Spain: Legal Highlights Of Doing Business In Spain By A Foreign Investor - UPDATE of Pa

Last Updated: 27 February 1996
The tax will not be payable by:

(i) foreign governments and public institutions and international organizations;

(ii) entities that are resident of countries that have signed treaties to avoid double taxation with Spain, which include an exchange of information clause, and provided that the individuals owning direct or indirectly the share capital of the entity are Spanish residents or may qualify for the application of a double taxation treaty including an exchange of information clause.

(iii) entities carrying out in Spain, in a continuous or habitual manner, economic projects or activities that can be distinguished from the exploitation of properties which are subject to the special tax;

(iv) share-quoted companies in an officially recognized Stock Exchange;

(v) charitable or cultural entities duly recognized by the legislatin of a foreign country having signed with Spain a double taxation treaty which includes an exchange of information clause, provided that immovable property is used in accordance with these charitable or cultural purposes.

5. FISCAL ASPECTS

In addition to the taxation of property in Spain which has been dealt with in the foregoing section, this section refers to the taxation of Spanish companies and of foreign companies operating in Spain whether by means of a permanent establishment or not, and of individuals with and without residence in Spain (and in the latter case operating in Spain by means of a permanent establishment or not).

5.1 Corporate Taxation

The main taxes to which a Spanish company is subject are the following:

5.1.1 Upon incorporation of the company

a) Tax on Capital Transfers and Documented Juridical Acts (Impuesto de Transmisiones Patrimoniales y Actos Jurdicos Documentados) which is levied once at the current rate of 1% on the subscribed capital upon the incorporation of the company. This tax is also payable on any capital increases. As a general rule, subsequent transfers of shares are tax exempt. Under certain circumstances the transfer of shares in companies owning immovable property are subject to Transfer Tax at the rate of 6%(51).

b) Opening Licence (Licencia de Apertura or permission of the City Council to open up business premises) which is paid once to the City Council.

5.1.2 On the Activities of the company

a) Economic Activities Tax (Impuesto sobre Actividades Economicas), effective from January 1st 1992 (replaced the former Fiscal Licence or Licencia Fiscal), consisting of a fixed quota paid annually, the amount of which is determined by the type of commercial or industrial activity carried out by the company. The minimum payable quota is 15,000 pesetas per year approximately. Regional governments may impose a surcharge on this tax which may not exceed 40%.

b) Value Added Tax (Impuesto sobre el Valor Aladido), levied on all contracts or habitual trade transactions made by the company, at three different rates: 4%, 7% and 16% (standard rate).

5.1.3 On Company profits

5.1.3.1 Companies domiciled in Spain

Corporate Income Tax (CIT) is levied on the worldwide net income of all companies having their registered offices in Spain at the current flat general rate of 35%. There are special CIT rates: e.g., Insurance Mutual Associations, 25%; Cooperative Societies, 20%; Collective Investment Institutions (investment funds, investment companies, etc.), 1%.

All expenses required for generating revenues are in principle deductible subject to the limits envisaged in the law. A significant innovation has been the introduction of the debt to equity ratio which limits the deductibility of interest paid on loans given to Spanish companies by any non-resident related company as defined by the law (the current ratio which applies beginning on fiscal 1996 has been set at 3 to 1). Losses may be carried forward and offset against future profits, the limit being five years. Nevertheless, and under certain circumstances, fiscal losses incurred on new business activities which have been carried out between March 3rd, 1993 and December 31st, 1994, can be offset with no time limit.

General and special depreciation rates, investment incentives and tax credits are available. For fiscal 1994 and 1995(52) new assets can be freely depreciated, provided that a certain level of employment is created and other conditions are met.

5.1.3.2 Foreign companies operating through a permanent establishment in Spain:

A Company is deemed to have a permanent establishment in Spain whenever it has in the Spanish territory headquarters, branches, offices, factories, workshops, installations, warehouses, shops or other establishments; construction, installation or assembly projects lasting for more than 12 months, agencies or representative offices which are authorised to contract in its name, or mines, quarries, gas or oil wells, farming, cattle and timber businesses or any other place intended for extraction of natural resources, or has other places of business where it performs its activity in whole or in part.

Consequently, a company would be receiving income by means of a permanent establishment in Spain if it fell in any of the situations listed above.

The foregoing concept of permanent establishment has been laid down by Spanish tax law. If the particular case fell within the scope of one of the many treaties signed by Spain to avoid double taxation, the concept "permanent establishment" as laid down in the applicable treaty would prevail. Generally, the concepts are very similar.

These Companies are taxed on their Spanish source income only at the rate of 35%. This will include any foreign source income that could be ascribed to the permanent establishment. They are required to keep accounting books. Losses may also be carried forward and offset against future profits, the limit being seven years. Investment incentives and tax credits are also available.

Beginning on fiscal 1992, in addition to CIT at the rate of 35% on income and capital gains, the actual transfer of profits outside Spain is subject to an additional 25% withholding tax. This affects in particular branches of foreign companies which formerly were only subject to CIT at the flat rate of 35% (53). The additional 25% withholding tax does not apply to transfers made by permanent establishments (including branches) belonging to entities domiciled in the European Union (54) . Further, the additional 25% withholding tax would not apply to income transferred by permanent establishments (including branches) belonging to entities domiciled in countries with whom Spain has signed double taxation conventions which do not envisage the possibility of taxing these transfers. This opinion may not be shared necessarily by the Spanish tax authorities.

For CIT purposes, the representatives of the permanent establishment in Spain are those appearing in the Commercial Register or those authorised to bind the permanent establishment. Should these persons live outside Spain, the non-resident entity is required to appoint representatives for CIT purposes in Spain. The appointment must be notified to the Tax Department within two months following the date of the appointment. Non-compliance with these obligations may result in fines being imposed ranging from 25,000 to 1,000,000 pesetas(55).

5.1.3.3 Foreign companies not operating through a permanent establishment in Spain:

CIT is also levied on all Spanish source income received by foreign companies without a permanent establishment in the country. Applicable tax rates to income obtained without a permanent establishment are:
(i) The general rate applicable to dividends, interest, commissions, etc. is 25%; in the case of services, technical assistance, assembly and installation projects related to engineering contracts, and in general the carrying out of business in Spain without a permanent establishment, the 25% rate will be applied to the difference between the gross income and certain deductible expenses (personnel and materials employed or incorporated in construction or assembly);

Dividends declared by Spanish companies to their parent companies are not subject to withholding taxes provided that, among other requirements, the parent company is domiciled in any of the EU countries, the parent company holds at least 25% of the share capital of the Spanish company declaring the dividend and the shares have been held for at least one uninterrupted year(56)

(ii) capital gains (so called increases in wealth) are subject to a flat 35% rate. Companies are not allowed to update the acquisition cost by the application of multipliers to the original price as individuals are. They are not entitled either to certain reductions of the capital gains as individuals are from fiscal 1992 and thereafter.

From fiscal 1992, the buyers of property sold by non-resident entities in Spain are required to withhold and turn over to the Treasury the 10% of the purchase price on account of the 35% capital gains tax. This will not apply in the case of sales of property owned by individuals and that was purchased more than 20 years before the actual transfer provided no improvements have been made to it. The property will be subject to a charge or lien in case the 10% advance is not turned over to the Treasury.

(51) Article 108 Stock Exchange Act.
(52) Royal Decree-Law 7/1994, of June 20, and Royal Decree-Law 2/1995, of February 17.
(53) This important change was introduced by Law 18/1991 of June 6th, published on June 7th 1991.
(54) Article 51 of Law 43/1995 of December 27.
(55) Non-resident entities in Spain having tax obligations at that time were given until December 31st. 1991 to make such appointments (First Transitory Provision of Law 18/1991).
(56) Article 46 of Law 43/1995 of December 27.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstance.

For further information contact Mr. Jorge Angell, L. C. Rodrigo Abogados, Madrid (Spain). Fax: 00 341 576 6716. Or enter text search 'L. C. Rodrigo Abogados' and 'Business Monitor'.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Related Topics
 
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions