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HOW TO IMPLEMENT YOUR COMPANY IN SPAIN?
Companies based outside Spain can develop  If there is a Double Taxation Treaty
their activity in our country by adopting between Spain and the country of
one of the following alternatives: residence of the taxpayer, the PE must
comply with the applicable regulations.
- by establishing a permanent address,  If there is no applicable Double Taxation
- by establishing a registered branch, Treaty, special attention must be paid to
- by incorporating in Spain a company the limitations of the PE set by the
(limited company, etc). Spanish regulation, which state that non-
residing people (either physical people or
It must be highlighted that while a branch is entities) execute transactions within the
defined by a physical feature (independent Spanish territory by a PE when:
facilities) and a legal feature (certain
independence in the management regarding  by under any title, it counts, either
the main entity), permanent continually or occasionally, on facilities
establishments are not identified by their and working sites where to execute its
legal features, yet by physical characteristics: business activity; or
facilities, office o location where commercial
transactions usually take place in a country  it acts in Spain through an authorised
where the entity does not reside. agent who, on behalf of the non
Permanent establishment. residing person or entity, executes
these powers and faculties.
A key feature of the Permanent
Establishment (PE) is the lack of a legal
personality apart from that corresponding to
the central house. For identifying a PE, we
must verify whether there is or not a Double
Taxation Treaty between Spain and the
country of residence of the foreign investor.

C.E. Consulting Empresarial / InfoCE - nº 87 1

The following are considered to be PE: options. Why?: a company has legal
personality, limited liability and is
 registered offices, branches, factories, independent and self-managed. Nor the PE,
stores, shops or other establishments; neither the branch.
 mines, oil and gas wells or pits;
 agricultural farming, mixed farming or
any other farms or windings; I. INCORPORATION OF A LIMITED
 construction works, facilities or LIABILITY COMPANY.
assemblies of at least six months. In Spain the incorporation of a company can
 the representation office in Spain of adopt many forms: Public limited liability
a foreign company which acts as Company (S.A. standing for Sociedad
coordination, support and control of Anónima) private limited liability company
the activities executed by the central (S.L. standind for sociedad Limitada),
house. Commandite Company, Collective company,
 A branch is always a PE for tax etc. It is also possible by transferring to Spain
purposes, yet not from a legal point of a European public limited liability company,
view. Branches must be registered in yet in most cases, companies are
the Spanish Register of Companies. incorporated as Private Limited Liability
Companies. Some reasons which justify this
Regarding tax purposes, the PE is subject to option are as follows:
the same formal, registry, accounting and
taxation (profit tax, VAT, etc) obligations of a  Less required capital,
Spanish residing company. With the
 More flexible articles of association,
exception of special features regarding the
deduction of expenses (mainly those related  Less performance and management
to the central house: payments of the PE to requirements, such as no need of
the central house regarding canons, technical advertising or notifying in advance
assistance, use of goods and rights). General Meetings,
 Contributions in kind not verified by audit.
According to tax purposes, two different PE
can be disintguished:
II. ELEMENTS WHICH INTEGRATE A
 Those whose transactions do not SPANISH PRIVATE LIMITED COMPANY
complete the commercial cycle: this is, (S.L.)
they work for the central house to which
they belong to and who completes the To incorporate your Limited Company. it is
commercial cycle. required the following:

 Name: business or trade name of the
 Those with a limited activity length: this company formed by the name of the
is, they execute in Spain certain activities founders or a combination of words or
for a limited period of time or at a numbers. It must be approved by the
particular moment. Such activities are Central Register of Companies.
construction works, facilities or assemblies
for periods of time over 6 months;  Object of the company: or list of
temporary or seasonal activities; natural business lines or activities of the
resources winding. Company.

From the different listed possibilities, the
incorporation of a company is the most
valued option, in comparison with the other


 Registered office: or main place of III. THE COST OF INCORPORATING A
business management and control in Spain. LIMITED COMPANY
It must be a fixed location since its
modification may imply modifying the Incorporating a S.L. in Spain for a minimum
articles of association of the company with capital (€3,000) implies the following costs
higher costs. The registered office must (without VAT):
not be confused with the residence for tax
 Public Notary (granting public deed)
purposes or with the working site address.
......................................................€180
 Share capital: There share capital is €3,000
 Central Register of Companies (certificate
which must be paid at the incorporation of
of Trade name)…………......................€25
the company into an account under the
name of the company. It is divided into  Provincial Register of Companies (registry)
numbered shares property of the owners. .......................................................€120
 Shareholders: Owners of the share capital.  Tax operations (1% share capital)
They can be a person or a corporation. ………………………................................€30
Regulations provide that a sole person can
form a single member company.
 Board of Directors. It can be of different
types:
 Sole administrator
 Joint and severally administrator:
Several administrators properly granted
with the necessary powers and faculties
for its social management.
 Joint administrators: several
administrators who act jointly (at least
two of them).
 Board of Administrators: A minimum of
three members who will act not jointly,
yet as a body in the management (prior
agreement adopted in a previous IV. OBLIGATIONS OF A LIMITED
meeting). COMPANY

Companies (both limited and public limited)
Both people and corporations can act as are subject to nearly the same labour and
administrators, but in this case, a person trade obligations. S.L are subject to the
must be appointed as common following obligations:
representative. IV. 1. TRADE OBLIGATIONS
 Demanded majority for the adoption of  Founder partners must be in possession of
agreements (respecting legal minimums a Tax Identification Number in Spain,
established according the type of known as Número de Identificación de
agreement), Extranjeros (N.I.E.).
 Notice of a meeting,  Incorporating the company and
 Transmission of equity shares. transmitting shares must be granted by
public deed


 Legalisation of commercial books: of Schedule of annual and trade tax obligations up
minutes, of partners, and if it is a to December 31.
single-member company, of contracts
(partner-company) IV. 2. LABOUR OBLIGATIONS

 Regarding Financial Statements (balance The registration of partners and/or
sheet, income statement, statement of administrators of companies within the social
changes in equity, environment security has several problems arising from the
statement, price regulation, and, for difficulty of establishing the nature of the
certain companies, statement of cash relationship partner-company and defining the
flows, auditors' and directors’ report), the activity the first can execute within the board of
company has the following obligations: directors of the company.

 Formulation by the administrative Therefore, it is important to take into
board. Within the first three months consideration the criteria established by Act
after the year-end. 66/1997 of December 30 and modified by the
 Approval: by the General Meeting. General Act 50/1998 of December 30 of
Within the first six months after the Administrative Tax Measures and Social Order.
year-end.
 Submission to the Register of In the event of partners of private and public
Companies: by the administrative limited companies, there are several
board. Within the first month after its alternatives for its incorporation into the
approval. Scheme for the self-employed (without
unemployment compensation) or into the
 Submission to the Register of Companies
General Social Security Scheme.
of the commercial books (balance sheet,
income statement, quarter trial balance,
accounting book, inventory, capital
assets), within the first four months after
the year-end.

 The General Meeting must be convened at
least 15 days in advance by registered
post with acknowledgement of receipt
(according to articles of association).


Breakdown of assumptions and schemes: Autonomous Community Authority Body and
the Occupational Risks Prevention Plan. The
MANAGEMENT FUNCTIONS, PAID TIME OFF AND Labour Inspectorate book of the autonomous
ADMINISTRATOR OR

OWNER OF -25% CAPITAL: GENERAL community must be regularly updated.
COUNSELLOR

SCHEME(without unemployment
PRIVATE AND PUBLIC LIMITED COMPANY

compensation nor Fogasa)
The employer must inform, within the
NO MANAGEMENT FUNCTIONS, OWNER OF -33%
CAPITAL; GENERAL SCHEME
established terms for that purpose, the
NOT PARTNERS: GENERAL SCHEME(without registration and amendment of data of
unemployment compensation nor Fogasa) workers.
CAPITAL +50%: SELF-EMPLOYED SCHEME
MANAGEMENT FUNCTIONS AND The employer must register workers with
CAPITAL -50%:

Social Security while providing services and
WORKING PARTNERS

OWNER +25% CAPITAL: SELF-
EMPLOYED SCHEME
pay the corresponding rates within the
NO MANAGEMENT FUNCTIONS, established terms.
OWNER OF -33% CAPITAL; GENERAL
SCHEME GENERAL SCHEME
The obligation to pay the social security starts
50% CAPITAL FAMILY MEMBERS: SELF-
with the provision of services and lasts while
EMPLOYED SCHEME the labour relationship between worker and
employer remains into force. It remains even
in the event of incapacity for work, risks while
 Non-working partners: Partners of pregnancy and breastfeeding, maternity leave
companies who do not work at the or trial period.
company and only dividends are not The obligation to pay ends when interrupting
registered in the Social Security Scheme. the provision of services as long as their
absence of work is notified within the six days
 Non-partner workers: Workers none after the end of provision of services.
qualified as partners are registered into
the General Social Security Scheme. V.- MAIN TAXES TO WHICH A COMPANY
IS SUBJECT TO:

INCORPORATION OF THE COMPANY (either V.1.- PROFIT TAX:
Public or Private Limited Company) IN THE
SOCIAL SECURITY SCHEME. Direct tax which affects companies and
entities. Companies residing in Spain are
Businessmen, who employ people registered subject to this tax. Companies residing in
into the Social Security System, must request Spain are those that meet one of the
to the Social Security General Fund their following requirements:
registration within the scheme.
 Incorporation according to the Spanish
The registration by request of Tax regulation.
Identification Code must be prior to the  Registered office in Spain.
provision of services. Employers must  Commercial office in Spain where
provide, together with the forms of the Social management and control activities are
Security General Fund, proof of their executed.
incorporation into the Social Security General
Scheme (incorporation deed, activity license,
VAT number as well as any required
documents by the Social Security System)

Once submitted all documents to the social
Security System, the employer must inform
within the first month of operation, the
beginning of the working activity to the


A) TAX BASE: C) TAX INCENTIVES APPLICABLE TO
COMPANIES:
The company pays taxes for the registered
earnings (income less expenses registered As a general rule the tax regulation on Tax
according to Spanish accounting standards - Profit includes tax incentives applicable to
Plan General de Contabilidad español). Yet, companies when determining the tax base,
due to differences in the consideration of prior compliance with the established
expenses and income by the tax regulation requirements for its application. As an
and the accounting standards, accounting example, special attention can be paid to the
earnings must be subject to "extra- tax rate applied to finance lease or free
accounting adjustments" which may be amortization rate of assets.
positive or negative whether they increase or
reduce the profit. Positive adjustments as Tax incentives for small and medium sized
non deductible provisions, non deductible companies are more: Free amortization
expenses (such as, profit tax, fines and rates for investments in Assets for a value
penalties, gifts and concessionalities). equal or less than EUR 601.01; accelerated
amortization for investments in new assets,
Negative adjustments are tax benefits arising property, plant and equipment, intangible
from the amortization of assets. assets and real estate; provision for
insolvency; free amortization for job creation
B) TYPE OF TAX RATE: as well as lower tax rates.

C) PROFIT TAX SUBMISSION TERM (form
 Companies pay taxes for the positive tax
200):
base (prior compensation of negative tax
bases of the previous 15 years) at a fixed
It must be submitted within the first twenty-
tax rate of 30%.
four days to count after the six months
 Yet small and medium sized companies, after the year-end. Therefore, if year-end
known in Spain as PYMES (and which takes place at December 31, Profit Tax must be
include those companies with net turnover submitted from July 1 to 25.
under eight million Euros), are subject to
the following tax rates: V.2.- VALUE ADDED TAX (VAT):
 tax base between EUR 0 and EUR
120,202.41 at 25 %. Companies in the development of their
 Remaining tax base at 30 %. activity must pay Value Added Tax (VAT) in
 Temporally (applicable for taxable the provision of services or products by
periods started in years 2009, 2010 business or professionals.
and 2011), tax rate for PYMES is 5%
(from 25% to 20% (for the first EUR As a general rule, all business must charge
120,202.41 of the tax base), and from VAT in the provision of services or products
30% to 25% (for the remaining and can deduce VAT in the acquisition of
quantity)), providing the compliance services or products.
with the following requirements: Net
turnover under 5 million Euros, Exceptions to this rule are as follows:
average staff under 25 workers and
creation of new job positions in the 1º.- If the company has as main business
stated years in comparison with 2008. the export of goods, it does not charge
VAT in its sales, yet it can deduct paid VAT.


2º.-The company either buys or sells C) VAT OBLIGATIONS
goods, provides or is offered services by
another business or professional with Companies as well as businessmen or
registered office in a country within the professionals must issue an invoice for all
European Union. In these four cases the services identifying clearly the
(acquisition/provision of goods, payees and keep a record of all the
acquisition/provision or services) the VAT will invoices paid to their suppliers. In
be that corresponding to the payee of the certain cases (for example at retail
transaction. Therefore, businessmen who sell stores) invoices can be replaced by
or provide services will not charge VAT, being tickets.
the businessmen who acquire the good or
service those who pay VAT in their country, Differences between charge and paid VAT
with the corresponding deduction. These must be declared and liquidated on a
transactions require the compliance with quarterly basis (according to its conditions
specific VAT obligations. and terms) through the form 303. The result
can be either to pay or to received VAT.
A) TYPES OF VAT
As a general rule, the VAT return is filed on
Since July 1 2010, tax rates are as follows: an annual basis, this is, it only takes place in
The general tax rate is 18% and it applies the last quarter/month of the year (to be
to all goods or services which are not submitted in January of the following year),
subject to the reduced tax rate 8% or yet, in several cases established by the VAT
even lower4%. Law, it is possible to request the monthly
return of VAT (for example, non-European
The reduced tax rates 8% applies to: exporting countries), being required the
Transport; Hotel industry services; registration in the VAT monthly return census
Hairdresser services and housing and repair prior to filing the VAT monthly return.
services, with certain restrictions.
It is compulsory the record of the following
The even more reduced tax rates 4% applies VAT books:
to: Bread, milk, cheese, eggs, non-modified
vegetables and fruit; Books, newspapers and  Registry book of issued invoices.
non advert magazines; drugs.  Registry book of received invoices.
 Registry book of investment goods.
B) DEDUCTION OF PAID VAT  Registry book of EC transactions.

For the reduction of paid VAT it is necessary V.3.-BUSINESS ACTIVITY TAX (IAE-
to: Be businessmen or professional; Impuesto de Actividades Económicas):
purchased goods and services (for which you
pay VAT) are necessary for the business or The IAE is a local tax which must be paid for
professional activity (if the applicability of executing a business activity in the Spanish
product to the activity is not total, VAT will be territory, regardless it is executed in a
proportional to its use); have the registered office or not, usually or hardly
corresponding invoice; have purchased the ever, by a non-profit or profitable institution,
good or service in the last four years. it creates profits or losses.

A business must be registered in as many IAE
as different business activities it develops.


A businessman or professional may be €/year, the new conditions of big
exempt of paying IAE, yet companies will company establish the obligations of the
only be exempt in the particular cases company for the ongoing fiscal year, the
specified in the regulation. submission of regular declarations on
monthly basis (within the first 20 days of
Exemption situations are as follows: the following month to the month which
the declaration refers to).
 Exemption during the first two years of the
business activity. The conditions of big company must be
notified by the Treasury through the
 Exemption from the third year of activity,
submission of the census declaration
providing the annual turnover of the last
(forms 036 or 037) in January of the
year and liquidated at January 1 of each
billing year).
year (IAE accrual date) is under EUR
1,000,000. For example, if in year 2008 the  If in the previous year, the volume of
turnover recorded for the profit tax operations was equal or lower than
exceeded EUR 1,000,000, in year 2010 IAE 6,010,121.04 €/year, the company on
tax must be paid for each business activity the ongoing year will submit regular
developed by the company in 2010. declarations on a quarterly basis (within
the first 20 days of the first month after
V.4.- SUBMISSION OF ANNUAL the quarter-end).
DECLARATION OF THRID-PARTY
The most common declarations to which the
TRANSACTIONS (form 347):
company is subject to are as follows:
Without any doubt, this is the most important
declaration for the Administration for taxation  Regular VAT declarations (form 303)
control purposes. Through this informative on a quarterly or monthly basis for
(without any cost) declaration the company liquidating the paid or charged VAT
declares the economic transactions executed deductible in the concerning period.
with a client or supplier within the year to Besides the submission of the annual
which the declaration refers to and which summary of the VAT (form 390) in
exceed EUR 3,005,06 annually. In addition to January of the following year of the year-
this, it declares the cash collections received end.
form a client for a total amount exceeding EUR
 Regular declarations of workers'
6,000 on an annual basis. This declaration is
retentions (% according to the table on
submitted in March of the following year to
employees' progressive remunerations)
which it refers to, regardless the company's
and professionals’ retentions (as a
closing date of the fiscal year. So from March 1
general rule 15%; 7% for special cases)
2011 to March 31 2011, form 347 for natural
on a quarterly basis (form 110) or on a
year 2010 must be submitted.
monthly basis (form 111) for paying
VI.- REGULAR TAXATION OBLIGATIONS accrued retentions within the referred
OF A COMPANY: period.
The annual volume of transactions which
Retentions executed to workers and
close the annual VAT declaration of the
professionals do not imply a tax charge for
previous year indicates the frequency with
the company, on the other hand, they are a
which VAT declarations, retentions and
tax for the physical people (workers and
progress payments of the profit tax must be
professionals) who the retention is applied to.
submitted by the company throughout the
ongoing fiscal year. So:
 If in the previous year, the volume of
transactions exceeded 6,010,121.04


Besides, the company must also submit an VII.- OTHER OBLIGATIONS IN THE
annual summary of workers' and/or EVENT OF FOREIGN INVESTMENT IN A
professionals' retentions (form 190) in the SPANISH COMPANY
first month after the year-end.
It is worth highlighting the obligations which
 Regular declarations of rental a Spanish company and its branches have
retentions (form 115) on a quarterly with the Foreign Investment Register (subject
and monthly basis for paying the accrued to the directorate-General of International
retentions (from 19% from 01-01-2010) Trade and Foreign Investment in Spain), and
obtained as rents for the period. This which apply whenever foreign participation in
retention is not a taxable charge for the the share capital:
company, yet for the owner of the rented  Submission of an annual memory on
property. Besides, the submission of the foreign investment in Spanish companies
annual summary of rental retentions (form D-4), when the mentioned Spanish
(form 180) in January of the following company has a share capital over EUR
year of the year-end. 3,005,060.52 and the total
participation of non residents (both
 Progress payment of Profit Tax (form corporations and physical people) is
202): all companies have to pay within less than 50% of the capital or a
the first 20 days of April, October and foreign partner holds at least 10% of
December the liquidations of the Profit the capital.
Tax for the ongoing year. The declaration
for paying progress payments of the PT is  The branches of foreign companies in
form 202. The condition of big Spain must submit an annual memory
company establishes the frequency of regardless the total amount of capital of
progress payments. own resources.

 Regular informative declaration of With this memory, which must be submitted
VAT from EU transactions (form 349) in the first nine months after the year-end they
on a quarterly or monthly basis will declare shareholder and economic data
(depending on the volume of EU (basically the same as stated on the Profit
transactions) for declaring the clients Tax) of the Spanish company (with foreign
and/or suppliers (businessmen / participation) at year-end.
professionals residing in a different  Submission of the declaration of foreign
country of the European Union) to who investment (form D1A) or foreign
you have purchased or sold a good or disinvestment (form D1B) in Spanish
service. It is an informative declaration companies or branches. With these
which does not imply monetary payment declarations (to be submitted in the first
of any kind, neither taxable charge for the month after the investment or
company. disinvestment) investors’ (disinvestors')
data will be notified as well as the
corresponding amounts.
These declarations are compulsory when the
foreign accumulated investment amounts to
EUR 3,005,060.52.


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