Written for Expatica – July 2006

Country focus: Spain

Setting up business, handling staff transfers or hiring locally in Spain? Our guide, compiled by Marian Weston, will take you through those first vital steps.
Overview

Spain's economy is vibrant. Since entering the EU in 1986, Spain has become one of the most dynamic economies in Europe. After GDP growth of 3.4 percent in 2005, the economy is forecast to slow gradually to 2.5 percent in 2007. Despite its buoyant economy, Spain cannot afford complacency. Major remaining challenges are reducing unemployment further, absorbing widespread social changes, reducing deficit, lowering inflation and raising per capita GDP.

VISAS
Non-EU nationals

Nationals from non-EU countries need a visa to enter Spain, unless there is an existing agreement between Spain and the non EU national's home country. Non EU nationals wishing to work in Spain must also obtain a work permit. Application for a visa should be made to the Spanish consulate in your home country before you leave. The types of visa you apply for will depend on whether your reason for visiting Spain is tourism, investment or to study.
A transit visa is given to individuals or groups of foreigners passing through Spanish ports/airports without entering Spanish territory. It also allows foreigners to pass through Spanish territory for a maximum of five days.

Temporary stay visas are issued to foreigners who wish to stay in Spain for up to three months within a six-month time period

Residence permit for non-EU nationals
Non-EU nationals need a residence permit to live in Spain. After a period of time exceeding 90 days, the non-EU national must obtain either an extension or a residence permit to remain in Spain.

Types of residence permit
temporary residence permit allows you to remain in Spain for a period of time between 90 days and five years.
A Permanent residency permit is available to all foreigners who have held a normal residence permit for a continuous period of five years. It should be renewed every five years.
A residency permit for special circumstances can be granted for instance to non-EU foreigners whose asylum application has been rejected and whom the Spanish Ministry of Interior has authorised to remain in Spain.
A residency permit for reuniting families entitles non-EU foreigners residing in Spain to apply for Spanish residence of their closest family. The applicant should have been legally residing in Spain for one year and have authorisation for another year's residence in Spain.
Application for Residence permits must be made in person to the Foreigner's Office (Oficiana de Extranjeros) or to the National Police Station with a 'Foreigners Department' nearest to the town or city where you are going to live.

Necessary documents
The combination of documents will depend on the type of residence permit you require.

· Valid passport
· Residence visa in force
· Proof of previous legal residence of the foreigner in Spain (long term rental contract or receipt for rent)
· Certificate of criminal record issued by the authorities in the foreigner's home country.
· Passport-size photographs
· Medical certificates
· Proof of financial income to support you during the period of residence in Spain (pension, salary)
· Proof that your health assistance is guaranteed during your residence in Spain
· Marriage or divorce certificate

Renewals of residency permits are available, provided that neither personal nor economic situations of the non-EU foreigner have changed. Residence permits are issued by the Spanish Ministry of Public Safety. Residence cards should be carried at all times, as it constitutes a mandatory identity card for foreign residents in Spain.

EU nationals
if you are an EU national you do not need a work permit to work in Spain, you can enter as a tourist and register with the Spanish National Employment Office to look for a job. You then have 90 days to find employment. You can obtain an extension after that date or leave Spain and re-enter for a further 90 days. Once you get a job you will need your employment contract to apply for your residence card.
Documents required for work permit application

Employees

· Copy of valid passport
· Certificate of criminal records issued by the authorities of the foreigner's home country.
· Official medical certificate
· Three passport-size photographs
· Fiscal registration number
· Offer of employment
· Full description of the job and company activity
· Proof of the employer's solvency could also be required

Self employed

· Copy of your valid passport
· Certificate of criminal records issued by the authorities of the foreigner's home country.
· Official medical certificate
· Three passport-sized photographs
· Full description of the job and company activity
· Proof of the foreigner's professional qualifications

The community card
EU nationals can freely enter, exit, travel and remain in Spain but they need to obtain European Community registration card to live or stay in Spain for longer than three months. This residence card is the only formal requirement for EU nationals wishing to establish their residence in Spain.
Temporary residence cards are issued for periods of between three months and a year. The permanent residence card is issued for five years, which is automatically renewable.
You must apply for your residence card in person at the Oficiana de Extranjeros or at a national police station with a 'Foreigner's Department'.
The following documentation will be required:
· Passport valid for at least six months
· Three passport-sized photographs
· Medical certificate
· Proof of family relationship(when applying for reuniting family members)
· Proof of financial support whilst in Spain
You should carry your residence card with you at all times as it constitutes a mandatory identity card for foreign residents in Spain.
For more informationplease visit the Spanish Consulate website at www.conspalon.org

STARTING A BUSINESS
Sole proprietorship

Sole Proprietorship – A foreign individual may start a business in Spain, but they must have legal capacity according with the law of their home country to carry on business activities. If you set up your business in Spain as a sole proprietor, be aware that your liability for debts in unlimited. You must register at the Spanish Corporate Register as a sole ownership.

Stock corporation or Sociedad Anonima (SA)
Stock corporations are normally used in Spain for investments in major projects. A single person can form this type of company. The SA and SL are companies with capital in which the liability of the shareholders is generally limited to the amount of capital contributed by each. Technically, the capital of an SA is divided into shares. The shareholders or their representatives must appear before a public notary to execute the public deed of incorporation, and then register at the Spanish Corporate Registry. The company acquires legal status and capacity upon registration. Minimum share capital is EUR 60,101.
Shareholders may transfer their shares freely, unless corporate bylaws state restrictions on the transfer of shares. Shareholders can be individuals or companies of any nationality and residence. The shareholders are not personally liable for corporate debts; they are only liable to the extent of their contribution to the corporation. The deed of incorporation must include the company's articles of association, which have been approved by its founders.

The articles of association must state, among other provisions the name of the company and description of its activity, the date on which it begins its operation, the registered office—which must be in Spain, the share capital—the capital part which is not paid-up and the period within the capital must be paid, number of shares and the rights attached to them, the date on which the company's financial year ends, the structure of the company's management and special rights that founders may have.

The corporation must have a Board of Directors (Consejo de Administración) and a Shareholders' General Meeting (Junta General de Accionistas). An SA's executive governing body is its director or directors, who need not be Spanish citizens. If a Board of Directors is created it must have a minimum of three members.

Limited liability company
or Sociedad de Responsabilidad Limitada ( SL)
The limited liability company (Sociedad de Responsabilidad Limitada - SL) is normally used in Spain to form small or medium-sized businesses. It may be created by a single founder. The SL has gained popularity due to its lower minimum capital requirement than that for SA's.

The deed of incorporation has to be signed before a notary and then registered at the Corporate Registry (Registro Mercantil). The minimum capital requirements are EUR 3,005.06, which must be fully subscribed and paid-up at the time that the company is started. Contributions may consist of credit rights and real property. Work is not valid as a capital contribution. Partners are not personally liable for a company's debts. Their liability is limited to their investment in the company. Although only one shareholder is needed, there is no limit on the number of shareholders.

Joint ventures
Joint ventures in Spain may be created in more than one way.

Uniones temporales de empresas - UTE
A group of companies can form temporary business associations (uniones temporales de empresas - UTE) to carry on specific projects for a limited time. Each company will keep its legal status if they undertake operations in common under specific regulation. These are normally set up for engineering and construction projects. A notary's deed should be made and registered with the Special Register of UTE at the Spanish Ministry of Economy (Ministerio de Economía).

Agrupación de Interés Económico
Economic Interest Groups (agrupación de Interés Económico - AIE) are set up to help their members to achieve their individual objectives. Its members are liable for the company debts. This is normally used to provide centralised services for a group of companies. They must be incorporated by public deed and entered in the Spanish Corporate Registry (Registro Mercantil). Members can transform an AIE into any other type of commercial entity.

Contrato de cuentas en participación
Entrepreneurs may agree to contribute with money or in kind to a venture that they do not manage (contrato de cuentas en participación), the non-managing participants do not become shareholders but they receive the right to an agreed share of the profit resulting from the venture.
Branches

The branch is an organisation that depends on its parent, which is located abroad. It has the same legal personality as its parent and runs similar activities. The branch must have a legal representative who is empowered by the home office to administer the affairs of the branch. A branch has to be set up through a public deed made before a notary and registered at the Corporate Registry.

To register you will need a copy of the incorporation deed and articles of association of the foreign partner, a copy of the minute of the foreign company's Board of Directors' meeting establishing the decision of opening a branch in Spain, containing the capital assigned to it, the name of the manager and his general powers, and the certificate of a Spanish bank showing that the transfer of capital assigned to form the branch has been carried out.

A Spanish Consul has to legalise the copies mentioned above, and a sworn official translator must translate the incorporation deed and bylaw of the foreign company into Spanish. A permanent address and fiscal representative in Spain will be required. Creditors may demand payments of their debts to the branch located in Spain or directly to the parent located abroad.

SOCIAL SECURITY
Contributing to Spain's social security scheme will entitle you to free or subsidised medical treatment in the same way as Spaniards. The Spanish public health scheme INSALUD – the Instituto Nacional de la Salud, provides cover for more than 95 percent of the population, including retired EU residents on a state pension, who hold a residence card.

Two years' worth of social security payments made in another EU country before moving to Spain will also entitle you to some public health cover – collect Form E106 from your home social security offices and present it to the relevant office in Spain. EU pensioners and anyone receiving invalidity benefits should obtain and present Form E121.

Social security payments cover about 75 percent of medical treatment costs in Spain. You or your insurance scheme must cover the other 25 percent.

Spanish tax issues can be complicated and it is always wise to seek professional advice.

Taxation of non-residents is dealt with separately from taxation of resident individuals and entities. The key factor in determining the tax regime for non residents is whether or not they have a permanent establishment in Spain.

Non-residents are liable for tax on any income arising in Spain, such as a deposit of money with a Spanish bank, a property in Spain, or income derived from any business in Spain.

Property owners are taxed on their property income, the tax base is the property cadastral value (valor catastral), which can be found on any IBI receipt. Tax base rate is 25 percent of a 2 percent

Residents' tax liability

If you are Spanish resident you are taxed on your worldwide income. You may deduct your income tax paid in your home country. Double tax treaties are in place to avoid double-taxation. When there is no treaty with your country of origin, you may deduct the foreign tax paid. Foreign compensation may also be applied. Non-residents living more than 183 days in Spain are considered as residents for tax purposes, even if they have not obtained their residence permit.

The income tax base may be determined in two different ways: direct evaluation or objective evaluation.

Direct evaluation

This method will be applicable to business and professional activities performed by the taxpayer that are not subject to the objective evaluation, either because that method is not applicable or, when applicable, because the taxpayer filed a waiver.

Net income will be computed as the difference between the assessable income and the deductible expenses.

Simplified direct evaluation

This method is applied to some business and professional activities, which are subject to ordinary direct evaluation and where turnover during the previous year did not exceed EUR 601,020.21.

Net income will be computed as the difference between the assessable income and the deductible expenses.

Objective evaluation

This method is applicable to the income resulting from those business and professional activities which the Spanish Tax Ministry appoints.

The taxpayer may file a waiver in the month of December before commencing a new tax period. The waiver effects will last for three years.

Net income is computed by applying standard methods that the Spanish Tax Ministry determines.

When to file your income tax declaration

If contributors must pay tax, tax declarations must be filed from 1 May to 20 June. If contributors are entitled to a tax refund, then this period will be extended to 30 June.
Where to file your income tax declaration

Income tax declarations must be filed with the tax office appropriate to the contributor's address.

Contributors also have the possibility to file their tax declaration to the Spanish bank where they have an account, provided that they are entitled to tax refund or shall make any payment as a result of their tax declaration.

Deductive expenses

Certain deductible expenses, such as medicines, deductions for dependants, amounts paid for the purchase of a home or accounts opened for that purpose (Cuentas vivienda) may be claimed in the annual tax returns.

Employers must provide employees with a certificate of taxes withheld (Certificado de Retenciones) so they can subtract them to calculate their tax obligation. Payments into the Spanish social security system can be deducted.

Wealth tax

Along with the personal income tax, Spanish resident and non-resident property owners are also liable to wealth tax (Impuesto sobre el Patrimonio). They should make a declaration for both taxes at the same time.

Wealth tax is a direct tax levied on your assets and property located in Spain as of 31 December of every year.

Provided that taxpayers' principal wealth is normally their home, most of resident taxpayers do not pay this tax, as the first EUR 108,182.18 is exempted. However, non-resident property owners are always taxed on their assets located in Spain (car, houses, bank accounts etc).

The value of the house to be declared is the official cadastral value which can be found on any IBI receipt. The amount you have deposited in a Spanish bank is the average cleared balance over the previous year.

Tax rates are progressive depending on the type of property, ranging from 0.20 to 0.50 percent according to the Spanish law applicable Residents receive an identification number called a Numero de Identificacion de Extranjero (NIE), which you will need when paying taxes (it also doubles as a social security number).
You will be liable in Spain for income tax on your worldwide income and capital gains, but agreements are in place to prevent you paying tax twice on the same income. Spain also levies a wealth tax (patromonio) on both residents and non-residents.

Sources:
www.conspalon.org (Spanish Consulate General, London)

www.spainlawyer.com (iAbogado is a provider of legal information and services for English-speaking individuals and businesses in Spain.)

Tax expert Alex Chumillas (aamat@economistes.com)

A Guide to Business in Spain.
The book is available through the Spanish Embassy in London ( www.mcx.es/londres).