SPAIN GUIDE

Spain – The Economy

The economy of Spain is a highly developed social market economy. It is the world’s fourteenth largest by nominal GDP and the fifth largest in Europe. Spain is the 13th recipient of foreign investments in the world, with more than 14,600 foreign firms having set up their business in the country. 70 out of 100 top companies in Forbes Global 2000 operate in Spain.

The Spanish market comprises 46 million inhabitants and over 82 million visitors in 2019. Any business looking to invest in Spain will be presented with unrestricted access to the European market with its more than 500 million consumers and world’s highest purchasing power.

In 2019, Spain was the fifteenth-largest exporter in the world and the fourteenth-largest importer. Foreign multinationals established in Spain are responsible for approximately 44.5% of Spain’s total worldwide exports.

Spain is listed 25th in the United Nations Human Development Index and 32nd in GDP per capita by the World Bank. According to the Quality-of-Life Index (2016), Spain had the world’s 10th highest quality of life, especially concerning health and well-being. Some of the main areas of economic activity are the automotive industry, medical technology, chemicals, shipbuilding, tourism, and the textile industry.

Spain is a member of the United Nations (UN), the European Union (EU), the Eurozone, the Council of Europe (CoE), the Organization of Ibero-American States (OEI), the Union for the Mediterranean, the North Atlantic Treaty Organization (NATO), the Organization for Economic Co-operation and Development (OECD), Organization for Security and Co-operation in Europe (OSCE), the World Trade Organization (WTO) and many other international organizations.

Small and Medium-Sized Companies

SMEs play a major role in Spain’s ‘non-financial business economy’. According to the Spanish National Statistics Institute (INE), 99.7% of all non-financial corporations (NFCs) were SMEs in December 2019, employing 62.6% of the business labor force. Of these, 89.1% were micro-enterprises, 9.0% small enterprises and 1.6% medium-sized enterprises.

Micro firms are particularly important to the Spanish labor market, accounting for 38.7% of total employment. This is significantly higher than the EU average of 29.7%. On average, Spanish SMEs employ 3.1 people, fewer than the EU average of 3.9. Annual SME productivity, calculated as value added per person employed, is €35,900, equivalent to 80.6% of average SME productivity in the EU.

SMEs in Spain have not yet recovered from the 2008 crisis, unlike large firms, which have already surpassed their pre-crisis levels. In 2018, SME value added and employment were still 16%, 14.7% below their 2008 levels. Nonetheless, SMEs in the ‘non-financial business economy’ have made significant progress since 2013, when value added and employment were hit hardest by the crisis.

SMEs in wholesale and retail trade, the biggest SME sector in Spain, have generated consistent value-added growth in recent years.

Compliance Highlights

• The Spanish Tax Administration Agency (Agencia Tributaria, AEAT) – the revenue service of the Kingdom of Spain. The agency is responsible for the effective application of the national tax and customs systems and for those resources of other Public Administrations and the European Union whose management is entrusted to it by law or agreement.

The function of the Agencia Tributaria occurs in a wide range of activities, among which include:

• The management, inspection and collection of the taxes that belong to the state (Personal Income Tax, Corporation Income Tax, Income Tax for Non-Residents, Value Added Tax and Excise Duties).
  • The performance of important functions in relation to the income of the Autonomous Communities and Autonomous Cities, not only concerning the management of the Income Tax, but also the collection of other income from these Communities, whether by legal regulation or by the relevant collaboration agreements.
  • The collection of revenue on behalf of the European Union.
  • The management of customs and the repression of smuggling.
  • The collection of taxes due to the State Public Sector in the voluntary payment period.
  • The collection, through enforcement, of public revenue due to the State General Administration and associated or dependent Public Bodies.
  • Participation in the persecution of certain offences, including offences against the Public Treasury and offences related to contraband goods.
• Labor and Social Security Inspectorate (ITSS) – a Spanish autonomous agency in charge of the control of the compliance with labor and social security legislation. It also offers technical advice and, where appropriate, conciliation, mediation, and arbitration in these matters. The ITSS is the apex of the Labor and Social Security Inspection System.

Labor Contracts Law

Employment contracts (copia basica) in Spain must be lodged with the Public Employment Office. Seasonal contracts must be drawn up on a template provided by the employment office. Royal Decree 28/2020 defined remote working as comprising 30% of regular working hours undertaken from home or any remote location. Working from home cannot be unilaterally applied by either the employer or employee.

The main contract types/agreements that affect employment in Spain include:

1. Indefinite Employment Contracts (Contrato indefinido):  These are identified from the start of the relationship by having no end date or time limit. In the absence of any other formal contract, an employee is deemed to be on an open-ended, indefinite contract.
2. Fixed-term or Temporary Employment Contracts (Contrato temporal): These apply to certain circumstances, such as:
   • Specific task, project or service that takes an indefinite time. If the project lasts more than 12 months, 15 days’ notice must be given
   • To deal with a short-term employment market or seasonal work
   • To temporarily replace a full-time employee, whose role must be specified in the contract
3. Probationary Contracts:  If no limits apply from a collective agreement, the terms are normally six months for qualified employees, two months for unqualified and three months for companies with fewer than 25 staff.
4. Work Experience Contracts:  For between six months and two years for university or college graduates.
5. Trainee or Apprenticeship Contracts:  For workers between ages of 16 and 21, usually between six months and two years but can be extended to a third year. Under-18s are prohibited from working between 10pm and 6am or for more than eight hours per day; they must have a minimum 12 hours’ rest between shifts and a 30-minute break after four-and-a-half hours’ work.
6. Collective Bargaining Agreements:  Spanish law defines these as written agreements between an employer and employees’ representations, or between employers’ associations and trade unions. Negotiations take place at national, industry and company level. National agreements provide the framework for lower-level bargaining. It is estimated that collective agreements cover around 80% of Spain’s workforce.

Payroll – Tax Contributions and Benefits

Income Tax: Spanish tax residents are liable to pay income tax on their worldwide income once personal allowances have been considered. However, a non-resident of Spain is required to pay tax only on any Spanish income.