Depending on the scale and requirements of their activities, foreign investors have different alternatives when setting up a business in Spain. The most popular option is to incorporate a limited company, with separate legal personality for the newly created entity, and limited liability of their shareholders for the company´s debts. There are however other possibilities that could help you establishing your business in Spain, such as Temporary Joint Ventures (UTEs), Economic interest groupings (EIG), Branches or representative offices. We explain below the most common structures to setting up your business in Spain:
- Operating as a Self-employed worker (trabajador autónomo) only requires registration with the tax office and social security, but there is no limited liability (only under very restricted conditions it is possible to exempt certain assets from this general liability). This way you will be setting up your business in Spain without a need to set up a company.
- For foreign companies willing to carry out market prospection, advertising, or local instrumental support to the non-resident Company, but without having any economic activity in Spain, the representative office would be a good fit to setting up its business in Spain. This structure allows to have a fixed place in Spain and hire employees but must comply with certain requirements to avoid being considered as a permanent establishment for tax purposes. The first step is for the non-resident Company to obtain a Spanish tax identification number (NIF). For this it is necessary to provide an original authenticated certificate of the Registry where the non-resident Company is incorporated and prepare the specific tax forms (036). For non-EU Companies to obtain their NIF they would also require the appointment of a tax representative resident in Spain. The representative office does not have a management body nor separate legal personality, so all the contracts shall be directly signed by the foreign Company. If the representative office has employees Spanish legislation will apply, and the non-resident Company will also require a social security number to comply with labor obligations regarding social security contributions and employees´ income tax withholdings to finalize setting up a business in Spain.
- Temporary Joint Venture (UTE) created to carry out specific projects or services are temporary business associations that allow several companies to operate together. They don´t have a separate legal personality but enable the members to share risks and costs and combine resources. The creation of a UTE requires the signature of a Deed with a Notary reflecting the obligations and contributions by each party, as well as the distributions of benefits. They have similar accounting and tax compliance obligations as limited companies, and they require registration with the Spanish tax authorities for the application of their special tax regime when setting up a business in Spain. The maximum term of a UTE is 10 years. Economic interest groupings (EIG) also serve to collaborate between its members, but they have separate legal personality for an indefinite time, the members are only subsidiarily liable, and their activities are accesory to those of their members (For example providing centralized services for all of them).
- Silent Partnership agreement (Cuenta en participación) are used for the contribution of an investor (silent partner) to a business in exchange of a variable share in the profits and losses of the Company. Liability of the investor is limited to this contribution. The silent partnership contract creates a separate profit-loss partnership between the Company and the investor, without requiring any specific formalities when setting up a business in Spain. In practice the parties normally sign a Notary Deed as evidence to third parties of the existence of the agreement.
- Create a Branch in Spain does not create an entity with separate legal personality, but it is considered as a permanent establishment in Spain and has a certain degree of independence. The foreign parent company is therefore liable for all its obligations and debts. The Branch must keep its own accounting, submit financial statements and corporate tax every year, and needs to appoint a local representative of the Branch in Spain. To set-up a Branch in Spain it is previously necessary a resolution by the competent body of the parent company agreeing to form a branch in Spain and to obtain a Tax Identification Number (NIF) of the parent Company when setting up a buiness in Spain. The Deed for creating the branch should be executed with a Spanish Notary and registered at the Mercantile Registry. The Branch will directly conduct its economic activities and will be able to bill its clients independently.
- Limited Companies are the preferred option for most foreign investors in Spain. There are two main types for setting up a business in Spain:
- Sociedad Limitada (S.L.) or limited liabity company.
- Sociedad Anónomia (S.A) or Public Limited Company.
Sociedad Limitada prevails as the most popular option for setting up a business in Spain, with up to 95% of the Companies incorporated in Spain in 2022. While Sociedad Limitada is suitable for Small to Medium Sized entities, Sociedad Anónima on the other hand is normally reserved for larger corporations, those in regulated sectors, and companies willing to raise capital in the stock market. Below are some of the main differences between both of them:
S.L. May be incorporated with a share capital of one (1) euro when setting up a business in Spain.
S.A. Minimum share capital of 60,000 euros, of which a minimum of 25% must be paid up upon incorporation. It requires a report from an independent expert for any non-monetary contribution when setting up your buisness in Spain.
Transferability of shares
S.L. Unless limited by the Company bylaws, the shares can only be transferred freely to the partner´s family members or other partners. Other partners hold a right of pre-emptive acquisition when setting up a business in Spain.
S.A. The shares can be transferred freely. Spanish Companies Act establishes important limitations to restrict the transferability of shares in the Company bylaws. The shares may be marketable securities.
S.L. As a general rule, general meetings must be summoned with a prior notice of fifteen days. Resolutions are passed by simple majority of valid votes provided they represent at least one-third of the voting rights. As a general rule, the right to attend shareholders meetings cannot be restricted when setting up your business in Spain.
S.A. General meetings must be summoned with a prior notice of one month. At first call there is a minimum attendance quorum: 25% of the issued share capital with voting rights. The bylaws may require a minimum percentage of shares to attend the meetings.
S.L. Directors may be appointed for an indefinite term. If the management body is a Board of Directors it should have a maximum of 12 members when setting up a business in Spain.
S.A. Directors have a maximum term of 6 years, with possibility of reelection. There is no limit of members for the Board of Directors.
Steps for setting up a business in Spain
The incorporation of a Limited Company in Spain requires the following steps when setting up a business in Spain:
- Obtain a Foreign identification number (NIE) for all individual Directors or individual shareholders of the Company.
- To set-up a subsidiary in Spain of a foreign Company it is required to obtain previously the Tax Identification Number (NIF) of the parent Company. At this stage it is necessary to provide a Certificate from the Companies registry of the foreign Company, and obtain an appointment at the Spanish tax office to submit the required forms and the documents legalised (apostille) and sworn translated.
- Clearance of the Company name at the Central Mercantile Registry for setting up a business in Spain.
- Contributions in cash to the share capital should be transferred to a `Company under incorporation´ bank account. It is also possible to make non-cash contributions of different types of assets. For the Limited Companies (SL) it may not be necessary to prove the contributions have been made when the Notary Deed includes a declaration of the shareholders of joint liability towards creditors and the Company.
- The Limited Company is normally incorporated before a Spanish public notary, exceptionally, it can also be incorporated before a Spanish Consul acting as a public notary or before a foreign notary, providing the notarial deed is authenticated with the Apostille of the Hague Convention and executed in Spanish or translated by a sworn translator. The deed will include the Company Bylaws. The minimum information requirements to be reflected in the company formation Deed include the details of the shareholders, registered office in Spain, activity of the company, managing body, capital structure, accounting year-end and term.
- Submit a declaration of Foreign investment to the Spanish Ministry of Industry and Commerce.
- A completed transfer tax declaration, fully exempt. No tax is actually paid.
- Registration of the Notary Deed at the Company Registry.
- Obtain definitive NIF. The obtention of an EU VAT number in Spain is normally subject to the verification by the tax office that the Company actually complies with certain additional requirements.
- Directors resident in Spain must be registered with social security. The applicable regime (assimilated to employees or self-employed) will vary depending on their managing functions and percentage of shares owned in the Company.
Although all the other steps can be completed with a Power of attorney when setting up a business in Spain, the opening of the Company bank account normally requires the Company director to meet in person with the bank officers to comply with the Spanish anti-money laundering Act, as well as providing a Deed declaring the beneficial owner of the Company (Individuals utimately controlling, directly or indirectly the Company, either by owning more than 25% of the share capital of the Company, or as members of the Management Body).
UHY Fay & Co is a multidisciplinary firm of professional services specialized in legal, tax and labour advisory, audit, accounting and consultancy to deliver tailor-made integral services of the highest quality to our clients . We will help you setting up a business in Spain, we will prepare all the required documents through an official online platform shared with the Notaries and the tax office, which accelerates the registration process (shortening it from 2 weeks to 1-2 days) and reducing incorporation costs (Notary and Registry fees).
Written by David del Valle, lawyer at UHY Fay & Co
Legal notice: This publication has been written in general terms and should be considered only as a general reference when setting up a business in Spain. This publication cannot be used as a basis to cover specific situations and you should not act or refrain from acting in accordance with the information contained in this document without obtaining specific professional advice. Contact UHY Fay & Co at any of our offices to discuss these matters for your particular circumstances. UHY Fay & Co, its partners, employees and agents do not accept or assume any responsibility or duty of care for any loss arising from any action taken or not taken by any individual in reliance on the information contained in this publication or any decision based on it.