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Why Spain?

Spain occupies about 85 percent of the Iberian Peninsula, shared with its smaller neighbour Portugal. Spain is the gateway to the European Union, North African, Middle Eastern and Latin American markets. Because of the general rule, foreign investments in Spain do not require previous approval, with the exception of investments in activities that affect public security, public order and public health, Spain becomes most favourite place of foreign investors and 13th largest recipient of foreign investments in the world. More than 14,600 foreign firms have set up their business in Spain.


Being the second-largest country in Western Europe, Spain is a very attractive destination to foreign investors. Its highly developed economy and the stable political situation helps foreign investors ensure that investments in Spain are successful. The following are some of the key benefits of doing business in Spain:

Geographical location and climate

Spain is a perfect location for any organization wishing to develop business in Western Europe. However, the predominantly Mediterranean climate is very attractive, with mild winters and hot and dry summers which encourage visitors and potential customers for many businesses.

International business platform

 The Spanish business sector is highly internationalized whereas, the partnerships with local companies offer excellent opportunities to enter other markets. Spain is the 11th largest global exporter of commercial services in the world.

Stable political situation

 Spain is an active member of the North Atlantic Treaty Organization (NATO) and the European Union (EU). It’s EU membership represents an important part of its foreign policy and supports the efforts of European political mechanisms. Its stable political system and diplomatic relations with other countries guarantee development opportunities for organizations doing business in Spain and reduce the risk of potential conflicts and disagreements.

Growing economy

 Joining NATO and the EU established Spain in the international market and created good relations with many countries. Spain is the eighth largest industrialized economy in the Organization for Economic Cooperation and Development (OECD). In recent years, the Spanish economy has experienced one of the strongest rates of GDP growth in the EU which makes it the most dynamic country within the Union.

Favorable investment policy

The most important advantage of doing business in Spain is its investment policy which permits foreign investment of up to 100 percent of equity, capital movement is completely liberalized, and foreign investments face the least regulatory restrictions. The government of Spain offers various incentives and flexible policies for developing businesses and foreign investors. Recently, the Government has pursued policies with the intention to create a welcoming environment for foreign investment.

Simple Tax Regime

Individual income tax

In Spain, the direct taxation of individuals is mainly comprised of two personal income taxes:

  • Spanish Personal Income Tax (PIT): PIT is applicable to individuals who are resident in Spain for tax purposes, and
  • Spanish Non-Resident Income Tax (NRIT): NRIT is applicable to individuals who obtain income in Spain but are not residents of Spain.

However, the residents are generally subject to PIT on their worldwide income, regardless of where it is generated, which is taxed, following statutory reductions, at progressive rates.

The non-residents are subject to NRIT only on their Spanish source income.

Corporate taxes

In Spain, the general Corporate Income Tax rate is 25%. Other tax rates may apply, depending on the type of company and its type of business.

  • Resident companies are taxed on their worldwide income.
  • Permanent Establishments (PEs) of foreign companies, are liable to NRIT at a rate of 25% on income that may be allocated to the PE.
  • Non established foreign companies/individuals, who obtain income in Spain are also liable for payment of NRIT.
  • Newly created companies are taxed at a 15% tax rate for both the first tax period in which they obtain a profit and the following tax period. However, this rate is not applicable to equity companies or to newly created companies that are part of a national or international group.

Spainish Companies

Following types of business organizations are available in Spain:

Sole trader

A sole trader is the simplest entity and at the same time one of the most common structures in the Spanish territory. In Sole trader, company liabilities are unlimited. There is no need for a minimum investment. A person can start business without having a single euro in his bank account.

Jointly owned company

A jointly owned company is equivalent to a sole trader, with the only difference that in the jointly owned company the business ownership is divided between two or more people. In this company, no minimum investment and personal income tax are paid individually.

Private partnership or private civil society

A private partnership is an agreement between two or more individuals whereby they contribute any kind of investment to the company, in exchange for a share in the profits generated by the company. The liability of the partners is unlimited and personal against third parties, but attributable to each partner individually.

Limited liability company

This type of company is widely used in Spain. They tend to be SMEs as they have fewer partners and the initial investment is very low. The liabilities of shareholder/partner is limited to the capital contribution made by each of them.

Newly created limited liability company

This is the most simplified form of the previous mercantile structure, created to simplify procedures and to offer the possibility to create a micro enterprise as quickly as possible.

A stock corporation or public limited company

These types of companies are highly regulated and broad structured, ideal for large listed companies. It requires annual accounts and periodic inspections. However, in this type of companies capital is divided into shares, which can be either registered or bearer shares, and can be freely transferred. The number of partners or shareholders for the incorporation can be one or more than one, either nonlegal or legal persons.

Worker-owned company

It is a special type of public limited company or limited liability company. Its main feature is that its shares are held by two different groups:

  • The working class (the workers), who have a minimum of 51% of the shares.
  • The general class those who do not work directly for the company.
  • A special mandatory reserve fund of 10% of the profit obtained during the financial year must be set up.


It is a group of legal and non-legal individuals that develop a business activity (non-profit) and with social purposes. The profits are used to cover the needs of the company and its operation. There are two types of cooperatives:

  • Grade one, with 3 members, which can be individuals and/or companies; and
  • Grade two, with two or more cooperatives, which are usually legal entities.

General partnership

This is an ideal place for a business project to be setup with a small number of partners. All of them are involved in the management of the company, although if they only contribute to work (and not capital), they cannot participate in the management. The constitution requires a minimum of 2 partners, however there is no maximum limit.

Because of its general rule that, foreign investments in Spain do not require previous approval, with the exception of investments in activities that affect public security, public order and public health, Spain becomes most favourite place of foreign investors and 13th largest recipient of foreign investments in the world. More than 14,600 foreign firms have set up their business in Spain.

Author: Chandrawat & Partners

Topic: Doing Business in Spain

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