Audit 路 Tax 路 Advisory
Doing Business in Spain
Barcelona
In a world of different cultures, it’s good to have advisors who are consistent everywhere.
RSM International is one of the largest networks of independent audit and consulting firms in the world. RSM International is represented in 90 countries and brings together the talents of 32.500 individuals. RSM member firms are driven by a common vision of providing high quality professional services to ambitious and growing organisations.
Contents 1. Foreword
4
2. Environment
5
3. Accounting Legislation
8
4. Tax Legislation
13
5. Business Formation and Management
26
6. Labour Obligations
33
7. About RSM International
39
8. About RSM Gass贸
40
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1.
Foreword
Spain has unique advantages which make it a prospective destination for foreign investors: a highly qualified workforce, political stability, divers and symbiotic population, a splendid climate, many opportunities to increase the development of renewable energy resources, technological and bio-technological industry, the internalization of our food and beverage industry companies, high quality sources of raw materials for most of the industries. All these factors deeply contribute to Spain consolidating its position as a very attractive country for investments, not only for European investors, but worldwide ones. RSM Gass贸, member of RSM International in Spain, has prepared this brochure to render some general information on how to do business in our country, describing the most important issues to consider when setting up a business in Spanish territory, always following the existing regulations. Even if this guide can be of great help - we surely hope it is - , please bear in mind that business and tax legislation can often change. The information detailed here can only serve as milestone; further analysis is required in any proceeding, as to bypass obstacles and reach success and efficiency. Contact details and a short description of RSM Gass贸 and RSM International can be found at the end of this brochure. We will be happy to assist you in your business starting process.
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2. Environment 2.1
Geography
Spain is located in south-western Europe, bordering the Mediterranean Sea, North Atlantic Ocean, Bay of Biscay, and Pyrenees Mountains; southwest of France. It occupies an area of 505,370 square kilometres in which 498,980 square kilometres are land and the remaining 6,390 square kilometres are water. Spain has a temperate climate. The summers are hot and dry in the inland, but along the coast they are more moderate and cloudy. The winters tend to be temperate but are cold in the interior and cool and cloudy along the coast. There are 17 autonomous communities in Spain including the Balearic and Canary Islands. There are also overseas Spanish territories; two autonomous cities - Ceuta and Melilla – in North Africa and three small Spanish possessions off the northern coast of Morocco - Chafarinas Islands, Peñón de Alhucemas, and Peñón de Velez de la Gomera.
2.2
Politics and Society
The official language in Spain is Spanish. Catalan, Galician, and Basque are considered co-official languages. Catalan is co-official in Catalonia, the Balearic Islands, and the Valencian Community (where it is known as Valencian); in the northwest corner of Catalonia the Vall d’Aran, Aranese is co-official along with Catalan; Galician is coofficial in Galicia; Basque is co-official in the Basque Country. Spain has a population of 46,754,784 (July 2011 est.) and the most populated cities are Madrid (3.265.038); Barcelona (1.615.448) and Valencia (798.033). The Kingdom of Spain (Reino de España) is a parliamentary monarchy and member of the European Union.
2.3
Administrative Divisions
Spain is divided into 17 autonomous communities and 2 autonomous cities*; Andalucia, Aragon, Asturias, Balearic Islands, Ceuta*, Canary Islands, Cantabria, Castilla-La Mancha, Castilla y Leon, Catalonia, Valencian Community, Extremadura, Galicia, La Rioja, Madrid, Melilla*, Murcia, Navarra and the Basque Country.
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2.4
Executive Branch:
Chief of state: King JUAN CARLOS I (since 22 November 1975); The King’s duties are assigned by the Spanish Constitution, created in the year 1978, but his role is mainly ceremonial, representing the state in the area of international relations. The Heir (Apparent) of the crown is Prince FELIPE, son of the monarch, born 30 January 1968. Head of government: President of the Government Cabinet: Council of Ministers designated by the president Please note there is also a Council of State that is the supreme consultative organ of the government, but its recommendations are non-binding. Elections: the monarchy is hereditary; following legislative elections; the leader of the majority party or the leader of the majority coalition is usually proposed president by the monarch and elected by the National Assembly. The last election was held on 20 November 2011 (the next will be held in November 2015). The vice presidents are appointed by the monarch on the proposal of the president. Election results: Mariano RAJOY BREY is the current elected President of the Government, since November 2011.
2.5
Legislative Branch:
Bicameral; General Courts or “Las Cortes Generales” (National Assembly) consists of the Senate or “Senado” (264 seats as of 2008; 208 members directly elected by popular vote and the other 56 - as of 2008 - appointed by the regional legislatures; members to serve four-year terms) and the Congress of Deputies or “Congreso de los Diputados” (350 seats; each of the 50 electoral provinces fills a minimum of two seats and the North African enclaves of Ceuta and Melilla fill one seat each with members serving a four-year term; the other 248 members are determined by proportional representation based on popular vote on block lists who serve four-year terms).
2.6
Judicial Branch:
The Supreme Court of Justice and the Constitutional Court represent Spain’s highest judicial authorities.
2.7
Economy
Spain’s mixed capitalist economy is the 13th largest in the world and its income per capita roughly matches that of Germany and France. However, after almost 15 years of above average GDP growth, the Spanish economy began to slow in late 2007 and entered into a recession in the second quarter of 2008. GDP contracted by 3.7% in
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2009, ending a 16-year growth trend, and by another 0.2% in 2010, making Spain the last major economy to emerge from the global recession. The reversal in Spain’s economic growth reflected a significant decline in construction amid an oversupply of housing and falling consumer spending, while exports actually have begun to grow. Government efforts to boost the economy through several stimulus, extended unemployment benefits, and loan guarantees did not prevent a sharp rise in the unemployment rate, which rose from a low of about 8% in 2007 to 20% in 2010. The government budget deficit worsened from 3.8% of GDP in 2008 to 9.2% of GDP in 2010, more than three times the euro-zone limit. Spain’s large budget deficit and poor economic growth prospects have made it vulnerable to financial contagion from other highly-indebted euro zone members despite the government’s efforts to cut spending, privatize industries, and boost competitiveness through labour market reforms. Spanish banks’ high exposure to the collapsed domestic construction and real estate market also poses a continued risk for the sector.
2.8
Business Culture
Spanish working hours vary depending on the type of business and from region to region, but the standard hours are usually from 9:00 in the morning until 19:00 in the evening with a 2 hour lunch break in between, although every day is more common to have only one hour for lunch. Employees of the Central Administration and Autonomic Governments’ working hours are from 8:00 in the morning until 15:00 in the afternoon without lunch break. Spain’s National Day is the 12th October, commemorating the year 1492, when Columbus first set foot in the Americas. Apart from that day, Spain has 13 public holidays, 9 of them are the same for all the country. The other 3 vary between each autonomous region. Depending on the year, these holidays may fall during the week and businesses often close for additional days to extend the weekend. As the majority of workers are on holidays in August, many businesses are also closed during that month. As a result, in almost every area of Spain there is little activity during the month of August. The Spanish are often particularly outgoing and friendly during business meetings. Relationships that are established on a face to face basis remain highly important and many people make use of the extended lunch hours to do business.
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3.
Accounting legislation
3.1
Spanish Accounting Regulations
Basic Spanish accounting principles are contained in the General Accounting Plan (Plan General de Contabilidad “PGC”) that was changed in 2008. This text contains five parts: conceptual framework, accounting principles, financial statements standards, chart of accounts and accounts definition, of which the first three are mandatory and the last two are optative, but massively adopted. There are several sets of specific rules to adapt the general principles to specific types of companies or industries, like cooperative societies of non-profit organisations. The accounting principles are close to IFRS but some differences still exist Consolidation rules are contained in the Consolidated Financial Statements Preparation Rules (Normas de Formulación de las Cuentas Anuales Consolidadas or NOFCAC), that were changed in 2010, to be in line with the standards approved in 2008 with regard to the “PGC”. All the conditions are mandatory. Both sets of regulations, together with their adaptations, were changed in order to be in line with the EU Fourth Directive and to be adapted to the IFRS standards in 2008. Spanish GAAP have some significant differences with IFRS. In addition, the “ICAC” (Instituto de Contabilidad y Auditoría de Cuentas) issues clarifications and specific rules, which are mandatory.
3.2
Companies’ Regulations
All the companies in Spain are regulated by the Ley de Sociedades de Capital which was updated on July 1, 2011.
3.3
IFRS in Spain
The use of IFRS as main accounting reporting standards is still not allowed in Spain for individual statutory annual accounts. In line with the EU directives, and from 2005, listed companies have to prepare its consolidated financial statements using IFRS. Optionally, the preparation of financial statements under IFRS is eligible for any other parent company in preparing its consolidated financial statements, but once a group chooses to prepare its consolidated financial statements under IFRS, it must continue using the IFRS, as it will not be allowed to revert back to the Spanish GAAPS once the IRFS has been applied the first time.
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3.4
Spanish GAAPS vs. IFRS
The previous Spanish accounting standards, dated 1990, had significant differences with the IFRS. After the change in the Spanish accounting standards at the end of 2007, the differences between IFRS and Spanish GAAPS have been reduced and, basically, are due to the fact that the Spanish GAAPS allows fewer options than IFRS in presentation or valuation.
The most significant differences are summarized below: Topic Structure of the balance sheet Structure of the income statement Structure of the statement of cash-flow Valuation of intangible, tangible assets and investment in property Research expenses
Spanish GAAPS
IFRS
Current / Non-current
Current / non-current or by liquidity
By nature
By nature or by function
Indirect method
Direct or indirect method
Purchase price / Production cost
Purchase price / Production cost / Fair value
Can be an intangible asset
Expense
Land lease agreements
Operative lease
Can be financial lease
Lease-back operations
Without changes in the consideration or valuation of the asset
If the operation has a result, it has to be deferred in the lease period
Subsidies and grants
Registered net of tax effect in the net equity
Deferred income / Reducing the value of the assets subsidized
Business combinations
Consolidation differences should be accounted as income if they come from intangible assets or contingent compensations
Not limited
Additionally, there are many differences between the two sets of standards regarding the information that has to be provided in the notes to the financial statements, where IFRS is more exigent than the Spanish standards.
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3.5
Accounting Obligations
The main accounting related obligations for companies in Spain are: • • • •
3.6
Keep detailed accounting records, following the mandatory sections of the PGC. These records have to be kept for at least five years. Statutory annual accounts have to be prepared during a maximum period of three months after the closing date. Statutory annual accounts have to be approved at the Shareholders General Meeting during a maximum period of six months after the closing date. Statutory annual accounts have to be filed in the Public Register during the subsequent month of their approval.
Financial Statements
Financial statements are the main source of financial information from a company for the different stakeholders: shareholders, banks, suppliers, etc. Based on the Spanish accounting regulations, a set of financial statements can be composed by up to six documents: • • •
• •
Balance Sheet: Is a statement of financial position. It shows assets, liabilities and net equity, classified in current and non-current items. Statement of Profit and Loss Account: Is an income statement, showing income and expense for the year, classified in operating and financial results. Statement of Changes in Net Equity: This statement has two parts. The first one shows the net results for the year from the statement of profit and loss account, plus any income or expense that has to be accounted for directly in the net equity in accordance with the accounting principles. The second one shows the changes in the different components of the net equity and its source. Cash-flow Statement: The indirect method is used to prepare this statement. Notes to the financial statements: they include the necessary information to understand and support the above set of financial documents.
The accounting regulations provide mandatory templates for each one of the financial statements, unlike in IFRS or other accounting regulations, where the presentation of the financial statements has to follow some rules but not a specific template. For each one of the financial statements, and depending on the size of the company, three forms are provided, a full form and a short form for normal companies a special ones for PYMES (small and medium entities) If a company exceeds two of the following three limits, 50 employees, 2.85 million € of total assets and 5.7 million € of total income, during two consecutive periods, they will have to use the full forms for all the financial statements, otherwise they can choose a short or PYMES form.
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The Spanish accounting regulations provide a chart of accounts. These charts are broadly linked with the financial statements forms, so the preparation of the financial statements is quite simple if the books are kept using the Spanish chart of accounts.
3.7
Consolidated Financial Statements
The parent company of a group has to prepare consolidated financial statements if the parent company and all the controlled companies exceed two of the following three limits: 250 employees, 11.4 million € of total assets or 22.8 million € of income, during two consecutive periods. The consolidated financial statements have to include the parent company and all its controlling interests subsidiaries, following the IFRS requirements if they are quoted in an European market The consolidation regulations, as well as the regular accounting ones, provide similar forms for the preparation of the “consolidated financial statements” prepared under the Spanish Accounting Principles. The consolidated financial statements must be prepared by the directors / board of directors of the parent company. The deadlines to prepare, approve and register these consolidated financial statements are the same as the ones that apply to individual financial statements. The preparation of these statements requires a higher grade of accounting expertise.
3.8
Audit
Audit regulations have been in continuous change in the past years in order to adapt them to the international ones and to the EU directives, making the transnational collaboration between Spanish and foreign auditors easier when a group has companies in different jurisdictions. In Spain, any entity that individually exceeds the thresholds mentioned in paragraph 3.6 above and has to prepare a full set of financial statements, must submit its financial statements for auditing, not only companies of all kinds, but also non-profit organisations. When a group of companies reaches two of the three limits mentioned in paragraph 3.7 above, its consolidation is mandatory and the audit of the consolidated financial statements is compulsory. The Spanish legislation also requires auditing the financial intermediation and insurance related companies, as well as the ones with significant subsidies or important contracts with public institutions. The audit activity can only be performed in Spain by registered auditors, who are accountants that have passed a specific exam. In order to practice, they must register
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with the Registro Oficial de Auditores de Cuentas (ROAC). The auditor has to be appointed by the shareholders, for a minimum of three years and a maximum of nine years. Once this first period has ended, the auditor has to be renewed yearly or in a three year period. Audit regulations in Spain require the auditor to issue two documents at the end of the contract period. The auditor’s report, where an opinion on the financial statements is issued, and a letter of recommendation, where the auditor states some conclusions of its work regarding possible internal control weaknesses in order to help the company in having good internal control systems. Auditors are financially responsible if they don’t comply with the technical rules applicable, when under contract. The non-compliance could lead to mistakes in the financial statements and therefore cause damage to any interested party. Since January 1, 2011 though, only the International Standards on Auditing (ISAs) 700, 705, 706 and 710 have been adopted. Spain is in the process of adopting the rest of them. This plan will be completed by January 1, 2014, although some early adoption about specific ISAs is expected. Nevertheless, there are no significant differences in force today between the ISAs and the Spanish Auditing Standards.
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4.
Tax Legislation
4.1
Corporate Tax - Taxable Entities
All corporations including partnerships and other entities with legal personality such as associations, pension funds, etc. with special regimes of exemptions for non-profit entities like charities. Resident entities are subject to unlimited tax liability on their worldwide income. Nonresident entities are subject only to the tax applicable to the income produced or obtained in Spain.
Residence An entity is considered a resident of Spain when it meets one of the following requirements: • Incorporated under the Spanish law, or • Having its registered office in Spanish territory, or • To effectively establish its headquarters in Spanish territory. To this end, it is understood that an entity has its headquarters and actual management in Spanish territory when the administration and control of all its activities are undertaken there.
4.2
Tax Rates
The corporate income tax rate for 2012 is 30%. For businesses with a turnover of less than 10.000.000 €, the first 300.000 € of profit are taxed at 25% and anything above that at 30%.
4.3 • •
Taxable Base - Taxable Income Resident corporations: worldwide income (sum of all profit and capital gains/ losses) Non-resident corporations: income produced in Spain or obtained from Spanish residents with certain exemptions like interest on Public Debt; dividends received by EEC holding corporations from its Spanish subsidiaries, etc.
Losses can be compensated for a maximum of 18 years. Retroactive compensation is not allowed.
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Deductible expenses • • •
All expenses necessary for obtaining the income. With certain limits: Assets depreciation Provisions: bad debts, legal liabilities, repair expenses under guarantees
Non deductible •
Dividends distribution and administrative penalties such as tax penalties and other governmental penalties related to environment, labour legislation, etc.
Incentives •
4.4
Research & Development investments; Internet access investments; new branch and marketing expenses for export activities; cultural assets investments, book and film producers, kindergarten expenses for employees; environment investments; new handicap workers contract; employees training expenses; reinvest capital gains for certain assets; contribution for employees pensions.
Transfer Pricing
General transfer pricing rules apply. Companies must prove that transfer prices reflect market value. Companies can request Transfer Pricing agreements from the Tax Authority. Companies with a turnover of more than 10.000.000 € and companies under that figure but with operations over 100.000 € in the previous year, must have a master file to justify that operations with related companies are done at market price.
4.5
Thin Capitalization
Net Financial expenses over 1.000.000 € will be deductible within the limit of 30% of the EBITA, the excess can be deducted in the following 18 years.
4.6
Fiscal Unity of Group Companies
Upon joint request, parent company and subsidiary may be taxed as a group (one entity) for Corporate Income Tax (CIT) purposes. Both the balance sheet and profit and loss accounts are fiscally consolidated. Both parent and subsidiaries have to be Spanish residents. A resident parent company must hold at least 75% of the shares of the resident subsidiary. Fiscal years of all companies concerned must coincide. Other mainly technical conditions are stipulated in corporate income tax act. In case of fiscal unity, losses of one company can be set off against profits of the other company.
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Inter-corporate dividends distributions between companies belonging to the fiscal unity are exempt.
4.7
Participation Exemption
With a participation of at least 5% of the nominal paid-up share capital, dividends distributions are exempt from CIT. These distributions are then also exempt from dividend withholding tax.
4.8
Controlled Foreign Companies
According to Spanish Controlled Foreign Companies (CFC) rules, it is required that certain income obtained from non-resident entities must be included in the corporate income tax base of resident entities.
4.9
Special Regimes
There are special regulations for certain activities or types of companies: • • • • • • • •
Economic Interest Grouping and European Economic Interest Grouping Companies who operate in the home rentals sector Capital Risk Funds Group of companies Mining activities Hydrocarbons investigation and production Small activities companies Foreign companies holdings (ETVE).
4.10 Filing Requirements and Payment of Tax The tax year is generally the calendar year, although the company may choose an alternative accounting year. Tax returns must be filed and all taxes due must be paid by the 25th day following the sixth month at the end of the tax year. Companies are generally required to make three tax prepayments in April, October and December of each year, based on accounts of the first three, nine and 11 months of the calendar year, respectively.
4.11
Tax-Efficient Regimes and Sectors
Spanish holding companies, known as ¨Entidades de Tenencia de Valores Extranjeros¨ (ETVEs), are exempt from corporate income tax on qualified foreign-source dividends and capital gains, as well as on income distributed to shareholders or on the profit
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derived from shareholders selling their shares. Dividends paid by an ETVE to its nonresident parent company are also exempt from withholding taxes as long as the parent company is itself subject to corporate income tax in its country of origin and is not in a jurisdiction listed by the tax authorities as a “tax haven”. There are special tax rates and allowances for establishments in the Canary Islands, one of them being an allowance to compensate for the long distance from the mainland and general insularity. Special allowances and tax rates also apply to the territories of Ceuta and Melilla. These include a 50% reduction in corporate and personal income tax on income derived from Ceuta or Melilla.
4.11.1 Holding Companies (ETVE) Spain is now one of the 8 main European jurisdictions in which it is fiscally attractive to locate a holding company. A Spanish holding company is known as an “ETVE” (Entidad de Tenencia de Valores Extranjeros). Spain’s extensive and growing double taxation treaty network means that it exercises substantial leverage in reducing withholding taxes on dividends remitted to a Spanish holding company by a foreign subsidiary located in a double taxation treaty country. An ETVE is a regular Spanish company subject to a 30% tax on its income, but exempt from taxation on qualified foreign-source dividends and capital gains. As such, the ETVE is protected by EU Directives such as the Parent-Subsidiary Directive and the Merger Directive and is regarded as a Spanish resident for tax purposes pursuant to Spain’s 70 tax treaties. The broad tax treaty network with Latin America and the European character of the ETVE make it an interesting vehicle for channeling capital investments towards Latin America, as well as a tax-efficient exit route for EU capital investments by non-EU companies. In June 2000, the regime was amended in order to introduce significant new improvements, including a capital gains tax exemption on the transfer of shares in the Spanish holding company, which enhance the possibilities of the ETVE as a holding vehicle. Also, the EU’s Code of Conduct Committee has determined that the ETVE does not represent potentially harmful tax competition. For a country to be an attractive location in which to set up a holding company four (4) criteria must be satisfied:
Incoming Dividends Incoming dividends remitted by the subsidiary to the holding company must either be exempt from or subject to low withholding tax rates in the subsidiary’s jurisdiction.
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Dividend Income Received Dividend income received by the holding company from the subsidiary must either be exempt from or subject to low corporate income tax rates in the holding company’s jurisdiction.
Capital Gains Tax on Sale of Shares Profits realized by the holding company on the sale of shares in the subsidiary must either be exempt from or subject to a low rate of capital gains tax in the holding company’s jurisdiction.
Outgoing Dividends Outgoing dividends paid by the holding company to the ultimate parent corporation must either be exempt from or subject to low withholding tax rates in the holding company’s jurisdiction.
Withholding Taxes on Incoming Dividends As a member of the EU, Spain is governed by the provisions of the EU’s parent/ subsidiary directive, whose effect is that where a Spanish holding company controls at least 10% of the shares of an EU subsidiary for a minimum period of 12 months any dividends remitted by the EU subsidiary to the Spanish holding company are free of withholding taxes. Spanish holding company rules include a participation exemption at the 5% level for non-resident shareholdings, which can be direct or indirect. Shares must have been held for a minimum of 12 months. A subsidiary must be a non-resident corporate entity with no business activities in Spain. Where the provisions of the parent/subsidiary directive do not apply (or where antiavoidance provisions are in place) Spanish holding companies can rely on a reasonably extensive network of double taxation treaties, the effect of which is to obtain a reduction in withholding tax rates on dividends remitted to Spain from the subsidiary jurisdiction. Spain has nearly 70 double taxation treaties in place. The greater a country’s network of double taxation treaties, the greater its leverage to reduce withholding taxes on incoming dividends. An elaborate network of double taxation treaties is thus a key factor in the ability of a territory to develop as an attractive holding company jurisdiction.
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The dividend income remitted by the foreign subsidiary to the ETVE holding company must have been taxed abroad at a rate that is analogous to the corporate income tax rates applicable in Spain - obviously this rules out many offshore jurisdictions, although those with ‘designer’ corporate forms may manage to wriggle through. The income remitted to the “ETVE” must relate to profits earned from core corporate activities and must not include “passive income”.
Corporate Income Tax on Dividend Income Received The mainstream Spanish corporate income tax rate is 30%. Income accruing to an ETVE holding company which falls under the previous paragraph is free of corporate tax in Spain. The ETVE must have an effective presence in Spain and must be an organization with substance and personnel (i.e. not be merely a brass plate company).
Capital Gains Tax on the Sale of Shares Any capital gains made by the ETVE on the sale of shares in qualifying non-resident subsidiaries are free of capital gains tax in Spain in most circumstances, although there are some conditions. Capital gains tax in Spain currently stands at 30%.
Withholding Taxes on Outgoing Dividends Under the EU’s parent/subsidiary directive dividends paid by Spanish subsidiaries to EU parent corporations are exempt from Spanish withholding taxes provided the EU parent corporation has held 10% of the shares in the Spanish subsidiary for at least 12 months. Outgoing dividends paid by an ETVE intermediate Spanish holding company to its nonresident parent corporation are free of withholding taxes in Spain (irrespective of the existence or non-existence of a double taxation treaty) unless the parent corporation is in a jurisdiction where it will not pay corporate taxes equivalent to those ruling in Spain. Evidently this rules out many offshore jurisdictions, although those with ‘designer’ corporate forms may qualify. If the parent corporation is not an EU entity or if these conditions are not otherwise satisfied then a standard withholding tax rate of 19% (18% prior to January 1, 2010) applies on outgoing dividends unless that rate has been reduced (usually to between 5% and 15%) by the provisions of a double taxation treaty.
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4.11.2 Venture Capital Funds Qualifying Preconditions To qualify for the fiscal benefits, a corporate entity related to Spanish venture capital funds (VCF) must meet the following criteria: •
• •
Minimum Share Capital: The VCF must have a share capital of a designated amount, of which at least 50% is paid on incorporation and the other 50% being paid within 3 years´ time. Assets: 60% of the VCF assets must be either participating shareholdings in target companies or shares in other companies. Administrative Approval: To qualify for the special fiscal regime a VCF must obtain prior administrative approval and must register itself both in the Mercantile Register and with the Ministry of Economy & Finance.
Fiscal Incentives VCF enjoy the following fiscal regime: •
•
•
4.12
Corporate Income Tax: Dividend income remitted by target companies to the VCF is exempt from corporate income tax in the hands of the VCF. Spanish corporate income tax stands at 30%. Capital Gains Tax: Any capital gains made by the VCF on the profitable sale of shares in target companies are 99% exempt from a capital gains tax in Spain, provided the shares have been held for a period of 3 -10 years. The Spanish capital gains tax stands at 30% (capital gains are taxed at the corporate income tax rate). If the sale of shares occurs outside this period there is no relief from this tax. This regime was considerably improved by Law 62/2003 in December, 2003. Withholding Tax: Outgoing dividends (and other profit distributions) remitted by the VCF to its shareholders are exempt from withholding taxes.
Withholding Taxes
Withholding tax of 19% is payable on interest and dividend payments, whether domestic or to non-treaty countries. However, where dividends are paid to a company that has share capital, which has been held during the prior year, and is equal to or above 5%, withholding tax does not apply. Parent-Subsidiary Directive and Reduced Treaty rates are applicable. Royalties are generally subject to withholding tax of 24% in the case of the licensing of rights of publicity, and 18% for other royalties. Royalties paid to associated EUresident companies are subject to withholding tax of 10%.
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4.13
Salaries and Professional Fees Retentions
Payers of income are obligated to withhold a percentage of the salaries, professional fees and other income payments and it must be paid to the tax agency on behalf of the corresponding employees and professionals; in Spanish these are called “retenciones”. The tax withheld is generally treated as an advance payment and credited against the taxpayer’s final tax liability.
4.14 Transfer Properties Retention Real estate acquisition to non-residents; the buyer is obliged to retain 3% of the purchase price and pay it to the Tax Agency in a month period after the purchase, on behalf of the vendor.
4.15
Sales Taxes and VAT
VAT (IVA in Spanish) is levied on the consumptions of goods and services in Spain. In computing the final tax liability, the input tax on purchases of goods and services may be deducted or refunded. Fiscal unity for VAT is possible under certain conditions. Return must be submitted on a monthly or quarterly basis depending on the turnover and the activity. Monthly returns: within 20 days after relevant month, Quarterly returns: within 20 days after relevant quarter, Small companies (turnover under 6,010,121.04 €) in the first 20 days of the quarter after the payments. Yearly resume: from January 1 to January 30. The above also applies to the payments. The standard VAT rate is 18%. A reduced rate of 8% applies to food production and services. Reduced rate 4% applicable on fresh food, bread, medicines, newspapers, books, etc. Nil rate 0% on exports.
4.16
Personal Income Tax
4.16.1 General System Resident individuals are subject to individual Income Tax (in Spanish IRPF) on their total worldwide income (some exemptions, deductions and credits are available). Non-residents are subject to tax only on income obtained or received in Spain; there is a special Law for Non-Residents (in Spanish IRNR).
4.16.2 Fiscal Residence Fiscal residence is applicable to individuals who spend more than 183 days during the calendar year in Spain. Fiscal residence also applies to any individual whose economic
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centre of interest or family is located in Spain. Any individual who moves his or her fiscal residence to a tax haven territory is considered to maintain the Spanish tax residence for the following four years after emigration.
4.16.3 Taxable Income Spanish Personal income tax (IRPF) takes into account the origin of the income and distinguishes between two categories of incomes: General income and Savings income.
4.16.4 General Income: • • • •
Labour income (i.e., salaries, pensions, etc.) Return on capital (both in moveable property and real estate) Professional and business activities Capital gains other than ones obtained from the transfer of assets
4.16.5 Savings Income: •
Capital investments income: dividends (except the first 1.500 €), interest, royalties etc.
•
Capital gains obtained from the transfer of assets
Various allowances and reductions are applied to the annual disposable income to compute the net taxable income.
4.16.6 Rates 2011 General income is taxed from 24% to 47%, as follows Base Up to Tax in Euros Rest Base 0,00 0 17.707,20 17.707,20 2.124,86 15.300,00 33.007,20 4.266,86 20.400,00 53.407,20 8.040,86 66.593,00 120.000,20 22.358,36 55.000,00 175.000,20 34.733,36 Over
Percentage 24 28 37 43 45 47
For 2012 and 2013 theses rates are increased as follow:
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Base Up to 0 17.707,20 33.007,20 53.407,20 120.000,20 175.000,20 300.000,20
Tax in Euros 0 132,8 438,8 1.050,80 3.714,52 6.464,52 13.964,52
Rest Base 17.707,20 15.300,00 20.400,00 66.593,00 55.000,00 125.000,00 Over
Percentage 0,75 2 3 4 5 6 7
Rates may vary according to regions. There is a reduced general income tax rate for family income declarations. Savings income are taxed at a fixed rate of 19% for the first 6.000 €, for the rest 21 %. During 2012 and 2013, these rates will be increased 2% up to 6.000 €, 4% up to 18.000 € and over 6%.
4.16.7 Allowances and Tax Credits The main allowances and tax credits in force are the following: • •
• • • •
Pensions contribution Housing tax credit: a credit of 15% of the amount invested in acquiring or refurnishing the taxpayer’s habitual residence is granted only for taxpayers under 24.107 €; the percentage is applied to the investment made, the purchase expenses and the interest and expenses paid on debt, and the amounts deposited in home-purchasing saving accounts and used for the acquisition of the habitual residence Tax credit for income obtained in Ceuta and Melilla Tax credit for economic activities Tax credit for donations to certain entities Tax credit for investment in and expenditure on assets of cultural interest
4.16.8 Spain Residence and Liability for Taxation Individuals are deemed to be a resident for tax purposes if they are residing in Spain for more than 183 days in a calendar year or if their business interests are based in Spain. Resident individuals are taxed on their worldwide income; non-residents are taxed on their Spanish-source income only.
4.16.9 Filing Requirements and Tax Payment From May 1st till June 30th
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4.17
Spain Social Security Taxes
Social security rates calculated on the total annual income and made up of 28.3% health and pension insurance and an additional 7.6% for unemployment insurance. Self-employed individuals pay social security taxes of 29.8% (or 26.5% if the taxpayer opts not to pay for temporary disability cover) for an income between 841.80 € and 3,198.00 € per month. Self-employed taxpayers aged 48 and above can elect to pay social security taxes on income between 907.50 € and 1,665.90 € per month.
4.18 Spain Property Taxes Transfer Tax and Stamp Duties, a real estate tax of up to 8% is payable when purchasing property where there is no VAT payable, 4% in other assets. Various municipal taxes also apply.
4.19 Spain Inheritance and Gift Taxes Inheritance taxes differ in some regions, therefore, the inheritance tax regime can be very complicated. The important difference in Spanish inheritance tax is that the wealth of the beneficiary determines the amount of tax due on inheritance, with rates imposed on a scale of between 7.65% and 34%. The amount free from tax for direct descendants is 15,956.00 €.
4.20 Wealth Tax Wealth tax will be payable in 2012 and 2013, for tax residents over all their worldwide income for non-residents over the Spanish wealth, at the following rates: Base Up to 0 167.129,45 334.252,88 668.499,75 1.336.999,51 2.673.999,01 5.347.998,03 10.695.996,06
Tax in Euros 0 334,26 835,63 2.506,86 8.523,36 25.904,35 71.362,33 183.670,29
Rest Base 167.129,45 167.123,43 334.246,87 668.499,76 1.336.999,50 2.673.999,02 5.347.998,03 over
Percentage 0,2 0,3 0,5 0,9 1,3 1,7 2,1 2,5
There are different rates and exemptions in each region.
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4.21
Tax Treaties
Spain has double taxation treaties with the following countries:
Albania
El Salvador
Morocco
Germany
United Arab Emirates
Mexico
Saudi Arabia
Slovakia
Moldova
Algeria
Slovenia
Norway
Argentina
Estonia
New Zealand
Armenia
Philippines
Netherlands
Australia
Finland
Pakistan
Austria
France
Panama
Barbados
Georgia
Poland
Belgium
Greece
Portugal
Belarus
Hong Kong
United Kingdom
Bolivia
Hungary
Romania
Bosnia Herzegovina
India
Russia
Brazil
Indonesia
Serbia
Bulgaria
Iran
Singapore
Canada
Ireland
South Africa
Czech Republic
Iceland
Sweden
Chile
Israel
Switzerland
China
Italy
Thailand
Colombia
Jamaica
East Timor
Korea
Japan
Trinidad and Tobago
Costa Rica
Kazakhstan
Tunisia
Croatia
Latvia
Turkey
Cuba
Lithuania
U.R.S.S.
Denmark
Luxembourg
Uruguay
Ecuador
Macedonia
Uzbekistan
USA
Malaysia
Venezuela
Egypt
Malta
Vietnam
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4.22 Interests and Penalties A. Voluntary filing without request of Tax Office after deadline: 1. between 1 day and 3 months -> 5 % surcharge 2. between 3 months and 6 months-> 10 % surcharge. 3. between 6 months and 9 months-> 15 % surcharge. 4. between 9 months and 12 months->20 % surcharge. 5. hereinafter 20 % + delay interest (5% in 2010) B. Filing after a request of Tax Office: • •
Penalties from 50% to 300% Delay Interests
C. Legal interest for the year 2012 is 4%, delay interest 5%
4.23 Extra 4.23.1 Expatriates Expatriates employed in Spain on a temporary basis may, in certain situations, pay income tax in the same way as a non-resident. This facility applies to employees coming from outside Spain, who have been recruited by a Spanish employer and who satisfy certain conditions. The facility allows the employee to pay income tax as a non-resident at a fixed rate of 24%.
4.23.2 Advance Pricing Agreement (APA) Spain has an APA and an Advance Tax Ruling (ATR) practice. An APA entails to provide advance certainty on the fiscal acceptability of the price (transfer pricing) that the Spanish group company pays to or receives from a foreign group company for receiving or delivering a service or goods.
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5.
Business Formation and Management
5.1
Introduction
Setting up a business in Spain is simple. The types of business entities available are in keeping with those existing in other OECD countries. In addition, there exists a wide range of possibilities capable of meeting the needs of the different types of investors who wish to invest in or from Spain. It is also worth noting that foreign investment restrictions and exchange controls have been virtually eliminated in line with the EU legislation on deregulation in this area. A foreign investor can invest in Spain by: • Opening a branch or representative office. • Forming a Spanish company: traditionally, the most-used corporate form has been the corporation (S.A.); however, in recent years the formation of limited liability companies (S.L.s) has also become commonplace. • Associating with other businesses already established in Spain: joint ventures are a common way of setting up business in Spain, since they enable their members to share risks and pool resources and experience. Spanish law provides for different types of joint venture. • However, creating a new entity or associating with pre-existing entities is not the only way to invest in Spain. It is possible to gain a foothold in the Spanish market without having to physically set up a centre of operations in Spain through: • Making distribution agreements. • Operating through an agent. • Operating through a commission agent. • Establishing a franchise.
5.2
Formation of a Company
The Spanish commercial and civil Law provides numerous types of business structures. However, nowadays most business entities in Spain have taken the form of either a: • Sociedad Anónima (S.A.) (Business corporation) • Sociedad de Responsabilidad Limitada (S.R.L./S.L.). (Limited liability company) • Sociedad Anónima Europea (S.E.) (European Business corporation) • Sociedad Colectiva (S.C.) (Partnership) • Sociedad comanditaria simple o por acciones (Partnership) • Sociedad Civil (S.C.P.) (Civil company) • The corporate veil of S.A. and S.R.L., the most common business entities, limits the liability of the shareholders for the company’s debts to the value of the money they invested in the company, except in the case of fraud.
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Before creating a legal structure, one needs to know if they will be a sole partner, have several partners or just need representation in Spain.
5.3
Sole Individual
If there is a sole individual, one of the following types of legal structure may be chosen.
5.3.1 Sole Proprietorship This structure is suitable for small unipersonal businesses. A sole proprietor is someone who owns an unincorporated business by himself or herself. This is a simple structure as it is just one person who undertakes the business activity. He/She does not have to file management reports or publish yearly accounts but will have to balance the books each civil year for tax purposes. There is no notion of capital. The company assets are combined with those of the Sole proprietor. The Sole proprietor responds for all company debts with all of his/her own assets. Taxation system: Personal Income Tax (Impuesto sobre la Renta de las Personas Físicas).
5.3.2 Sole Shareholder Company The Sole Shareholder Company has a sole partner (an individual or a company). The minimum capital depends of the type of Sole Shareholder Company (S.A. /S.L.). It may be made up of contributions in cash and/or in goods. The Sole Shareholder Company is run by a management unit in the same way as regular companies. Directors may be either the sole partner, or a third party. His/her appointment and his/her powers are set forth in the Incorporation Deed or by means of a separate legal instrument. The sole partner is responsible for debts only up to the amount of his/her contributions. Nonetheless, in case of management faults, his/her responsibility may be extended to his/her personal property. The meaning of management fault is quite vast: it ranges from simple negligence or carelessness to fraudulent dealings. The appointment of a statutory auditor is mandatory whenever the company exceeds two of the following thresholds for two consecutive years: • Assets > 2,850,000 € • Yearly turnover > 5,700,000 € • Average number of employees > 50 Taxation system: Corporate income tax (Impuesto de Sociedades).
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5.4
Several Partners
If there are several partners, one of the following types of legal structure may be chosen.
5.4.1 Corporation (S.A.) The minimum capital required to set up a corporation is 60,000 €. The capital stock must be fully subscribed and at least 25% of the par value of the shares must be paid in. No minimum number of shareholders is needed to incorporate an S.A. The shareholders’ meeting is the ultimate managing body of an S.A., with authority to appoint and remove its directors. The executive managing body of an S.A. is made up of one or more directors, who need not be shareholders or Spanish nationals.
5.4.1.1 Legal Formalities to Incorporate an S.A.: The new corporation in Spain will have to appoint an individual with a Spanish national identity card number as its representative. If the individual is not Spanish, he or she will have to apply for an alien identification number (NIE) as a first step. General steps to incorporate an S.A.: • Obtain a clear name search certificate from the Central Mercantile Registry. • Granting of powers of attorney for the incorporation, if applicable. • Execution by the future shareholders of an agreement of intent to set up the new company. • Obtain a Provisional Tax Identification Number (NIF). • Open a bank account. • Obtain a certificate of deposit of initial capital. • Determination of the administration body. • Draft the S.A.’s bylaws. • Sign the public deed of incorporation before a notary. • File a tax return and pay transfer tax (tax exempt pursuant to Royal Decree Law 3/2010). • Register the S.A. at the Mercantile Registry. • Obtain a Definitive Tax Identification Number (NIF). • Declare the foreign investment at the Foreign Investments Registry, which is attached to the Ministry of Industry, Tourism and Trade (for statistical purposes only). As a general rule, it takes 6 to 8 weeks to incorporate an S.A. At this point, the S.A. will be legally incorporated, although, before the effective start up, the S.A. will have to complete other formalities with the tax and social security authorities, as well as at the Ministry of Labour and the relevant Municipal Council.
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The appointment of a statutory auditor is mandatory whenever the company exceeds two of the following thresholds for two consecutive years: • Assets > 2,850,000 € • Yearly turnover > 5,700,000 € • Average number of employees > 50 Taxation system: Corporate income tax (Impuesto de Sociedades).
5.4.2
Limited Liability Company (S.L.)
This structure is suitable for a small or medium-sized business Flexibility is one of the main hallmarks of this kind of company, since it gives the shareholders considerable leeway to define the S.L.’s internal rules of governance in the bylaws. The minimum capital is 3.005,06 € and must be fully paid in at the time of formation. The capital must be divided into shares (known as “participaciones”). In general, its shares cannot be transferred (unless to other shareholders, ascendants, descendants, or companies of the same group) unless otherwise provided in the bylaws. Unlike an S.A., no independent expert’s report is required for non-cash contributions. The shareholders’ meeting is the ultimate managing body and has authority to appoint and remove the directors of the S.L. The executive management body of an S.L. is made up of one or more directors, who need not be shareholders or Spanish nationals.
5.4.2.1 Legal Formalities to Form an S.L.: Similar to an S.A: However, there are abbreviated procedures for the formation of limited liability companies by telematic means, which reduce the costs, the needed documentation and the registration period at the Commercial Registry. The simplified procedures are applicable only to limited liability companies which fulfil certain requirements (individual shareholders, capital under a fixed amount and other requirements related to the managing body and the adequacy of the bylaws). The appointment of a statutory auditor is mandatory whenever the company exceeds two of the following thresholds during two years in a row: • Assets > 2,850,000 € • Yearly turnover > 5,700,000 € • Average number of employees > 50 Taxation system: Corporate Income Tax (Impuesto de Sociedades).
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5.5
Other Business Vehicles
5.5.1 Branch To open a branch, a public deed must be signed and registered at the Mercantile Registry. Under Spanish foreign investment legislation, the branch must have allocation of capital, although there is no minimum capital requirement. The branch must have a legal representative with authority to manage its affairs. It does not have any formal managing or administrative bodies as such, and it largely operates as if it were a company in its commercial dealings with third parties. The choice between forming a branch or a subsidiary in Spain may be influenced by commercial considerations (e.g., a company might provide a more “stable” presence than a branch) or by considerations of legal certainty (a subsidiary limits the shareholder’s liability).
Formalities: Broadly speaking, the requirements, formalities and costs related to opening a branch are very similar to those for forming a subsidiary. From a legal standpoint, the most important differences between a branch and a subsidiary are as follows:
S.A. Concept
S.L.
Company of a commercial nature engaging in a business with its own capital
Stock capital Minimum of 60,000 €
Minimum of 3.000 €
Branch Permanent establishment, enjoying certain degree of management independence. Vehicle for parent company’s activities. Lacks separate legal personality from its parent company. Not required
Cash and Cash contributions in Euros. In the case of an S.A., non-cash contributions require a non-cash report from an independent expert appointed by the Mercantile Registrar. contributions Registration
Public deed must be registered at the Mercantile Registry.
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Together with the public deed creating the branch, the documents attesting the existence of the parent company, its by-laws in force, its Directors and the decision of opening the branch, duly legalized, must be registered at the Mercantile registry.
5.5.2 Representative Office A representative office is not a separate legal entity from its parent company, and it does not have any formal managing bodies, since management duties are delegated to the office’s representative. In principle, a representative office cannot trade and its business activities are essentially coordination, assistance, etc. The non-resident company is liable for the debts incurred by its representative office.
Legal formalities: In general, opening a representative office does not require any commercial law formalities, although for tax, employment and labour law and social security purposes, a public deed (or a document signed in the presence of a foreign notary, and duly legalized by the Hague Apostille or any other applicable legalization system) might need to be signed, placing on record the opening of the representative office, the allocation of any funds, the identity of its tax representative (an individual or legal entity resident in Spain) and the representative’s authority. The opening of the representative office is not registered at the Mercantile Registry.
5.6
Dissolution and Liquidation of Business Entities
Different factors: failure of essential purpose, absence of means to undertake the business, disputes between associates, bankruptcy. All of the above may be factors for a business to be closed down. In Spain, a business can be terminated without government approval.
5.6.1 Termination - Solvent Company The dissolution of a company can result, among other reasons, from the company’s termination or from a contractual dissolution between the partners.. It can also be decided by the commercial court either at the end of a bankruptcy procedure or on the request of one of the partners. The shareholders are free to organize the conditions of the cease of operations or dissolution. However, some rules should be respected.
5.6.2 Termination - Insolvent Company / Bankruptcy 5.6.2.1 Insolvency If a company becomes insolvent - i.e. it does not have enough money to pay off its debts, the law obligates the administrative body of the business to file a petition for Bankruptcy at the commercial court within 2 months of the suspension of payments.
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If the administrative body does not comply with this legal obligation of filing, it may be subject to civil or even criminal liabilities.
5.6.2.2 Bankruptcy In Spain, bankruptcy proceedings are governed by the Bankruptcy Law. It applies to both individuals and companies. The main aim of this is to ensure the collection of debts by creditors, to promote consensus between the parties and, if possible, to enable the survival and continuity of the company. This rule establishes a process of contest or competition of creditors against the debtor with the following characteristics: it is unique, simplified and designed with great flexibility to suit each specific situation.
5.7 The Implied Trust The trust is a well-known English mechanism. In very simple terms, it allows the ownership of an estate to be transferred to a trustee. The trustee manages the estate and in turn, transfers the ownership to a beneficiary. However the trust institution does not exist under the Spanish law.
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6.
Labour Obligations
Labour relations are governed by the Workers´Statute (“Estatuto de los trabajadores”) and by industry-specific Collective Bargaining Agreements (hereinafter to be referred to as “CBA”) which reflects the practices of each sector.
6.1
The Spanish Labour Contract
The most common form of an employment contract is an open-ended contract (« contrato indefinido »). In principle, parties are free to write their own contracts and have a great deal of liberty with regard to content. Contractual clauses must not be contrary to the Workers´ Statute (“Estatuto de los trabajadores”) or to the CBA with which the employer must comply. The company’s actual activity, as stated in its articles of incorporation, determines which CBA is applicable. An employment contract must stipulate the employee’s compensation and job description, the category along with the working hours and place of work and the CBA applicable. The contract may also provide for a probationary period, which may be up to six months for a managerial post and two months for the rest of employees. Compensation must be at least equal to the minimum wage stipulated by the applicable CBA and the statutory minimum wage, which was set at 21,46 € gross per day on 2012, or 641,40 € a month on the basis of a 40-hour working week. The contract may also provide for additional benefits and a profit-sharing scheme. Extra staff can also be hired to meet temporary needs. However, the law restricts the use of fixed term contracts and temporary agency workers to specific situations and generally sets an upper limit of 18 months on such arrangements. Changes in the labour contract (article 41 Estatuto de los Trabajadores”) Employers may propose changes to an employee’s contract. Depending on whether this involves a substantial change or simply a change in working conditions, it may be obligatory to obtain the employee’s consent. A change to a contract may be related to any of the following: a. b. c. d. e. f.
Working hours. Organization and Distribution of working hours. Shift changes. Compensation system and salary. Organization of work. Duties of the employees.
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In the above case, the employer can make a change to the contract if there are economic causes. But the employer has to give at least a 15 day notice. The employee can accept the change; in this case, the change is effective immediately, if he/she does not agree. The employee can terminate the contract with a severance pay that corresponds to 20 days per year and depends on the accumulated years. If a joint resolution cannot be reached between the employee and employer, the employee may take the decision on to court for labour jurisdiction where the decision may be revoked. Simple changes to working conditions may, however, be introduced by the employer. It is considered a collective modification when the measure affects all employees...or a minimum of 10 employees in a company of 100 or less, or 10% in Companies between 100 – 300, or 30 in companies over 300 employees, in the above cases, the application responds to a specific procedure. There may be a preliminary negotiation period of a 15 day maximum. If this period ends with an agreement between both parties the measure then becomes applicable. If there is no agreement the employer can terminate the employee´s contract with a severance pay that corresponds to 20 days per year and depends on the accumulated years the employee may take the decision on to court for labour jurisdiction where the decision may be revoked. If there is no agreement, the employer can apply the measure in seven days and the worker´s union representative can challenge the decision before the Labour Court.
6.2
Hiring Procedures
A company can start hiring as soon as it has been registered, starts economic activity and is registered with the Social Security Administration. (Código de Cuenta de Cotización a la Seguridad Social - CCC). The administrative formalities involved in hiring employees have been streamlined with the introduction of a single reporting form for newly hired employees (TA-2 Form). The employer must fill in the form before a new employee starts work and send it to the local Social Security office (Tesorería General de la Seguridad Social - TGSS). The form can also be submitted online (Sistema RED).
6.3
Profit Sharing and Share Ownership Programs
In addition to their wages and salaries, employees and corporate officers may be offered employee profit-sharing and share-ownership schemes that are attractive for workers and provide tax and social security benefits for both employees and employer.
6.4
Termination of the Employment Contract
Employment contracts can be terminated at the employee’s initiative (resignation) or at the employer’s initiative (dismissal). Except during probationary periods, employers must provide a reason for dismissal, and comply with the legally prescribed procedures. The RD 3 / 2012 on modernizing the labour market establishes a new severance pay of
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33 days per year in case of dismissal. Work contracts signed before 10th February, 2012 has a severance pay of 45 days per year of work. Work contracts signed before 10th February, 2012 have a severance pay of 45 days per year of work. Any contract henceforth will have a severance pay of 33 days per year A contract period that started before 10th February and terminated after the RD 3 / 2012 is prorated in order to calculate the severance pay.
6.4.1 Economic Layoffs Layoffs can be individual or collective. The causes of economic layoffs are a company’s difficult economic situation or a persistent reduction of incomes. It is understood that there is a “persistent reduction of incomes” if the turnover of the company has decreased during 3 consecutive quarters. Collective Layoffs: If the measure affects all employees or a minimum of 10 employees in a company of 100 or less, or 10% in Companies between 100 and 300, or 30 in companies over 300 employees, there is a specific procedure called “Despido colectivo”. In the case of collective layoffs, a negotiation period is opened for 30 days (15 days if Company is under 50 employees). The collective bargaining procedure in this case, aims at reducing or avoiding the number of layoffs. The company has to explain and prove its negative economic situation. If the parties reach an agreement, it will be notified to Labour Authorities and the severance pay will be 20 days per year worked. Formerly, companies used to increase the severance pay in order to achieve an agreement. If the parties are not able to reach an agreement, the employer will notify each individual employee of his/her decision. In this case, the employee can contest the decision before labour jurisdiction in order to revoke the decision and become reemployed or get a higher severance pay. The Union worker´s representative can also contest the decision before the Labour jurisdiction with a “collective action”. In which case, individual actions are suspended until the collective action is decided. An authorized external recruitment agency has to execute a job placement plan (plan de recolocación externa). This plan must include a training program for employees and an on-going job search service. Finally, if the layoff includes employees aged over 55, the Company will pay a special contribution to the Social Security Administration in order to provide financial compensation for these employees.
6.4.2 Layoff for Misconduct Personal dismissal procedures (always written) can be initiated for misconduct on the part of the employee or conduct that is not actually misconduct, but nevertheless significantly harms the company’s interests. Employees dismissed for personal reasons are entitled to severance pay equal to that paid for unfair dismissal (45 days). Employees are not entitled to severance pay in cases of serious misconduct.
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6.5
Working Hours
Working hours are to be negotiated within the company and be reflected in the work contract.
6.5.1 General Rule 40-hour week: Statutory working hours in Spain are 40 hours per week. Overtime hours (horas extraordinarias) are limited to 80 hours a year and should be paid accordingly. The Collective Bargaining Agreement (CBA) establishes the rate However, most CBAs provide less working hours week / year (e.g. 39 hours week or 1.780 hours year).
6.5.2 Major Bonuses in Social Security Contributions Companies of all sizes and in all industries have been entitled to reductions in social security contributions on low wages since 2001. The reductions are calculated according to the monthly wage per employee and per month. Some collectives receive special bonuses such as workers under 30 years and over 45 years of age (there are some conditions apply).
6.5.3 Paid Leave Employees in Spain are entitled to 30 days of paid leave. This can be improved by the CBA. In addition to paid vacation, there are 13 days of legal holidays and personal days (marriages, births, deaths).
6.5.4 Weekly Day of Rest Employees must be given a weekly day and a half of rest lasting at least 24 hours on Sunday and Saturday afternoon or Monday morning. However, there are many exceptions to the rule. Extra compensation is paid to employees who work on Sunday and they are still entitled to a weekly day of rest.
6.6
The Social Security System
Spain’s health and social security system pays virtually all healthcare costs incurred by the employees and their families. The system is backed up by compulsory unemployment insurance and supplementary retirement schemes. Employers are free to add other insurance coverage to suit their employees. Social security contributions relieve the company of responsibility in case of sickness, maternity, risks during pregnancy, permanent disability, retirement and unemployment
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Employer and employee contributions are collected by the Social Security Administration (TGSS). The employers’ share of contributions represents at most 35% of gross wages (with a top wage of 3.262,60 € per month) and the employees’ share amounts to about 7%. The rate applicable depends on each sector.
6.6.1 Staying in Spain Short-stay in Spain: Circulation visa The circulation visa is a short-stay visa for people who wish to conduct business relations in Spain, without actually residing in the country. The circulation visa is issued for one to five years and authorizes stays of up to 90 days per six-month period. To receive this visa, proof of business activity in Spain is required. Long-stay in Spain Stays of more than three months require a residence permit specifying the nature of the stay: Salaried Employee, Scientific Activity, Student, Visitor, etc.
6.7
Working in Spain
In principle, a work permit is required to carry out a salaried professional activity in Spain. Some type of residence permits allow residency in Spain and also act as a work permit (single residence/ work permit), e.g. “Expatriate Employee”, “Employee”, “Temporary Worker”, “Scientific Activity”, “Student” . The work authorization might be compulsory before starting the activity.
6.7.1 The Temporary Residence and Work Permit This is a residence permit that allows to work as an employee for a period of one year.
6.7.2 The Renovation of Temporary Residence Permit The renovation of a temporary work permit must be applied for before 60 days of the expiration date.
6.7.3 The “Temporary Worker” Residence Permit This type of residence permit is issued to employees admitted to Spain to work for 9 months in a period of less than one year. This especially applies to employees seconded by a foreign company to provide a particular service.
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6.7.4 The “Transnational Service” Temporary Tesidence Permit This residence permit is issued to foreign nationals who are engaged in research activities or teaching at a university level. The permit is valid for one year, and can be renewed for a period of one year.
6.7.5 The “Student” Temporary Residence Permit This type of permit is issued to foreign nationals studying in Spain who are financially self-sufficient. This type of residence permit is valid for one year.
6.7.6 The Permanent Residence / Work Permit This type of permit is granted to employees that have been living and working in Spain for five (5) years.
6.7.7 Employee Treatment in Spain Salaried activity in Spain is subject to Spanish labour regulations, particularly concerning statutory working hours, payment of Spanish social security contributions (in the absence of applicable agreements) and equal rights.
6.7.8 Health Cover for Personnel in Spain Your employees may opt for continued cover by the health and social security system in their home country if a reciprocal agreement exists between their home country and Spain. In the absence of a reciprocal agreement, any salaried employee working in Spain, irrespective of their nationality, age or type of employment contract, must be registered with the Spanish social security system (territorial principle). International agreements and EU regulations provide for exemptions from Spanish social security contributions. Nationals of countries which have signed bilateral agreements with Spain may remain registered with the social security system of their country of origin during their secondment in Spain. A secondment is always limited in time and at the end of this period the seconded national must register with the social security system of the host country (in this case, Spain). They can however continue to contribute to the social security system in their country of origin; this is called making dual contributions.
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7.
About RSM International
RSM International is a worldwide network of independent accounting and consulting firms. RSM International and its member firms are separate and independent legal entities. RSM International itself does not provide accounting or consultancy services. All such services are provided by member firms practicing on their own account. RSM is represented by affiliate independent members in 90 countries and brings together the talents of over 32,500 individuals in over 700 offices worldwide. The network’s total fee income of US $4bn places it amongst the top six international accounting organizations worldwide. Member firms are driven by a common vision of providing high quality professional services, both in their domestic markets and in serving the international professional service needs of their client base. RSM International is a member of the Forum of Firms. The objective of the Forum of Firms is to promote consistent and high quality standards of financial and auditing practices worldwide.
Executive Office 11 Old Jewry London EC2R 8DU United Kingdom T: +44 (0) 20 7601 1080 F: +44 (0) 20 7601 1090 E: rsmcommunications#rsmi.com www.rsmi.com
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8. About RSM Gassó RSM Gassó is regarded as one of the most progressive and entrepreneurial professional services firms in Spain with offices in all the key business centres. We, at RSM Gassó, have a high quality team of over 300 professionals selected as much for their professional and technical skills, as for their personal qualities. We currently have 9 offices nationwide and one in the Principality of Andorra. RSM Gassó is registered with the PCAOB, a prestigious Standards Board created in the United States to oversee auditors in order to protect the interests of the users of audit reports of listed North America companies, and subsidiary companies outside of the United States. Inclusion in this organization exemplifies the quality of RSM Gassó internal control procedures which encompass technical aspects as well as those of independence, integrity and quality control.
Our Philosophy Our philosophy has always been offering our clients the added value of our services. We hope to continue building close relationships of trust and mutual respect with our clients, while maintaining a positive attitude through the following principles: • Offer creative solutions that bring our clients new benefits. • Be at the client’s constant disposal. • Be active and responsible in our approach. • Complete our work in a rigorous and enthusiastic manner. • Anticipate and meet needs before they are even identified by the client.
Solutions and Consulting Services: • • • • • • • • •
Audit Tax Corporate Finance • Due Diligence • M&A Advisory Risk Advisory Services Forensic Outsourcing IFRS Compliance Corporate Social Responsibility Services Energy Consulting
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RSM Gassó Algeciras, Barcelona, Canarias, Madrid, Marbella, Palma de Mallorca, Principat d’Andorra, Sevilla, Tarragona y Valencia. T: +34 902 405 410 E: info@gassorsm.com www.gassorsm.com © 2012 RSM Gassó
Notes
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Notes
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Mallorca
RSM International Executive Office 11 Old Jewry London EC2R 8DU United Kingdom T: +44 (0) 20 7601 1080 F: +44 (0) 20 7601 1090 E: rsmcommunications@rsmi.com www.rsmi.com RSM is the brand used by a network of independent accounting and advisory firms each of which practices in its own right. The network is not itself a separate legal entity of any description in any jurisdiction. The network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598) whose registered ofἀce is at 11 Old Jewry, London EC2R 8DU. The brand and trademark RSM and other intellectual property rights used by members of the network are owned by RSM International Association, an association governed by article 60 et seq of the Civil Code of Switzerland whose seat is in Zug.© RSM International Association, 2012 © RSM International Association, 2012