In this section we have selected a few questions that our visitors ask quite often. To make it easier for you we have categorized the questions in different categories such as expatriates, payroll, company formation and VAT. In case you do not find an answer to your question, please feel free to contact us.

Company formation in Spain

  • Which are the he first steps to set up a Spanish Subsidiary?

    The first steps to set up a new company in Spain would be:

    1.      Identify the foreign investor: name, address, home Tax Id number and Spanish Tax Id number, if it is the case. If the new investor does not have a Spanish Tax Id, it has to apply for one before incorporating a company in Spain

    2.      Choose the name for the new company. You can apply for five names, in order of preference, just in case the preferred ones are not available.

    3.      Define the Directors of the new company: you can opt for a sole Director, two Directors (acting jointly or severally, as you prefer) or a Board of Directors. If you opt for a Board, then the Board could chose a managing Director.

  • Company incorporation in Spain with a PoA
    To incorporate a company in Spain is it necessary to come to Spain or can be done by means of a Power of Attorney (PoA)?

    All the incorporation process can be done by means of a PoA.

    The PoA should include cover the application for the Tax Identification Numbers of the shareholder and the Directors of the company and also to set up the company before a Spanish notary. Note that these Powers should be granted either in a Spanish Consulate or before a foreign notary. Generally a PoA’s in a two columns format (Spanish / English), is acceptable in many countries. However, in other countries the notaries are reluctant to legalize PoA’s in foreign languages, so in this case it may be advisable to grant the PoA in Spanish before the Spanish Consulate. It would be useful if you contact a local notary to seek advice in this respect.

  • What other documents are needed to form a Spanish company?

    The Tax Authorities and the Spanish notary will need a proof of existence of the foreign investor. The preferred document for this purpose is a notarial affidavit (with the correct wording). If not an excerpt of a Public body, like the Chamber of Commerce, the Mercantile Registrar or the Companies House could be used. But we strongly recommend the notarial affidavit, based in our experience.

  • Do you need to open a bank account in Spain?

    Yes. Once the name of the new company is awarded (that is, the Central Mercantile Registry in Madrid issue a “clearance certificate”, that is, a certificate stating that the name is available since no other existing company has a similar name) you could open a bank account for the new company in formation. This bank account is to be used to fund the initial share capital. The amounts deposited in the account would not be released by the bank until the incorporation process has been fully completed, i.e, the new company has been registered in the Mercantile Registry. Once the funds are deposited, the bank shall issue an affidavit stating that the share capital has been paid in. This certificate is to be handled to the notary before whom the company is to be incorporated. When the funds are sent to the bank account is important to make sure that in the wire transfer concept it is clearly stated that the funds are for the share capital of the new company. It is also important that the funds are sent from an account pertaining to shareholder of the new company (avoiding, for instance, transfers from other group companies…)
    That said, the Spanish Company Law does not require that the bank account of the newly company is within a Spanish bank. So, theoretically, a bank account could be opened in a foreign bank. Then the bank affidavit, if not in Spanish, should be translated into Spanish, legalized before a notary and apostilled. It is extremely unusual this scheme and, since a Spanish Company is likely to need at some point a bank account at a Spanish Bank, it makes sense to do it right from the start.

  • What documents are needed to open a branch in Spain?

    To open a branch in Spain you need to provide the following documents:

    • Certificate of good standing of the parent company (head office)
    • Board / Sharehoders resolution to open a branch in Spain
    • Power of Attorney in favor of our firm to act on your behalf

  • Are shelf companies admitted in Spain?

    Shelf companies are standard companies that have already been incorporated and are ready to be sold to an investor. In case of extreme urgency, they can be useful, but have two major drawbacks; Firstly, you can never know if the companies have hidden liabilities or debts. Although sellers always claim that the companies are brand new and have never been active, there is no way to be sure about that, unless you personally know the seller and rely on him. The second major drawback is that these companies are targeted by the tax authorities and other regulatory bodies (like the anti-money laundering commission). This is due to the fact that in the past, these of companies have been used by criminal organizations to conceal the beneficial ownership of some investments. Shelf companies give a plus of privacy, because the only one that shows up in the Mercantile Registry is the founder (the seller), but not the subsequent owners. This feature was exploited by some criminal organizations to their benefit, and as a consequence, it triggered a reaction of the authorities against this type of arrangements.

  • What costs involve the incorporation of a company in Spain?

    Formerly the Capital Tax (1% on the share capital) was due, but it was abolished in 2011, so now no taxes are levied in the incorporation of a Spanish company. However, the formation of a company triggers the cost of the notary, which is compulsory because the incorporation must be done in a Public Deed and the Mercantile Registry. These costs vary depending on the share capital of the company; for a private limited company with the minimum share capital of EUR 3.000, these expenses are of EUR 500, plus VAT.

  • What are your fees for the incorporation of a company?

    Our fees for the incorporation of a company are EUR 1,200 plus VAT. These fees cover all the process until the company is fully incorporated and registered in the Mercantile Registry. If the Directors are foreigners and do not have a Spanish Id Number (“NIF”), which is compulsory, we charge EUR 250 (for EU citizens) or EUR 500.However, since the NIF can be obtained directly in the Spanish Consulates abroad, normally these expense can be avoided.
    Finally be informed that our policy is to assist our clients in the incorporation of new companies free of any charge if they enter into an ongoing fee arrangement with our firm (bookkeeping and tax compliance).

  • Types of legal entities in Spain
    We are going to work in the sphere of digital art in Spain. What kind of legal entities should we opt to?

    Basically you have the choice between a partnership, a SL or Sociedad Limitada or a SA or Sociedad Anónima.

    As from January 2015, partnerships (“sociedades civiles“) are no longer pass-through entities , but subject to the Corporation Tax. Therefore, there is not any tax advantage in setting up a partnership, rather than a standard corporation (“a SL”). However, from a legal point of view, a SL is a much safer vehicle because it limits the responsibility of the partners. As a matter of fact, the shareholders are never liable for the company’s debts. On the contrary, the partners of a partnership are personally liable for the debts of the partnership. This latter feature, makes the partnership a risky proposition. Things can go wrong, and it is always better to be on the safe side. Being personally liable for the partnership debts may be, and frequently is, the road to ruin. I only recomend partnerships for asset exploitation, but not for any actual business venture.

    Regarding the differences between a SL and a SA, please kindly refer to our post  sociedad limitada versus sociedad anonima

    In short, both types of companies have exactly the same tax treatment.  SL ( 99 % of companies) are more flexible (less formal) and therefore have lower maintenance cost. SA are suitable for large companies and have a few advantages for them: they can issue bonds and debentures and can be listed in the Stock Exchange. Also, the transfer of shares are more easily done in SA than in SL. However, for a single member company, the legal regime of the transfer of shares is irrelevant. I would say that the few advantages of an SA rarely pay off the higher maintenance cost and lost of flexibility.
  • Pass-through entities in Spain
    Can you tell me if Spanish tax law allows for a corporation similar to a US S-corporation?

    An S-corporation is a pass through entity. It does not pay a corporate level income tax. All income is allocated to shareholders and is taxed on the shareholder’s personal return. In Spain we do not currently have  any pass-through entity for foreign investors. However, we do have pass-through entitities for resident individuals and companies called UTE’s and AIE’s

Expatriates

  • Tax form 720 for US non lucrative Visa holders
    We moved to Spain in January of this year (2017) on a non-lucrative visa, and received our residency cards. Since we have not been residents for 183 days, do we need to complete a modelo 720 regarding our foreign assets this year?

    Form 720 must only be filed by resident tax payers. In 2016 you were not resident in Spain, so you are not obliged to submit this form. For more information about this tax obligation read our post Foreign assets disclosure in Spain (form 720)

  • Income earned in foreign currency
    With respect to the income earned in US Dollars ($) How do I go about reporting the equivalent amount in euros

    If you have to report foreign source income earned in US Dollars in your Spanish Income Tax return, which you will normally should, said income  is to be calculated based on the conversion rate between the Euro and the Dollar valid at the time that each  income was earned. No averaging is allowed.

  • Are the NIE and the NIF the same thing ?

    Yes and no.

    The  Numero de Identificación Fiscal (“NIF”), must be applied for at the Tax Office, and the number would be the same than the NIE, which is released by the Police. So NIE and NIF are different things (because they are released by different authorities and for different purposes) but  actually have the same digits. In short, by knowing your NIE you already know what would be your NIF, but this does not mean that you have a NIF until the Tax Office assigns it to you. Actually, most people uses both numbers as synonyms.

  • Do you need to open a bank account in Spain?

    Yes. Once the name of the new company is awarded (that is, the Central Mercantile Registry in Madrid issue a “clearance certificate”, that is, a certificate stating that the name is available since no other existing company has a similar name) you could open a bank account for the new company in formation. This bank account is to be used to fund the initial share capital. The amounts deposited in the account would not be released by the bank until the incorporation process has been fully completed, i.e, the new company has been registered in the Mercantile Registry. Once the funds are deposited, the bank shall issue an affidavit stating that the share capital has been paid in. This certificate is to be handled to the notary before whom the company is to be incorporated. When the funds are sent to the bank account is important to make sure that in the wire transfer concept it is clearly stated that the funds are for the share capital of the new company. It is also important that the funds are sent from an account pertaining to shareholder of the new company (avoiding, for instance, transfers from other group companies…)
    That said, the Spanish Company Law does not require that the bank account of the newly company is within a Spanish bank. So, theoretically, a bank account could be opened in a foreign bank. Then the bank affidavit, if not in Spanish, should be translated into Spanish, legalized before a notary and apostilled. It is extremely unusual this scheme and, since a Spanish Company is likely to need at some point a bank account at a Spanish Bank, it makes sense to do it right from the start.

  • Taxation of a 100 % disability pension from Norway

    I am a Norwegian planning to move to Spain. Due to an accident I am not able to work. I receive 100% disability pension from Norway. Where do I have to pay taxes?

    According to the Tax Treaty between Norway and Spain, your disability pension would only be taxable in Spain if you become resident in Spain. The tax treatment of the disability pension is complex; it varies depending on the type of disability and the amount involved. In certain cases, the pension can be completely exempt from taxation.

  • Taxation of US Social Security pensions in Spain

    I am a US retired US citizen and want to move to Spain. I only have a SS pension, which is not taxable in the US. Do I have to pay taxes in Spain?

    Spanish residents are taxable on their worldwide income. Foreign source income (like SS and retirement payments, except public pensions) are fully taxable in Spain, though the tax payer can claim the foreign tax credit relief according to articles 20 and 24 of the Tax Treaty. If the tax payer did not pay any tax abroad, then the tax credit would be zero.

  • Tax form 720 -foreign assets disclosure for impatriates

    If I enjoy the special tax treatment for foreign employees seconded to Spain (Beckam Law), shall I file tax form 720 (foreign assets disclosure)?

    The Tax Law does not say specifically that tax payers enjoying the special tax regime for foreign employees seconded to Spain are exempt from filing the tax form 720 (foreign assets disclosure).

    Read more about the obligation to disclose foreign assets

    However, the Tax Office has released a note acknowledging that tax form 720 is not due for these tax payers. This opinion is based on the fact that the information to be provided only makes sense for tax payers taxed on their world-wide income, but not to others, as seconded employees enjoying the Beckam Law regime, who are only taxed on their Spanish source income.

    Read more about the tax regime for foreign employees seconded to Spain

  • Working under a non lucrative Visa

    I have moved to Spain under a non lucrative Visa, but I will go from time to time to United States to work for a few clients. Is this allowed ?

    A non lucrative visa would not prevent you from working abroad. In other words, what you cannot do is working in Spain, either as an employee or as a self employed. But there is nothing in the Law which prevents you from working or doing business elsewhere.

Payroll

  • Tax form 720 -foreign assets disclosure for impatriates

    If I enjoy the special tax treatment for foreign employees seconded to Spain (Beckam Law), shall I file tax form 720 (foreign assets disclosure)?

    The Tax Law does not say specifically that tax payers enjoying the special tax regime for foreign employees seconded to Spain are exempt from filing the tax form 720 (foreign assets disclosure).

    Read more about the obligation to disclose foreign assets

    However, the Tax Office has released a note acknowledging that tax form 720 is not due for these tax payers. This opinion is based on the fact that the information to be provided only makes sense for tax payers taxed on their world-wide income, but not to others, as seconded employees enjoying the Beckam Law regime, who are only taxed on their Spanish source income.

    Read more about the tax regime for foreign employees seconded to Spain

  • Is it common practice in Spain to sign a fixed-term labor contract?
    Fixed-term employment contracts are only allowed for specific circumstances. In absence of them, the contract must open-ended. Currently fixed-term contracts are only allowed in two cases: to perform a specific job (for instance, to develop a specific app or software) or to support a peak in the employer’s workload.

Value Added Tax

  • Registering in the VIES in Spain
    Can I apply for an European VAT number if I operate in Spain through a virtual office ?

    A virtual office will not let you qualify to get an EU VAT number. You will not be registered in the VIES as a taxable person. In other words, if you intend to buy or sell in other EU countries, the Spanish Tax Office require that you have a physical office with at least one employee (or the Director of the company).