SPAIN 2016

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GEOGRAPHY AND POPULATION

CAPITAL:

MADRID

POPULATION:

47,7 MILLION

POLITICAL SYSTEM:

PARLAMENTARY MONARCHY

FORMS OF BUSINESS ORGANIZATIONS

There are many ways in which a business may be set up in Spain.
Joint stock companies - This type of company, commonly known as an SA, is normally used by
medium to large corporations. This kind of company is ruled by the Spanish Corporate Enterprises
Act. The responsibility of the shareholders in this type of company is, in principle, limited to their
shareholding in the capital of the company.
Limited liability companies - This type of company, commonly known as an SL, is normally used by
small- to medium sized corporations. This kind of company is ruled by the Spanish Corporate
Enterprises Act. The responsibility of the participants is, in principle, limited to their participation in
the capital of the company.
Branches - The main difference between a branch and a subsidiary is that a branch is not an
independent legal entity from the main company, while a subsidiary is legally independent. This
kind of company is ruled by the Spanish Corporate Enterprises Act. This means that, among other
considerations, the accounts of a branch are part of the accounts of the company, and that a
branch does not limit its liability to the assets assigned to the branch, but to all company assets.

General partnership - This is one of the partnerships which can be used in Spain. This kind of company
is ruled by the Spanish Code of Commerce. This type of partnership is rarely used. The partners have
joint, several and unlimited liability for the debts of the partnership. The General Partnership does not
require having a minimum share capital.
Limited partnership - This is another type of partnership used in Spain. This kind of company is ruled
by the Spanish Corporate Enterprises Act. The applicable subsidiary regime will be the one of the Joint
Stock Company. The peculiarity of this partnership is that it has two categories of partners, those with
unlimited liability and those with limited liability.

ACCOUNTING
Since 1990, Spanish domestic law has incorporated the rules and regulations of the EEC Fourth
Directive on accounting, the reporting requirements of the EEC Seventh Directive on consolidated
accounts for groups of companies, and also the EEC Eighth Directive on the control of accounts and
external audit.
All businesses are required to keep adequate accounting records in accordance with the Code of
Commerce and the Spanish General Accounting Plan. All companies registered in the company
registry are obliged to file an annual reporting pack including a balance sheet, profit and loss
account, notes to the accounts and statement of changes in the net equity. Additionally, for those
companies that are obliged to file full accounts, is mandatory to include a statement of cash flows
and a directors report.

CORPORATE TAXATION
The general corporate income tax rate in Spain was 28% for 2015 and 25% for 2016 onwards.
There is a reduced tax rate of 15% applicable to new entities carrying out business activities in
the first 2 years in which the company makes profits. There are a number of tax credits and
relieves that can often reduce the overall tax liability provided certain requisites are met.
Corporation tax is payable within the six months and 25 days following the year end. However,
advance payment is required three times a year at a rate of 18% of the tax paid for the previous
year.
Spanish international holding companies - From 1 January 1996, Spain joined those countries
that have already included international holding companies in their tax legislation, known as
ETVEs. Spanish international holding companies are not taxed for dividends or share of profits
received from abroad as well as capital gains deriving from a share portfolio disposal, as long as
the shares or participations have been held for at least one year before the dividend is payable
and the participation is of at least 5% or 20 million Euro acquisition cost.

INDIVIDUAL TAXATION
The income tax law introduces the concept of total income as the taxable base. There is a
general reduction per taxpayer of EUR 5,550. There are further reductions of:

EUR 1,150 where the taxpayer is over 65

EUR 1,400 where the taxpayer is over 75

Between EUR 3,000 - 9,000 on the taxable base for disabled taxpayers, depending on
their level of incapacity.

Further reductions are allowed for employess.

Non residente income tax - Non-residents income is subject to a flat rate tax of 24% on gross
income EU tax residents can benefit from a reduced rate of 19% which is applicable to certain
type of income and they can deduct expenses if certain requisites are met.

VAT AND INDITECT TAXES

VAT - The VAT rules and regulations are based on the EU Sixth Directive. Business transactions are
taxed at 21% and certain basic products and services at 10% or 4%. Exports and similar services are
not subject to tax.
Tax on property transfer - All transfers of land and buildings, under any title of transfer except
succession and donation, are taxed at the rate from 6% to 10% of the value depending on which
Autonomous Community is the property, except in the case of first sales from a real estate
promoter on which VAT is payable. The rate of VAT in these cases is 10% on houses and 21% on
urban land. Transfer of items other than land, buildings and rights over real estate, are taxed at 4%.
Public documents that require registration are taxed at 1%.
Tax on capital - Incorporation and share capital increases are exempt from capital duty. No capital
duty applies either to reorganizations such as mergers, spin off etc. Dissolution is subject to 1%
capital duty on the amounts reimbursed to the shareholder upon liquidation.
Inheritance and gift tax - Inheritance and gift tax is only levied on individuals and not on companies.
Municipal tax on land transfer - Every time that land is transferred, regardless of whether it is built
on, the municipality levies a tax on the increase in value since the land was last transferred. The
applicable tax rates vary according to the municipality.

Municipal tax on properties - An annual tax based on the cadastral value is payable to the
municipal authority. Tax rates vary from 0.4% up to 1.30% (for urban property) and according to
the municipality.
Municipal tax on business activities - An annual tax on business activities is payable to the
municipal authorities. Tax payable depends on the type of activity, the category of the street
where the business is located and the size of the municipality.

DISCLAIMER
This publication must not be regarded as offering a complete explanation of the taxation and
corporate matters that are contained within this publication.
This publication has been prepared on the express terms and understanding that the publishers are
not responsible for the results of any actions which are undertaken on the basis of the information
which is contained within this publication.
The publishers and the authors expressly disclaim all and any liability and responsability to any person,
entity or corporation who acts or fails to act as a consequence of any reliance upon the whole or any
part of the contents of this publication.
Accordingly no person, entity or corporation should act or rely upon any matter or information as
contained or implied within this publication without first obtaining advice from an appropriately
qualified professional person, and ensuring that such edvice specifically relates to their particular
needs.