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.