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 anonimaIn 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