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How to implement your company in Spain?

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Infoce English

  1. 1. HOW TO IMPLEMENT YOUR COMPANY IN SPAIN?Companies based outside Spain can develop  If there is a Double Taxation Treatytheir activity in our country by adopting between Spain and the country ofone 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 orIt must be highlighted that while a branch is entities) execute transactions within thedefined by a physical feature (independent Spanish territory by a PE when:facilities) and a legal feature (certainindependence in the management regarding  by under any title, it counts, eitherthe main entity), permanent continually or occasionally, on facilitiesestablishments are not identified by their and working sites where to execute itslegal features, yet by physical characteristics: business activity; orfacilities, office o location where commercialtransactions usually take place in a country  it acts in Spain through an authorisedwhere the entity does not reside. agent who, on behalf of the nonPermanent establishment. residing person or entity, executes these powers and faculties.A key feature of the PermanentEstablishment (PE) is the lack of a legalpersonality apart from that corresponding tothe central house. For identifying a PE, wemust verify whether there is or not a DoubleTaxation Treaty between Spain and thecountry of residence of the foreign investor. C.E. Consulting Empresarial / InfoCE - nº 87 1
  2. 2. 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 thisRegarding tax purposes, the PE is subject to option are as follows:the same formal, registry, accounting andtaxation (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 thededuction of expenses (mainly those related  Less performance and managementto the central house: payments of the PE to requirements, such as no need ofthe central house regarding canons, technical advertising or notifying in advanceassistance, use of goods and rights). General Meetings,  Contributions in kind not verified by audit.According to tax purposes, two different PEcan 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, theincorporation of a company is the mostvalued option, in comparison with the other C.E. Consulting Empresarial / InfoCE - nº 87 2
  3. 3.  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 andadministrators, but in this case, a person trade obligations. S.L are subject to themust 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 C.E. Consulting Empresarial / InfoCE - nº 87 3
  4. 4.  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). C.E. Consulting Empresarial / InfoCE - nº 87 4
  5. 5. 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 unemploymentPRIVATE 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 THESOCIAL SECURITY SCHEME. Direct tax which affects companies and entities. Companies residing in Spain areBusinessmen, who employ people registered subject to this tax. Companies residing ininto the Social Security System, must request Spain are those that meet one of theto the Social Security General Fund their following requirements:registration within the scheme.  Incorporation according to the SpanishThe 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 whereprovide, together with the forms of the Social management and control activities areSecurity General Fund, proof of their executed.incorporation into the Social Security GeneralScheme (incorporation deed, activity license,VAT number as well as any requireddocuments by the Social Security System)Once submitted all documents to the socialSecurity System, the employer must informwithin the first month of operation, thebeginning of the working activity to the C.E. Consulting Empresarial / InfoCE - nº 87 5
  6. 6. A) TAX BASE: C) TAX INCENTIVES APPLICABLE TO COMPANIES:The company pays taxes for the registeredearnings (income less expenses registered As a general rule the tax regulation on Taxaccording to Spanish accounting standards - Profit includes tax incentives applicable toPlan General de Contabilidad español). Yet, companies when determining the tax base,due to differences in the consideration of prior compliance with the establishedexpenses and income by the tax regulation requirements for its application. As anand the accounting standards, accounting example, special attention can be paid to theearnings must be subject to "extra- tax rate applied to finance lease or freeaccounting adjustments" which may be amortization rate of assets.positive or negative whether they increase orreduce the profit. Positive adjustments as Tax incentives for small and medium sizednon deductible provisions, non deductible companies are more: Free amortizationexpenses (such as, profit tax, fines and rates for investments in Assets for a valuepenalties, 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, intangiblefrom the amortization of assets. assets and real estate; provision for insolvency; free amortization for job creationB) 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. C.E. Consulting Empresarial / InfoCE - nº 87 6
  7. 7. 2º.-The company either buys or sells C) VAT OBLIGATIONSgoods, provides or is offered services byanother business or professional with Companies as well as businessmen orregistered office in a country within the professionals must issue an invoice for allEuropean Union. In these four cases the services identifying clearly the(acquisition/provision of goods, payees and keep a record of all theacquisition/provision or services) the VAT will invoices paid to their suppliers. Inbe that corresponding to the payee of the certain cases (for example at retailtransaction. Therefore, businessmen who sell stores) invoices can be replaced byor provide services will not charge VAT, being tickets.the businessmen who acquire the good orservice those who pay VAT in their country, Differences between charge and paid VATwith the corresponding deduction. These must be declared and liquidated on atransactions require the compliance with quarterly basis (according to its conditionsspecific 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 onSince July 1 2010, tax rates are as follows: an annual basis, this is, it only takes place inThe general tax rate is 18% and it applies the last quarter/month of the year (to beto 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 VATeven lower4%. Law, it is possible to request the monthly return of VAT (for example, non-EuropeanThe reduced tax rates 8% applies to: exporting countries), being required theTransport; Hotel industry services; registration in the VAT monthly return censusHairdresser services and housing and repair prior to filing the VAT monthly, with certain restrictions. It is compulsory the record of the followingThe even more reduced tax rates 4% applies VAT books:to: Bread, milk, cheese, eggs, non-modifiedvegetables 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 youpay VAT) are necessary for the business or The IAE is a local tax which must be paid forprofessional activity (if the applicability of executing a business activity in the Spanishproduct to the activity is not total, VAT will be territory, regardless it is executed in aproportional to its use); have the registered office or not, usually or hardlycorresponding 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. C.E. Consulting Empresarial / InfoCE - nº 87 7
  8. 8. A businessman or professional may be €/year, the new conditions of bigexempt of paying IAE, yet companies will company establish the obligations of theonly be exempt in the particular cases company for the ongoing fiscal year, thespecified in the regulation. submission of regular declarations on monthly basis (within the first 20 days ofExemption 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 afterV.4.- SUBMISSION OF ANNUAL the quarter-end).DECLARATION OF THRID-PARTY The most common declarations to which theTRANSACTIONS (form 347): company is subject to are as follows:Without any doubt, this is the most importantdeclaration 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 VATdeclares the economic transactions executed deductible in the concerning period.with a client or supplier within the year to Besides the submission of the annualwhich the declaration refers to and which summary of the VAT (form 390) inexceed 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 workers6,000 on an annual basis. This declaration is retentions (% according to the table onsubmitted in March of the following year to employees progressive remunerations)which it refers to, regardless the companys and professionals’ retentions (as aclosing 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 ayear 2010 must be submitted. monthly basis (form 111) for payingVI.- REGULAR TAXATION OBLIGATIONS accrued retentions within the referredOF A COMPANY: period.The annual volume of transactions which Retentions executed to workers andclose the annual VAT declaration of the professionals do not imply a tax charge forprevious year indicates the frequency with the company, on the other hand, they are awhich VAT declarations, retentions and tax for the physical people (workers andprogress payments of the profit tax must be professionals) who the retention is applied to.submitted by the company throughout theongoing fiscal year. So: If in the previous year, the volume of transactions exceeded 6,010,121.04 C.E. Consulting Empresarial / InfoCE - nº 87 8
  9. 9. Besides, the company must also submit an VII.- OTHER OBLIGATIONS IN THEannual summary of workers and/or EVENT OF FOREIGN INVESTMENT IN Aprofessionals retentions (form 190) in the SPANISH COMPANYfirst 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. C.E. Consulting Empresarial / InfoCE - nº 87 9