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Fiscal incentives for foreign investment in Spain
Spain holds a prominent position globally regarding the importance of its economy: it is the 14th largest economy in the world by GDP size and ranks 4th among the ten most attractive European countries for investors in 2024. Here we break down the key points for potential foreign investors interested in this opportunity.
Investment options in Spain
Investment options in Spain include the creation of independent commercial legal entities. The most common are the Limited Liability Company (S.L.) and the Public Limited Company (S.A.).
Limited Liability Company (S.L.) The S.L. is the most frequent choice of entity, characterised by a minimum share capital of €3,000, fully paid and divided into participations.
Public Limited Company (S.A.) On the other hand, the S.A. is used for larger investments and can be listed on the stock exchange in the future. It requires a minimum share capital of €60,000, at least 25% of which is paid, and divided into shares. Like the S.L., it can have different management structures but with fewer restrictions on the transfer of shares. Both company forms limit the liability of the partners to their contributions to the company.
Opening of branches. Another form of investment in Spain is through an established company opening branches in Spain. These entities do not have their own legal personality and do not limit the liability of the parent company.
General considerations for investing in Spain
Investing in Spain involves some general considerations, including the control of foreign investment, where the government requires prior notifications for certain capital movements and authorisations in specific sectors such as telecommunications or air transport. Additionally, payments between residents and non-residents must be made through entities registered with the Ministry of Economy. Regarding accounting principles, Spain has adopted the IFRS/IAS standards and requires the annual preparation of annual accounts.
Direct taxation in Spain
Corporate Tax (IS). Regarding fiscal aspects, Spain applies Corporate Tax (IS), a direct tax that taxes the worldwide income of resident companies. To determine residency, companies incorporated under Spanish law, with their registered office located in Spanish territory or whose effective management headquarters is in Spain, are considered residents.
The taxable base is calculated from the financial statement with positive or negative tax adjustments, and the general tax rate is 25%, although there are special rates, such as the one applicable to credit institutions, which amounts to 30%.
Exemption regime to avoid double taxation. Dividends and capital gains are taxed at the general rate unless they benefit from the exemption regime to avoid double taxation. This requires a minimum participation of 5% or an acquisition value exceeding €20 million, maintaining such participation uninterruptedly for the year. In the case of foreign entities, it is required that the company involved has been taxed on the profit by a similar tax to IS with a rate of at least 10%, or resides in a jurisdiction with a Double Taxation Agreement with Spain.
Principal special regimes in tax matters - Tax consolidation regime Includes the tax consolidation regime for groups of companies, where the parent company holds at least 75% of the capital of the subsidiaries (70% in the case of listed companies), allowing them to file taxes jointly.
Tax neutrality regime. Applicable to restructuring operations such as mergers or spin-offs.
Personal Income Tax (IRPF)
The Personal Income Tax (IRPF) taxes the worldwide income obtained by individuals resident in Spain. An individual is considered a resident in Spain if they stay more than 183 days in Spanish territory or have the centre of their economic interests in the country. Domicle is also presumed if the spouse and minor children reside in Spain.
General income is taxed progressively, with a maximum rate of around 45%, varying according to the Autonomous Community. Savings income is taxed at a maximum rate of 23%.
Incentives for international worker mobility Incentives for international worker mobility include a special regime for inbound expatriates (taxed as non-residents under certain requirements) and the exemption for income obtained by expatriates from work performed abroad.
Non-Resident Income Tax (IRNR)
The Non-Resident Income Tax (IRNR) is a tax that taxes income obtained in Spain by individuals or legal entities that are not tax residents in Spanish territory.
Entities with Permanent Establishment (PE) Income attributed to this PE is taxed according to the IS rules.
Income obtained without PE. Different tax rates apply:
- General rate: 24% (19% for residents in the EU).
- For dividends, capital gains, and interests: 19%.
- For royalties: 24%.
Main exemptions. The main exemptions include the exemption of capital gains (excluding real estate, real estate companies, and substantial participation in companies) and interest obtained by residents in the EU. Also, the exemption of dividends, interests, and royalties under the EU Directives when paid to associated companies resident in the EU and certain requirements are met. Additionally, it is possible to reduce tax rates or eliminate the tax through the application of Double Taxation Agreements.
Indirect taxation in Spain
Value Added Tax (VAT). Value Added Tax (VAT) is an indirect tax that taxes the supply of goods, provision of services, intra-community acquisitions, and imports made by entrepreneurs or professionals in Spanish territory (excluding the Canary Islands, Ceuta, and Melilla). The VAT mainly falls on consumers and is neutral for companies that act as collectors, as they pass the VAT on to their customers and receive a refund of the VAT paid to their suppliers. However, it is not neutral in sectors performing VAT-exempt activities, such as the financial sector. The tax rates are 21%, 10%, and 4%.
Transfer Tax (TPO) The Transfer Tax (TPO) is an indirect tax that taxes the onerous transfers of goods and rights, as well as the constitution of real rights, loans, and administrative concessions made by individuals or entities that are not entrepreneurs or professionals in the exercise of their activity, and certain real estate operations not subject to or exempt from VAT. The tax rates vary from 1% to 10%, depending on the taxable event and the Autonomous Community.
Labour market in Spain
Regarding the labour market in Spain, the relationship between employer and employee is governed by the employment contract, the Collective Agreement, the Workers' Statute, and other European and international regulations. There are several types of contracts, including:
- Indefinite-term contract, which is the general rule.
- Temporary contract.
- Training and apprenticeship contract.
- Internship contract.
The salary can be established in the employment contract or in the Collective Agreement of the professional group, and it cannot be lower than the inter-professional minimum wage, which in 2024 is €15,876 per year distributed in 14 payments of €1,134 each.
The working day cannot exceed a maximum of 40 hours per week on average annually and is agreed upon in the contract or Collective Agreement. Holidays amount to 30 calendar days, although they can be improved by the Collective Agreement. In the event of a company succession, the employment relationships of the employees do not terminate in the case of inter vivos or mortis causa transfer of a company.
Work permit for foreign workers
Finally, it should be noted that, for foreign workers, obtaining a work permit is required, which depends on the contract and the type of work, except for EU citizens, who are exempt from obtaining it.