Doing business in Spain 2016

In association with: Contents

Introduction ...... 3

– Country profile...... 4

Legal overview ...... 5

Conducting business in Spain...... 9

Tax system ...... 11

Labour ...... 17

Audit ...... 22

Trade ...... 24

Finance ...... 25

Infrastructure ...... 26

This Guide has been prepared jointly by HSBC Bank plc, Sucursal en España and Grant Thornton for the purposes of providing a high-level general overview of the business environment in Spain for the information of businesses who may be interested in transacting or investing in Spain. Any transaction or investment in Spain, however, should only be undertaken based on professional advice specific to such transaction or investment. 2 Introduction

This guide to doing business in Spain will provide foreign investors with an insight into the key aspects of undertaking business and investing in Spain. Spain has a rich history and is a very diverse country; there are 17 autonomous regions and two autonomous cities (Ceuta and Melilla). Each region has its own distinct character and atmosphere. .

The Spanish economy is built on fiscal policies for several years. country’s competitiveness. Some a free enterprise system and has As a result of these measures, of the advantages that foreign a well-diversified economic base, the country was largely able to investors can benefit from can be although the balance has shifted regain price competitiveness. The summarised as follows: towards the services sector. Spain government also implemented is also a very open economy; as a significant structural reforms that • A highly skilled and cost result, Spanish exports have gained considerably improved the flexibility competitive workforce considerable market share in world of the economy. • Excellent transport links with the markets. The country’s purchasing power is appreciable, with a GDP Alongside the government’s efforts rest of the world and a central rated 17th largest in the world. to improve the country’s fiscal time zone position ideally placed accounts, significant tailwinds such between Eastern and Western Prior to the 2008 recession, Spain as the euro’s weakness and low oil markets experienced a prolonged period of prices, have helped Spain to achieve • Significant financial incentives very dynamic growth from 1996. dynamic economic growth over the for foreign investors, particularly However, as for other countries, past two years. those related to Research and this rapid economic expansion Development activities was accompanied by increasing Growth forecasts are positive; macroeconomic disequilibria, in Spain is expected to continue to While this guide makes reference to terms of inflationary pressures, outperform many of its European some of the most common issues current account deficits and real peers. However, significant investors might face, it must be estate sector exuberance. challenges remain and more noted that certain industries, such measures will be required in order The economic factors above to further improve long term as the financial services sector, made the exit from the crisis more potential growth and to better tackle are subject to special regulation difficult for Spain than for other inequality issues. and therefore companies wishing countries. These problems were to invest in this area should seek then compounded by the need Foreign investment is essential to legal advice. to rebalance the country’s fiscal the Spanish economy; consequently, accounts, something that forced the government has introduced The information in this publication is Spain to implement contractionary various measures to improve the current at December 2015.

3 Country profile

Capital City Madrid

Area 504.645 sq. km

Population 47.27 million

Language Spanish (and some relevant local languages in Basque Country, Catalonia, Valencia and Galicia)

Currency Euro (EUR)

International dialling code +34

National Holidays 2016 1 January – New Year´s Day 6 January – Epiphany 24 March – Maundy Thursday (ex. Catalonia and Valencia) 25 March – Good Friday 28 March – Easter Monday ( Catalonia, Valencia 1 May – Labour Day (Sunday) 2 May – Madrid Community Day 16 May – San Isidro ( Madrid only) 25 July – Santiago Apostle 15 August – Assumption 12 October – Fiesta Nacional de España 1 November – All Saints’ Day 9 November – Almudena (Madrid Only) 6 December – Constitution Day 8 December – Immaculate Conception Day 25 December – Christmas Day (Sunday) 26 December – Christmas Day

Business and Banking hours 09:00 to 18.00 (retail high street banks 08:15 to 15:00)

Stock exchanges Stock exchanges based in Madrid, Barcelona, Bilbao and Valencia. IBEX 35 is the index for the 35 largest companies

Political structure Parliamentary Monarchy

Doing Business rank 2016 33 Ease of Doing Business

Topics 2016 rank 2015 rank Change in rank

Starting a business 82 78 -4

Licenses and Permits 101 97 -4

Getting Electricity 74 78 4

Registering property 49 48 -1

Financing 59 52 -7

Protecting Investors 29 44 15

Paying Taxes 60 79 19

Trading Across Borders 1 1 No change

Enforcing Contracts 39 39 No change

Resolving Insolvency 25 23 -2

Source: World Bank Group (Doing Business) 4 Legal overview Political and legal system Spain has a civil law system based • Personal data which refers to Spain is a sovereign state whose on the application of written racial origin, health or sex life form of political organisation is a law. Jurisprudence is used for may be collected, processed and parliamentary monarchy based on interpretation purposes only, yet released only if express consent is the classic division of powers: the its importance is growing fast. As provided or for reasons of general executive, legislative and judiciary. a member of the EU, EU law has interest as supported by a law Its territory is organized into 17 primacy in the Spanish legal system autonomous communities, two through the direct application of Likewise, the data controller and those involved at any stage of the autonomous cities (Ceuta and regulations or the transposition of processing of personal data are Melilla) and its capital is Madrid. directives into local law. Spain’s legal obliged to maintain confidentiality Spain has been a member of the currency is the euro and foreign of the data. This obligation EU since 1986. trade is conducted by EU regulation. continues even after the end of the professional relation with the The head of state is King Felipe Data protection file owner. VI, who is charged with legally All individual and legal persons who work in Spain and deal with representing the Spanish State in the personal data of individuals Under the Data Protection Act, international relations. must comply with the Data companies have the following Protection Act (Law 15/1999) and its obligations: Executive power is exercised by secondary legislation (Royal Decree the Government, whose action • To request consent and inform the 1720/2007). Furthermore, all legal is directed by the President. data subject at the time when the entities and public administration The Government is comprised data is collected and used bodies that process personal data of the prime minister, deputy must also comply with the Data • The data collected should be prime minister(s) and all other Protection Act. proportionate and appropriate to ministers. The Government is the aim pursued by the company responsible for domestic and foreign For the purposes of the Data • If the recorded data is inaccurate policy, alongside defence and Protection Act, the term on the whole or in part, or merely economic policies. “personal data” comprises any incomplete, it will be cancelled information concerning identified and replaced automatically by the Legislative power is vested in or identifiable individuals, such data corrected or completed the Spanish parliament, which as: name, nationality, country, • The personal data will be comprises two chambers: the address, ID number, phone, email, cancelled when it is no longer Congress of Deputies and Senate. social security number, bank necessary or relevant for the The Congress of Deputies has the details, gender, and photographs purpose for which it was collected power to initiate legislation and ratify among others. or recorded or reject decree laws as adopted • Data will not be preserved by the executive. The Senate has Moreover, the Data Protection in a form which permits the less power than the Congress of Act contains specific provisions identification of the data subjects Deputies; while it is able to veto regarding the protection of for longer than necessary for the legislation, this can be overturned “sensitive data”. This is in relation to purposes according to which it by a majority of the Congress fundamental rights, as guaranteed was collected or recorded in the Spanish Constitution. of Deputies. • The personal data may be Accordingly: communicated to a third party The judicial branch is represented for purposes directly related to by independent judges; the highest • No one may be compelled to legitimate functions with prior court is the Supreme Court. The testify about his ideology, religion consent, except: situations Constitutional Court, which is not or beliefs permitted by law, data collected part of the judicial branch, has the • For personal data to be from publicly available sources authority to ensure the interpretation processed, it is necessary to and when the communication of the Constitution and guarantees obtain the express and written is destined to the Ombudsman, that all laws are constitutional. consent of the affected person prosecutors, judges or courts

5 • Enroll in the General Data Register Money laundering regulation A number of further policies • Implement security measures In Spain, money laundering laid down in the rules of money in line with the nature of the measures are regulated by Law laundering consist of obligations on information processed; this can be 10/2010 on the Prevention of Money companies to identify risks, assess classified into three levels: Laundering and Terrorist Financing and manage these risks and ensure and its secondary legislation (Royal compliance with the provisions set Decree 304/2014). –– High level: for files containing forth in the law. data on ideology, religion, Money laundering is defined as beliefs, health or sexual life, Intellectual and Industrial the set of mechanisms that aim to as well as collected for police Property Rights give an appearance of legality to In Spain, unlike in the Anglo-Saxon purposes without the consent funds or assets of criminal origin. system, there is a difference of the data subject Money laundering is an increasingly between Intellectual and Industrial –– Intermediate level: for files globalised phenomenon that Property. In this sense, Intellectual containing information relating involves the restructuring of funds Property Rights refers to copyright to administrative or criminal in the financial system and the and related rights, while industrial offences, public finance and concealment of transactions in order property rights encompass patents, financial services to disguise the origin, ownership and trademarks and industrial designs. –– Basic level: for files containing location of such funds or assets. personal data only In Spain, copyrights are protected The main measures introduced automatically; registration is not The Spanish Data Protection Agency by Law 10/2010 on Prevention of necessary to protect the work. is the independent supervisory Money Laundering and Terrorist Nevertheless, Spain has an authority that enforces the rules Financing are centred on the Intellectual Property Register that on data protection and guarantees prevention and internal control can be used on a voluntary basis. the fundamental right to protect measures to be implemented by The Intellectual Property Register personal data. In addition, Spain companies. has offices in most Spanish regions; complies with EU legislation on moreover, copyright owners can The main obligations on companies data protection (Directive 95/46/ register their creation electronically. EC) and all companies can query the include: European Network and Information To protect industrial property rights, • Implementing policies on money Security Agency (ENISA) to increase the owners need to register the laundering the security of their computers and invention, design or trademark with communication systems. • Designation of persons and the Spanish Office of Patents and internal organs in companies Trade Marks which is in Madrid. Businesses incorporated in Spain to ensure the implementation However it is possible to process must comply with the EU data of prevention policies (Internal the applications via the internet. protection regime which is currently Commission) undergoing a major overhaul. The • Drafting of an internal manual Individuals or companies wanting proposed General Data Protection for the prevention of money to protect their industrial property Regulation seeks to harmonise data laundering that will be available rights in other countries will need protection laws across EU Member to the Commission for the to apply for protection in these States. Although this legislation is Prevention of Money Laundering countries. Alternatively, they can significantly more prescriptive than and Monetary Offences file an application with the World the current Directive (95/46 EC), (hereinafter, the “SEPBLAC”) Intellectual Property Organisation the reforms are expected to clarify • Providing corporate staff training (WIPO) or the European Union. Both the obligations in the processing on prevention, internal control, the Office for Harmonization in the and monitoring of personal data payment, penalties, international Internal Market and the European regardless of the entity presence in financial countermeasures and Patent Office can extend the the EU. data protection application to other Member States.

6 COPYRIGHT

Copyright protects intellectual and intangible creations, writings, musical works, artistic works, dramatic and choreographic works, scientific, R & D procedures, movies and multimedia software products.

Protection Copyrights protect original creations and all rights of exploitation derived from them. The protection granted of copyright in Spain is automatic; it exists from the moment the work is created. Copyrights generate a legal presumption against third parties that the work is owned by the person / company and also prevents third parties from reproducing or disclosing the work without prior consent. The following methods are available to protect copyright: • Registration in the registry • Indication symbol © • Notarial deposit • Contracts of recognition of legal authorship

Infringement Any person whose intellectual property right is infringed or threatened may request: • An order for the cessation of the actions infringing the intellectual property rights • Damages • Seizure of the goods produced or imported • To be awarded the seized objects or means of production • All necessary steps to prevent the continuation of the infringement • Publication of the judgment against the infringer

Duration • Natural Person: the lifetime of the author plus 70 years after his death • Legal Person: 70 years

PATENTS

To be patentable, an invention must be new, involve an inventive step and capable of industrial application. Discoveries, scientific theories, mathematical methods, literary, scientific, artistic and other aesthetic creations are not patentable.

Protection Patent protection can be obtained through registration; this prevents third parties from exploiting granted the patent. In addition to the national patent application system, regional registration systems are also available.

Infringement Any person whose intellectual property right is infringed or threatened may request: • An order for the cessation of the actions infringing the intellectual property rights • Damages • Seizure of the goods produced or imported • To be awarded the seized objects or means of production • All necessary steps to prevent the continuation of the infringement • Publication of the judgment against the infringer

Duration • 20 years non-renewable for patents and PCT (Patent Cooperation Treaty) • Five additional years for SPC (Supplementary Protection Certificates)

7 TRADEMARKS

A trademark is a sign capable of distinguishing the goods or services of one undertaking from those of other undertakings. Trademarks may be words, letters, numbers, figurative representations, three dimensional shapes, or combinations of such elements.

Protection Trademarks must be capable of graphic representation, be distinctive and not incur absolute and granted relative prohibitions in the law. Registering a trademark provides the owner with the exclusive right to use it in the market and have the power to prevent the use and exploitation of the mark by third parties without authorisation. Trademarks can be protected by using any of the following mechanisms: • National: application to the Spanish Patent and Trademark Office (SPTO) • EU: application to the Office for Harmonisation in the Internal Market (OHIM) • International: application to the World Intellectual Property Organisation (WIPO) with the Madrid Agreement Concerning the International Registration of Marks and the Madrid Protocol

Infringement Any person whose intellectual property right is infringed or threatened may request: • An order for the cessation of the actions infringing the intellectual property rights • Damages • Seizure of the goods produced or imported • To be awarded the seized objects or means of production • All necessary steps to prevent the continuation of the infringement • Publication of the judgment against the infringer

Duration 10 years, renewable for successive periods of 10 years

DESIGNS

A design can be defined as the external form of innovative products, encompassing lines, contours, colours, textures, materials and dimensional or two-dimensional shapes. Unlike patents, industrial designs and models protect the aesthetic appearance of goods rather than their functional novelty.

Protection Designs must have visibility and an individual character. The design must be innovative and be granted registered in an official Agency. Registering a design provides the owner with the exclusive right to use it in the market and the authority to prevent its sale to third parties without the owner’s consent.

Protection Any person whose intellectual property right is infringed or threatened may request: systems • An order for the cessation of the actions infringing the intellectual property rights • Damages • Seizure of the goods produced or imported • To be awarded the seized objects or means of production • All necessary steps to prevent the continuation of the infringement • Publication of the judgment against the infringer

Duration Registered designs: five years, renewable for periods of five years up to a total of 25 years Unregistered designs: three years since made public

8 Conducting business in Spain Business entities Individuals or companies wanting to do business in Spain need to operate under one of the forms provided for by Spanish legislation. When selecting the form of business, companies or individuals must take into account: the activity they want to perform, the number of partners or shareholders, the capital requirements of each form of business and the resulting economic responsibilities.

Establishing a company in Spain is not a mandatory requirement for foreigners wishing to do business in the country. Such arrangements can be conducted utilising the branch structure.

Limited Liability Company (Sociedad Limitada-S.L.) Limited liability companies are the most common form of business, particularly amongst small entities. There is no minimum or maximum number of members and they can be founded by a sole member.

The bylaws must at least state the corporate name, decision-making mechanisms, the fiscal year and the type of management.

Capital requirements The minimum capital is EUR3,000. Contributions in kind are accepted, • Sole directors While there are no restrictions on and need not be appraised by an independent expert. • Two or more joint and several the nationality of directors, foreign directors directors must obtain a Foreigner The capital must be provided by the • Two or more joint directors Identification Number (NIF). If the director is a foreign corporation, shareholders and will be divided • A board of directors which must it must obtain a Tax Identification into indivisible and cumulative be formed by a minimum of three quota shares. Shareholders and a maximum of 12 Number (CIF). are not personally liable for the company’s debts. Decisions taken by the board of Shareholders meetings directors require the majority of There are no special quorum Management votes. Moreover, the majority requirements to adopt resolutions, Various forms of management are of directors must be present at only voting requirements. For possible for S.Ls: the vote. regular resolutions, the majority

9 of votes representing at least one the majority of votes. Moreover, • Name clearance certificate: third of the social participations is the majority of directors must be this document guarantees that necessary. These requirements present at the vote. no other company operates in increase for special resolutions Spain under the same name. such as increases or reductions Equally, there are no restrictions on It must be requested at the of capital or transformations and nationality by foreign directors must Central Commercial Registry and mergers. Moreover, these voting obtain the forms of identification is issued within 15 days and is requirements may be altered by mentioned above. valid for three months before the bylaws. registration Shareholder meetings • Bank certificate showing that Joint Stock Companies For those resolutions not resulting the capital requirements have (Sociedad Anónima-S.A.) in a change of the bylaws, the been fulfilled Joint Stock Companies are mainly following quorum is necessary: used by large companies in 25 per cent on first call and The deed of incorporation and the need of sophisticated corporate any percentage on second call. company bylaws executed by the mechanisms. There is no However, for special resolutions it is public notary must be registered minimum or maximum number necessary to have a quorum of 50 at the Commercial Registry. The of shareholders and they can be per cent on first call and 25 per cent process can take up to a month. founded by a sole shareholder. on second call. These quorums can be modified by the bylaws. Branches The bylaws must at least state the In addition to the business entities corporate name, decision-making When the quorums above are defined above, companies that want mechanisms, the fiscal year and the met, the majority of the votes to operate in Spain may also choose type of management. of all present and represented to establish a branch. shareholders are necessary. Capital requirements However, for special resolutions Branches must have the same The minimum capital to create an with a 25 per cent quorum, two corporate name as the parent S.A. is EUR60,000, of which at thirds of the votes are necessary for least 25 per cent must be paid upon the resolution to be adopted. As for company. The creation of a incorporation. It is for the company’s the quorum, voting requirements branch requires the execution bylaws to determine how the rest can be increased by the bylaws. of a deed by a public notary. of the capital shall be paid; non-cash Additionally, a representative contributions are acceptable, Incorporation and registration with tax residency in Spain must however, they must be appraised by of a company be appointed. The following an independent expert. To incorporate a company in Spain documents must be registered in To incorporate a company in Spain the Commercial Registry: Management a notarial deed granted by the As for S.Ls, there are four forms of founders is necessary. The deed • Documents proving the existence directorship available: must contain the following details of the parent company and documents: • Company bylaws • Sole directors • Identity of the managers and • Two or more joint and several • Name and civil status of the office bearing shareholders (who must appear directors • Documents of establishment of before the public notary to • Two or more joint directors the branch incorporate the company) • A board of directors which must • Designation of directors (if all be formed by a minimum of Where a foreign company conducts directors are non-residents, a three members business as a branch in Spain the resident representative must branch is regarded as a permanent be appointed) When administration is entrusted to establishment which must maintain two directors, they shall act jointly • Company bylaws its own books and records. and when entrusted to more than • Identity of the ultimate real However, a branch has no legal two directors, they shall form a owner (individual(s) that holds at separation from the head office; board of directors. Decisions taken least 25 per cent of the shares of consequently, the head office is by the board of directors require the company) liable for all debts of the branch.

10 Tax system Corporate Income Tax Capital gains related parties must be adjusted to Scope Capital gains are treated as ordinary reflect arm’s length prices. Corporate income tax is levied income and generally subject to on all legal entities that are either corporate income tax at the general A corporate taxpayer may apply resident or have a permanent rate. Capital gains include any gains a corresponding adjustment. establishment in Spain. realised on the disposal of assets Corresponding adjustments made as well as gains resulting from a by the tax authorities must be A company is considered resident gratuitous transfer. in accordance with the OECD in Spain if it meets one of the methods (ie first, the comparable following conditions: Losses uncontrolled price method; second, Ordinary losses and capital losses the cost-plus method or the resale • It is incorporated under are generally treated in the same price method; and, as a last choice, Spanish law manner and may be offset against the profit-split method and the all income of the same financial • Its legal seat is located in Spain transactional net margin method). period. The carry-forward of any • Its place of effective management unused losses has been limited by The corresponding method of is located in Spain recent legislation. adjustment is an imperative rule of valuation which applies to The Spanish tax authorities may From 2016, only 60 per cent of all transactions between local deem a company located in a tax the losses of previous years may enterprises directly or indirectly haven or a low-tax territory to be be offset against the taxable base, related to non-resident enterprises. resident in Spain if the majority with a minimum threshold of EUR1 The Spanish tax authorities are of its assets are constituted by million. The limit is increased to 70 empowered to enter into advance immovable property (or rights on per cent for tax years beginning in or agreements with the tax authorities such immovable property) located after 2017. of other states in order to determine in Spain. The stated rule does not the fair market value. apply if the location in Spanish Tax rates territory is based on valid economic The general corporate income Thin capitalisation reasons other than the pure tax rate applicable as from 2016 Thin capitalisation rules were management of securities. onwards is 25 per cent. Entities abolished in 2012; however there are involved in the exploration, research several limitations on the deduction Taxable income or development of deposits of borrowing costs that should be Resident companies are liable or underground deposits of reviewed previously to set any loan to corporate income tax on their hydrocarbons will be taxed at a rate agreement with other parties. worldwide income and capital of 30 per cent in 2016. Additionally, gains. The taxable income is the tax rate for credit entities Controlled foreign company generally calculated using a direct remains at 30 per cent. Newly (CFC) method of computation based on created companies will be taxed at The CFC regime applies when: the taxpayer’s accounting records, a reduced rate of 15 per cent for the although the law authorises the use first taxable year where profits are (i) Spanish-resident entities have an of methods based on estimation obtained as well as the following interest equal to or higher than 50 (forfeit methods). The tax authorities fiscal year. per cent in capital, equity, profits may exceptionally use an indirect or voting rights of a non-resident method based on circumstantial Withholding tax company, hold by themselves or evidence. Income and expenses Withholding tax rates for dividends jointly with individuals or related are to be consistently allocated, as a and interest have been to 19 per entities; and general rule, to each financial period cent as of the fiscal year 2016. on an accrual basis. (ii) the amount paid by the Transfer pricing non-resident company chargeable There is no official list of exempt Under the current corporate income on certain categories of income, income. Certain items may be tax law, income and expenses by means of a tax similar to exempt in particular cases. relating to transactions between the Spanish Corporate Income

11 Tax, is lower than 75 per cent • Numerator: Expenses directly • Spanish and European economic of the tax which may arise from related to the creation of the interest groups and joint ventures the application of the Spanish asset, including those expenses • Entities where more than 50 Corporate Income Tax rules. derived from subcontracting per cent of the global amount the creation of the asset with of assets are composed of the If the above rules are satisfied, non-related entities. The expenses equity capital of entities (unless the controlling Spanish resident previously mentioned could be certain requirements are met) company must include the following increased up to 30 per cent, or other assets not related to income in its taxable base: however, under no circumstances economic activities the amount included in the • The positive amount of the numerator could be higher Groups global income obtained by the than the one included in the A group of companies can be non-resident entity when it does denominator taxed on a consolidated basis. not have any means of production • Denominator: Expenses directly Consolidated taxation requires and human resources to obtain related to the creation of the a participation requirement of such income, or asset including those expenses a minimum 75 per cent on the • The passive income obtained by derived from subcontracting or participated entity as well as a the non-resident entity when it the acquisition of the asset, where minimum of 50 per cent of the represents at least 15 per cent of appropriate voting rights in such entities to form the total net profit part of a group for tax purposes. Holding companies (ETVEs) When the CFC rules apply, the Entities whose business purpose In line with European Court of positive income attributable to includes the management and Justice jurisprudence, the scope the Spanish resident entity should administration of the equity of the tax group is extended to be determined proportionally on capital of non-resident entities subsidiaries held indirectly through the basis of the percentage of the may benefit from a participation a foreign intermediary company and Spanish resident’s participation exemption regime, providing certain to subsidiaries of a common foreign in the profits and, otherwise, requirements are met. parent company. proportionally to the interest in capital, equity capital or voting rights Under this regime, dividends, other With regard to reorganisation of the CFC. profit distributions and capital gains transactions, the previously stemming from the disposal of available goodwill credit for Tax incentives: Patent Box qualifying interests in non-resident mergers has been abolished; this Regime companies are exempt from is primarily because under the new The Patent Box Regime exists to corporate income tax, providing participation exemption, double encourage investment in research certain conditions are met. taxation does not arise. and development (R&D) activities, promote the internationalisation Additionally, when the beneficiary Personal Income Tax – (PIT) of Spanish innovative companies is either a non-resident entity or a Individuals liable to Personal and reduce the technological non-resident individual, the profits Income Tax dependency of the Spanish industry. distributed by the ETVE shall not be Spanish residents are subject to Under the regime, a partial tax deemed to be obtained in Spain, and PIT on their worldwide income. exemption applies to income shall not be subject to Non-Resident However, non-residents are taxed derived from the assignment Income Tax. Therefore, this income on Spanish-source income and on of a right to use, or the transfer would be exempt from withholding capital gains obtained in Spain only. of, certain qualifying intellectual tax. However, this rule does not property, providing certain apply when the recipient of the An individual is considered a Spanish requirements are met. income is resident in a country or resident for tax purposes if he/she: territory classified as a tax haven. As of 1 July 2016, the taxable base • Spends more than 183 days in can be reduced by up to 60 per cent The holding company regime is not Spain per calendar year (personal of the following ratio: applicable to the following entities: residency test)

12 • Has his/her main centre of vital are generally not deductible. However, travel allowances and amounts paid interest (economic interest, by the employer to the employee in compensation for his travel or moving business interest or business or expenses may be exempt if certain conditions are fulfilled. professional activities) in Spain (economic residency test) Relief for foreign taxes Spanish residents who have obtained income stemming from work undertaken Unless proved otherwise, a married abroad may be eligible for an exemption from PIT of up to EUR60,100, providing individual is deemed to be a resident certain requirements are met. In most cases, a Spanish taxpayer will need to in Spain if the permanent home of provide evidence that the work was carried out abroad. the spouse and dependent minor children is in Spain. Rates To calculate income tax, a progressive tax scale is applied on the taxable Individuals who move their income. There are two scales based on the portion attributable to both central residence to Spain can opt to be taxed as a Spanish resident or Spanish revenue and specific Spanish regions; these must be aggregated when under the Spanish income tax for calculating and filing the respective tax returns. non-residents (as detailed below). National Automatic Total In addition, Spanish nationals who Net base (EUR) Tax Rate Tax Rate Tax Rate move their residence to a country (%) (%) (%) deemed to be a tax haven (except Up to 12,450 9.5 9.5 19 for Andorra in certain cases) are taxed in Spain on their worldwide Additional taxable 7,750 12 12 24 income in the year of emigration and income the four subsequent years. Additional taxable 15,000 15 15 30 income Taxable income Additional taxable 24,800 18.5 18.5 37 Taxable income includes earned income income (eg salaries, wages and In excess of 60,000 22.5 22.5 45 business or professional income) and passive income (eg interest, For fiscal year 2016, non-residents who obtain labour income in Spain without a dividends and capital gains). Specific permanent establishment are subject to a fixed rate of 24 per cent on the gross expenses are deductible from each income derived from their work in Spain. The tax rate applicable to EU/EEA type of income. residents is 19 per cent. Only certain expenses can be deducted. Nevertheless, net (and not gross) income will be considered as the tax base for European Employment income Employment income is subject to Union tax residents. tax at the normal rates. However, if the income has been generated Specific tax rates are applicable to pensions received by non-resident expatriates during more than two years, from Spanish sources. individuals may be eligible for a limited 30 per cent reduction, Specific tax rules may apply for tax residents in the Basque Country and Navarra subject to certain requirements. regions. Certain regions have introduced changes whereby the highest marginal rates may be above the national tax scales. Therefore, tax planning is essential Expenses related to employment before non-residents arrive to Spain.

13 Investment income for tax resident expatriates who Non-exempt dividends, interest perform part of their work abroad. and royalties derived from Spanish sources are subject to a final A special expatriate rule has been withholding tax. introduced whereby expatriates who become tax resident in Spain can The rate is 19 per cent for dividends apply the non-resident tax regime and interest, unless a reduced rate for six years if certain conditions applies under a tax treaty. The are met. tax is levied on the gross amount received. Nevertheless, net (and The special regime was amended not gross) income will be considered on 1 January 2015; some of the as the tax base for European Union main changes are: Individuals who tax residents. • Sportsmen are expressly excluded are not Spanish The tax rate applicable to royalties from the regime is 24 per cent, or 19 per cent • Directors can apply for this tax residents when the income is received by regime as long as they do not hold EU/ EEA residents. However, a shares in the company for which must file their reduced rate would apply under a they are a director tax treaty. Additionally, net (and not • All of the salary income obtained “non-resident” gross) income will be considered by the individual will be deemed as the tax base for European Union to be obtained in Spain tax forms, tax residents. • With the new regulations, even those salaries over EUR600,000 depending Capital gains will be eligible for the regime Capital gains are included in the on specific investment income taxable base. Value Added Tax Scope situations, Administration Value Added Tax (VAT) is the main The Spanish tax year for type of indirect taxation in Spain. It is during the individuals runs from 1 January to a tax on consumption which is levied 31 December. on the supply of goods or services, same tax intra-community acquisitions and Individuals who are Spanish imports. period, even residents for tax purposes must file their tax return and pay any tax VAT is ultimately borne by the when tax has due within six months following consumer by being included the close of the tax year. These in the price paid, although the already been deadlines cannot be extended. Fines responsibility for charging, collecting are applicable for late filing. and paying it to the tax authority at withheld at each stage of the process rests, in Individuals who are not general terms, with the business source. Spanish residents must file making the supply. their “non-resident” tax forms, depending on specific situations, The supplier will charge VAT (output during the same tax period, even tax) on its sales, and incur VAT when tax has already been withheld (input tax) on its purchases. The at source. difference between the output tax and the deductible input tax Expatriates tax regime in each accounting period will be Spanish domestic tax legislation the amount of VAT payable to the does not have a special tax regime in tax authority. Where the input tax place for expatriates. Nevertheless, exceeds the output tax, a refund can specific benefits are applicable be claimed.

14 A transaction is within the scope • Medical and social services • It must not be a subsidiary of any of Spanish VAT if the following • Financial and insurance other entity established in Spain conditions are met: transactions that could be also considered as a parent company in itself • Educational and sport services • It is a supply of goods or services • Leases of some kinds of real state • It takes place within the Spanish A corporate body cannot be treated territory as a member of more than one VAT Businesses that make exempt group at a time. • It is made by a business or supplies are unable to claim all of the professional for valuable input tax they incur, so the VAT paid The main advantage of being part consideration, either regularly or to suppliers will be a ‘real’ cost. of a VAT group is the offsetting occasionally of individual self-assessments of Most goods imported into Spain • It is made in the course or the entities within the group. The from outside the EU are subject furtherance of any business parent company shall make the to VAT. The tax will have to be carried on by that person or entity payment or receive the refund of the paid by the importer at the time of aggregate balances. Any business that makes taxable importation. Where the importation is for business purposes and the transactions in Spain should be VAT However, each entity constituting registered in Spain. importer is registered for VAT, it may be possible to reclaim the tax the VAT group is jointly and (subject to certain rules). severally liable for the VAT due by Rates the VAT group. There are three rates of VAT that are applied to goods and services Administration Any business or professionals that The option to apply the special in Spain; the standard rate, the regime for groups of entities is reduced rate and the super-reduced make taxable supplies in Spain must register for VAT in Spain and submit binding for three years (if the rate. In addition, some goods and periodic returns. requirements continue to be met). services are exempted from the tax:

In general, there is no threshold for Tax returns • Standard rate of 21 per cent for VAT registration in Spain. VAT returns are normally prepared most goods and services on a quarterly basis. They are due • Reduced rate of 10 per cent for If two or more entities form part for submission within 20 days of the a specific list which includes, of a group and all of them are quarter end. for example, substances established within Spain, application normally used for human and can be made to apply the special For large taxpayers (revenue animal nutrition except alcoholic regime for groups of entities. A exceeding EUR6,010,121.04 in the drinks, residential buildings or group of companies is formed by a preceding calendar year) and for passenger transport parent company and its subsidiaries. taxpayers that are included in the • Super-reduced rate of four per A parent company must meet one special registry for monthly VAT cent for a specific list which of the following requirements: refunds, VAT returns must be filed includes, for example, ordinary on a monthly basis. They are due for bread, milk and derivatives, • It must have legal personality and submission within 20 days of the cheeses, eggs, fruits, cereals also permanent establishments period end. and books • It must have participation of at least 50 per cent in the capital of Annual summary returns must be Some goods are exempt from VAT, others and this participation has to submitted by 30 January of the including: remain during a calendar year following calendar year.

15 VAT reclaims conditions, also reclaim the VAT It may be possible to reclaim incurred on imports into Spain or the VAT incurred in certain purchases of goods and services circumstances. where Spanish VAT has been charged. The scheme is available to Two schemes exist, one for any person carrying on a business businesses established in the established outside the EU, provided EU and another for businesses that in the period of the claim: established elsewhere.

The EU cross-border refund scheme • It was not registered or liable to is available in all EU Member States, be registered for VAT in Spain and enables a business established • It was not established in any The EU in an EU country to recover VAT EU country incurred in another Member State. • It would be necessary to appoint a cross-border To be eligible to make a claim, the tax representative resident in the claimant must be a taxable person refund scheme established in an EU Member State Spanish VAT territory other than the one from which the • It made no supplies of goods claim is to be sought. In addition, and services in Spain other than is available in the claimant: certain specified exceptions all EU Member • It is not the recipient of supplies of • Must not be registered or be liable goods and services where reverse or eligible to be registered in the States, and charge is applicable Member State from which he is claiming the refund • It complies with the requirements enables a • Must have no fixed establishment, and limitations for deducting VAT seat of economic activity, place of • It is established in a third business business or other residence there country that provides reciprocal established in involved in the supply of goods arrangements for refunds to or services performed during the be made to taxable persons an EU country period covered by the claim established in Spain. Spain has • During the refund period, must arranged reciprocal agreements to recover not have supplied any goods or with Canada, Israel, Japan, services in the Member State of Monaco, Norway and Switzerland; refund, apart from certain limited VAT incurred these agreements state specific exceptions operations in which VAT could in another be claimed back. As of 1 January The amount that is refundable is determined by the deduction rules 2015, reciprocal agreements Member State. that apply in the country making are not required for claiming the refund. The claim is submitted the VAT borne on the imports electronically to the tax authority or acquisitions of the following from whom the repayment is goods or services: being sought. –– Molds and equipment to be used for fabricating The refund period must cover goods to be exported to the a quarter, a calendar year or a non-established business or shorter period where it represents professional or destroyed. the remainder of a calendar year. The claim has to be made by –– Access to services, hotels, 30 September of the year following restaurants and transport that in which the VAT was incurred. linked to the attendance to fairs, conferences and Businesses established outside exhibitions of commercial or of the EU can, subject to certain professional nature

16 Labour In Spain, the Workers’ Statute the criteria and direct instructions • The identity of the parties (WS) is the main source of Spanish issued by the person or higher • The start date labour law. Additionally, Collective bodies in charge of the Company’s • The company address Bargaining Agreements (CBAs) government and administration, also hold an important role in the respectively occupying this • The employee’s category regulation of relationships between ownership”. • Remuneration companies and employees. • Work schedule and duration The main function of CBAs is to Therefore, a company may have • Distribution of the work time negotiate the regulation of labour various Senior Executive employees conditions in specific sectors or if they all meet the aforementioned • Holidays regions. The scope of the CBAs requirements in the performance • The notice period in case of varies (national, regional or sector) of their duties, occupying the top dismissal depending on the related parties’ of the company’s professional interests. Finally, the company and structure and with an effective Permanent contracts the employee are free to establish intervention in the key management As a general rule, employment in the employment contract the decisions (in practice, this would contracts must be permanent covenants and conditions regulating normally imply that the various except where there is a justified their relationship that they consider Senior Executives assume specific reason for the contract to be necessary and appropriate for the key areas reporting directly to the temporary. The Spanish legal contracted rendering of services. Board). In any event, the legal nature system includes full time and However, the minimum conditions of each employment contract (of a part time contracts as permanent laid down in applicable general special or normal nature) would be contracts. Both full time and regulations and the applicable CBA decided by the Court (in the event of part time employees have the must be complied with. litigation) depending on the specific same rights. circumstances of each particular The WS and CBAs are case and on the basis of restrictive Part time contracts may also include complemented by case law issued criteria, especially in relation to large a provision for the employee to do by Labour Courts. multinational groups where the additional hours; however, overtime “autonomy and full responsibility” is forbidden. The additional hours In February 2012, primarily due to of these individuals and their direct provision comprises the possibility the financial crisis, a Reform of the of doing a number of hours WS came into force. The spirit of and exclusive reporting line to the agreed between the parties which the Reform was to introduce some Company’s board may be difficult cannot exceed 30 per cent of the flexibility in the market in order to to prove. facilitate the creation of jobs. ordinary hours. However, CBAs Employment contracts can increase this limit up to 60 per Freelancers and TRADE workers There are four elements which cent. Additional hours have to be (those who earn more than 75 per characterise an employment remunerated as ordinary hours. cent of their income from one client) relationship: the fact that work is are excluded from the application of performed voluntarily (as opposed Recently, a new type of the WS. to forced labour), in exchange for permanent contract in support of remuneration, on another’s behalf entrepreneurs was introduced. This The employment relationships of and subordinated to the employer. type of contract can be used by companies and high executives are companies employing less than 50 regulated by a specific regulation All contracts are presumed to be employees as long as the Spanish with distinctive features. permanent unless evidence exists unemployment rate remains over 15 which denies the permanent nature per cent (20.9 per cent in January High Executives are those who of the contract. A written contract is 2016). The law allows employers “exercise powers inherent to the mandatory; some exceptions to this to include a trial period of one year legal ownership of the company and rule exist. as part of an employee’s contract. relating to the company’s general However, this provision is being objectives, whose autonomy and The minimum requirements for contested in court as a result of full responsibility is only limited by every contract include: several rulings of labour courts

17 which have declared the one year from six months to two years and Overtime trial period to be null arguing it is a degree is required. Conversely, a Overtime is, except any provisions excessive and unjustified. work experience contract can have settled in a CBA, voluntary and a duration ranging from one to three cannot exceed 80 hours per year. It Temporary contracts years and it is limited to people is forbidden for minors and part time In order to use a temporary contract, aged under 25. There are certain employees to work overtime. a justified reason must be provided. exceptions to this rule; while the Temporary contracts include, among Spanish unemployment rate remains Leave others: over 15 per cent, this contract can Employees are entitled to a be used with people aged under 30). minimum of 30 days’ annual leave; • Contract for extraordinary this may be increased by CBAs. production requirements and Minimum wage Employees are also entitled to paid overload of work: the contract The minimum wage in Spain for leave under certain circumstances, should contain a clear description 2016 is EUR655.20 per calendar eg maternity, paternity or marriage. of the extraordinary production month (EUR9172.80 per year in 14 Employers have a duty to respect requirements. The maximum monthly installments). Amounts employees’ rights and guarantee duration is six months in a period related to compensation for their benefits. of 12 months or 12 months in expenses incurred are not included a period of 18 months if a CBA in the salary. Changes and substantial allows it. It can only be used for a changes in working conditions temporary situation needed and Employees cannot be discriminated Article 41 of the Employees’ Statute provides that when proven it cannot be used to cover cyclical against in accordance with their economic, organisational or work excesses gender or any other type of production-related reasons exist, the • Contract for a specific task or discriminations; each employee employer can decide “substantial service: the contract should the right to an equal retribution. modification of employment contain an accurate, precise and Wages may vary depending on the conditions”, which are deemed complete task description and can work time. to be, inter alia, those affecting be formalised when the employee working time, salary (fixed and is contracted to perform a specific Working hours and conditions variable), working hours, shift work job within the company, the Working hours system, remuneration system, work execution of which, although The limit to working hours is methods and incentive systems, and limited in time is of uncertain generally regulated by CBAs and functions. duration. The maximum length the employment contract. The WS is three years, though it may be establishes the minimum rest time The legal grounds for substantial increased up to four years by related to every day, week and modifications of working conditions CBAs year which has to be respected set out in Article 41.4 of the • Interim contract: used to cover mandatorily. The working day Workers’ Statute, as drafted in temporary vacancies reserved for cannot, under any circumstances, the current and recent 2012 employees who are on a leave of exceed nine hours, unless another legislation, are quite vague, being absence from the company. The distribution of daily working times limited to “the existence of proved contract is limited until the date is established by a CBA or an economical, technical, organizational the first employee returns to the agreement between the company or productive reasons”. The Spanish workplace and the workers’ representatives. law considers as such “those related There should be at least 12 hours with competitiveness, productivity A breach of any of these terms could between the end of one working or technical, organization of the imply consequences such as the day and the beginning of the next. work within the Company” and are acquisition of the permanent nature The minimum weekly rest period the following: of the contract by the employee, is 36 hours. When the workday is consequences on dismissals and longer than six hours, a break of 15 • Economic grounds: It is possible fines to the employer. minutes is compulsory; this may be understood that there are increased by CBAs. The working economic causes when the Another form of contract is the week cannot be longer than 40 results of a company evidence internship contract. An internship hours, calculated as an average on a negative economic situation. contract can have a duration ranging an annual basis. This comprises situations such

18 as current or foreseen losses or a up to 12 February 2012 and It should be noted that Spain has persistent decrease in income or 33 days of salary per year of one of the most protective forms sales. In any case, the decrease service (up to a maximum of employment legislation within will be considered persistent if, of 24 months’ salary) from the European Union and such during three consecutive quarters, 12 February 2012. protection of employees’ rights is the ordinary income level or sales particularly strong in the event of of each quarter are lower than the b) Notwithstanding the a termination of an employment same quarter of the previous year. implementation of such contract initiated by the Company. • Technical grounds: It is modification when the notice Therefore, the grounds for dismissal understood that there are period elapses, the employee (being objective or disciplinary) are technical causes when changes can file a claim against the very difficult to prove. It must be take place, among others, in the corporate decision before the noticed that in practice, most of the scope of the means of production Labour Courts. The Labour employees appeal to Courts against or production instruments. Courts would decide if the the Company in order to obtain a higher indemnity. • Organisational grounds: It modification is justified or not (no is understood that there are appeal can be made against this Disciplinary dismissal organisational causes when decision, which would take effect Disciplinary dismissals are based on changes take place, among immediately). If the modification the following grounds: others, in the scope of the is deemed unjustified, the Court systems and work methods of will declare that the employee • Repeated and unjustified lack of the personnel or in the production is entitled to be reinstated in his punctuality or attendance to work organisation. previous conditions. Through a separate legal procedure, there • Productive grounds: It is • Lack of discipline or disobedience is a possibility for the company understood that there are at work to refuse such reinstatement and productive causes when changes • Verbal or physical aggression to take place, among others, in the terminate the contract with the the employer, other staff or their demand of products or services severance payment provided for families unfair dismissals. The payment that the company intends to • Breach of good faith and abuse of could be increased by the Court release on the market. confidence in performing the job with an additional compensation • Intentional and continuous The modification shall be provided of up to 15 days of salary per year reduction of regular or agreed in writing to the employee and to of service (up to a maximum of 12 work performance the employees’ representatives months’ salary). with a 15 days’ notice period. • Drunkenness or drug addiction, The employee can accept the c) If the corporate decision is if it adversely affects the modifications, or reject them, declared to be null and void employee’s work in which case, he/she has the (because of fraud of law in • Harassment of the employer following options: avoiding compliance with legal or of any person who works procedures, or because of at the company by reason of a) To terminate the contract: discrimination), the employer racial or ethnic origin, religion –– If the modification relates to shall reinstate the employee in his or convictions, disability, age, working hours, working time previous conditions. or sexual orientation and sexual or shift system, functions or harassment or harassment by salary (amount or remuneration A substantial change is deemed reason of sex of the employer or system), he/she shall receive a ‘collective’ when it exceeds certain people who work in the company severance payment of 20 days thresholds, as set by the WS. of salary per year of service In this case, it must be carried The disciplinary dismissal must be (up to a maximum of nine out following a special collective notified to the employee in writing months’ salary) procedure involving negotiations stating the reasons for dismissal and –– If such modification negatively with the Workers’ Representatives. specifying the date of termination. affects the employee’s dignity, No notice period is required, unless he/she shall receive a severance Dismissal otherwise expressly agreed in the payment of 45 days of salary Under Spanish law there are two employment contract. It is essential per year of service (up to a types of dismissal: disciplinary to accurately describe the causes maximum of 42 months’ salary) dismissal and objective dismissal. of dismissal in the termination letter

19 (dates, time, facts, place, possible the ‘Changes and substantial Significant case law exists on (i) witnesses and previous warnings changes in working conditions’ which types of dismissals compute from supervisors). Should the section above. for purposes of the threshold and employee file a claim against the • Organisational grounds: the basis (ii) how the 90 day periods and/ termination, the employer will not be on which an objective dismissal or consecutive 90 day periods able to mention causes not stated in can occur under organisational should be counted. These rules are the termination letter. grounds is the same as that extremely important and should outlined in the ‘Changes and be considered carefully prior to The employee has 20 working substantial changes in working any dismissal to avoid having the days, from the effective date conditions’ section above. dismissal(s) declared null and void of termination, to contest the and having to reinstate employee(s) dismissal. • Productive grounds: the basis on with back pay. In addition, special which an objective dismissal can rules may apply as to which Objective dismissal occur under economic grounds employees should be dismissed first Objective dismissals are is the same as that outlined in (eg, employee representatives have dismissals that are not based on the ‘Changes and substantial “last to go” rights). the employee’s (“subjective”) changes in working conditions’ misconduct and that instead are section above. The collective dismissal procedure based on one or more of the requires that the employer initiates following objective reasons: Collective dismissal a consultation period with employee The collective dismissal procedure representatives. The petition must • An employee’s incompetence must be used when, in any 90-day be accompanied by a number of which has come to light or arisen period, the number of employees supporting documents explaining after the trial period has elapsed to be dismissed for economic, the grounds for the dismissals technical, and productive or • An employee’s failure to adapt and justifying the measures to organisation reasons equals or to reasonable technological be adopted. The documents exceeds the following: developments affecting his or should include economic and legal her position, so long as two documentation of the causes of months have passed from the • 10 affected employees in the dismissals and, in companies date the new conditions were companies with less than 100 with 50 or more employees, an implemented employees outplacement programme of at least six months. • An employee’s absence from • 10 per cent of affected employees work, even if justified, which in companies employing between The employee representatives exceeds 20 per cent of the work 100 and 300 employees must, in addition, be given written days in two consecutive months, • 30 or more affected employees notice of the proceedings and be or which exceeds 25 per cent of in Companies with more than provided a copy of the economic the work days in any four months 300 employees and legal documentation and a copy in a twelve month period, where • All employees in companies with of the social plan. If the dismissal the workforce suffers from over five employees affects more than 50 per cent of chronic absenteeism the workforce, the employer must • Economic grounds: the basis on If the number of dismissals does also notify the employees and the which an objective dismissal can not reach these thresholds, the labour authorities of any sale of occur under economic grounds dismissals are subject to the company assets. is the same as that outlined in objective (individual) dismissal the ‘Changes and substantial procedure. Authorisation from the Labour changes in working conditions’ Authority is not necessary anymore section above. If the company It is worth noting that spreading out in collective dismissals except in belongs to a labour group, the the dismissals over consecutive cases of force majeure where a economic situation that will be 90-day periods to avoid the resolution is required. taken into account will be that of collective procedure and instead the corporate group qualify for the above simpler During the consultation period, the • Technical grounds: the basis on objective procedure could lead company and employees discuss which an objective dismissal can a court to declare the dismissals the reasons for the dismissals occur under technical grounds fraudulent and consequently null and the possibility of avoiding or is the same as that outlined in and void. reducing their negative effects on

20 the employees in an attempt to i) First segment: seniority prior to Employment of foreign negotiate a possible agreement. the Labor Reform (12 February individuals Reaching an agreement is not 2012). The severance will amount Foreign individuals who want required but is preferable. to 45 days of salary per year to work in Spanish territory worked, with a maximum 42 must comply with a number of It is worth mentioning that the monthly installments. requirements, which may include Court of Justice of the European obtaining a Visa. When the job Union (CJEU) recently pronounced ii) Second segment: seniority requires a specific degree, the work on collective dismissals. In the following the Labor Reform permit will not be authorised unless Rabal Cañas Case, it established (from12 February 2012). The the foreigner proves the validity of the reference unit to calculate the severance will amount 33 days the degree. threshold must refer to the centre of salary per year worked, of work and not only the whole with a maximum 24 monthly EU and EEA citizens do not need company. installments. to hold a residency card to stay and work in Spain. However, other Consequences of dismissal iii) Applicable limits: the limit of foreign individuals who want to stay Fair dismissal in Spain should obtain a Spanish If the disciplinary dismissal is the severance corresponding to both segments shall not exceed residency permit in addition to a justified, the employer does Visa, if so required. not need to provide severance 720 days of salary. However, payments. In the case of an when the amount of the first Since the ‘Entrepreneurial Law’ objective dismissal, the legal segment is over 720 days of entered into force in 2013, obtaining severance amounts to 20 days salary, the higher calculation will a visa or a residence permit has of salary per year worked in the be considered the maximum become easier for citizens from company up to a maximum of 12 indemnity, providing this is outside the EU and the EEA that fall monthly instalments. not more than 42 monthly in the following categories: installments. Unfair dismissal • Investors Unfair dismissal exists in cases The company must decide where the claimed causes were not between reinstating the employee • Entrepreneurs enough to confirm the dismissal or including back pay or providing • High qualified self-employed the formal requirements were not the corresponding severance pay • Researchers fulfilled. The Spanish Labour Reform without procedural salaries except of 2012 modified the amount of the • Employees who move from one for legal representatives (who unfair dismissal indemnity, reducing related company to another are entitled to opt between the the indemnity from 45 days of reinstatement and the severance). salary worked with a maximum In the case of employers who 42 monthly installments to an move employees to Spain indemnity of 33 days of salary per Null and void dismissal within the framework of a year worked with a maximum 24 The consequence of a dismissal transnational provision of services, monthly installments. being declared null and void is the employers have to guarantee obligation to reinstate the employee. the Spanish minimum labour A transitory period was established It will be considered as such when conditions on working day, for employment contracts signed it is based on prohibited grounds holidays and minimum wage, prior to the Labor Reform, by means of discrimination fixed by Law. independently of the law chosen of which the calculation of the Other causes of nullity are related for the employment contract. It is indemnity for dismissal is done on to violations in conciliation between applicable to companies within the the following basis: work and family. EU and the EEA.

21 Audit Spain’s accounting and audit trial balances and the closing every financial year. Accounts requirements are in line with balance sheet must include: the rules and regulations of the • Annual accounts: balance European Economic Community. sheet, profit and loss account • Balance sheet at the year end and notes to the accounts in a • Profit and loss account for Accounting standards standard or abridged format, as the year Spanish Generally Accepted applicable depending on the size • Cash flow statement for the year Accounting Principles (GAAP) of the company In 2008, Spain changed its • Notes to the annual accounts accounting and reporting standards. The above does not include any • Directors’ report A framework similar to EU-IRFS registers or records required under was adopted; nevertheless, there tax legislation to record shareholder The format and content for annual are some differences. Spanish decisions. Different requirements accounts are prescribed by the GAAP and financial reporting apply for sole traders. applicable financial reporting standards are set out in a series of regulations established by the ICAC ‘accounting plans’; there are specific Companies must present the and, for certain sectors, by the publications for particular sectors records mentioned above at regulator for that activity. such as non-for-profit organisations, the Commercial Register within energy and construction. Spanish four months of the accounting While shorter accounting periods companies must follow these year-end, where they are stamped. (less than 12 months) are permitted, Electronic presentation and internet plans, both in terms of accounting tax regulations do not permit filing are permitted. standards and the content of the accounting periods of more than annual accounts. 12 months. As a general rule, accounting records must be kept at the The regulations are supplemented The accounting year-end is set on company’s registered office or in by interpretations published by the incorporation, with no obligation to another place that the directors ICAC (the National Institute of Audit consider appropriate. Electronic use a calendar year or any other set and Accounting) which is the body copies of certain supporting date. It can be changed subject to responsible for standard setting. documentation can be maintained regulations. as long as they comply with the The ICAC has also published applicable regulation. The directors of a private company simplified accounting and reporting must approve the annual accounts standards for SMEs and smaller Document conservation regulations within three months of the year-end. companies. are complex, they can be When the annual accounts are summarised as follows: audited, they must be approved by EU-IFRS the company shareholders within Listed companies incorporated in • The general rule for tax purposes six months of the year-end. Once an EU Member State must use is four years approved, they are filed at the EU adopted IFRS to prepare their • If the company wants to offset tax Commercial Register. consolidated financial statements. losses, it must keep the relevant documentation for the years Public companies must file their Accounting records where the losses arose. It must annual accounts with the National The Commercial Code states that a keep the documentation for up Commission for Capital Markets company must at least maintain the to four years after the losses are (CNMV) within four months of the following records: recovered accounting year-end. • Invoices for fixed assets must • A journal day book (‘Libro Diario’) be preserved for the whole An exemption to this requirement with a sequential listing of the depreciation period exists if the Spanish group is accounting entries during the year controlled by another company • A register (‘Libro de Inventarios’) Accounts and reports subject to the legislation of another with the opening balance Private companies need to prepare EU Member State and that other sheet, a minimum of quarterly and file public individual accounts company prepares consolidated

22 annual accounts that include all A company is considered to be not meet two of the requirements the companies of the Spanish small if it fulfils two of the following above for two consecutive years, sub-group. In this case, each of requirements for two years: with the second year not being the Spanish companies must give subject to audit. Companies may full details in the notes to their • Total assets < EUR2.85 million also decide voluntarily to file audited financial statements and the audited • Net sales < EUR5.7 million public financial statements. consolidated annual accounts • Average number of employees Companies also need to have their (translated) of the controlling < 50 people company must be filed in the accounts audited if: Commercial Register in Spain. The A group is required to file exemption does not apply if the consolidated annual accounts • Their shares are negotiated on a Spanish company is public or has if it fulfils two of the following regulated market publicly traded debt or similar. requirements for two years: • They make public offering of debt instruments It must be noted that if the parent • Total assets < EUR11.4 million • They are a financial intermediary company is not based in the EU • Net sales < EUR22.8 million or active in the financial sector or is based in the EU but does • Average number of employees • They are a branch of a not prepare and publish audited < 250 people foreign bank consolidated annual accounts, audited consolidated annual • They received government The content and format of the accounts must be prepared and finance or contracts services or balance sheet, profit and loss filed in Spain if the Spanish group supplies with government entities account and notes to the annual exceeds the prescribed limits. in excess of the applicable limits accounts are reduced for abridged accounts. The Directors’ report and Abridged accounts There are no exemptions for the cash flow statement are not subsidiaries; even if the controlling Small and medium sized companies required for abridged accounts. are authorised to file abridged group has to file audited consolidated annual accounts, annual accounts. Reporting Audit requirements every subsidiary that exceeds the requirements are further reduced A company must have its accounts general limits above (or is subject for very small companies. audited when it exceeds two of to audit according to other legal the following requirements for requirements) must file audited A company is considered to be two years: annual accounts. medium sized if it fulfils two of the following requirements for two • Total assets < EUR2.85 million A foreign company with a Spanish years, being allowed to file abridged • Net sales < EUR5.7 million branch must file the financial accounts for the second year: • Average number of employees statements of the whole company. < 50 people If it is required to file its financial • Total assets < EUR4 million statements under the law of the • Net sales < EUR8 million The accounts need to be audited country of incorporation those • Average number of employees for the second year. The obligation financial statements must be < 50 people disappears when the company does translated in Spanish.

23 Trade Foreign Direct Investment Thanks to its liberal investment policy, Spain is the eighth largest recipient of Foreign Direct Investment in the world. While there are no general restrictions, certain sectors are subject to specific regulation. For instance, sectors such as gambling, television, (food-processing, energy, freely. Although Member States’ radio and air travel are restricted to technological development, customs authorities have the right to non-EU investors. There are further mining, navy, metallurgic, textile, check goods at the border, there is a restrictions to any foreign investors touristic, etc) unified customs law in the EU which for the trade of weapons. • Regional schemes are available removes all fees and barriers within Additionally, the government has in certain parts of Spain to avoid the Union. the authority under several laws to inter-territorial imbalances, block transactions against national distinguishing between zones There is an external tariff for interest, such as national security. of economic promotion and goods imported from outside The acquisition of property by zones of industrial decline. These the EU. While there are certain citizens from non-EU countries in schemes are available for projects minor differences in interpretation areas of interest for national security that result in the investment of at and administration, the tariff requires specific authorisation. least EUR600,000. The regions was supposed to be applied and with most public funding are interpreted uniformly. Mergers and acquisitions may be Extremadura, Castilla la Mancha, examined to prevent monopoly Andalucia and the Canary Islands The Community Customs code situations. All transactions involving • The central government, the contains all the general rules companies with sales of over regional governments and other and procedures applicable to EUR100 million need to be approved institutions (FEDER, ICO, ENISA, the trade of goods between by the National Market and REINDUS, etc) grant loans to EU and non-EU countries. The Competition Commission; the public SMEs to promote growth code is supplemented by a institution in charge of regulating • Research, development and detailed Customs Regulation monopoly situations. innovation receive great incentives which is directly applicable in all in the form of fiscal benefits Member States. Government incentives • Grants are also available through In Spain, the national customs The Spanish government supports COFIDES for companies looking authority is the Tax Agency and encourages foreign investment. to expand internationally using Foreign companies receive the Spain as a platform (‘Agencia Tributaria’). same treatment as local ones. Most EU Member States offer similar ‘Invest in Spain’ is an organisation Import restrictions benefits; in Spain, the most relevant led by the Ministry of Economy Most categories of goods can ones are: and Competitiveness that supports be imported without restrictions. foreign investment and provides However, individual import licenses • The creation of employment and information on the different may be required when importing the training of employees in the incentives available for companies. a limited number of goods such work place have received constant as drugs, explosives, firearms and support in order to overcome the Imports ammunition. Additionally, certain high unemployment rate Spain is a member of the European goods from countries outside the • The government provides Union which is a single trading area. EU such as textiles, footwear, financial and fiscal benefits in This means that all goods (subject porcelain, ceramics, steel, toys some priority sectors due to their to narrow exceptions), whether and certain chemicals, are subject potential for growth and their made in an EU Member State or to quantitative restrictions or impact on the national economy imported from outside, can circulate surveillance measures.

24 Finance Spain has a competitive financial system, integrated within the international markets.

Capital markets In Spain, the National Securities Market Commission (CNMV) is in charge of the supervision and inspection of the Spanish securities markets and for the parties operating in them. ‘Bolsas y Mercados Españoles’ (BME) comprises several entities in charge of directing and managing Spanish securities markets: Market) is aimed to the issuance and Pension Funds (DGS) from the • The official secondary Markets - of fixed-income securities from Ministry of Economy. Madrid, Barcelona, Valencia and medium-sized companies that are Bilbao Stock Exchanges not usually listed. Despite the country’s recent • The electronic trading economic difficulties, the Spanish platform (SIBE) Banking system life and non-life businesses remain Bank of Spain is the national profitable. Spanish insurers are • The fixed income market (AIAF) central bank, which participates more robust and solid than many • The Spanish futures and options in the functions of the European other European markets; insurance market (MEFF RV & MEFF System of Central Banks (ESCB) companies do not present debt RF), the Electronic System and supervising the solvency and leverage issues. The country for the Trading of Financial behaviour of credit institutions and continues to attract international Assets (SENAF) or the Spanish the financial markets. investors attempting to underwrite Central Securities Depositary domestic risks as well as insurers (IBERCLEAR) In Spain there are around 72 Spanish seeking access to the Latin banks and more than 70 foreign American market. The IBEX-35 is the standard index credit institutions branches. of the Spanish market; it works Investment management in real time and includes the International standards on money industry capitalisation of the 35 most liquid laundering, client identification Compared to other European companies traded on the electronic and corporate governance are counterparties, the asset stock market (which are updated mandatory for banking institutions. twice annually). management industry is Spain is The Spanish National Securities relatively young. The financial crisis Latibex is the Market for Latin Market Commission (CNMV) is in and the European sovereign debt Securities in Euros which was set charge of supervising Collective crisis had a negative effect on the up to provide Latin American listed Investment Schemes (IICs) which asset management activity in Spain; companies with a price reference in are in accordance with the UCITS nevertheless, despite some periods European business hours. European legislation. where their assets have fallen, asset management institutions have MAB (Alternative Stock Market) Insurance industry grown continuously. is the most important Multilateral The insurance industry (insurance, Trading System (MTS) authorised in reinsurance companies and In Spain, asset management is Spain. MAB is aimed to small-cap insurance intermediaries) is carried out by different entities, and companies looking to expand. subject to comprehensive legal therefore it is subject to different Recently, the CNMV increased regulations and tight administrative regulatory frameworks; however, its supervision over this market. control. It is supervised by the all forms of asset management are MARF (Alternative Fixed-Income Directorate-General of Insurance regulated by the CNMV.

25 Infrastructure As a member of the European Union and as a bridge to South America, Spain’s infrastructure is well-equipped to handle the demands of the international business community. The country has undergone a process of rapid modernisation over the last 15 years, investing in the renewal of its transport, telecommunications and commerce structures.

Madrid and Barcelona are Spain’s major transportation hubs but the network throughout the country is extensive. A new Infrastructure, Transport and Housing Plan (PITVI 2012-2024) is expected to be approved which, based on an analysis of the current situation and a rigorous assessment of Spanish needs, will establish the priorities and action plans up to 2024.

All main cities have good transport links. There are more than 47 airports and 53 sea ports. Madrid has high-speed train connections to several Spanish cities and the opening of the Barcelona-Paris line has enabled a high-speed rail connection between the Spanish and French capitals. The motorway and dual carriageway network, of nearly 14,701 kilometres, has undergone constant renovation with a view to enhancing its efficiency. Spain currently has one of the largest networks of motorways in Europe.

The modern Metro systems and extensive public transport of Spain’s major cities are fast and efficient.

Spanish telecommunications networks are excellent and are relatively cheap to use. Fast broadband internet access is widely available to both commercial and residential subscribers. WI-FI hot spots are fairly common in cafes, hotels and other establishments, especially in the bigger cities.

26 This document is issued by HSBC Bank plc, Sucursal en España (the Bank). This guide is a joint project with Grant Thornton. It is not intended as an offer or solicitation for business to anyone in any jurisdiction. It is not intended for distribution to anyone located in or resident in jurisdictions which restrict the distribution of this document. It shall not be copied, reproduced, transmitted or further distributed by any recipient. The information contained in this document is of a general nature only. It is not meant to be comprehensive and does not constitute financial, legal, tax or other professional advice. You should not act upon the information contained in this document without obtaining specific professional advice. Whilst every care has been taken in preparing this document, the Bank and Grant Thornton makes no guarantee, representation or warranty (express or implied) as to its accuracy or completeness, and under no circumstances will the Bank or Grant Thornton be liable for any loss caused by reliance on any opinion or statement made in this document. Except as specifically indicated, the expressions of opinion are those of the Bank and are subject to change without notice. The materials contained in this document were assembled in January 2016 and were based on the law enforceable and information available at that time.

Grant Thornton refers to the brand under which the Grant Thornton member firms provide assurance, tax and advisory services to their clients and/or refers to one or more member firms, as the context requires. Grant Thornton International Ltd (GTIL) and its member firms are not a worldwide partnership. GTIL and each member firm is a separate legal entity. Services are delivered by the member firms. GTIL does not provide services to clients. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. This publication has been prepared only as a guide. No responsibility can be accepted by GTIL for loss occasioned to any person acting or refraining from acting as a result of any material in this publication.

HSBC retains all responsibility for the translation of the content of this guide. In the event of any discrepancy or inconsistency between the English and translated versions of this Guide, the English version shall apply and prevail.