Starting a business in a new country can be both exciting and challenging. For foreign entrepreneurs looking to establish a presence in Spain, navigating the local regulatory landscape is crucial. To help simplify this process, we have ve compiled answers to some of the most frequently asked questions about setting up a business in Spain.

From understanding the legal requirements and tax obligations to navigating labor regulations and local incentives, this guide will provide you with essential insights to ensure a smooth and successful entry into the Spanish market.

1. What type of legal entity is best suited for my company in Spain?

The most appropriate type of company for your business in Spain depends on a number of factors, including the size of your business, the number of shareholders and the amount of capital you wish to invest.

Common options include a Sociedad Limitada (SL), equivalent to a limited company, which is ideal for small to medium sized businesses due to its lower capital requirements and flexible management structure. Alternatively, a Sociedad Anónima (SA) is preferred for larger companies as it allows for the public issue of shares and requires a higher capital contribution. Other options include opening a branch (sucursal) or setting up a representative office, each of which offers different levels of operational autonomy and regulatory obligations.

You can find more information about Types of legal corporate entities in Spain or Differences between S.L. and S.A. in Spain.

2. What is the process to register a foreign company in Spain?

To register a foreign company in Spain, the legal representatives must first obtain a NIE (foreign identification number). Next, choose the legal structure (subsidiary or branch), certify the company name, and open a Spanish bank account to deposit the required capital.

The company’s articles of association are then drafted and signed before a notary. The notarized deed of incorporation is submitted to the Commercial Registry, officially registering the company. Finally, the company obtains a tax identification number (NIF) from the Spanish Tax Agency to commence operations.

What taxes do foreign companies have to pay in Spain?

Foreign companies operating in Spain are subject to various taxes, including

• Corporation tax (Impuesto de Sociedades): Foreign companies are taxed at a standard rate of 25% on their profits generated in Spain. If they operate as a permanent establishment, they are taxed on the income attributable to their Spanish activities.
• Value Added Tax (VAT or IVA – Impuesto sobre el Valor Añadido): Foreign companies providing goods or services in Spain may be required to charge VAT, which is usually 21%, although reduced rates of 10% or 4% may apply to certain goods and services. VAT registration is compulsory for businesses that meet the relevant thresholds.
• Withholding taxes: Dividends, interest and royalties paid to non-residents are subject to withholding tax. The standard rates are 19% for dividends and interest and 24% for royalties, although these may be reduced under Spain’s double tax treaties with certain countries.
• Non-Resident Income Tax (IRNR – Impuesto sobre la Renta de No Residentes): Non-resident companies may be subject to IRNR on income earned in Spain if they do not have a permanent establishment in the country. The rate is usually 24%, but can be reduced to 19% for EU resident companies.
• Local taxes: Foreign companies may also have to pay local taxes such as the Business Activity Tax (IAE – Impuesto sobre Actividades Económicas) and the Immovable Property Tax (IBI – Impuesto sobre Bienes Inmuebles) on any property they own or lease.

What labor regulations must I comply with when hiring employees in Spain?

When hiring employees in Spain, foreign companies must comply with several labour regulations. Employment contracts must be in writing and detail terms such as duration, salary and job role.

The standard working week is 40 hours, with overtime restrictions and compensation requirements. Employees are entitled to 30 days annual leave and public holidays. Companies must contribute to Spain’s social security system, which covers pensions, healthcare and other benefits. Health and safety regulations must be observed and dismissals must follow legal procedures, including severance pay.

Employers must respect collective agreements and anti-discrimination laws, and ensure that foreign employees have the appropriate work permits. Consultation with legal experts is advisable to ensure full compliance.

What must I do to comply with the General Data Protection Regulation (GDPR) in Spain?

To comply with the General Data Protection Regulation (GDPR) in Spain, companies must implement key measures: ensure transparency by providing clear privacy notices, obtain explicit consent from individuals for the processing of their data, establish procedures for data access and rectification requests, and secure personal data against breaches.

In addition, companies must appoint a Data Protection Officer (DPO) where appropriate, conduct regular Data Protection Impact Assessments (DPIAs) and maintain comprehensive records of data processing activities. Compliance with these requirements will help protect personal data and avoid potential fines for non-compliance.

What are the main challenges faced by a foreign company in Spain?

Foreign companies entering Spain often face challenges such as navigating complex regulatory and tax systems, understanding local labour laws and adapting to regional business practices. They must also manage the intricacies of data protection compliance and overcome potential cultural and language barriers.

In addition, securing appropriate local representation, navigating bureaucratic processes and adapting to regional market dynamics can be significant hurdles. Overcoming these challenges typically requires careful planning, local expertise and a thorough understanding of the Spanish business environment.

How long does it take to legally establish a company in Spain?

The length of time it takes to open a business in Spain can vary depending on several factors, such as the type of business, its legal structure, and the location. Generally, the process of setting up a business in Spain can take between 1-3 months.

Discover here the main steps and estimated timeframes involved in setting up a business in Spain.

What incentives are there for foreign companies setting up in Spain?

Foreign companies setting up in Spain can benefit from various incentives, including reduced corporate tax rates, R&D tax credits and regional grants for investments in economically disadvantaged areas. They can also receive employment subsidies for the creation of new jobs and benefit from customs advantages in free trade zones. In addition, access to EU funding programmes and support for innovation through entrepreneurship programmes further enhances opportunities for growth and cost reduction.