We are frequently asked if nominee shareholders and Directors are allowed in Spain. This is a complex issue, since fiduciary arrangements are frequently viewed with suspicious by the authorities and not only by them, but also by other private subjects which intervene in the business world, like banks, notaries and the like. The main reason for that is that fiduciary arrangements are often used to conceal the identity of someone. While there can be good business reasons to do that, in some cases the reasons to hide the beneficial owner of a structure can be more difficult to understand.
Fiduciary arrangements, as such, are not illegal in Spain. These agreements, for instance to act as nominee shareholder or nominee Director, do not breach any Law. As a matter of fact, some fiduciary arrangements are commonly used from the old times (fiducia cum amico, fiducia cum creditore).
Although fiduciary arrangements are perfectly legal, as third parties are concerned, they are disregarded. In other words, these agreements only produce effects between the parties of the contract; anyone who is not a party in the agreement (for instance, the Tax Office) can simply ignore them.
For this reason, the use of nominee shareholders in Spain is not advisable, especially for tax reasons. Since in Spain the beneficial owner is basically ignored, the legal owner bears all the tax effects derived from the ownership of the shares. Dividends and capital gains would be attributed to him who will not be able to pass-through these income to the beneficial owner. Moreover, the delivery of the profits to the beneficial owner could trigger other tax burdens, since it could be viewed as a donation or gift.
Of course, regarding the Civil Law, the shares would be deemed to be owned by the nominee Director, so his creditors could seize them as any other asset. In case of death of the nominee shareholder, the shares would be included among his assets, and the beneficial owner may have a tough time trying to recover them from the heirs.
And finally, if the reason to use a fiduciary arrangement is privacy, this cannot be achieved since it is compulsory for the nominee shareholder to disclose the identity of the beneficial owner following anti money laundering provisions. Failure to disclose may trigger severe penalties to the nominee shareholder and even criminal charges.
Therefore, using nominee shareholders in Spain is in most cases useless, risky and not tax wise, so I advise to avoid this kind of arrangement.
The use of nominee Directors is a completely different issue. Basically, a nominee Director is someone who undertakes to manage a company following the instructions of someone else. But this is what every Director does. Directors always follow the instructions of the shareholders, at least in close held companies which are the ones who are likely to use this scheme. According to Spanish Law, a Director can always be removed by the shareholders, even without good cause. Generally, nominee Directors undertake to resign upon request of the principal (the Director in the shadow, who normally is the owner of the company). But this conveyance is unnecessary according to Spanish Law because, as already explained, the shareholders can remove him at any time for any reason, or even without any reason. Likewise, a Director of a Spanish company is always liable before the shareholders for any wrong doing. Having an agreement in this respect adds little value because the Law already protects the owners of the company.
Nonresident investors may find that using a nominee Director resident in Spain has several advantages. The most important reason to appoint a Spanish Director is to secure that the company is resident for tax purposes in Spain. Spanish Law and all the Tax Treaties signed by Spain specifically state that a company can only claim to be resident for tax purposes in Spain if its place of effective management is situated within the Spanish territory. Thus, if the Director of the company is not resident in Spain but abroad, it may be difficult to claim that the company is being managed in Spain. Therefore, although the Companies Law allows aliens to act as Directors of Spanish companies, from a tax perspective the tax residence of such companies could be challenged.
Likewise, tax, labor and Social Security regulations require that the company has a legal representative who is resident in Spain. Since the Directors are the legal representatives of a company, if they are resident abroad this requirement will not be met. Companies which opt to have foreign Directors need to grant a Power of Attorney to someone who is resident in Spain, to be represented before the Tax, SS and Employment Authorities. It seems to me easier to have a Spanish Director from the outset.
Being a nominee Director in Spain is a risky venture. Since the fiduciary nature of the contract is disregarded for third parties, the Director assumes full liability for his acts. He cannot pretend to be cleared from any responsibility on the grounds that he was acting following the instructions of someone else. Of course, it is customary to sign an indemnity agreement with the owner of the company, but this is a private conveyance between the parties. What is more, even between the parties, this indemnity agreement may be difficult to be enforced before a Spanish Court.
Therefore, as a conclusion, we can say that using nominee shareholders in Spain should be discarded but, on the contrary, foreign investors could enjoy several relevant advantages and avoid tax risk by appointing a nominee Director in Spain. However, serving as Director of a Spanish company entails relevant risk, which makes generally difficult to find trustworthy people to accept such mandate.