on Spanish-source income, subject to the provisions of applicable tax treaty. Branches generally are taxed in a manner similar to subsidiaries.

Taxable income: 25% (reduced from 28% as from 1 Jan 2016)
Taxation of dividends: 5%/10%/19%
VAT registration: Registration is mandatory for all taxpayers that carry out transactions in Spanish VAT territory
– VAT Rates: 21%, reduced rates of 10% and 4%
Withholding tax (general): 24% (19% if EU or EEA recipient)
– From Dividends 19% if paid to nonresident (unless a lower rate applies under a tax treaty)
– From Royalties 24% or 19% if recipient is resident in EU or EEA (unless a lower rate applies under a tax treaty)
– From Interests 19% if paid to nonresident (unless a lower rate applies under a tax treaty)
– Technical services 24% or 19% if recipient is resident in EU or EEA (unless a lower rate applies under a tax treaty)
Transfer tax: Companies pay a 7% transfer tax (which may be increased or decreased, depending on the region) and on Spanish real estate where VAT does not apply, including indirect acquisitions in certain cases.
Capital gains tax: Treated as ordinary business income taxable by rate 25% (Exemption available)
Real property tax: up to 1.3%
Social security: “General risk” contributions represent 28.3% of an employee’s wages, with the employer paying 23.6% and the employee paying 6.35%
Payroll tax: The employer must withhold tax on income from employment
Stamp duty: 0.5% of the value of the subject of notarized documents registered in public register (increased rates range between 0.75% to 2.5%)
Capital duty: 1% applies on the reduction od capital and upon liquidation of a company
Tax treaties: Spain has concluded 91 tax treaties
CFC (Controlled Foreign Company) rule: Yes
Other: Business activities tax is charged, at a rate depending on a number of factors, including industry type, number of employees and size of premises.

 

Compliance for corporations:

  • Tax year – The tax year coincides with the accounting period. The tax period may not exceed 12 months
  • Consolidated returns – A group of corporations may be taxed on a consolidated basis. To qualify as a tax group. a company must own at least 75% of its Spanish subsidiaries, or 70% in the case of Spanish-quoted subsidiaries. Spanish subsidiaries held indirectly through a foreign intermediary may be part of a consolidated group, as well as Spanish subsidiaries held, directly or indirectly, by a foreign parent (i.e. horizontal tax consolidation). Permanent establishments of foreign entities may become members of a Spanish consolidated group if certain requirements are met.
  • Filling requirements – The corporate income tax return must be filled and taxes paid within 6 months and 25 days following the close of the fiscal year. Corporations are required to make three advance payments of income tax in April, October and December of each year, with the final payment made when the annual tax return is submitted.
  • Penalties – Underpayment penalties range from 50% to 150% of the unpaid tax liability. Specific penalties may be imposed for various infringements of the law. Surcharges, ranging from 5% to 20%, are imposed for late payment of tax due where the payment is made voluntary by the taxpayer without and investigation by the tax authorities. Late payment interest is also possible.
  • Rulings – The tax authorities generally may provide binding advance rulings on the tax consequences of a proposed transaction.

Tax authorities: Agencia Estatal de la Administracion Tributaria

Personal taxation in Spain 2016

An individual is resident if he/she spends more than 183 day of the tax year in Spain or if the main center of the his/her business, professional activities or economic interest is in Spain.

Taxable income of individuals includes earned income (e.g. salaries, wages and business or professional income) and passive income (e.g. dividends, interests and capital gains).

Income tax rates for individuals resident is Spain:

  • The progressive rates range between 19% to 46%, with the maximum rate varying according to the region where the individual is resident.
  • Dividends, interests, capital gains and savings income are subject to progressive rate of 19% on the first 6.000€ of income, 21% on income from 6.000€ up to 50.000€ and 23% on income exceeding 50.000€

Social security payments in Spain:

  • 28.3% of an employee’s wages, with the contributing 23.6% and the employee contributing 6.35%

Inheritance/estate tax in Spain:

  • Inheritance and gift tax is levied where the heirs or donees are resident in Spain or where the inherited or gift assets are located in Spain.
  • Rates range from 7.65% to 34% (rates in certain regions may be higher).
  • The tax is also imposed on nonresidents receiving assets (e.g. estates) located in Spain.
  • Spain’s autonomous regions have the authority to increase or reduce tax burden.

Net wealth/net worth tax in Spain:

  • Spain levies net wealth tax rate established by each autonomous region, which may range from 0.2% to 2.5% of the value of property.
  • Wealth tax is not levied in Madrid.

Compliance for individuals in Spain:

  • Tax year is calendar year
  • Individuals must file a tax return and pay tax due within 6 months following the close of the fiscal year.
  • The minimum employment income threshold to file a tax return is 22.000€/year
  • Where the employee has income from two sources, the minimum employment income threshold to file a tax return is 12.000€/year


Services for corporations interested in Spain

  • Consultation and advisory (business, tax, legal) services before incorporation / during your business operations in Spain
  • Assistance in incorporation process: Tailor made company formation or shelf companies available
  • Administration services available for new companies incorporated through Novasigma

For corporations operating in Spain

  • Banking and financial solutions for a Spain company
  • Accounting and Audit services for a Spain company
  • Legal services for a Spain company

For individuals and families interested in Spain

  • Consultation and advisory (tax, legal) services before re-located to Spain
  • Assistance in immigration process when moving to Spain (residency permanent, work permit, tax residency)
  • Incorporation and administration services for your privately held Spain holding company

For individuals and families who hold the Spain residency

  • Banking services in Spain for private persons
  • Local and international accounting services for Spain tax residents
  • Local and international legal services for Spain residents

Interested in Spain? Please leave us a message and we will come back to you shortly.

In cases KYC or/and Due Diligence process required Novasigma requires a personal meeting with all its new clients before proceeding any assignment

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