Spain is an up-and-coming destination for foreign nationals to set up their businesses in, owing to the following facts:

• Spain has entered into the highest number of double taxation avoidance treaties with other European Countries
• It is relatively easier to navigate the bureaucracy

Company Incorporation

A limited liability company (SRL/ Sociedade de Responsibilida Limitada) is the most popular form of doing business in Spain. Following are the steps to be undertaken for the incorporation of the same:

• Apply for NIE (Numero de Identificacion de Extranjero), i.e. the tax number for individuals, at the Spanish embassy or consulate in your home country; or at a local police station having a Foreigner’s Department (Oficina de Extranjeros) if you’re in Spain
• Register the company name before the Mercantile Registry (Registro Mercantil) and obtain the certificate of no name coincidence (Certificación Negativa de la Denominación Social)
• Open a Spanish bank account for your business and deposit the minimum share capital
• Execution of shareholders’ agreements and formalization of names in the AOA after the collection of shareholder details and the allocation of shares
• Finalization, Notarization, and Registration of the Deed of Incorporation before the Local Tax Authority by way of filling out Form 600 (will lead to the incorporation of the company)
• Obtaining the CIF (Codigo de Identificacion de Fiscal)/ NIF (Numero de Fiscal)/ Tax ID Number for Businesses by way of filling out Form 036
• Registration for Social Security by way of filling out Form TA-6, and subsequently obtaining the Social Security Code/ Codigo de Cuenta de Cotizacion (CCC)

License/relevant permits required for operation of business/post incorporation steps

• Filing the declaration of commencement of company activities (Declaracion Censal de Inicio de Actividad) before the local tax office (Delegacion de Hacienda).
• Obtaining the opening license (Licencia Municipal de Apertura) from your local town hall/ council (Ayuntamiento) by presenting the notarized deed of incorporation, along with sector specific documents relating to your business

Relocation & Unification /Visa procedure

The Spanish entrepreneur visa is valid for a period of one year, and it’s validity can be extended up to 3 years upon conversion into the TIE (Tarjeta de Identidad de Extranjero) or the Foreigners’ Identification Card. The following steps must be followed in order to obtain an entrepreneur visa:

• Getting the required documents (which include documents exhibiting financial stability, no criminal record certificate, proof of residence, among others) legalized/ apostilled as per the Hague Apostille Convention, 1961.
• Submit the applications in person at your nearest Spanish Consulate, which will provide you with a proof of receipt of Application, containing a unique code which may be used to track the status of the application
• If approved, you will get a notification regarding the same within a period of 10 days from the date of receipt of application
• In case of refusal of visa application, you may file an appeal by way of a letter (in Spanish, or Spanish and English, along with your contact details) addressed to the Consulate. The same ought to be submitted in person, within one month of the date of notification of refusal of your visa. As an alternative, you may file an application for judicial review before the High Court justice of Madrid within 2 months from the date of notification of rejection of visa.

Family Reunification

The visa application procedure for the family members of the entrepreneur is the same. However, a few additional documents need to be produced, which are as follows:

• Documents proving familial relationship with the entrepreneur/ applicant, including but not limited to marriage certificate, birth certificate (establishing relationship), etc.
• For unmarried partners, it must be proven that their relationship is comparable to that of marriage. Further, the partners must not be separated.
• In the case of adult children, documents proving their civil status and financial dependence on the applicant must be presented.
• In case of relatives in the ascending line, it must be proven that they are in the care of the applicant/ entrepreneur

Business Acquisition

Share deals and asset deals are among the major methods employed in Spain’s M&A sector. Under Article 160 of the Companies Act (Ley de Sociedades de Capital), acquisition, disposal, or transfer of assets to another company, along with mergers, conversion, global assignment, or spin-off of assets are matters to be deliberated upon and decided in an Annual General Meeting.

As per Article 160(f) of the Companies Act, “Assets are considered essential when the sum of the transaction exceeds twenty-five percent of the share value shown in the latest approved balance sheet.” This means that the asset is presumed to be of a critical nature when the transaction amounts to more than 25% of the value of the assets included in the company’s last approved balance sheet, the same must be approved in the general meeting.

The CNMC (Comision Nacional de los Mercando y la Competencia) regulates the proper operations and functioning of markets to promote the interests of companies and consumers. As stated above, the most common way of acquisition of businesses in Spain is by way of purchase of shares and assets. The process with respect to the same has been presented hereunder:

• The acquisition must be formalized before a Notary in Spain, or before the Consular Office abroad by presenting documents including title of ownership of assets, NIE/ NIF/ CIF of the seller and buyer, documentary evidence of payment along with the mode of payment, and in applicable cases, a Power of Attorney
• Once the purchase deed has been formalized before a notary, it needs to be recorded in the Company’s Shareholders’ Registry Book.

Like other jurisdictions, M&A in Spain can either be by the acquisition of one entity by another, or by the creation of a new entity as a product of two entities merging. The steps7 involved in this process are:

• Submission of a structural change plan
• Preparation of a report by the management body
• Preparation of an independent expert report (in case of cross-border mergers)
• Advance notice of the agreement must be issued one month before the agreement date, and on the website of the company and the companies
• Approval from the general meeting
• Once approved, the agreement must be published in the ‘Official Journal of the Business Registry’, along with the companies’ website, or in a local newspaper having the largest circulation in the province(s) where the companies are established
• The structural change will be effective from the date of registration of the entity in the Commercial Register.

Corporate Taxation Regime

Corporate Income Tax [Impuesto sobre Sociedades (IS)] is a direct and personal tax levied on the income of companies and legal entities as listed in the Spanish Civil Code. Taxable income is determined by:

• The direct assessment method (taxable income is calculated as the difference between period revenue and period expenses)
• Objective assessment method (taxable income may be determined by applying the signs, indices or modules to the sector of activity determined by tax law)
• Indirect assessment

The tax period shouldn’t in any case exceed a period of 12 months. This duration, however, may be less than 12 months and may or may not coincide with the calendar year. The tax period for which CIT is being paid must coincide with the financial year of each entity. Following are the cases wherein tax period is considered to have ended even if the calendar year hasn’t ended:

• Termination of the entity once the cancellation entry has been made in the commercial register. In this event, the tax must be paid within 25 calendar days following the 6 months from the date of cancellation entry.
• Change of residence of entity registered in a Spanish territory abroad
• Transformation of the legal form of the entity, thus excluding it from the ambit of Corporate Income Tax/ IS.
• Transformation of the legal form of the entity, which determines the modification of its Corporate Tax rate, or the application of a special tax regime.

Corporate Income Tax is due on the last day of the tax period. The tax return must be filed (Form 200) within 25 calendar days following the 6 months after the end of the tax period. These returns must be filed online before the Spanish Tax Agency (Agencia Tributaria) along with an electronic certificate. For taxpayers whose fiscal year coincides with the calendar year, returns must be filed by 25th July.
Additionally, three advance payments (Tax Form 202) of the annual tax payments must be made thrice in a calendar year, i.e., within the first 20 days of April, October, and December. The final CIT payment must be made with the annual CIT return. However, certain entities like investment companies are exempt from making advanced payments. As a general rule, the advance amount to be paid is 18% of the tax liability paid by the entity in the previous financial year.
The standard VAT rate in Spain stands at 21%. Fines and penalties are levied on the entities on delay. In case of a delay of 3 months, a fine equivalent to 5% of the tax due is levied upon the entity. A fine of 20% is levied in case the returns are filed after a delay of one year.
The following transactions are exempt from VAT:

• Domestic Transactions like healthcare, educational services, social welfare assistance, cultural activities, sporting activities, financial transactions and insurance, real estate (the exemption is limited in nature; it cannot be claimed on purchases made with regards to these activities).
• Foreign Transactions like exports (outside the European Union) and Intra-Community deliveries of goods to business customers by transport to another member state

In Spain, there is no special exemption threshold (a set annual turnover limit below which VAT is not chargeable) for small businesses. However, special schemes are applicable to sole traders and professionals, which are as follows:

• The simplified scheme
• The special scheme for agriculture, livestock farming and fisheries
• The special retailers scheme (Recargo de equivalencia)

Tax on economic activities(IAE)

The Tax on Economic Activities, locally known as Impuesto de Actividaded Economicas (hereinafter referred to as IAE) is a provincial tax levied annually upon the performance of business, economic or artistic activity, regardless of whether it was carried out within the business premises or not (if their annual turnover exceeds 1 million Euros).
It is mandatory for a newly established entity to register itself for IAE with its local tax office. A person or entity must pay this tax, based on the activity it is undertaking, which is further divided into 3 categories:

• Business
• Professional
• Artistic

• Companies during their first two years of activity
• From the third year onwards, all self-employed persons, SMEs or any other company whose turnover has not exceeded the stipulated turnover, as stated above
• Public administrative entities
• Foundations and non-profit companies
• Individuals who aren’t self employed

• Form 036 must be filled to initiate the registration process
• Entities obligated to pay this tax must fill form 840 (entities that were earlier exempt but now have an annual turnover crossing 1mn Euros must also fill this form)

Business Expansion

Setting up a business in Spain may give one the ability to tap into two markets, namely:

• The European Union (by way of Spain’s membership)
• Latin America (by way of historical, cultural and linguistic ties)

• Licenses, notifications and permits needed to start a business
• Requirements for offering services on a temporary basis
• Recognition of professional qualifications and regulated professions
• Labor and social laws
• Rules for public procurement

• How to introduce an application
• Which organization is responsible for dealing with such applications
• What is the cost of applying
• How long does it take to get a reply

As for expansion to Latin America, the Spanish stock exchange, in December 1999, set up Latibex which is a market for buying and selling the stocks of Latin American companies in Euros. Being the sole international market for LatAm stocks, this forum has become a gateway for European companies wanting to invest in LatAm. It is governed by the laws of Spain and functions just like the Spanish Stock Exchange. Not only does this help European companies expand into the LatAm market, but also facilitates LatAm companies in accessing the European market. The pre-requisites which need to be fulfilled in order to become eligible to be listed on Latibex are as follows:

• To be previously listed on a Latin American Stock Exchange
• Market capitalization of the company should be more than 300 million Euros
• Information disclosure, which will be the same as their home country

• Multilateral Trading Facility (MTF)
• Latin American Companies having a Trading and Settlement Platform in Europe
• Trading in Euros
• Trading through the Spanish electronic trading system (SIBE SMART)
• Transparency

• Filling out an application form to include your company’s securities on the Latin American Securities Exchange
• Entering into a contract with a "link entity" of your choice (one which can authorise the tying up of securities in the country of origin, include securities represented in the Spanish settlement and registration system and handle dividend payments, return of contributions, etc.)
• If an agreement exists between the Central Depositories, the contract may be replaced by an application to the Central Depository in the country of origin to use the connection the latter may have established with the Spanish Depository. Currently, these agreements exist for Argentina and Brazil.
• All economic-financial information which may have been presented to the regulatory bodies in the country of origin in the previous financial year and in the months which have elapsed in the current year prior to presentation of the application. The information should not include any adaptation of accounting standards. It is thus sufficient to send a copy of available information for investors from Mexico, Brazil, Argentina, Peru etc. If the security is also quoted on other international Stock Exchanges, the information handed in to these markets' regulatory bodies (e.g. NYSE/ SEC, etc.) should be sent.
• Copy of the current Company Bylaws must be submitted as well.
• The Latibex Board, upon the submission of application and relevant documents/ information, will assess the application. If approved, the company may be listed on the forum within a period as short as two weeks.

Ease of doing business

As per the World Bank's now discontinued ease of doing business index, Spain ranked 30th on the list with a score of 83.9. The rankings are determined after assessing a country on 10 major parameters, which are as under:

• Starting a business
• Getting requisite permits
• Access to electricity
• Registering property
• Getting credit
• Protecting minority investors
• Paying taxes
• Trading across borders
• Enforcement of contracts
• Resolving insolvency