Entering the Spanish Market

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Entering the Spanish Market 

Foreign companies expanding into Spain are entering the world’s 14th largest economy and fourth largest in the European Union (EU), where an outward-looking government is intent on encouraging international expansion.

Spain has strong manufacturing sectors based on textiles, chemicals, and metallurgy, with agriculture and tourism traditionally powerful areas supporting the economy.

However, setting up shop in an unfamiliar place comes with its own challenges. Foreign businesses must comply with employment, tax, payroll, and corporate legislation whilst ensuring that their employees are working productively and efficiently.

Work alongside our Professional Employer Organization (PEO) recruitment specialists, then our Employer of Record (EOR) in-country experts to handle every aspect of compliance. Employers can depend on our in-depth knowledge of Spain, its work culture and business practices.

Here we have written out some basic summaries of what you need to make the transition into Spain’s market, no matter the industry you are in.

Starting a Business in Spain

The World Bank’s Doing Business Report ranks Spain only 97th out of 190 nations for ease of starting a business. But once you are established business life becomes easier – with Spain rated No. 1 for trading across borders and in the top 50 for protecting minority investors, paying taxes, enforcing contracts, and resolving insolvency.

Spain’s position for ease of starting a business reflects the procedures that must be followed to comply with employment and payroll regulations, both for employers and their employees. Procedures include:

  • Applying for a unique trading name
  • Obtaining company Tax Identification Number (Certificado de ldentificacion Fiscal, CIF) which is a letter followed by eight digits, from the Ministry of the Interior
  • Registering with the Commercial Register (Registro Mercantil)
  • Incoming companies would typically choose to set up a Limited Liability Company (LLC), known as a Sociedad de Responsabilidad Limitada (SRL or SL). Another option is to establish the subsidiary as a Joint Stock Company (Communidad de Bienes, CB)
  • Registering employees with the Social Security Institute (Instituto Nacional de la Seguridad Social – INSS) before employment starts
  • Registering employees’ contracts with the Public Employment Service
  • Opening a company bank account after supplying the correct documentation
  • Presenting public deed of incorporation before a notary, including bank certificate, certificate of denomination, company bylaws and managers’ identities
  • Presenting the D1-A form for declaring foreign investments to the Registry of the Director General for Trade and Investment at the Ministry of Economy
  • Applying for final registration of public deed of incorporation in the Commercial Register, usually within 15 days
  • Receiving the CIF from the Commercial Registry
  • Completing census registration for tax, VAT, social security

Expanding Business into Spain

Expanding your company into a foreign territory will demand a detailed blueprint, answering the essential questions as to how and when you will achieve your aims.

If Spain is the target, those questions will center on whether you migrate staff or recruit in-country, who will handle the payroll, how do you comply with laws on tax, social security, termination and severance, entitlements, and benefits.

The major cities of Madrid, Bilbao, and Barcelona host the majority of foreign subsidiaries, multi-nationals, major Spanish companies, manufacturing centers and government-controlled entities, with a number of regional hubs completing the Spanish market. 

Researching the Spanish market is a vital first step. Partnering with Bradford Jacobs, from the consultation stage onwards, will access our know-how of the Spanish economy and how it works; its manufacturers, distributors, where to find business support, production facilities and offices and where to find the best qualified staff for your sector. We will also know who your competitors are.

Spain Business Facts

  • Capital city – Madrid
  • Population – 47 million
  • States and Provinces – 50 provinces and 17 autonomous regions
  • Official language – Spanish
  • Economy and world ranking – 14th among the world’s economies and fourth largest in the European Union (EU), GDP €1 trillion (US$1.2 trillion)
  • Leading sectors – Tourism, manufacturing, agriculture, textiles, chemicals, metallurgy
  • Main exports – Cars, refined petroleum, vehicle parts, packaged medicaments, other commodities
  • Main imports – Crude petroleum, vehicle parts, cars, packaged medicaments, and other commodities
  • Main trading partners – Exports to: France, Portugal, Italy, and UK. Imports from: China, Germany, France, Italy, and Netherlands
  • Government – Unitary State, Parliamentary system, Constitutional Monarchy
  • Currency – Euro

Advantages and Challenges of the Spain Market

Advantages of expanding into the Spanish economy:

  • Economic areas: Ideal location with access to Europe, Middle East, Africa (EMEA) region, strong cultural and trade links to Latin America, member of the European Union (EU) with premium access to world’s largest market with population of 500million.

  • Trading: 17 double taxation treaties with Central and Latin America and nine with EMEA members.

  • Economy: Spanish government is pro-free trade and pro-investment with Spain ranked ninth in World Investment Report for attracting foreign investment.

  • Logistics: Modernized communication network of rail and subway systems, 46 state-owned ports on Atlantic and Mediterranean coasts, three of Europe’s top 10 container ports.

  • Business: Growing tech sector with more than 70 technology parks.

Challenges of operating in the Spanish economy:

  • Business focus: The International Monetary Fund predicts the Spanish economy will continue slowing into 2021 before being led back into growth by domestic spending.

  • Work force: Spain has one of the highest unemployment rates in the EU, particularly in the under-25s, which led to highly qualified workers leaving for other EU states. The government has pledged to reverse this ‘brain drain’ with incentives to encourage their return, particularly university graduates.

  • Business practices: Seven procedures must be completed to start a new business, compared with an Organization for Economic Cooperation and Development (OECD) average of five for other European nations, rating Spain only 97th out of 190 nations in the World Bank’s Doing Business Report.

    Obtaining construction permits requires 13 procedures over 147 days on average, including soil and topographical studies.

  • Bureaucracy: Paying taxes can take up to 170 hours of office time a year dealing with eight separate payments, with employer contributions much higher than the OECD average.

Limited Company / Subsidiary or Branch in Spain

Opening a subsidiary in Spain allows a foreign company to explore new markets, enhance international credibility and open the gateway to mainland Europe with the independence to pursue new lines of business. A branch is not independent and must have an identical name and follow the same business operations as its parent.

Main characteristics of a Subsidiary:

  • Establishing a limited company/subsidiary or a branch are the two most popular options for entering the Spanish market but have distinct legal structures.
  • Subsidiaries are independent from the parent company and are subject to the obligations arising from contracts it enters into.
  • Minimum share capital is €3,000 (US$3,540) for a limited liability subsidiary).
  • A subsidiary has joint or sole directors on the board.
  • A subsidiary is responsible for all its debts and liabilities without affecting, in principle, the parent company.
  • The subsidiary is responsible for paying taxes as a Spanish company; unlike a branch it can deduct payments made to the foreign parent company.

Main characteristics of a Branch:

  • Are the same legal entity as the parent company.
  • Do not need share capital on setting up.
  • A branch representative acts as agent with powers granted by the parent company.
  • The parent company is liable for all the responsibilities, liabilities, and debt of the branch.
  • A branch is subject to taxes as a non-resident company, but can deduct administration and management expenses.

Expert guidance is advisable when weighing the comparative benefits of entering the Spanish market via a subsidiary or a branch. Using a Professional Employer Organization (PEO) and Employer of Record (EOR), such as Bradford Jacobs, accesses specialist advice, including offering the alternatives that will bring far quicker access to Spain’s economy.

Legal Structure for Spain Market Entry

All companies operate in Spain under the Spanish Companies Act (Ley de Sociedades de Capital). Foreign companies are treated the same as local Spanish corporations with no nationality requirements for directors or shareholders. If foreign companies are considering the options of setting up a subsidiary or a branch office, various factors must be considered.

Legal structure for a limited liability company:

  • A subsidiary limited liability company, LLC, or “Sociedad de Responsabilidad Limitada” is an independent and autonomous legal entity, separate from its parent company, and which operates in the market on its own account and at its own risk. 
  • It can also write and sanction its own contracts. 
  • A minimum share capital of €3,000 (US$3,540) is required for the subsidiary. 
  • The subsidiary will require a board or sole director, but they can comprise 100% foreigners. 
  • It has to pay taxes as a Spanish company, but its liabilities are limited to its share capital. 
  • LLCs require a registered office in Spain and the company name, shareholders and Articles of Incorporation are filed with the Commercial Registry.

Legal structure for a branch:

  • A branch is a secondary establishment completely dependent on its parent company, being a mere extension of the latter on Spanish territory and is not a legal entity. 
  • It is not required to deposit share capital when being set up or appoint directors. However, it will need an agent with power of attorney from the parent company to administer the affairs of the branch office. 
  • The parent company is responsible for all of the debts/liabilities accrued by the branch. 
  • It must also pay taxes as a non-resident company but can apply tax deductibles such as expenses and it does have access to ‘double taxation treaties’ signed by Spain. 
  • The branch has to register its name and provide proof of its Articles of Association.

Opening a Business Bank Account in Spain

Opening a corporate bank account in Spain is quite complex but doable and involves organizing all relevant paperwork. Opening a business account is advisable for depositing share capital and keeping personal accounts separate from business transactions for tax purposes.

Banks require:

  • Personal ID e.g., passport.
  • NIE number for all financial and legal activities (click here for more information). 
  • Company’s Tax ID number (CIF Certificado de Identificacion Fiscal).
  • Paperwork with trading name of company (certificate of uniqueness) from Corporate Register of Spain.
  • Deposit minimum share capital of €3,000 (US$3,540) for limited liability company.
  • Two signatories on the account.
  • A business address.
  • Power of attorney for representative of company opening the account.
  • Company’s appropriate statutory documents.

Non-residents must be in Spain to open an account.

Laws and Regulations for opening a Spanish bank account online: Each European Union nation, including Spain, has its own laws relating to opening bank accounts online and which customers the banks will accept. EU countries must also abide by the EU directives on anti-money laundering which are necessary for “Know Your Customer” regulations.

Company Formation in Spain

The most common types of company structures in Spain, all of which operate under the Companies Law, are:

  • Sole Trader/Sole Proprietor (Empresario Individual or Autónomo)
  • Partnership (Sociedad Civil)
  • Limited Liability Company (Sociedad Limitada / SL or Sociedad de Responsabilidad Limitada / SRL)
  • Public Limited Company (Sociedad Anonima / SA)
  • New Enterprise Limited Company (Sociedad Limitada Nueva Empresa / SLNE)
  • Co-ownership or Joint Stock (Comunidad de Bienes / CB)

Company formation procedures include:

  • Obtaining company’s Tax ID number (CIF Certificado de Identificacion Fiscal)
  • Applying for certificate of denomination from the Commercial Registry (valid for six months)
  • Opening Spanish bank account to deposit share capital and receive disbursement certificate
  • Producing public deeds of incorporation for a notary, including bank and denomination certificates, bylaws, and managers ID
  • Presenting D1-A form for declaring foreign investments to the Registry of the Directorate General for Trade and Investment at the Ministry of Economy
  • Obtaining final registration of public deed of incorporation in the Commercial Registry
  • Receiving final certificate of denomination from Commercial Registry
  • Completing census registration for tax, VAT, social security etc.

In addition, further requirements apply to setting up a subsidiary:

  • Written evidence the management body of the parent company have agreed to create a subsidiary
  • Certified translation of agreement into Spanish
  • Proof the Spanish consulate nearest to the location of the parent company certified it is incorporated according to the regulations of the home country
  • Confirmation from the office of the Mercantile Register that the subsidiary’s chosen name is unique in Spain
  • Proof the €3,000 (US$3,540) minimum share capital for a limited company, or €60,000 (US$ 70,900) for a public limited or joint stock company, has been deposited in the registered bank
  • A draft of the company statutes
  • Proof of registration with the Mercantile Register and the Foreign Investment Register at the Ministry of Economy

Finding an Office in Spain

Where to locate depends partly on the nature of your business. Spain has thriving and rapidly-developing ‘business clusters’ in Madrid, Barcelona Malaga and the Basque country, a fast-growing ICT market and supply of STEM people (Science, Technology, Engineering and Mathematics) where employers can draw on world-class academic and research talent and highly-skilled employees.

Locating in the relevant business hubs/clusters can provide:

  • Free support helping growth on the international stage utilizing joint potential
  • Coaching, guidance, and networking opportunities creating trust and synergy
  • Maximized ideas, knowledge, research, and development opportunities more efficiently generating new partnerships
  • Innovative ideas which can transform into marketable solutions and services

Basque Country: Basque Country is one of Spain’s wealthiest regions. Its main industries are aeronautics, energy, environmental, industrial design and engineering, chemicals, and petrochemicals. 

The Organization for Economic Cooperation and Development, measuring variables such as healthcare, education, employment, income, safety, environment, citizen participation, access to services and housing, rates Euskadi (Basque Autonomous Region) with the highest quality of life in Spain. 

This area excels in institution support for start-ups.

Málaga: The IDC Smart Cities Index Ranking, rates Málaga as the ‘smartest’ city in Spain through projects such as its Smart City Málaga project involving 300 industrial customers, 900 services providers and 11,000 households, developed over four years. 

Also, Málaga Teckpark is a high-quality location for SMEs and large businesses equipped for manufacturers, services, and R&D.

Barcelona: Considered the 5th best start-up city in Europe, Spain’s second largest city has its largest port, and its chief commercial and industrial center. Barcelona has two universities and many other educational institutions and is Spain's foremost center of industry, for both heavy (iron, steel, copper) and light (especially textiles). 

Publishing houses are concentrated there. Traditional industries range from shipbuilding to skilled handicrafts. The Barcelona Synchrotron Park is a foremost location for innovative companies.

Madrid: Madrid is Spain’s capital as well as one of its most important financial and economic hubs and Europe’s favored region for doing business with Latin America. It has an extensive and modern telecommunications network, a radial infrastructure of roads and railways and major international airport. 

Madrid is recognized for its R&D investment, high development, low unemployment, and high added-value services. Madrid Science Park provides high-quality working spaces and services, laboratories for scientific entrepreneurs and has supported over 300 companies and R&D projects.

Finding a Spanish Manufacturer

Companies may need to partner manufacturers in Spain and checking the options is critical to success. Globally ambitious businesses and entrepreneurs must ask key questions when negotiating with a manufacturing partner:

  • Do they hold relevant quality certificates?
  • What experience do they have and current clients?
  • Can they deliver direct to customers?
  • Can they keep up with demand? Or do they outsource?
  • Can they source materials?
  • Are they financially sound?
  • How will local customs impact production?
  • How will language impact on communication?
  • What is their minimum order quantity?
  • Discuss possible penalties for poor quality or late deliveries
  • Payment options

You may also want to consider:

  • Market Research to avoid manufacturing a product in a saturated market
  • Licensing to a company that can handle manufacturing, marketing, and distribution
  • Can the manufacturer build and test a prototype?
  • Protecting your intellectual property

Most businesses trying to turn ideas and prototypes into tangible products will need a manufacturing facility, especially to produce in bulk. Research and check their reputation in the industry and explore links to Spanish manufacturers. 

Reach out to local business groups and check out local business directories and online ones, such as:

  1. Industrial B2B Gateway
  2. Societe Generale
  3. Nordea, for businesses abroad
  4. Santander Trade Market 

In Spain, the biggest segments within manufacturing are Food products (12% of total production); fabricated metal products, except machinery and equipment (9%); motor vehicles, trailers, and semi-trailers (6%); chemicals and chemical products (6%)

Finding a Spanish Distributor

A successful move into Spain will prove wasted without a front-line distributor to move the products around the country, or further into Europe. Finding the perfect match among distributors is critical to accomplishing your objectives. Treat distributors as long-term partners and work with them to formulate goals and business plans. 

To find the right agent or distributor, it is important to have a knowledge of the Spanish language, since many people do not speak English. Knowledge of the local culture and business habits is also important. 

Here are some other platforms to see:

At Bradford Jacobs, we mean business!

Treat Bradford Jacobs as your business consultants when planning your move into Spain. Our in-country specialists will steer you towards the frontline manufacturers and distributors and help you locate your offices in prime locations for your specific business activities. We find the staff; we get them working, and your company will be up and running

We are ready - contact us today!