Docstoc

PORTADILLAS CAP. - Invest in Spain

Document Sample
PORTADILLAS CAP. - Invest in Spain Powered By Docstoc
					Business in Spain
Guía de negocios en España
Business in Spain
Guía de negocios en España
                                     Spain: a profile
                                     España: un perfil




                                     Establishing a business in Spain
                                     Establecimiento en España




                                     Tax system
                                     Sistema fiscal



                                     Investment aid and incentives
                                     in Spain
                                     Ayudas e incentivos a la inversión
                                     en España



                                     Labor and Social Security regulations
                                     Legislación laboral y Seguridad Social



Appendix I: Company and
commercial law                       Intellectual property law
Anexo I: Legislación en materia      Propiedad industrial e intelectual
de sociedades


Appendix II: The Spanish financial   Legal framework and tax implications
system                               of e-commerce in Spain
Anexo II: El sistema financiero      Marco jurídico e implicaciones fiscales
español                              del comercio electrónico en España


Appendix III: Accounting and
auditing issues                      Useful addresses
Anexo III: Aspectos contables        Direcciones útiles
y de auditoría
interes@interes.org
www.investinspain.org




Elaborado por:
Business in Spain
                    1

Spain: a profile


Ñ
Spain is a dynamic country. Not only is Spain the eighth largest global economy,
but it has also grown more than twice as fast as the European average (3.4% in
2005 in comparison to 1.6% in the EU-25 and 1.3% in the euro-zone).

In addition, Spain commands a privileged geo-strategic position: it belongs to
the European Union and is the gateway to North Africa and Latin America (due
to its strong economic, historic and cultural ties in this latter case).

Furthermore, Spain is a modern knowledge-based economy with services
accounting for 65 percent of economic activity. The country has become
a center of innovation supported by a young, highly-qualified work force and
competitive costs.

All of this demonstrates Spain's position as a highly attractive country for foreign
investment, as confirmed by the UNCTAD World Investment Report, in which the
country was ranked eighth in terms of direct inward foreign investment in 2004.

In this chapter are Spain's vital statistics - the latest facts and figures which
explain the demogra phics, the political framework and the economic structure
of the country.




Ñ
Sociedad Estatal para la Promoción y Atracción de las Inversiones Exteriores, S.A.U. RM: Tomo 21818, libro 0, folio 15, sección 8, hoja M-388683,
Inscripción 1. NIF: A-84479013. Depósito legal: M-24716-2006.
Published 2006
Business in Spain


Spain: a profile
 1. Introduction                                                        2
2. The country, its people and living conditions                        2
    2.1. Geography, climate and living conditions                       2
    2.2. Population and human resources                                 3
    2.3. Political institutions                                         5
3. Spain and the European Union                                         5
4. Infrastructure                                                       6
5. Economic overview                                                    9
6. Domestic market                                                      10
 7. Foreign trade and investment                                        10
8. Legislation on foreign investment and exchange control regulations   12
    8.1. Legislation on foreign investment                              12
    8.2. Exchange control regulations                                   14




1
1. Introduction




1. INTRODUCTION                                                        This chapter gives a brief description of Spain’s vital statistics –
                                                                       the latest facts and figures which explain the demographics, the
Not only is Spain the eighth largest global economy, but it has        political framework and the economic structure of the country.
also grown more than twice as fast as the European average
(3.4% in 2005 in comparison to 1.6% in the EU–25 and 1.3% in
the euro–zone).                                                        2. THE COUNTRY, ITS PEOPLE AND LIVING CONDITIONS

In addition, Spain commands a privileged geo–strategic position        2.1. Geography, climate and living conditions
giving access to over 1,200 million potential clients. It belongs to
the European Union and is the gateway to North Africa and Latin        The Kingdom of Spain occupies an area of more than 500,000
America, due to its strong economic, historic and cultural ties        square kilometres in the southwest of Europe, and is the second
with those regions.                                                    largest country in the EU. The territory of Spain covers most of the
                                                                       Iberian Peninsula, which it shares with Portugal, and also
Furthermore, Spain is a modern knowledge–based economy with            includes the Balearic Islands in the Mediterranean, the Canary
services accounting for 65 percent of economic activity. The           Islands in the Atlantic Ocean, the North African cities of Ceuta
country has become a center of innovation supported by a young,        and Melilla and some surrounding rocky islands.
highly–qualified work force and competitive costs.
                                                                       Despite the differences among the various regions of Spain, the
All of this confirms Spain’s position as a highly attractive country   country can be said to have mainly a typical Mediterranean
for foreign investment, as borne out by the UNCTAD World               climate. The weather in the northern coastal region (looking onto
Investment Report, in which, the country was ranked eighth in          the Atlantic and the Bay of Biscay) is mild and generally rainy
terms of direct inward foreign investment in 2004.                     throughout the year, with temperatures neither very low in the


Business in Spain
Spain: a profile
2
                                                                                                                                                                                                   FRANCE
                                                    La Coruña                                                          Santander
                                                                                                                                                    San Sebastián
                                                                                      Oviedo                                              Bilbao
                                                                     Lugo               Asturias                      Cantabria
                                         Santiago de Compostela                                                                              País
                                                                                                                                            Vasco                Pamplona
                                             Pontevedra    Galicia                                                                            Vitoria
                                                                  Orense                                                        Burgos                       Navarra
                                                                                                    León                                      Logroño
                                                                                                                                              La Rioja                              Huesca                                       Gerona
                                                                                                                     Palencia                                                                       Lérida   Cataluña
                                                                                                      Castilla y León                          Soria
                                                                                                              Valladolid                                                    Zaragoza
                                                                                               Zamora                                                                                                                     Barcelona
                                                                                                                                                                          Aragón
                                                                                      Salamanca                      Segovia                                                                                  Tarragona

                                                                                                                                Madrid     Guadalajara
                                                                                                             Ávila      Comunidad                                          Teruel
                                                                                                                         de Madrid
                                                                                                                                                        Cuenca
                                                                                                                                                                                          Castellón de la Plana
                                                    PORTUGAL                                                           Toledo                                                                                              Palma De Mallorca
                                                                                                                                                                                             Valencia
                                                                                     Cáceres                             Castilla - La Mancha                               Comunidad
                                                                             Extremadura                                                                                    Valenciana                                      Baleares
                                                                           Badajoz
                                                                                      Mérida                         Ciudad Real                             Albacete


                                                                                                                                                                                       Alicante

                                                                                                        Córdoba                                                Murcia
                                                                                                                                   Jaén
                                                                                                                                                                        Murcia
                                                                                          Sevilla          Andalucía
                                                                     Huelva
                                                                                                                                    Granada

                                                                                                                      Málaga                        Almería
                                                                                        Cádiz


                                                                                                     Ceuta



                                                                                                                                                   Melilla



                                                                                                           MOROCCO


           Santa Cruz de Tenerife
                                Canarias
                            Las Palmas de Gran Canaria




Table 1
                                                                                                                         winter nor very high in the summer. The climate on the
                                                                                                                         Mediterranean coastline, including the Balearic Islands, Ceuta
THE BIGGEST CITIES IN SPAIN*                                                                                             and Melilla, is mild in the winter and hot and dry in the summer.
                                                                                                                         The most extreme differences occur in the interior of the
                                                                                     POPULATION                          Peninsula, where the climate is rather dry, with cold winters and
                                                                                                                         hot summers. The Canary Islands have a climate of their own,
                                                                                                                         with temperatures constantly around 20 Celsius degrees and only
Madrid                                                                          3,155,359
                                                                                                                         minor variations in temperature between seasons or between
Barcelona                                                                       1,593,075
                                                                                                                         day and night.
Valencia                                                                          796,549
Sevilla                                                                           704,154
                                                                                                                         Spain has an excellent quality of life and is very open to
Zaragoza                                                                          647,373
                                                                                                                         foreigners. Almost 4.000 kilometres of coastline, abundant
Málaga                                                                            558,287
                                                                                                                         sporting facilities and events and social opportunities are
Murcia                                                                            409,810                                crowned by the diversity of the country’s cultural heritage as a
Las Palmas de Gran Canaria                                                        378,628                                crossroads of civilizations (Celts, Romans, Visigoths, Arabs,
Mallorca                                                                           375,773                               Jews, etc.).
Bilbao                                                                             353,173
                                                                                                                         2.2. Population and human resources
* Figures refer only to the municipal district of each city.
Source: Revised registered population in Spanish cities as of
January 1, 2005. Instituto Nacional de Estadística (National
                                                                                                                         The population of Spain in 2005 was 44.1 million people, with a
Statistics Institute). www.ine.es.                                                                                       population density of more than 87 inhabitants per square
                                                                                                                         kilometer.


                                                                                                                                                                                                                            Business in Spain
                                                                                                                                                                                                                              Spain: a profile
                                                                                                                                                                                                                                             3
2. The country, its people and living conditions




Spain is a markedly urban society (see Table 1), as evidenced by            is relatively young: approximately 15% is under 15 years old, 68%
the fact that close to 33% of the population lives in the capitals of       is between 15 and 64 years old, and only 17% is 65 and over,
the provinces of Spain.                                                     according to year 2005 figures. Additionally, as seen in Table 2
                                                                            below, Spain is also experiencing in recent years a relevant inflow
Castilian is the official Spanish language of the country. There are        of immigrants that is offsetting the consequences of an aging
other Spanish languages that are also official in the                       population.
corresponding Autonomous Communities, according to their
“Statutes of Autonomy”. Education is compulsory until the age of            The structure of the labor force by economic sector has also
16 and English is the main foreign language studied at school.              changed significantly in recent years, with a notable increase in
                                                                            the number of those employed in the services sector and a
Spain has a labor force of more than 21 million people,                     decrease in the number of farmworkers (see Table 3
representing almost 58% of the country’s population over 16                 and Chart 1).
years old according to the Labor Force Survey (released December
2005). Compared with other OECD countries, Spain’s population
                                                                            The labor force is very qualified, productive and capable of
                                                                            adapting to technological changes.

 Table 2

 FOREIGN RESIDENTS IN SPAIN BY CONTINENT
                                                                              Table 3
 OF ORIGIN
                                                                              EVOLUTION OF LABOR FORCE STRUCTURE
                             2003              2004            2005           BY ECONOMIC SECTOR (Percentage)

  Europe                  560,200              667,775      906,461                                      2003            2004              2005
  America                 530,648            666,086      1,003,230
  Asia                      121,455           142,762        177,423          Agriculture               5.4            5.2               5.2
  Africa                   432,662            498,507       649,251           Industry                 18.7           18.0              17.2
  Oceania                     1,018               1,112        1,466          Construction             11.8           12.0              12.5
  Unknown                     1,028              1,049          1,101         Services                 64.1           64.8              65.1
  TOTAL                   1,647,011          1,977,291    2,738,932
                                                                              Source: Instituto Nacional de Estadística (National Statistics
  Source: Ministerio de Trabajo y Asuntos Sociales (Ministry of Labor         Institute). Labor Force Survey, 2005. Figures as of September of
  and Social Affairs). www.mtas.es.                                           each year.




 Chart 1

 LABOR FORCE STRUCTURE BY
 ECONOMIC SECTOR IN 2005
                                                                  Construction
                                                                                        13%                                          Services
                                                                                                                65%
                                                                                         17%
                                                                        Industry
                                                                                                  5%
 Source: Instituto Nacional de Estadística
 (National Statistics Institute).                                                   Agriculture


Business in Spain
Spain: a profile
4
Lastly, in line with the existing commitment within the European      one or more provinces, plus the Autonomous Cities of Ceuta and
Union to foster employment, since the mid-nineties the                Melilla in Northern Africa; the total number of provinces is 50.
Government implemented wide ranging reforms of the labor
market regulations, introducing a high degree of flexibility in the   Each Autonomous Community (Region) exercises the powers
use of the labor force by companies. The success of the reforms       assigned to it by the Constitution as specified in its “Statute of
undertaken is attested by the fact that, according to the             Autonomy”. These Statutes also stipulate the institutional
Employment in Europe Report 2005 published by the European            organization of the Community concerned, consisting generally
Commission in September 20051, Spain was the third country            of: a legislative assembly elected by universal suffrage, which
within the 25 EU Members with the highest employment growth           enacts legislation applicable in the Community; a Government
during 2004.                                                          with executive and administrative functions, headed by a
                                                                      President elected by the Assembly, who is the Community’s
2.3. Political institutions                                           highest representative; and a Superior Court of Justice, in which
                                                                      judicial power in the Community’s territory is vested. A Delegate
                                                                      appointed by the Central Government directs the Administration
Spain is a parliamentary monarchy. The King is the Head of
                                                                      of the State in the Autonomous Community (Region), and
State2; and his primary mission is to arbitrate and moderate the
                                                                      co-ordinates it with the Community’s administration.
regular functioning of the country’s institutions in accordance
with the Constitution. He also formally ratifies the appointment
                                                                      The Autonomous Communities (Regions) are financially
or designation of the highest holders of public office in the
                                                                      autonomous and also receive allocations from the general State
legislative, executive and judicial branches3.
                                                                      budgets.

The Constitution of 1978 enshrined the fundamental civil rights
                                                                      As a result of the structure above described Spain has become
and public freedoms and assigned legislative power to the Cortes
                                                                      one of the most decentralized countries in Europe.
Generales (Parliament) , executive power to the Government of
the nation, and judicial powers to independent judges and
magistrates.
                                                                      3. SPAIN AND THE EUROPEAN UNION

The responsibility for enacting laws is entrusted to the Cortes       Spain became a full member of the European Economic
Generales, comprising the Congreso de los Diputados (Lower            Community in 1986. Therefore, EU legislation is fully applicable in
House of Parliament)4 and the Senado (Senate), the members of         Spain. In this connection and according to figures published by
which are elected by universal suffrage every four years.             the European Commission, Spain fully complies with the
                                                                      objectives established by the European Council and has
The Cortes Generales exercise the legislative power of the nation,    implemented 2,604 Directives into national law.
approve the annual State budgets, control the actions of the
Government and ratify international treaties.                         A major impact of European Union membership for Spain, and for
                                                                      the other Member States, came in the mid–nineties with the
The Government5 is headed by the Presidente del Gobierno              advent of the European Single Market and the European Economic
(President of the Government) who is elected by the Cortes            Area, which created a genuine barrier–free trading space.
Generales and is, in turn, in charge of electing the members of
the Consejo de Ministros (Council of Ministers).                      Since then, the EU has advanced significantly in the process of
                                                                      unification by strengthening the political and social ties among its
The members of the Council of Ministers are appointed and             citizens. Spain, throughout all this process, has always stood out
removed by the President of the Government at his or her              as one of the leaders in the implementation of liberalization
discretion. For administrative purposes, Spain is organized into 17   measures.
Autonomous Communities (Regions) each containing generally
                                                                      The European Union joined 10 new countries in May 2004
                                                                      (Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania,
1 www.europa.eu.int/comm                                              Malta, Poland, the Slovak Republic and Slovenia). Such
2 www.casareal.es
3 www.poderjudicial.es                                                enlargement of the EU poses a unique challenge since it is
4 www.congreso.es                                                     without precedent in terms of scope and diversity: an extension
5 www.la–moncloa.es                                                   of land area of 23% and a population increase of almost 100


                                                                                                                        Business in Spain
                                                                                                                          Spain: a profile
                                                                                                                                         5
3. Spain and the European Union




million people. Moreover, it is expected for 2007 Bulgaria and        euros. Rail transport is the main item in the Plan, absorbing
Romania to join the EU, while the inclusion of Croatia and Turkey     nearly 50% of the investments.
is still under negotiation6.
                                                                      The motorway network, totalling nearly 11,000 km, has
Spain has a strong responsibility in the EU, evidenced by the fact    undergone continuous renovation to enhance efficiency and
that it is, along with Poland, the fifth country in terms of voting   convenience. The Government investment plan will result in over
power in the Council of Ministers.                                    15,000 km of motorway network spanning, which will provide
                                                                      direct access to the provincial capitals and will place 94% of the
The introduction of the euro (January 1st, 2002) marked the           population within fewer than 30 kilometers of a motorway.
beginning of the third Spanish Presidency of the European
Council, representing the culmination of a lengthy process and a      As far as rail transport is concerned, Spain has a network of over
whole deal of growth opportunities for the Spanish and European       15,000 km of track, and in 1992 introduced a 471–km
markets.                                                              high–speed train line from Madrid to Sevilla. High–speed train
                                                                      lines have become a priority for the Government infrastructure
With the euro in the European Union, a monetary zone has been         plans, it is expected that in 2020 the high–speed train network
established to form the world’s number one trading power,             will span 10,000 kilometers, so all Spanish cities will have direct
triggering the integration of the financial markets and economic      access to this network and 90% of the population will be within
policies of the Member States adopting it. Such changes have          fewer than 50 kilometers of one of its stations.
also fostered the coordination of the tax systems of the Euro Zone
Member States, thus further increasing the stability of the EU.       Moreover, Madrid will be very soon connected by high–speed
                                                                      train to the French border via Zaragoza (Aragón) and Barcelona
The euro has yielded clear results at the international level,        (Cataluña) and additionally via Vitoria and Irún (Basque Country).
promoting the visibility of the Euro Zone both in international and   In fact, the section Madrid–Guadalajara–Zaragoza–Lérida opened
financial fora (the G–7 group meetings) and in multilateral           in October 2003 and it is planned the possibility of allowing a
organizations. The economic and commercial stability provided by      private company to create and exploit another international
the euro has further bolstered Spain’s current economic growth        section, Figueras–Perpiñán.
along with additional international political presence.
                                                                      Noteworthy is the liberalization of the sector in 2005, since in
Spain is the EU Member State that in the last years has received      January a new Law entered into force, which separates the
the most EU structural and cohesion funds–used to finance             management of the rail infrastructure from the service of
infrastructure and development projects. In fact, Spain is            transportation.
expected to receive in 2006 a total around 7.9 thousand million
euros in various EU structural funds and approximately 1.8            There are air transport services between the main cities. The
thousand million euros in cohesion funds. Moreover, Spain will        approximately 250 airlines with scheduled flights operating out
receive a special Fund designated to I+D activities of 2 thousand     of the country’s 47 airports ensure complete service abroad.
million euros, in accordance with the decisions taken in the last     Spain is an important intermediate stop in the lines between
European Council of London. With these funds, the Government          Latin America and Europe and lies in a crucial position in the
has undertaken actions in this area with the cooperation of           network to America and Africa from Europe. The main
private initiatives financing infrastructures.                        investments in this area will be made in the two principal
                                                                      international airports, located in Madrid and Barcelona. The
                                                                      Madrid airport has increased its capacity up to 70 million
4. INFRASTRUCTURE                                                     passengers a year since Terminal 4 opened in February 2006, and
                                                                      the improvements at the Barcelona airport will permit 90 flights
The Government plans to continue investing heavily in                 per hour and the ability to handle 40 million passengers a year.
infrastructure in the future. This is reflected in the Strategic
Infrastructure and Transport Plan for 2005–20207, which               Spain also has excellent sea communications, with 53
provided for investment totalling over 248 thousand million           international ports on the Atlantic and Mediterranean coasts. The
                                                                      Strategic Infrastructure and Transport Plan expects to increase up
6   www.mae.es                                                        to 75% the Spanish ports capacity, consolidating their role as
7   www.mfom.es                                                       intermodal nodes, by 2020.


Business in Spain
Spain: a profile
6
Freeways                                                                                                                                                              FRANCE
Freeways of toll
                                                                                                        Santander
                                                                                                                          San Sebastián
Freeways in construction                               La Coruña         Asturias                                            Bilbao
                                       Santiago de              Lugo
                                                                                  Oviedo           Cantabria                País Pamplona
Other main highways                    Compostela                                                                         Vasco
                                                     Galicia                                                               Vitoria
                                                                                                             Burgos                   Navarra
                                            Pontevedra    Orense                      León                                  Logroño                                                      Gerona
                                                                                                Palencia
                                                                                                                          La Rioja                        Huesca
                                                                                                                                                                             Cataluña
                                                                                        Castilla y León                                                                   Lérida
                                                                                             Valladolid                       Soria              Zaragoza                               Barcelona
                                                                                  Zamora
                                                                                                        Segovia                                   Aragón                  Tarragona
                                                                                                                      Guadalajara
                                                                         Salamanca
                                                                                                Ávila
                                                                                                        Comunidad
                                                                                                           Madrid
                                                                                                         de Madrid
                                                                                                                                                 Teruel
                                                                                                                                                                      Castellón
                                                                                                                                 Cuenca                              de la Plana      Palma de Mallorca
                                                                        Cáceres                           Toledo
                                            PORTUGAL                                                      Castilla - La Mancha                        Comunidad
                                                                    Extremadura                                                                         Valencia
                                                                                                                                                                                        Baleares
                                                                             Mérida
                                                                                                                                                      Valenciana
                                                                                                        Ciudad Real                   Albacete
                                                               Badajoz                                                                                    Alicante


                                                                                             Córdoba                                     Murcia
                                                                                                                   Jaén                     Murcia
                                                                            Sevilla
                                                                                             Andalucía
                                                               Huelva                                        Granada

                                                                              Cádiz               Málaga                     Almería


                                                                                        Ceuta

                   Santa Cruz
                   de Tenerife                                                                                                 Melilla
                                 Canarias
                                                                                           MOROCCO
                           Las Palmas de
                            Gran Canaria                                                                                                                             ROAD NETWORK


High speed (more than 250 km/hour)
High spees in construction
                                                                                                                                                                      FRANCE
                                                                                                        Santander
High planned speed                                     La Coruña         Asturias                                         San Sebastián
                                                                                  Oviedo           Cantabria                 Bilbao
Fast line (more than 200 km/hour)      Santiago de              Lugo                                                        País Pamplona
                                       Compostela
                                                     Galicia                                                              Vasco
Long distance rail routes                                                                                                  Vitoria
                                                                                                                                      Navarra
                                                          Orense                                             Burgos
                                            Pontevedra                                León                                  Logroño                                                      Gerona
                                                                                                Palencia
                                                                                                                          La Rioja                        Huesca
                                                                                                                                                                             Cataluña
                                                                                        Castilla y León                                                                   Lérida
                                                                                             Valladolid                       Soria              Zaragoza                               Barcelona
                                                                                  Zamora
                                                                                                        Segovia                                   Aragón                  Tarragona
                                                                                                                      Guadalajara
                                                                         Salamanca
                                                                                                Ávila
                                                                                                        Comunidad
                                                                                                           Madrid
                                                                                                         de Madrid
                                                                                                                                                 Teruel
                                                                                                                                                                      Castellón
                                                                                                                                 Cuenca                              de la Plana      Palma de Mallorca
                                                                        Cáceres                           Toledo
                                            PORTUGAL                                                      Castilla - La Mancha                        Comunidad
                                                                    Extremadura                                                                         Valencia
                                                                                                                                                                                        Baleares
                                                                             Mérida
                                                                                                                                                      Valenciana
                                                                                                        Ciudad Real                   Albacete
                                                               Badajoz                                                                                    Alicante


                                                                                             Córdoba                                     Murcia
                                                                                                                   Jaén                     Murcia
                                                                            Sevilla
                                                                                             Andalucía
                                                               Huelva                                        Granada

                                                                              Cádiz               Málaga                     Almería


                                                                                        Ceuta

                   Santa Cruz
                   de Tenerife                                                                                                 Melilla
                                 Canarias
                                                                                             MOROCCO
                           Las Palmas de
                            Gran Canaria                                                                                                                                  RAILWAIYS

                                                                                                                                                                                                    Business in Spain
                                                                                                                                                                                                      Spain: a profile
                                                                                                                                                                                                                     7
4. Infrastructure




           Main ports
                                                                                                                                                                                                           FRANCE
                                                                                                  Avilés Gijón
                                                       Ferrol-San Cimbrao                                                          Santander Bilbao
                                                                                                                                              San Sebastián
                                                               La Coruña       La Coruña            Asturias                       Santander      Bilbao
                                                                                                                                                           Pasajes
                                                                                Lugo
                                                                                                            Oviedo              Cantabria        País Pamplona
                                                      Vilagarcía Santiago de
                                                                        Galicia                                                                         Vasco
                                                                 Compostela                                                                              Vitoria
                                               Marín- Pontevedra                                                                          Burgos                    Navarra
                                                                Pontevedra Orense                               León                                       Logroño                                                                    Gerona
                                                            Vigo                                                             Palencia
                                                                                                                                                         La Rioja                        Huesca
                                                                                                                                                                                                                Cataluña
                                                                                                                    Castilla y León                                                                         Lérida
                                                                                                                       Valladolid                           Soria               Zaragoza                                         Barcelona
                                                                                                            Zamora                                                                                                               Barcelona
                                                                                                                                                                                 Aragón                           Tarragona
                                                                                                                                     Segovia                                                                Tarragona
                                                                                                                                                   Guadalajara
                                                                                                    Salamanca
                                                                                                                             Ávila
                                                                                                                                     Comunidad
                                                                                                                                        Madrid
                                                                                                                                      de Madrid                                               Castellón
                                                                                                                                                                                Teruel       de la Plana
                                                                                                                                                                  Cuenca                              Castellón
                                                                                                                                                                                                                               Palma de Mallorca
                                                                                                  Cáceres                             Toledo
                                                                   PORTUGAL                                                           Castilla - La Mancha                              Comunidad
                                                                                                                                                                                                    Valencia                 Baleares
                                                                                               Extremadura                                                                                Valencia
                                                                                                                                                                                                                                  Baleares
                                                                                                       Mérida
                                                                                                                                                                                        Valenciana
                                                                                                                                     Ciudad Real                    Albacete
                                                                                          Badajoz                                                                                        Alicante
                                                                                                                                                                                            Alicante
                                                                                                                           Córdoba                                      Murcia
                                                                                                                                               Jaén                           Murcia
                                                                                                      Sevilla
                                                                                      Huelva                               Andalucía                                             Cartagena
                                                                                      Huelva
                                                                                                                               Málaga Granada               Almería
                                                                                 Bahía de Cádiz
                                                                                                         Cádiz                 Málaga          Motril       Almería

                                                                                                                      Bahía de Algeciras
                                                                                                                     Ceuta
                                                                                                                     Ceuta

                                                                                                                                                        Melilla
                             Santa Cruz de Tenerife
                                                                                                                                                            Melilla
                                                  Canarias
                                  Santa Cruz
                                                     Las Palmas
                                  de Tenerife                                                                          MOROCCO
                                             Las Palmas de
                                              Gran Canaria                                                                                                                                                        PORTS


           International Airports
                                                                                                                                                                                                           FRANCE
           National Airports
                                                                                                       Avilés                        Santander
           Control centers of Navigation                                                                                                                San Sebastián
                                                                               La Coruña
                                                                                  La Coruña
                                                                                                    Asturias                 Santander
                                                                                                                                                  Bilbao
                                                            Santiago de                    Lugo
                                                                                                            Oviedo              Cantabria BilbaoPaís San Sebastián
                                                                                                                                                   Vitoria Pamplona
                                                            Compostela         Santiago
                                                                            Galicia                                                            Vasco
                                                                                                                León                            Vitoria
                                                           Pontevedra                                                                  Burgos
                                                                                                                                                          Navarra
                                                                                                                                                            Pamplona                                                                  Gerona
                                                                                   Orense                           León
                                                                        Vigo
                                                                                                                             Palencia Burgos
                                                                                                                                                            Logroño
                                                                                                                                                           Logroño                                Huesca        Cataluña
                                                                                                                                                         La Rioja                                                                          Gerona
                                                                                                                                                                                         Huesca                             Sabadell
                                                                                                                             y León
                                                                                                                    Castilla Valladolid                                                    Zaragoza
                                                                                                                                                                                                            Lérida
                                                                                                                                                            Soria               Zaragoza
                                                                                                                       Valladolid                                                                                                Barcelona
                                                                                                            Zamora                                                                                             Reus       Barcelona
                                                                                                                                     Segovia                                     Aragón                     Tarragona
                                                                                                                 Salamanca                         Guadalajara
                                                                                                    Salamanca
                                                                                                                             Ávila
                                                                                                                                     Comunidad
                                                                                                                                       Madrid/Barajas
                                                                                                                                                                                                                                                          Menorca
                                                                                                                                         Madrid
                                                                                                                                      deMadrid
                                                                                                                                                        Madrid/Cuatro VientosTeruel
                                                                                                                                                                                                        Castellón
                                                                                                                                           Madrid/Torrejón Cuenca                                      de la Plana             Palma de Mallorca
                                                                                                  Cáceres                             Toledo
                                                                   PORTUGAL                    Extremadura                            Castilla - La Mancha
                                                                                                                                                                                       Valencia
                                                                                                                                                                                        Comunidad                                     Palma de Mallorca
                                                                                                                                                                    Albacete              Valencia                                Baleares
                                                                                            Badajoz
                                                                                                       Mérida                                                              Albacete
                                                                                                                                                                                        Valenciana
                                                                                                                                     Ciudad Real                                                                  Ibiza
                                                                                          Badajoz                                                                                        Alicante
                                                                                                                                                                                            Alicante
                                                                                                                                                                        Murcia
                                                                                                                                Córdoba
                                                                                                     Sevilla                                   Jaén                           Murcia
                                                                                                                           Córdoba
                                                                                                                                                                                  Murcia/San Javier
                                                                                                                           Andalucía
                                                                                                      Sevilla                                    Granada
                                                                                      Huelva                Jerez                         Granada
                                                                                                                           Málaga                                   Almería

                                                                                                         Cádiz                 Málaga                       Almería


                                                                                                                    Ceuta


                                          Tenerife Norte                                                                                                Melilla
                            Santa Cruz                                         Fuerteventura                                                                 Melilla
                            de Tenerife           Canarias
             La Gomera                                 Gran Canaria
                                                                                                                       MOROCCO
                El Hierro
                              Tenerife Sur     Las Palmas de
                                                Gran Canaria                                                                                                                                                   AIRPORTS

Business in Spain
Spain: a profile
8
Spain is also well equipped with industrial land and technological               Table 4
and industrial infrastructure. In the last few years, technology
parks have proliferated in the main industrial areas and near                    STRUCTURE OF GDP (% OF TOTAL, IN 1995
universities and R&D centers. There are currently 51 technology                  CONSTANT PRICES)
parks8. In these technology parks there are more than 1,500
companies mostly dedicated to the computer sector and
                                                                                             Sector                  2003          2004             2005
telecommunications; approximately, 20% of the total number of
workers of said companies are involved with R&D activities.
                                                                                  Agriculture and fishery            4.08           3.48            3.31
R&D expenditure has risen significantly in recent years. In 2005                  Industry                          22.77          18.45           17.88
the R&D Budget has already increased a 27% and it is expected                     Construction                       8.82          10.73           11.59
to reach an increase of 30% in 2006. Additionally, the already                    Services                          64.33          67.34           67.22
mentioned special I+D Fund of 2 thousand million euros decided
in the last European Council of London will further increase                      Source: Instituto Nacional de Estadística (National Statistics
expenditure in R&D.                                                               Institute).

With a view to achieving new goals, the government has created
the new INGENIO 2010 Program, which aims to achieve a
situation where public and private investment in R&D&I is equal                 Lastly, it must be pointed out the strong investments made in
to 2% of GDP in 2010 and where private sector investment                        hydraulic infrastructures, which has guarantee a better
accounts for 55% of that investment in that year.                               availability of this resource.

Moreover, Spain has a good telecommunications network. In
addition to the extensive fiber optic network (64,000 km) which                 5. ECONOMIC OVERVIEW
covers almost all the territory, Spain manages one of the largest
international undersea cable networks and has satellite
                                                                                Spain’s GDP increased by a 3.4% in 2005, totalling around
connections with the five continents. In this respect, it is worthwhile
                                                                                865,784 million euros, making it the eighth largest in the
mentioning the strong liberalization process undertaken in most
                                                                                OECD. The structure of the Spanish economy is that of an
industries, including the telecommunications sector, well within the
                                                                                industrialized country, with the services sector being the main
European schedule. Among other benefits, this implies a more
                                                                                contributor to GDP, followed by industry. These two sectors
competitive and cost effective offering of this type of services,
                                                                                represent almost 90% of Spain’s GDP with agriculture’s share
essential for an appropriate economic development.
                                                                                today representing less than 4% of GDP, and declining
                                                                                sharply as a result of the country’s intense economic growth
8   www.apte.org                                                                (see Table 4).




    Chart 2                                                   4.5
                                                                      4.2
    GDP GROWTH                                                4
                                                              3.5         3.4                                                                      3.4
    (% growth rate, 1995 constant
                                                              3                                                                    3.1
    prices)                                                                                                           3
                                                              2.5                          2.7           2.7
                                                              2
                                                              1.5                                                                 1.8
                                                                                           1.5                                                     1.3
                                                              1
                                                                                                         1
                                                              0.5                                                    0.7
                                                              0
                                                                          2000             2001       2002        2003         2004          2005
    Source: Banco de España (Bank of Spain).
    www.bde.es.                                                                                  Spain              Euro zone


                                                                                                                                         Business in Spain
                                                                                                                                           Spain: a profile
                                                                                                                                                          9
5. Economic overview




Spain is a fairly dynamic country, and has consistently achieved        Table 5
high economic growth rates, clearly above the average for
other industrialized countries. The growth in Spain continues           GROWTH FOR OECD COUNTRIES (Percentages)
 to be much greater than the average growth of the EU
(see Chart 2).
                                                                                                                       Real GDP Growth

The prospects, taking into account that the world economic
                                                                                                                     2004          2005
situation is recovering, are that Spain will have growth rates
above the 3% threshold, in 2006: 3.2% according to the OECD
estimates and 3.3% according to the Spanish Government, once             EU countries
again exceeding the average for the EU (see Table 5). In fact, the       Germany                                      1.1          1.1
Spanish economy has overcome for 2005 the projections                    France                                       2.1          1.4
provided last year by the OECD.                                          Italy                                        1.0          0.0
                                                                         United Kingdom                               3.2          1.8
Inflation in Spain has fallen steadily since the late 1980’s. The        Spain                                        3.1          3.4
average inflation rate for 1987 through 1992 was 5.8%. The rate
of inflation was kept under 5% for the first time in 1993, and has       Other countries
been further reduced in subsequent years. Year 2005 ended with           United States                                4.2          3.5
an annual rate of inflation of 3.4%, slightly higher than the            Japan                                        2.3          2.8
annual rates of 2003 and 2004 due to the volatile goods (i.e.
energy), excluded from the underlying inflation rate, which was
                                                                         Total Euro Zone                              1.8           1.4
2.7% in 2005.

                                                                         Total OECD                                   3.3          2.7
Also, since 1999 Spain has engaged in an earnest effort to reduce
the budget deficit, including a successful program of major
                                                                         Source: Banco de España (Bank of Spain).
privatizations and of contention of public expenditure. The
actions taken by the Government have once again proved the
flexibility of the Spanish economy and the attainment of an
important reduction of the deficit achieving a surplus of 1,1% of
                                                                       Table 6 reflects the evolution of basic production and demand
the GDP until November 2005.
                                                                       components. The growth rate of the Spanish economy has
                                                                       stabilized due to rising domestic demand offset by a less positive
Very noteworthy is the impressive reduction in the official interest   contribution from the external sector. In addition to the
rates in Spain from 10% in 1993 to the current 2.25%.                  significant rise in demand, there was a notable acceleration in
                                                                       gross fixed capital formation and all the main areas made
                                                                       positive contributions, with the exception of agriculture.
6. DOMESTIC MARKET
                                                                       7. FOREIGN TRADE AND INVESTMENT
The growth of the Spanish economy in recent years has been
driven by a strong demand and a substantial expansion of               In recent years, the rapid growth in imports and exports has
production in the context of an increasingly open economy.             made Spain one of the most internationally-oriented countries in
                                                                       the world, with a degree of openness in goods and services of
                                                                       55.4%, above that of France and Italy.
Today Spain has a domestic market of 44 million people with a
per capita income of 19,642 euros and an additional injection of
                                                                       With regards to the trading of goods, it is ranked 17th in the world
demand coming from the nearly 56 million tourists9 who visit the
                                                                       as an exporter and 12th as an importer; while in the trading of
country every year. The close links (economic, cultural, political)
                                                                       services it occupies 7th place as an exporter and 11th place as an
with Latin America and North Africa and the obvious advantages
                                                                       importer.
of using Spain as a gateway to those countries are worthy of
mention.
                                                                       The Spanish share of goods and services exports (Spanish exports/
                                                                       global exports) is 2.0%, while its share of goods and services
9   www.iet.tourspain.es                                               imports (Spanish imports/global imports) stands at 2.6%.


Business in Spain
Spain: a profile
10
 Table 6
                                                                             Spain’s main trading partners are the 25-nation EU Member
                                                                             States, accounting for 74% of total exports and 66.4% of imports,
 GROWTH OF PRODUCTION AND DEMAND                                             followed by the Latin American countries, which account for 4.3%
 COMPONENTS (Percentages)                                                    of exports and 3.6% of imports, and the United States,
                                                                             accounting for 3.9% of exports and 3.4% of imports.
                                                        2004         2005*
                                                                             With regard to investment, in recent years Spain has been one of
  Production components                                                      the main recipients of foreign direct investment. It 2004 it was
                                                                             ranked eighth in the world in terms of investment flows, and third
  Agriculture and fishery                             –1.1         –0.9
                                                                             in the European Union with regard to the number of subsidiaries
  Industry                                            0.3           0.4
                                                                             of foreign companies10. In 2005, ignoring foreign-securities
  Energy                                              2.0           4.2
                                                                             holding companies (ETVEs), there was a notable increase in
  Construction                                         5.1          5.6      foreign inward investment, the investment flow which has an
  Services                                            3.6           3.8      impact on the real economy. Gross inward investment rose by
                                                                             t14,433 million, a 24% increase, and net inward investment by
  Demand components                                                          t8,309 million, a rise of 257% (see Chart 3).
  Private consumption                                 4.4           4.5
  Public consumption                                  6.0           4.8
                                                                             According to the 2005 Annual World Investment Report by the
  Gross fixed capital formation                       4.9           7.4
                                                                             UN Conference on Trade and Development, there was a sharp
  Domestic demand                                     4.7           5.2
                                                                             decrease in direct worldwide investment in 2001 (by 59% in
  Exports of goods and services                       3.3           0.1
                                                                             developed countries). Although Spain has not escaped this global
  Imports of goods and services                       9.3           7.3      trend, it has had one of the lowest rates of decrease in the EU.

  * Data as of September 30.
  Source: Instituto Nacional de Estadística (National Statistics             With regards to outward investment, Spain was ranked 4th in the
  Institute).                                                                world in 2004, behind only the United States, the United
                                                                             Kingdom and Luxembourg.

The breakdown by industry of foreign trade is relatively diversified,        10World Investment Report by the UN Conference on Trade and
as can be seen in Table 7.                                                   Development.



 Table 7

 DISTRIBUTION OF EXPORTS AND IMPORTS 2005 (As a % of total)

                                   Exports                                                                 Imports


  Capital goods                                                      21.9%    Capital goods                                                24.4%
  Automobile industry                                                19.9%    Automobile industry                                          15.1%
  Food                                                               14.1%    Energy products                                              13.8%
  Chemical products                                                  12.5%    Chemical products                                            12.3%
  Semi–manufactured non–chemical products                            11.6%    Consumer goods                                                9.8%
  Consumer goods                                                      8.9%    Food                                                          9.2%
  Energy products                                                     4.3%    Semi–manufactured non–chemical products                       8.4%
  Durable consumer goods                                              3.2%    Durable consumer goods                                        3.1%
  Raw materials                                                       1.9%    Raw materials                                                 3.2%
  Other goods                                                         1.6%    Other goods                                                   0.6%

  Source: Ministerio de Industria, Turismo y Comercio (Ministry of Industry, Tourism and Trade).



                                                                                                                               Business in Spain
                                                                                                                                 Spain: a profile
                                                                                                                                              11
7. Foreign trade and investment




 Chart 3                                                    30,000
 FOREIGN INVESTMENT IN SPAIN                                25,000
 (1993–2005)
                                                            20,000
 (Thousand million euros)
                                                            15,000

                                                            10,000

                                                             5,000

 Source: Registro de Inversiones Exteriores,                      0
 Ministerio de Industria, Turismo y Comercio                            1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
 (Registry of Foreign Investments. Ministry of
 Industry, Tourism and Trade).                                                  Gross investment             Net investment



Proof of how highly developed the Spanish economy is, is the fact         • Foreign investments are, as a general rule, subject only to
that, since 1997, the outward investment flows have outstripped             notification after the investment has been made. The only
inward investment flows.                                                    exceptions are: (i) Investments from tax havens, which in
                                                                            general must be notified beforehand, and (ii) foreign
By way of summary of Spanish foreign trade, the balance of                  investments in activities directly related to national security,
payments is attached in Table 8.                                            and real estate investments for diplomatic missions by States
                                                                            that are not members of the European Union and require
                                                                            “prior verification” from the Spanish Council of Ministers.

8. LEGISLATION ON FOREIGN INVESTMENT AND
                                                                          • There is no obligation for foreign investments to be formalized
   EXCHANGE CONTROL REGULATIONS
                                                                            in the presence of a Spanish public notary (unless specific
                                                                            legislation provides otherwise).
This section covers the main aspects of the Spanish legislation on
exchange control and foreign investments. Although these areas            • Investments in the air transportation and radio industries, in
are fully liberalized, there are specific reporting obligations to be       industries relating to minerals and raw mineral materials of
accomplished.                                                               strategic interest and mining rights, in the television, gaming,
                                                                            telecommunications and private security industries, in
As a general rule, foreign investments are subject only to                  industries concerned with the manufacturing, marketing or
notification after the investment has been made. Exchange                   distributing of arms and explosives for civilian use, and in
controls and capital movements are fully liberalized and in all             national security-related activities (these latter activities are
areas there is complete freedom of action.                                  subject to the clearance rules contained in the Royal Decree),
                                                                            will be subject to the requirements imposed by the competent
                                                                            body established by industry-specific legislation.
8.1. Legislation on foreign investment
                                                                          8.1.1. Investors
Royal Decree 664/1999 deregulated practically all transactions of
this kind (with the provisos and exceptions set forth below),             Investors can be:
eliminating the requirement for “prior verification” and adapting
Spanish domestic law to the rules on the freedom of movement              • non-resident individuals (that is, Spanish nationals or
of capital contained in Articles 56 et seq. of the Treaty of the            foreigners domiciled abroad, or who have their principal
European Union.                                                             place of residence there);

The most noteworthy aspects of the applicable rules are as                • legal entities whose registered offices are located abroad;
follows:                                                                    and


Business in Spain
Spain: a profile
12
 Table 8
                                                                           • Participation in Spanish companies, including their
                                                                             incorporation and subscription and acquisition of shares in
 SPAIN’S BALANCE OF PAYMENTS                                                 corporations or the subscription of shares in limited liability
 (Million euros)                                                             companies, and any legal transaction under which voting and
                                                                             other non financial rights are acquired.

                                                    2004          2005
                                                                           • Establishment of, and increase of capital allocated to branches.

  I. Current account                             –44,451 –68,952           • The subscription and acquisition of marketable debt securities
                                                                             issued by residents (debentures, bonds, promissory notes).
  Trade Balance                                  –52,937 –69,834
  Services Balance                                 22,231 21,089
                                                                           • Participation in mutual funds recorded in the Registers of the
  Income                                          –13,701 –18,164
                                                                             Spanish National Securities Market Commission.
  Net Current Transfers                              –44 –2,043
                                                                           • The acquisition by non-residents of real estate located in
  II. Capital Account                               8,548         8,163
                                                                             Spain valued at more than t3,005,060, or where the
                                                                             investment originates from a tax haven, whatever its amount.
  III. Financial Account                          36,834        60,641
  Total (excluding Bank of Spain)                 50,844 62,755            • The formation, formalization or participation in joint
  Direct investment                              –26,345 –10,594             ventures, foundations, economic interest groupings,
  Portfolio investment                            85,805 45,597              cooperatives and joint-property entities, with the same
  Other investment                                –9,777 27,205              characteristics as in the previous paragraph regarding the
  Financial derivatives                             1,161     548            value of the investment.
  Bank of Spain                                  –14,010   –2,115
                                                                           Foreign investments not included in the above list (such as
  Reserves                                          5,147   1,439
                                                                           participating loans), are totally deregulated, and no notice is
  Claims with the Eurosystem                     –13,760 14,855
                                                                           required. Notwithstanding the foregoing, said investments may
  Other net assets                                –5,397 –18,409           be subject to industry-specific regulations and the rules on
                                                                           exchange control and notification of monetary flows to or from
  IV. Net errors & omissions                         –931           148
                                                                           other countries remain in force.

  Source: Banco de España (Bank of Spain).
                                                                           8.1.3. The party required to report foreign investments
  N.B.: A positive sign in the current and capital accounts means a
  surplus (receipts greater than payments) and represents a net loan
                                                                           As a general rule, the owner of the investment and, in addition,
  from Spain to the rest of the world (increase in assets or decrease in
  liabilities), whereas in the financial account a positive sign means a   any Spanish public notary acting in the transaction, is obliged to
  net inflow of capital and represents a net loan from the rest of the     report the investment to the authorities. However, on the
  world to Spain. A negative sign in reserves means an increase.           investment in certain type of assets (mutual funds, securities,
                                                                           registered shares) other individuals may be obliged to report the
                                                                           investment (credit, financial, deposit-taking or management
                                                                           entities, the Spanish company receiving the investment).
• public agencies of foreign States.

                                                                           8.1.4. Reporting rules
A Spanish company in which foreign shareholders have a majority
holding is not deemed to be an investor. A change of registered
                                                                           (i) General rule
office of legal entities or a change of residence of individuals is
enough to change the classification of an investment as a
                                                                           As a general rule, foreign investments indicated in section 8.1.2
Spanish investment abroad or a foreign investment in Spain.
                                                                           above and the liquidation thereof must be reported after the
                                                                           event to the Investments Register at the Ministry of Industry,
8.1.2. Regulated Investments
                                                                           Tourism and Trade11.
The following types of investments are subject to notification or
previous authorization requirements:                                       11   http://www.meh.es/portal


                                                                                                                             Business in Spain
                                                                                                                               Spain: a profile
                                                                                                                                            13
8. Legislation on foreign investment and exchange control regulations




(ii) Exceptions                                                         the production or marketing of arms, munitions, explosives and
                                                                        other armaments (except in the case of listed companies, in
Investments from tax havens must be reported before and after           which case only acquisitions by non-residents of more than 5% of
the event, except in the following cases:                               their capital stock, or acquisitions of less than 5% that enable
                                                                        such investors to form, directly or indirectly, part of their
• Investments in marketable debt securities issued or offered           managing bodies, will require clearance).
  publicly, whether or not they are traded on an official
  secondary market, and units in mutual funds recorded in the           8.2. Exchange control regulations
  Registers of the Spanish National Securities Market
  Commission.
                                                                        Exchange controls and capital movements are fully liberalized
                                                                        and in all areas there is complete freedom of action.
• Where the foreign interest does not exceed 50% of the capital
  stock of the Spanish company in which the investment is
  made.                                                                 In this sense, Law 19/2003, on Movement of Capital and Foreign
                                                                        Transactions and for the Prevention of Money Laundering,
It is important to stress that this prior reporting obligation is not   repealed Law 40/1979, on Exchange Control Legal System (with
equivalent to a verification or authorization requirement, and,         the exception of chapter II), and modified Law 19/1993, on
once the investment has been reported, the investor may make            Certain Measures for the Prevention of Money Laundering, but
his investment without having to wait for any reply from the            maintained the principle of liberalization of movements of
authorities.                                                            capital.

8.1.5. Monitoring of foreign investments                                Law 19/2003 should have been implemented by regulations
                                                                        before January 8, 2004, but this has been done only partially. In
The General Directorate for Trade and Investments11 (“DGCI”) of         this regard, Royal Decree 54/2005 has modified the regulations
the Ministry of Industry, Tourism and Trade can require Spanish         of Law 19/1993, approved by Royal Decree 925/1995. However,
companies which have foreign shareholders and Spanish                   no other regulations have been implemented and, until they are,
branches of non-resident persons specifically or generally to file      according to the First Temporary Provision of Law 19/2003, all
an annual report on the status of their foreign investments. The        regulations approved implementing Law 40/1979 will remain in
General Directorate may also require the parties required to            force in everything not opposed to Law 19/2003.
report foreign investments to provide the information necessary
in each particular case.
                                                                        The main features of the Spanish exchange control scenario
                                                                        currently in force can be summarized as follows:
Owners of investments, Spanish companies with non–resident
shareholders, public authenticating officials, companies providing
services, or investment companies and credit entities and other         8.2.1. Freedom of action
finance entities that have taken part in investment transactions
may also be required by the General Directorate to provide the          As a general rule, all acts, businesses, transactions and
information necessary in each particular case.                          operations between residents and non-residents which involve or
                                                                        may involve payments abroad or receipts from abroad are
8.1.6. Suspension of the deregulation rules                             completely deregulated. This deregulation includes payments or
                                                                        receipts made either directly or by offset of the underlying
The Spanish Council of Ministers can suspend the application of         transactions, as well as transfers to or from abroad and variations
the deregulation rules in certain cases, which will require             in accounts or financial debtor or creditor positions abroad. It
investments concerned to undergo a prior procedure to obtain            also covers the import or export of means of payment.
administrative clearance from the Council of Ministers.
                                                                        8.2.2. Safeguard clauses and exceptional measures
Up to date, the Council of Ministers has exercised the powers of
suspension described above only in respect of foreign investments
                                                                        The EU provisions will be able to prohibit or restrict the
in Spain in activities directly related to national security, such as
                                                                        performance of certain transactions and the respective
                                                                        collections, payments, bank transfers or variations in accounts or
11   http://www.mcx.es/polco/                                           financial positions in respect of third countries.


Business in Spain
Spain: a profile
14
The Spanish Government may also impose prohibitions or               8.2.4. Specific transactions to be reported to
restrictions in respect of one or a group of States, a certain              the Bank of Spain
territory or an extra-territorial centre, or suspend the system of
liberalization for certain acts, businesses, transactions or         For purely statistical and informative reasons, residents who
operations.                                                          perform foreign acts, businesses, or transactions should declare
                                                                     them in the following cases:
8.2.3. Statistical information
                                                                     • Financing and deferrals of payments and receipts for more
In order to calculate the Spanish balance of payments and to           than one year between residents and non-residents deriving
maintain statistical control of monetary flows there are certain       from commercial transactions or the provision of services.
mechanisms for payments to and receipts from abroad.
                                                                     • Offsets of credits and debits between residents and non-
Currently, these mechanisms are as follows:
                                                                       residents deriving from commercial transactions or the
                                                                       provision of services.
• As a general rule, payments, receipts and transfers between
  residents and non-residents, denominated either in euros or
                                                                     • Offsets of credits and debits deriving from intermediation in
  in foreign currency, should be made through deposit–taking
                                                                       financial markets by intermediary entities.
  entities (normally banks) registered in the Bank of Spain’s
  Official Register12 to whom the resident party must provide
  with certain data (e.g. names and addresses of both parties)       • Financial loans received by residents from non-residents or
  and specifically with a description of the transaction giving        granted by residents to non-residents. Securities such as
  rise to the payment, receipt or transfer.                            bonds, promissory notes, etc. not traded on Spanish stock
                                                                       exchanges issued by Spanish residents and acquired by non-
      The debits and credits posted to bank accounts held in Spain     residents are considered as financial loans from
      by non-residents are also subject to this regime.                non-residents.


• The debits and credits posted to bank accounts held abroad         Additionally, the Spanish authorities and the Bank of Spain may
  by residents must be notified to the Bank of Spain using           require any data in order to monitor such transactions for
  specific forms if they exceed a specified threshold or if          statistical and tax purposes.
  expressly requested by the Bank of Spain.
                                                                     8.2.5. Import and export of certain means of payment
• Payments and receipts between residents and non-residents
  can be made, in Spain or abroad, in coins, bank notes and          The export of coins, bank notes and bearer checks, denominated
  bearer checks, denominated either in euros or in foreign           either in euros or in foreign currency, although deregulated, is
  currency, and must be declared by the resident party within        subject to prior declaration for purely informative purposes if the
  30 days if they exceed t6,000.                                     amount involved exceeds t6,000 per individual per trip. If the
                                                                     declaration is not made, the Spanish customs officials will retain
• Non-residents intending to credit bank accounts held in Spain      these means of payment.
  by non-residents by means of bank notes or bearer checks, in
  euros or foreign currency, or to transfer abroad such means of     The import of the above-mentioned means of payment by non-
  payment, are obliged to evidence the origin of such funds.         residents is subject in certain cases to prior declaration to the
  Otherwise, the registered entities will not be able to proceed     Spanish customs authorities if higher than t6,000 (per
  with these transactions.                                           individual per trip).

Exceptionally, the Spanish Ministry of Industry, Tourism and Trade   8.2.6. Types of bank accounts
may, by making the relevant regulations, require prior clearance
or declaration for payments, receipts or transfers to or from
                                                                     Non-resident individuals and legal entities can hold bank
abroad arising from certain transactions yet to be specifically
                                                                     accounts on the same conditions as resident individuals and legal
defined.
                                                                     entities. The only requirement is to documentarily evidence, on
                                                                     opening the bank account, the non-resident status of the holder
12   http://www.bde.es/                                              of the account. Additionally, such status must be confirmed to the


                                                                                                                       Business in Spain
                                                                                                                         Spain: a profile
                                                                                                                                      15
authorized bank every two years. Other minor formalities are         permanent establishments and branches in Spain of legal entities
stipulated.                                                          or of individuals resident abroad, are likewise resident in Spain for
                                                                     exchange control purposes.
Moreover, residents may, subject to certain declaration
requirements, freely open and hold bank accounts abroad either       Non-residents for exchange control purposes are individuals
in euros or in foreign currency (the opening of such bank            with their customary place of residence abroad, legal entities
accounts by resident parties must be declared to the Bank of         with registered offices abroad, and the permanent
Spain)and bank accounts in Spain denominated in foreign              establishments and branches abroad of Spanish resident
currencies at registered entities (without being subject to any      individuals or entities.
information requirement).
                                                                     Individuals or entities are deemed to have their customary
8.2.7. Residence for exchange control purposes                       residence in Spain if they comply with the requisites set forth in
                                                                     the tax legislation to be considered as residents in Spain for tax
For exchange control purposes, individuals are deemed to be          purposes (please refer to the applicable Chapter), but with the
resident in Spain if they have their customary place of residence    specifications established by regulations (currently there are no
in Spain. Legal entities with registered offices in Spain, and the   regulations on this matter).




Business in Spain
Spain: a profile
16
interes@interes.org
www.investinspain.org




Prepared by:
                        MINISTERIO              SECRETARÍA DE ESTADO
                        DE INDUSTRIA, TURISMO
                        Y COMERCIO              DE TURISMO Y COMERCIO
Business in Spain


Establishing a
business in Spain   2




!
Setting up a business in Spain is simple. The business models to
choose from are the same as in other OECD countries and a wide
range of possibilities are available to companies interested in
investing in Spain.

It is also worth noting that foreign investment restrictions and
exchange controls have been virtually eliminated in line with the
EU legislation on deregulation in this area.

This chapter describes the basic requirements for establishing a
company in Spain and lists the key steps in the process, for the
different types of business.




!
Sociedad Estatal para la Promoción y Atracción de las Inversiones Exteriores, S.A.U. RM: Tomo 21818, libro 0, folio 15, sección 8, hoja M-388683,
Inscripción 1. NIF: A-84479013. Depósito legal: M-24716-2006.
Published 2006
Business in Spain


Establishing a
business in Spain
 1. Introduction                                                                      3
2. Different ways for conducting business in Spain                                    3
3. How to incorporate a corporation                                                   3
    3.1. Legal steps                                                                  4
    3.2. Costs                                                                        5
4. Formation of a branch                                                              6
    4.1. Legal steps and costs                                                        6
    4.2. Branch versus subsidiary                                                     7
    4.3. Computation of spanish corporate income tax                                  8
5. Forms of business cooperation                                                      8
    5.1. Temporary Business Associtation (UTEs)                                       8
    5.2. Economic Interest Groupings (EIGs)                                           8
    5.3. Participation Account Agreement                                              9
    5.4. Joint ventures through Spanish corporations or limited liability companies   9
6. Distribution, agency, commission agency and franchising agreements                 9
    6.1. Distribution agreements                                                      9




2
    6.2. Agency agreements                                                            10
    6.3. Commission agency agreements                                                 10
    6.4. Differences and similarities between agency agreements and commission
           agency agreements                                                          11
    6.5. Franchising                                                                  11
 7. Other alternatives to investing in Spain                                          11
    7.1.   Acquisition of shares of an existing corporation                           11
    7.2. Acquisition of real estate                                                   12
8. Dispute resolution                                                                 13
    8.1. State court proceedings                                                      13
    8.2. Arbitration                                                                  13
                                                                                                                                                                                                    FRANCE
                                                     La Coruña                                                          Santander
                                                                                                                                                     San Sebastián
                                                                                       Oviedo                                              Bilbao
                                                                      Lugo               Asturias                      Cantabria
                                          Santiago de Compostela                                                                              País
                                                                                                                                             Vasco                Pamplona
                                              Pontevedra    Galicia                                                                            Vitoria
                                                                   Orense                                                        Burgos                       Navarra
                                                                                                     León                                      Logroño
                                                                                                                                               La Rioja                              Huesca                                       Gerona
                                                                                                                      Palencia                                                                       Lérida   Cataluña
                                                                                                       Castilla y León                          Soria
                                                                                                               Valladolid                                                    Zaragoza
                                                                                                Zamora                                                                                                                     Barcelona
                                                                                                                                                                           Aragón
                                                                                       Salamanca                      Segovia                                                                                  Tarragona

                                                                                                                                 Madrid     Guadalajara
                                                                                                              Ávila      Comunidad                                          Teruel
                                                                                                                          de Madrid
                                                                                                                                                         Cuenca
                                                                                                                                                                                           Castellón de la Plana
                                                     PORTUGAL                                                           Toledo                                                                                              Palma De Mallorca
                                                                                                                                                                                              Valencia
                                                                                      Cáceres                             Castilla - La Mancha                               Comunidad
                                                                              Extremadura                                                                                    Valenciana                                      Baleares
                                                                            Badajoz
                                                                                       Mérida                         Ciudad Real                             Albacete


                                                                                                                                                                                        Alicante

                                                                                                         Córdoba                                                Murcia
                                                                                                                                    Jaén
                                                                                                                                                                         Murcia
                                                                                           Sevilla          Andalucía
                                                                      Huelva
                                                                                                                                     Granada

                                                                                                                       Málaga                        Almería
                                                                                         Cádiz


                                                                                                      Ceuta



                                                                                                                                                    Melilla



                                                                                                            MOROCCO


            Santa Cruz de Tenerife
                                 Canarias
                             Las Palmas de Gran Canaria




Business in Spain
Establishing a business in Spain
2
1. Introduction




1. INTRODUCTION                                                           presence in Spain, since it allows the parties to share risks and
                                                                          combine resources and expertise.
This chapter deals with, from a very practical viewpoint, the main
alternatives for a foreign investor to establish a business presence   There are different vehicles which can be used to set up a joint
in Spain, as well as the main steps, costs and legal requirements      venture under Spanish law as explained below:
in connection with them.
                                                                       • An Economic Interest Grouping (“Agrupación de Interés
As regards the ways of establishing a business presence, several         Económico”, EIG) or a European EIG (EEIG).
alternatives are analyzed, whether in the form of sole ownership
                                                                       • A Temporary Business Association (“Unión Temporal de
of a business through the incorporation of a Spanish entity or the
                                                                         Empresas” or UTE).
formation of a Spanish branch, whether through joint ventures
for carrying on a business jointly with one or more entrepreneurs      • Another possibility is to execute a form of Spanish partnership
already established in Spain. Other channels for conducting a            agreement known as a Participation Account Agreement
business without requiring a physical presence, through the              (silent partnership), “contrato de cuenta en participación”,
arrangement of distribution, agency, commission agency and               with a Spanish company.
franchising agreements are also considered.
                                                                       • Joint ventures through Spanish corporations or limited
The steps to be taken for the following types of investment are          liability companies.
analyzed:
                                                                       • However, not every investor wishing to operate and/or
• Setting-up of a Spanish corporation and formation of a                 distribute his goods or services in Spain needs necessarily to
  Spanish branch (sections 3 and 4).                                     set up a new entity or enter into an association with other
• Acquisition of shares of an existing Spanish corporation               existing entities. Penetration in the Spanish market and a
  (section 6.1).                                                         satisfactory response to existing demand can be achieved
                                                                         through the various forms of distribution agreements
• Acquisition of real estate (section 6.2).                              available in Spain, without having to physically establish a
• Lastly, this Chapter contains a last section on the disputes           centre of operations in Spain. The various alternatives
  resolution in Spain, whether through State court proceedings           include:
  or through arbitration, which is seen to be a very real
                                                                          — Signing a distribution agreement.
  alternative system suitable for the settlement of commercial
  disputes.                                                               — Operating through an agent.

                                                                          — Operating through commission agents.
2. DIFFERENT WAYS FOR CONDUCTING A BUSINESS IN
   SPAIN                                                                  — Franchising.


A distinction may be drawn between various alternatives once the       Each of these forms of doing business in Spain offers various
foreign investor has decided to invest in Spain:                       advantages that should be balanced against the possible
                                                                       problems that each one may raise and that need to be
• Incorporation of a Spanish company (an S.A. or any other of          considered from the tax and legal points of view.
  the forms of business enterprise described in Annex I of this
  Guide) or the formation of a branch or permanent
  establishment. In this regard, various kinds of mercantile
                                                                       3. HOW TO INCORPORATE A CORPORATION
  entities envisaged by Spanish law can be used by foreign
  investors to invest in Spain.
                                                                       The most common form of legal entity under Spanish mercantile
   Traditionally, the corporation (S.A.) has been the most             law is the corporation (“Sociedad Anónima”- S.A.), and the
   commonly used form, although the limited liability company          second most common is the limited liability company (“S.L.”).
   (S.L.) has gained popularity in recent years.

• Association with other entrepreneurs already established in          However, it should be noted that similar steps and expenses are
  Spain. Foreign investors may find a joint venture with a             involved for both legal structures, so this chapter describes the
  Spanish company to be the most appropriate form of                   steps only for a corporation.


                                                                                                                         Business in Spain
                                                                                                          Establishing a business in Spain
                                                                                                                                         3
3. Incorporation of a corporation




3.1. Legal steps                                                            execute a public deed of power of attorney, in Spanish, to the
                                                                            person designated. This power of attorney can be used
The example given here is of the incorporation of an S.A. by                directly in Spain.
means of cash contributions. The formal act of incorporation
                                                                        • Execution of the power of attorney in the presence of a
takes place in the presence of a notary public, who executes the
                                                                          foreign public authenticating officer. Thus, the foreign investor
related public deed of incorporation (articles of incorporation).
                                                                          would appear before the authenticating officer, giving
The capital stock must be fully subscribed and at least 25% paid
                                                                          evidence of his identity and granting the related power of
in at the time of incorporation; the remaining 75% must be paid
                                                                          attorney. If the foreign investor is a company, its
in within the period stipulated in the bylaws. The minimum
                                                                          representative shall execute the power of attorney in the
capital stock required is t60,102 (compared with the much lower
                                                                          presence of the public authenticating officer, who shall certify
figure of t3,005 for an S.L., which must be fully paid in on
                                                                          the document and the identity and capacity of the
formation).
                                                                          representative of the foreign investor to grant the power of
                                                                          attorney. The signature of the foreign authenticating officer
The basic requirements for forming a corporation are as follows:
                                                                          would also have to be subsequently legalized (either by the
• Issuance by the Spanish Central Mercantile Register1 of a               “apostille” procedure approved by The Hague Convention of
  certificate of clearance for use of the name of the new                 October 5, 1961, when applicable, or by a Spanish consul
  company. This step should precede all others, so as to have             abroad). Under this second procedure, the power would
  assurance that the proposed name can in fact be used.                   normally be executed in the language of the authenticating
                                                                          officer who attests to the act. For this reason, it would be
• Execution of the notarized public deed of incorporation.                necessary to subsequently prepare an official translation into
• Evidence of the identity of the founder shareholders.                   Spanish.

                                                                        • Evidence of payment can be provided in the form of
The notary public will require the people who appear before him
                                                                          appropriate bank documentation for delivery to the notary
for this purpose to exhibit: Evidence of their identity; the power of
                                                                          attesting to the act of incorporation of the company.
attorney (if applicable) to represent a third party on whose behalf
any of them appears; evidence of payment and method of                  • Assignment of a tax identification number to the new
contribution (if applicable); the name clearance certificate from         company (NIF or CIF)2. This is a necessary step for the
the Mercantile Register (see above); and the form (for signature          payment of transfer tax (see below) and the registration of
by the notary, if applicable) to declare subsequently the foreign         the company in the Mercantile Register. This step (which
investment to the DGCI’s Foreign Investment Register. It is also          involves no cost) consists of filing a special form (also used for
necessary to provide the notary with the bylaws of the company.           VAT purposes) together with certain documents with the
                                                                          competent tax authorities. A provisional number is granted
If a shareholder is represented at the act of incorporation, the          automatically. Once the company has been registered in the
power of attorney to be used must be sufficient and, if issued            Mercantile Register, it must obtain the definitive tax
abroad, must be duly legalized. There are two main procedures             identification number within a maximum period of six
for such legalization:                                                    months from the issuance of the provisional number.
• Execution of the power of attorney in the presence of the                 Spanish authorities currently demand the fulfilment of the
  Spanish consul in the foreign investor’s country. The foreign             following requirements in order to grant the definitive tax
  investor would have to appear before the Spanish consul,                  identification number:
  giving evidence of his identity and granting the related power
  of attorney. If a company, rather than an individual, is the              — Prior assignment of a tax identification number to non-
  foreign shareholder, apart from his identity, the person                    resident Directors of the company, which can be
  appearing before the consul must evidence his power to                      obtained: (i) If the Director is a legal entity, following the
  execute, in the name and on behalf of the shareholder, the                  abovementioned steps; or (ii) if the Director is an
  power of attorney to the person designated.                                 individual, obtaining the foreigners identification number
                                                                              (“número de identificación de extranjeros” or “NIE”)3,
     The Spanish consul will demand presentation of whatever
     documentation he considers necessary, and will proceed to
                                                                        2 The NIF o CIF shall be requested before the Tax Office corresponding to
                                                                        the business domicile of the company (http://www.aeat.es).
1   http://www.rmc.es/                                                  3 http://www.mir.es/




Business in Spain
Establishing a business in Spain
4
          which will be the same as the NIF, and can be obtained        • Registration of the company for Spanish social security and
          as follows:                                                     occupational accident insurance purposes, and registration of
          – In Spain: Before the Police General Directorate4, with        the employees for social security purposes5.
             duly notarized and apostilled or legalized powers of
             attorney from each of the Directors that do not appear     • Compliance with certain procedural formalities at the local
             in person.                                                   office of the Ministry of Labour and Social Affairs6.
          – Abroad: Before the Spanish diplomatic or consular
             offices.                                                   A chart with the main steps to incorporate a corporation by mean
                                                                        of contributions in cash is included next:
     — Prior assignment of a tax identification number to non-
       resident partner or partners of the company, which can
                                                                        As a general rule, the incorporation of a corporation will take
       be obtained: (i) If the Director is a legal entity, following
                                                                        between six and eight weeks.
       the abovementioned steps; or (ii) if the Director is an
       individual, obtaining the foreigners identification number
       (“número de identificación de extranjeros” or “NIE”).            For additional information please visit www.investinspain.org and
                                                                        the web page www.ipyme.org.
     In all the abovementioned process the partner or partners
     and/or the Director or Directors that are represented shall        Additionally, please consult the sole business office (“ventanilla
     grant sufficient powers of attorney for said purpose.              única empresarial”), which has the objective of supporting
                                                                        entrepreneurs and offers integrated consulting and processing
• Payment of transfer tax (see below). A special form must be
                                                                        services at www.vue.es/.
  filed within a maximum period of 30 days from the act of
  incorporation. Again, this is a necessary requirement for
  registration of the company in the Mercantile Register.               3.2. Costs

• Registration in the Mercantile Register.
                                                                        • Transfer tax at 1% on the capital amount.

Once the above-mentioned steps have been completed, the                 • Fees of the notary public handling the incorporation, which
public deed of incorporation of the company is delivered to the           are charged on a sliding scale based on the capital amount.
Mercantile Register for formal registration of the company.               For guidance purposes, the official rates amount to ?90 for
                                                                          the first t6,010, applying afterwards a range from
• Subsequent declaration of the investment to the General
  Directorate for Trade and Investment (“DGCI”) of the Ministry              0.45% down to 0.03% for capital in excess of t601,012, and
  of Economy and Finance, in certain cases, mainly limited to                up to t6,010,121. For the amount exceeding t6,010,121, the
  cases of foreign investment originating from territories or                Notary will receive the amount that is freely agreed upon by
  countries deemed to be tax havens, prior declaration is                    the granting parties.
  required (see section 8 of Chapter 1 for more detailed
  information).                                                         • Fees for registering the company in the local Mercantile
                                                                          Register, following its incorporation in the presence of the
• Registration of the company for the purposes of the business
                                                                          notary. There are official rates that amount to t6.01 for the
  activities tax. Newly incorporated companies must use the
                                                                          first t3,005, applying afterwards a sliding scale of officially
  same special form used to request a tax identification
                                                                          approved charges ranging from 0.1% down to 0.005% for
  number, to describe their business activity, and specify the
                                                                          capital amounts in excess of t6,010,121. In any case the total
  article of the Law by virtue of which they are exempt from this
                                                                          amount of the fee cannot exceed t2,181.
  tax (newly incorporated companies or companies starting a
  new business activity are exempt from this tax during the two         • Opening license tax. A one-time municipal levy, ordinarily of a
  first tax periods in which they carry out said activity). This step     relatively small amount.
  must be completed before the company starts its activities.
                                                                        • Other expenses (e.g. professional fees), which are not readily
• Registration of the company for VAT purposes.
                                                                          quantifiable.
• Opening license.

                                                                        5   http://www.seg-social.es/
4   http://www.policia.es/                                              6   http://www.mtas.es/


                                                                                                                           Business in Spain
                                                                                                            Establishing a business in Spain
                                                                                                                                           5
3. Incorporation of a corporation




 Table 1

 PROCEEDINGS TO CONSTITUTE A SOCIETY

                          Request of
                         denomination
                            reserve


                          Granting of
                         powers for the
                          constitution

                                                                            Obtaining the
                                                                              number of
                          Opening of                                       provisional fiscal
                        banking account                                     identification
                                                    Granting of                                    Inscription
    PREVIOUS                                         the writing                                      in the          Definitive
  PROCEEDINGS                                      before Spanish                                  mercantile         obtaining
                       Determination and               notary                 Payment of             registry            NIF
                         deposit of the                                       the tax on
                         share capital                                        societarias
                                                                              operations
                                                                                                                    Declaration
                                                                                                                    investment
                        Determination of                                                                          before economy
                       the administration                                                                             ministry
                             device


                        Writing of social
                            statutes




4. FORMATION OF A BRANCH                                                 contribution (if applicable); and the form, where applicable,
                                                                         to declare of the foreign investment to the DGCI’s Foreign
In general terms, the requirements, procedural formalities and           Investment Register), but also evidence of the existence of
costs of forming a branch are very similar to those for the              the parent company, its bylaws, the names and personal data
incorporation of a subsidiary. The main legal steps and costs of         of its directors, as well as the resolution adopted by the
forming a branch are summarized below, highlighting the                  competent body of the parent company to form a branch.
differences with respect to the incorporation of a subsidiary.
                                                                    • Assignment of a tax identification number (*).

4.1. Legal steps and costs                                          • Payment of transfer tax (exempt if certain requisites are met)
                                                                      (*).
• Execution of the notarized public deed of formation in the        • Registration in the Mercantile Register (*)7.
  presence of a Spanish notary public. This formality consists of
  notarizing the resolution to form the branch adopted              • Subsequent declaration to the DGCI in certain cases (see
  previously by the parent company’s competent body.                  previous section 3.1 for more detailed information). In some
                                                                      cases, prior declaration is required.
   In addition, the notary public will require not only
                                                                    • Registration of the branch for business activities tax
   documentation similar to that required in the case of a
                                                                      purposes (*).
   subsidiary (i.e. evidence of the identity of the person who
   appears before him; his power of attorney to represent the
   parent company; evidence of the payment and method of            7   http://www.rmc.es/


Business in Spain
Establishing a business in Spain
6
• Registration of the branch for VAT purposes (*).                                  and no legal minimum for general partnerships). A branch
                                                                                    does not require any minimum assigned capital.
• Payment of opening license tax (*).
                                                                                • A subsidiary is a separate legal entity, whereas a branch is not
• Registration for social security purposes (*)8.
                                                                                  a legal entity and has the same legal identity as its parent
• Compliance with the labour formalities (*).                                     company.

      (*) As in the case of a subsidiary.                                       • The liability of the shareholders of a subsidiary incorporated
                                                                                  as an S.A. (or S.L.) for the debts of the subsidiary is limited to
4.2. Branch versus subsidiary                                                     the amount of the capital contributions they make or
                                                                                  undertake to make, with the exceptions analyzed in Annex I.
Summarized below are the main differences between the two
                                                                                    In the case of a branch, there is no limit to the parent
types of entity that should be taken into consideration.
                                                                                    company’s liability.

From a Spanish legal standpoint, the main differences between a
                                                                                From a tax standpoint, as stated earlier, both the branch and the
branch and a subsidiary are as follows:
                                                                                subsidiary are, in general terms, taxed under Spanish corporate
• Minimum capital: an S.A. must have a minimum capital of                       income tax at 35% on their net income, but there are some other
  t60,102, t3,006 a S.L.’s, t60,102 for mixed partnerships,                     aspects that should be mentioned, among others:

                                                                                • Remittance of profits: The remittance of branch profits and
8   www.seg-social.es/                                                            the distribution of a subsidiary’s dividend to a non-EU parent



    Table 1

    EXAMPLE: CALCULATION OF CORPORATE TAX

                                                   Parent company in EU                Parent company in treaty           Parent company in nontreatry
                                                        Country (1)                            Country                              Country


    Subsidiary:
    Profit of Spanish subsidiary                        100                                  100                                 100
    Spanish income tax (35%) (2)                         35                                    35                                  35
    Dividends                                            65                                   65                                   65
    Withholding tax on dividends                         — (4)                                6.5 (5)                            9.75 (3)
    Total tax in Spain                                   35                                  41.5                               44.75

    Branch:
    Profit of Spanish branch                            100                                  100                                 100
    Spanish income tax (35%) (2)                         35                                   35                                   35
    Profit remitted to the parent company                65                                   65                                   65
    Withholding tax                                        - (4)                                - (6)                            9.75 (3)
    Total tax in Spain                                   35                                   35                                44.75

    (1)   Spain has tax treaties in force with all EU countries except with Malta and Cyprus.
    (2)   See special tax rate for small and medium-sized companies in Chapter 3.
    (3)   Withholding tax rate = 15%.
    (4)   Exempt, provided certain conditions are met.
    (5)   The withholding tax rate on dividends used in this example is 10% (the most common rate in the tax treaties entered into by Spain).
    (6)   The branch profit tax will apply if provided for in the corresponding tax treaty (e.g. the U.S., Canada and Brazil).



                                                                                                                                      Business in Spain
                                                                                                                       Establishing a business in Spain
                                                                                                                                                      7
4. Formation of a branch




     company resident in a non-treaty country are taxable in Spain     registered at the Commercial Registry10. However, UTEs must
     at the rate of 15%; if the parent company is EU-resident, the     comply with bookkeeping and accounting requirements similar to
     remittance or distribution is normally tax-exempt.                those of corporations. UTEs are governed by Law 18/1982, on the
                                                                       Tax Regime of Groupings and Temporary Business Associations
• If the parent company is resident in a non- EU country with
                                                                       and Regional Industrial Development Companies, amended, inter
  which Spain does have a tax treaty, the dividends would be
                                                                       alia, by Law 12/1991, Act 43/1995 and Act 63/2003.
  taxable at the reduced treaty rate and the remittance of
  branch profits would, under most of the treaties, not be
  taxable in Spain.                                                    5.2. Economic Interest Groupings (EIGs)

• Share in parent company overheads: In practice, it is normally
                                                                       One of the main differences between UTEs and EIGs is that the
  easier for these expenses (if any are imputed) to qualify as
                                                                       latter are entities of a mercantile nature which have their own
  deductible in the case of a branch as in the case of a subsidiary.
                                                                       legal personality as separate legal entities.
• Interest on loans from a foreign parent company to its
  Spanish branch is not tax-deductible for the branch. By              Additionally, the EIG must be founded as a not-for-profit entity
  contrast, the interest on loans from the shareholders of a           and may only be created in order to help its members achieve
  subsidiary is normally tax-deductible for the subsidiary,            their objectives. They may not act on behalf of their members nor
  provided that the transaction is valued on an arm’s-length           may they substitute for them in their operations. Consequently,
  basis.                                                               the EIG is most commonly used to provide centralized services
                                                                       within the context of a wider association or group of companies,
4.3. Computation of Spanish corporate income tax                       such as centralized purchasing, sales, information management
                                                                       or administrative services.
Below is a very simple example of the computation of Spanish
corporate income tax on the profit obtained by a Spanish               Spanish law lays down certain requirements for EIGs:
subsidiary or by the branch in Spain of a foreign company.
                                                                       • They may not interfere with their partners’ decisions on
                                                                         personnel, finance or investment matters, and may not
5. FORMS OF BUSINESS COOPERATION                                         manage or control their activities.

One of the most common forms of business cooperation between           • They may not hold, directly or indirectly, a portfolio of
companies is the joint venture (JV). Different forms of joint            investments in other companies unless shares or holdings
venture are provided by Spanish legislation for carrying on a            need to be acquired in order to achieve the EIGs purpose. If
business between one or more partners.                                   this is the case, the shares or holdings must be immediately
                                                                         transferred to its partners.
5.1. Temporary Business Associations (UTEs)                            • They must be formed by notarial deed.

Under Spanish law, UTEs are temporary business cooperation
                                                                       EIGs members are considered personally and severally liable for
vehicles set up for a specified or unspecified period of time,
                                                                       the entity’s debts, although secondarily to the EIG. Their main
for the purpose of carrying out a specific project or service.
                                                                       obligation is to contribute to the EIGs capital, as agreed, and to
UTEs allow several companies to operate together in one
                                                                       share in its expenses.
common project. This form of association is very common for
engineering and construction projects but can be used in other
sectors as well.                                                       There are two main governing bodies in an EIG: its members’
                                                                       meetings and its managers. The managers are jointly liable with
UTEs are not corporations and have no legal personality. In any        the EIG for all tax obligations accrued and for any damage caused
case, in order to opt for the special tax regime, of flow-thorough     unless they can prove that they acted with due diligence.
taxation, they have to be formed by notarial deed and registered
with the Finance’s Special Register of UTEs of the Spanish Ministry    They are governed mainly by Law 12/1991, of April 29, on
of Economy and Finance9. Furthermore, they may be also                 Economic Interest Groupings.


9   http://www.meh.es                                                  10   http://www.registradores.org/


Business in Spain
Establishing a business in Spain
8
The European EIG (EEIG) also has its own legal personality and        6. DISTRIBUTION, AGENCY, COMMISSION AGENCY AND
EEIGs incorporated in Spain share the main features                      FRANCHISING AGREEMENTS
contemplated under EU Regulation 2137/85, which provides the
basic governing rules for EEIGs.                                      6.1. Distribution agreements

5.3. Participation Account Agreement (silent                          In practice, distribution agreements are often confused with
     partnership)                                                     agency agreements.

The nature of this form of business cooperation, which is close to    They are, however, different and have distinct regulations and
an unincorporated partnership agreement, consists of the              characteristics.
financial collaboration by virtue of which one or more
entrepreneurs (nonmanaging investor-participant) provide with         Distribution agreements are a very interesting alternative to the
monetary or in kind                                                   organization of a company or branch or the entering into
                                                                      commercial cooperation agreements with previously existing
contributions another entrepreneur (managing participant) in          entrepreneurs, for carrying out their operations in Spain, since
order to share an interest in the performance of certain activities   the initial investment required is considerably low.
carried out by the managing participant. Such an interest refers
to both the positive and negative results of that particular          Several types of distribution agreement have emerged in practice.
business (i.e. income or losses arising from the activity in          Please note that they are unregulated agreements that allow the
question).                                                            parties broad discretion to decide on the contents of the contract,
                                                                      since there is no current specific legislation on this area.
The contributions, whether monetary or in kind, do not qualify as
capital contributions as such, but rather this agreement only         Under a distribution agreement, one of the parties undertakes to
creates a right in favour of the nonmanaging investors to share in    purchase and resale goods belonging to the other party.
the results of the activity concerned. Therefore, nonmanaging
investors are not shareholders in the managing company.               Distributors are legal entities that form an intrinsic, albeit not
                                                                      truly integrated, part of the commercial network of the venture
As indicated in the Commercial Code, this type of agreement does      and are united by a business relationship and by the desire to
not require any legal formality (public deed or filing with the       boost sales.
Mercantile Register), although, in practice, both parties usually
reflect it in a public deed, to be used, if necessary, as a proof     Agreements in the Spanish distribution networks or system can be
before third parties.                                                 divided into the following broad categories:

                                                                      • Commercial concession or exclusive distribution agreements:
Under current legislation, the remuneration obtained by the             The supplier not only undertakes not to provide his products
nonmanaging investors must be recorded as an expense in the             to more than one distributor within a specified territory but
accounts of the managing participant. This expense qualifies as a       also not to sell those products himself within the territory of
tax-deductible item for corporate income tax purposes.                  the exclusive distributor.

Lastly, the execution of this agreement in a public instrument is     • Sole distribution agreements: The only difference from the
regarded as a taxable event under the “corporate transactions”          aforementioned agreement is that, in the case of sole
heading of the Transfer Tax Law.                                        distribution agreements, the supplier reserves the right to
                                                                        supply the agreed products to users in the territory of the
                                                                        concession.
5.4. Joint ventures through Spanish corporations or
     limited liability companies                                      • Authorized distribution agreements under the selective
                                                                        distribution system: There are certain products which,
A significant number of joint ventures use corporations and             because of their nature, require special treatment by
limited liability companies as vehicles. Consequently, the              distributors and sellers. The form of distribution used in both
comments made in other sections of this Guide (please see this          cases is called “selective distribution” because the distributors
chapter and Annex I) on the formation, basic characteristics and        are carefully selected according to their capacity for handling
features of the governing bodies of corporations and limited            technically complex products and for preserving a certain
liability companies should be reviewed.                                 image or brand name.


                                                                                                                         Business in Spain
                                                                                                          Establishing a business in Spain
                                                                                                                                         9
5. Other alternatives to operate in Spain




As for the tax treatment of distribution agreements, non-resident       • To provide the agent with all the documentation he needs to
manufacturers not established in Spain will record business               engage in his activity.
income in Spain on the sale of their goods to distributors, and
                                                                        • To give the agent all the information necessary to perform the
this income is typically not taxable in Spain (for more
                                                                          agreement.
information, see the comments on taxation in Chapter 3). As for
the taxation of individual or corporate distributors resident in        • To pay the agreed compensation.
Spain, see the comments on taxation in Chapter 3.
                                                                        • To accept or reject the transaction proposed by the agent.
6.2. Agency agreements
                                                                        One of the essential elements of the agency agreement is that
Spanish Law 12/1992, on Agency Agreements, implemented                  the agent’s work must always be compensated through either a
Directive 86/653/EEC, and defines the agency agreement in its           fixed amount, a commission or a combination of the two.
article 1:
                                                                        Regarding its tax treatment, the key issue is determining whether
“Through an agency agreement, an individual or company, called
                                                                        a commercial agent can be considered as a permanent
an agent, undertakes, vis-à-vis another, to negotiate or to negotiate
                                                                        establishment in Spain of the principal, and this will depend on
and conclude commercial acts or operations on behalf of another,
                                                                        whether or not there is a relationship of dependence between
as an independent intermediary, on a continuous or regular and
                                                                        them. In connection with the taxation of residents and non-
remunerated basis without assuming the risk and hazard of said
                                                                        residents in Spain, see our comments in Chapter 3.
aforementioned operations, unless otherwise agreed.”
                                                                        6.3. Commission agency agreements
The agent is an independent intermediary that does not act in his
own name and on his own behalf, but rather in the name and on
                                                                        This is the mandate under which the authorized agent
behalf of one or more principals.
                                                                        (commission agent) undertakes to perform or participate in a
                                                                        commercial act or agreement for the account of another (the
The agent must, of his own accord or through his employees,
                                                                        principal). Commission agents may act:
negotiate and, if required by contract, conclude in the name of
the principal, the commercial acts or operations he is instructed       • In their own name, acquiring rights against the contracting
to handle. Among other specific regulations it is provided that:          third parties and vice versa; and
• An agent cannot subcontract his activities unless expressly           • On behalf of their principal, who acquires rights against third
  authorized to do so.                                                    parties and vice versa.
• An agent is authorized to negotiate the acts or operations
  detailed in the agency agreement but can only conclude                The main obligations of commission agents are as follows:
  them on behalf of the principal when he is expressly                  • To defend the interests of their principals as if such interests
  authorized to do so.                                                    were their own and to perform their engagement personally.
• The agent may act on behalf of different principals, unless the         Commission agents may delegate their duties if they have
  related goods or services are identical or similar, in which case       authority to do so and may use employees under their
  the consent of the existing principals is required.                     responsibility.

                                                                        • To account for amounts that they have received as
There are three types of remuneration for an agent: A fixed sum,
                                                                          commission and to reimburse any excess amount. They are
a commission, and any combination of the two.
                                                                          required to return any unsold merchandise.

The restraint of trade clause —restricting or limiting the activities   • In general, commission agents are not liable to their principal
that can be carried out by the agent once the agency agreement            for the performance by third parties of the related
has been terminated— can never be valid for more than two                 agreements, although this risk can be secured by a
years after termination of the agency agreement, as a general             commission del credere.
rule.
                                                                        • Unless their principal consents, commission agents are barred
                                                                          from buying for their own account or for the account of
The following constitute obligations of the company:
                                                                          another the goods that they have been instructed to sell, and
• To act loyally and in good faith in its relations with the agent.       from selling the goods that they have been instructed to buy.


Business in Spain
Establishing a business in Spain
10
The types of consideration which the principal undertakes to             1400/2002, of July 31, 2002, for the motor vehicles sector; and
provide are, firstly, a commission and, secondly, lien and               (ii) the Royal Decree 2485/1998, of April 13, which was designed
preference rights in favour of the commission agent as security for      to establish the basic conditions for carrying on franchise activity.
his claims against his principal.
                                                                         In Spain, prior to commencing their franchising activity in the
As for the tax treatment of transactions under this type of              territory of more than one Autonomous Region, franchisor shall
agreement, a non-resident principal not established in Spain will        register with a public administrative Register of Franchisors, which
record business income in Spain on the sale of his goods and this        is hierarchically subordinate to the General Directorate for
income is typically not taxable in Spain (for more information,          Internal Trade of the Ministry of Industry, Tourism and Trade. With
see the comments on taxation in Chapter 3). As for the tax               regard to the various types of agreement, the following can be
treatment of individual or corporate commission agents resident          mentioned: Industrial franchising agreements (for the
in Spain, see the comments on taxation in Chapter 3.                     manufacture of goods), distribution franchising agreements (for
                                                                         the sale of goods) and service franchising agreements (relating to
6.4. Differences and similarities between agency                         the provision of services).
     agreements and commission agency agreements
                                                                         The advantages offered by a franchising agreement include the
The main similarity between the two types of agreement is that,          fact that a franchising agreement is a form of product and/or
in both cases, an individual or legal entity undertakes to pay           service distribution that enables a uniform distribution network to
another compensation for arranging an opportunity for the                be swiftly created with limited investment. Franchising also
former to conclude a legal transaction with a third party or for         enables independent traders to set up installations more rapidly
acting as the former intermediary in concluding that transaction.        and with greater chances of success than if they did so themselves
                                                                         without the know-how and assistance of the franchisor.
The main difference between them is that agency agreements
involve an engagement on a continuous or regular basis,                  Antitrust law requirements must be thoroughly considered when
whereas commission agency agreements involve occasional                  defining the content of franchising agreements.
engagements.
                                                                         Lastly, as regards the tax treatment of franchising agreements,
6.5. Franchising                                                         the nature of the consideration paid by the franchisee to the
                                                                         franchisor should be analyzed since it could be considered as a
Franchising is a system for marketing goods, services and/or             royalty and as business income, or only as a royalty, depending
technology. It is based on close, ongoing cooperation between            on the different services rendered and rights granted. For the tax
enterprises that are legally and financially distinct and                treatment of the franchisee, see our comments in Chapter 3.
independent (the franchisor and its individual franchisees) and,
under this system, the franchisor grants a right to, and imposes         According to the experts, franchising has seen spectacular growth
an obligation on, its individual franchisees to do business using        in Spain in recent years, giving rise to what is now a well-
the franchisor’s concept.                                                established franchising system. Within the EU, Spain is almost on
                                                                         a par with France and the UK, which have the most franchise
In return for a direct or indirect financial consideration, this right   establishments.
entitles, and obliges, individual franchisees to use the brand
name and/or trade or service mark for the goods or services, the
know-how, the technical and business methods, the procedures             7. OTHER ALTERNATIVES TO INVESTING IN SPAIN
and other intellectual property rights of the franchisor, backed by
the ongoing provision of commercial and technical assistance             7.1. Acquisition of shares of an existing corporation
under, and during the term of, the relevant written franchising
agreement between the parties.                                           7.1.1. Legal steps

The rules governing these business dealings are (i) the Royal            • Transfers of shares in a limited liability company must, in all
Decree 378/2003, which refers to Regulation (EC) No.                       cases, be attested to by an authenticating officer; transfers of
2790/1999, of December 22, 1999, relating to application of                shares in Spanish corporations must be attested to by an
article 81.2 of the Treaty to certain categories of vertical               authenticating officer where so required by Spanish
agreements and concerted practices and Regulation (EC) no.                 legislation or if so agreed on by the parties. The


                                                                                                                             Business in Spain
                                                                                                              Establishing a business in Spain
                                                                                                                                           11
6. Other alternatives to invest in Spain




   authenticating officer will require evidence of the following:         — Execution of the notarized public deed of purchase. The
   Identity of the parties involved and, if applicable, the related         acquisition must be attested to by a Spanish notary
   powers of attorney (if one or both of them act on behalf of              public or by a Spanish consul abroad, to whom it is
   another individual or entity); the seller’s title to the shares          necessary to show evidence of: The identity of the
   and the appropriate forms, if applicable, to declare the                 parties and, if applicable, the related powers of attorney;
   foreign investment to the DGCI’s Foreign Investment Register.            the seller’s title to the property; the special form (for his
                                                                            signature) to declare the investment to the DGCI’s
• Payment of transfer tax, if applicable: As described in the
                                                                            Foreign Investment Register; and the effective payment
  transfer tax section (see Chapter 3), transfers of shares of
                                                                            of the investment.
  companies whose assets consist mainly of Spanish real estate
  are, in certain cases, subject to transfer tax at 7% (certain           — Payment of transfer tax or VAT and stamp tax. If the
  Autonomous Communities have not enforced their own                        vendor is a private individual who is not deemed to be a
  legislation and are still applying a 6% rate. In the Canary               property developer, generally transfer tax at 7% would be
  Islands the applicable rate is a 6.5%).                                   applicable regardless of the nature of the real estate to
                                                                            be sold (certain Autonomous Communities have not
• Subsequent declaration of the acquisition to the DGCI is
                                                                            enforced their own legislation and are still applying a 6%
  required (in some cases prior reporting might be necessary,
                                                                            rate. In the Canary Islands the applicable rate is a 6.5%).
  see section 8 of Chapter 1 for further information).

                                                                               If the vendor is a company or an individual developer, the
7.1.2. Costs
                                                                               following cases can arise:
• Fees of the authenticating officer attesting to the transaction:             – Transfers of buildable land and first delivery of
  In the case of a notary public, the scale applicable for the                     buildings: VAT at 16% (7% if the building is for
  incorporation of a subsidiary or the formation of a branch is                    housing) plus stamp tax, in general, at 1%. The stamp
  also applicable here.                                                            tax rate can be modified by the Autonomous
                                                                                   Communities.
• In the case of a Spanish consul abroad, a similar sliding scale              – Transfers of rural (unbuildable) land and second or
  tied to the price fixed is applicable. For guidance purposes,                    subsequent delivery of buildings: Transfer tax or VAT.
  there is a minimum fee for amounts below t1,202 and then                         VAT is applicable if the acquirer is an entrepreneur or
  rates that range from 1% down to 0.05% for amounts in                            professional, who is entitled to deduct 100% of the
  excess of t300,506.                                                              input VAT and the vendor chooses to pay VAT rather
                                                                                   than transfer tax11.
No transfer tax arises on this transaction, except in the cases
mentioned above.                                                      • If the real estate is located in the Canary Islands (where VAT is
                                                                        not applicable), the following would be applicable:
7.1.3. Special considerations for an acquisition of shares                — If the vendor is a developer (individual or company) the
       of companies between non-residents                                   following cases can arise:
                                                                            – Transfer of buildable land and first delivery of buildings:
Acquisitions of shares of Spanish companies between non-
                                                                                Canary Islands Indirect General Tax (CIIGT) at 5% plus
residents that have already taken place abroad may be
                                                                                stamp tax at 0.75 (5%if the building is for housing).
formalized before a Spanish authenticating officer.
                                                                            – Transfer of rural (unbuildable) land and second or
                                                                                subsequent delivery of buildings: Transfer tax (6.5%)
The documents to be delivered to the Spanish authenticating
                                                                                or CIIGT. CIIGT is applicable if the acquirer is an
officer formalizing the transaction for Spanish purposes in certain
                                                                                entrepreneur or professional, and the vendor chooses
cases include the special forms on which the investments and
                                                                                to pay CIIGT rather than transfer tax.
corresponding divestment are declared to the DGCI’s Foreign
Investment Register.                                                  • If the vendor (individual) is not a developer: Transfer tax
                                                                        (regardless of the nature of the real estate).
7.2. Acquisition of real estate
                                                                      11 The stamp tax rate generally applicable to public deeds documenting
7.2.1. Legal steps                                                    transfers of real state where the vendor waives the VAT exemption and
                                                                      chooses to pay transfer tax, is the 1.5%. Nevertheless, some Autonomous
• General                                                             Communities apply a different rate (i.e. Cataluña: 2%).


Business in Spain
Establishing a business in Spain
12
• Registration of the property in the Official Property Register.     Legislative Decree 2/1995 and Act 29/1998 on the Administrative
  This step should be completed as soon as the public deed of         Jurisdiction.
  purchase is notarized, in order to ensure that the acquirer’s
  property rights are duly protected.                                 Although the Spanish civil procedural system should be
                                                                      considered as a civil law system, some of the features of the Civil
• Subsequent declaration is required when the amount exceeds
                                                                      Procedure Act derive from the common law system. Such is the
  t3,005,060.52 (see Section 8 of Chapter 1).
                                                                      case with the predominance of the oral proceeding. The Civil
                                                                      Procedure Act reduces formalities and promotes more
7.2.2. Costs
                                                                      expeditious proceedings and a quicker and more efficient
                                                                      response from the courts.
• Notary public fees (as in previous sections).

• Transfer tax or VAT and stamp tax (see above).                      Spain has signed numerous bilateral and multilateral treaties on
                                                                      the recognition and enforcement of foreign judicial decisions.
• Property Register fees. Here, again, a sliding scale is
  applicable, ranging from 0.4% (only for the first t6,010)
  down to 0.02% (for amounts exceeding t601,012).
                                                                      8.2. Arbitration

• Municipal tax on the increase in urban land value. This tax is      Arbitration is seen to be more and more a real alternative system
  optional for municipalities and is based on the deemed              suitable for the settlement of commercial disputes. Companies,
  increase in the value of urban land from the date of the last       aware of the greater speed, efficiency and flexibility of arbitration
  sale to the date of the current sale. Although this tax is          in comparison with action before the courts, are seen to be
  payable by the seller, the authorities claim it from the            increasingly prepared to have recourse to arbitration.
  purchaser. The amount of this tax depends (among other              Furthermore, Spanish Courts are supportive of arbitration and
  circumstances) on where the land is located.                        normally uphold and enforce arbitration clauses and awards
                                                                      without hesitation.
• Property tax. An annual tax (“Impuesto sobre Bienes
  Inmuebles”) is levied on the cadastral value of the real estate
  from the date of acquisition.                                       Act 60 of December 23, 2003 on Arbitration (the “Arbitration
                                                                      Act”) permits individuals or corporations making agreement to
                                                                      submit to one or more arbitrators disputes that have arisen or
8. DISPUTE RESOLUTION                                                 may arise on matters which they are free to dispose of by law. The
                                                                      Arbitration Act is mostly inspired by UNCITRAL Model Law on
                                                                      International Commercial Arbitration.
8.1. State court proceedings

Organic Act 6/1985 regulates the constitution, operation and          The Arbitration Act reinforces anti-formalist criteria in several
governance of Courts and Tribunals in Spain. For judicial purposes    ways. It allows for the arbitration agreement to be recorded in
the State is organized on a territorial basis into municipalities,    any kind of information technology format, provided it can be
judicial districts, provinces and Autonomous Communities, in          retrieved for future consultation.
which the Justices of the Peace, the Courts of First Instance, the
Administrative Courts, the Labor Courts, the Criminal Courts, the     The Arbitration Act allows for the granting of interim measures by
Appellate Courts and the Higher Courts of Justice have                the arbitrators. This innovation is in line with the Civil Procedure
jurisdiction. The Supreme Court and the Audiencia Nacional (the       Act, which allow the parties to arbitration proceedings to request
latter only for some specific matters) have jurisdiction over the     Spanish Courts to grant interim measures to secure the outcome
entire national territory. The former is the highest court instance   of the arbitration proceedings.
with the exception of the guarantee of constitutional rights, the
safeguarding of which rests with the Constitutional Court.            Under the Arbitration Act it is possible to enforce an arbitral
                                                                      award even if proceedings to set aside the award are still
Act 1/2000 is the Spanish Civil Procedure Act and came into force     pending. A State Court may only stay the enforcement
on January 8, 2001. Criminal, labor and administrative                proceedings if the party against whom the award is being
proceedings are governed, respectively, by the Criminal Procedure     enforced posts security for an amount equal to the amount set
Act passed by the Royal Decree dated September 14, 1882, the          out in the award, plus the potential damages arising out of the
Consolidated Text of the Labor Procedure Act passed by Royal          delay to enforce the award.


                                                                                                                         Business in Spain
                                                                                                          Establishing a business in Spain
                                                                                                                                       13
7. Dispute resolution




The grounds for refusal to recognise or enforce arbitral awards    Spain’s adherence to a Model Law arbitration regime makes
appearing in the Arbitration Act follow the UNCITRAL Model Law     international arbitration in Spain more accessible for cross-border
grounds nearly verbatim, which in turn are based almost in their   practitioners and their clients. The Arbitration Act brings Spain even
entirety on the New York Convention of 1958.                       closer to becoming an ideal seat for international arbitration,
                                                                   particularly where Latin American interests are involved, given
Spain has adhered to the New York Convention of 1958 and to        Spain's convenient geographical location in southern Europe, its
the European Convention on International Commercial                competitive cost-structure in comparison with other European fora
Arbitration signed in Geneva on April 21, 1961.                    and its linguistic and cultural ties to Latin America.




Business in Spain
Establishing a business in Spain
14
interes@interes.org
www.investinspain.org




Prepared by:
                        MINISTERIO              SECRETARÍA DE ESTADO
                        DE INDUSTRIA, TURISMO
                        Y COMERCIO              DE TURISMO Y COMERCIO
Business in Spain


Tax system


%                   3
The Spanish tax system is modern and competitive. The tax burden
in Spain (i.e. tax and social security contributions as a percentage
of GDP), is five points lower than in neighboring countries.

                                      Sweden
                                        France
                                       Austria
                                          Italy
                                    Euro-zone
                                     Germany
                                  Netherlands
                                       Greece
                                Czech Republic
                                       Poland
                                            UK
                                         Spain
                                       Ireland
                                                  0          10         20         30         40          50         60

                                                      Source: European Commission Services.



The Spanish tax authorities are currently working on an ambitious
tax reform bill that will come into force in 2007 and will involve a
reduction in the corporate income tax rate.




%
Sociedad Estatal para la Promoción y Atracción de las Inversiones Exteriores, S.A.U. RM: Tomo 21818, libro 0, folio 15, sección 8, hoja M-388683,
Inscripción 1. NIF: A-84479013. Depósito legal: M-24716-2006.
Published 2006
Business in Spain


Tax system
  1. Introduction to the spanish tax system                                         3
 2. Central government taxes                                                        3
     2.1. Corporate income tax                                                      3
     2.2. Personal income tax                                                      20
     2.3. Non-residents’ income tax                                                25
     2.4. Net worth tax                                                            37
     2.5. Inheritance and gift tax                                                 37
     2.6. Value Added Tax (VAT)                                                    38
     2.7. Transfer tax and stamp duty                                              43
     2.8. Excise taxes                                                             44
     2.9. Customs duties on imports                                                44
     2.10. Tax on insurance premiums                                               44
 3. Local taxes                                                                    44
     3.1. Periodic taxes                                                           45
     3.2. Other taxes                                                              45
Exhibit I. Calculation of corporate income tax                                     45
Exhibit II. Non-resident case: income obtained without a permanent establishment   46
Exhibit III. VAT example                                                           47




3
                                                                                                                                                                                                   FRANCE
                                                    La Coruña                                                          Santander
                                                                                                                                                    San Sebastián
                                                                                      Oviedo                                              Bilbao
                                                                     Lugo               Asturias                      Cantabria
                                         Santiago de Compostela                                                                              País
                                                                                                                                            Vasco                Pamplona
                                             Pontevedra    Galicia                                                                            Vitoria
                                                                  Orense                                                        Burgos                       Navarra
                                                                                                    León                                      Logroño
                                                                                                                                              La Rioja                              Huesca                                       Gerona
                                                                                                                     Palencia                                                                       Lérida   Cataluña
                                                                                                      Castilla y León                          Soria
                                                                                                              Valladolid                                                    Zaragoza
                                                                                               Zamora                                                                                                                     Barcelona
                                                                                                                                                                          Aragón
                                                                                      Salamanca                      Segovia                                                                                  Tarragona

                                                                                                                                Madrid     Guadalajara
                                                                                                             Ávila      Comunidad                                          Teruel
                                                                                                                         de Madrid
                                                                                                                                                        Cuenca
                                                                                                                                                                                          Castellón de la Plana
                                                    PORTUGAL                                                           Toledo                                                                                              Palma De Mallorca
                                                                                                                                                                                             Valencia
                                                                                     Cáceres                             Castilla - La Mancha                               Comunidad
                                                                             Extremadura                                                                                    Valenciana                                      Baleares
                                                                           Badajoz
                                                                                      Mérida                         Ciudad Real                             Albacete


                                                                                                                                                                                       Alicante

                                                                                                        Córdoba                                                Murcia
                                                                                                                                   Jaén
                                                                                                                                                                        Murcia
                                                                                          Sevilla          Andalucía
                                                                     Huelva
                                                                                                                                    Granada

                                                                                                                      Málaga                        Almería
                                                                                        Cádiz


                                                                                                     Ceuta



                                                                                                                                                   Melilla



                                                                                                           MOROCCO


           Santa Cruz de Tenerife
                                Canarias
                            Las Palmas de Gran Canaria




Business in Spain
Tax system
2
1. Introduction to the spanish tax system




1. INTRODUCTION TO THE SPANISH TAX SYSTEM                              2. CENTRAL GOVERNMENT TAXES

The Spanish tax system is modern and competitive, as is                National taxes in Spain can be classified as follows:
evidenced by the fact that the tax burden in Spain is five points
less than the tax burden in its neighboring countries.                 • Direct taxes:

                                                                          — On income:
The Spanish State Tax Agency has distinguished itself through its
                                                                          – Corporate income tax
technological leadership within the Spanish Government. In
                                                                          – Personal income tax
comparison with other tax agencies, it holds an outstanding
position in the European context with regards to modernization            – Non-residents’ income tax
and its adaptation to the use of new technologies for the                 — On assets (affecting only individuals):
provision of public services, including most notably the possibility      – Net worth tax
of filing tax returns for the various taxes and obtaining the
                                                                          – Inheritance and gift tax
certificates necessary for tax purposes via telematic means.
                                                                       • Indirect taxes:
The Spanish tax system comprises three kinds of taxes:
“impuestos” (true taxes), “tasas” (dues and fees) and                     — Value added tax (VAT)
“contribuciones especiales” (special levies). The “tasas” and             — Transfer tax and stamp duty
“contribuciones especiales” are collected in return for a public
service provided by the authorities or for any type of benefit as a       — Excise taxes
result of public works or services.
                                                                          — Customs duties on imports

In Spain taxes are levied:                                                — Tax on insurance premiums
• By the Central Government.
                                                                       2.1. Corporate income tax
• By the Autonomous Communities (regional).

• By local authorities.                                                The regulation of the Corporate Income Tax is contained in the
                                                                       Revised Text of the Corporate Income Tax Law, approved by
The necessary brevity of this chapter makes it necessary to offer      Legislative Royal Decree 4/2004, of March 5, and in the
only a short comment on the taxes levied by Autonomous                 Regulation approved by Royal Decree 1777/2004, of July 30.
Communities and local authorities and to concentrate on the
taxes levied by the Central Government, including those                The key factor in determining the application of corporate income
administered and collected by local authorities.                       tax is “residence”. A company is deemed to be resident in Spain
                                                                       for tax purposes if it meets any of the following conditions:
The special regimes applicable in the Basque Country and
                                                                       • That it was incorporated under Spanish law.
Navarra may affect certain of the matters explained in this
chapter.                                                               • That its registered office is located in Spain.

In addition, the Spanish tax authorities are working on an             • That its effective management headquarters are in Spain.
ambitious tax reform bill that will enter into force in 2007 and
2008, and that will amend certain taxes referred to below (the         In the event of a conflict of residence, the provisions of Spain’s tax
information set forth below contains the legislation applicable in     treaties with other countries will, where applicable, prevail.
2006).
                                                                       Resident companies are taxed on their worldwide income.
According to the information available, the reform will entail a       Taxable income includes all the profits from business activities,
progressive reduction of the corporate income tax rate to 30%, a       income from investments not relating to the regular business
simplification of how personal income tax is calculated, and a         purpose, and income derived from asset transfers.
change in the rates applicable to nonresidents to whom a tax
treaty does not apply (the most notable of which is a substantial      In this connection, regard should also be had to the provisions of
reduction in the tax rate for capital gains from the current 35% to    Spain’s tax treaties with other countries, which, where applicable,
18%).                                                                  may influence the determination of the taxation in Spain.


                                                                                                                           Business in Spain
                                                                                                                                 Tax system
                                                                                                                                           3
2. Central government taxes




Taxation of nonresident entities is regulated separately under the        resident of another EU Member State which is not deemed to
Revised Text of the Non-residents´ Income Tax Law approved by             be a tax haven according to Spanish legislation. Ownership
Legislative Royal Decree 5/2004, of March 5.                              interests held by related entities or individuals (resident or
                                                                          non-resident) are included in determining such holding.
2.1.1. Taxable income
                                                                       • The tax (corporate income tax or similar) paid by the non-
                                                                         resident on the attributable net income must be less than
The Corporate Income Tax Law establishes three methods for
                                                                         75% of that which would have been payable under Spanish
determining taxable income: the direct assessment method, the
                                                                         regulations.
indirect assessment method and the objective assessment method.
                                                                       • The net income derives from:
Under the direct assessment method (which is generally
                                                                          a) Ownership of real estate or rights in rem, unless such real
applicable), taxable income is defined as the difference between
                                                                             estate is used for an entrepreneurial activity or licensed
period revenues and period expenses. Taxable income is based on
                                                                             to another non-resident group company (as defined in
the income disclosed in the financial statements adjusted in
                                                                             Article 42 of the Commercial Code).
accordance with tax principles. Business expenses are deductible
if they are properly recorded and supported.                              b) Share in equity and transfer to third parties of capital
                                                                             (with certain exceptions, such as financial assets held in
2.1.1.1. Revenue and expense allocation criteria                             order to meet statutory requirements, etc.).

The tax principles for allocating revenues and expenses to                c)   Lending, financing, insurance and service activities
determine taxable income generally coincide with accounting                    (except services directly related to export activities) with
principles. Tax law identifies the accrual method as generally                 related resident companies which incur deductible
applicable for revenue and expense recognition purposes.                       expenses. The attribution does not take place if more
Additionally, all expenses must be recorded in order to be                     than 50% of this type of income derives from
deductible (except in certain cases, such as accelerated                       transactions carried out with non related entities.
depreciation). For tax purposes, in the event of conflict between         d) Income from transfers of assets or rights included in a) or
an accounting standard and a tax principle, the latter will prevail.         b) above.
However, expenses recorded in a fiscal year subsequent to their
accrual, or revenues recorded in a fiscal year prior to their          The attribution of net income does not take place (except for the
accrual, are allocated for tax purposes in the year in which they      third case above) when the non-resident company obtains such
are recorded, provided that such practice does not give rise to        income from an entity in which its direct or indirect holding
lower taxation than that which would apply in the event of the         amounts to at least 5% of its capital stock if:
proper recognition of the expenses and revenues in the
taxpayer’s books.                                                      • The former engages in directing and managing its
                                                                         investment.
For certain transactions, companies are permitted to use special       • At least 85% of the revenues of the latter entity derive from
allocation methods other than the accrual method (e.g. deferred          entrepreneurial activities.
price transactions).
                                                                       Additionally, a general exception to the applicability of the
If allocation criteria other than those expressly envisaged in the     regime for the income addressed in letters a), b) and d) above is
tax regulations are applied, the rationale for their use must be       established when the attributable income is below:
duly supported and they must be approved by the Government.
                                                                       • 15% of the total net income obtained by the non-resident
2.1.1.2. International “fiscal transparency” regime                      entity or,
         (“Controlled Foreign Corporations” provisions)
                                                                       • 4% of the total revenues of the non- resident entity.

This regime becomes applicable when:
                                                                       The above limits may also be computed on a group basis, as
• The taxpayer (Spanish company) holds 50% or more of the              legally defined.
  capital stock, equity, voting rights or results of the non-
  resident company. Notwithstanding the above, this regime             In any case, the attributed net income cannot be higher than the
  will not be applicable when the non-resident entity is tax           total net income of the non-resident entity.


Business in Spain
Tax system
4
The attribution will take place in proportion to the direct or          • assets contributed to entities and the securities received in
indirect holding in the non-resident entity, and the amount of net        exchange;
income to be attributed will be determined in accordance with
the principles and criteria established in the corporate income tax     • assets transferred to shareholders in the event of dissolution,
legislation.                                                              the withdrawal of shareholders, capital reductions with
                                                                          refund of contributions, paid-in surplus and the distribution of
The Spanish entity will not include in its tax base the portion of        income;
distributed dividends received which derives from income
                                                                        • assets transferred as a result of mergers, absorptions and full
previously attributed.
                                                                          or partial spin-offs;

Specific income can only be included in the tax base once,              • assets acquired through swap transactions;
regardless of the manner or the entity at which it is disclosed.
                                                                        • assets acquired as a result of exchanges or conversions.
This legislation entitles the Spanish company to a tax credit on
the amount of corporate income tax (or similar) actually paid by        It should be noted that current legislation provides for a special
the non-resident entity and its subsidiaries as defined by law (in      tax neutrality regime when certain of the transactions described
proportion to the net income attributed) and the tax actually           above are carried out as part of a corporate reorganization (i.e.
paid as a result of the distribution of dividends. The limit for this   mergers, spin-offs, non monetary contributions of lines of
tax credit is the Spanish tax.                                          business and share exchanges as well as non monetary
                                                                        contributions of assets if certain requirements are met).
No tax credit is permitted for taxes paid in tax havens.
                                                                        Under this regime, provided that certain requirements are met,
Where the investee is resident in a country or territory classed as a   the gains disclosed on the valuation at market prices of the assets
tax haven it will be presumed that:                                     and rights transferred may be excluded from the transferor’s tax
                                                                        base, thereby not entailing an acquisition cost for tax purposes
a) The amount paid by the entity not resident in Spain attributable
                                                                        for the acquiror.
   to any of the classes of income previously referred to in letters
   a) to d), in relation to a tax identical or similar to corporate
   income tax, is lower than the 75% that would have been               Additionally, transactions between related entities may be
   applicable in accordance with the corporate income tax rules.        valued by the tax authorities at market prices for corporate
                                                                        income tax purposes when the agreed valuation would have led
b) The income obtained by the investee arises from the                  either to lower taxation or to a tax deferral; however, such
   mentioned classes of income.                                         valuation cannot lead to taxation of a higher income for the
                                                                        parties involved. Two entities are deemed to be related for tax
c) The income obtained by the investee is 15% of the acquisition
                                                                        purposes if one owns indirectly at least 25% of the capital of the
   cost of the holding.
                                                                        other or exercises functions at the other signifying the power to
                                                                        influence decisions, or if the same shareholders own at least 25%
These assumptions are refutable and do not apply if the investee
                                                                        of the capital stock of both (or if such shareholders exercise
consolidates its financial statements, pursuant to Article 42 of the
                                                                        functions with decision-making power at both companies). In
Commercial Code, with one or more of the entities which are
                                                                        addition, companies which are members of a group as defined in
obliged to include in their taxable income the income obtained
                                                                        mercantile law, companies and their shareholders (those owning
from non-resident entities.
                                                                        at least 5% of the capital stock –1% in the case of listed
                                                                        companies), and companies and their directors are also deemed
2.1.1.3. Market price valuation
                                                                        to be related for corporate income tax purposes.

As a general rule, assets must be valued at their acquisition or
production cost.                                                        OECD methods are applicable for determining market prices
                                                                        between related parties as follows:
However, in certain cases, market valuation (i.e. valuation on an
arm’s-length basis) must be applied for tax purposes. This              First,
method is applicable to:
                                                                        • Comparable uncontrolled price method (market price of the
• donated assets;                                                         goods or of comparable items)


                                                                                                                          Business in Spain
                                                                                                                                Tax system
                                                                                                                                          5
2. Central government taxes




Secondarily,                                                            • are owned by a resident entity that transfers its place of
                                                                          residence abroad;
• Cost plus method
                                                                        • are allocated to a permanent establishment located in
• Resale price method                                                     Spanish tax territory that ceases operations; or

If none of the methods listed above are applicable, the profit split    • having been previously allocated to a permanent
method would apply, taking into account the risks assumed, the            establishment located in Spain, are transferred abroad.
assets employed and the role of each of the related parties.
                                                                        Also, the tax authorities can value at market price any
Additionally, the possibility of “advance pricing agreements” with      transactions with persons or entities resident in territories defined
the tax authorities has been introduced in corporate income tax         in the relevant regulations as tax havens if the valuation agreed
legislation. Thus, a taxpayer may submit to the tax authorities a       upon has led to lower or deferred taxation in Spain.
proposal for valuing its transactions with related entities based on
market conditions. If the proposal is approved by the tax               2.1.1.6. Inventory valuation
authorities, such valuation is valid for tax purposes for a period of
three tax years.                                                        There are no special tax rules in this connection. Accordingly, all
                                                                        inventory valuation methods (LIFO, FIFO, acquisition cost or
Advance pricing arrangements may also be reached in connection          weighted average cost) applicable for accounting purposes are
with contributions for research, development and technological          also acceptable for tax purposes. The same rules apply to
innovation or management expenses and in connection with the            inventory depreciation.
part of management expenses that may be allocated to a
permanent establishment in Spain of a non-resident entity.              2.1.1.7. Value adjustments

                                                                        (i) Depreciation
2.1.1.4. Thin capitalization rule
                                                                        Depreciation qualifies as a deductible expense only if it is effective
Where the direct or indirect net remunerated indebtedness of an
                                                                        and is recorded in the accounts (with the exception of the
entity tax resident in Spain (other than a financial institution) to
                                                                        accelerated depreciation applicable to certain activities, such as
one or more related persons or entities not residents in Spain
                                                                        research and development see below).
exceeds the result of applying a coefficient of 3 to capital for tax
purposes (equity of the entity excluding income or loss for the
                                                                        (a) Official depreciation rates
year), the interest accrued on the excess will be treated as a
dividend and thus will be nondeductible for the Spanish company.
                                                                        There are official rate tables (updated by Royal Decree
                                                                        1777/2004) which, if complied with, relieve the company of the
The rule commented in the preceding paragraph will not be
                                                                        need to prove effectiveness. Examples of the current official rates
applicable when the non Spanish resident related entity is tax
                                                                        are:
resident in another EU Member State, unless it is resident of a
territory classified as tax haven.
                                                                         Table 1
The taxpayer may submit a (duly supported) proposal for
applying a higher ratio. If the proposal is approved, a different
                                                                         ANNUAL DEPRECIATION RATE (%)
ratio may be applied. This possibility is not applicable to
                                                                                                                 Maximum          Minimum
transactions made with or by persons or entities resident in
countries or territories legally defined as tax havens.
                                                                          Industrial buildings                        3             1.47
2.1.1.5. Changes in residence, cessation of business by                   Commercial buildings                        2             1
         permanent establishments, transactions performed                 Office furniture                           10             5
         with persons or entities resident in tax havens                  Computers                                  25            12.5
                                                                          Software                                   33            16.7
Lastly, the tax base must in general include the difference               Vehicles                                   16             7.14
between the value per books and the normal market value of the            Machinery                                  12             5.55
assets which:


Business in Spain
Tax system
6
There are special rules for assets used on a daily basis in more          The minimum period over which trademarks, leasehold
than one ordinary shift of work and for assets acquired second            assignment rights and other intangible assets that do not have a
hand.                                                                     certain expiry date may be amortized is ten years.

In addition, in the case of new assets acquired between January           (ii) Financial lease contracts
1, 2003 and December 31, 2004 the annual depreciation rates
established in the official tables will be multiplied by 1.1, being the   Under Spanish law, financial lease contracts (provided by finance
new depreciation rate applicable along the asset’s useful life.           entities, as legally defined) for movable assets must have a
                                                                          minimum term of two years, and those for real estate must have
(b) Declining-balance depreciation                                        a minimum term of ten years, and the annual charge
                                                                          corresponding to the depreciation of the cost of the asset must
Under this method, which is permitted for all assets except               remain the same or increase over the term of the lease. Lease
buildings and furniture, depreciation can be shifted to the early         payments (interest plus the portion of principal relating to the
years of the asset’s useful life, when the effective depreciation         cost of the asset) are deductible, except those for land (although
may be greater by applying a coefficient to the declining balance         in this case the interest portion will be deductible) and for other
of the asset’s book value.                                                non depreciable assets. However, the ceiling on the deductibility
                                                                          of the depreciation cost of the asset is twice the maximum
                                                                          depreciation rate per the official tables.
(c) Sum-of-the-years’-digits method

                                                                          (iii) Assets leased with purchase option
This system is also permitted for all assets except buildings and
furniture, and the sum of the digits is determined on the basis of
                                                                          In this case, when there is no reasonable doubt that the purchase
the depreciation period established in the official tables.
                                                                          option will be exercised (i.e. when the price to be paid for the
                                                                          purchase of the asset is lower than the amount resulting from
(d) Other depreciation methods
                                                                          reducing the acquisition cost of the asset by the maximum
                                                                          depreciation corresponding to the lease term), the amount
Companies which, for technical reasons, wish to depreciate their          relating to the depreciation rates applicable to the asset is
assets at different rates than those fixed by the official tables, and    deemed to be a deductible expense for the lessee in line with the
also wish to obviate the uncertainties involved in proving the            rules applicable to tangible fixed assets.
“effective” depreciation, can seek prior approval from the tax
authorities for special depreciation plans with such annual rates         The difference between the lease payments payable to the lessor
of depreciation.                                                          and the acquisition cost of the asset (i.e. the financial cost of the
                                                                          contract) is a tax deductible expense for the lessee over the tax
Finally, companies of certain kinds and in certain industries (e.g.       periods spanned by the lease contract.
mining companies, industries in the process of reorganization,
etc.) may be authorized to depreciate their assets at their               If the asset is transferred by the lessee to the lessor prior to the
discretion in accordance with the special laws regulating each            lease contract, the latter must continue to depreciate it by the
industry.                                                                 same method and under the same terms as those applied prior
                                                                          to the transfer.
(e) Amortization of intangible assets
                                                                          (iv) Diminution in value of assets
Intangible assets are amortized by the same methods as those
applicable to tangible fixed assets throughout their economic life.       (a) Provision for bad debts

Among other intangible assets which do not have a specified               The provision for bad debts covers the foreseeable losses in the
finite life, goodwill can be amortized over twenty years if certain       realizable value of accounts receivable. The deductibility of this
requirements are met (mainly that they derive from a transaction          provision is subject to certain requirements. Under these
for a consideration between companies not belonging to the                requirements, the only method applicable is the individual
same group – as defined for accounting purposes). Otherwise,              balance method, whereby the status of each receivable is
amortization will only be deductible if it is proved by the taxpayer      individually analyzed (balances receivable from debtors that are
that such amortization is irreversible.                                   bankrupt or in temporary receivership or similar situations, or


                                                                                                                              Business in Spain
                                                                                                                                    Tax system
                                                                                                                                              7
2. Central government taxes




balances past due by more than six months can be provided for           The taxpayer, in the tax periods in which it is going to benefit
at the full amount, as can balances in the process of legally           from this tax credit, should file to the tax authorities the following
enforced collection).                                                   information jointly with its corporate income tax return:

                                                                        a) In relation to the direct investee:
Provisions cannot be recorded for tax purposes for receivables
from related parties unless the related parties concerned are              1.   Identity and percentage holding.
insolvent. Similarly, provisions cannot be recorded for tax
                                                                           2. Description of its activities.
purposes for other receivables (from public entities or receivables
for which sufficient guarantees have been provided).                       3.   Value and date of acquisition of the holdings, as well as
                                                                                their underlying book value, determined on the basis of
Financial Institutions, as defined by law, are subject to specific              standardized financial statements.
rules.
                                                                           4. Support for the rules on standardization of valuation and
                                                                              timing, as well as the attribution to the assets and rights
(b) Provision for depreciation of marketable securities                       of the investee of the difference existing between the
                                                                              acquisition cost and underlying book value of its holdings
For marketable unlisted securities, a provision is admissible for             on the date of their acquisition.
the difference arising in the reporting year between the book
value at the end of the fiscal year and the previously recorded         b) Amount of investment made in the acquisition of holdings in
book value (equity method) on the basis of either the accounts             entities not resident in Spain and included in the tax credit
prepared by the directors or the accounts approved by the                  base for export activities.
shareholders. For listed securities, the provision is admissible for
the difference between the year-end stock market price and the          (vi) Provisions for contingencies and expenses
price at the beginning of the tax year.
                                                                        As a general rule, provisions for foreseeable contingencies,
Provisions for depreciation of listed fixed-income securities are       possible losses, expenses or probable debts are not deductible for
deductible up to the limit of the overall depreciation arising in the   tax purposes.
year on such securities held by the taxpayer.
                                                                        However, the following provisions, among others, are tax-
Provisions for unlisted fixed-income securities with a fixed            deductible:
redemption value are not deductible.                                    (a) Provisions intended to cover definite economic liabilities
                                                                            contracted or incurred by the company, the amount of which
Provisions for holdings in the equity of entities resident in tax           has not been definitively established. Examples include
havens are in general not deductible.                                       penalties for nonperformance of contracts, execution of
                                                                            guarantees, etc.
(v) Financial goodwill
                                                                        (b) Provisions intended to cover repair and inspection warranties
                                                                            (and ancillary expenses for sales returns), up to the limit
Where securities representing a holding in the equity of entities           resulting from applying to the sales with outstanding
not resident in Spain are acquired and the income or gains                  warranties at the end of the tax period the average warranty
obtained by such entities qualify for exemption under Article               expenses as a percentage of total sales under warranty in the
20.bis of the Corporate Income Tax Law, the amount of the                   current and the two preceding tax periods.
difference between the acquisition cost and underlying book
value of the holding on the acquisition date will be allocated to       2.1.1.8. Nondeductible expenses
the assets and rights of the entity not resident in Spain, and any
portion of the difference that has not been allocated will be           a) Amounts directly or indirectly remunerating equity.
deductible from taxable income, subject to an annual limit of one
                                                                        b) Corporate income tax.
twentieth of its amount.
                                                                        c) Criminal and administrative fines and penalties, and
This deduction is not consistent with the tax credit for export            surcharges for the late payment of taxes.
activities, but is consistent with the provision for depreciation of
marketable securities.                                                  d) Gambling losses.


Business in Spain
Tax system
8
e) Free gifts. Except gifts to certain entities (foundations, etc.) of   2.1.2. Reduction in base for investments to establish
   assets registered in the Register of Assets of Cultural Interest,            companies abroad
   assets aimed at contributing to the conservation of assets of
   cultural interest or to the performance of activities of general      This reduction is a tax incentive to support investments made in
   interest, which would give right to deduct a 35% of the tax           acquiring holdings in companies not resident in Spain that
   credit base determined in accordance with Law 49/2002, up             enable a majority of the voting rights in such companies to be
   to a limit of 10% of the net taxable income of the year. The          obtained, provided that:
   amounts exceeding said limit could be applied in the tax
                                                                         • The investee company carries on business activities abroad
   periods ending in the 10 subsequent and immediate years.
                                                                           (excluding real estate, financial or insurance activities or the
                                                                           provision of services to related entities resident in Spain).
f) Expenses for services relating to transactions performed
   directly or indirectly with individuals or entities resident in       • The business activities pursued by the investee company have
   designated tax havens or paid through individuals or entities           not been carried on previously under other ownership.
   resident in tax havens (unless the payor can prove that the
                                                                         • The investee company is not resident in the European Union
   expense arose from a transaction effectively performed).
                                                                           or in territories classified as tax havens in the regulations.

g) Provisions to internal pension allowances.                            This incentive involves deducting from the tax base for corporate
                                                                         income tax purposes the amount of the investments effectively
h) Additionally, some expenses charged by related entities (such         made in the year, up to a maximum annual limit of
   as management fees and R&D contributions) must meet                   t30,050,605.22, without exceeding 25% of the tax base for the
   certain formal requirements in order to be tax deductible.            tax period before calculating the reduction. The amounts
                                                                         deducted will be included in the tax base in equal parts in the tax
2.1.1.9. Income derived from asset transfers                             periods concluding in the following four years.

By contrast with other countries, Spanish corporate income tax           The size of the deduction is reduced by the amount of any decline
treats income derived from the transfer of assets in the same way        in the value of the holding in non-resident companies that had
as other income items. Accordingly, such income is generally             been tax deductible. Furthermore, this incentive is incompatible
added to (deducted from) regular business income to determine            with the tax credit for export activities.
the taxable income (a tax credit for reinvestment being
applicable in some cases, as explained below).                           2.1.3. Tax rates

Special rules are envisaged for determining income derived from          Spain’s current standard corporate income tax rate is 35%.
real estate transfers to take into account the declining value of        Special rates are applicable to certain entities such as listed
money. Under these rules, the acquisition cost and the annual            collective investment institutions including real estate investment
depreciation are corrected by applying certain coefficients.             funds (1%), certain cooperatives (20%) or entities engaging in oil
                                                                         and gas research and exploitation activities (40%), as well as the
                                                                         so called asset-holding companies (40%), which regime
2.1.1.10. Loss carryforwards
                                                                         substituted the former fiscal transparency one.

As a general rule, a resident entity can carry forward its tax losses    2.1.4. Tax credits, withholdings and prepayments
for offset against the taxable income of the following fifteen
years. For newly-incorporated entities, this fifteen-year period         The tax credit regulations are normally revised annually in the
commences in the first fiscal year in which the entity reports           Budget Law. We refer hereunder to the main credits applicable for
taxable income.                                                          2006.

The taxpayer must prove, by producing the related tax returns or         2.1.4.1. Tax credit for reinvestment of extraordinary
self-assessments, accounting records and the appropriate                          income
documentary support, the origin and amount of the tax losses to
be offset, whenever the tax losses were incurred.                        Provision is made for a tax credit in the form of a 20% deduction
                                                                         from the tax payable on gains obtained from transfers of assets
Loss carrybacks are not permitted.                                       (the types of asset are mentioned below), on condition that the


                                                                                                                           Business in Spain
                                                                                                                                 Tax system
                                                                                                                                           9
2. Central government taxes




transfer proceeds are reinvested. The tax credit will be 10%, 5% or        their useful life is shorter. If the assets are transferred before
25% where the tax rates are 25%, 20% or 40%, respectively.                 the end of that period, the tax credit will be forfeited (unless
                                                                           the net book value or proceeds, if less, is reinvested as
However, a partial tax credit can be taken if the proceeds are             described above). If the tax credit is forfeited in a year
partially reinvested, by applying the 20% tax credit to the portion        subsequent to that in which it is used, the relevant tax
of the gain proportional to the amount reinvested.                         payable and late-payment interest must be paid over to the
                                                                           tax authorities.
The amount of the gain qualifying for the tax credit will not
                                                                           The reinvestment must be made within a period commencing
include deductible provisions for the assets transferred, or
                                                                           one year before and ending three years after the date on
amounts charged in respect of accelerated depreciation and to be
                                                                           which the asset transferred is made available. However, a
included in the tax base as a result of the transfer of the assets on
                                                                           special reinvestment plan may be submitted where the
which it was claimed. The portion of the gain that has given the
                                                                           reinvestment cannot be made in the above-mentioned
right to claim a double taxation tax credit will not be included in
                                                                           periods due to the technical characteristics of the
the tax credit base either.
                                                                           reinvestment.

The tax credit will be taken in the period in which the                    If more than one transfer of securities is made in the same
reinvestment is made and will be taken without any limit on the            period, time in the above-mentioned period will start running
tax payable. However, where the reinvestment takes place before            from the end of the tax period.
the transfer, the tax credit must be taken in the period in which
the transfer is made.                                                      The reinvestment will be deemed to have been made when
                                                                           the assets in which it is made are made available to the
Types of asset transferred:                                                taxpayer, except in the case of assets under financial lease
                                                                           agreements, where the reinvestment will be deemed to have
   The following are the assets the transfer of which qualifies for
                                                                           been made on the date of execution of the related
   the above- mentioned tax credit:
                                                                           agreement (for the cash value of the asset). In the latter case,
   — Tangible fixed assets or intangible assets previously held            if the purchase option is not exercised, the reinvestment will
     for at least one year.                                                be deemed not to have been made (the reinvestment being a
                                                                           condition subsequent).
   — Securities which represent at least 5% of the capital of
     the investee in question and have been previously held
     for at least one year, excluding securities that do not
                                                                        2.1.4.2. Investment and professional training tax credits
     confer an interest in its capital stock.
                                                                        • A 10% tax credit for investments made in tangible fixed assets
   For the purposes of calculating the length of ownership, the           used for the following:
   FIFO rule will be applied (those acquired first will be deemed
   to have been transferred first). The calculation of the interest        — To protect the environment, consisting of installations to
   transferred will refer to the tax period.                                 avoid air pollution from industrial facilities.

• Reinvestment requirements:                                               — To prevent the pollution of surface, underground and sea
                                                                             water by reducing, recovering or treating industrial
   The following are the assets in which the transfer proceeds               waste.
   must be reinvested:
                                                                           — Purchases of land-based means of transportation that
   — Tangible fixed assets or intangible assets used for                     help reduce air pollution.
     business activities.
                                                                           In order for investments in these assets to qualify for this tax
   — Securities which represent at least 5% of the capital of
                                                                           credit, they must be included in programs, agreements or
     the investee, excluding those which do not confer an
                                                                           contracts with the relevant environmental authorities. In such
     interest in its capital stock and those which confer an
                                                                           cases, the authorities will issue the related certificate
     interest in the capital or equity of entities resident in tax
                                                                           accrediting the investment.
     havens.

   The assets in which the reinvestment is made must continue           • A 15% tax credit for investments made in certain assets of
   to be held by the taxpayer for five years, except for justified        cultural interest, provided that they are held for at least four
   loss, or for three years in the case of movable assets, unless         years.


Business in Spain
Tax system
10
   Capitalizable expenses incurred in the acquisition,                    The amount of the base for this tax credit is reduced by 65%
   maintenance, upkeep or repair of such assets also qualify for          of any subsidies received to encourage such activities.
   this tax credit.
                                                                          Apart from the tax credit for R&D expenses a tax credit is
   Investments in satellite vehicle navigation and location               established for investments in tangible fixed assets and
   systems incorporated into industrial or commercial road                intangible assets (excluding investment in buildings or land)
   transport vehicles will give the right to a tax credit of 10% of       to be used exclusively for R&D activities, which will qualify for
   the amount of such investments.                                        a tax credit for R&D activities (not technological innovation)
                                                                          on the following conditions:
• Investments in access platforms for handicapped people and
  wheelchair securing facilities incorporated into passenger           • The base of the tax credit will be the amount of the
  road public transport vehicles will give the right to a tax credit     investments in the above-mentioned assets, net of 65% of the
  of 10% of the amount of such investments.                              subsidies received.

• A 20% tax credit for investments made in Spanish motion              • The investments are deemed to be made when the assets are
  picture or audiovisual productions. The production cost is             put into operation.
  reduced, in order to apply the tax credit, by the portion
  financed by the financial co-producer.                               • The tax credit rate in these cases will be 10%.

   A 5% tax credit is envisaged for investment in a motion             • The assets acquired must remain at the company until their
   picture financed by the financial co-producer (subject to a           specific purpose in the research and development activities is
   ceiling of 5% of the income for the year derived from such            accomplished, unless their useful life is shorter.
   investment).
                                                                       • This tax credit will be inconsistent with the other tax credits
• A 5% tax credit for investments made in the publication of             provided for the same investments in the Chapter on Tax
  books.                                                                 Credits to encourage the pursuit of certain activities, but will
   The portion of these investments (to protect the environment,         be consistent with the tax credit for reinvestment of
   made in certain assets of cultural interest, in satellite vehicle     extraordinary income.
   navigation and location systems, in access platforms for               Lastly, it should be noted that it is possible to apply to the
   handicapped people and wheelchair securing facilities                  Ministry of Industry, Tourism and Trade for a reasoned binding
   incorporated into passenger road public transport vehicles, in         report on fulfillment of the scientific and technological
   Spanish motion picture or audiovisual productions, and in the          requirements for characterizing activities as R&D or as
   publication of books) financed with subsidies does not qualify         technological innovation.
   for a tax credit.
                                                                       • A tax credit may be taken for 25% of the investment in:
• A tax credit for 30% of the expenses incurred in the tax period
  on scientific R&D. If the investment made exceeds average            • The formation of a branch or permanent establishment
  expenses incurred in the previous two years, 50% is applied to         abroad, the acquisition of a holding in a foreign company or
  the excess.                                                            the incorporation of a subsidiary directly connected with the
                                                                         export of goods or services or the contracting of tourism
   In addition, a tax credit will be available for 20% of the
                                                                         services in Spain, provided that the holding is of at least 25%
   expenses incurred on personnel assigned exclusively to such
                                                                         of the capital stock of the subsidiary (except for investments in
   activities, and expenses relating to certain types of project.
                                                                         tax havens).
   A tax credit for 10% of the expenses incurred in the tax period
   on technological innovation, and 15% in the case of expenses        • Advertising and publicity expenses covering more than one
   relating to projects, the execution of which is entrusted to          year for the launch of products, the opening-up of markets,
   universities and other agencies or centers.                           and attendance at trade fairs (including international trade
                                                                         fairs in Spain) also qualify for this tax credit (except when
   R&D and technological innovation expenses incurred abroad
                                                                         carried out in tax havens).
   may qualify for this tax credit provided that the main R&D
   activity takes place in Spain and the expenses incurred abroad         The amount of the base for these tax credits is reduced by
   do not exceed 25% of the total.                                        65% of any subsidies received.


                                                                                                                           Business in Spain
                                                                                                                                 Tax system
                                                                                                                                         11
2. Central government taxes




• A tax credit can be taken for 5% of the amount of the                 are limited to 35% of the gross tax payable, net of domestic and
  employee training expenses.                                           international double taxation tax credits and of tax allowances.

   If the expenses exceed the average amount spent in the two
   preceding years, this tax credit is increased to 10% on the          However, any excess can be carried forward for use in the
   excess amount. The employee training expenses are reduced            following ten years (in the case of the tax credit for scientific
   by 65% of any subsidies received treated as period revenues.         research and technological innovation activities, the period will
                                                                        be up to fifteen years).
   The tax credit also applies to expenses incurred by the entity
   in training employees in the use of new technologies. Such           The period will be counted from the first subsequent year in
   expenses include the cost of Internet access and the related         which an entity reports taxable income in the case of newly-
   hardware, even if used by employees outside the workplace            incorporated entities or entities offsetting prior year’s losses by
   and outside normal working hours. The expenses referred to           effective contributions of new resources.
   in this section will be treated for tax purposes as training costs
   and will not give rise to salary income for the employee.
                                                                        2.1.4.5. Tax credit for domestic double taxation of
                                                                                 dividends and on transfers of shares
2.1.4.3. Tax credit for employer contributions to
         employment pension plans
                                                                        This credit completely eliminates double taxation when the
                                                                        resident company collecting the dividend owns at least 5% of the
In general, this tax credit encourages contributions to
                                                                        resident company paying the dividend and had its holding during
employment pension plans or mutual entities which operate as
                                                                        the 12- month period prior to the date on which the distributed
employee welfare vehicles sponsored by the taxpayer for the
                                                                        dividend becomes claimable or, failing that, be maintained
benefit of workers whose annual gross compensation is less than
                                                                        subsequently for the time required to complete that period. If
t27,000 provided that such contributions are imputed. If the
                                                                        these requirements are not met, double taxation is not avoided
compensation exceeds that amount, the tax credit will be taken
                                                                        altogether, since 50% of the dividend received is taxed (or 100%
on the proportion of the contributions which relate to t27,000.
                                                                        should certain anti-abuse provisions be applicable).
The tax credit is equal to 10% of the contributions made.
                                                                        The credit can also be taken on transfers of shares in respect of
2.1.4.4. Tax credit for hiring handicapped workers                      the amount of undistributed earnings generated in the period of
                                                                        ownership of the holding, provided that the requirements
                                                                        described above are met.
The requirements for qualifying for this tax credit are as follows:

• The contract must be an indefinite- term, full-time contract.         Additionally, the credit applies (in respect of the amount of
                                                                        undistributed earnings) in the following cases: liquidation of a
• The amount of the tax credit will be t6,000 per handicapped           company; acquisition by a company of its own shares for
  person/year by which the average labor force increases, with          amortization purposes; withdrawal of shareholders; dissolution
  respect to the immediately preceding year.                            of a company without liquidation (mergers, total spin-offs or
                                                                        global transfers of assets and liabilities).
In general, the abovementioned tax credits (arising from the
following investments or expenses: to protect the environment,          The above-mentioned tax credits are subject to certain limits
made in certain assets of cultural interest, in satellite vehicle       (with some exceptions) including most notably:
navigation and location systems, in access platforms for
                                                                        • When the distribution of the dividend or of the share in profits
handicapped people and wheelchair securing facilities
                                                                          does not result in the inclusion of income in the tax base.
incorporated into passenger road public transport vehicles, in
Spanish motion picture or audiovisual productions, in the               • When the distribution of the dividend or of the share in profits
publication of books, in R&D and technological innovation, in the         causes a decline in the value of the ownership interest for tax
formation of a branch or permanent establishment abroad, in               purposes.
employee training expenses, for employer contributions to
employment pension plans, for hiring handicapped workers,               • When the undistributed income relates to income not
expenses incurred by the entity in training employees in the use          included in the tax base of the investee company because it
of new technologies and reinvestment of extraordinary income)             was offset by tax losses.


Business in Spain
Tax system
12
Any excess tax credit can be carried forward for use in the              (ii) Exemption system applicable to income from business
following seven years.                                                        activities carried on abroad through subsidiaries or
                                                                              permanent establishments
2.1.4.6. Tax credit to avoid international double taxation
                                                                         Under the exemption system, dividends or profit participations
Traditionally, Spanish legislation has adopted the credit method         derived from holding securities representing the equity of entities
and the three-tier-underlying tax credit (for dividends) to avoid        which are not resident in Spanish territory and the income (gains)
international double taxation.                                           obtained from the transfer of these securities are tax exempt in
                                                                         Spain provided the following requirements are met:

An amendment to the legislation dated June 2000, introduced a            a) The direct or indirect interest in the capital or equity of the
pure exemption system subject to compliance with certain                    non-resident entity must be at least 5% and this interest must
requirements.                                                               have been held by the Spanish entity uninterruptedly during
                                                                            the year prior to the date on which the profit distributed
The exemption co-exits with the tax credit system (the tax payer            becomes claimable (or will be maintained for the time
may opt for one or the other, although the application of both is           necessary to complete a year).
incompatible).                                                           b) That the non-resident entity has been subject to a tax of an
                                                                            identical or analogous nature to the Spanish corporate
(i) Tax credit system                                                       income tax in the tax year in which the profit which is
                                                                            distributed has been obtained. It is considered that the non-
Under this method, all the income or capital gains obtained                 resident entity is subject to a tax of identical or analogous
abroad by companies resident in Spain are included in the tax               nature to the Spanish corporate income tax if the non-
base in calculating the tax due. The amount of tax effectively paid         resident entity is resident in a country with which Spain has a
abroad will be deducted from the tax due, up to the limit of the            treaty to avoid international double taxation and such treaty
tax that would have been payable on the income had it been                  contains an exchange of information clause. The exemption
obtained in Spain. In making the calculation, all the income                does not apply when the non-resident entity resides in a tax
obtained in the same country will be included, except in the case           haven as legally defined.
of permanent establishments, where the income obtained by
                                                                         c) The income from which the dividends or profit participations
each of them will be grouped (“country per country
                                                                            arise must be derived from the carrying on of business
mechanism”).
                                                                            activities abroad as defined by the Law. This requirement will
                                                                            be deemed to be met when at least 85% of the revenues for
When the tax base includes dividends or shares in profits paid by           the year of the subsidiary relate to operating (i.e. not subject
an entity not resident in Spain, the tax effectively paid by the non-       to Spain’s controlled foreign corporations -CFC- rules) income
resident entity in respect of the income from which the dividends           obtained abroad, as well as to dividends from sub holdings
or shares in profits were paid will be deducted. This deduction,            arising from qualifying operating subsidiaries.
together with that mentioned in the previous paragraph, may not
exceed the gross tax that would have been payable in Spain on            The exemption applies in the case of capital gains when the
such income.                                                             requirements provided for in b) and c) above are met in every
                                                                         year of the holding, and the requirement set in a) on the date on
The underlying tax is deductible up to the third level (i.e.             which the transfer takes place.
subsidiaries of subsidiaries). To qualify for the tax credit, a direct
or indirect holding of at least 5% in the capital of the non-            Regarding the computing of the one- year period, account may
resident entity must be owned uninterruptedly for the one-year           be taken of the period during which the holding was owned by
period immediately prior to the distribution of the dividend (or         companies that meet the conditions to be considered as forming
the one-year period must be completed after the distribution),           part of the same group of companies according to Spanish
and the resident entity must include in its tax base not only the        mercantile legislation.
income distributed but also the taxes borne by said foreign
entities.                                                                In any case, if the exemption has been applied to foreign-source
                                                                         dividends, the decline in the value of the holding may not be
Any amounts not deducted due to insufficiency of the gross tax           included in the tax base, regardless of the manner or the tax
payable may be carried forward for use in the following ten years.       period in which it occurs, up to the amount of those dividends.


                                                                                                                           Business in Spain
                                                                                                                                 Tax system
                                                                                                                                         13
2. Central government taxes




The Law also states that, if the non- resident entity whose            In addition, with certain exceptions, lessees of certain types of
holdings are being transferred has, in turn, a direct or indirect      real estate must make withholdings of 15% of the rent paid to the
holding in entities resident in Spain or possesses assets in Spanish   related lessors.
territory (and the market value of the holdings in the Spanish-
resident entities or of the assets located in Spain exceeds 15% of     Spanish companies are also required to make three tax
the market value of its total assets), the exemption would be          prepayments (in April, October and December of each year)
limited to the part of the income that relates to the net increase     based on the taxable income for the first three, nine or eleven
in undistributed profits generated by the investee entity during       months of the calendar year, applying a rate equal to 5/7 of the
the time the holding was owned. Furthermore, the law                   applicable tax rate (for taxpayers taxable at the standard rate,
establishes provisions that limit the application of the exemption,    the prepayment would be 25%). Certain reductions,
as in cases in which the entity transferring the holdings has made     withholdings, prepayments on account and installment payments
a tax-deductible adjustment to the value of the holding                made for the tax period shall be deducted from the resulting tax
transferred. In this case, the exemption is limited to the excess of   payable.
the income obtained on the transfer over the amount of the
adjustment deducted. Similarly, if the holding in the non-resident     This method is obligatory for taxpayers whose volume of business
entity had been acquired from another entity that meets the            exceeds t6,010,121 in the 12 months prior to the date on which
conditions referred to in Article 42 of the Commercial Code for        their tax period commences, and optional for any taxpayer that
forming part of a group of companies, any loss disclosed on the        expressly decides to follow the method.
transfer of the holding will be reduced (in order to determine the
amount of tax exempted) by the amount of the income obtained           Taxpayers whose volume of business does not exceed said
on the transfer of the same holding to which the exemption had         amount, make the prepayments by applying the rate of 18% to
been applied. Furthermore, any income obtained on the transfer         the gross tax payable (net of the related tax credits) of the last
will be taxed up to the amount of the loss on previous transfers       tax year whose deadline for filing a return has elapsed.
included in the tax base for corporate income tax purposes.
                                                                       The withholdings and prepayments can be taken as tax credits in
Apart from the above provisions, the Law also stipulates certain       the annual return for the corresponding year. If the sum of such
cases in which the exemption is not applied, such as, for              credits exceeds the final tax payable, the company is entitled to a
example, when the entity resident in Spain is a Spanish or             refund for the excess prepaid.
European Interest Grouping (EIG), or a Temporary Business
Association (UTE) (see p. 39), the acquiror resides in a tax haven,    2.1.5. Asset-holding companies
or the business activity abroad is carried on for the main purpose
of qualifying for this tax regime unless, in this latter case,         On the year 2003 was suppressed the fiscal transparency regime,
evidence is provided of other valid economic grounds. It will be       which was replaced by the “asset-holding companies” regime.
assumed that the business activity abroad is carried on mainly to
qualify for the tax regime if it is simply relocated, i.e. when the    Companies which fulfill the following requirements for more than
same activity carried on by the subsidiary abroad had previously       90 days in the fiscal year are deemed to be asset-holding
been carried on in Spain by another entity, which has ceased to        companies:
carry on business and has a relationship of the type referred to in
Article 42 of the Commercial Code.                                     • over half their assets consist of securities or are not used in
                                                                         economic activities, and
Lastly, in relation to the income obtained abroad through a            • over 50% of their capital stock is directly or indirectly owned
permanent establishment, it should be noted that the losses              by no more than ten shareholders or by a family group.
incurred by the establishment will be deductible, although tax
must be paid subsequently on future income up to an amount             For these purposes, in the case of companies over half of whose
equivalent to the losses previously deducted.                          assets consist of securities, inter alia, those owned for the
                                                                       purpose of complying with legal and statutory obligations or of
2.1.4.7. Withholdings and prepayments                                  directing and managing the ownership interest (provided they
                                                                       carry at least 5% of voting rights) are not deemed to be securities.
Non operating income, such as interest, rent and dividends, is
subject to withholding tax at source, as a prepayment against the      This regime does not apply to companies at which all the
final tax liability.                                                   shareholders are legal entities which are not asset-holding


Business in Spain
Tax system
14
companies or if over 50% of the capital is owned by a legal entity      periods in which the distributing entity was taxed under the
governed by public law. In addition, it does not apply in the tax       regime for asset- holding companies will not be included in
periods in which the securities representing the ownership              the recipient’s personal income tax return for that tax period.
interest in the company are traded on an official secondary
                                                                     • Where the recipient is a resident company or a non-resident
market.
                                                                       income taxpayer with a permanent establishment in Spain,
                                                                       the income received will be included in the taxable income
Shareholdings and other ownership interests in the company
                                                                       but the 50% tax credit for double taxation of dividends will be
must be registered.
                                                                       applied.

Asset-holding companies will be taxed according to the following     • Where the recipient is a non-resident income taxpayer
special rules:                                                         without a permanent establishment, the income received will
                                                                       be afforded the treatment provided in the Non-residents´
• Taxable income will be divided into two components: the
                                                                       Income Tax Law.
  general component, which will be taxed at 40%, and the
  special component which will be taxed at 15%. The taxable
                                                                     Income obtained from transfers of ownership interests in
  income will be quantified pursuant to the rules of the
                                                                     companies which own reserves recorded out of income to which
  Personal Income Tax Law, excluding the following: personal
                                                                     this regime applied will be treated as follows:
  and family exemptions, and the deferral for capital gains
  disclosed as a result of the transfer of units or shares in        • If the transferor is an individual resident for tax purposes in
  collective investment institutions in cases in which the             Spain, the rules of the Personal Income Tax Law will apply.
  amount obtained is invested again in units or shares in
                                                                     • If the transferor is a resident company or a non-resident with
  another collective investment institution.
                                                                       a permanent establishment, it cannot take the tax credit for
• The direct assessment method will be used to determine net           double taxation of capital gains, and the transfer value
  income from economic activities.                                     cannot be lower than the underlying value resulting from the
                                                                       latest balance sheet.
• In calculating capital gains, the method of abatement
  coefficients, whereby the gain is reduced by a certain             • If the transferor is non-resident and does not have a
  percentage depending on the type of asset (14.28%, 25% or            permanent establishment, the income will be treated as
  11.11%) for each year following the second year the asset            provided for in the Non-residents´ Income Tax Law.
  forms part of the taxpayer’s net worth at December 31, 1996,
  will not be used.                                                  2.1.6. Consolidated taxation status
• The 40% reduction provided for in the Personal Income Tax
                                                                     Spanish tax law envisages the possibility of certain corporate
  Law for income generated over a period exceeding two years
                                                                     groups being taxed on a consolidated basis.
  or obtained at particularly irregular time intervals will not
  apply when any of the shareholders of the asset-holding
                                                                     The filing of a consolidated return has significant advantages,
  company is a taxpayer for Corporate Income Tax or Non
                                                                     most notably the fact that the losses of some group companies
  Residents Income Tax purposes.
                                                                     can be offset against the profits of others. Also, since inter
• Prior years’ tax losses are offset pursuant to the Personal        company profits are eliminated in calculating consolidated
  Income Tax Law.                                                    income, the arm’s-length test being applied in the valuation of
                                                                     inter company transactions is normally irrelevant.
• The gross tax payable can only be reduced by the following:
  the tax credit for economic activities, gifts, income obtained
                                                                     For tax purposes, a consolidated group consists of the resident
  in Ceuta and Melilla, and investments in assets of cultural
                                                                     controlling company, which must be subject to (and not exempt
  interest. In addition, companies can claim the dividend and
                                                                     from) corporate income tax, or by a permanent establishment of
  the international double taxation credit (applicable to
                                                                     a non-resident company, and those of its Spanish subsidiaries in
  individuals), and can deduct the prepayments made in the
                                                                     which they have effective direct or indirect ownership interests of
  fiscal year.
                                                                     at least 75%. In order to request the application of the
                                                                     consolidated tax regime, the controlling company or permanent
The rules for distribution of income are as follows:
                                                                     establishment must have a direct or indirect holding of at least
• Where the recipient is an individual resident for tax purposes     75% in the capital stock of another company on the first day of
  in Spain, dividends and shares in income generated in tax          the tax period in which this tax regime applies and said holding


                                                                                                                       Business in Spain
                                                                                                                             Tax system
                                                                                                                                     15
2. Central government taxes




must be maintained throughout the tax period.                           and exploitation activities (which, although subject to tax at a
                                                                        higher rate —40%—, may reduce, with certain limitations, their
Resolutions for group companies to be taxed on a consolidated           tax base by applying the depletion factor and are subject to
basis must be adopted by the shareholders´ meeting (or                  special depreciation and loss carryforward provisions, etc.) and to
equivalent body if they are not formed under the Commercial             shipping entities on the basis of tonnage.
Code), and the tax authorities must be notified at any time
during the tax period immediately prior to that in which the            2.1.8. Foreign-securities holding entities
consolidated tax regime is applied. The regime will be applicable
indefinitely so long as its application is not waived.                  Current legislation of the regime governing foreign-securities
                                                                        holding entities (in Spanish, ETVE) underlines the same as one of
2.1.7. Other special taxation regimes                                   the most competitive in the European Union.

Corporate income tax legislation contains provisions governing
                                                                        The main features of this special regime are summarized below:
special taxation regimes, established mainly as a result of the
nature of the taxpayer or of the activities carried on by entities in
a specific economic sector:                                             2.1.8.1. Corporate purpose and application of the regime

• Spanish and European Economic Interest Groupings (EIGs).              Regarding the corporate purpose of the ETVE, it is sufficient for
  These entities and their shareholders are subject to the              the corporate purpose to include the management and
  general corporate income tax rules, with some exceptions,             administration of securities representing the equity of entities not
  among others: they do not pay corporate income tax on the             resident in Spanish territory, by means of the appropriate
  portion of their taxable income attributable to shareholders          organization of material and personal resources. Moreover, an
  resident in Spain.                                                    ETVE may be a member of a consolidated tax group, if it meets
                                                                        the relevant requirements, although the ETVE regime is not
   The non-resident shareholders of a Spanish EIGs are taxable          applicable to asset holding companies, Spanish or European
   pursuant to the Non-resident Income Tax Law and pursuant to          Interest Groupings and Temporary Business Associations.
   the rules contained in the tax treaties.

   The non-resident shareholders of a European EIG, are only            It is sufficient to notify the decision to apply the regime to Ministry
   taxable in Spain, for the EIGs’ income allocated to them, if         of Economy and Finance (no permission has to be granted by the
   they are considered to have a permanent establishment in             authorities).
   Spain.
                                                                        2.1.8.2. Treatment of the income obtained by the ETVE
• Temporary Business Associations (“Uniones Temporales de                        from holdings in non-resident entities
  Empresas” or UTEs). These entities are taxed in the same way
  as EIGs; however, the foreign- source income (derived from
                                                                        Firstly, the dividends or shares in the profits of entities not
  activities carried out abroad) of UTEs is tax- exempt (subject
                                                                        resident in Spain, and income deriving from the transfer of the
  to application to the tax authorities).
                                                                        holding, are exempt subject to the requirements and conditions
   The losses obtained by a UTE abroad are imputed to the tax           provided for under the exemption method to avoid international
   bases of its members. If, in future years, the UTE obtains           double taxation.
   income it must be included in the tax base of its members up
   to the limit of the losses previously included.                      Secondly, a minimum holding of at least 5% must be owned in
                                                                        the non-resident entity to apply the aforementioned method. For
• Other special tax systems apply to venture capital companies          the purpose of applying the exemption provided for in the ETVE
  and funds, industrial and regional development companies              regime, the minimum holding requirement is deemed to be met
  and collective investment institutions.                               (i.e. the holding may be less than 5%) if the acquisition value of
                                                                        the holding is over t6 million. Holdings of less than 5% may be
Special regimes for economic sectors apply to both mining               held in second and subsequent level subsidiaries (when the t6
companies (with special provisions relating mainly to accelerated       million requisite is maintained), if these subsidiaries meet the
depreciation of certain assets and reductions in the tax base due       conditions referred to in Article 42 of the Commercial Code for
to the applicability, subject to certain requirements, of the           forming part of the same group of companies as the first-level
depletion factor), companies engaging in oil and gas research           foreign entity and file consolidated financial statements.


Business in Spain
Tax system
16
The above notwithstanding, when the holding in the non-resident          2.1.9. Neutral tax regime for restructuring operations
entity had been valued in accordance with the rules pertaining to
the neutral tax regime, and the application of these rules, even in      In order to facilitate corporate reorganizations (mergers, spin-
a previous transfer, had resulted in the non-inclusion of income in      offs, contributions of assets, and exchanges of securities), the
the tax base for corporate income tax, personal income tax or            Spanish tax system provides for a well-established special regime
non-resident income tax, deriving from the transfer of the               based on the principles of non-intervention by the tax authorities
holding in an entity resident in Spain, the exemption will apply         and tax neutrality, which guarantees —when certain
only to the income relating to the positive difference between the       requirements are met1— the deferral of or exemption from
transfer value and the normal market value of the holding in the         taxation, as appropriate, in respect of both direct and indirect
non-resident entity at the time of acquisition by the transferring       taxation, for taxpayers carrying out such operations, along the
entity. The rest of the income obtained on the transfer will be          same lines as the rest of the EU Member States.
included in the tax base for the period.
                                                                         According to such regime, in the case of mergers, the absorbing
2.1.8.3. Treatment of income distributed by the ETVE                     company can deduct for tax purposes up to a limit of a 5%
                                                                         annually, under certain circumstances, the amount of the
If the recipient of the income is an entity subject to Spanish           difference between the acquisition cost of a holding above the 5%
corporate income tax, the income received will entitle the               and its underlying book value that cannot be allocated to the
recipient to the tax credit for domestic double taxation.                assets and rights acquired, in conformity with the rules for
                                                                         preparing consolidated financial statements.
In case the recipient is an individual subject to Spanish personal
income tax, he may apply the tax credit for taxes paid abroad on         In this respect, the taxpayer, in the tax periods in which it is going
the terms provided for in the personal income tax legislation.           to benefit from this tax measure, should file to the tax authorities
                                                                         the following information jointly with its corporate income tax
Finally, when the recipient is an individual or entity not resident in   return:
Spain, the profits distributed will not be deemed to have been
obtained in Spain and, in this respect, the first distribution of        a) Identifying details of the transferor and of the percentage
profits will be deemed to derive from exempt income. In this                holding owned in it.
sense, the distribution of additional paid-in capital is to be           b) Value and date of acquisition of the holdings in the transferor,
treated in the same way as the distribution of income.                      as well as their underlying book value, determined on the
                                                                            basis of standardized financial statements.
2.1.8.4. Treatment of the capital gains obtained on the
         transfer of the holdings in the ETVE                            c) Support for the following:

                                                                             •    Explanation of the rules on standardization of valuation
When the shareholder is an entity subject to Spanish corporate
                                                                                  and timing as well as for the attribution to the assets and
income tax, it may apply the new exemption to avoid double
                                                                                  rights of the transferor of the difference existing between
international taxation described above in respect of the part of
                                                                                  the acquisition cost and underlying book value of its
the income relating to holdings in non-resident entities that meet
                                                                                  holdings on the date of dissolution of that entity;
the relevant requirements, and the tax credit for domestic double
taxation of capital gains in respect of the corresponding portion            •    That the holding has not been acquired from persons or
of the income obtained, on the terms provided for in the                          entities not resident in Spain or from individuals resident
legislation governing the tax credit for domestic double taxation.                in Spain, or from a related entity if the related entity, in
                                                                                  turn, acquired the holding from those persons or entities.
When the shareholder is a person or entity not resident in Spain,                 It shall be deemed that this requirement has been
the income relating to the reserves allocated with a charge to the                satisfied where the amount of the difference between the
exempt income or to the value differences imputable to the                        acquisition cost of a holding above the 5% and its
holdings in non-resident entities, will not be deemed to have                     underlying book value that cannot be allocated to the
been obtained in Spain.                                                           assets and rights acquired, has been taxed either in

No special rules have been introduced for individual resident            1Among these requisites, it should be noted that the reorganization must
shareholders, who will continue to be subject to the personal            be made for “valid economic reasons” as legally defined (i.e. business
income tax legislation.                                                  and economic reasons, and not mere and purely tax motivations).


                                                                                                                              Business in Spain
                                                                                                                                    Tax system
                                                                                                                                            17
2. Central government taxes




        Spain or another EU Member State, under any transfer of         2.1.11. Formal requirements
        the holding;
                                                                        The tax period is the company’s business year, and its financial
   •    That the transferee is not, in relation to the transferor, in
                                                                        statements and accounting records are the basic documentation
        any of the situations provided for in Article 42 of the
                                                                        to support its annual tax return.
        Spanish Commercial Code.

                                                                        The returns must be filed and the tax paid within 25 days
2.1.10. Tax incentives for small and medium- sized
                                                                        following the six months after the end of the business year.
        companies
                                                                        2.1.12. Canary Islands Tax Regime
Companies whose net sales (calculated for the group, if
applicable) in the immediately preceding tax period (or in the
                                                                        The Canary Archipelago enjoys a number of tax benefits intended
current period in the case of newly-incorporated companies)
                                                                        to compensate for the disadvantages brought about by insularity
amount to less than t8 million qualify for certain tax incentives.
                                                                        and distance from the Spanish mainland and, principally, attract
If the entity belongs to a group of companies within the meaning
                                                                        investment to the Canary Islands.
of Article 42 of the Commercial Code, the net sales figure will be
calculated for the group as a whole. The incentives can
                                                                        The economic and tax regime of the Canaries is considered an
summarized as follows:
                                                                        State Aid, and for that reason is subject to authorization by the
• Accelerated depreciation of their tangible fixed assets up to         European Union. Some part of the tax benefits have been
  certain limits, provided that certain job creation requirements       prorogated for fiscal year 2006, and at this time the prorogation
  are met.                                                              for the period 2007-2013 is being negotiated with the European
                                                                        Union. It is expected that the special tax and economic regime for
   This possibility is inconsistent with the tax credit for             the Canary Archipelago will be maintained, although there will
   reinvestment of extraordinary income.                                certain changes affecting the main tax benefits in order to
• Accelerated depreciation of new fixed assets whose unit value         comply with the new Rules for State Aids of the European Union.
  does not exceed t601.01 (up to an aggregate limit of
  t12,020.24), without having recorded it for accounting                The main features of the regime regarding year 2006 are the
  purposes.                                                             following:

• Entitlement to increase by a coefficient of 2 the maximum             2.1.12.1. Direct Taxation
  depreciation rates permitted per the official depreciation
  tables (without having recorded it for accounting purposes)           • Reduction in a 50% of the portion of gross tax payable that
  for new tangible fixed assets and intangible assets (except,            relates to income from the sale of tangible goods specific to
  amongst others, goodwill and trademarks, which can be                   agricultural, livestock farming, industrial or fishing activities,
  depreciated by multiplying by 1.5 the maximum depreciation              provided that they have been produced by the taxpayer itself
  rates permitted per the official depreciation tables).                  in the archipelago. This reduction applies both to companies
• Ability to record provisions for bad debts based on 1% of the           (Corporate Income Tax) and to individuals that develop a
  balance of their accounts receivable at the end of the tax              business activity by the direct assessment method (Personal
  period.                                                                 Income Tax).

                                                                        • Reduction in the tax base (up to 90% of undistributed income
• The tax rate for these companies is 30%, applicable to the
                                                                          per books for the year) by such amounts as are allocated by
  first t120,202.41 of taxable income. Any taxable income
                                                                          companies, in relation to their permanent establishments on
  above that amount is taxed at 35%. In the case of tax periods
                                                                          the Canary Islands, from their income to a Canary Islands
  of less than one year, the taxable income subject to the 30%
                                                                          Investment Reserve (“Reserva para Inversiones en Canarias” or
  rate is determined in proportion to the length of the period
                                                                          RIC). Companies whose main business purpose is to render
  with respect to the calendar year.
                                                                          financial services and the entities whose main business
• Deduction of 10% of the volume of period investments and                purpose is to render services to other companies of the same
  expenses aimed at improving access through the Internet and             group will not be able to apply for the RIC benefit in fiscal year
  at improving internal processes through the use of                      2006, following the EU Guidelines. According to the stance
  information and communications technologies has been                    adopted by the tax authorities, taxpayers have a maximum of
  introduced.                                                             five years to invest the RIC: the year in which the income is


Business in Spain
Tax system
18
   obtained, the year in which the reserve is recorded for             • Newly-formed companies residing in the Canary Islands, or
   accounting purposes and the following three years. The                existing companies, increasing their capital, or expanding,
   amounts must be invested acquiring new fixed assets or                modernizing or relocating their facilities can claim an
   certain used fixed assets that represent a technological              exemption from transfer tax2 when they incorporate, increase
   breakthrough, located or received in the archipelago, and/or          their capital or acquire capital goods located on the Canary
   by subscribing shares or ownership interests in the capital of        Islands during a period of time of three years from the
   companies that carry on their business in the archipelago and         execution of the public deed of incorporation or capital
   make the above-mentioned investments. Furthermore, it is              increase. Under the transfer tax “corporate transactions”
   possible to invest the RIC by subscribing securities or book-         heading, incorporations or capital increases will only be
   entry debt issued by the Canary Islands Autonomous                    exempt to the extent that they are allocated to the
   Community government, or by Canary Islands local                      investments mentioned above. Transactions subject to the
   corporations or Autonomous Community government                       “stamp tax” heading will not be exempt.
   agencies recorded out of income obtained through
                                                                           Supplies and imports of goods to the companies referred to in
   December, 31, 2006, with the limit of 50% of the RIC
                                                                           the preceding section that are classed as capital goods for
   allocations.
                                                                           such companies are also exempt from Canary Islands Indirect
   A company that has acquired fixed assets to invest its RIC              General Tax. The execution of projects having the status of
   must continue to own, and actually use, those assets for at             supplies of services resulting in capital goods will also be
   least five years or for their useful life, if shorter, and cannot       exempt.
   transfer, lease, or assign them to third parties, unless they are
                                                                           This exemption can also be applied to the acquisition of
   used, through an economic activity, for lease or assignment
                                                                           capital goods by permanent establishments of companies not
   to third parties for their use, provided there is no direct or
                                                                           residing in the Canary Islands, provided that the requirements
   indirect link with the lessees or assignees of such assets and
                                                                           mentioned above are met.
   provided the transactions in question are not financial lease
   transactions.                                                       • Vessels and shipping companies registered in a Special
                                                                         Register can claim any exemption from stamp tax on acts and
   It will also apply to personal income taxpayers who determine
                                                                         contracts subject to that tax.
   their income by the direct assessment method, with a tax
   credit, subject to the limit of 80% of the portion of the gross         Furthermore, for the crew of such vessels, a 90% reduction in
   tax payable that proportionally relates to the net income               employer social security contributions is established, and 50%
   from economic operations in the Canary Islands.                         of the salary income earned by taxpayers subject to Personal
                                                                           Income Tax or to the Non Resident Income Tax, when sailing
   This tax benefit is incompatible, in relation to the same               on those vessels is treated as exempt income for personal
   assets, with the tax credit for investment and with the tax             income tax purposes.
   credit for the reinvestment of extraordinary income.
                                                                           On the other hand, a 90% reduction can also be claimed on
• The tax credit for investment in fixed assets consisting of 25%          the portion of the corporate income tax charge (net of any
  of the investment up to a limit of 50% of tax payable net of             tax credits for double taxation), which relates to the portion
  tax reductions and double taxation credits remains in force in           of the tax base resulting from the operation of those vessels.
  the Canary Islands despite being repealed elsewhere.                     In the case of vessels that regularly travel between ports of
• Increased tax credits for investments made on the Canary                 the European Union, the benefits for Personal Income Tax,
  Islands, with respect to those applicable to investments in the          Non Resident Income Tax and Social Security will only be
  Spanish mainland.                                                        applied to the crew members that are nationals of any
                                                                           country belonging to the European Union or the Economic
                                                                           European Space.
2.1.12.2. Indirect taxation
                                                                       Canary Islands legislation also establishes the special tax regime
• Application of the Canary Islands Indirect General Tax, which
                                                                       of the Canary Islands Special Zone (“Zona Especial Canaria” or
  is similar to VAT, at the standard rate of 5%.

• Application of the Tax on Imports and Deliveries of Goods in         2With effects as of January 1, 2005, in the Canary Islands Transfer Tax rate
  the Canary Islands (AIEM) on the production and import in            has been increased from 6% to 6.5%, and Capital Duty rate from 0.5% to
  the Canary Islands of certain tangible goods.                        0.75%.


                                                                                                                               Business in Spain
                                                                                                                                     Tax system
                                                                                                                                             19
2. Central government taxes




“ZEC”), which was authorized by the European Commission in             Shareholders (whether individuals or legal entities) of a ZEC
January 2000, since the Commission took the view that its              entity who are resident in Spain cannot claim a tax credit for
application was consistent with the legislation governing the          double taxation of dividends from ZEC entities to the extent that
Single Market.                                                         those ZEC entities have been taxed at reduced rates.

The ZEC will remain in force until 2006 (2008 for the companies        Interest, capital gains, and dividends obtained by non-residents
that have already been authorized), and any extension in time          from ZEC entities are exempt for non-residents income tax
will be conditional on prior authorization from the EU authorities.    purposes in Spain on the same terms as those applicable to EU
The extension of the regime for the period 2007-2013 is                residents (even if the shareholder is not an EU resident) when
nowadays under negotiation, and it is expected that a                  such income or gains are paid by a ZEC entity and originate from
prorogation will be obtained although with certain modifications.      transactions performed physically and effectively in the
                                                                       geographical area of the ZEC. The only case in which these
The regime applies to newly-formed entities domiciled in the           exemptions do not apply is if the income or gains are obtained
Canary Islands and registered in the ZEC Official Register of          through countries or territories classed by regulations as tax
Entities. Registered entities must meet the following                  havens, or if the parent company has its tax residence in such
requirements:                                                          territories.

• Their registered office and effective place of management            ZEC entities are exempt from transfer and stamp tax on
  must be located on the Canary Islands.                               acquisitions of assets and rights used by the taxpayer in the
                                                                       course of its business, provided that such assets and rights are
• At least one of their directors must reside in the Canary            located, may be exercised, or must be complied with in the
  Islands.                                                             geographical area of the ZEC. Similarly, corporate transactions by
• Their corporate purpose must be to engage in the activities          ZEC entities are exempt, except for the dissolution of those
  expressly provided in the Law. Financial activities are excluded     entities, and legal instruments related to transactions by, those
  in all cases.                                                        entities in the geographical area of the ZEC (subject to certain
                                                                       exceptions).
• They must create at least five jobs within the first six months
  after authorization, and maintain an annual average labor            Additionally, supplies of goods and services between ZEC entities
  force headcount of at least the same number while they               and imports of goods by ZEC entities are exempt from Canary
  remain under the regime.                                             Islands Indirect General Tax.

• In the first two years after authorization, they must make
                                                                       2.2. Personal income tax
  investments of at least t100,000 in the acquisition of
  tangible fixed assets or intangible assets located or received
                                                                       This tax, which is one of the pillars of Spain’s tax system, is
  within the geographical area of the ZEC, and such assets must
                                                                       currently governed by the Revised Text of the Personal Income Tax
  be used and required for the pursuit of the activities carried
                                                                       Law, approved by Legislative Royal Decree 3/2004, of March 5.
  on within the ZEC.
                                                                       Royal Decree 1775/2004 approved the Personal Income
• They must file with the authorities a registration application       Tax Regulations.
  and a report describing the activities to be carried on. The
  purpose of the report, the contents of which will be binding         As discussed below, the taxation of non-resident individuals is
  on the entity, is to provide assurance of its solvency, viability,   regulated separately under a new piece of legislation.
  international competitiveness, and contribution to the
  economic and social development of the archipelago.                  2.2.1. Persons subject to the tax

As for the tax regime, operating income obtained by ZEC entities       The following persons are subject to personal income tax:
is subject to corporate income tax at a special rate (between 1%
                                                                       • Individuals habitually resident in Spanish territory.
and 5%), to be determined by reference to the following criteria:
year claimed, year authorized, and net job creation. Furthermore,      • Individuals of Spanish nationality who are habitually resident
the special rates are only applied up to certain maximum amount          abroad and fulfill any of the conditions laid down in the Law
of taxable base, depending on the type of business activity and          (e.g. diplomatic and consular services, etc.). Moreover, any
net job creation (ranging from 1.5 to 120 million euro per year).        Spanish national who establishes his residence for tax


Business in Spain
Tax system
20
   purposes in a tax haven will remain subject to personal             2.2.3. Taxation system - taxpayer
   income tax (this rule will apply in the year in which residence
   is changed and for the following four years).                       The possibility of being taxed individually or jointly (as a family
                                                                       unit) is regulated, although there are no separate tariffs (there is
A taxpayer is deemed to be habitually resident in Spanish              only one tariff but divided in two parts: the general one and the
territory if any one of the following conditions is met:               Autonomous Community one).

• The taxpayer is physically present in Spanish territory for more     2.2.4. General structure of the tax
  than 183 days in the calendar year.

   Sporadic absences are included in determining the length of         The Law distinguishes a general component and a special
   time a taxpayer is present in Spanish territory, unless tax         component in the tax base.
   residence in another country is proved. In the case of
   territories designated in the regulations as tax havens, the        The general component comprises the positive balance from
   authorities may require the taxpayer to prove that he was           adding:
   present in the territory in question for 183 days in the
                                                                       • Salary income (discussed briefly below).
   calendar year (excluding absences due to cultural or
   humanitarian cooperation with the Spanish authorities).             • Income from real estate.

• The main center or base of the taxpayer’s business or                • Income from movable capital.
  professional activities or economic interests is in Spain, either
                                                                       • Income from business activities.
  directly or indirectly.
                                                                       • Imputation of income from real estate.
In the absence of proof to the contrary, an individual is presumed
                                                                       • Imputation of income from entities under the international
to be resident in Spain if his/her spouse/husband (from whom
                                                                         fiscal transparency system.
he/she is not legally separated) and dependent under-age
children are habitually resident in Spain.                             • Imputation of income from assignment of rights of publicity.

                                                                       • Changes in the value of units in collective investment
Individuals who are payers of non-residents’ income tax and are
                                                                         undertakings established in tax havens.
resident in a Member State of the European Union may elect to
be taxed under Spanish personal income tax if they demonstrate         • The positive balance resulting from offsetting capital gains
that their habitual domicile or residence is in another EU Member        and losses obtained over a period of less than one year.
State and that at least 75% of their total income during the year
was obtained as salary income or business income in Spain.             The special component of the tax base comprises the positive
                                                                       balance of offsetting capital gains and losses obtained over a
Finally, a new regime has entered into force for the year 2004, by     period exceeding one year (the taxation of capital gains is
virtue of which non-resident individuals who are seconded to           discussed briefly below.
Spain due to labor reasons, and become tax resident in Spain,
can elect to be taxed in Spain as non-residents, when certain          2.2.5. Exempt income
requirements are met.
                                                                       Noteworthy among the exemptions is that relating to salary
2.2.2. Taxable event                                                   income for work performed abroad. In this connection, salary
                                                                       income will be exempt up to t60,101.21 per year if certain
Taxpayers subject to personal income tax are taxed on their            requirements are met:
entire worldwide income, including the income of foreign entities
                                                                       • Salary income has to be paid in respect of work effectively
in certain circumstances (international fiscal transparency system,
                                                                         performed abroad. Namely, the taxpayer must be rendering
unless the non- resident entity is resident of a EU Member State)
                                                                         services physically abroad.
in a manner similar to that described above for corporate income
tax, and capital gains (and losses) in the calendar year, net of the   • The recipient of the services must be either a non Spanish
necessary expenses (as defined in the Law) incurred to obtain            resident entity or a permanent establishment situated abroad
such income.                                                             of a Spanish resident company.


                                                                                                                          Business in Spain
                                                                                                                                Tax system
                                                                                                                                        21
2. Central government taxes




• A tax identical or similar to the Spanish personal income tax         In cases where the right to receive such compensation arises
  must exist in the other country, and such country must not be         over a period of longer than two years, the provisions on
  a territory classified as a tax haven.                                “irregular” income will apply.

                                                                     • Imputation of salary income
This exemption is inconsistent with the regime on “excess
income” excluded from taxation envisaged for taxpayers working          When the salary income has been generated over a period
abroad.                                                                 exceeding two years and, at the same time, the requirement
                                                                        that it has not been obtained on a periodic or recurring basis
2.2.6. Salary income                                                    is met, or when the income is classified by regulations as
                                                                        irregular, only 60% of this income will be imputed. The
                                                                        reduction is extended in certain circumstances for certain
The main permitted deductions from salary income are social
                                                                        types of income.
security contributions.
                                                                        If the income arises from the exercise by employees of stock
• The main features relating to compensation-in-kind are as             options, the amount of the income to which the 40%
  follows:                                                              reduction applies cannot exceed the result of multiplying the
                                                                        annual average salary of the aggregate of personal income
   — The use of vehicles is valued at 20% of the annual cost of
                                                                        taxpayers (t20,500) by the number of years during which
     acquisition for the payer (if it is not owned by the payer,
                                                                        the income is generated. For these purposes, in the case of
     the 20% is applied to the market value that would
                                                                        income obtained at particularly irregular time intervals, the
     correspond in the case the vehicle were new). In the case
                                                                        applicable time period will be five years.
     of provision of the vehicle to the employee by the payer,
     the compensation in kind is valued as the acquisition cost         The limit mentioned in the previous paragraph will be
     for the payer.                                                     multiplied by two in certain circumstances.

   — Compensation-in-kind relating to the use of housing             • Regime for employees of Spanish companies assigned abroad
     owned or leased by the employer is limited to 10% of the          (expatriates):
     cadastral value (5% if the cadastral value has been
                                                                        Spanish personal income tax legislation establishes a
     updated), subject to a ceiling of 10% of the other salary
                                                                        quantitatively significant exemption for salary income
     income. Where there is no cadastral value or the value
                                                                        received by Spanish-resident workers who work abroad. This
     has not been notified, the value of the compensation will
                                                                        exemption applies to up to t60,101.21 per year, provided
     be 5% of 50% of the value for net worth tax (wealth tax)
                                                                        that certain requirements are met:
     purposes.
                                                                        — The work must actually be performed abroad.
   — The portion of shares or other ownership interests not
     exceeding t12,000 awarded annually to all employees                — The recipient of the work must be either an entity not
     free of charge or at lower- than-market value, will not be           resident in Spain or a permanent establishment of a
     considered to be compensation in kind, provided that                 Spanish company located abroad.
     certain requirements are met.
                                                                        — The foreign country where the work is performed must
   Certain reporting requirements are established (notification           charge a tax of a nature identical or analogous to
   to the CNMV where the shares are traded on a stock                     Spanish personal income tax and it must not be a
   exchange) in the case of shares or stock options awarded to            country or territory classed by regulations as a tax haven.
   executives and directors. In addition, in cases where a
                                                                        This exemption is incompatible with the regime on post
   company acquires treasury stock for this purpose, the
                                                                        allowances (i.e., allowances that are exempt as a result of the
   resolution of the shareholders´ meeting must include
                                                                        international assignment).
   authorization for the acquisition as well as other particulars.

• Regarding salary income paid by non- resident related              2.2.7. Rental income
  entities, entities resident in Spanish territory must withhold
  tax from salary income paid to their employees, regardless of      In cases of leases of residential properties, a 50% reduction will
  whether the payer of the income is the entity itself or another    apply to the net income (i.e. gross income less depreciation and
  related resident or non-resident entity.                           amortization, non-State taxes and surcharges, etc.).


Business in Spain
Tax system
22
In addition, if the income was generated over a period exceeding        Lastly, capital gains obtained on the transfer of units or shares in
two years, or if it was obtained at irregular time intervals, a 40%     collective investment institutions (investment funds) will not be
reduction will apply.                                                   included provided that the amount obtained is reinvested in
                                                                        assets of a similar nature. In case of capital gains obtained on the
2.2.8. Capital gains and losses                                         transfer of units or shares in collective investment institutions
                                                                        (SICAVs), said capital gains will not be included if, in the year prior
2.2.8.1. Valuation                                                      to the transfer, the transferor’s ownership interest in the collective
                                                                        investment institution has at no time exceeded 5%, and if the
                                                                        number of the entity’s shareholders exceeds 500. In both cases,
A capital gain or loss on a transfer, whether for valuable
                                                                        the new shares or units subscribed will maintain the value and
consideration or for no consideration, is valued as the difference
                                                                        the acquisition date of the shares or units transferred.
between the acquisition and transfer values (as legally defined)
of the items transferred.
                                                                        2.2.9. Reductions in the tax base
2.2.8.2. Adjustment coefficients and tax rate
                                                                        There are certain reductions which will be used first to reduce the
                                                                        general component of the taxable income without making it
The Law does not envisage the use of adjustment coefficients
                                                                        negative, while any remainder will be used to reduce the special
except for real estate.
                                                                        component. The main applicable reductions are:

The adjustment coefficients are aimed at correcting for inflation       • Personal reductions: a general reduction of t3,400.
and were applied to the acquisition cost of the transferred real
estate and to the related depreciation.                                 • Family reductions: for each unmarried descendant aged
                                                                          under 25, or disabled descendant regardless of age, or person
                                                                          under a guardianship or foster care arrangement living with
Acquired rights are preserved as regards the application of the
                                                                          the taxpayer and not obtaining annual income above
reduction coefficients to assets acquired before December 31,
                                                                          t8,000, the taxpayer will be entitled to a reduction of
1994. In such cases, the capital gain is reduced by a given
                                                                          t1,400 for the first, t1,500 for the second, t2,200 for the
percentage depending on the type of asset (14.28%, 25% or
                                                                          third and t2,300 for the fourth and subsequent of these.
11.11% for each year over two during which the asset was held by
the taxpayer prior to December 31, 1996). The reduction
coefficients do not apply to capital losses.                            The family reductions will not apply if the taxpayers generating
                                                                        entitlement to these amounts file personal income tax returns or
                                                                        an application for a refund.
The tax rate is 15% for capital gains obtained over a period
exceeding one year.
                                                                        2.2.10. Determination of net taxable income
2.2.8.3. Other issues concerning capital gains
                                                                        The general component of the taxable income is reduced by
                                                                        certain amounts, including most notably contributions to pension
Capital gains on the transfer for no consideration of a family
                                                                        plans. These reductions are subject to certain limits:
business are tax exempt provided that the assets used by the
taxpayer in the business activity after its acquisition had been so     • Firstly, certain reductions, ranging from t2,400 to t3,500,
deployed for at least five years prior to the transfer date. For this     are established for net salary income. In addition, employees
exemption to apply the following requirements shall be met: (I)           who continue working over the age of 65 and those who
the transferor must have at least 65 years old, or suffer from            accept an employment post requiring them to change their
absolute permanent disability or comprehensive disability, (II) If        usual residence to a new municipality in accordance with
the transferor was carrying out managing functions in relation            certain requirements are entitled to twice the reduction
with the family business he shall cease in such functions and             corresponding to them in this connection.
must not be remunerated since the transfer takes place, (III) the
recipient must keep the assets received for at least 10 years as of     • Taxable income can be reduced by t1,200 annually under
the date of the public deed documenting the transaction, and he           the “care of offspring” heading for each descendant aged
could not carry out acts or transactions which could lead to a            below three, or for adopted or foster children regardless of
significant decrease in the acquisition value of the business             age for whom the taxpayer can claim the minimum family
received.                                                                 exemption for descendants.


                                                                                                                            Business in Spain
                                                                                                                                  Tax system
                                                                                                                                          23
2. Central government taxes




• Taxpayers aged over 65 are entitled to reduce their taxable                The taxpayer’s place of habitual residence determines the
  income by t800 annually. In addition, taxpayers living with                Autonomous Community in which income is deemed to be
  ascendant relatives aged over 65 or with disabled persons                  obtained for personal income tax purposes. The Law also lays
  regardless of their age whose annual income does not exceed                down specific rules to prevent tax-motivated changes of
  t8,000 can reduce their taxable income by t800 annually.                   residence. Where an Autonomous Community has not approved
                                                                             tax tables or where tax powers have not been devolved to it, the
• In addition, total maximum contributions to mutual funds                   Autonomous Community tax table below will apply (the general
  and pension plans by the participants which are used to                    tax table will also apply in all cases).
  reduce taxable income must not exceed t8,000. This
  amount will be increased by t1,250 annually for each year of               As stated above, the tax scales do not vary on the basis of the
  age of the participant that exceeds 52, up to a maximum of                 type of return (joint or separate) chosen by the taxpayer.
  t24,250 for participants aged 65 and over.                                 Consequently, the only tax scales are those below (for year 2006)
                                                                             (Table 2).
   Additionally, regardless of the contributions made by mutual
   entity members and pension plan participants, employer
                                                                             The maximum applicable rate is 45%. The rate applicable to the
   contributions can be made on behalf of the taxpayer by
                                                                             special component of the tax base (positive balance of capital
   sponsors of occupational pension plans, up to the annual
                                                                             gains and losses generated over one year, less the tax-free
   limits indicated above.
                                                                             allowances) is 15% (Table 3).
   On top, the annual reduction ceiling for contributions to
   pension plans or mutual funds in which the taxpayer’s spouse              2.2.12. Allowances and tax credits
   is a participant is t2,000.
                                                                             We set forth below a detail of the main tax credits and tax relief
                                                                             (in general, 67% of the amount thereof is applied to the general
2.2.11. Determination of the gross tax payable: tax rates
                                                                             tax liability and 33% to the Autonomous Community tax liability
                                                                             unless the Autonomous Community establishes its own tax
A general tax scale and an Autonomous Community tax scale are                credits):
established. The marginal rate is 45%
                                                                             • Housing tax credits

Law 21/2001, on the tax and administrative measures under the                    A credit of 15% of the amount invested in acquiring or
financing system of common regime Autonomous                                     refurbishing the taxpayer’s habitual abode is granted; the
Communities and cities with a statute of autonomy, includes,                     percentage is applied to the investment made, the purchase
among the taxes transferred, the personal income tax, and                        expenses and the interest and expenses paid on debt, and
grants the Autonomous Communities regulatory powers over the                     the amounts deposited in home-purchase saving accounts
taxes transferred.                                                               and used for the acquisition of the habitual abode.


 Table 2

 TAX SCALES

                                General Table                                                      Autonomous Community Table


  Tax base up to    Gross tax payable   Remainder of tax base   Applicable    Tax base up to   Gross tax payable   Remainder of tax base   Appli-cable
      (Euros)            (Euros)           up to (Euros)         rate (%)         (Euros)           (Euros)           up to (Euros)         rate (%)


         0.0                0.0                   4,161.60         9,06              0.0               0.00              4,161.60             5.94
    4,161.60             377.04                  10,195.92        15,84         4,161.60             247.20             10,195.92             8.16
   14,357.52           1,992.07                 12,484.80         18.68        14,357.52           1,079.19            12,484.80              9.32
  26,842.32            4,324.23                  19,975.68        24,71       26,842.32           2,242.77              19,975.68            12.29
  46,818.00            9,260.22                 and above         29,16       46,818.00           4,697.78             and above             15.84


Business in Spain
Tax system
24
 Table 3
                                                                       The base and rate of withholding and prepayment for the main
                                                                       types of income are detailed in the Table 4.
 TAX RATE APPLICABLE TO THE SPECIAL
 COMPONENT OF THE TAX BASE                                             To calculate the withholding tax applicable to salary income, the
                                                                       deductible expenses and reductions and the personal and family
   State rate (%)    Autonomous Community rate (%)    Total rate (%)   allowances are deducted from the total amount of such income
                                                                       to obtain the taxable income. The tax scale (aggregate of State
                                                                       and Autonomous Community rates) is applied to this amount to
      9.06                      5.94                       15
                                                                       obtain the amount of withholding. The applicable withholding
                                                                       tax rate is obtained by dividing the amount withheld by total
                                                                       income.
    In the case of borrowing, a 25% credit is allowed on the first
    t4,507.59 and 15% on the remainder in the first two years. In
    subsequent years, these percentages are 20% and 15%,               2.2.14. Self-assessment
    respectively. Some requirements are envisaged in the
    regulations to be able to benefit from these increased             Taxpayers who are required to file a personal income tax return
    percentages.                                                       must, when filing their returns, calculate the related tax payable
                                                                       and pay it over in the place and manner and by the deadlines
    The maximum base for the tax credit under this heading is
                                                                       determined by the Ministry of Economy and Finance. The
    t9,015.18.
                                                                       deadline is usually June 30.
    Amounts deposited in home-purchase saving accounts only
    qualify for the tax credit if they are used to purchase the        Taxpayers who are married and not legally separated, and who
    habitual abode within a four year-period since the date on         are obliged to file a personal income tax return under which tax
    which the home-purchase saving account was opened by the           is payable, may request the suspension of their tax debt in an
    taxpayer.                                                          amount equal to or less than the refund to which their spouse is
    A specific system for disabled taxpayers is established.           entitled for the same tax and in the same tax period.

    Additionally, a transitional regime is established for taxpayers
                                                                       2.3. Non-residents’ income tax
    who acquired their habitual dwelling before May 4, 1998, and
    who were entitled to the tax credit.
                                                                       The Non-residents’ Income Tax is currently governed by the
• Tax credit for income obtained in Ceuta and Melilla.                 Revised Text of the Non- residents’ Income Tax Law, approved by
                                                                       Legislative Royal Decree 5/2004, of March 5. Royal Decree
• Tax credits for economic activities.
                                                                       1776/2004 approved the Non- residents’ Income Tax Regulations.
• Tax credit amounting to 25% of donations to certain entities.        Both of them establish the tax regime applicable to non-resident
                                                                       individuals or entities that obtain Spanish-source income.
• Tax credit amounting to 15% of the investment in and
  expenditure on assets of cultural interest.
                                                                       Taxation of non-residents is dealt with separately from taxation of
The base of these two last tax credits may not exceed 10% of the       resident individuals and entities.
taxpayer’s taxable income.
                                                                       As was mentioned before, the abovementioned Revised Text
2.2.13. Withholding                                                    envisages that non-resident individuals who prove that they are
                                                                       habitually resident in another EU country and that they have
Payments of income from movable capital, gains on shares or            obtained in Spain salary income and income from business
units in collective investment undertakings, salary income, etc.       activities which amounts to at least 75% of their worldwide
are subject to withholding at source which is treated as a             income, may opt to be taxed as resident individuals.
prepayment on account of the final tax.
                                                                       The key factor in determining the tax regime for non-residents is
Moreover, employers are obliged to make personal income tax            whether or not they have a permanent establishment in Spain.
prepayments in respect of compensation–in-kind paid to their           This factor determines the following two ways in which non-
employees.                                                             residents may be subject to taxation:


                                                                                                                         Business in Spain
                                                                                                                               Tax system
                                                                                                                                       25
2. Central government taxes




 Table 4

 THE BASE, RATE OF WITHHOLDING AND PREPAYMENT FOR THE MAIN TYPES OF INCOME

                                   INCOME                                                         BASE                                  RATE


                          General                                                                                           See below

                          Contracts lasting less than one year                                                              See below
                                                                                                                            (Minimum 2%)

                          Special dependent employment                          Total amount of compensation                Minimum 15%
  Salary income           relationships                                         paid

                          Board of Directors members                                                                        35%

                          Courses, talks, assignment of literary,                                                           15%
                          artistic or scientific works

  Income from             General                                               Full consideration claimable or             15%
  movable capital                                                               paid

                          General                                                                                           15%
  Professional                                                                  Amount of revenues or
                          Commencement of activity and                                                                      7%
  activities                                                                    consideration obtained
                          subsequent two years (pending the
                          implementing regulations)

                          Transfers or reimbursements of shares                 Amount to be included in the                15%
                          and participations in collective                      tax base, calculated according
                          investment schemes (*)                                to the Personal Income Tax
  Capital gains                                                                 Regulations

                          Cash prizes                                           Amount of the prize                         15%

                          Lease/sublease of urban property                      Amount of rent and other items 15%
                                                                                paid to the lessor or sublessor -
                                                                                VAT

  Other income            Intellectual an industrial property    Full amounts paid                                          15%
                          lease/sublease of movable property and
                          businesses

                          Licensing of rights of publicity                      Full amounts paid                           20%

  * In general, the withholding obligation will not exist if the transferor decides to reinvest the whole amount obtained in the sale in the purchase of
  new shares or participations in collective investment schemes (deferral regime envisaged in article 95 of the Revised Text of the Personal Income
  Tax Law).




Business in Spain
Tax system
26
2.3.1. Income obtained through a permanent                                  The tax period is also deemed to have ended in the event of
       establishment                                                        the discontinuation of a permanent establishment’s business
                                                                            activities, withdrawal of the investment initially made in the
Non-resident individuals or entities that obtain income through a           permanent establishment, or the change of residence of the
permanent establishment located in Spain will be taxed on the               head office.
total income attributable to said establishment, regardless of the
place where it was obtained or produced.                                    The permanent establishment may also take the tax credits
                                                                            and relief that might be applicable, in general, for Spanish
The concept of permanent establishment in Spanish law is in line            resident companies.
with the OECD Model Tax Convention. In the case of a foreign
entity or individual resident in a country with which Spain has a        • For permanent establishments engaging in installation or
tax treaty, the treaty provisions and, specifically, the exceptions to     erection projects with a duration of over 6 months, for those
the definition of permanent establishment, will govern the                 with seasonal or sporadic activity, or for those engaged in the
existence of a permanent establishment in Spain.                           exploration of natural resources, the tax base is determined
                                                                           in accordance with the rules applicable to non-residents
In general terms, permanent establishments in Spain are taxed              obtaining income in Spain not through a permanent
on their net income at the same rate (in general, 35%) as                  establishment. Such rules also apply in determining the tax
Spanish companies. Non-resident entities or individuals operating          return filing and tax accrual obligations of the permanent
through a permanent establishment in Spain are required to                 establishment, which is not obliged to keep books of account
withhold taxes or make tax prepayments on the same terms as                (but only documentary support of its transactions).
resident individuals or entities (i.e. on salary income paid, income
from movable capital satisfied, etc.).                                      However, these non-residents who operate through a
                                                                            permanent establishment in Spain may also choose to be
There is a 15% tax (branch profit tax) on the remitted profits of           taxed under the general rules, but such option may only be
non-residents doing business through a permanent                            taken if separate accounts are kept in Spain. This choice must
establishment in Spain. In this respect, the Law provides                   be made at the date of registration in the entities’ index.
protection to the other EU Member States and also exempts from
taxation income obtained in Spain through permanent                      • If the permanent establishment does not complete a business
establishments by entities resident for tax purposes in a State            cycle in Spain which leads to income in Spain, and the
that has signed a tax treaty with Spain which does not expressly           business cycle is completed by the parent company (or the
provide otherwise, provided that there is reciprocal treatment.            non-resident individual who operates in Spain through a
This tax would therefore be additional to that already borne by            permanent establishment) or by other permanent
the permanent establishment on its income (35% on revenues                 establishments, the tax liability is determined by applying the
net of expenses).                                                          general taxation rules, whereby revenues and expenses are
                                                                           valued at market prices.
Non-residents who operate in Spain through a permanent
                                                                            However, the tax base will secondarily be determined by
establishment are generally required to keep accounting records
                                                                            applying the percentage established by the Ministry of
here, in accordance with the rules and procedures established for
                                                                            Economy and Finance for this purpose to the total expenses
Spanish companies.
                                                                            incurred, and by adding any “passive” (unearned) income not
                                                                            obtained in the normal course of business (interest, royalties,
The taxation of the income of permanent establishments
                                                                            etc.) and any other capital gains arising from the assets
envisages three different situations, as follows:
                                                                            assigned to the permanent establishment. This percentage
• As a general rule, taxable income is determined in                        has been set at 15%.
  accordance with the same regulations as are applicable to
  Spanish-resident companies and, accordingly, the tax rate of              The gross tax payable in this case is determined by applying
  35% (40% in the case of oil and gas research and exploitation             the standard tax rate, but the tax credits and tax relief
  activities) would be applicable to net income. Allocated                  provided by the standard corporate income tax system may
  parent company general and administrative overhead                        not be taken.
  expenses are deductible under certain conditions. The
  permanent establishment’s tax year will be the calendar year              The tax period and tax return filing deadlines are those
  unless stated otherwise.                                                  envisaged in the standard tax rules.


                                                                                                                         Business in Spain
                                                                                                                               Tax system
                                                                                                                                       27
2. Central government taxes




2.3.2. Income obtained not through a permanent                          In addition, gains on transfers of securities or redemptions of
       establishment                                                    participation units in mutual funds on official secondary securities
                                                                        markets in Spain obtained by non-resident individuals or entities
Non-resident entities or individuals that obtain income in Spain        without a permanent establishment in Spain that are resident in
not through a permanent establishment will be taxed separately          a State with which Spain has signed a tax treaty and such treaty
on each total or partial accrual of Spanish-source income.              contains an exchange of information clause are also tax exempt.
                                                                        The exemption does not apply when the non-resident entity
                                                                        resides in a country or territory classed as a tax haven.
Spanish-source income obtained not through a permanent
establishment, as defined by the Non-residents’ Law, consists
mainly of the following items:                                          Similarly, yields derived from Spanish Government debt securities
                                                                        accruing to non-resident entities obtained not through a
• Earnings derived from economic activities pursued in Spain.           permanent establishment are not taxable in Spain, unless they
                                                                        are routed through tax havens.
• Earnings derived from the rendering of services where such
  services (i.e. studies, projects, technical assistance or
                                                                        Income derived from “non-resident accounts” paid by banks or
  management support services) are used in Spanish territory.
                                                                        other financial institutions to non-resident entities or individuals
• Salary income, which is directly or indirectly derived from work      (unless payment is made to a permanent establishment in Spain
  performed in Spain.                                                   of such entities) as well as that obtained not through a
                                                                        permanent establishment located in Spain and derived from the
• Interest, royalties and other income from movable capital             rental or assignment of containers or ship and aircraft bare-boat
  which remunerate capital used in Spanish territory.                   charters are also tax exempt.
• Income from marketable securities issued by companies
  resident in Spain.                                                    Finally, dividends from a Spanish subsidiary to its EU parent
                                                                        company are tax-exempt in Spain, provided that certain
• Income from real estate located in Spain or from certain              requisites are met (among others, 20%3 of participation held
  rights arising there from. Legislative Royal Decree 5/2004            during one year). This rule is not applicable if the parent company
  treats as income obtained in Spain income attributed to non-          is located in a tax haven, or when a majority of the voting rights
  resident individuals derived from urban real estate located in        of the parent company is held directly or indirectly by an
  Spain and not connected to business activities.                       individual or legal entity not resident in the EU, unless the parent
                                                                        company effectively engages in a business activity directly
• Capital gains on the sale of assets located in Spain and on the       connected with the activity of the subsidiary, or has as its business
  sale of securities issued by residents.                               purpose the administration and management of the subsidiary,
                                                                        or evidences that the parent company was formed for valid
However, certain types of income originating in Spain are not           economic reasons and not merely to take advantage of the tax
taxable in Spain, most notably the following:                           exemption.
• Income paid for international sales of goods.
                                                                        In 1991 the Spanish tax authorities identified 48 territories
• Income paid to non-resident persons or entities relating to           classified as tax havens. These include such “traditional” havens
  permanent establishments located abroad, with a charge to             as the Bahamas, Liechtenstein, Monaco, Gibraltar, certain
  these establishments, if the consideration paid is related to         holding companies resident in Luxembourg, etc.
  the activity of the permanent establishment abroad.
                                                                        Spanish law generally sets tax rates lower than the standard rate
Interest and earnings derived from the transfer of equity to a third    for residents for income accruing to non-residents that do not
party, as well as capital gains on movable assets owned by              have a permanent establishment in Spain. The tax is normally
residents of other EU Member States (except tax havens)                 levied on the gross income, except for income for services
obtained not through a permanent establishment are deemed to            rendered, technical assistance and installation and erection
be tax-exempt in Spain. However, capital gains on holdings in
entities whose assets consist principally of real estate in Spain, or   3 Said minimum percentage to consider an entity as a parent company
in which the seller has had, directly or indirectly, at least a 25%     with respect to another entity residing in the EU will be gradually reduced
interest at some time during the twelve months preceding the            to 10%: 20% from January 1, 2005, 15% from January 1, 2007 and 10%
sale, are taxable.                                                      from January 1, 2009


Business in Spain
Tax system
28
projects, in which case the tax is levied on the difference between        Table 5
the gross income and the payroll, material procurement and
supplies expenses as defined in the relevant regulations. In this          TAX RATES FOR NON-RESIDENTS
connection, non-residents operating in Spain not through a
permanent establishment are obliged to withhold and make                                       Type of Income                       Tax Rate (%)
payments on account from salaries paid as well as other
payments subject to withholding or payment on account which
can be considered deductible expenses in order to determine the             General:                                                25 (*)
non-resident income obtained in Spain.
                                                                            Dividends                                                    15
Capital gains are generally calculated on the basis of the                  Interest
difference between acquisition cost and sale price, to which the
same rules as those established for resident individuals are                Transfers or reimbursements of shares and
generally applicable.                                                       participations in collective investment
                                                                            schemes
Purchasers of property located in Spain from non-residents that
do not have a permanent establishment in Spain must deduct                  Special cases:
withholding tax at 5% from the purchase price on account of the             • Income from reinsurance activities                        1.5
vendor’s capital gains tax liability.
                                                                            • Income obtained by entities engaging in
This withholding is not applicable if the transferred property was            international shipping or aviation                           4
acquired by the transferor more than ten years prior to December            • Seasonal foreign workers                                     2
31, 1996.

                                                                            Capital gains                                                35
There are certain exceptions to this obligation to make a
withholding, such as cases in which the property is transferred as
                                                                            (*) See exemptions above.
a non monetary contribution for the formation of, or capital                The tax rates applicable to retirement pensions obtained by a
increase at, a company resident in Spain.                                   nonresident individual will vary between 8% for amounts of up to
                                                                            t9,616.19, 30% for the following t5,409.11 and 40% for amounts
The tax rates are as shown in Table 5.                                      in excess of t15,025.30. With effect as of January 2005, royalty
                                                                            payments to entities or permanent establishments residing in the
                                                                            EU are subject to a 10% rate, under certain circumstances.
In the case of non-residents without a permanent establishment
in Spain there is no possibility of offsetting losses against future
profits or capital gains. Moreover, a non-resident without a
                                                                          In most cases the above-mentioned tax returns can be filed
permanent establishment can only deduct from the tax payable
                                                                          monthly or quarterly declaring different types of income obtained
the amount of the taxes withheld from its income and the
                                                                          during the preceding period.
amounts corresponding to donations and allowances as
described in the Personal Income Tax Law for resident individuals.
                                                                          In addition, the Law establishes a general obligation of making
                                                                          withholdings and prepayments on account of the income paid to
Liability for non-residents’ income tax arises whenever Spanish-          non-residents by entities, professionals and entrepreneurs who
source income becomes claimable by the non-resident entity or is          are resident in Spain. Some exceptions to this general rule are
paid, whichever is earlier; as for capital gains, liability arises when   envisaged in the Law and the Regulations.
they are generated and in the case of income attributed to urban
real estate, on December 31.                                              2.3.2.1. Tax regime for non-residents employees assigned
                                                                                   to Spain (inbound expatriates)
In general, a separate tax return and supporting documentation
must be filed within one month from the above date. It is not             Spanish personal income tax legislation contains a regime which
necessary to file a separate tax return where tax has already been        entered into force in the year 2004, very attractive for personnel
withheld at source or prepaid on the income.                              assigned to Spain due to labor reasons by multinational


                                                                                                                              Business in Spain
                                                                                                                                    Tax system
                                                                                                                                            29
2. Central government taxes




companies, since it allows individuals who become tax resident in      However, capital gains on the sale of shares of companies can be
Spain as a result of their assignment to Spain to opt to be taxed      taxed in Spain under the special clauses of certain treaties
either under personal income tax rules or under nonresident            (including most notably shares of real estate companies, transfers
income tax rules during the tax period in which their tax              of shares when a substantial interest is held, etc.).
residence changes and for the next five tax periods. Under the
nonresident income tax rules option, they are only taxed on            Certain other types of income (royalties, interest or dividends) are
the income and/or gains that are deemed to have been                   taxed at reduced treaty rates, as detailed in the Table 6.
obtained in Spain, at a standard rate of 25%.
                                                                       • Tax sparing arrangements

The requirements necessary to apply this regime are as follows:           Due to the existence under Spanish regulations of relief from
                                                                          the tax on certain types of income (mainly interest income),
• The inbound expatriate must not have been resident in Spain             the tax sparing arrangements contained in many of Spain’s
  during the 10 years preceding his or her assignment to Spain.           tax treaties are relevant. Under these arrangements the non-
• The assignment to Spain must be the result of an                        resident lender benefits from tax sparing, and therefore can
  employment contract.                                                    deduct in its country not only the effective tax withheld in
                                                                          Spain from the interest but also the tax that would have been
• The work must actually be performed in Spain.                           payable had relief not been provided by Spain.
• The work must be performed for a company or entity resident          • Various treaties are in an advanced phase of negotiation
  in Spain or for a permanent establishment located in Spain of          (among them, the treaties with Bosnia and Herzegovina,
  an entity not resident in Spain.                                       Colombia, Costa Rica, Croatia, Egypt, Iran, Malaysia, Malta,
                                                                         Namibia, Nigeria, New Zealand, Peru, Serbia and
• The salary income resulting from the work must not be
                                                                         Montenegro, Senegal and South Africa).
  exempt from nonresident income tax.

                                                                       2.3.2.3. Tax on property in Spain of non-resident
Inbound expatriates who opt to be taxed under this regime will
                                                                                companies
be subject to wealth tax as nonresident income taxpayers.
                                                                       Non-resident companies owning real estate in Spain are subject
In order to exercise the option to be taxed under this regime, it is   to an annual tax of 3% on the cadastral value of the property at
necessary to notify the tax authorities within six months following    December 31 each year.
the date of commencement of the employment that is stated in
the notice informing the social security authorities that the          This tax does not apply to:
employee was hired.
                                                                       • International bodies and foreign States and public
The way to notify the tax authorities of the election is through         institutions.
Form 149, as approved by the Ministry of Economy and Finance,          • Companies resident in countries with which Spain has a tax
which must be filed with the provincial or local tax office              treaty in force which includes an exchange of information
applicable to the taxpayer’s tax domicile.                               clause, provided that their direct or indirect owners are either
                                                                         Spanish residents or residents in a country with which Spain
The Form must contain certain information and must be                    has a tax treaty with an exchange of information clause.
accompanied by certain documentation.
                                                                       • For this exemption to be applicable, non- resident entities
2.3.2.2. Tax treaties                                                    must report certain information to the tax authorities on an
                                                                         annual basis (e.g. real estate owned in Spain and the names
                                                                         of the direct or indirect individual owners of the company) to
Tax treaties may reduce, or even completely eliminate, the
                                                                         which the related residence certificates must be attached.
taxation in Spain on the income earned by entities which do not
have a permanent establishment here.                                   • Companies which have a business activity in Spain, as defined
                                                                         in the regulations, other than merely managing property.
Companies without a permanent establishment in Spain which
                                                                       • Listed companies.
are resident in countries with which Spain has a tax treaty are
generally not taxed in Spain on their business income earned           • Nonprofit charitable or cultural entities which are recognized
here, nor for capital gains (other than on real estate).                 as such by the State with which Spain has a tax treaty with an


Business in Spain
Tax system
30
Table 6

TREATY TAX RATES (*)
                                                                                                           Type of Income

             Recipient Company's Country of Residence
                                                                             Dividends (%)                  Interest (%)                  Royalties (%)


Algeria                                                                       15 ó 5 (53)                    5 ó 0 (54)                   14 ó 7 (55)
Argentina                                                                   15 or 10 (1)                       12,5              3, 5, 10 or 15 (19)
Australia                                                                           15                            10                            10
Austria                                                                     15 or 10 (2)                           5                             5
Belgium(**)                                                                  15 or 0 (1)                   10 or 0 (25)                          5
Bolivia                                                                     15 or 10 (1)                   15 or 0 (15)                  15 or 0 (5)
Brazil                                                                              15                    15 or 10 (4)                 15 or 10 (5)
Bulgaria                                                                     15 or 5 (1)                         —                             —
Canada                                                                              15                            15                            10
Czech Republic                                                               15 or 5 (1)                        — (14)                    5 or 0 (5)

(**) The Double Tax Treaty signed between Spain and the former USSR is, from a Spanish tax perspective, currently applicable to the following
republics: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Uzbekistan, Tajikistan, Turkmenistan, and Ukraine.
Notwithstanding the above, said Double Tax Treaty is not being applied by certain former USSR republics.
Notes:
(1) The lower rate applies if the recipient company owns 25% or more of the capital of the payer company.
(2) 10% if the recipient company has owned 50% or more of the capital of the payor company for at least one year before the date of distribution
of the dividend.
(3) The lower rate applies if the recipient company owns 50% or more of the capital of the payor company.
Spain-Tunisia treaty: other than a partnership.
(4) 10% on interest (paid to a financial institution in one of the treaty States) on loans and credits at a term of 10 years or more to finance the
acquisition of capital equipment and tools.
(5) The lower rate applies for royalties for the use of or license to use the copyright on literary, artistic or scientific works if these are produced by a
resident of a contracting State.
Spain-Brazil treaty: Films included.
Spain-Czech Republic (scientific works excluded), Spain-Slovakia and Spain-Poland treaties: Copyright royalties exempt in source country.
Spain-Cuba and Spain-Italy, Spain-Bolivia (scientific works excluded) and Spain-Morocco treaties: Films excluded.
(6) 10% if the recipient company has owned 25% or more of the capital of the payor company for at least six months before the year out of whose
earnings the dividend is distributed.
(7) 1) 10% if:
a. The recipient company owns 50% or more of the capital of the payor company.
b. The recipient company owns 25% or more of the capital of the payor company and at least one other company resident in The Netherlands
also owns 25% or more of the payor company's capital.
2) 5% if the recipient company is not taxable in The Netherlands under Dutch corporate income tax for the same dividends.
(8) 10% if the recipient company owns at least 10% of the capital of the payor company.
(9) Royalties for licenses for use of patents, drawings, etc.
(10) In Germany, when the interest from Spain is paid to:
— Deutsche Bundesbank or
— Kreditanstalt für Wiederaufbau of the Federal Republic.
— No tax liability if the debtor is the Government, a local entity or an autonomous agency.



                                                                                                                                          Business in Spain
                                                                                                                                                Tax system
                                                                                                                                                        31
2. Central government taxes




 Table 6

 TREATY TAX RATES (*)
                                                                                                            Type of Income

               Recipient Company's Country of Residence
                                                                               Dividends (%)                  Interest (%)                 Royalties (%)


  Chile                                                                       10 or 5 (44)                  15 or 5 (45)                  10 or 5 (46)
  China                                                                              10                            10                            10
  Cuba                                                                         15 or 5 (1)                   10 or 0(36)                   5 or 0 (5)
  Denmark                                                                     15 or 0 (21)                         10                             6
  Ecuador                                                                            15               0 or 5 or 10 (17)                    10 or 5(18)
  Estonia                                                                       15 ó 5 (47)                  10 ó 0 (48)                   10 ó 5 (46)
  Finland                                                                    15 or 10 (1)                          10                             5
  France                                                                      15 or 0 (28)                   10 or 0(29)                   5 or 0 (30)
  Germany                                                                    15 or 10 (1)                    10 or 0(10)                          5
  Greece                                                                      10 or 5 (41)                   8 or 0 (43)                          6

  (11) Except for interest from Spain paid to a bank resident in Switzerland in respect of loans fully or partly repayable in five years or more.
  (12) 5% in the case of loans exceeding 7 years.
  (13) 10% if the recipient company has owned 25% or more of the capital of the payor company for at least one year before the date of distribution
  of the dividend.
  (14) Interest paid is not subject to withholding tax, unless the loan was provided to a permanent establishment owned by the beneficiary in Spain.
  (15) No tax liability arises if the interest is paid in connection with a loan to a finance entity at more than 5 years or if the beneficiary is the State,
  a local entity or a government agency or if it is paid in connection with loans for the transfer of industrial, commercial or scientific equipment.
  (16) 5% for literary, dramatic, musical and artistic rights.
  8% for film, tape and commercial, industrial or scientific royalty rights.
  10% in all other cases.
  (17) 5% for credits for the sale of industrial, commercial or scientific equipment, the sale of goods and the execution of construction, installation
  and erection projects.
  Loans at over 5 years are tax-exempt, as is interest paid to the State of Ecuador or its political subdivisions or public financial institutions.
  (18) Exemption for intellectual property rights in the country of origin (Spain-Ecuador treaty: 5%).
  (19) 3% for new rights.
  5% for literary, dramatic, musical and artistic rights.
  10% for commercial, industrial or scientific royalty rights.
  15% in all other cases.
  (20) The lower rates apply when the beneficiary is a bank (including savings banks in Spain). However, the 15% rate applies in all cases until
  January 1, 2000.
  (21) The lower rate applies if the recipient company owns 25% or more of the voting rights of the payor company and the provisions of the EU
  Parent-Subsidiary Directive apply.
  (22) 10% for credits for the sale of industrial, commercial or scientific equipment, and interest paid in connection with bonds.
  No tax liability arises if bonds are issued by the State, one of its political subdivisions or a local entity or the interest is paid in connection with a
  loan granted, guaranteed or ensured by the Central Bank or certain financial institutions.
  (23) 10% for royalty payments made by entities registered with the Philippines Investment Council.
  20% for film, TV and radio tapes
  15% in all other cases
  (24) No tax liability arises if:



Business in Spain
Tax system
32
Table 6

TREATY TAX RATES (*)
                                                                                                             Type of Income

              Recipient Company's Country of Residence
                                                                               Dividends (%)                  Interest (%)                  Royalties (%)


Hungary                                                                       15 or 5 (1)                          —                              —
Iceland                                                                       15 or 5 (41)                          5 (42)                          5
India                                                                                15                      15 or 0 (26)                10 or 20 (27)
Indonesia                                                                    15 or 10 (1)                    10 or 0 (26)                         10
Ireland                                                                       15 or 0 (21)                         —                    5, 8 or 10 (16)
Israel                                                                               10              0 or 15 or 10 (38)                      7 or 5 (39)
Italy                                                                                15                       12 or 0(10)                    8 or 4 (5)
Japan                                                                        15 or 10 (6)                           10                            10
Korea                                                                        10 or 15 (1)                    10 or 0 (24)                         10
Latvia                                                                        15 or 5 (41)                   10 or 0 (48)                  10 or 5 (46)

— The interest is paid in connection with loans for the transfer of industrial, commercial or scientific equipment or the transfer of goods.
— The interest is paid to the State, its political subdivisions or public financial institutions.
(25) No tax liability arises if:
— The interest is paid in connection with loans for the transfer of industrial, or commercial equipment, goods or services.
— The interest is paid in connection with loans granted, guaranteed or ensured by a public institution to encourage exports.
— The interest is paid in connection with accounts or nominative advances between financial institutions.
(26) No tax liability arises if the collector and beneficiary is the State, one of its political subdivisions, a local entity or the Central Bank.
(27) 10% for the use of, or right to use, industrial, commercial or scientific equipment.
20% for technical assistance service royalty payments and in all other cases.
(28) No tax liability arises if the collector and beneficiary is a company subject to corporate income tax and:
— Being resident in France, owns at least 10% of the capital of the payor company.
— Being resident in Spain, owns a significant holding in the capital of the payor company.
(29) No tax liability arises if the payor is the State or one of its political subdivisions, if the interest is paid in connection with loans for the transfer
of industrial, commercial or scientific activities or equipment, or loans granted by financial institutions.
(30) No tax liability arises for the use or license to use the copyright on literary or artistic works (films and tapes or visual recorded works
excluded).
(31) 10% if the recipient is a financial institution (including insurance entities)
0% if the loan is granted by the Central Bank or (in the case of Thailand) by the Export-Import Bank of Thailand, by local authorities or by those
institutions owned by the government.
15% in all other cases.
(32) 5% for literary, dramatic, musical, artistic and scientific rights (film, TV and radio tapes excluded).
8% for commercial, industrial or scientific equipment under financial leasing.
15% in all other cases.
(33) 5% if a.- the beneficial owner is a company (other than a partnership) that has invested at least 100,000 ECU in the capital of the company
paying the dividends; b.- these dividends are exempt in the other Member State.
10% when only one of the above two conditions are met.
15% in all other cases.
(34) There is no taxation if:
a. The beneficial owner or payer is a Contracting State, a political subdivisions, a local authority, or an organization of any of the above.



                                                                                                                                             Business in Spain
                                                                                                                                                   Tax system
                                                                                                                                                           33
2. Central government taxes




 Table 6

 TREATY TAX RATES (*)
                                                                                                               Type of Income

                Recipient Company's Country of Residence
                                                                                 Dividends (%)                   Interest (%)                  Royalties (%)


  Lithuania                                                                      15 or 5 (47)                  10 or 0 (48)                   10 or 5 (46)
  Luxembourg                                                                   15 or 10 (13)                   10 or 0 (10)                          10
  Macedonia                                                                       15 ó 5 (56)                    5 ó 0 (57)                           5
  Mexico                                                                         15 or 5 (1)                  15 or 10 (20)                  10 or 0 (18)
  Morocco                                                                      15 or 10 (1)                           10                   10 (9) or 5 (5)
  Netherlands                                                             15, 10 (7), 5 (7)                           10                              6
  Norway                                                                       15 or 10 (1)                    10 or 0 (34)                    5 or 0 (35)
  Philippines                                                                  15 or 10 (8)            0 or 15 or 10 (22)                 10, 20, 15 (23)
  Poland                                                                         15 or 5 (1)                         — (14)                  10 or 0 (5)
  Portugal                                                                     15 or 10 (1)                            15                             5

  b. Interest from debt securities guaranteed or underwritten by a State.
  c. Interest paid by reason of long-term loans (over five years) granted by banks or other financial institutions in a Contracting State may only be
  taxed in that State.
  d. Interest paid in relation to the sale on credit of industrial, commercial or scientific equipment may only be taxed in the State in which the
  beneficial owner is resident.
  (35) The royalties received for the use of, or the right to use, ships or aircraft under bare boat charter, or containers used in international traffic,
  may only be taxed in the Contracting State in which the recipient is resident.
  (36) There is no taxation in the State of origin if the interest is paid:
  By another Contracting State, a political subdivision or a local entity.
  By an enterprise of a Contracting State to an enterprise of another State, in relation to the sale on credit of merchandise and industrial,
  commercial or scientific equipment.
  By reason of long-term loans (over five years) granted by a credit or financial institution resident in another Contracting State.
  (37) Exempt when the recipient is the beneficial owner and 1) is a Contracting State or one of its political subdivisions; or 2) the interest is paid by
  reason of long-term loans (at least seven years) granted by a financial institution.
  (38) Exempt when paid in relation to loans granted or guaranteed by a State or any public financial institution determined by mutual agreement.
  Reduced rate of 5% in relation to the sale on credit of industrial, commercial or scientific equipment.
  (39) 5% for the use of, or the right to use, any copyright of literary, dramatic, musical or artistic work, or for the use of, or the right to use,
  industrial, commercial or scientific equipment.
  (40) Only taxable in the State where the recipient is located if it is the beneficial owner and, in addition is 1) a Contracting State, a political
  subdivision or a local entity, or 2) the payer is a political subdivision or a local entity.
  (41) The lower rate applies if the recipient company (excluding partnerships) is the beneficial owner and owns 25% or more of the capital of the
  payer company.
  (42) Only taxable in the State where the recipient is located if it is the beneficial owner, or the beneficial owner is a Contracting State, a political
  subdivision or a local entity.
  (43) Interest from a Contracting State is exempt from taxation in that State if:
  1) the payer is the Contracting State, one of its political subdivisions, or one of its local entities, 2) is paid to the other Contracting State, to one of
  its political subdivisions, to one of its local entities, or to a body (including financial institutions) that belongs in full to this other Contracting State,
  political subdivision or local entity, or 3) is paid to another body (including financial institutions) in connection with loans granted under an
  agreement concluded between the contracting States.



Business in Spain
Tax system
34
Table 6

TREATY TAX RATES (*)
                                                                                                         Type of Income

             Recipient Company's Country of Residence
                                                                            Dividends (%)                 Interest (%)                 Royalties (%)


Romania                                                                   15 or 10 (1)                         10                            10
Russia                                                              15 or 10 or 5 (33)                    5 or 0 (37)                         5
Slovakia                                                                   15 or 5 (1)                        — (14)                   5 or 0 (5)
Slovenia                                                                   15 or 5 (1)                          5 (40)                        5
Sweden                                                                    15 or 10 (2)                   15 or 0 (10)                        10
Switzerland                                                               15 or 10 (1)                  10 or 0 (11)                          5
Thailand                                                                          10(1)          0 or 15 or 10 (31)                5, 8 or 15 (32)
Tunisia                                                                    15 or 5 (3)                   10 or 5 (12)                        10
Turkey                                                                     15 or 5 (49)                15 or 10 (50)                         10
United Kingdom                                                            15 or 10 (8)                          12                           10

(44) The lower rate applies if the recipient company (excluding partnerships) is the beneficial owner and owns 20% or more of the capital of the
payer company.
(45) Reduced rate of 5% in relation to gross interest deriving from:
1) Loans granted by banks and insurance companies,
2) Bonds and securities that are regularly and habitually traded on a recognized securities market,
3) Interest paid in relation to the sale on credit of machinery and equipment by the beneficial owner that is the seller of said machinery and
equipment.
15% in all other cases.
(46) 5% for the use of, or the right to use of industrial, commercial or scientific equipment. 10% in all other cases.
(47) Reduce rate applies if the recipient company (excluding partnerships) is the beneficial owner and owns directly at least 25% of the capital of
the payer company.
(48) Tax exempt if the beneficial owner is the other Contracting State, a political subdivisions, the Central Bank or any other entity fully controlled
by the State, or if there are interest paid in relation to a credit guaranteed by such other State, political subdivisions, public entity or institution,
acting in the frame of the promotion of export activities mutually agreed by the authorities of both States. Also exempt when the beneficial owner
is a company residing in the other contracting State and the interest is paid in relation to a debt as a consequence of a sale on credit by a company
of that other contracting State of any goods or industrial, commercial or scientific equipment to a company residing in the contracting State firstly
mentioned, to the extent that such debt does not arise between related parties.
(49) Reduce rate applies if the beneficial owner is a partnership and owns directly at least 25% of the capital of the payer company.
(50) 10% in relation to interest deriving from a loan granted by a bank, or paid in relation with the sale on credit of goods or equipment to an
entity residing in a contracting State.
(51) Reduce rate applies if the beneficial owner is a financial entity. 10% in all other cases.
(52) 7% if the beneficial owner owns at least 50% of the capital of the payer company, and
10% if it owns at least
25% of the capital of the payer company.
(53) Reduce rate applies if the beneficial owner owns, directly or indirectly, at least 10% of the capital of the payer company.
(54) Tax exempt if the payer is the other Contracting State Government, a political subdivision, or the beneficial owner is the other Contracting
State Government, or one of its political subdivisions. Also exempt when the interest is paid in relation to a debt as a consequence of a sale on
credit of any goods or equipment, or in relation to a loan granted by a bank residing in the other contracting State.
(55) 14% for the use of, or the right to use of literary, artistic or scientific works.



                                                                                                                                        Business in Spain
                                                                                                                                              Tax system
                                                                                                                                                      35
2. Central government taxes




 Table 6

 TREATY TAX RATES (*)
                                                                                                        Type of Income

               Recipient Company's Country of Residence
                                                                            Dividends (%)                 Interest (%)                Royalties (%)


  United States                                                           15 or 10 (1)                   10 or 0(15)           5 or 8 or 10 (16)
  Venezuela                                                                10 or 0 (1)              10 or 4.95 (51)                          5
  Vietnam                                                               15, 10 ó 7 (52)                  10 ó 0 (58)                        10
  USSR(**)                                                                        18                    Exempt                               5


  (56) Reduce rate applies if the recipient company (excluding partnerships) is the beneficial owner and owns, directly or indirectly, at least 10% of
  the capital of the payer company.
  (57) Exempt when the interest is paid in relation to a debt as a consequence of a sale on credit by a company of that other contracting State of any
  goods or industrial, commercial or scientific equipment to a company residing in the contracting State firstly mentioned, or paid by reason of long-
  term loans (at least five years) granted by a financial institution
  (58) Tax exempt if the beneficial owner is the other Contracting State Government, a political subdivision, or the Central Bank. Also exempt when
  the interest is paid in relation to a loan granted or guaranteed by the Government of the other Contracting State, one of its political subdivisions,
  or the Central B.




   exchange of information clause, provided that real estate                  The tax representatives (if residents) of permanent
   owned in Spain is used in their ordinary activities.                       establishments are deemed to be the persons registered as their
                                                                              representatives in the Mercantile Register, or the persons
   This tax is a deductible expense of the non-resident entity for            empowered to contract on their behalf.
   corporate income tax purposes.
                                                                              Persons who, pursuant to the non-resident Income Tax Law, are:
2.3.2.4. Tax representative                                                   a) representatives of permanent establishments of non-resident
                                                                                 taxpayers, or
Non-residents (I) obtaining income in Spain through a                         b) representatives of the entities described in (III) above, are
permanent establishment, or (II) obtaining income in Spain from                  jointly and severally liable for paying over the tax debts
economic activities which do not constitute a permanent                          relating to them.
establishment and provide entitlement to the deduction of
certain expenses, or (III) which are entities subject to the pass-            The payor of income accrued without the intermediation of a
through regime and carry on business activities in Spain, all or a            permanent establishment by non-resident taxpayers, or the bailee
portion of which is carried on by them, continuously or habitually,           or manager of the assets or rights of non-resident taxpayers not
through installations or workplaces of any kind, or which act in              used by a permanent establishment, shall be jointly and severally
Spain through an agent authorized to conclude contracts in the                liable for the payment of tax debts relating to income paid by him
name and for the account of the entity , or (IV) when they are                or to income and/or gains from assets or rights whose bailment or
specifically required to do so by the tax authorities because of the          management has been entrusted to him.
nature or the amount of income obtained, are required to
appoint a Spanish resident as their tax representative before the             This liability shall not exist where the payor or manager is subject
end of the period for reporting income obtained in Spain. The                 to the obligation to withhold and prepay tax.
appointment must be notified to the authorities within two
months. Failure to appoint a representative or to notify the                  The depository and the party managing the assets of a non-
authorities can lead to a fine of between t600 and t6,000.                    resident or paying income to a non-resident are jointly and


Business in Spain
Tax system
36
severally liable for the tax liabilities arising from those assets or    Thus, in the absence of the related Autonomous Community
on such income when there is no obligation of withholding.               regulations, the following rates are applicable (Table 7).


2.4. Net worth tax                                                       These rates are applicable to residents taxable on their worldwide
                                                                         assets and to nonresidents taxed on property situated, or rights
                                                                         exercisable, in Spain.
Resident individuals pay net worth tax on their worldwide assets
at December 31 of each year, valued in accordance with tax rules.
                                                                         Also, unless the related Autonomous Communities regulate
Non-residents are taxable on property situated, or rights                otherwise, the minimum exempt amount and the amount from
exercisable, in Spain. However, tax treaties may affect the              which a return must be filed is t108,182.18. The taxpayer’s
application of this rule.                                                habitual place of residence is tax exempt up to a maximum
                                                                         amount of t150,253.03.
Certain assets are exempt from this tax, such as those forming
part of Spain’s historical heritage, household effects, objects d’art    The gross tax payable in relation to this tax, together with the
and antiques, provided that their value does not exceed certain          portion of the tax payable relating to the general component of
limits established by the regulations; the vested rights of              taxable income for personal income tax purposes may not
participants in pension plans and funds; copyrights for so long as       exceed, in the case of resident tax- payers, 60 % of the general
they remain part of the author’s net worth; assets or rights             component of taxable income for personal income tax purposes.
required for a business or professional activity performed               Should the sum of both components exceed the above
habitually, personally and directly by the taxpayer and                  mentioned limit, the gross tax payable in relation to this tax will
constituting his main source of income; and equity interests in          be reduced up to said limit, but such reduction could not exceed
entities in certain circumstances (mainly family businesses).            80%.


The regulations establish different valuation methods for each           2.5. Inheritance and gift tax
type of asset.
                                                                         Inheritance and gift tax applies to Spanish resident heirs,
                                                                         beneficiaries and donees and is charged on all assets received
Law 21/2001 on the tax and administrative measures under the             (located in Spain or abroad). Non-resident beneficiaries are also
financing system of common regime Autonomous Communities                 subject to this tax as non-resident taxpayers, and must pay the
and cities with a statute of autonomy establishes the tax scale.         tax in Spain only on the acquisition of assets and rights (whatever
However, they will only apply if the Autonomous Community in             their nature), that are located, exercisable or to be fulfilled in
which the taxpayer resides has not approved a different scale or         Spain.
has not assumed the regulatory powers conferred on it.
                                                                         The inheritance and gift tax base can be reduced by 95% if it
 Cuadro 7                                                                results from a transmission “mortis causa” to spouses, children or
                                                                         adopted children or, in their absence, ascendants, foster parents
 APPLICABLE RATES                                                        or collateral relatives up to the third degree of a professional
                                                                         business, an individual enterprise, or interests in entities or
      Tax Base         Tax Payable    Remaining Tax Base    Applicable   usufructs on them of the donor or deceased which were exempt
    (up to Euros)        (Euros)         (up to Euros)       Rate (%)    from net worth tax. The requirements are as follows:

                                                                         • The beneficiary of a transmission “mortis causa” must keep
           0.00     0,00                  167,129.45           0.2
                                                                           the assets received for at least 10 years.
     167,129.45   334,26                  167,123.43           0.3
   334,252.88     835,63                 334,246.87            0.5       • The beneficiary cannot carry out transactions that result in a
    668,499.75 2,506,86                  668,499.76            0.9         substantial diminution in the value of the assets.
  1,336,999.51  8,523,36               1,336,999.50            1.3
  2,673,999.01 25,904,35               2,673,999.02            1.7       The 95% reduction in the tax base also applies to “inter vivos”
 5,347,998.03 71,362,33                5,347,998.03            2.1       transfers of interests in an individual enterprise, professional
10,695,996.06 183,670.29                    upwards            2.5       business or in entities belonging to the donor which are exempt
                                                                         from net worth tax to spouses, descendants or adopted children


                                                                                                                           Business in Spain
                                                                                                                                 Tax system
                                                                                                                                         37
2. Central government taxes




provided that the following requirements are met (in addition to       The tax rates and adjustment coefficients for 2006 are as shown
the two requirements imposed for transmissions “mortis causa”):        in tables 8, 9 and 10:

• The donor must be at least 65 years old or be permanently
  disabled.                                                             Table 8


• If the donor had been discharging management duties,
                                                                        TAX RATES
  he/she must discontinue them and stop receiving
  remuneration in that connection.                                          Tax Base         Tax Payable   Remaining Tax Base    Applicable
                                                                          (up to Euros)        (Euros)        (up to Euros)       Rate (%)

There is another 95% reduction in the value of the habitual
abode of the deceased in case of “mortis causa” transmission to                    0.00                         7,993.46          7.65%
spouses, ascendants, descendants or collateral relatives of over               7,993.46     611.50               7,987.45        8.50%
65 years when they had lived with the deceased during the two                 15,980.91  1,290.43                7,987.45         9.35%
previous years.                                                              23,968.36   2,037.26                7,987.45       10.20%
                                                                              31,955.81  2,851.98                7,987.45        11.05%
The tax is calculated by adjusting a tax scale of progressive rates          39,943.26   3,734.59                7,987.46        11.90%
(depending on the value of the estate or gift) with a coefficient             47,930.72  4,685.10                7,987.45       12.75%
that takes into account the previous net worth and the degree of               55,918.17 5,703.50                7,987.45       13.60%
kinship with the donor.                                                      63,905.62   6,789.79                7,987.45       14.45%
                                                                              71,893.07  7,943.98                7,987.45       15.30%
As with other taxes transferred to the Autonomous Community                  79,880.52   9,166.06               39,877.15       16.15%
Governments, inheritance and gift tax legislation has been                   119,757.67 15,606.22               39,877.16       18.70%
adapted to recognize the legislative power of those governments             159,634.83 23,063.25               79,754.30        21.25%
to approve reductions in the tax base and rates and in the                  239,389.13 40,011.04              159,388.41        25.50%
coefficients for adjusting the tax payable, based on the taxpayer’s         398,777.54 80,655.08              398,777.54        29.75%
previous net worth.
                                                                            797,555.08 199,291.40               Upwards         34.00%

Inheritance and gift tax legislation also provides that in the case
of transmissions “mortis causa”, the tax must always be paid in
the Autonomous Community in which the deceased was
habitually resident (except in the case of non-resident testators,     2.6. Value added tax (VAT)
jurisdiction for whom rests with the State tax authorities). As for
acquisitions of assets or rights by way of gift, or any other “inter   The Spanish VAT legislation (Law 37/1992, which came into force
vivos” legal transaction for no consideration, the tax must be         on January 1, 1993) implements the EU Directives on the tax,
paid in the Autonomous Community in which the acquiror is              whose main rules are harmonized in the different Member States.
habitually resident (except in the case of transfers of real estate,
in which case the Autonomous Community with jurisdiction will          This tax is of an indirect nature, its main feature being that it
be that in which the property is located).                             does not normally imply any cost to traders or professionals, but
                                                                       only to end-consumers as traders are generally entitled to deduct
Law 21/2001 also establishes the reductions, rates and                 VAT borne against VAT charged.
coefficients to be applied if the Autonomous Community in
question has not assumed the powers transferred, or where it has       Within the Spanish territory, VAT is not applicable in the Canary
not yet made any regulations, in that connection.                      Islands, Ceuta and Melilla.

The Government is considering the possibility of progressively         The Canary Islands Indirect General Tax (CIIGT), which came into
eliminating this tax at central government level, although since it    force on January 1, 1993, is based on VAT and is an indirect general
is a tax which the Autonomous Community Governments are                tax levied on goods and services supplied in the Canary Islands by
responsible for collecting, it has already been eliminated in          traders and professionals and on imports of goods.
practice by some Autonomous Community Governments                      The standard CIIGT rate is 5%. Other indirect tax (Tax on Production,
(Cantabria, the Basque Country, etc.).                                 Services and Imports) is applicable in Ceuta and Melilla.


Business in Spain
Tax system
38
Table 9

REDUCTIONS IN THE TAX BASE IN TRANSMISSIONS “MORTIS CAUSA”

                                                 Acquirors                                                        Reduction



                    Group I: Children and adopted children under 21                        t15,956.87 plus t3,990.72 for each year
                                                                                           under the age of 21 of the successor up to
                                                                                           t47,858.59

                    Group II: Children and adopted children aged 21 and                                         t15,956.87
Based on            over, spouses, ascendants and adoptive ascendants
degree of
kinship             Group III: Collateral family members in second and                                            t7,993.46
                    third degree of kinship, ascendants and descendant
                    by affinity

                    Group IV: Collateral family members in fourth degree                                             —
                    of kinship or further removed and nonfamily heirs

                    Physically, mentally or sensorially handicapped                                             t47,858.59
                    persons (disability of between 33% and 65%)

                    Physically, mentally or sensorially handicapped                                           t150,253.03
Other               persons (disability of greater than 65%)
compatible
reductions          Spouses, ascendants, descendants, adoptive or                          100% of the amounts received under the
                    adopted, if beneficiary of insurance policy.                           insurance policy, up to t9,195.49, generally

                    Spouses, ascendants, or adopted in case of family                      Up to 95% under certain circumstances
                    businesses or habitual abode.



Table 10

COEFFICIENTS BASED ON DEGREE OF KINSHIP AND PREVIOUS NET WORTH

                                                               Groups under article 20

                Previous net worth in Euros                             I and II                       III                           IV


0 – 402,678.11                                                        1.0000                       1.5882                        2.0000
> 402,678.11 – 2,007,380.43                                           1.0500                       1.6676                        2.1000
> 2,007,380.43 – 4,020,770.98                                         1.1000                       1.7471                        2.2000
> 4,020,770.98                                                        1.2000                       1.9059                        2.4000(1)

1) This coefficient is applicable if the successors are not known, without prejudice to the refund of the respective amount when they are known.



                                                                                                                                  Business in Spain
                                                                                                                                        Tax system
                                                                                                                                                39
2. Central government taxes




2.6.1. Taxable events                                                Following the EU model, certain transactions are VAT-exempt
                                                                     (e.g. supplies of goods and services relating to insurance and
The following transactions are subject to the tax when carried out   financial activities, health, education, rental of residential
by traders or professionals in the course of their business          property, etc.). As these transactions imply that no VAT is charged
activities:                                                          by the trader, their performance does not qualify for the right to
                                                                     deduct the VAT borne as described below.
• Supplies of goods, generally defined as transfers of the right
  to dispose of tangible property, although certain transactions
                                                                     However, other exempt transactions (mainly those related to
  which do not imply such transfer may also be treated as
                                                                     international trade, such as exports) give the right to deduct the
  supplies of goods for the purposes of the tax.
                                                                     VAT borne.
• Intra-EU acquisition of goods (in general, acquisitions of
  goods dispatched or transported to the Spanish VAT territory       2.6.3. Place of supply of taxable transactions
  from another Member State).

• Imports of goods. These transactions are subject to the tax        Spanish VAT is levied on transactions which are considered to be
  regardless of whether or not the importer is a trader.             performed within the territory in which it applies. For the above
                                                                     purposes, the Law establishes rules to determine the place in
• Supplies of services.
                                                                     which a certain transaction is carried out.

2.6.2. VAT rates and exemptions
                                                                     Thus, in the case of supplies of goods, the general rules establish
                                                                     that the supply takes place in the Spanish VAT territory when the
VAT rates are as follows:
                                                                     goods are made available to the acquiror in such territory.
                                                                     However, if the goods are dispatched or transported, the place of
The standard rate is 16%, applicable to most sales of goods and
                                                                     supply is generally that from which such transport is initiated.
services.

A reduced rate of 7% is applicable, amongst others, to sales and     Other specific rules apply to, for instance, supplies of goods to be
imports of:                                                          installed or assembled prior to supply, etc.

• Human and animal foodstuffs, except alcoholic beverages
                                                                     With respect to services, the following cases may be
• Water                                                              distinguished:

• Pharmaceutical products
                                                                     As a general rule, services are deemed to be supplied in the
• Private homes and, among others, to the following services:        Spanish VAT territory when the supplier has a place of business in
                                                                     such territory (for these purposes, see below the concept of
• Domestic transportation of passengers and their luggage
                                                                     permanent establishment).
• Hotels
                                                                     However, there are some exceptions to this general rule, namely:
• Restaurants

• Theatres and cinemas                                               • Services related to immovable property situated in the
                                                                       Spanish VAT territory are always considered to be supplied in
There is a super-reduced rate of 4% applicable to:                     such territory.

• Bread, flour, milk, cheese, eggs, fruits and vegetables            • Transport services are deemed to be supplied in the Spanish
                                                                       VAT territory with regard to the part of the journey taking
• Books, newspapers and magazines not mainly containing
                                                                       place within the territory of application of the tax, including
  advertising
                                                                       its air space and territorial waters. However, specific rules
• Pharmaceutical specialties                                           apply with regard to intra-EU transport services.

• Cars of handicapped persons                                        • Certain services are considered to be supplied in Spain when
                                                                       physically carried out within the Spanish VAT territory. This is
• Prostheses of handicapped persons
                                                                       the case, amongst others, of cultural, artistic, sporting,
• Certain officially sponsored housing                                 scientific, educational, entertainment or similar activities, etc.


Business in Spain
Tax system
40
• Other services are deemed to be supplied in the Spanish VAT           • Installations used on a permanent basis by a trader or
  territory when the recipient of the service has its place of            professional for the storage and subsequent supply of his
  business or permanent establishment within such territory. It           merchandise.
  is the case, for instance, of services such as transfers and
                                                                        • Centers for purchasing goods or acquiring services.
  concessions of copyright, patents, licenses, manufacturer’s or
  commercial trademarks and other intellectual or industrial            • Immovable property exploited under lease or any other
  property rights; advertising services; counseling, audit,               arrangement.
  engineering, research, legal, consultancy, accounting, tax or
  other analogous professional services; financial and                  It should be noted that, although the concept and cases in which
  insurance transactions; etc.                                          a permanent establishment is considered to exist are similar for
• Telecommunication services and radio and television                   both direct taxes and VAT, they are not fully coincident.
  broadcasting services are also deemed to take place in the
  territory in which the recipient has its place of business if it is   2.6.5. Taxpayer
  a trader or professional. If, on the other hand, the recipient is
  a non trader, Spanish VAT will be due if the “effective use and       The taxpayer is the person obliged to charge VAT. This obligation
  enjoyment” of the services takes place within its territory of        falls normally on the traders or professionals who make the
  application.                                                          corresponding supplies of goods or services subject to the tax.

• Finally, other specific rules apply to services such as certain
                                                                        Notwithstanding the above rule, some exceptions are established
  intermediation services or works on movable tangible
                                                                        under which it is the recipient of the supply who has to account
  property, as well as for certain electronically supplied services
                                                                        for the VAT due. It is generally the case in which the supplier has
  (see Chapter 7).
                                                                        no business presence in Spain (place of business or permanent
                                                                        establishment) as well as in the case of intra-EU acquisitions.
2.6.4. Permanent establishment
                                                                        It must be noted that if the supplier has a permanent
As mentioned above, the concepts of “place of business” and             establishment in the Spanish VAT territory, it will be considered as
permanent establishment are relevant for the purposes of                the VAT payer of the corresponding supplies, regardless of
determining the place of supply of certain transactions.                whether or not it carries out the taxable transactions from such
Additionally, they will also be relevant in defining the VAT payer,     establishment.
i.e. the person obliged to charge the corresponding tax.
                                                                        The status of VAT payer gives rise to other obligations, namely:
“Place of business” is defined in the Law as the place where the
VAT payer centralizes the management of, and habitually                 • Submit declarations relating to the commencement,
exercises, his business or professional activity.                         modification and cessation of the activities that result in their
                                                                          being subject to the tax.
“Permanent establishment” means any fixed place of business             • Apply to the tax authorities for a tax identification number,
from which traders or professionals carry on economic activities.         and notify and substantiate it in such situations as are
Additionally, the Law specifically considers as permanent                 required.
establishments for VAT purposes:
                                                                        • Issue and deliver invoices for all its transactions, and keep
• The management headquarters, branches, offices, factories,              copies thereof.
  workshops, installations, stores and, in general, agencies or
  representatives authorized to contract in the name and for            • Keep such accounts and records as are required (specific VAT
  the account of the VAT payer.                                           books).

• Mines, quarries or tips, oil or gas wells or other places of          • Submit regularly or at the request of the tax authorities,
  extraction of natural products.                                         information on its economic operations with third parties.

• Works of construction, installation or assembly lasting over          • Submit the appropriate returns (and an annual summary
  twelve months.                                                          return) and pay in the resulting amount of the tax. These
                                                                          returns are filed quarterly or monthly, depending on the
• Farming, forestry or livestock exploitations.                           turnover of the VAT payer.


                                                                                                                          Business in Spain
                                                                                                                                Tax system
                                                                                                                                        41
2. Central government taxes




• Appoint a representative to comply with its obligations when          In such case, the VAT paid in each tax period is deductible in
  the VAT payers are not established (i.e. do not have their            the proportion which the value of the transactions giving the
  place of business or a permanent establishment) in the                right to deduct bears to the total value of all the transactions
  Spanish VAT territory. This obligation is only incumbent on           carried out by the VAT payer in the course of his business or
  traders not established in the EU, unless they are established        professional activity.
  in a country with which instruments of mutual assistance
                                                                        Thus, a percentage of deductible VAT has to be calculated by
  exist.
                                                                        application of the following formula:
2.6.6. Deduction of input VAT                                               Transactions entitling the right to deduct
                                                                         –––––––––––––––––––––––––––––––––––––– x 100
VAT payers are generally entitled to deduct from the amounts of                  Total transactions + subsidies
VAT charged on taxable transactions carried out by them the
amounts of tax borne, insofar as the goods and services acquired     This percentage is rounded up.
are used by them to perform, amongst others, the following
transactions:                                                        • The special “pro-rata” (deductible proportion) rule
• Supplies of goods and services subject to and not exempt              The right to deduct under the special deductible proportion
  from VAT.                                                             procedure may be exercised when the VAT payer opts to do so
                                                                        (this option has to be normally exercised within the month of
• Transactions that, although exempted, relate to international
                                                                        December prior to the tax year in which it will apply). In such
  trade (exports or intra-EU supplies).
                                                                        case, the following rules apply:
• Transactions performed outside the Spanish VAT territory
                                                                        — VAT paid on acquisitions or imports of goods and services
  which would have given rise to the right to deduct had they
                                                                          used exclusively for transactions giving the right to
  been performed within said territory.
                                                                          deduct may be deducted in full.
Tax borne on goods or services which are not used directly and          — VAT paid on acquisitions or imports of goods and services
exclusively for business or professional purposes is not generally        used exclusively for transactions not giving the right to
deductible, although some exceptions apply to capital goods               deduct cannot be deducted.
(partial deduction).
                                                                        — VAT paid on acquisitions or imports of goods and services
The right to deduct is also conditional upon formal requirements          used only partly for transactions giving the right to
and it may be exercised in a period of four years.                        deduct, may be deducted in the proportion resulting
                                                                          from the application of the general pro-rata rule.
There are several deduction regimes, the main features of each of
them being the following:                                            • Deduction system for different sectors of business or
                                                                       professional activity
• General “pro-rata” (deductible proportion) rule                       When the VAT payer carries on different business activities, it
   This rule applies when the VAT payer makes both supplies of          has to apply the corresponding deduction rules separately to
   goods or services giving rise to the right to deduct and other       each activity.
   transactions which do not give rise to such right (e.g. exempt
                                                                        Business activities are considered to be “different” when they
   financial transactions). It also applies in case it receives
                                                                        are classed in different groups in the National Classification of
   subsidies not directly linked to the price of taxable
                                                                        Economic Activities and they have different applicable rules
   transactions (although specific rules exist for the different
                                                                        for deduction (amongst others, this requisite is understood to
   types of subsidies). The inclusion of subsidies in the
                                                                        be met when their deductible proportions, calculated in
   deductible proportion with respect to taxable persons that
                                                                        accordance with the general pro-rata rule, differ by more than
   perform transactions subject to and not exempt from VAT has
                                                                        50 percentage points).
   been declared incompatible with EU legislation by the
   European Court of Justice in its judgment of October 6, 2005         Thus, the VAT payer has to apply either the general “pro-rata”
   (C- 204/03). Accordingly, a proposal for a law is passing            rule or the special pro-rata rule as described above in each of
   through parliament which, with effect from January 1, 2006,          its sectors of activity. VAT paid on acquisitions or imports of
   eliminates the effect of subsidies on the right to deduct VAT.       goods and services used in both activities may be deducted in


Business in Spain
Tax system
42
   the proportion resulting from the application of the general      2.7. Transfer tax and stamp duty
   prorata rule.
                                                                     Transfer tax is levied on a limited number of transactions,
2.6.7. Refunds                                                       including most notably:


Where the VAT charged exceeds the deductible VAT borne, the VAT       Table 11
payer has to pay the difference through its periodic monthly or
quarterly returns.
                                                                      TRANSFER TAX AND STAMP DUTY

                                                                                               Tax Rate (*)                              (%)
On the contrary, if at the end of the year the amount of
deductible VAT borne exceeds the amount of VAT charged, the
VAT payer is entitled to a refund which, in general, can only be       Corporate transactions such as incorporation,
requested through the last return of the year.                         capital increase/reduction at companies, etc.                      1

Such refund has to be obtained, in general, within the six months      Transfers of real estate                                          6
following the deadline for filing the last return of the year
                                                                       Transfers of movable assets and administrative
(January 30).
                                                                       concessions                                                       4

Special rules apply to VAT borne in Spain by non-established           Certain rights on real estate                                      1
traders. In these cases, the following requirements have to be
met:                                                                   Certain mercantile law public deeds                               0.5

• Persons asking for a refund must be established in the               * The Autonomous Communities are entitled to opt to apply a
  European Union or, failing this, must evidence reciprocity for       different rate in certain cases. In fact, most of them have opted to
  traders or professionals established in Spain in their home          apply a 7% rate to real estate transfers, and a 1.5% rate of Stamp
  country (that is, that their country would refund an analogous       Duty to certain transactions.
  tax borne by a Spanish trader). Total or partial reciprocity is
  considered to exist with Canada, Monaco, Hungary,
  Switzerland and Japan.                                             However, if the vendor is a company or an individual real estate
                                                                     developer, the transfer of buildable land or the first supply of
• The non-established trader must not have carried out any           buildings is taxed under VAT. Second and subsequent supplies of
  transaction in the Spanish VAT territory for which it may be       real estate by companies, traders or professionals in the course of
  considered the VAT payer.                                          their activity may opt to pay either transfer tax or VAT. This option
                                                                     is applicable if the acquiror is a trader or professional who can
• Persons not established in the European Union must appoint         deduct all his VAT borne and the vendor elects to pay VAT rather
  a representative resident in the Spanish VAT territory who will    than transfer tax.
  be charged with complying with the relevant formal or
  procedural requirements and who will be jointly and severally      Transfers of shares of Spanish companies are generally exempt
  liable together with the interested party for any incorrect        from any indirect taxation, except when more than 50% of the
  refunds. The tax authorities may demand sufficient                 capital stock of a company is transferred and at least 50% of the
  guarantees from said representative in this connection.            assets of such company consist of real estate located in Spain: in
                                                                     this case the transaction will be considered for indirect taxation
• VAT borne in Spain is refundable provided that it was borne
                                                                     purposes to be a transfer of real estate subject to transfer tax at 6%.
  on acquisitions or importations of goods or on services,
  insofar as said goods or services are used to carry out the        Transfer tax is a cost to the acquiror/beneficiary.
  transactions that qualify for the right to deduct (both in Spain
  and the country in which the trader is established).               In real estate transfers, taxpayers not resident in Spain will have
                                                                     their tax domicile, for the purposes of compliance with their
Refund claims may only be related to the immediately preceding       transfer tax and stamp tax obligations, in the domicile of their
year or quarter and the deadline for applying for a refund is June   representative, who they must appoint pursuant to the Non-
30 of the following year.                                            residents´ Income Tax Law.


                                                                                                                             Business in Spain
                                                                                                                                   Tax system
                                                                                                                                           43
2. Central government taxes




In the event of failure to appoint a representative or to notify the     accession to the EU, only the exemptions established by the EU
authorities, the tax domicile of the non-resident taxpayer will be       have been applicable.
deemed to be the real estate transferred.
                                                                         2.10. Tax on insurance premiums
2.8. Excise taxes
                                                                         This is an indirect tax which is levied in a single payment on
In Spain there are several excise taxes in line with the EU              insurance and capitalization transactions based on actuarial
Directives on this matter.                                               techniques and arranged by insurance entities operating in
                                                                         Spain, including those operating under the principle of freedom
These specific consumption taxes are levied on the related               to provide services, its regulation being as follows:
products (alcohol and alcoholic beverages, beer, oil and gas and
manufactured tobacco) in the manufacturing, processing or                • Transactions arranged by insurance entities under
import phases.                                                             agreements with State social security agencies or with public
                                                                           companies entrusted with the management of specific social
In general, these excise taxes are not applicable in the Canary            security regimes are not subject to this tax. There are also
Islands, Ceuta and Melilla (taxes on alcohol and beer are also             numerous exempt activities, such as compulsory social
applicable in the Canary Islands).                                         welfare insurance, group insurance providing alternative
                                                                           systems to pension plans, life insurance, capitalization
The special tax on certain vehicles was introduced as a                    transactions, reinsurance transactions, surety insurance,
consequence of the elimination of the higher VAT rate. This                export credit insurance, agricultural insurance, health
special tax is also applicable in the Canary Islands, Ceuta and            insurance, transactions relating to guaranteed pension plans,
Melilla. This tax is levied at a 12% rate in mainland Spain, 11% in        and certain insurance transactions relating to international
the Canary Islands and 0% in Ceuta and Melilla (for vehicles               transportation and the vessels and aircraft used for such
under 1,600 c.c. or 2,000 c.c. if diesel: 7% in mainland Spain and         transportation.
6% in the Canary Islands). A 50% reduction in the tax base is
                                                                         • The tax is levied at a single rate of 6% on paid premiums.
envisaged for vehicles with five to nine seats and for families with
three or more children.                                                  • The taxpayers under this new tax are generally insurance
                                                                           entities carrying out taxable transactions, which must charge
Also, there is a special tax on electricity (applicable to all Spanish     this tax in full to the persons taking out insurance subject to
territory). This tax is levied on the intra-EU production,                 the tax. The rules set forth in the VAT regulations shall be
importation and acquisition of electric power. The tax base is             applicable for the purposes of charging this tax.
determined by taking that used for VAT purposes and multiplying
it by a coefficient of 1.05113. The applicable tax rate is 4.864%.       • The tax becomes due at the time of payment of the premium
                                                                           by the policyholder.
2.9. Customs duties on imports                                           • Taxpayers (insurance companies) are generally obliged to file
                                                                           a tax return and pay the tax on a monthly basis.
Most customs duties levied in Spain are standard-rate duties
which are generally payable on imports when the goods clear
customs. With very few exceptions the duties are “ad valorem”,
                                                                         3. LOCAL TAXES
i.e. on CIF or similar invoice value. The rest are minor customs
duties relating to storage and deposit rights and the sale of
abandoned goods.                                                         A Law enacted in December, 1988, introduced a new scheme
                                                                         aimed at rationalizing the local taxation system and facilitating
Following Spain’s accession to the EU in 1986, the gradual               the activity of local entities. Under this legislation, local
decrease in customs duties between Spain and the EU culminated           authorities are empowered to modify some aspects of this type of
in their complete elimination on January 1, 1993. Customs duties         taxes. This Law, which was partially amended with effect from
on imports from countries which do not belong to the EU are              January 1, 2003, establishes two different types of municipal
those included in the EU’s Common Exterior Tariffs.                      taxes, which can be classified as follows:

                                                                         • Periodic taxes:
The “Harmonized Goods Classification System” and the EU Tariff
(TARIC) have been in force in Spain since 1987.Also, since Spain’s          — Tax on real estate (Impuesto sobre Bienes Inmuebles).


Business in Spain
Tax system
44
   — Tax on business activity (Impuesto sobre Actividades             3.1.3. Tax on motor vehicles
     Económicas).
                                                                      This tax is levied annually on the basis of the horsepower of the
   — Tax on motor vehicles (Impuesto sobre Vehículos de
                                                                      vehicle. Municipalities may double the minimum tax rate.
     Tracción Mecánica).

• Other taxes:                                                        3.2. Other taxes
   — Tax on erection and installation projects and construction
                                                                      3.2.1. Tax on erection and installation projects and
     works (Impuesto sobre Construcciones, Instalaciones y
                                                                             construction work
     Obras).

   — Tax on increase in urban land value (Impuesto sobre el           This tax is levied on the actual cost of any work or construction
     Incremento del Valor de los Terrenos de Naturaleza               activity that requires prior municipal permission, excluding VAT
     Urbana).                                                         and any similar taxes.

3.1. Periodic taxes                                                   The tax rate will be set by each municipality up to a top rate of 4%.

3.1.1. Tax on real estate                                             3.2.2. Tax on increase in urban land value

This tax is levied annually on owners of real estate or on holders    This tax is levied on the increase disclosed in the value of urban
of rights “in rem” thereon based on the cadastral value               land whenever land is transferred. The tax payer is the transferor
determined pursuant to the Property Cadastre regulations, at          of the urban immovable property.
different rates up to a maximum of 1.30% for urban property and
1.22% for rural property.                                             The tax rate is set by the municipality up to a top rate of 30%. The
                                                                      tax base is the increase in land value (defined as the difference
3.1.2. Tax on business activity                                       between the transfer price and cadastral value). This tax is
                                                                      deductible for personal income tax purposes from the transfer
This tax is levied annually on any business activity conducted        value of real estate.
within the territory of the municipality.

However, the following taxpayers are exempted from this tax:          EXHIBIT I
                                                                      CALCULATION OF CORPORATE INCOME TAX
• Individuals.
                                                                      A Limited Liability Company tax resident in Spain (Teleco, S.L.) has
• Taxpayers who start a business activity within Spanish
                                                                      as business activity the supply of telecommunication services.
  territory, during the two first tax periods in which they carry
                                                                      According to the financial statements of the year, the company
  out said activity.
                                                                      obtained a profit per books of t7,225,000. The company has
• Taxpayers subject to corporate income tax and entities              registered in its accounting records the following transactions
  without legal personality whose net sales (at group level           that may give rise to the need of making the corresponding tax
  according to article 42 of the Commercial Code) in the              adjustments to the profit per books:
  previous year were under t1 million.
                                                                      • Teleco, S.L. has its business domicile in a rented building,
• In the case of taxpayers subject to non- residents’ income tax,       paying to the owner of said building an annual amount for
  the exemption will only apply to those operating in Spain             this concept of t200,000. In addition, the company owns an
  through a permanent establishment, provided that they                 immovable property, which has been rented to a third party.
  obtained net sales of under t1 million in the previous year.          The rental income obtained by Teleco, S.L. amounted to
                                                                        t100,000, and the withholding taxes borne by it amounted
The tax payable is calculated on the basis of various factors (type     to t15,000.
of activity, area of premises, net revenues, etc.). The minimum
tax rates published by the Government can be adapted by the           • The company has recorded a corporate income tax expense
municipality.                                                           amounting to t3,126,000.


                                                                                                                         Business in Spain
                                                                                                                               Tax system
                                                                                                                                       45
Exhibit I. Calculation of corporate income tax




• The company has registered an allowance for bad debts               Exhibit I
  amounting to t170,000, corresponding t125,000 to
  account receivables less than six months past-due at the date       CORPORATE INCOME TAX CALCULATION
  on which the corporate income tax corresponding to that year
  accrued.                                                             Profit of the year                             7,225,000
• Teleco, S.L. purchased certain software on July 1 of the             Positive adjustments
  preceding year, for an amount of t600,000. This tax period           Corporate income tax expense                    3,126,000
  has registered a depreciation of said software amounting to          Allowance for bad debts                           125,000
  t300,000.
                                                                       Excess depreciation of Software                   100,000
                                                                       Excess depreciation of computers                    5,000
• In the previous tax period the company registered an
  allowance for bad debts amounting to t350,000,
                                                                       Provision for incentives                         225,000
  corresponding to account receivables less than three months
                                                                       Negative adjustments
  past-due at the date on which the corporate income tax
                                                                       Allowance for bad debts recorded in
  corresponding to that year accrued.
                                                                       the previous tax year                         <350,000>
• The company has recorded a provision for other expenses              Tax base                                      10,456,000
  (provision for incentives) in the amount of t225,000 to cover
  the expense to be incurred in relation to the bonus payable to       Tax rate                                              35%
  employees. However, there is no contract or similar document
  that records the company’s commitment to pay the                     Gross tax payable                              3,659,600
  aforementioned bonus.
                                                                       Tax credits
• The company purchased some computers on October 1 of the             Expenses in scientific R&D                    <286,000>
  previous year, amounting to t60,000. This tax period has             International fairs                             <3,500>
  registered a depreciation of said computers amounting to             Employees training expenses                     <2,700>
  t20,000.
                                                                       Net tax payable                                 3,367,400
• The company has incurred in expenses on scientific R&D in            Withholdings and prepayments
  the amount of t620,000 during the year. The average                  Withholding on dividends                       <15,750>
  expenses incurred in the previous two years amounted to              Withholding on rental income                   <15,000>
  t120,000.                                                            Tax installments payments                   <2,735,000>
                                                                       Net amount payable                              601,650
• Some employees of the company have attended to
  international telecommunication fairs abroad in order to
  launch the products of the company, incurring in expenses
  amounting to t14,000.                                              EXHIBIT II
                                                                     NON-RESIDENT CASE: INCOME OBTAINED WITHOUT A
• Teleco, S.L. has incurred in training expenses for its employees   PERMANENT ESTABLISHMENT
  in the amount of t30,000. The average of those incurred in
  the two preceding years amounts to t6,000.                         The Dutch company TPC, B.V. seconds one of its employees to
                                                                     Spain in September 2005. This employee worked in the
• On February 15, 2005, the company purchased shares in              Netherlands until August 2005. The salary of the employee
  certain companies. In this connection, the company obtained        corresponding to the period September- December amounts to
  dividends in a gross amount of t105,000, bearing                   t12,000, and is paid by the Spanish branch. The employee
  withholding taxes in the amount of t15,750. Such shares            continues making contributions to the Dutch Social Security
  were transferred by the end of March 2005.                         System, amounting to t800 for those four months.

• According to the information furnished by the company, tax         In addition, the employee opens a bank account in Spain and he
  installment payments were made during the tax period in the        received interest amounting to t6 and has borne a withholding
  amount of t2,735,000.                                              tax of t1 on said interest.


Business in Spain
Tax system
46
In year 2005, he buys and sells shares of a Spanish company and        In the course of its business activities, the company incurs every
obtains a capital gain of t100. Relating the same operations           month in the following expenses:
with another Spanish company shares, he obtains, on the
                                                                       • t900,000 plus VAT for the purchase of raw materials
contrary, a capital loss of t20. He also transfers shares of a Dutch
                                                                         necessary for its production, being all the purchases made
company and obtains a capital gain of t50.
                                                                         within the Spanish market.

The employee will be considered as a non- resident in Spain for        • t30,000 plus VAT for the rental of its factory.
tax purposes during the 2005 tax year, as he was not physically        • t7,500 plus VAT for other business expenses.
present in Spain for more than 183 days and his centre of
economic interest was not located in Spain this year.                  The goods and services acquired are subject to Spanish VAT at the
                                                                       general rate of 16%. Consequently, the input VAT for the Spanish
The employee will be taxed separately for each income obtained         company every month amounts to t150,000 (i.e. 937,500 x
and the tax will be accrued when the deemed incomes become             16%).
receivable or on the date of actual payment if it is prior.
                                                                       On the other hand, the Spanish company sells every month its
1. Salary income: the Spanish branch pays the salary and,
                                                                       products in the Spanish, EU and other international markets
   therefore, it must pay each month (or every three months if
                                                                       according to the following.
   its operational sales volume of the prior year was less than
   t6,010,121) the withholdings on the gross salary, without           • Spanish sales: t1,000,000 plus VAT
   deducting any expenses. In consequence, in this case, the
                                                                       • EU Sales: t200,000
   branch would have to pay to the tax authorities 25% of the
   gross salary paid to the employee, amounting to t3,000.             • International Sales: t100,000

2. Interests derived from the bank account: as a non-resident,         The Spanish company must charge VAT for the supplies
   the employee could claim the reimbursement of 1t withheld           performed within the Spanish market at the general rate of 16%
   by the Bank, as the interest obtained from non-residents bank       (i.e. 1,000,000 x 16% = 160,000). However, the supply of goods
   accounts are exempt from taxation.                                  to an EU Member State, or the supply of goods to other third
3. Shares: Only the sale of Spanish shares is subject to taxation.     territories (export of goods), would be exempt from VAT provided
   Additionally, gains and losses cannot be compensated.               that all the regulatory requirements are met; among others, the
                                                                       demonstration of the transport of products outside the Spanish
                                                                       VAT territory and that the recipient of the goods is a VAT
Therefore, the capital gain obtained from the sale of the first
                                                                       entrepreneur when the goods are supplied to other EU Member
shares would be subject to taxation.
                                                                       State.

However, according to the Double Tax Treaty signed between             As the Spanish company’s turnover of the previous year exceeded
Spain and the Netherlands, said capital gain can only be subject       the amount of t6,010,121.04, the company is considered to be a
to taxation in the Netherlands, being the country of residence of      large company and therefore it is obliged to submit the returns
the employee, and as a consequence, it will be exempt in Spain.        on a monthly basis. Otherwise, the returns must be submitted
                                                                       quarterly.

EXHIBIT III                                                            The output VAT must be recorded in such return (i.e. t160,000).
VAT EXAMPLE                                                            However, this amount may be offset with the input VAT borne in
                                                                       the prior acquisitions of goods and services derived from its
A Spanish company, leader in the sale of specialized machinery,        business activity (i.e. t150,000).
delivers measuring machines for the automotive industry into
various countries, among others Spain. The recipients of these         The difference between the output VAT and input VAT will amount
machines are taxable persons for VAT purposes, duly registered in      to t10,000 that will be the final quota to be paid to the Tax
their respective countries of residence.                               Authorities when submitting the return.




                                                                                                                         Business in Spain
                                                                                                                               Tax system
                                                                                                                                       47
interes@interes.org
www.investinspain.org




Prepared by:
                        MINISTERIO              SECRETARÍA DE ESTADO
                        DE INDUSTRIA, TURISMO
                        Y COMERCIO              DE TURISMO Y COMERCIO
Business in Spain


Investment aid and
incentives in Spain


&                     4
In order to meet investment expectations and the need to
encourage economic growth, the Spanish central government,
regional governments and certain municipal authorities have
implemented a wide range of aid instruments and incentives to
encourage research, development and innovation (R&D&I)
projects, the hiring and training of workers with specific
characteristics, and new business start-ups. Moreover, since Spain is
an EU Member State, potential investors can benefit from
numerous European aid programs, making investment in Spain an
even more attractive prospect.




&
Sociedad Estatal para la Promoción y Atracción de las Inversiones Exteriores, S.A.U. RM: Tomo 21818, libro 0, folio 15, sección 8, hoja M-388683,
Inscripción 1. NIF: A-84479013. Depósito legal: M-24716-2006.
Published 2006
Business in Spain


Investment aid and
incentives in Spain
 1. Introducción                                                                             3
2. State incentives for training and employment                                              3
    2.1. Training incentives                                                                 3
    2.2. Employment incentives                                                               4
3. State incentives for specific industries                                                 8
    3.1. Research, Technological development and innovation (R&D&I)                         8
    3.2. Renewable Energy                                                                   11
    3.3. Tourism industry                                                                   13
    3.4. Audiovisual industry                                                               13
    3.5. Other specific industries                                                          14
4. Incentives for investment in certain regions                                             17
    4.1. Granted by the State                                                               17
    4.2. Aid granted by Autonomous Community and Municipal governments and Local Councils   20
    4.3. Special reference to investments in the Canary Islands                             21
5. SME incentives                                                                           22




4
    5.1. Plan for the consolidation and competitiveness of SMEs                             22
    5.2. SME incentives granted by Autonomous Community Governments                         23
    5.3. ICO’s “Línea PYME”                                                                 23
6. Internationalization incentives                                                          24
 7. EU aid and incentives                                                                   24
    7.1.   European Investment Bank (EIB)                                                   24
    7.2. European Investment Fund (EIF)                                                     25
    7.3. Structural funds                                                                   26
    7.4. Research and Development Programs                                                  28
    7.5. EU initiatives to favor business financing                                         32
  8. Compatibiliy                                                                                                                                                                                                                               33
       8.1. General State incentives                                                                                                                                                                                                            33
       8.2. State incentives for specific industries                                                                                                                                                                                            33
       8.3. Incentives for investments in certain regions                                                                                                                                                                                       33
       8.4. EU aid and incentives                                                                                                                                                                                                               33
  9. Tax incentives                                                                                                                                                                                                                             38
       9.1. Foreign-securities holding entities (ETVEs), the “Spanish holding company”                                                                                                                                                          38
       9.2. Possibility of amortizing for tax purposes the financial goodwill                                                                                                                                                                   39
       9.3. Tax neutrality regime for restructuring transactions                                                                                                                                                                                39
       9.4. Reduction in the tax base for establishing companies abroad                                                                                                                                                                         39
       9.5. The Canary Islands’ Tax Regime                                                                                                                                                                                                      39


                                                                                                                                                                                                    FRANCE
                                                     La Coruña                                                          Santander
                                                                                                                                                     San Sebastián
                                                                                       Oviedo                                              Bilbao
                                                                      Lugo               Asturias                      Cantabria
                                          Santiago de Compostela                                                                              País
                                                                                                                                             Vasco                Pamplona
                                              Pontevedra    Galicia                                                                            Vitoria
                                                                   Orense                                                        Burgos                       Navarra
                                                                                                     León                                      Logroño
                                                                                                                                               La Rioja                              Huesca                                       Gerona
                                                                                                                      Palencia                                                                       Lérida   Cataluña
                                                                                                       Castilla y León                          Soria
                                                                                                               Valladolid                                                    Zaragoza
                                                                                                Zamora                                                                                                                     Barcelona
                                                                                                                                                                           Aragón
                                                                                       Salamanca                      Segovia                                                                                  Tarragona

                                                                                                                                 Madrid     Guadalajara
                                                                                                              Ávila      Comunidad                                          Teruel
                                                                                                                          de Madrid
                                                                                                                                                         Cuenca
                                                                                                                                                                                           Castellón de la Plana
                                                     PORTUGAL                                                           Toledo                                                                                              Palma De Mallorca
                                                                                                                                                                                              Valencia
                                                                                      Cáceres                             Castilla - La Mancha                               Comunidad
                                                                              Extremadura                                                                                    Valenciana                                      Baleares
                                                                            Badajoz
                                                                                       Mérida                         Ciudad Real                             Albacete


                                                                                                                                                                                        Alicante

                                                                                                         Córdoba                                                Murcia
                                                                                                                                    Jaén
                                                                                                                                                                         Murcia
                                                                                           Sevilla          Andalucía
                                                                      Huelva
                                                                                                                                     Granada

                                                                                                                       Málaga                        Almería
                                                                                         Cádiz


                                                                                                      Ceuta



                                                                                                                                                    Melilla



                                                                                                            MOROCCO


            Santa Cruz de Tenerife
                                 Canarias
                             Las Palmas de Gran Canaria




Business in Spain
Investment aid and incentives in Spain
2
1. Introduction




1. INTRODUCTION                                                      entered into with the Spanish Ministry of Employment on
                                                                     December 19, 2000, laid down the general guidelines for the legal
In order to respond to investment expectations and the need to       regulation of ongoing training.
promote growth, the Central Government, the governments of
the Autonomous Communities and certain provincial and                The two agreements provided for the financing, through December
municipal authorities have implemented a system of aid and           31, 2004, of business and individual initiatives to prepare ongoing
incentives to encourage the training and hiring of workers with      training programs aimed at improving the skills and qualifications
certain characteristics, the creation of new companies, and          of workers and the competitiveness of companies.
research and development and innovation (R&D+i) investment
projects.                                                            In this connection, anyone wishing to finance training initiatives
                                                                     under the ANFC and the Third Tripartite Agreement should have
Furthermore, since Spain is an EU Member State, potential            submitted an application to the Tripartite Foundation for Ongoing
investors are able to access European aid programs, which            Training on the terms and conditions established in the respective
provide further incentives for investing in Spain.                   calls for applications.

These investment aid measures can be classified as follows:          Notwithstanding the above, the regulations on ongoing training
                                                                     were heavily overhauled in 2003 in the wake of the disputes
• State and regional incentives for training and employment.
                                                                     heard by the Spanish Constitutional Court over whether the
• State incentives for specific industries.                          Central Government or the governments of the Autonomous
                                                                     Communities had jurisdiction for managing and implementing
• Incentives for investments in certain regions.
                                                                     training initiatives.
• State incentives for SMEs.
                                                                     Against this backdrop, Royal Decree 1046/2003 regulating the
• Incentives for internationalization.
                                                                     new system of ongoing occupational training came into force on
• EU aid.                                                            January 1, 2004. The main features of this Royal Decree include
                                                                     most notably the following:
Most of the aid that can be obtained from the various agencies
                                                                     • Ongoing training initiatives at enterprises, including
depends largely on the specific characteristics of each investment
                                                                       individual company training programs, training programs
project (i.e. the better the prospects of the project, the more
                                                                       organized by business associations and groups of self-
possibilities there are of obtaining financing and aid).
                                                                       employed workers, and initiatives supplementary to and
                                                                       accompanying training, are deemed to qualify for financing.
Apart from the tax incentives discussed in other chapters (the
basic tax incentives analyzed in Chapter 3 are investment tax        • Ongoing training initiatives at enterprises and training
credits), the main general State incentives for investors are          programs organized by business associations and groups of
described in the following paragraphs.                                 self-employed workers must allocate a certain percentage of
                                                                       funding for training priority groups of workers (e.g. workers at
                                                                       SMEs and from underprivileged groups).
2. STATE INCENTIVES FOR TRAINING AND EMPLOYMENT
                                                                     • Ongoing training initiatives at enterprises will be co-financed
                                                                       by the enterprises themselves and the minimum percentage
These incentives, which form part of the Government's
                                                                       of co-financing, out of the total cost of training, will be
employment promotion policy and can signify important savings
                                                                       determined each year in an Order made by the Ministry of
in labor costs, can be divided into two types:
                                                                       Employment and Social Affairs according to the size of
                                                                       enterprise.
2.1. Training incentives
                                                                        Moreover, apart from co-financing as mentioned above,
2.1.1. Ongoing Training Programs                                        enterprises can avail themselves of a credit for ongoing
                                                                        training. The credit will be the result of applying to the
On December 19, 2000, the employers’ organizations and labor            amount paid by enterprises for occupational training in the
unions signed the Third National Ongoing Training Agreement             preceding year the rate of reduction established in the
(“Acuerdo Nacional de Formación Continua,” or “ANFC”) which,            General State Budgets Law, according to the size of enterprise
together with the Third Tripartite Ongoing Training Agreement           (the smaller the enterprise the higher the rate of reduction).


                                                                                                                      Business in Spain
                                                                                                 Investment aid and incentives in Spain
                                                                                                                                      3
2. State incentives for training and employment




   Enterprises can use all of their credit to train one part of their   2.2. Employment incentives
   labor force, so long as the maximum economic modules (cost
   per participant and per hour of training) established by an          2.2.1. Fostering of indefinite-term employment and of the
   Order made by the Ministry of Employment and Social Affairs                 conversion of temporary contracts into indefinite-
   for each training format (personal attendance, distance                     term contracts
   learning, or a combination of the two) are respected.
                                                                        The Spanish Central Government offers a wide range of
   The credit allocated to enterprises will operate as a limit on
                                                                        employment incentives, consisting mainly of reductions in
   the reductions that enterprises can claim in their social
                                                                        employer social security contributions aimed at promoting the
   security contribution forms. Such reductions can be claimed
                                                                        stable hiring of workers (especially of unemployed persons
   by enterprises in the contribution forms for the month in
                                                                        included in groups such as unemployed women aged 16-45,
   which the training initiative for which a reduction is claimed
                                                                        unemployed women who are hired in industries or professions
   ends and in subsequent months until their training credit
                                                                        where women are under-represented, the long-term
   entitlement is used up.
                                                                        unemployed, the unemployed over the age of 45, individuals
   The costs incurred in training initiatives for which reductions      receiving the unemployment benefit granted under the Special
   have been claimed must be expressly identified as such in the        Social Security System for Agriculture, and the handicapped) and
   enterprise’s accounting records.                                     at encouraging the conversion of temporary contracts into
                                                                        indefinite-term contracts.
• A State Commission for Ongoing Training, attached to the
  Ministry of Employment and Social Affairs, is set up and its          The catalogue of incentives to employment in the Employment
  members are the most representative employers’                        Fostering Plan for 2006 is summarized in Table 1:
  organizations and labor unions, the Ministry of Employment
  and the governments of the Autonomous Communities. The                2.2.2. Local employment initiatives
  Commission’s responsibilities include reporting on the
  allocation of resources among the various ongoing training            In addition to the general employment incentives detailed in the
  areas and initiatives.                                                previous section, additional aid and subsidies may be granted for
                                                                        investment projects aimed at generating economic activity and
   The creation of joint employer/employee industry committees          new jobs in local and regional areas of Spain.
   under nationwide industry collective labor agreements is also
   envisaged.                                                           Such projects must be sponsored by the corresponding
                                                                        Autonomous Community (regional) Government and/or
• Notwithstanding the functions pertaining to the National
                                                                        Municipal Government.
  Employment Institute (INEM) and the governments of the
  Autonomous Communities, a State Foundation for
                                                                        Applications for these incentives must be filed with the National
  Occupational Training is formed. The functions of the
                                                                        Employment Institute (INEM). This is the government body in
  Foundation will include (i) coordination and evaluation of
                                                                        charge of selecting the eligible projects and granting the aid and
  ongoing training policies; (ii) performance of the
                                                                        subsidies therefor.
  management, support and technical assistance functions
  vested in it, and (iii) monitoring and control of training
                                                                        In addition to the necessary sponsorship and support given by the
  initiatives.
                                                                        local or regional government, the eligible projects must meet the
   The Board of Trustees of the new Foundation will be                  following requirements:
   composed of the INEM, autonomous community
                                                                        • Projects must provide for the hiring of workers on an
   government, and the most representative employers’
                                                                          indefinite-term basis or the recruitment of new partners in
   organizations and labor unions, and will be chaired by a
                                                                          the case of projects involving cooperatives or labor
   member from Central Government.
                                                                          companies.

2.1.2. European Social Fund                                             • Projects must provide for the incorporation of a new company
                                                                          with a maximum number of 25 employees at the time of
                                                                          incorporation.
Other subsidies are granted by the State and by the EU for projects
fostering the training of workers (see "EU Aid and Incentives" in       • Projects must provide for the production of products and/or
Section VII below).                                                       services which relate to emerging economic activities or which


Business in Spain
Investment aid and incentives in Spain
4
Table 1

2006 PROGRAM TO FOSTER EMPLOYMENT (*)

                                                                                Discount in the employer social
                         Group of unemployed persons                                security contribution for           Duration of the discount
                                                                                       ordinary contracts



                                  INITIAL FULL-TIME OR PART-TIME INDEFINITE-TERM CONTRACTS

Unemployed persons for 6 or more months 1/3                                       20%              30% 2                    24 months

Persons over 45 and up to 551/3                                                   50%              60%2                  12 first months
                                                                                  45%              55%2                   Rest of term

Persons over 55 and up to 651/3/4                                                 55%              65%2                  12 first months
                                                                                  50%              60%2                   Rest of term

Recipients of benefits/aids for unemployment for whom one                         50%              60%2                12 first months
year or more remains1                                                             45%              55%2            From 13th to 24th month

Unemployed participating in the program that contemplates                         65%                                      24 months
the active insertion income1                                                      45%              75%2             Rest of term for workers
                                                                                  50%                                over 45 and up to 55.
                                                                                                                    Rent of term for workers
                                                                                                                       over 55 up to 65

Women of from 16 to 45 years old 1                                                           25%                            24 months

Women in professions of low rate of feminine employment1,3                                   70%                         12 first months


(1) If it is the first person hired by a self-employed worker registered before 01/01/05, who has not had for the pursuit of his business salaried
personnel reporting to him in the twelve preceding months, the discount in the contributions will be increased by 5 per cent.
(2) Amount of the discount of contributions if the contracts are made on a full-time basis with a woman. The increase of note 1 may be added to this
amount.
(3) These groups may also use the contract to promote permanent employment, which has established severance of 33 days of salary per year
worked (maximum of 24 months of salary) in the event of unfair disciplinary dismissal. The groups that may use the contract to promote permanent
employment are: young people from 16 to 30 years old, women engaged n professions with a low rate of female employment, persons over the age
of 45, unemployed workers registered for 6 months or more and workers who, on the date of the new contract to promote indefinite-term
employment, are employed in the same company under a specific-term or temporary contract, including, trainee contracts, made before December
31, 2006.
(4) Indefinite-term contracts that are made with workers aged sixty or over, with a length of service in the company of five or more years, will
generate the right in 2006 to a discount in the employer contributions to Social Security for ordinary contingencies, except for temporary incapacity
arising from them, in the following amounts: (i) 50% for those meeting the requirements for the first time in 2006, (ii) 60% for those who already
met the requirements in 2005, (iii) 70% for those who already met the requirements in 2004, (iv) 80% for those who already met the requirements in
2003 and (v) 90% for those who already met the requirements in 2002. These percentages will be increased by 10% each fiscal year until a maximum
of 100% is reached.
(*) Discounts are incompatible with each other and the beneficiary should opt for those of only one of the events in which he is included.




                                                                                                                                   Business in Spain
                                                                                                              Investment aid and incentives in Spain
                                                                                                                                                   5
2. State incentives for training and employment




 Table 1

 2006 PROGRAM TO FOSTER EMPLOYMENT (*)

                                                                                  Bonificación cuota empresarial
                            Colectivo de desempleados                             a seguridad social por contratos      Duración de la bonificación
                                                                                             comunes


  Persons over 45 years old or unemployed for > 6 months1                                      60%                   From 13th to 24th month
  Persons under 45 years old unemployed for < 6 months1                                        35%                         24 months

  Persons unemployed for 12 or more months, hired in the 24                                  100%                             12 months
  months after having a child

  Recipients of unemployment aid for workers included in the                                  90%                        12 first months
  Special agricultural system of Social Security1                                             85%                    From 13th to 24th month

  Persons who evidence that the Administration has granted                                    65%                            24 months
  them the status of victim of domestic violence by any member
  of the family unit with which they live (including the hiring of
  discontinuous permanent workers or temporary workers)


                               FULL-TIME OR PART-TIME INDEFINITE-TERM OF TEMPORARY CONTRACTS

  Workers in a situation of social exclusion hired by non-profit                              65%                            24 months
  seeking companies and entities

                         CONVERSION OF TEMPORARY CONTRACTS INTO INDEFINITE-TERM CONTRACTS

  Specific-term and temporary contracts made before 1/1/06                                    25%                            24 months
  and converted before 12/31/06; and training contracts, relief
  and substitution contracts regardless of their date

  (1) If it is the first person hired by a self-employed worker registered before 01/01/05, who has not had for the pursuit of his business salaried
  personnel reporting to him in the twelve preceding months, the discount in the contributions will be increased by 5 per cent.
  (2) Amount of the discount of contributions if the contracts are made on a full-time basis with a woman. The increase of note 1 may be added to this
  amount.
  (3) These groups may also use the contract to promote permanent employment, which has established severance of 33 days of salary per year worked
  (maximum of 24 months of salary) in the event of unfair disciplinary dismissal. The groups that may use the contract to promote permanent
  employment are: young people from 16 to 30 years old, women engaged n professions with a low rate of female employment, persons over the age of
  45, unemployed workers registered for 6 months or more and workers who, on the date of the new contract to promote indefinite-term employment,
  are employed in the same company under a specific-term or temporary contract, including, trainee contracts, made before December 31, 2006.
  (4) Indefinite-term contracts that are made with workers aged sixty or over, with a length of service in the company of five or more years, will
  generate the right in 2006 to a discount in the employer contributions to Social Security for ordinary contingencies, except for temporary incapacity
  arising from them, in the following amounts: (i) 50% for those meeting the requirements for the first time in 2006, (ii) 60% for those who already
  met the requirements in 2005, (iii) 70% for those who already met the requirements in 2004, (iv) 80% for those who already met the requirements in
  2003 and (v) 90% for those who already met the requirements in 2002. These percentages will be increased by 10% each fiscal year until a maximum
  of 100% is reached.
  (*) Discounts are incompatible with each other and the beneficiary should opt for those of only one of the events in which he is included.



Business in Spain
Investment aid and incentives in Spain
6
 Table 1

 2006 PROGRAM TO FOSTER EMPLOYMENT (*)

                                                                                  Bonificación cuota empresarial
                            Colectivo de desempleados                             a seguridad social por contratos       Duración de la bonificación
                                                                                             comunes


                    CONVERSION OF TEMPORARY CONTRACTS INTO PART-TIME INDEFINITE-TERM CONTRACTS

  Practical experience or relief contracts made initially on a                                25%                             24 months
  part-time basis, maintaining at least the duration of the
  working hours3

                                                CONTRACTS WITH HANDICAPPED WORKERS

  Temporary contracts                                   75% for a maximum of three years.
                                                        The term of the contract must be at least 12 months.

  Indefinite-term contracts                             Aid of t3,906 per contract
                                                        Discount:
                                                        — 70% per handicapped worker under 45 years
                                                        — 90% per handicapped worker over 45 years old
                                                        If the contract is made for an indefinite term and on a part-time basis,
                                                        the aid is reduced proportionally to the duration of the working hours.


  (1) If it is the first person hired by a self-employed worker registered before 01/01/05, who has not had for the pursuit of his business salaried
  personnel reporting to him in the twelve preceding months, the discount in the contributions will be increased by 5 per cent.
  (2) Amount of the discount of contributions if the contracts are made on a full-time basis with a woman. The increase of note 1 may be added to this
  amount.
  (3) These groups may also use the contract to promote permanent employment, which has established severance of 33 days of salary per year
  worked (maximum of 24 months of salary) in the event of unfair disciplinary dismissal. The groups that may use the contract to promote permanent
  employment are: young people from 16 to 30 years old, women engaged n professions with a low rate of female employment, persons over the age
  of 45, unemployed workers registered for 6 months or more and workers who, on the date of the new contract to promote indefinite-term
  employment, are employed in the same company under a specific-term or temporary contract, including, trainee contracts, made before December
  31, 2006.
  (4) Indefinite-term contracts that are made with workers aged sixty or over, with a length of service in the company of five or more years, will
  generate the right in 2006 to a discount in the employer contributions to Social Security for ordinary contingencies, except for temporary incapacity
  arising from them, in the following amounts: (i) 50% for those meeting the requirements for the first time in 2006, (ii) 60% for those who already
  met the requirements in 2005, (iii) 70% for those who already met the requirements in 2004, (iv) 80% for those who already met the requirements in
  2003 and (v) 90% for those who already met the requirements in 2002. These percentages will be increased by 10% each fiscal year until a maximum
  of 100% is reached.
  (*) Discounts are incompatible with each other and the beneficiary should opt for those of only one of the events in which he is included.




   cover unsatisfied needs of the area in the case of traditional             Incentives available for selected projects are as follows:
   activities.
                                                                              • A financial subsidy aimed at the reduction by up to three
• Projects must be technically, economically and financially                    percentage points of interest rates on loans granted to the
  viable.                                                                       company related to its incorporation and establishment. The


                                                                                                                                      Business in Spain
                                                                                                                 Investment aid and incentives in Spain
                                                                                                                                                      7
2. State incentives for training and employment




   maximum amount of this subsidy will be t5,108 per                  3. STATE INCENTIVES FOR SPECIFIC INDUSTRIES
   indefinite-term job created.
                                                                      The Central Government has provided, and continues to provide,
• A subsidy for the support of management activities (e.g.
                                                                      financial aid and tax benefits for activities carried out in certain
  subsidies for the external contracting of market or technical
                                                                      industries which are considered to be priority sectors in view of
  studies, reports, and/or training programs). This subsidy will
                                                                      their growth potential and their impact on the nation’s overall
  only be available during the first year after the incorporation
                                                                      economy (e.g. activities in the agrofood industry, energy, mining,
  of the company and will cover 75% of the cost of the
                                                                      technological development, research and development, etc.). In
  qualifying services up to a maximum of t12,020.
                                                                      addition, the Autonomous Community Governments provide
• A subsidy for technical assistance for the hiring of highly-        similar incentives for most of these industries.
  qualified technical experts, covering 50% of total labor costs
  (including employer social security contributions for a             Financial aid includes both nonrefundable subsidies and interest
  maximum period of one year). This is a one-time subsidy with        relief on the loans obtained by the beneficiaries, or combinations
  a ceiling of t18,030.                                               of the two.

• A one-time subsidy for each indefinite-term employment              Besides the official restructuring programs which were initiated
  contract amounting to t4,808 for each worker hired on a             some years ago for certain industries (shipbuilding, steel and
  full-time basis (or the related proportion of such overall          textiles, among others) and which are now substantially
  amount in the case of indefinite-term part-time contracts).         completed, the major industrial development programs currently
                                                                      in force are:
This subsidy is not compatible with that described in the
preceding point.                                                      3.1. Research, Technological development and
                                                                           innovation (R&D&I)
• A subsidy for cooperatives and labor companies amounting to
  t4,808 per unemployed working partner recruited on an
                                                                      Encouraging technological improvement and innovation and
  indefinite-term basis. This subsidy is not compatible with
                                                                      research and development projects has in recent years become
  those described in the two preceding points.
                                                                      one of the priorities of public authorities in Spain. In this
                                                                      connection, the Government has recently approved a new version
All the aforementioned incentives may be increased by 10% when
                                                                      of the “National Plan for Scientific Research, Development and
the project is related to certain activities, among which are those
                                                                      Technological Innovation” which is in line with the Sixth EU RTD
connected with the protection and maintenance of natural areas,
                                                                      Framework Programme (valid through 2006) and is partly
waste management, collective transport, the development of
                                                                      financed by the EU Structural Funds. The National Plan will be in
local culture and the care of children, the handicapped and the
                                                                      force in the 2004-2007 period.
aged.

                                                                      Within this framework, the Ministry of Education and Science,
These incentives and subsidies are compatible with others             and the Ministry of Industry, Tourism and Trade are responsible,
granted by other government agencies or public or private             according to the area, for the management of certain scientific
entities, although the total amount of the subsidy may not            research and technological development policies under the
exceed 80% of the subsidized activity.                                Program for the Development of Technological Research
                                                                      (PROFIT), which in turn forms part of the National Plan for
Lastly, Autonomous Community Governments which, as a result           Scientific Research, Development and Technological Innovation
of the increasing administrative decentralization process currently   (2004-2007).
underway in Spain, have been transferred management powers
in relation to these and other employment programs, may adapt         Under the aforementioned Program and for the duration thereof,
these incentive measures to their own organization.                   the Ministry has defined the terms and conditions for the
                                                                      granting of aid.
2.2.3. Fostering of rural employment
                                                                      The incentives thus envisaged may consist of refundable
Aid is provided for companies promoting employment initiatives        advances, subsidies or a combination of the two and are granted
in rural communities (see “State incentives for specific              for certain Projects in line with any of the strategic actions of the
industries”, Section III below).                                      respective National Programs included in PROFIT.


Business in Spain
Investment aid and incentives in Spain
8
Table 2

PROGRAM FOR THE DEVELOPMENT OF TECHNOLOGICAL RESEARCH (PROFIT)


                  SUBSIDIES: Non-refundable aid to partly cover the eligible costs of the respective project or
                  action.
                  For a project to be able to obtain a subsidy charged to PROFIT, it must have a minimum total
                  budget of 60,000 euros except for the exceptions introduced by Order PRE/402/2006, of
                  February 16, 2006, modifying Order PRE/690/2005, of March 18, 2005.

                  REFUNDABLE CREDIT FACILITIES: Loans with no interest, with changeable terms of grace and
                  repayment, depending on the project.
TYPE OF AID
                  Maximum amount may not be more than 75% of the costs of the projects. Maximum
                  repayment term: 15 years.
                  For a project to be able to obtain a subsidy charged to PROFIT, it should have a minimum total
                  budget of 1,000,000 except for the exceptions introduced by Order PRE/402/2006, of
                  February 16, 2006, modifying Order PRE/690/2005, of March 18, 2005.

                  COMBINED MODE (SUBSIDY + ADVANCE): This combination will depend on the assessment of
                  the projects.

                  • ENTERPRISES (Validly organized corporation).
                  • SMEs.
                  • GROUPING OR ASSOCIATION OF ENTERPRISES
ELIGIBLE          • PRIVATE NON-PROFIT-MAKING R+D CENTERS
APPLICANTS
                  • TECHNOLOGICAL CENTERS
                  • PUBLIC RESEARCH BODIES as defined by Law 13/1986, of April 14, 1986: (i) those affiliated
                    to any public administration; (ii) not-for-profit universities, their departments and university
                    institutes, and (iii) other research and development centers.

                  LIFE SCIENCES
                  • National Program for Biomedicine
                  • National Program for Health and Welfare Technologies.
                  • National Program for Biotechnology.

                  ENVIRONMENTAL AND FOOD TECHNOLOGIES SCIENCES
                  • National Program for Agrofood Technologies and Resources.
THEMATIC FIELDS
                  • National Program for Environmental Sciences and Technologies.

                  ENERGY
                  • National Program for Energy.

                  CHEMISTRY, MATERIALS AND DESIGN AND INDUSTRIAL PRODUCTION
                  • National Program for Chemical Sciences and Technologies.


                                                                                                       Business in Spain
                                                                                  Investment aid and incentives in Spain
                                                                                                                       9
3. State incentives for specific industries




 Table 2

 PROGRAM FOR THE DEVELOPMENT OF TECHNOLOGICAL RESEARCH (PROFIT)


                           • National Program for Materials
                           • National Program for Industrial Design and Production.

                           INFORMATION SOCIETY TECHNOLOGIES
                           • National Program for Electronic Technology and Communications.
                           • National Program for Computer Technologies.
                           • National Program for Information Society Services.
                           • Horizontal strategic action on security and trust in information systems, communications
                              and society information services.

                           TRANSPORT AND CONSTRUCTION
  THEMATIC FIELDS          • National Program for Means of Transport.
                           • National Program for Construction.

                           SECURITY AND DEFENSE
                           • National Program for Security.

                           HUMANITIES, SOCIAL AND ECONOMIC SCIENCES
                           • National Program for Social, Economic and Legal Sciences.

                           TRANSVERSAL STRATEGIC ACTIONS
                           • Strategic action for tourist technologies.
                           • Strategic action for nanoscience and nanotechnology.

                           INDIVIDUAL TECHNOLOGICAL PROJECT OR ACTION:
                           Technological project or action performed by a single company, public research agency, private
                           scientific research and technological development non-profit-making company, technological
                           center or public law entity.

                           TECHNOLOGICAL PROJECTS OR ACTION IN COOPERATION:
                           Projects developed by various companies, public research agencies, nonprofit private R&D
                           centers or entities of public law, whose relations are instrumented through an agreement,
  MANNERS OF
                           arrangement or contract that establishes the rights and obligations of the various participants.
  PARTICIPATION
                           In technological actions or projects in cooperation, one of the members will act as the
                           coordinator and beneficiary of the subsidy and the others as participants. The coordinator will
                           apply for the subsidy and will be responsible for all purposes for the performance of the project
                           or action before the Ministry of Science and Technology. To this end, it will channel the relation
                           with the participants and, if necessary, submit the documentation supporting the performance
                           of the project or action. The granted subsidy will be paid to the coordinator.
                           In any event the granting of this aid will require guarantees to be furnished to the General
                           Administration of the State.


Business in Spain
Investment aid and incentives in Spain
10
 Table 2

 PROGRAM FOR THE DEVELOPMENT OF TECHNOLOGICAL RESEARCH (PROFIT)


                            PROMOTION OF RESEARCH FOR 2006
                            Pending publication of 2006 call.
                            (The deadline for applications for the 2005 call has passed).

  CALLS                     PROMOTION OF TECHNICAL RESEARCH WITHIN THE THEMATIC FIELD OF INFORMATION
                            SOCIETY TECHNOLOGIES FOR 2006
                            Pending publication of 2006 call.
                            (The deadline for applications for the 2005 call has passed. There are currently aid grant
                            proposals).



The following table shows the main features of PROFIT (Table 2).      3.2. Renewable Energy

In addition, to date the Instituto de Crédito Oficial (ICO) has       In compliance with the 1997 Electricity Industry Law, on December
provided funding of t300 million for Innovation and                   30, 1999, the Council of Ministers approved the Plan for the
Technological Development Projects.                                   Promotion of Renewable Energies (2000-2010) which defined the
                                                                      strategy to be followed in the energy area to foster the growth of
Eligible investments are those aimed at the improvement and           renewable energies. The ultimate aim of the Plan is to ensure
modernizing of technology, provided that the proportion of the        that the various sources of renewable energy will be able to cover
investment relating to real estate does not exceed 30% and the        12% of primary energy consumption in 2010.
proportion relating to intangible assets (research, cooperation,
indirect costs, etc.) does not exceed 50%. In any case, the           In order to encourage compliance with the aforementioned Law,
maximum limit for the loan is 70% of the investment, after            the Plan for the Promotion of Renewable Energies envisages a
approval is granted by the Center for Industrial Technological        series of measures and incentives (of a tax or structural nature,
Development (CDTI), with a limit per year and beneficiary of          etc.) that are aimed, inter alia, at eliminating the barriers which
t1,500,000 at a fixed or floating interest rate.                      impede the introduction of renewable energies in a market
                                                                      dominated by fossil fuels.
Beneficiaries (trading companies, including SMEs) may choose
between a repayment term of 5 years (without a grace period or        In this connection, the Plan envisages the granting of incentives
with a grace period of 1 year) or 7 years with a grace period of 2    for investments in technological innovation made by companies
years).                                                               in the area of renewable energies, the creation of lines of public
                                                                      aid (a subsidy for the promotion of technological innovation and
Also, the CDTI provides financial assistance of t450 per t10,000      investment incentives for the extension or start-up of the
of funding granted, to be used for the early repayment of loans.      manufacturing of capital goods) and the granting to SMEs of a
                                                                      percentage of relief from the cost of the guarantees provided by
Calls for the submission of applications in relation to specific      mutual guarantee companies to cover risks.
R&D+i strategic projects (clusters) carried out in conjunction with
organizations from countries that participate in the Eureka           Within the framework of this Plan for the Promotion of
Program, as part of European strategic projects, are managed          Renewable Energies, the Institute for Energy Diversification and
through the Office of the Secretary of State for                      Saving (IDAE) has set up certain specific aid programs for the
Telecommunications and the Information Society under the              solar thermal power and solar photovoltaic power industries.
Ministry of Industry, Tourism and Trade. The most noteworthy are
as follows: EUROFOREST, EURIMUS, PIDEA, SCARE, ITEA, and              Since 2003, these programs have been included within a single
MEDEA +.                                                              line: the ICO-IDAE funding for renewable energy and energy


                                                                                                                       Business in Spain
                                                                                                  Investment aid and incentives in Spain
                                                                                                                                     11
3. State incentives for specific industries




efficiency projects. In turn, this line is divided into the following    this Line of funding ended on September 30, 2005, it is very likely
sublines: (i) the solar energy line; (ii) the renewable energy and       that it will be renewed in 2006.
energy efficiency line; and (iii) the innovation line. Any individual
or corporation, of a public or private nature, that is tax resident in   Furthermore, in order for the objectives of the Plan for the
Spain may be a beneficiary. Investments eligible for financing           Development of Renewable Energies to be fully achieved, certain
include any project entailing investment in new fixed assets             R&D actions will have to be taken, which has led to the
located in Spain for the purpose of using resources in renewable         involvement of the energy industry in the various R&D+i
energies or improving energy efficiency: facilities, equipment and       programs currently being implemented at EU and national level.
expenses necessary for their start-up (engineering, insurance,           Particularly to be noted at the state level is the PROFIT, an
transportation, etc.). If civil engineering works are required, these    instrument whereby the Ministry of Education and Science, and
may not represent more than 20% of the total investment eligible         the Ministry of Industry, Tourism and Trade makes a series of calls
for financing. In this connection, it is worth noting that only          for public aids (nonrefundable subsidies, refundable advances or
projects whose investment commences as from the date on                  a combination of the two) to promote the performance by
which the application is submitted to the ICO will be eligible for       companies and other entities of research and development
financing.                                                               activities, according to the targets established in the 2004-2007
                                                                         National Scientific Research, Development and Technological
Projects eligible for financing are standard projects, grouped into      Innovation Plan (R&D+i), in the part on Promotion of Technical
two lines: 1) the solar energy line (solar energy applications:          Research.
thermal solar energy, photovoltaic solar energy, wind-solar
energy, etc); and 2) the renewable energy (wind power <2MW,              The PROFIT (2004-2007) currently in force after the PROFIT
biomass, mini hydroelectric plants <1MW, biogas, waste and               included in the previous National R&D+i Plan (2000-2003) also
biomass processing, geothermal energy, wave energy, hydrogen             includes the R&D activities performed in the energy sector.
cells, etc.) and energy efficiency line (saving, increased efficiency
and substitution in industry, energy efficiency in buildings, energy     Specifically, within the National Energy Plan, included in the
efficiency in public transport, etc).                                    PROFIT (2004-2007) the optimizing of conventional forms and
                                                                         uses of energy for these to be cleaner and more efficient (e.g.
The funding will finance up to 80% of the reference cost of the          research and development to improve fuels in transport, research
investment, following an IDAE technical evaluation and funding           and development in nuclear safety and radiological protection,
authorization from the ICO. Loans may be requested for up to             research and development in the field of radioactive waste) and
t600,000 for solar energy projects, with just one application            the promotion of renewable energies and emerging technologies
permitted per beneficiary per year. For all other projects, the          (e.g., wind energy, solar energy, evaluation and forecast of
maximum loan available is t6,000,000, paid in one or more                renewable energy resources, etc.).
transactions. The term of repayment may be 8 or 10 years, as
selected by the final beneficiary, with a grace period of one year.      Another national funding line is the ICO-CDTI line.

The variable interest rate is 6M EURIBOR + one per cent, and may         The objective of the Funding Line for Technological Development
be reviewed on a half-yearly basis.                                      and Innovation Projects, in conjunction with the Center for
                                                                         Industrial Technological Development (CDTI) is to finance
The resources of this funding line in 2005 amounted to                   investment aimed at improving and modernizing the
t300,000,000 (t120,000,000 for the solar energy line,                    technological component of Spanish companies through loans
t120,000,000 for the renewable energy and energy efficiency              which qualify for relief.
line, and t60,000,000 for the innovation line), of which
t60,000,000 were provided by the IDAE. IDAE funds vary,                  In addition, the CDTI engages in general promotion and in the
depending on the project type, between t125 and t375 for each            coordination, evaluation and monitoring of the proposals and
t1,000 of funding granted by the ICO.                                    projects submitted by Spanish enterprises to the Eureka program,
                                                                         an initiative that supports cooperative R&D in Europe and aims to
The funding provided by ICO is compatible with any                       increase the competitiveness of European enterprises by
complementary aid or subsidy received from the EU or other               encouraging technological projects geared towards the
institutions, subject in all cases to compliance with the conditions     development of products, processes or services with a clear
established by European Commission as regards the                        commercial interest in the international market and based on
accumulation of public aid. Although the period for applying for         innovative technologies.


Business in Spain
Investment aid and incentives in Spain
12
The terms and conditions of these funding lines can be found on        their suppliers, as well as finance entities, in order to replace hard
the CDTI website (www.cdti.es).                                        copies with e-mail messages, thereby eliminating administrative
                                                                       costs.
3.3. Tourism industry
                                                                       The TURCENTRAL Program is a computer system, aimed at
Against the backdrop of monetary union and economic and social         autonomous and local government entities and business
convergence, and in a competitive environment characterized by         associations, which captures tourism information on reservations
the globalization of supply and demand and the                         by organizing it into a database or mainframe, thereby making it
internationalization of tourism companies, the Spanish tourism         possible to market and exploit such information.
industry has to base its position of leadership on quality.
                                                                       The TURISCAL Program is a pilot project promoted by the
It is with this in mind that the Integral Plan for Spanish Tourism     Directorate-General of Tourism to give IT support to the
Quality (PICTE) was created. This Plan, which replaces the Spanish     management of the Spanish Tourism Quality System (SCTE), its
Tourism Competitiveness Framework Plans (1996-1999), seeks to          main recipients being hotel establishments and associations.
define, from the standpoint of cooperation between the business
community and the public authorities, the main plans of action         3.4. Audiovisual industry
for creating supply and bringing it to the market, as well as
establishing the sustainability and profitability targets to be        The promotion and fostering of the production by Spanish
achieved.                                                              companies and European Union Member State companies and
                                                                       companies from the European Economic Area established in
The PICTE, which covers the period from 2000 to 2006, is being         Spain, of films and audiovisual material, as well as the
implemented through specific Programs which, taking quality as         establishment of conditions which would favor their creation and
their main underlying objective, encompass the main action             dissemination, and the adoption of measures for the
plans for the tourism industry: Quality in Tourist Destinations,       conservation of film-making and audiovisual heritage constitute
Quality in tourist products, Quality in Business Sectors, Quality in   the objectives of the Law dated July 9, 2001, which regulates the
Training, Technological Development and Innovation,                    fostering and the promotion of film-making and the audiovisual
Internationalization of Tourism Companies, International               industry.
Cooperation, Statistical Information and Economic Analysis, and
                                                                       • Film production will be fostered by the annual granting of aid
Promotion of and Support for Foreign Trade.
                                                                         to film producers to reduce the cost of film production, taking
                                                                         into account objective criteria such as viewer acceptance
Particularly noteworthy from the business standpoint are the
                                                                         during the period of projection in movie theatres, and the box
Technological Innovation and Development Programs applied to
                                                                         office receipts obtained by movie theaters over a given period
Tourism and that relating to the internationalization of Spanish
                                                                         of time.
tourism companies.
                                                                           Specifically, the producers of full-length motion pictures can
In the area of technological innovation and development, IT                generally receive aid from Instituto de la Cinematografía y de
systems are being applied in the tourism industry through                  las Artes Audiovisuales (ICAA – Spanish Institute for Film-
projects that coordinate management and e-mail (EDITRAVEL and              Making and Audiovisual Arts) for an amount equal to 15% of
EDITHOTEL) and projects that link information systems with                 the gross box office receipts which they obtain during the first
reservations (TURCENTRAL, SIT).                                            two years of screening in Spain, up to a maximum of 901,518
                                                                           euros.
Interested entities can apply for the product at the Directorate-
                                                                           In any case, the amount of the aid will be less than 50% of
General of Tourism, which will grant the license for use, at no cost
                                                                           the cost of the films produced, with possible exceptions in the
to the applicant, of each of the products. The agency also
                                                                           case of experimental films, documentaries, pilot animation
provides, within its budgetary constraints, technical assistance (a
                                                                           series programs and low-budget films.
help desk) and training courses on the use of the products so that
their potential is better utilized.                                        The ICAA also grants aid to producers for projects to make full-
                                                                           length motion pictures which incorporate new directors and
The EDITURISMO Program (EDITRAVEL-EDIHOTEL) consists of the                experimental productions with a clear artistic and cultural
electronic exchange of documents among the various players in              content, within the related budgetary constraints and
the industry, mainly travel agencies and hotels, other players and         following a public call to submit applications. This aid is


                                                                                                                         Business in Spain
                                                                                                    Investment aid and incentives in Spain
                                                                                                                                       13
3. State incentives for specific industries




   nontransferable and may not exceed the producer’s                   length motion picture production “without ICAA project aid”, in
   investment or t500,000 per film.                                    principle, it will be extended during 2006.

   In the same way, producers of short films can receive aid from
                                                                       Additionally, the ICO maintains a Financing Line for
   the ICAA for production up to a maximum limit which is
                                                                       cinematographic display and production equipment funded to date
   determined annually, and they can also receive aid for films
                                                                       with t5,000,000, and a Financing Agreement for audiovisual
   already made, which cannot exceed 50% of its budget and it
                                                                       works of RTVE and FAPAE (Federation of Spanish Audiovisual
   may never exceed t30,050 per film.
                                                                       producers), managing aids to FAPAE member producers, the term
• Scriptwriting is also eligible for aid from ICAA, which grants       of which expired on December 31, 2005. However, it is expected
  incentives to authors and production company joint ventures          that this agreement will be renewed in 2006.
  which write scripts for full-length motion pictures for cinema
  or television in any of Spain’s official languages.                  Lastly, it should be noted that the ICO has recently opened two
                                                                       financing lines to support the audiovisual sector of Galicia
• In order to foster the conservation of negatives and original
                                                                       through the ICO-TVG-AGAPI Financing Agreements.
  media, the ICAA can subsidize up to 50% of the cost of
  creating interpositives or internegatives of full-length motion
                                                                       The main purpose of the Fiction Series Production Agreement is to
  pictures. The beneficiaries of this type of aid may be
                                                                       finance newly produced serial audiovisual works, the broadcasting
  producers of full-length Spanish motion pictures registered as
                                                                       and other rights of which have been acquired by TVG.
  such in the ICAA Register of Cinematographic Enterprises, or
  holders of rights in such motion pictures.
                                                                       The purpose Full-length Feature Films, TV Films and
Without prejudice to the aforementioned aid granted by the ICAA,       Documentaries Agreement is to finance the production of newly
it should be added that there is a Film Production Financing Line      produced, full-length audiovisual works, TV films and
for Projects promoted by ICO and Instituto de Cinematografía y         documentaries, the broadcasting and other rights of which have
Artes Escénicas (the Spanish Institute for Film-making and the         been acquired by the public television of Galicia.
Audiovisual Arts) for full-length motion pictures with “ICAA project
aid” and full-length motion picture production “without ICAA           3.5. Other specific industries
project aid”.
                                                                       3.5.1. Agrofood and other related industries
In the case of loans for full-length motion pictures with “ICAA
project aid”, the principal cannot exceed 90% of the aid granted       3.5.1.1. Aid for investment in industrial infrastructures
to the beneficiary of the full-length motion picture project
pursuant to the final decision by the ICAA Director General, and,      With a view to contributing to the improvement and
for full-length motion picture production “without ICAA project        modernization of agricultural structures and operations, a system
aid”, the principal cannot exceed 50% of the budget for the film       of incentives has been established which is aimed at financing
up to a limit of t1,000,000.                                           the implementation of plans to upgrade farms and at supporting
                                                                       initiatives to improve professional agricultural qualifications. In
The maximum aggregate amount per producer will be                      short, the objective is to assist young farmers who are setting up
t4,000,000 within each yearly funding of the Financing Line. In        for the first time.
exceptional cases, a maximum aggregate amount per enterprise
of up to t5,000,000 may be granted.                                    Assistance may take the form of capital subsidies, interest relief,
                                                                       and subsidies covering part of the annual repayments of the
These loans are repayable over a period of between one and four        principal, or assistance in defraying the cost of guarantees, or a
years, including a two-year grace period, and bear interest at 6M      combination thereof.
EURIBOR + 0.75 percentage points, which can be reviewed on a
half-yearly basis. Loans for full-length motion picture production     Capital subsidies of up to 15% of the projected investment,
“without ICAA project aid” will benefit from a reduction in the rate   reaching up to 20% in especially disadvantaged areas are
of interest of 1.63% for the financial aid of the ICAA.                available.

Although the initial term of this line of financing expired on         A further five percent may be added to the applicable percentage
December 31, 2005 for loans on full-length motion pictures with        according to the foregoing for improvement plans aiming to
“ICAA project aid”, and on October 15, 2005, for loams on full-        obtain ecological products, if these conform to the legislation for


Business in Spain
Investment aid and incentives in Spain
14
ecological farm production and their indication in farm and food            subsidies are approved and paid by the relevant Autonomous
products.                                                                   Community governments.

                                                                         • Lastly, other types of aid are envisaged for related activities
The interest relief may be up to 8.5 percentage points annually, in        (business studies, business training and retraining, technical
such a way that the interest rate for the borrower must not be             assistance for company management, etc.) up to a maximum
less than 1.5%, depending on the circumstances. The loans may              of between 50% and 90% of the costs incurred in carrying out
cover up to 90% of the difference between the cost of the                  the activity (with maximum limits that vary depending on the
approved investment and the subsidy.                                       type of activity subsidized). This aid is paid by the
                                                                           Autonomous Community Governments.
In any event, the maximum amount of the grant may not exceed
50% of the investment in the disadvantaged areas included in the         The incentives described above are incompatible with any other
lists approved at Community level, and may not exceed 40% in             aid provided by the Central Government, in which the
other areas.                                                             beneficiaries, objectives or investments coincide.

The subsidies are granted on a 50-50 basis by the Ministry of            Additionally, the incentives granted to foster economic activity
Agriculture, Fisheries and Food and the relevant Autonomous              and job creation in rural communities will be subject to the
Community governments, and may be channeled through public               ceilings envisaged for incentives granted for regional investment
and private banks. Applications must be filed with the competent         projects.
body of the Autonomous Community where the investment is to
be located. More information on these grants can be obtained             Finally, entities, companies and professionals related to
from, among other agencies, the General Secretariat of                   production and marketing in the agricultural industry
Agriculture and Food, which reports to the above-mentioned               (specifically, farmers) that provide statistical and accounting
Ministry.                                                                data to the Ministry of Agriculture, Fisheries and Food, may
                                                                         obtain an annual subsidy that may never exceed t140 per
In the Autonomous Community of the Canary Islands, these                 recipient and year, and subject to a maximum number of
subsidies are subject to a special system. In agricultural               recipients per autonomous community. The above figures
operations that do not exceed 20 European Dimension Units, the           are the amount of aid granted in 2005, according to the
maximum total amount of the subsidy is 75% of the amount of              amounts approved by Order APA/3569/2005, of November 8,
the investment eligible for subsidy - in the case of investments         2005, since no data are yet available on the amount of aid
made, particularly, to promote diversification, restructuring or         forecast for 2006.
reorientation towards a sustainable agriculture.
                                                                         3.5.1.3. Measures for promoting and fostering new
Specifically, capital subsidies will be of up to 40% of the                       technologies
investment forecast in the improvement plan.
                                                                         With a view to fostering the use of new technologies in the
                                                                         agricultural area, an incentive is provided for the acquisition of
3.5.1.2. Fostering of activities of rural interest
                                                                         new machines and equipment that involve technological
                                                                         innovation.
The initiatives to foster the diversification of rural life consist of
incentives for investments, employment and other related                 The incentive consists of a subsidy (the amount of which varies)
activities:                                                              which is granted provided that the investment in the new
• The investment aid consists of interest relief on loans                machinery is made within a year and the machines or equipment
  obtained to finance investments of up to t72,121 for each              acquired are not sold within five years.
  full-time job created and maintained during the year,
  provided that it does not exceed 90% of the value of the               3.5.2. Mining
  investments. These benefits are granted by the Ministry of
  Agriculture, Fisheries and Food.                                       The Directorate-General for Energy and Mining grants incentives
                                                                         for prospecting, geological-mining research and non-energy
• The employment aid takes the form of direct subsidies of up            mining activities, valid until December 31, 2006. These incentives,
  to 50% of the labor cost of the job created during the first           consisting mainly of subsidies of a variable amount, according to
  year of activity (subject to a ceiling of t3,606). These               whether or not the regions in which the projects are performed


                                                                                                                           Business in Spain
                                                                                                      Investment aid and incentives in Spain
                                                                                                                                         15
3. State incentives for specific industries




may avail themselves of the exceptions expressly contemplated in    Development of Mining Regions may propose other
article 87.3 of the EC Treaty, are usually earmarked in for         alternatives—in the scopes of regional reactivation and of
geological and mining research and prospecting projects and for     mining reorganization—consisting of aids to the operation and
environmental projects.                                             activity reduction of activities of coal mining companies, aids to
                                                                    reduce supplies, aids for labor costs, aids for the storage of
It is expected that the 2006 call for subsidies for geological-     autochthonous coal at thermal power stations and aids for the
mining exploration and research and non-energetic mining            transport of coal for the development of infrastructures in coal
activities of the environment will be published as from May.        mining regions, etc.


Additionally certain aids exist arising from the Mining Safety      The 2005 call for these subsidies was made by way of the
Plan (the Plan is in effect until December 31, 2007) which have     Resolution of January 21, 2005, of the Institute for the
the purpose of promoting mining safety and eradicating, insofar     Reorganization of Coal Mining and Alternative Development of
as possible, the accident rate of the mining activity in Spain.     Mining Regions. The 2006 call to submit applications for
These subsidies are granted to publicly- or privately-owned         subsidies for projects aimed at promoting the alternative
companies (except for those engaging in coal extraction),           development of mining regions is expected to be published in the
groupings of said companies and nonprofit institutions.             first quarter of this year.
The 2005 call for these subsidies was made in Order
ITC/1514/2005, of May 12, 2005, of the Ministry of Industry,        The following table shows in detail the application of the various
Tourism and Trade. The call for 2006 is expected to be published    programs managed by the Institute for Reorganization of Coal
in the first quarter of this year.                                  Mining and Alternative Development of Mining Regions according
                                                                    to the Autonomous Communities where it is intended to perform
Aid is also available to finance projects aimed at reducing the     the qualifying action (Table 3).
industry’s production capacity and initiatives aimed at promoting
the alternative development of mining areas.                        In respect of the regions able to opt for subsidies granted by the
                                                                    Institute for Reorganization of Coal Mining and Alternative
The incentives to promote alternative development in mining         Development of Mining Regions, the following table shows the
areas consist mainly of nonrefundable subsidies, although the       scopes in which municipalities may have access to subsidies
Institute for the Reorganization of Coal Mining and Alternative     (Table 4).



 Table 3

 APPLICATION OF PROGRAMS OF THE INSTITUTE FOR REORGANIZATION OF COAL MINING

                               Operation and                                            Restructuring of   Restructuring of    Alternative
                                                      Storage         Transport
                             reduction of activity                                      technical costs      labor costs      development


  Andalucía                          Yes                Yes           No (1)                 Yes                Yes              Yes
  Aragón                             Yes                Yes         Some areas               Yes                Yes              Yes
  Castilla y León                    Yes                Yes         Some areas               Yes                Yes              Yes
  Castilla-la Mancha                 Yes                Yes           No (1)                 Yes                Yes              Yes
  Cataluña                           Yes                Yes         Some areas               Yes                Yes              Yes
  Galicia                         No (2)              No (2)          No (2)               No (2)               Yes              Yes
  Asturias                           Yes                Yes           No (1)                 Yes                Yes              Yes

  (1) Thermal power stations consume coal from their own basin.
  (2) Does not produce CECA coal.



Business in Spain
Investment aid and incentives in Spain
16
 Table 4

 ACCESSIBLE SUBSIDIES, BY MUNICIPALITY

                                                                                        Infrastructures      Employment creators          Training



  1. RECHAR Municipalities                                                              √                  √                          √


  2. Municipality of Puertollano                                                        √                  √                          √

  3. Municipalities of Comarca del Bierzo                                                                  √                          √

  4. Municipalities bordering those specified in point 1.                                                  √

  (1): the RECHAR municipalities are defined by a relevant loss of coal mining employment after 1990.




4. INCENTIVES FOR INVESTMENT IN CERTAIN REGIONS                             The maximum subsidies vary from one area to another, but in
                                                                            most parts of the country the subsidies can currently be for up to
4.1. Granted by the State                                                   50% of the investment. Specifically, as shown in the map of
                                                                            regional aid for Spain authorized by the Commission for 2000-
Regional incentives are granted by the State in accordance with             2006, the cumulative maximum limit of the subsidies and/or
EU requirements and limits. Their granting is centralized basically         regional aid granted by the various public authorities is 50% for
in the Sub-Directorate-General of Regional Incentives of the                investments in the Autonomous Communities of Andalucía,
Ministry of Economy and Finance.                                            Extremadura and the Canary Islands, with lower limits for the rest
                                                                            of the eligible Autonomous Communities.
These incentives are aimed at promoting development in certain
                                                                            The granting of regional State incentives is aimed at financing
areas, and they consist of financial assistance for investment
                                                                            investment projects carried out in the so-called Areas of Economic
projects in specific regions.
                                                                            Promotion, defined under the framework determined by the EU
                                                                            map of State regional aid. In this connection, for 2000 through
The main objective of this regional policy is to achieve economic
                                                                            2006, the entire territory of the Autonomous Communities
equilibrium the different Spanish regions (measured in terms of
                                                                            included in Objective number 1 of the Structural Funds (Galicia,
per capita GNP). In practice, this policy involves the promotion of
                                                                            Asturias, Castilla y León, Castilla-La Mancha, Extremadura,
start-ups, expansions or modernization of enterprises located in
                                                                            Valencia, Andalucía, Murcia, Ceuta, Melilla and the Canary Islands)
the less developed geographical regions and in areas
                                                                            is classified as eligible. Similarly, projects carried out in certain parts
experiencing particular economic difficulties.
                                                                            of the Autonomous Community of Aragón (specifically the
                                                                            provinces of Teruel and Huesca and certain areas of Zaragoza) and,
This aid scheme is based on nonrefundable subsidies (although               on a transitional basis, in the Autonomous Community of
the relevant legislation also envisages the possibility of privileged       Cantabria, may also benefit from regional incentives.
financing, such alternative is not used in practice) for a
percentage of the cost of the investment.                                   Two types of “eligible” areas are also defined according to their
                                                                            specific circumstances:
They are granted for investment projects that will be located in
one of Spain's eligible areas.                                              • Economic Promotion Areas ("Zonas de Promoción Económica"
                                                                              or “ZPEs”).

The geographical coverage of regional incentives is very broad,                 ZPEs are less developed geographical areas of Spain. ZPEs can
covering more than 80% of Spain and encompassing around 79%                     only be established in class I, II and III, only during the period
of the Spanish population.                                                      2000-2006.


                                                                                                                                Business in Spain
                                                                                                           Investment aid and incentives in Spain
                                                                                                                                              17
4. Incentives for investment in certain regions




• Industrialized Areas in Decline ("Zonas Industrializadas en           • Industrial support services and those which significantly
  Declive" or “ZIDs”)                                                     enhance trade networks.

   These areas are defined when special circumstances (as               • Specific tourist facilities with an impact on development in the
   determined by the Central Government) so require. They are             area.
   usually areas strongly affected by industrial restructuring
   processes, with serious repercussions on the level of business       4.1.2. Eligible investments
   activity and employment in those areas. At present the figure
   of the ZIDs is out of use.                                           In each project, the subsidies must be used to defray some of the
                                                                        following expenses (as defined in each Royal Decree):
ZPEs and ZIDs are established by Royal Decree, and each Royal           • Acquisition of the land necessary to implement the project.
Decree identifies the area covered and the ceiling on the level of
                                                                        • Utility (gas, electricity, etc.) extension and connection.
aid that can be granted once all the subsidies for a given project
have been aggregated, regardless of the type or source of the           • Development and outside work adapted to the needs of the
subsidies.                                                                project.

                                                                        • Civil engineering work for offices, laboratories, warehouses,
The above-mentioned Decrees also define what are known as
                                                                          etc.
“priority areas” (the only areas in the ZPE where the subsidy may
reach the maximum limit), the “eligible” sectors, the type of           • Capital equipment and other fixed assets.
investment projects qualifying for aid, the requirements for
                                                                        • Planning work, project engineering, and technical
obtaining the incentives, etc.
                                                                          management of work.

In exceptional circumstances, the Ministry of Economy and the           • Other investments in tangible fixed assets.
Government's Committee for Economic Affairs may (at the
proposal of the Board of Governance) raise the above-mentioned          4.1.3. Eligible projects
limits for certain areas, but always within the limits established by   • Definition
the EU. Such a situation has only arisen on very few occasions, in
certain areas (particularly in ZIDs), and only for short periods of        — Creation of new establishments that generate new jobs.
time.                                                                      — Expansion of existing activities or start-up of new
                                                                             activities in the same establishment.
These ZPEs and ZIDs have certain basic common characteristics,
                                                                           — Modernization of the business.
which can be summarized as follows:
                                                                        • Requirements
4.1.1. Eligible sectors                                                    — The project must relate to an eligible sector and activity
                                                                             and be located in one of the designated areas.
These are stipulated in each Royal Decree. Other sectors not
expressly included in the Royal Decree are deemed in principle             — It must be technically, economically, and financially
not to be eligible, although in exceptional cases they may receive           viable.
aid if the Ministry of Economy (following a report from the                — Generally, at least 30% of the investment must be equity-
Governing Council) considers that such sectors can contribute to             financed. However, depending on the features of the
the objectives established in the Royal Decree for the eligible              project, a higher rate might be required.
area.
                                                                           — It must not be started before submission of the
                                                                             application.
The main eligible sectors, notwithstanding what is established by
each Royal Decree, are:                                                    — Investments in fixed assets must be made in new fixed
                                                                             assets.
• Extractive and processing industries, particularly those which
  apply advanced technology or use renewable energies.                     — Start-up projects must lead to job creation and the
                                                                             investment must be of at least t601,012 (since it is
• Agrofood and aquaculture industries, and the processing and                considered that large projects contribute more to
  preservation of fish products.                                             regional development).


Business in Spain
Investment aid and incentives in Spain
18
   — Expansion projects (of former or new activities) must             The subsidy received is compatible with other aid, provided that
     create new jobs and significantly increase production             the sum of all the aid obtained does not exceed the limit
     capacity.                                                         established by the relevant Royal Decree and EU rules do not
                                                                       preclude it (incompatibilities between Structural Funds).
   — The investment must be significant with respect to the
     company’s net fixed assets and must in all cases exceed
                                                                       4.1.7. Applications
     t601,012.

   — Modernization projects must meet the following                    • Documentation
     requirements:
                                                                          — Standardized application form.
        – Productivity must be notably improved and the
                                                                          — Documentary evidence of the applicant’s personal
          employment level at least maintained.
                                                                            information or, in the case of an incorporated company,
        – The investment project (which in any event must have              its registration data. If the company is in the process of
          a cost of at least t601,012 million) must entail the              being incorporated, the draft bylaws and information
          acquisition of technologically advanced machinery.                about the promoter.

                                                                          — Investment project memorandum.
4.1.4. Types of incentive
                                                                          — Evidence, as of the date in question, of formal
These incentives consist of nonrefundable subsidies. The                    compliance by the company with its tax and social
regulations implementing the law governing these incentives                 security obligations.
provide other types of aid, such as subsidies for the interest on
                                                                          — Formal declaration of other public aid applied for or
loans obtained by applicants from finance entities, relief of up to
                                                                            obtained by the applicant.
50% from employer social security contributions for common
contingencies, or any combination thereof. However, the                • Where to submit
regulations governing each eligible area do not envisage these
                                                                          The competent body of the Autonomous Community was the
other types of incentive, but only provide for incentives consisting
                                                                          project is intended to be carried out.
of nonrefundable subsidies.
                                                                       • Granting agency
4.1.5. Project assessment
                                                                          The General Subdirectorate of Regional Incentives or the
                                                                          Government Committee for Economic Affairs if the projected
The project must be evaluated using the methods established by
                                                                          investment exceeds t6,010,121.
each Royal Decree, which will thus determine the percentage of
subsidy to be granted for each project. The main criteria can be       • Time period for decision
summarized as follows:
                                                                          The granting agency must issue its decision on the application
• Total amount of the eligible investment.                                within eight months from the date of filing (although this
                                                                          period can be extended).
• Number of jobs created.
                                                                          Acceptance of the aid must be expressly notified by the
• Contribution to the area’s economic development and the
                                                                          applicant to the granting agency within fifteen business days
  use of its factors of production.
                                                                          from receipt of the notification. Otherwise, the aid is rendered
• Value added of the project (if a start-up) or increase in               null and void.
  productivity in other cases.
                                                                       4.1.8. Project implementation and subsequent
• Use of advanced technology.
                                                                              modifications
• Location.
                                                                       The investment can be started before the subsidy is granted, but
4.1.6. Compatibility of different incentives                           not before submitting the application for it.

No other public financial aid can be received if the limits            In addition, the General Subdirectorate of Regional Incentives
established by each Royal Decree for each type of area are             may require, in the related notification, that parts of the
exceeded.                                                              investment be executed in accordance with a schedule.


                                                                                                                       Business in Spain
                                                                                                  Investment aid and incentives in Spain
                                                                                                                                     19
4. Incentives for investment in certain regions




Subsequent changes in the projects which do not affect relevant           4.2. Aid granted by Autonomous Community and
aspects of the project must be submitted to the General                        Municipal governments and Local Councils
Subdirectorate of Regional Incentives, which will decide on them.
                                                                          All the Spanish Autonomous Community governments provide
However, justified modifications of the initial project that give rise
                                                                          similar incentives, on a smaller scale, for investments made in
to a variation in the incentives; the amount of the approved
                                                                          their regions. Only some of them are compatible with the EU
investment or the jobs created will be subject to the formal
                                                                          and State regional incentives. Specifically, if State regional
procedures established for the assessment of a new project.
                                                                          incentives have been applied for a given project, the
                                                                          limits established in each Royal Decree must be taken into
4.1.9. Payment procedure                                                  account.

Successful applicants must request payment of the subsidy at the
                                                                          Additionally, some Autonomous Community governments
competent body of the relevant Autonomous Community.
                                                                          (Aragón and Madrid) grant investment incentives in areas not
                                                                          covered by state legislation but which are included in EU regional
4.1.10. Methods of payment
                                                                          aid maps.

Payment of the subsidy can be made in any of the following
ways:                                                                     Most Autonomous Community incentives are granted on an
                                                                          annual basis, and the general conditions of the incentives usually
• In installments, as the investments are progressively                   do not change from year to year.
  completed. In this case, guarantees must be provided to the
  General Subdirectorate of Regional Incentives, under the
                                                                          In view of the impossibility of including here a detailed
  conditions established by this agency.
                                                                          description of the aid available in each Autonomous
• In a lump sum, if the total investment has been made and all            Community, we summarize below their main features
  of the conditions have been met (at this time any guarantees            (which are generally very similar to those of the regional State
  provided are released).                                                 incentives).



 Map

 REGIONAL INCENTIVES

                                                                                                      ANDALUCÍA           50%
                           **                                                                         ARAGÓN
                                                                                                      Teruel              30%
                                                                                                      Huesca              20%
                                                                                                      *Zaragoza           20%
                                       *                                 Subsidies limit
                                                                                                      CANARIAS            50%
                                                                                                      CASTILLA-LA MANCHA 40%
                                                                         (SNE)                        Guadalajara         30%
                                                                                                      CASTILLA Y LEÓN     40%
                                                                                                      Burgos y Valladolid 35%
                                                                             50%                      Palencia y Segovia  37%
                                                                             40%                      CEUTA               40%
                                                                                                      EXTREMADURA         50%
                                                                             30%                      GALICIA             40%
                                                                             20%                      MELILLA             40%
                                                                                                      MURCIA              40%
                                                                             37%                      ASTURIAS            40%
                                                                             35%                      C. VALENCIANA       35%
                                                                                                      CANTABRIA           40% (2000)
                                                                                                                          35% (2001)
                                                                                                                          30% (2002)
                                                                                                                          25% (2003)
                                                                                                                          20% (2004-2006)


  D. G. for Sectorial Policies.
  * Only for the followign regions: Prepyrennees, Moncayo, Campo de Borja, Jalón Medio, La Almunia, Calatayud, Cariñena, Daroca-Romanos-Used,
  Belchite, Bajo Aragón-Caspe y Bárdenas-Cinco Villas.



Business in Spain
Investment aid and incentives in Spain
20
4.2.1. Types of project                                                 competent body of the Departments of the Autonomous
                                                                        Communities. Most of the Autonomous Communities have
Opening of new establishments, expansion of activities,                 agencies that provide information and advice on requesting aid.
modernization and technological innovation. The creation of new         Many of them also provide access to websites with updated
jobs is normally required.                                              databases of the subsidies available.

4.2.2. Main sectors                                                     4.2.7. Cooperation agreements with the Spanish Central
                                                                               Government
Agriculture and forestry, craftwork, fishing, industrial support
services, processing industries, tourism, culture, industrial design,   In addition to the aid offered by each Autonomous Community
electronics and computing, renewable and environmental                  Government, in recent years there has been an increase in
energies.                                                               cooperation agreements between the Autonomous Community
                                                                        Government and the Central Government. The main objective of
4.2.3. Project requirements                                             these programs is the joint implementation of projects in the
                                                                        following areas:
Mainly the same as those which apply at the State level.
                                                                        • Technological modernization and the promotion of
                                                                          innovation.
4.2.4. Types of incentive
                                                                        • Aid for independent trade and development of business
The main incentives are:                                                  cooperation.

• Nonrefundable subsidies.                                              • Development of SMEs in general.
• Special loan and credit terms and conditions.                         • Singular actions: agreements with local councils.
• Technical counseling and training courses.
                                                                        4.3. Special reference to investments in the Canary
• Tax incentives.                                                            Islands
• Guarantees.
                                                                        The Canary Islands Autonomous Community has traditionally
• Social security deductions.                                           enjoyed a regime of commercial freedom involving less indirect
                                                                        tax pressure and exclusion from the sphere of certain State
4.2.5. Expenses and eligible investments                                monopolies.

The main expenses and eligible investments are:                         These conditions have given rise to an economic and tax system
                                                                        which is different from that which exists in the rest of Spain. An
• R&D+i and training expenses, promotion of apprenticeship
                                                                        attempt has been made to reconcile as far as possible these
  and trainee contracts
                                                                        special circumstances with the requirements of Spanish
• Capital equipment and other fixed assets.                             membership of the European Union.
• Planning, modernization, management enhancement, and
                                                                        In this regard, the Central Government has been very flexible in its
  design projects.
                                                                        application of the regulations in granting regional incentives and
• Instrumentation, material, installations and equipment                locating investments in the Canary Islands, and imposes only
  expenses.                                                             those limitations stipulated in EU legislation. Investments in the
                                                                        peripheral islands are given preferential treatment by means of
• Advice and similar services.
                                                                        requiring a minimum level of investment lower than that
• Acquisition of the real estate necessary to implement the             established for the rest of Spain.
  projects.
                                                                        These efforts have led to the creation of the Canary Islands
4.2.6. Procedure                                                        Special Zone (“Zona Especial Canaria” or “ZEC”) which is aimed
                                                                        at attracting international capital and companies to the Canary
The documentation required is very similar to that described for        Islands, thereby contributing to economic and social progress in
regional State incentives and normally has to be filed with the         the Islands (see also Chapter 3).


                                                                                                                         Business in Spain
                                                                                                    Investment aid and incentives in Spain
                                                                                                                                       21
4. Incentives for investment in certain regions




Lastly, incentives aimed at upgrading and modernizing the                  pre-existing products and/or services or to enhancing the
banana and tomato growing and fishing-related industries are               marketing and promotion of products and services.
also available. Furthermore, under an EU initiative it is planned to
make subsidies available to facilitate the restructuring of the        • The subsidies provided are aimed at promoting and
fishing industry.                                                        strengthening projects aimed at providing SMEs with
                                                                         mechanisms for adapting to the competition brought about
                                                                         by the global market. For this purpose, financing is provided
5. SME INCENTIVES                                                        for joint actions performed by companies with a view to
                                                                         reaching cooperation agreements that improve their
                                                                         competitive position.
5.1. Plan for the consolidation and competitiveness of
     SMEs                                                              • Quality systems:

In recent years the Spanish Government and the Autonomous              • Subsidies are provided to promote projects that facilitate for
Community Governments have shown special interest in                     SMEs the implementation of standardization systems and the
promoting and developing SMEs, in view of their proven ability to        initiation of certification processes (ISO 9,000; ISO 14,000;
create jobs. In this connection, the Directorate-General for SME         UNE 175,000; tourism Q), by an officially accredited certifying
Policy of the Secretary General for Industry promotes the granting       entity.
of certain incentives and aid schemes designed especially for
SMEs, which are grouped together under the “Plan for the               Eligible expenses are:
Consolidation and Competitiveness of the Small and Medium-
Sized Enterprise (SME)” for 2000-2006.                                 • Investments in tangible and/or intangible assets, excluding
                                                                         the acquisition and refurbishment of real estate, furniture,
The action plans of established in the Plan for the Consolidation        office equipment (except computer equipment), and means
and Competitiveness of the SME are grouped into two types of             of transport. The maximum subsidy in this connection is
measure:                                                                 t50,000 (except for supraregional projects, where this limit
                                                                         will not apply).
a) The full integration of the SME into the Information Society.
                                                                       • Technical personnel expenses of the Intermediate Agencies
b) The incorporation of innovative business techniques.
                                                                         affiliated to the project.

For this purpose, it is intended to:                                   • External professional services (external expenses in respect of
                                                                         consulting and other services relating to the project).
• Take specific actions with the more direct participation of
  businessmen in the preparation and performance of the
                                                                       • Interurban travel and accommodation expenses of the
  projects.
                                                                         technical personnel expenses of the Intermediate Agencies
• Allocate aid to increase the competitiveness of companies              affiliated to the project.
  and, consequently, create employment and wealth.
                                                                       • Non-deductible VAT borne, or equivalent, pursuant to the
• Analyze projects that give rise to goods or services for SMEs.         “deductible proportion” rule established by the State Tax
                                                                         Agency.
The SME Plan establishes that the direct beneficiaries of the
subsidies, in each of the measures, are Intermediary Agencies so       In no case are the company’s normal operating expenses eligible.
that such agencies can promote projects with SMEs in various
different areas.
                                                                       In all cases the aid applies exclusively to expenses allocable to the
                                                                       project and in no case may financing exceed the total cost of the
Additionally, SMEs may be the direct beneficiaries of certain lines    project.
relating to Innovation in Business Techniques: Design,
Intercompany Cooperation Networks and Quality Systems.
                                                                       If the direct beneficiary is an SME, the ceilings on the subsidy will
• Design: The Plan provides subsidies to promote projects              be in line with the regional limits established by the European
  aimed at the incorporation, assimilation, or application of          Commission and set forth in Table 5, based on the map of
  design techniques at SMEs with a view to enhancing new or            regional aid approved for Spain.


Business in Spain
Investment aid and incentives in Spain
22
 Table 5

 REGIONAL LIMITS FOR SME AIDS: MAXIMUM INTENSITY OF AID (GROSS)


                                                                                  Maximum intensity of aid (gross)

           Type of action or project                    Unassisted regions              Art. 87.3 a) of the Treaty        Art. 87.3 c) of the Treaty
                                                                                           establishing the EC              establishing the EC

  Investments in tangible fixed and                                                        Ceiling on regional               Ceiling on regional
  intangible assets, with the exceptions                                                           aid                               aid
  provided for in Article 1.5 a) 1.                                                               +15%                              +10%

  — Small enterprises                                          15.0%
  — Medium-sized enterprises                                    7.5%


  Soft aid (study and assessment)                           Up to 50%                        Up to 50% (*)                      Up to 50%(*)

  (*) For amounts under t13,000, in terms of the subsidy, the intensity may exceed 50%. In this case the beneficiary enterprise is subject to the De
  Minimis Rule (Commission Regulation (EC) No. 69/2001 of January 12, 2001).




5.2. SME incentives granted by Autonomous Community                           “FONPYME” (Fund for SME foreign investment operations)
     Governments                                                              (www.fonpyme.es) offered by COFIDES (Compañía Española de
                                                                              Financiación del Desarrollo), the official Spanish agency for
It is the responsibility of the Autonomous Community                          development finance, which is explained in detail in section VI,
Governments to establish the rules governing these subsidies and              “Internationalization incentives.” “Línea PYME” provides
to open the period for accepting applications in the first quarter            preferential access to the official credit which has financed a large
of each year.                                                                 number of investments since its creation in 1993.

It is also their responsibility to process and decide on the
                                                                              In order to facilitate financing for SMEs, since 2000 ICO has been
applications for subsidies submitted to them and to pay the
                                                                              developing a specific line of financing with preferential terms to
subsidies pursuant to the terms of the Royal Decree of June 1,
                                                                              promote the investment projects of SMEs in Spain.
2001, establishing the system of managing the “Plan for the
Competitiveness of the Small and Medium-Sized Enterprise”.
                                                                              In 2006, t7,000 million have been made available to SMEs by
Lastly, they are also responsible for controlling and monitoring              ICO’s “Línea PYME” to finance up to 70% of their net investment
the projects approved, without prejudice to the control to be                 projects, and up to 80% for microcompanies, subject to a ceiling
exercised by the European Union and the relevant bodies of the                of t1.5 million per beneficiary and year, regardless of the
Central Government with respect to the projects financed with EU              number of transactions, and repayable over a period of 3, 5, 7 or
funds.                                                                        10 years, with or without a grace period.

5.3. ICO’s “Línea PYME”
                                                                              The entrepreneur may opt for a fixed interest rate referenced to
                                                                              ICO + 0.50 percentage points or a variable interest rate
In addition to the program outlined above, SMEs have access to
                                                                              referenced to 6M EURIBOR + 0.50 percentage points.
another series of aid instruments sponsored by the public sector.
Noteworthy in this connection are the “Línea PYME” offered by
ICO (Instituto de Crédito Oficial) (www.ico.es) and the                       These data conform to the features of the “Línea PYME” in 2006.


                                                                                                                                  Business in Spain
                                                                                                             Investment aid and incentives in Spain
                                                                                                                                                23
6. Internationalization incentives




6. INTERNATIONALIZATION INCENTIVES                                      7. EU AID AND INCENTIVES

Although it is not the aim of this publication to address incentives    EU aid focuses on depressed regions, normally in underdeveloped
for Spanish investment abroad, this section is included in view of      rural areas with low levels of income and high unemployment
the obvious interest that Spanish investment abroad has sparked         rates, and on regions with industries in crisis (steel, shipbuilding,
in foreign investors as a platform for international expansion. In      etc.).
this connection, it should be noted that the official financial
instruments approved by the Spanish government to support the
                                                                        Most of the EU incentives (specifically loans and subsidies)
internationalization of business are: PROINVEX (major foreign
                                                                        supplement development plans financed by the Spanish
investment program), FIEX (foreign investment fund, managed by
                                                                        Government. Such aid is routed through Spanish official
COFIDES), FONPYME (SME foreign operations fund, managed by
                                                                        institutions and finance entities, which act as intermediaries.
COFIDES), agreements for the conversion of debt into investment,
                                                                        Accordingly, the related applications for subsidies must be
and the Internationalization Line of the ICO and of the Ministry of
                                                                        addressed to such entities.
Economy and Finance. The most noteworthy for these purposes
are FIEX and FONPYME.
                                                                        The broad range of instruments at the EU’s disposal includes,
The purpose of FIEX is to foster the internationalization and foreign   most notably the following:
business activities of Spanish companies through short-term,
minority interests in the equity of companies located outside Spain.    7.1. European Investment Bank (EIB)
This Fund complements the investments made by the corresponding
Spanish company. COFIDES, as the Fund manager, may not take             Projects eligible for EIB support are basically those which promote
part in the operational management of the investee company.             the development of less favored regions and those of common
                                                                        interest to several Member States or benefiting the EU as a
Only in exceptional circumstances may the Ministry resolve to           whole, such as environmental protection, improved use of energy
acquire a majority holding or authorize the Fund manager to take        resources, improved industrial competitiveness in the EU, the
over the operational management of the foreign company.                 development of SMEs and improved European transport and
                                                                        telecommunications infrastructure. Additionally, projects aiming
The initial fund provision, established in Law 66/1997, was t60         at extending and modernizing infrastructure in the health and
million. This provision has been subsequently increased and             education sectors may also qualify for EIB support.
currently stands at t570 million. From the commencement of its
activity up to December 31, 2004, FIEX has approved 30 projects
                                                                        At the Lisbon European Council in March 2000, the European
for a total amount of almost t400 million.
                                                                        Union established the strategic objective of creating, prior to
                                                                        2010, a competitive economy based on knowledge, capable of
The FIEX provision will be increased by t90,151.82 in 2006. The         sustained economic growth with more and better jobs and
Foreign Investment Fund Executive Committee may approve                 greater social cohesion.
transactions of up to t140,000 in 2006.

                                                                        With this aim, the EU program ”Innovation 2010 Initiative” was
FONPYME is intended to foster, through short-term minority interests
                                                                        created, under which the governing bodies of the EIB have
in the capital of companies located abroad or through other
                                                                        approved a number of measures to facilitate the financing of
investment vehicles, the internationalization and foreign
                                                                        projects in the following four strategic areas:
investments of Spanish SMEs. The Fund therefore makes the
investment in the foreign company on a joint basis with the SME         • Research, development and innovation.
concerned. COFIDES cannot, except in exceptional cases, take part in
the operational management of the foreign company in which the          • Human capital training.
Fund has an ownership interest, or acquire a majority holding in it.
                                                                        • Dissemination of technologies and development of
The initial fund provision was t3 million. This provision has been        information and communication technology.
subsequently increased and currently stands at t45 million.
From the commencement of its activity up to December 31,                • Fostering of the business spirit.
2004, FONPYME has granted financing to 21 projects for a total
amount of approximately t12 million.                                    The EIB offers two types of loans:


Business in Spain
Investment aid and incentives in Spain
24
7.1.1. Global loans                                                    The main characteristics of these loans are as follows:

                                                                       • Coverage of up to 50% of the total investment costs.
Global loans are similar to credit lines granted to financial
institutions, which lend the proceeds for small or medium-scale        • Publicor private-sector projects carried out mainly in
investment projects meeting the EIB’s criteria.                          infrastructure and the industrial sector for a minimum
                                                                         amount of t25 million.
This is the main type of support offered to SMEs by the EIB. It is
provided by granting loans to intermediary banks, which in turn,       • Long-term loans, with repayment periods of between 5 and
provide funding for small and medium-scale business initiatives.         12 years for industrial projects, and between 15 and 20 years
                                                                         for infrastructure projects, although the repayment period
The loans are granted by the EIB to banks in all the Member              may be extended in special cases.
States, which act as intermediaries. These financial                   • Grace period: depends on the nature of the project, usually
intermediaries conduct an analysis of the investment, and of the         up to five years.
economic, technical and financial viability of each of the projects.
They are responsible for granting the loans for small and              • In granting these loans, the EIB requires first-class security.
medium-scale investments and for the administration of such
loans.                                                                 Applications must be filed directly with the EIB.

Specifically in Spain, global loans are routed mainly through          Once finance has been provided for the project, its progress is
Instituto de Crédito Oficial (ICO), Banco Bilbao-Vizcaya Argentaria,   monitored regularly in order to ensure compliance with the aims
(BBVA), Banco Español de Crédito, Santander Central Hispano            of the EIB’s financing decision.
(SCH) and Banco Popular.
                                                                       The EIB does not directly grant interest relief, although this may
There are many different types of loans and credits, with varying      be financed by third-party institutions.
maturities, amounts and interest rates, but their general terms
can be summarized as follows:
                                                                       EIB loans are compatible with aid from other EU agencies, up to a
• Coverage of up to 50% of the overall investment costs.               limit of 90% of the investment.

• Grace period: up to three years.
                                                                       7.2. European Investment Fund (EIF)
• Repayment period: between 4 and 12 years for industrial
  projects, and up to 20 years for infrastructure and energy           The EIF was created for the dual purpose of fostering the
  projects.                                                            development of trans-European networks in the transport,
                                                                       telecommunications and energy industries and of promoting the
• Eligible companies: those with fewer than 500 employees
                                                                       development of SMEs.
  and net fixed assets not exceeding t60,101,210 before the
  project. Over one third of the capital of eligible companies
                                                                       The Fund operates in two ways:
  must not be held by a large company.

• The amount awarded under a global loan ranges from                   • By providing guarantees for loans of all kinds.
  t20,000 to t12.5 million.                                            • By temporarily acquiring and managing minority holdings in
• Free of fees and other charges, except for minor                       companies involved in deploying Trans-European networks.
  administrative expenses.
                                                                       The EIF finances, among others, the following mechanisms:
They must be applied for through an intermediary financial
                                                                       • The SME Guarantee Mechanism, aiming at creating jobs
institution.
                                                                         through the granting of loans and financial support to
                                                                         innovative SMEs.
7.1.2. Individual loans
                                                                       • The European Technology Mechanism aiming at fostering
The European Investment Bank grants individual loans directly to         employment for the establishment and growth of innovative
investors or through financial intermediaries for projects of over       SMEs through short-term investments in venture capital funds
t25 million.                                                             operating in the EU.


                                                                                                                         Business in Spain
                                                                                                    Investment aid and incentives in Spain
                                                                                                                                       25
7. EU aid and incentives




On December 20, 2000, the Council of the European Union                 The remaining 6% will be used to finance innovation and
approved the new multiannual Programme for Enterprises,                 technical assistance projects, as well as other Community
covering the period 2001-2005. This Programme devoted to                initiatives.
SMEs foresees the development of the existing European
Commission instruments managed by the EIF. In this sense, the           The Community initiatives selected for promotion during the
SMEs guarantee activity of the EIF will be extended during the          period 2000-2006 are as follows:
whole period of the Program.
                                                                        • INTERREG III: program of cross-border, transnational and inter
Notwithstanding the foregoing, by way of the Decision of the              regional cooperation to promote the harmonious and
European Parliament and of the Council, of September 28, 2005,            balanced development and organization of European
the period of validity of the multiannual Programme for                   territory.
Enterprises has been extended until December 31, 2006,
increasing the financial reference amount by t88,500,000.               • LEADER +: the objective of the program is to promote rural
                                                                          development by means of integrated development programs
7.3. Structural funds                                                     and cooperation with local action groups.

                                                                        • EQUAL: program that promotes transnational cooperation to
Structural funds, which are the biggest item of EU expenditure,
                                                                          foster new practices to eliminate all forms of discrimination
are used to finance initiatives (either public or private) to achieve
                                                                          and inequality as regards access to the labor market.
structural improvements in the Member States and thus narrow
the gap between the most prosperous and the poorest regions in          • URBAN: the objective of this initiative is to promote the
the EU.                                                                   economic and social rehabilitation of cities and
                                                                          neighborhoods in crisis, in order to foster sustainable urban
Seven new Regulations governing the structural funds from 2000            development.
to 2006 were issued in June and July 1999. The structural funds
for this period will continue to support programs in the 15
                                                                        The contribution of the funds to projects in Spain will be subject
Member States but most of the programs will focus on the
                                                                        to the following limits:
regions which need the most aid.
                                                                        • With respect to Objective I, the percentage financed by the
As proposed by the Commission, the European Council decided to            structural funds may not exceed 75% of the total cost.
reduce to three the number of priority objectives of the structural       However, since Spain will be a beneficiary of the Cohesion
funds, in accordance with the simplification and concentration of         Fund during the 2000-2006 period, the ceiling may be raised
structural actions:                                                       to 80%. If the investments are made by companies, the limit
• The new Objective 1 will promote the development and                    is reduced to 35% of the total cost.
  structural adjustment of regions whose development is
                                                                        • An upper limit of 50% of the cost is established for other
  lagging behind, i.e. those whose per capita GDP is less than
                                                                          projects. In the case of investments in companies, and with
  75% of the Community average.
                                                                          respect to the Objective 2 area, the ceiling is set at 15% of the
• The new Objective 2 will support the economic and social                total cost.
  conversion of areas facing structural difficulties. A maximum
  of 18% of the population of the EU will be covered by this            However, the aforementioned limits may be increased by a
  Objective.                                                            maximum of 10% in cases in which sources of financing other
                                                                        than direct aid are used.
• The new Objective 3 will support the adaptation and
  modernization of policies and systems of education, training
  and employment.                                                       Detailed management of programs co-financed by the Structural
                                                                        Funds is the responsibility of each Member State. Member States
t195 million will be allocated to the funds for the period 2000 to      designate a “management authority” for each program (at
2006, the breakdown by objective being as follows:                      national, regional or other level) to inform possible beneficiaries,
                                                                        select projects, and monitor progress in general.
• Objective 1: 69.7%.
• Objective 2: 11.5%.                                                   The EU’s structural funds, for which practically all of Spain
• Objective 3: 12.3%.                                                   qualifies, are the following:


Business in Spain
Investment aid and incentives in Spain
26
7.3.1. European Social Fund (ESF)                                     7.3.2. European Agricultural Guidance and Guarantee
                                                                             Fund (EAGGF)
The ESF aims to support measures to prevent and combat
                                                                      The objective of this program is to establish a Community
unemployment and to develop human resources and social
                                                                      framework of support for sustainable rural development. In this
integration in the labor market in order to promote a high level of
                                                                      connection, a number of measures have been introduced which
employment, equality between men and women, sustainable
                                                                      focus on the reconversion of agricultural activities and could
development and social and economic cohesion.
                                                                      involve, for example, the improvement of farm structures, the
                                                                      processing and marketing of produce, the introduction of new
The financial support of the ESF mainly takes the form of             technologies, the promotion of non-food production, the creation
assistance to persons and is devoted to the following activities to   and maintenance of jobs in agriculture.
develop human resources:
                                                                      The total value of the subsidies, expressed as a percentage of the
• Education and vocational training.                                  volume of eligible investments, is limited to a maximum of 40%
                                                                      and, in disadvantaged regions, to 50%. In the case of investments
• Employment aids and aids for self-employment.                       made by young farmers, the percentages may increase to 45%
                                                                      and 55%, respectively.
• In the fields of research, scientific and technological
  development, post-graduate training and the training of             Eligible investments are those which contribute to the
  managers and technicians at research establishments and in          improvement of the situation in the basic agricultural production
  enterprises.                                                        industry, the viability of which can be demonstrated and which
                                                                      meet the minimum requirements relating to the environment,
• Development of new sources of employment, including the             hygiene and animal husbandry.
  social economy.
                                                                      Apart from the program described above, through this Fund, aid
                                                                      is provided for other rural development measures such as
Furthermore, ESF will contribute to the Community’s initiative to
                                                                      investments in agricultural holdings, aid for young farmers,
combat all forms of discriminations and inequalities in
                                                                      training, fostering of agri-environment, forestry investments and
connection with the labor market (EQUAL). The proposed
                                                                      promoting the adaptation and development of rural areas.
strategies supported by the fund are in line with the European
Strategy Programme for Employment and with the Spanish
                                                                      Different requirements are established for each specific program
National Employment Plan.
                                                                      for the granting of this kind of assistance.

The ESF does not provide credit directly to companies, but rather     Applications must be filed with the Autonomous Community in
funds official agencies and not for profit entities that draw up      which the investment is going to be made.
plans in accordance with their objectives.
                                                                      7.3.3. European Regional Development Fund (ERDF)
The aid provided by the ESF takes the form of project co-financing
                                                                      The ERDF is intended to help redress the main regional
and, therefore, the involvement of an official agency is required.
                                                                      imbalances in the EU by contributing to the reduction of the gap
ESF subsidies (mostly nonrefundable) normally amount to 50% of
                                                                      between the levels of development of the various regions,
the project cost.
                                                                      including rural areas.

However, they cannot exceed the financial aid granted by the          The ERDF promotes regional actions that contribute to:
related public bodies of the Member State for the same project at
                                                                      • Investments in infrastructure which
State, regional or local level.
                                                                      • in the less prosperous regions, help to increase the economic
                                                                        potential, development, structural adjustment and creation
The application must be made to the relevant agencies of the
                                                                        and maintenance of sustainable jobs in those regions,
Autonomous Communities or to the Ministry of Labor and Social
Affairs (specifically to the European Social Fund Administrative      • support the diversification of economic sites and industrial
Unit).                                                                  areas in crisis or the renewal of depressed urban areas and


                                                                                                                      Business in Spain
                                                                                                 Investment aid and incentives in Spain
                                                                                                                                    27
7. EU aid and incentives




   the revitalization of rural areas and areas depending on         The new EU Regulation governing the Cohesion Fund for the
   fishing.                                                         period 2000-2006 establishes a new mechanism which enables
                                                                    the Commission to inform the Council if a Member State does not
• Productive investments to create and safeguard sustainable        meet the obligations relating to budget deficit arising from the
  jobs.                                                             program for stability and convergence.
• The development of the indigenous potential of the regions
  by measures which encourage and support local development         7.3.5. Financial Instrument for Fisheries Guidance (FIFG)
  and employment initiatives and the activities of SMEs.
                                                                    This instrument is aimed at structural actions carried out in the
This aid must always be requested from the Spanish Central          fisheries and aquaculture sector, and the processing and
Government or the competent regional development agencies in        marketing of their products. The areas which may receive
each Member State.                                                  assistance under this financial instrument are, among others:

                                                                    • Fleet renewal and modernization of fishing vessels.
The inclusion of ERDF incentives in Member State programs
means that the types of projects, requirements and priorities,      • Small-scale coastal fishing.
procedural formalities and methods of quantifying financial aid
are those established by the national governments through their     • Aquaculture.
regional policy agencies.
                                                                    • Processing and marketing of fishery and aquaculture
7.3.4. Cohesion Fund                                                  products.

                                                                    • Promotion and search of new commercial channels.
The European Union is dedicated to fostering economic and
social cohesion: it has set itself the objective of promoting
                                                                    • Innovative actions and technical assistance.
economic and social progress and of gradually removing
differences in standards of living.
                                                                    7.4. Research and Development Programs

In this regard, the advent of the Euro has strengthened the need    The EU has established multi-year programs defining the lines of
for a higher degree of convergence between the economies and        action and research, and has assigned resources for executing
economic policies of the participating Member States.               these programs. The Program currently in force and operating
                                                                    since January 1, 2003, is the Sixth Framework Programme of the
The Cohesion Fund finances projects relating to the environment     European Community for Research, Technological Development
and Trans-European transport networks in Member States whose        and Demonstration Activities, which is structured in five specific
GDP is less than 90% of the Community average.                      programs:

                                                                    • Integration and strengthening of the European Research
For the period 2000-2006, the European Council has allocated
                                                                      Area, including priority issues;
t18,000 million to the Cohesion Fund.
                                                                    • Structuring of the European Research Area;
In this regard, Spain, Greece, Portugal and Ireland will continue
                                                                    • Activities of the Common Research Center;
to be beneficiaries of the Cohesion Fund in the period 2000-
2006 because their GNP continues to be below the                    • Nuclear energy;
aforementioned margin. The funds allocated to Spain in this
                                                                    • Activities of the Common Research Center (Euratom).
period were 63.5% of the total, based on population, per capita
GNP, improved prosperity in the previous period and surface area.
                                                                    The main lines of the project are:

The granting of the amounts allocated to each eligible Member
                                                                    • Areas of action
State (including Spain) and the financing of new projects with
such amounts are subject to the fulfillment by said                    This program consists of three main areas of action:

                                                                       1)   Community research concentration and integration.
Member State of certain requisites regarding the containment of
public spending.                                                       2) Structuring of the European Research Area (ERA).


Business in Spain
Investment aid and incentives in Spain
28
   3) Strengthening of the bases of the European Research           Table 6
      Area.
                                                                    PRIORITY THEMATIC FIELDS
• Participants
                                                                                                                    Budget in millions t
   The following may participate in the Sixth Framework
   Programme:
                                                                    Life, genomic and biotechnology                        2,255
   1)   Any legal entity established in a Member State.             sciences applied to health
   2) Any legal entity established in an associate State, in
      direct actions upon the same conditions and with the          Information society technologies                       3,625
      same rights as a legal entity established in a Member
      State.                                                        Nanotechnologies, multi-functional                     1,300
   3) Any international organization or European interest may       and new production procedures
      participate in indirect actions upon the same conditions
      and with the same rights and obligations as a legal entity    Aeronautics and space                                   1,075
      established in a member State.

   4) Any legal entity established in a third country, even when    Food quality and safety                                   685
      in this case its participation will be limited to certain
      activities included in the action “Community Research         Sustainable development, planetary                     2,120
      concentration and integration”, or to the terms of the        change and ecosystems
      prior agreement for scientific and technical cooperation
      between the third country and the Community.
                                                                    Citizens and governance in a                              225
   Set forth below is a table showing the possibilities of          knowledge-based society
   participating in the Framework Programme and the financial
   contribution of the EU according to the country where the        TOTAL                                                 11,285
   participant is established:

• Initial budget
                                                                      Call for proposals for support projects and activities in the
   The proposed budget is 17,500 million euros, including 16,270      area of security (closing date: May 10, 2006).
   million for the part of the European Community (EC) and
   1,230 million for the EURATOM part. Most of this budget will       Call for proposals for the Socrates Program: Education studies
   go to the priority thematic fields described below:                (closing date: April 18, 2006).

                                                                      Call for projects by the ITEA2 (information technology for
• Priority thematic fields (Table 6).
                                                                      European advancement) group (closing date: April 7, 2006).

• Calls.                                                              Call by the Directorate-General for Research of the European
                                                                      Commission for the supply of the European manual on
   Applications will be filed in the scope of the calls for
                                                                      research ethics (closing date: March 9, 2006).
   applications, published in the OJ, which may be preceded by
   declarations of interest.                                          Call by ERA-NET EUROTRANS-BIO in relation to cross-border
   The following calls are now open (with application filing date     collaborative research projects initiated by SMEs in the area of
   after January 2006):                                               biotechnology (closing date: February 28, 2006).

   Call for proposals to encourage the participation of non-EU        Call for proposals for Marie Curie training courses and
   countries in projects under the Sixth Framework Program            conferences (closing date: May 17, 2006).
   (closing date: May 16, 2006).
                                                                      Call by the Galileo Joint Undertaking regarding research and
   Call for proposals to organize the “2006 Researchers’              development services and related consulting services (closing
   Evening” (closing date: April 11, 2006).                           date: February 24, 2006).


                                                                                                                    Business in Spain
                                                                                               Investment aid and incentives in Spain
                                                                                                                                  29
7. EU aid and incentives




 Table 7

 SIXTH FRAMEWORK PROGRAMME FOR RESEARCH, TECHNOLOGICAL DEVELOPMENT AND
 RESTRUCTURING ACTIVITIES

    Country in which the participant is established                     Participation                           Financial contribution by the Community



  EU Member States, (CCI Common                       No restriction                                      No restriction
  center for Research) (1)

  Associated Candidate States (2)                     No restriction                                      No restriction

  Other Associated States (3)                         No restriction                                      No restriction

  International Organizations of                      No restriction                                      No restriction
  European Interest

  Russia, New Independent States,                     No restriction but the rules of    Within the limits of the available
  Mediterranean Countries, Southwest                  minimum composition of consortiums budget for international cooperation
  of the Balkans, Developing countries                should be observed                 activities within the context f
  (with or without a cooperation                                                         thematic priorities
  agreement)

  Third countries with a cooperation                  No restriction but the rules of    If the contribution of the Community
  agreement (4)                                       minimum composition of consortiums is necessary and it is contemplated
                                                      should be observed                 in the Work Program

  Other third countries                               If the participation is forecast or if it is        If the contribution of the Community
                                                      necessary to perform the project                    is contemplated or if it is essential to
                                                                                                          perform the project

  Other international organizations                   No restriction but the rules of    If the contribution of the Community
                                                      minimum composition of consortiums is necessary and it is contemplated
                                                      should be observed                 in the Work Program

  (1) Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain, Sweden, United
  Kingdom, Czech Republic, Estonia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Slovenia and Slovakia.
  (2) Envisaged (the association with the Sixth Framework Programme is not yet in force with any country; therefore, the final list may change):
  Bulgaria, Romania and Turkey.
  (3) Envisaged (the association with the Sixth Framework Programme is not yet in force with any country; therefore, the final list may change):
  Iceland, Israel, Liechtenstein, Norway, Switzerland.
  (4) Argentina, Australia, Brazil, Canada, China, Chile, U.S.A., India, Japan, Kazakhstan, Russia, South Africa, Ukraine; nevertheless this list is not
  closed.




Business in Spain
Investment aid and incentives in Spain
30
Table 8

WHAT DOES THE SIXTH FRAMEWORK PROGRAMME FINANCET

          Type of instrument                             RDT actions                                    Contribution of the community (1) (2)



Excellence networks                 — Priority thematic fields                              Aid to integration: maximum 25% of the
                                    — Support to policies and forecast of                   value of the capacity and the resources
                                      scientific and technological needs                    proposed by the participants for the
                                                                                            integration, as a fixed amount to support the
                                                                                            common activities program (3)

Integrated projects                 — Priority thematic fields                              Aid to the budget of a maximum of:
                                    — Support to policies and forecast of                   — 50% for research
                                      scientific and technological needs                    — 35% for demonstration
                                                                                            — 100% for certain other activities such as
                                                                                                researcher training and consortium
                                                                                                management, (4), (5)

Specific focused research           — Priority thematic fields             Aid to the budget of a maximum of 50% of
or innovation projects              — Support to policies and forecast of  the budget (3)
                                      scientific and technological needs
                                    — Specific international cooperation
                                      actions
                                    — Fostering of interaction of research
                                      and innovation
                                    — Development of harmonious relations
                                      between science and society


Participation in programs           All the activities of the Framework                     It will be defined in subsequent decisions
undertaken by various               Programme                                               adopted under Art. 169
member States (Art. 169)

Specific research projects          Specific research activities for SMEs                   Aid to the budget of a maximum of 50% of
for SMEs                                                                                    the budget (3)

(1) Budget means financial plan in which all the resources and expenses necessary for the action are calculated.
(2) As a general principle, the financial contribution of the Community may not cover 100% of the expenses of indirect actions, except for those
proposals that include purchase prices regulated by the provisions applicable to public procurement procedures or that adopt the form of a
predefined lump sum previously established by the Commission.
(3) This percentage is variable according to the scopes.
(4) Without prejudice to certain specific conditions, some specific entities, particularly public agencies, will receive a maximum financing of 100%
of their additional or marginal costs.
(5) The percentages of aid may differ according to the provisions of the community scope for state aids to research and development, depending
on whether the actions are related to research (50% as a maximum) or demonstration (35% as a maximum) or other actions performed such as
researcher training (100% as a maximum) or consortium management (100% as a maximum).
(6) For actions of support to the research infrastructures related to preparatory technical work (including feasibility reports) and the creation of
new infrastructures, the participation of the VI FP is limited to a maximum of 50% and 10% of the budget, respectively.




                                                                                                                                Business in Spain
                                                                                                           Investment aid and incentives in Spain
                                                                                                                                              31
7. EU aid and incentives




 Table 8

 WHAT DOES THE SIXTH FRAMEWORK PROGRAMME FINANCET

           Type of instrument                            RDT actions                                    Contribution of the community (1) (2)



  Human resources and                 Promotion of human resources and                    Aid to the budget of a maximum of 100% of the
  mobility fostering and              mobility                                            budget (3), as the case may be as a lump sum
  development actions

  Coordination actions                In all the activities of the framework              Aid to the budget of a maximum of 100% of
                                      program                                             budget (3)

  Specific support actions            In all the activities of the framework              Aid to the budget of a maximum of 100% of the
                                      program                                             budget (3), (6), as the case may be as a lump
                                                                                          sum

  Integrated infrastructure           Aid to research infrastructures                     Aid to the budget: depending n the type of
  initiatives                                                                             activity, as a maximum of 50% to 100% of the
                                                                                          budget (3), (4), (7)

  Direct actions                      Non-nuclear activities of the “Centro               100% (8)
                                      Común de Investigación” (CCI –
                                      Common Research Center)

  (7) The activities of the integrated initiatives related to the infrastructure should include a network activity (coordination action: as a maximum
  100% of the budget) and at least one of the following activities: research activities (50% as a maximum) or specific service activities (specific
  support action, for example, transnational access to research infrastructures: as maximum 100% of the budget).
  (8) Also the CCI may participate in indirect actions in the same conditions as the entities established in the member States.




7.5. EU initiatives to favor business financing                               creating a mutual guarantee company over a maximum period
                                                                              of three years.
The Enterprise General Directorate of the European Commission
has adopted certain initiatives aimed at facilitating access to               Applications should be remitted directly to the Commission.
financing for European SMEs.
                                                                              7.5.2. I-TEC
The main European Community initiatives in this regard are:

7.5.1. Mutual guarantee companies                                             I-TEC is part of the European Commission’s Innovation Program
                                                                              and was launched on July 1, 1997, in collaboration with the
Mutual guarantee companies consist of groups of companies,                    European Investment Fund, to encourage investments in
frequently linked to specific-interest sectors or groups, which offer         technologically innovative SMEs.
guarantees to banks to encourage the financing of SMEs. They
also provide specialized counseling and issue reports on the                  The Commission offers participation in venture capital programs
feasibility of projects.                                                      to recently formed SMEs through investments in specialized
                                                                              venture capital funds. The funds supported by the Commission
The Commission finances 50% of the cost of feasibility studies                undertake to invest in SMEs which are not more than three years
over a maximum period of one year and 50% of the cost of                      old and which are technologically innovative with high growth


Business in Spain
Investment aid and incentives in Spain
32
potential. I-TEC has a budget of t7.5 million, and since 1997 has         As a very general, non-exhaustive guideline, the situation in
had the collaboration of 28 investment funds.                             relation to compatibility is as follows:

The funds must invest at least 25% of the new capital raised in
                                                                          8.1. General State incentives
newly formed technologically innovative SMEs. Investments must
be made in at least five different companies.
                                                                          8.1.1. Training
The Commission finances up to 50% of the operating costs of the
funds, up to a maximum of 5% of the investments effectively               In principle, there are no incompatibilities with other types of aid.
made, with a maximum of t500,000. The Fund will operate in
the EU or its associate countries (i.e., Iceland, Israel, Liechtenstein   8.1.2. Employment
and Norway).
                                                                          In principle, there are no incompatibilities with other types of aid.
Although, in principle, the I-TEC program remains in force in             However, taken in conjunction with other incentives, they cannot
2005, it has not included any new investment funds for the                exceed 60% of the social security cost of each contract created
program since 1998.                                                       under these programs.

7.5.3. Gate Growth initiative
                                                                          8.2. State incentives for specific industries

The Gate Growth initiative is aimed at supporting innovative
                                                                          These incentives are compatible with the other types of aid, but
entrepreneurs who wish to develop networks and exchange
                                                                          they cannot exceed (in terms of net subsidy) the limits set by the
experience and best practices with universities, research centers,
                                                                          EU for incentives in certain areas.
etc.

7.5.4. Finance for Innovative Technology (FIT) program                    8.3. Incentives for investments in certain regions

The objective of the FIT initiative is to strengthen links between        8.3.1. Granted by the State (ZPE-ZED)
innovative companies and the financial sector. FIT actions are
currently focused on following areas, in which financiers,                In principle, no project will receive additional financial or industry
innovators and technology sources can interact: (i) guarantee             subsidies (of any nature or from any granting agency) if the
mechanisms and their role in the financing of innovative                  maximum percentages stated in each Decree are exceeded, since
businesses, (ii) the use of technology and systems in financial           both types of aid are combined with the regional aid when
decision-making, (iii) the development of networks of experts in          computing the related ceilings. If these internal limits are
financial innovation, and (iv) the start-up of businesses, etc.           exceeded under an EU provision (see above) they must respect
                                                                          the related EU ceilings.
7.5.5. Technology Performance Financing (TIFF) program
                                                                          8.3.2. Granted by the Autonomous Community and
The Technology Performance Financing program supports SME                        Municipal Governments and Local Councils
projects in technological matters, urging commercial banks to get
involved in the financing of this type of projects.                       The general limit applicable to regional and industry financial aid
                                                                          also covers these incentives.

8. COMPATIBILITY
                                                                          8.4. EU aid and incentives
As a general rule, the compatibility of these different incentives
depends on the specific regulations governing each of them,               These are, in principle, compatible with other types of aid, with
some of which identify certain incompatibilities (either absolute         the specific limitations described above.
or up to certain limits), whereas others make no reference to this
point and, therefore, it is assumed that theoretically there is no        In fact, EU funds habitually finance many of the incentives
incompatibility.                                                          (industrial and regional) described in previous sections.


                                                                                                                            Business in Spain
                                                                                                       Investment aid and incentives in Spain
                                                                                                                                          33
8. Compatibility




 Table 9

 SUMMARY: INVESTMENT AID AND INCENTIVES

   Level of grant         Where to apply          When to apply          How to apply               On-line information


                                                                  EU

  EIB               EIB Spanish                 No specific rules. Ask                   http://www.eib.org/
                    intermediary entities                          intermediaries
                    (banks, etc.).

  EIF               EIB, Spanish                No specific rules. Ask                   http://europa.eu.int/scadplus/leg/es
                    intermediary entities                          intermediaries        /lvb/n26006.htm

  ERDF              Autonomous                  Depends on             Depends on        http://ec.europa.eu/comm/regional
                    Community                   national Rules         national Rules    _policy/index_es.htm
                    Governments. Ministry
                    of Economy and
                    Treasury General
                    Directorate of Regional
                    Incentives. Other
                    granting agencies.

  ESF               Provincial Offices of the   Depends on             See Regulation    http://europa.eu.int/scadplus/leg/
                    Ministry of Labor.          each program           1784/1999         es/lvb/l60016.htm
                    Government of the                                                    http://www.mtas.es/UAFSE/
                    Autonomous                                                           default.htm
                    Community in which
                    investment will be
                    located.

  EAGGF             Government of the           Depends on             See Regulation    http://europa.eu.int/scadplus/leg/es
                    Autonomous                  each program.          1257/1999         /lvb/l60024.htm
                    Community in which
                    investment will be
                    located.

  FIFG              Autonomous              Depends on                 Depends on        http://europa.eu.int/scadplus/leg/es
                    Communities             national Rules             national Rules    /lvb/l60017.htm
                    Governments Ministry of
                    Agriculture, Fisheries
                    and Food.

  R&D+I             European Commission         See regulations        See regulations   http://europa.eu.int/scadplus/leg/es
  PROGRAMS          General Directorate of      for each               for each          /lvb/i23012.htm
                    Science, Research and       program.               program.
                    Development.


Business in Spain
Investment aid and incentives in Spain
34
Table 9

SUMMARY: INVESTMENT AID AND INCENTIVES

  Level of grant           Where to apply        When to apply                 How to apply               On-line information



                                                                 STATE

REGIONAL           Autonomous                  No specific rules. Application+                   http://www.igae.meh.es
(ZPE-ZED)          Communities                                    memorandum +
                   Governments                                    supporting
                   (Managing Office).                             documentation

LABOR              National Employment       No specific rules. Depends on type of aid. http://www.inem.es
INCENTIVES         Institute (INEM). General                                            http://www.mtas.es
                   Directorate of Labor.
                   Foundation for Ongoing
                   Training.

AGRICULTURE        Autonomous                  No specific rules. Depends on specific            http://www.mapa.es
AND FISHING        Communities                                    rules.
                   Governments.

SMEs AID on        Autonomous                  No specific rules. Depends on specific            http://www.ipyme.org
PROGRAM            Communities                                    rules.                         http://www.ico.es
                   Governments. Instituto
                   de Crédito Oficial (ICO).
                   Compañía Española
                   para la Financiación del
                   Desarrollo (COFIDES).

MINING             Ministry of Industry,       No specific rules. Depends on specific            http://www.mityc.es
                   Tourism and Trade.                             rules.

ENERGY             AIDE.                       Depends on                Depends on calls.       http://www.idae.es
                                               calls.                                            http://www.ico.es

R&D                Ministry of Industry,       Depends on                Depends on calls.       http://www.mecd.es
                   Tourism and Trade.          calls.                                            http://www.ico.es
                                                                                                 http://www.cdti.es

AUDIOVISUAL ICAA/ICO.                          Depends on                Depends on calls.       http://www.mcu.es
INDUSTRY                                       calls.                                            http://www.ico.es

OTHER              General Directorates of     Normally, no              Depends on type of aid. http://www.map.es/enlaces
                   the different Ministries.   specific rules.


                                                                                                                   Business in Spain
                                                                                              Investment aid and incentives in Spain
                                                                                                                                 35
8. Compatibility




 Table 9

 SUMMARY: INVESTMENT AID AND INCENTIVES

   Level of grant             Where to apply              When to apply                 How to apply                On-line information


                       AUTONOMOUS COMMUNITY AND, MUNICIPAL GOVERNMENTS AND LOCAL COUNCILS

  REGIONAL,            “Consumerist”                    Depends on            Depends on specific            http://www.map.es/enlaces
  INDUSTRY             (Departments) of the             specific rules.       rules; however, very
  AND LABOR            Autonomous                                             similar to State
                       Community                                              incentives: application
                       Governments“                                           + memorandum +
                       Concejalías”.                                          supporting
                       (Departments)of Local                                  documentation.
                       Councils

  Loans with           Up to 50% of the project Varies greatly                Bank of Local Credit.          http://www.eib.org/
  low interest         cost (75% for Trans-     depending on                  EIB.                           http://www.bcl.es/BCL/tlwcin
  and long             European networks).      project.                                                     dex.htm
  maturities           Available as cofinancing
  and grace            with national funds.
  periods.

                         Maximum limits for subsidies     Effective amounts
   Main types of aid                                                                 More information from          On-line information
                                and loans                      granted


  Guarantees,          See comments in the              See comments          EIB.                           http://www.eib.org/
  venture              corresponding                    in the
  capital.             paragraphs.                      corresponding
                                                        paragraphs.

  Subsidies,           Up to 80% of the project Between 15%                   Ministry of Economy. EU http://www.minhac.es/
  preferential         cost. Available as       and 30% of                    Commission, DG XVI.     http://europa.eu.int
  access to            cofinancing with         project cost.
  official credit,     national funds.
  tax benefits.

  Subsidies.           Up to 80% of the project 50% of project                Ministry of Labor.             http://www.mtas.es/
                       cost. Available as       cost.
                       cofinancing with
                       national funds.

  Subsidies.           Up to 50% of the project Between 25%                   Ministry of Agriculture.       http://www.mapa.es/
                       cost. Available as       and 50% of                    General Directorate of         http://europa.eu.int
                       cofinancing with         project cost.                 Agriculture of EU
                       national funds.                                        Commission.


Business in Spain
Investment aid and incentives in Spain
36
Table 9

SUMMARY: INVESTMENT AID AND INCENTIVES

                     Maximum limits for subsidies   Effective amounts granted
Main types of aid                                                                  More information from              On-line information
                            and loans


Subsidies,       See comments in the                  Depends on                Ministry of Agriculture.      http://www.mapa.es/
preferential     corresponding                        national rules.           General Directorate of        http://europa.eu.int
access to        paragraphs.                                                    Agriculture of EU
official credit.                                                                Commission.

Subsidies.          Up to 100% of the          50% of project                   General Directorate of        http://www.cdti.es/
                    project cost. Available as cost.                            Science, Research and         http://europa.eu.int
                    cofinancing with                                            Development of the EU
                    national funds.                                             Commission. Centre for
                                                                                the Development of
                                                                                Industrial Technology
                                                                                (CDTI)

Subsidies.          Up to 60% of the cost of          Normally                  Autonomous                    http://www.map.es/enlaces
                    the project.                      between 30%               Community                     http://www.minhac.es/
                                                      and 40% of the            Governments. Ministry
                                                      maximum limit.            of Economy. General
                                                                                Subdirectorate of
                                                                                Regional Incentives.


Reduction of Depend on type of                        The maximum               INEM/”Consejerías”            http://www.inem.es/
social security subsidy.                              amount.                   (Departments) of the          http://www.map.es/enlaces
costs,                                                                          Autonomous                    http://www.mtas.es/
assistance to                                                                   Community
and training                                                                    Governments General
of employees.                                                                   Directorate of Labor.


Low interest        Up to 90% of the project Between 30%                        Banco de Crédito              http://www.mapa.es/
loans.              cost.                    and 50%.                           Agrícola. Ministry of
                                                                                Agriculture, General-
                                                                                Secretariat of Rural
                                                                                Development and
                                                                                Conservation of
                                                                                Nature.

Subsidies           Depends on type.                   Depends on               Office of Secretary of        http://www.ipyme.org
and low-                                              type.                     State For the Economy.
interest
loans.


                                                                                                                                Business in Spain
                                                                                                           Investment aid and incentives in Spain
                                                                                                                                              37
8. Compatibility




 Table 9

 SUMMARY: INVESTMENT AID AND INCENTIVES

                        Maximum limits for subsidies   Effective amounts
   Main types of aid                                                            More information from               On-line information
                               and loans                    granted



  Subsidies.           Up to 60% of the project Up to 20% of Office of Secretary of                        http://www.minhac.es/
                       cost.                    the project  State for the Economy.
                                                cost.

  Subsidies            t210 and t300 per m2                                 AIDE.                          http://www.idae.es/
                       Depends on type of
                       facility. of installed
                       collection area.

  Refundable           In the case of refundable Depends on                 Ministry of Education          http://www.mecd.es/
  loans, subsidies     advances, it may not      type.                      and Science.
  or a combination     exceed 75% of the
  of the two.          project cost.

  Subsidies and        Depends on type.                Depends on           ICAA.                          http://www.mcu.es/jsp/plant
  loans.                                               type.                                               illa_wai.jsp?id=1&area=cine

  Subsidies and        Depends on type.                Depends on           General Directorates of        http://www.map.es/enlaces
  low- interest                                        type.                the different Ministries.
  loans.

  Subsidies,        Depends on specific                Depends on Autonomous                 http://www.map.es/enlaces
  special           rules.                             specific rules. Community and,
  conditions for                                                       Municipal Governments
  loans and                                                            and Local Councils.
  credits and
  technical
  counseling and
  training courses.


9. TAX INCENTIVES                                                          circumstances a Spanish holding company is not taxed on the
                                                                           foreign-source income and/or gains it obtains, the income and/or
The following tax incentives and regimes, which are described in           gains it distributes to its shareholder, or the gains that arise when
greater detail in the Chapter on the Spanish Tax System, make              such shareholder disposes of its holding in the holding company.
Spain an especially attractive country in which to invest:                 Thus:

9.1. Foreign-securities holding entities (ETVEs), the                      • Dividends or shares in the income of entities not resident in
     “Spanish holding company”                                               Spain and gains arising from transfers of holdings are exempt
                                                                             if they meet certain requirements, basically: (i) The holding
This is one of the most competitive holding company regimes in               must be greater than 5% or than t6 million, and it must
the EU, since, unlike in other regimes, under certain                        have been owned for at least one year; (ii) the nonresident


Business in Spain
Investment aid and incentives in Spain
38
   entity must be resident in a country that has signed a tax       the maximum annual limit of one twentieth of its amount (i.e., it
   treaty with Spain or is otherwise charged a tax analogous to     can be amortized at an annual rate of 5%).
   the Spanish corporate income tax; and (iii) the nonresident
   entity must be an operating entity and the income it             9.3. Tax neutrality regime for restructuring transactions
   distributes must originate from such activity.
                                                                    With a view to facilitating corporate restructuring transactions
• The income distributed by the ETVE to its nonresident parent
                                                                    (mergers, spin-offs, contributions of assets, and exchanges of
  company or the capital gains generated by the parent
                                                                    securities), Spanish tax law provides for a special regime based
  company when it disposes of its holding in the ETVE will be
                                                                    on the principles of non-intervention by the tax authorities and
  treated as not taxable in Spain if the requirements necessary
                                                                    tax neutrality, which guarantees the deferral of, or exemption
  for the exemption of the income and/or gains obtained by
                                                                    from, taxation, as appropriate, in respect of both direct and
  the Spanish holding company itself have been met.
                                                                    indirect taxation, for taxpayers performing such transactions,
• The corporate purpose of the ETVE must include, but is not        along the same lines as in the other EU Member States.
  limited to, the activity of managing and administering
  securities representing the equity of entities not resident in    9.4. Reduction in the tax base for establishing
  Spain, through the relevant organization of human and                  companies abroad
  material resources.
                                                                    This is a tax incentive for investments which take the form of
• In addition, an ETVE can consolidate for tax purposes if it       acquisitions of holdings in the equity of nonresident entities that
  meets the other requirements necessary to do so.                  allow the investor to attain a majority of the voting rights at such
                                                                    entities, provided that the investee is not resident in the European
9.2. Possibility of amortizing for tax purposes the                 Union or a tax haven, engages in business activities abroad, and
     financial goodwill                                             such activities have not been engaged in previously under other
                                                                    ownership.
This financial goodwill arises on the acquisition of securities
representing a holding in the equity of entities not resident in    9.5. The Canary Islands’ Tax Regime
Spain under certain circumstances. The amount of the difference
between the acquisition cost of the holding and its underlying      The Canary Islands offer a number of tax benefits that are intended
book value as of the date of acquisition will be allocated to the   to compensate for the disadvantages caused by insularity and
rights and assets of the entity not resident in Spain, and the      distance from mainland Spain (such as, certain reductions in the
portion of the difference that has not been allocated (which        tax base, very relevant tax credits or a Special Zone where
constitutes goodwill) will be deductible from the tax base up to    companies are taxed at a tax rate between 1% and 5%).




                                                                                                                     Business in Spain
                                                                                                Investment aid and incentives in Spain
                                                                                                                                   39
interes@interes.org
www.investinspain.org




Prepared by:
                        MINISTERIO              SECRETARÍA DE ESTADO
                        DE INDUSTRIA, TURISMO
                        Y COMERCIO              DE TURISMO Y COMERCIO
Business in Spain


Labor and Social
Security regulations




*                      5
The Spanish labor market is harmonious; there are few labor
disputes, since collective agreements are negociated. In the last
decade, labor law has become much more flexible and new
incentives have been introduced to promote the hiring of people
from certain social groups.

A new labor market reform will come into force shortly in order to
increase productivity and flexibility.




*
Sociedad Estatal para la Promoción y Atracción de las Inversiones Exteriores, S.A.U. RM: Tomo 21818, libro 0, folio 15, sección 8, hoja M-388683,
Inscripción 1. NIF: A-84479013. Depósito legal: M-24716-2006.
Published 2006
Business in Spain


Labor and Social
Security regulations
 1. Introduction                                                      3
2. General rules                                                      4
    2.1. Non-discrimination                                           4
    2.2. Minimum age                                                  4
    2.3. Form of contract                                             4
 3. Contracts                                                         4
    3.1. Types of contract                                            4
    3.2. Trial period                                                 7
    3.3. Working hours                                                7
    3.4. Wages and salaries                                           7
4. Termination of employment contracts                                8
    4.1. Dismissals                                                   8
    4.2. Classification of the dismissal                              9
5. Senior executive contracts                                         9
6. Contracts with temporary employment agencies                       11




5
 7. Employee representation                                           11
    7.1.   Functions of workers’ committees and personnel delegates   12
    7.2. Collective labor agreements                                  12
8. Acquisition of a Spanish business                                  12
9. Relocation of workers under a crossborder working arrangement      13
10. Visas and work and residence authorizations                       13
    10.1. Nationals from non-EU countries                             14
    10.2. Nationals from EU member states                             14
11. Social Security system                                            14
12. Prevention of occupational risks                                  17
                                                                                                                                                                                                    FRANCE
                                                     La Coruña                                                          Santander
                                                                                                                                                     San Sebastián
                                                                                       Oviedo                                              Bilbao
                                                                      Lugo               Asturias                      Cantabria
                                          Santiago de Compostela                                                                              País
                                                                                                                                             Vasco                Pamplona
                                              Pontevedra    Galicia                                                                            Vitoria
                                                                   Orense                                                        Burgos                       Navarra
                                                                                                     León                                      Logroño
                                                                                                                                               La Rioja                              Huesca                                       Gerona
                                                                                                                      Palencia                                                                       Lérida   Cataluña
                                                                                                       Castilla y León                          Soria
                                                                                                               Valladolid                                                    Zaragoza
                                                                                                Zamora                                                                                                                     Barcelona
                                                                                                                                                                           Aragón
                                                                                       Salamanca                      Segovia                                                                                  Tarragona

                                                                                                                                 Madrid     Guadalajara
                                                                                                              Ávila      Comunidad                                          Teruel
                                                                                                                          de Madrid
                                                                                                                                                         Cuenca
                                                                                                                                                                                           Castellón de la Plana
                                                     PORTUGAL                                                           Toledo                                                                                              Palma De Mallorca
                                                                                                                                                                                              Valencia
                                                                                      Cáceres                             Castilla - La Mancha                               Comunidad
                                                                              Extremadura                                                                                    Valenciana                                      Baleares
                                                                            Badajoz
                                                                                       Mérida                         Ciudad Real                             Albacete


                                                                                                                                                                                        Alicante

                                                                                                         Córdoba                                                Murcia
                                                                                                                                    Jaén
                                                                                                                                                                         Murcia
                                                                                           Sevilla          Andalucía
                                                                      Huelva
                                                                                                                                     Granada

                                                                                                                       Málaga                        Almería
                                                                                         Cádiz


                                                                                                      Ceuta



                                                                                                                                                    Melilla



                                                                                                            MOROCCO


            Santa Cruz de Tenerife
                                 Canarias
                             Las Palmas de Gran Canaria




Business in Spain
Labor and Social Security regulations
2
1. Introduction




1. INTRODUCTION                                                            Agreement. Although the Agreement has not yet been formalized
                                                                           in a legal instrument, its main aspects are described below.
The basic law in the field of labor law is the Workers’ Statute
(Legislative Royal Decree 1/1995), which defines the respective rights     The most significant points of the reform focus on promoting the
of employees and employers, general terms of labor employment              stability and quality of employment as the starting point for boosting
contracts, procedures for dismissal and collective bargaining rules,       productivity and competitiveness among enterprises. With this aim
among other aspects.                                                       in mind, the Agreement has been structured into three areas.

In addition, there are specific regulations for different industries and   First of all, measures are adopted to promote indefinite employment
certain groups of employees such as commercial representatives             and the conversion of temporary contracts into permanent
and senior management personnel.                                           employment contracts, by means of social security rebates and
                                                                           reductions in employer contributions to the Wage Guarantee Fund
Another important source of labor law is collective labor                  (FOGASA) and to the contributions for unemployment. In this
agreements, which may be negotiated at the company level (or               connection, the main measures are as follows:
more reduced scope) or by industries at the state level or more
reduced territorial scope.                                                 • Reduction in employer contributions for unemployment (in the
                                                                             case of indefinite contracts, to 5.75 percent from July 1, 2006,
Individual employment contracts also contain numerous mandatory              and to 5.50 percent from July 1, 2008; and to 6.70 percent from
provisions which govern labor relationships.                                 July 1, 2006 in the case of all temporary contracts); and in the
                                                                             contribution rate to FOGASA (which is established at 0.2 percent
                                                                             as from July 1, 2006.)
There are also detailed regulations affecting working hours and
occupational health and safety in specific industries.                     • Extension of current time limits for the conversion of temporary
                                                                             contracts into indefinite contracts. The law also provides for the
Also significant in this field is Legislative Royal Decree 5/2000            possibility of converting temporary contracts concluded through
approving the Revised Law on Labor and Social Security                       December 31, 2007 into indefinite contracts so that the
Infringements and Penalties. The Legislative Royal Decree imposes            termination of such contracts for objective dismissal which is
for the most serious cases fines of up to t90,151.82 (in the                 subsequently adjudged to be without cause will give rise to the
legislation on prevention of occupational risks, there are fines of up       right to receive severance equal to 33 days pay per year of
to t601,012.10).                                                             service.

Additionally, on November 5, 1999, Law 39/1999 was published on            • Modification of the system of incentives for indefinite contracts in
the Reconciliation of the Work and Family Lives of Female                    the form of an extension of its scope of application to include
Employees, signaling a major advance in promoting equality                   young men of between 16 and 30 years of age, simplification of
between men and women and introducing a range of measures                    incentives, extension of the term of application of the social
designed to make family responsibilities compatible with the                 security rebates and the replacement of rebate percentages with
possibility of promotion and advancement at work. This Law has               fixed figures.
been implemented in part by Royal Decree 1251/2001 regulating
benefits under the Social Security System for Maternity and for Risks      Second, measures are introduced with the aim of limiting the
during Pregnancy.                                                          successive use of temporary contracts and to introduce transparency
                                                                           into the subcontracting of work and services between enterprises
As regards temporary employment agencies, since Law 29/1999 the            where they share a work place. It is also sought to encourage and
terms of employment enjoyed by employees of client companies               improve the work done by the labor and social security inspection
have been applied as far as possible to the workers supplied to them       authorities by increasing its human and material resources.
to meet their temporary needs, so as to avoid biased and                   Particularly noteworthy is the setting of a maximum time limit of 24
discriminatory practices.                                                  months within a 30-month period for successive fixed-term contracts
                                                                           which can be signed between an enterprise and its employee,
Lastly, the most recent development has been the signing of an             whether directly or through a temporary employment agency (if the
Agreement to improve Growth and Employment. Aware of the need              period is longer, the worker will become a permanent employee.)
to tailor labor and social security legislation in force to the current
needs of the Spanish market, the Government and Labor Unions               The third and final area focuses on the adoption of measures
and Employers Organizations have successfully reached this                 intended to boost the efficiency of jobseeker initiatives and the scope


                                                                                                                             Business in Spain
                                                                                                          Labor and Social Security regulations
                                                                                                                                              3
1. Introduction




of action of the National Employment System, as well as the               2.2. Minimum age
improved protection for workers given the lack of employment.
                                                                          Persons under the age of 16 cannot work. There are also certain
The Agreement has been reached at a particularly favorable time for       protective measures for persons under the age of 18, such as the
labor relations. During 20051, labor unrest declined significantly, as    prohibition against such persons working overtime or at night, or in
40.4% fewer workers went on strike than in 2004, which is                 certain hazardous or unhealthy activities or jobs.
equivalent to 83% less strike days than in 2004. Also noteworthy is
the sound climate for collective negotiations, with 10.2% more            2.3. Form of contract
collective labor agreements having been signed in 2005 than in
2004.                                                                     In general the contract may be made verbally or in writing. However,
                                                                          in certain cases the contract should necessarily be made in writing
                                                                          (for example, part-time and temporary contracts and training
2. GENERAL RULES                                                          contracts with a duration of more than four weeks).


The main general rules of Spanish labor law are summarized below:         If this requirement is not met, the contract is understood to be
                                                                          permanent and full time, unless otherwise evidenced.
2.1. Non-discrimination
                                                                          3. CONTRACTS
The Spanish Workers’ Statute generally prohibits discrimination in
hiring or in the workplace based on sex, marital status, age, race,
                                                                          3.1. Types of contract
social status, religion or political ideology, joining a labor union or
otherwise or on the basis of the different official languages in Spain.
                                                                          According to the duration of employment, employment contracts
This protection is also expressly extended to foreigners (i.e., those
                                                                          may be made for an indefinite term or for a specific duration. In
other than Spanish or EU nationals) under Organic Law 4/2000,
                                                                          general, contracts are made for an indefinite term and their unfair
amended by Organic Law 8/2000 and also by Organic Law 14/2003
                                                                          termination entitles the worker to receive the severance established
on the Rights and Freedoms of Foreigners in Spain and their Social
                                                                          by law.
Integration.

                                                                          Temporary contracts are therefore generally “circumstance-driven”;
It also prohibits discrimination because of physical or mental
                                                                          i.e., except in certain specific cases, there must be circumstances
handicap if the candidate is otherwise suitable for the job in
                                                                          justifying such temporary hiring. If the type of temporary contract
question.
                                                                          does not conform to a cause established by law the contract is
                                                                          deemed to be permanent.
Directive 2002/73/EC of the European Parliament and of the
Council, of September 23, 2002, was published in 2002, amending           Outlined below are the main types of contracts and their principal
Directive 76/207/EEC, on the application of the principle of equal        features. Contracts for a specific duration should be differentiated
access to work and working conditions of men and women. This new          from training contracts.
provision expressly defines the terms “direct discrimination”,
“indirect discrimination”, “harassment” and “sexual harassment”,          3.1.1. Contracts for a specific duration
all of which are prohibited because they violate the principle of
equal treatment of men and women. The Member States are also
                                                                          The first group, according to the cause established by law, includes
encouraged to include in their respective laws the measures
                                                                          contracts for a specific project or service, casual contracts due to
necessary to avoid discrimination at the workplace.
                                                                          production overload or backlog and contracts to substitute
                                                                          employees entitled to return to their job. All these contracts should
Law 33/2002, and Law 62/2003, notably introduce the principle of          be made in writing and the cause for their temporary nature should
equal pay for men and women, thus amending Article 28 of the              be placed on record. Otherwise, the contract will be deemed to be
Workers’ Statute, which previously only mentioned equal salary, and       made for an indefinite term, unless evidence of its temporary nature
including the possibility of establishing compensation measures in        is provided.
favor of some groups.
                                                                          If the employment contract is made for a term of more than one
1   www.mtas.es                                                           year, the party intending to terminate the contract should serve


Business in Spain
Labor and Social Security regulations
4
 Table 1

 TYPES OF CONTRACT

           Type                         Cause                          Term                                  Observations


 Contract for a specific Performance of a specific           In principle uncertain. It   It should mention the work and project clearly
 project or service      independent and self-               will depend on the time      and precisely.
                         contained service or                of performance of the
                         project within the                  specific service or          Its termination entitles the employee to
                         company’s business.                 project.                     receive severance equal to 8 days’ salary per
                                                                                          year worked.

 Casual contract due         To meet market needs,           Maximum of 6 months          It should mention the work and project clearly
 to production               production overload or          within a period of 12        and precisely.
 overload or backlog         backlog.                        months (may be
                                                             extended by an industry-     Its termination entitles the employee to
                                                             wide collective labor        receive severance equal to 8 days’ salary per
                                                             agreement for 18             year worked.
                                                             months but it may never
                                                             exceed 3/4 of that
                                                             period, or the maximum
                                                             term of 12 months).

 Contract to substitute To substitute workers                From the beginning of        One of the formalities is that it should
 employees entitled     entitled to return to their          the period until the         contemplate the name of the replaced worker
 to return to their job job by provision of law,             return of the replaced       and the cause for his substitution.
                        of a collective labor                worker or expiry of the
                        agreement or of an                   term established for the
                        individual contract.                 substitution.



notice at least fifteen days in advance or, as the case may be, give          •   Young people aged 16 through 30.
the advance notice established in the applicable Collective Labor
Agreement.                                                                    •   Unemployed women, if hired for jobs or occupations in
                                                                                  industries with a lower proportion of female employees.
3.1.2. Training contracts
                                                                              •   The unemployed aged over 45.
Also set forth below are the main features of training contracts
(Table 2).                                                                    •   Unemployed workers who have been registered as job
                                                                                  seekers for at least six months.
3.1.3. Contract to promote hiring for an indefinite period
                                                                              •   The disabled.
In relation to permanent employment, there is a type of contract to
promote hiring for an indefinite period. It applies to the following     b) Workers who, on the date of signing a new contract to promote
groups:                                                                     hiring for an indefinite period, were employed at the same
                                                                            company under a temporary contract, including training
a) Unemployed workers from any of the following groups:                     contracts, arranged before December 31, 2003.


                                                                                                                          Business in Spain
                                                                                                       Labor and Social Security regulations
                                                                                                                                           5
3. Contracts




 Table 2

 TRAINING CONTRACTS

           Contract                     purpose                         duration                                  to be noted


 Work experience             Contracts with persons         Minimum of 6 months              As a general rule, not more than 4 years may
 contract                    with a university degree       and maximum of 2                 elapse from the completion of the respective
                             or high or middle-level        years. It may be                 studies.
                             professional                   extended twice, but
                             qualifications or an           always subject to the            The minimum salary to be paid will be
                             officially recognized          two-year limit.                  between 60% and 75% of the salary
                             equivalent degree                                               established in the collective labor agreement
                             qualifying them to             Once the term has                for a worker holding the same or an
                             perform their profession.      expired, the same                equivalent post (first and second year of the
                                                            person may not be hired          contract).
                                                            again under the same
                                                            type of contract by the
                                                            same or by another
                                                            company.

 Trainee contract            To acquire the necessary       Minimum of 6 months              Made with workers from 16 to 21 of age who
                             theoretical and practical      and maximum of 2                 do not have the qualifications necessary to
                             training necessary for a       years (it may be                 obtain a work experience contract.
                             certain post of work.          extended up to 3 years
                                                            under a collective labor         According to the workforce, a maximum
                                                            agreement).                      number of trainee contracts is established.

                                                            Once the term has                The employer undertakes to provide
                                                            expired, the same                theoretical training that will never be less than
                                                            person may not be hired          15% of the maximum working hours The
                                                            again under the same             contract will be deemed ordinary if the
                                                            type of contract by the          theoretical training obligations are breached.
                                                            same or another
                                                            company.



If a contract of this type is terminated on objective grounds and its       reductions in employer social security contributions for ordinary
termination is then adjudged to be unjustified, the worker will be          contingencies.
entitled to severance equal to 33 days’ pay per year worked, with
periods of less than one year being prorated by month, and up to a          3.1.4. Part-time contracts
maximum of 24 months’ pay.
                                                                            Employment contracts may be made full-time or part-time.
The 2006 Employment Promotion Program establishes that                      Following the enactment of Law 12/2001 on Urgent Measures
companies that employ on a permanent basis unemployed workers               Reforming the Job Market in order to Increase and Improve the
from among any of the groups contemplated in said provision, or             Quality of Employment, “part-time contract” is defined as a contract
that convert pre-existing temporary contracts into permanent                in which a number of hours of work has been agreed with the
contracts before January 1, 2006 are entitled to the stipulated             worker per week, month or year, less than the working hours of a


Business in Spain
Labor and Social Security regulations
6
“comparable full-time worker” (this term means a full-time worker     • Central Government, autonomous community authorities and
of the same company and workplace who performs identical or             the respective municipal authorities cannot designate more
similar work).                                                          than 14 public holidays a year. The Government can move
                                                                        national holidays falling on a weekday to the following Monday
Part-time workers have the same rights as full-time workers             and all public holidays that fall on a Sunday will be moved to the
considering the existence of rights recognized proportionally,          following Monday.
according to the time worked.
                                                                      • An annual paid vacation which may not under any
3.2. Trial period                                                       circumstances be less than 30 calendar days is obligatory. The
                                                                        worker should know the corresponding dates at least two
Collective labor agreements may establish time limits for trial         months in advance.
periods, which should always be stipulated in writing. Unless
provided for in a collective labor agreement, trial periods cannot    • Employees are entitled to paid leave of absence in certain
generally exceed:                                                       circumstances such as marriage (15 days), union duties,
                                                                        unavoidable public and personal duties, breastfeeding,
• Six months for graduate specialists.
                                                                        childbirth, moving home, serious illness, hospitalization or death
• Two months for other employees. At companies with fewer than          of relatives to the second degree of consanguinity, and so on.
  twenty-five employees, the trial period for non-graduate
  specialists cannot exceed three months.                             • Directive 2003/88/EC of the European Parliament and the
                                                                        Council, of November 4, 2003, relating to certain aspects of
Training contracts also have their specific trial periods. Special      working time, establishes safeguard provisions on working
employment contracts (domestic workers, senior executives, among        hours, particularly shiftwork and working at night (this Directive
others) have their own maximum periods.                                 came into force on August 2, 2004). All the articles of the
                                                                        directive are governed by the general principle of conformance
3.3. Working hours                                                      of the work to the worker.

• Working hours are as specified in collective labor agreements or    • This Directive establishes, as a new feature, the obligation of the
  individual employment contracts.                                      Member States to adopt the measures necessary for employers
                                                                        who regularly use night workers to report this to the competent
• The maximum statutory working week is 40 hours of time
                                                                        authorities.
  actually worked, calculated on an annualized average basis. The
  irregular distribution of the working hours throughout the year
  may be agreed on by collective labor agreement, or by               3.4. Wages and salaries
  agreement between the company and the workers’
  representatives.
                                                                      The official minimum wage is established by the Government each
• Overtime can be compensated as time off within four months          year, and is t540.90 per month or t7,572.60 per year for persons
  from the date on which the overtime was worked. If payment for      over 18 years of age (including 12 monthly and 2 extra payroll
  overtime is agreed upon in the collective labor agreement or        payments) for 2006.
  individual contract, the hourly overtime rate cannot be less than
  the normal hourly rate.
                                                                      However, the minimum wages for each job category are usually
• Other than in exceptional cases, overtime (i.e., hours worked in    regulated in collective labor agreements.
  excess of the maximum statutory or agreed working hours) is
  voluntary and, if paid, cannot exceed 80 hours per year.
                                                                      Salaries cannot be paid at intervals of more than one month.
• Overtime compensated with time off does not count towards
  the 80-hour annual ceiling.
                                                                      At least two extra payroll payments must be paid each year: one at
• A minimum one and a half days off per week is mandatory             Christmas and the other on the date stipulated in the relevant
  (usually Saturday afternoon and all day Sunday, or all day          collective labor agreement (generally before the summer vacation
  Sunday and Monday morning) which may be accumulated for             period). Thus, an employee’s gross annual salary is usually
  periods of up to fourteen days. Workers under 18 are entitled to    apportioned in 14 payroll payments; however, payment in 12
  two uninterrupted days off per week.                                monthly installments can be agreed on in a collective agreement.


                                                                                                                        Business in Spain
                                                                                                     Labor and Social Security regulations
                                                                                                                                         7
4. Termination of employment contracts




4. TERMINATION OF EMPLOYMENT CONTRACTS                                 In addition, the law regulates three principal grounds for dismissal of
                                                                       an employee:

4.1. Dismissals                                                        • Collective layoff
                                                                       • Objective causes
An employment contract may be terminated for certain reasons           • Disciplinary action
which normally do not give rise to a dispute, such as mutual
agreement, expiration of the contract term, death or retirement of     The following table shows the causes and main features of the
the employee or of the employer, and so on.                            various types of dismissal (Table 3).



 Table 3

 CAUSES OF DISMISSAL

  DISMISSAL                         LEGAL CAUSES                                                   OBSERVATIONS


 Collective Economic, technical, organization or production    The termination is performed through an administrative
 layoff     causes, whenever these affect, in a 90-day period, procedure. Dismissals will only be possible if the Labor
            at least:                                          Authorities approve them by an administrative ruling.
               • The entire payroll, if the number of workers    The procedure includes the obligation of granting a period
                 affected is more than 5 and the business of the of consultations with the workers’ representatives and, if
                 company ceases entirely,                        none, with the employees directly.
               • At least 10 workers in companies with less than The consultations are intended to reach an agreement for
                 100 employees,                                  the termination of the contracts. Nevertheless, the Labor
                                                                 Authorities may approve the dismissals even if no
               • 10% of the employees in companies with from
                                                                 agreement is reached.
                 100 to 300 workers,
                                                                 The statutory severance consists of 20 days’ salary per year
               • More than 30 workers, in companies with 300
                                                                 worked, up to a maximum of 12 months’ salary or more if
                 or more employees.
                                                                 so agreed.

 Objective     • Ineptitude of the worker supervened or known           The employer should serve at least 30 days’ advance notice
 causes          after being hired by the company.                      in writing.
               • Inability of the worker to adapt to the changes        The advance notice may be replaced by payment of the
                 in his job.                                            salaries for said period.
               • Objectively evidenced need to cancel posts of          The severance (20 days’ salary per year worked, up to a
                 work due to economic, technical, organization          maximum of 12 months’ salary) should be made available
                 or production reasons.                                 to the worker simultaneously with the written notice of
                                                                        dismissal.
               • Justified by intermittent absences from work,
                 reaching certain percentages of working days.          It may be appealed as if it were a disciplinary dismissal.
               • In indefinite-term contracts arranged directly
                 by public authorities or by not-for-profit entities
                 to implement certain public plans and
                 programs for want of the appropriate
                 allocation to enable them to continue.


Business in Spain
Labor and Social Security regulations
8
 Table 3

 CAUSES OF DISMISSAL

    DISMISSAL                         LEGAL CAUSES                                               OBSERVATIONS


 Disciplinary      Serious and willful breach of contract by the       The employee must be given written notice of dismissal,
 Action            worker:                                             stating the causes and effective date of dismissal.
                   • Repeated and unjustified absenteeism.             If a workers’ representative or labor union delegate is
                                                                       dismissed, an adversary procedure should be instituted. If
                   • Insubordination or disobedience.
                                                                       the worker is a labor union member, the union delegates
                   • Physical or verbal abuse towards the              should be granted a hearing. These safeguards may be
                     employer.                                         increased by Collective Agreement.
                   • Breach of contractual good faith or abuse         If these formalities are not met, a further dismissal may be
                     of trust.                                         performed in a term of twenty days by paying the employee
                   • Willful diminution in the ordinary job            the salaries that accrue in the meanwhile, with effects as of
                     productivity.                                     the date of the new notice.

                   • Habitual drug or alcohol abuse which
                     adversely affects job performance.




4.2. Classification of the dismissal                                  However if the deposit is made at Court within 48 hours after the
                                                                      dismissal, no salaries will accrue during the proceeding.

A worker dismissed for any objective cause or disciplinary action
may appeal the decision made by the employer before the Labor         If the worker has received unemployment benefits, the employer
Courts, although a conciliation hearing must first be held            must deduct the benefits paid to the worker by the management
between the worker and the employer to attempt to reach an            entity, from the salaries accrued during the proceeding, and
agreement. This conciliation hearing is held before an                refund such amount to the management entity.
administrative body of conciliation and arbitration.


The dismissal will be classified in one of the three categories set   5. SENIOR EXECUTIVE CONTRACTS
forth below (Table 4).
                                                                      As mentioned earlier, special rules apply to certain categories of
                                                                      employee, including most notably senior executives and their
Where a dismissal is declared to be unjustified, the employer
                                                                      special labor relationships, which are governed by Royal Decree
must choose between reinstating the employee or paying him or
                                                                      1382/1985, of August 1.
her statutory severance. In any event, the employer must pay the
salaries that accrue during the proceeding, which consist of the
salaries that the employee ceases to receive from the date of         A senior executive is an employee who has broad management
dismissal until (i) notification of the judgment, (ii) until the      authority in relation to the company’s general objectives and
worker finds other employment before a judgment is handed             exercises that authority independently and with full responsibility,
down, or (iii) until the date of deposit of the statutory severance   reporting only to the company’s supreme governing and
(and salaries during the proceeding) at the relevant Labor Court if   managing body.
the dismissal is acknowledged to be unjustified and provided that
the dismissed worker is informed of the deposit of both the           The terms of employment for such executives are subject to fewer
severance pay and the salaries accrued during the proceeding.         constraints than those for ordinary employees.


                                                                                                                       Business in Spain
                                                                                                    Labor and Social Security regulations
                                                                                                                                        9
5. Senior executive contracts




 Table 4

 CATEGORIES OF DISMISSAL

    CLASSIFICATION                            EVENTS                                                    EFFECTS


 Justified            Conforming to law.                                        Disciplinary dismissal. Validation of the dismissal,
                                                                                the worker is not entitled to severance pay.

                                                                                Objective dismissal: Payment of 20 days’ salary
                                                                                per year worked, up to a limit of 12 months’
                                                                                salary.

 Unjustified          No legal cause exists for the dismissal or the            The employer may either:
                      procedure adopted is incorrect.
                                                                                • reinstate the worker,
                                                                                • or terminate his contract, paying severance of
                                                                                  45 days’ salary per year worked, up to a
                                                                                  maximum of 42 months’ salary.

                                                                                If the dismissed worker is a workers’
                                                                                representative, the choice will rest with him.

 Null                 • Its cause is a form of discrimination.                  • Immediate reinstatement of the worker.
                      • It implies a violation of fundamental rights.           • Payment of the unpaid salaries.
                      • It affects pregnant workers during the period
                        of suspension of the contract due to
                        maternity, risk during pregnancy, adoption or
                        fostering, reduction of working hours to care
                        for children or handicapped persons or
                        reduction for breastfeeding, and in certain
                        circumstances female workers who have been
                        the victims of gender violence.
                      • Failure to comply with the formalities for
                        objective dismissals (unless no advance notice
                        is served).



As a general rule, the parties (employer and senior executive)        months’ pay, or such other severance as may have been
have a wide margin of maneuver in defining their relationship by      agreed on.
contract.
                                                                      The senior executive may freely cancel his contract by serving at
                                                                      least three months’ advance notice.
Senior executives’ contracts can be terminated without cause
(i.e., contractual withdrawal by employer), serving notice at least   In addition, the Law establishes certain grounds on which the
3 months in advance, in which case they are entitled to severance     senior executive can terminate his or her contract and receive the
pay of seven days’ pay per year worked, up to a maximum of six        agreed-upon severance pay and, in the absence thereof, the


Business in Spain
Labor and Social Security regulations
10
severance pay established for cases where the employer                 The latest reform introduced by Law 12/2001 in the area of
withdraws from the contract.                                           contracts with temporary employment agencies permits a
                                                                       temporary employment agency to enter into an employment
Alternatively, a senior executive can be dismissed on any of the       contract with a worker to cover successive manpower supply
grounds stipulated in general labor legislation (objective causes,     contracts with different client companies so long as the
disciplinary reasons).                                                 manpower supply contracts are fully stipulated when the
                                                                       employment contract is signed and, in all cases, they address one
                                                                       of the situations justifying the hiring of casual labor under Article
If the dismissal is adjudged to be unjustified, the senior executive
                                                                       15.1.b) of the Workers’ Statute (i.e., market circumstances, the
is entitled to 20 days’ pay per year worked, up to a maximum of
                                                                       accumulation of tasks or excess orders), with each supply of
12 months’ pay, unless different terms of severance have been
                                                                       manpower having to be formalized in the employment contract.
agreed on.

                                                                       The Temporary Employment Agency Law establishes various
It should be noted that the statutory minimum severance for            events in which companies are unable to enter into manpower
senior executives is lower than that for ordinary employees.           supply contracts:
However, in practice senior executive contracts usually provide for
severance payments that are higher than the statutory minimum.         • To replace workers on strike at the user company.

                                                                       • To perform activities and work subject to regulations because
                                                                         of their particular hazard to health or safety.
6. CONTRACTS WITH TEMPORARY EMPLOYMENT
   AGENCIES                                                            • When the company has cancelled the job positions that it
                                                                         intends to fill by unjustified dismissal or for the causes
                                                                         contemplated for termination of the contract unilaterally by
In line with the general guidelines established by the European
                                                                         the worker, collective dismissal or dismissal for economic
Union, Law 14/1994 regulated for the first time in Spain the
                                                                         causes in the twelve months immediately preceding the date
activities of temporary employment agencies, which involve
                                                                         of the manpower supply contract.
supplying manpower to their client companies to cover their
temporary needs. This special situation of the client company          • To lend workers to other temporary employment agencies.
with respect to the worker employed by the temporary
employment agency is also regulated in Law 31/1995, of
November 8, on the Prevention of Occupational Risks, which             7. EMPLOYEE REPRESENTATION
defines the liability of the client company with respect to
workplace conditions.                                                  Labor unions collectively represent workers’ interests territorially
                                                                       (nationwide and so on) and by industry. Various employers’
The reform of the Law on Temporary Employment Agencies by              associations also exist whether nationally or otherwise.
Law 29/1999 provides greater legal certainty to the workers of
companies of this kind, in their labor relationships with client       At company level, personnel are represented by personnel
companies and encourages job security and improves their pay.          delegates or workers’ committees (depending on the number of
Accordingly, the Spanish Parliament has placed workers from            employees at the company or the workplace) that may, or may
temporary employment agencies on the same footing as                   not, belong to a labor union. At companies with more than ten
employees of client companies in terms of minimum pay.                 workers, there is an automatic right to choose such
Disclosure obligations to employee representatives are also            representatives (although it is not obligatory for there to be
extended.                                                              representatives). The right to elect personnel delegates at
                                                                       companies that have between six and ten employees can be
Pursuant to Law 29/1999, a manpower supply contract                    exercised if all the employees unanimously choose to be
(statutorily defined as a contract between a temporary                 represented.
employment agency and a client company under which workers
are supplied to provide services at the latter) can be concluded in    Furthermore, employees of Community-scale enterprises or
the same circumstances, subject to the same conditions and             Community-scale groups of enterprises are entitled, following a
requirements, and for the same term as those relating to a             prior request, to establish a European workers’ committee or a
temporary contract entered into by the client company pursuant         procedure to inform and consult workers. This right is recognized
to the Workers’ Statute.                                               under Law 10/1997 (amended in some respects by Law 44/1999),


                                                                                                                         Business in Spain
                                                                                                      Labor and Social Security regulations
                                                                                                                                         11
7. Employee representation




on the Rights to Inform or Consult Workers at Community-scale           business is transferred, both the seller and the buyer are
Enterprises and Community-scale Groups of Enterprises.                  jointly and severally liable for a period of three years after
                                                                         the transfer, for any labor claims which arose prior to the
7.1. Functions of workers’ committees and personnel                     transfer.
     delegates
                                                                        When a business is transferred, the new employer subrogates
The functions of workers’ committees and personnel delegates            to the former employer’s labor and social security rights and
are the same, and include the following:                                obligations, including pension commitments, as provided in the
• To receive quarterly information on the economic situation,           legislation specific thereto and, in general, to as many
  output, sales and labor force variations at the company.              employee welfare and supplementary obligations as the former
                                                                        employer may have entered into.
• To be notified of the balance sheet, income statement and
  annual report of the company, on the same terms as the
                                                                        The seller and buyer must previously inform their respective
  shareholders.
                                                                        employees of certain aspects of the future transfer.
• To issue a report on certain labor issues, such as redundancy
  procedures and professional training plans at the company,            Specifically, the information must comprise at least the
  before the employer implements its decision in this                   following:
  connection.

• To issue reports on mergers, absorptions or changes in the            • Proposed date of transfer.
  legal form of the company, if they affect a certain number of
  jobs.
                                                                        • Reasons for the transfer.
• To be informed of certain labor-related matters (standard
  contracts, penalties for very serious infringements,                  • Legal, economic and social consequences of the transfer for
  absenteeism, and so on).                                                the employees.
• To monitor compliance with labor regulations.
                                                                        • Measures envisaged for the employees.
There are also certain statutory safeguards established regarding
the dismissal of, or imposition of penalties on, employee               If there are no elected representatives at the affected companies,
representatives.                                                        the information must be supplied directly to the employees
                                                                        affected by the transfer.
7.2. Collective labor agreements
                                                                        There is also an obligation (applicable to both the seller and the
Collective labor agreements are negotiated between employers
                                                                        buyer) to arrange for a period of consultations with elected
or employers’ associations and employee representatives, and
                                                                        employee representatives where, as a result of the transfer, labor
are mandatorily binding on the parties. Collective labor
                                                                        measures are adopted for the personnel affected.
agreements have a sectorial scope (governing a certain industry)
and a functional scope (they may be negotiated at the State level
or at a lower territorial level and at the company level). Collective   The consultation period will address the measures envisaged and
bargaining has become a decisive factor in the reform of Spanish        their consequences for the employees and must be arranged
labor legislation.                                                      sufficiently in advance of the date on which such measures are to
                                                                        be taken.
Such agreements are generally entered into for one or two years,
although they can be extended for longer periods.                       If the change in ownership results in significant changes in
                                                                        business activities, philosophy or management, senior
                                                                        management personnel may be entitled to terminate their
8. ACQUISITION OF A SPANISH BUSINESS                                    employment within three months following the occurrence of
                                                                        these changes and to receive severance equal to seven days’ pay
Certain labor law provisions are particularly relevant when             per year worked, up to a maximum of six months’ pay, or such
acquiring or selling a going concern in Spain. For example, if a        severance as may have been agreed on.


Business in Spain
Labor and Social Security regulations
12
9. RELOCATION OF WORKERS UNDER A CROSSBORDER                            Specifically, they should report the relocation to the Spanish
   WORKING ARRANGEMENT                                                  Labor Authorities before the worker starts to work and regardless
                                                                        of the duration of the relocation.
Law 45/1999, of November 29, introduced several measures to
monitor and provide protection for relocations of workers under         The legislation on labor infringements and penalties classifies a
crossborder working arrangements.                                       series of events in this respect. Formal defects in the reporting of
                                                                        worker relocations to Spain constitute a minor infringement,
There are a number of minimum terms of employment that                  while the reporting of the relocation after it has taken place is a
employers in the European Union, and in the European Economic           serious infringement. Failure to report the relocation and
Area (the EU plus Norway, Switzerland, Iceland and Liechtenstein)       misrepresentation or concealment of the data contained in the
must guarantee to their employees relocated temporarily to              report are considered to be gross infringements.
Spain, except for merchant navy firms in respect of their sailing
personnel, irrespective of the law applicable to their employment
                                                                        Failures to meet the minimum working conditions mentioned
contracts. Nevertheless, Additional Provision No. 4 of Law
                                                                        above, which are classified according to the penalties applicable
45/1999 provides for the possibility of extending its scope to third
                                                                        to Spanish employers, are considered to be administrative
countries by virtue of international agreements.
                                                                        infringements.

In this connection, it should be borne in mind that in 2004 ten
new Member States joined the European Union, in what was the
biggest enlargement in its history. The new EU Member States            10. VISAS AND WORK AND RESIDENCE AUTHORIZATIONS
are: the Czech Republic, Cyprus, Slovakia, Slovenia, Estonia,
Hungary, Latvia, Lithuania, Malta and Poland.                           Organic Law 8/2000 (of December 22) on the Rights and
                                                                        Freedoms of Foreigners in Spain and their Social Integration,
This Law applies to relocations for a limited time period in the        together with the recent Organic Law 14/2003, on the same
following cases:                                                        matter, clarify and even amend certain of the provisions
                                                                        introduced by the previous Organic Law 4/2000 (of January 11),
• Within the same company or within a group of companies.               in an attempt to provide greater guarantees for a policy to ensure
• Under international services contracts.                               the integration of nationals from third countries who reside
                                                                        legally on Spanish soil, and encouraging nondiscrimination of
• When the workers of a temporary employment agency are                 this group in Spanish economic, social and cultural life.
  posted to a client company in another EU Member State.

                                                                        Laws 8/2000 and 14/2003, introduce the following main new
The only exceptions to the above are in the case of employee
                                                                        features: (i) they clarify the definition of “foreigner” (non-Spanish
relocations during training periods and those relocations that last
                                                                        national or non-Community national); (ii) they extend to foreign
less than eight days, unless they involve workers employed by
                                                                        nationals the constitutional safeguards in Article 13 of the
temporary employment agencies.
                                                                        Spanish Constitution on civil liberties; (iii) they introduce
                                                                        enforcement measures to combat illegal immigration, as well as
The minimum terms of employment to be guaranteed by
                                                                        measures to combat human trafficking, and enable certain
employers in the above countries in accordance with Spanish
                                                                        activities linked to this traffic to be monitored.
labor legislation are: (i) working time, (ii) pay (which must be at
least that provided for the same post under the relevant legal
provision, regulation or collective labor agreement), (iii) equality    Foreigners included in the Community system may reside and
of treatment, (iv) the rules on underage work, (v) prevention of        work (as self-employed or employed workers) in Spain with no
occupational risks, (vi) nondiscrimination against temporary and        need to obtain work authorization.
part-time workers, (vii) respect for privacy, for dignity rights, and
the freedom to join a union and (viii) rights of strike and             Foreigners to whom the Community system does not apply
assembly. However, if employees relocated to Spain enjoy more           require administrative approval to be able to work and reside in
favorable terms in their country of origin, those terms apply.          Spain. Employers who intend to hire a foreigner who is not
                                                                        authorized to work in Spain (to whom the Community system
The employers in such cases are also required to perform certain        does not apply) should previously obtain an authorization from
obligations and disclose certain information to the competent           the Ministry of Labor and Social Affairs. Nevertheless, lack of a
labor authorities for monitoring and coordination purposes.             work permit will not render the employment contract void with


                                                                                                                          Business in Spain
                                                                                                       Labor and Social Security regulations
                                                                                                                                          13
10. Visas and work and residence authorizations




regard to the rights of the foreign worker and will not prevent him   obtain a permanent residence permit. After obtaining such a
from obtaining the benefits to which he may be entitled.              permit, the worker must apply for a resident alien identity card,
                                                                      which will be renewed every five years.
The Law on the Status of Foreigners currently in force was
implemented by regulations approved under Royal Decree                Other types of work authorization are as follows (Table 5).
864/2001. However, the new implementing regulations,
approved under Royal Decree 2393/2004, were published on              10.2. Nationals from EU Member States
January 7, 2005, and entered into force one month after their
publication in the Official State Gazette.
                                                                      Nationals from other Member States of the European Union, the
                                                                      European Economic Area and Switzerland do not need to obtain
10.1. Nationals from non-EU countries
                                                                      a work authorization as an employee or as a self-employed
                                                                      worker, because EU legislation on the free movement of workers
Under Spanish labor legislation, non-EU nationals intending to
                                                                      applies fully. They are therefore entitled to perform any activity
work in Spain must obtain a special work visa and a work and
                                                                      both as employees and as self-employed workers, in the same
residence authorization. The Spanish labor authorities grant
                                                                      terms as Spanish citizens.
different types of work authorization depending on the type of
work and its duration.
                                                                      Since Royal Decree 178/2003, of February 14, came into force,
The types of work authorization currently in force are as follows:    self-employed workers or employees, students or beneficiaries of
                                                                      the right to permanent residence, provided that they are citizens
• The duration of initial authorizations for employed work and        of the European Union Member States or of other States included
  residence will be of one year and can be restricted to a certain    in the European Economic Area, and certain of their relatives may
  geographical area and type of work. After the one-year              reside in Spain with no need for a residence card. It will suffice for
  period, initial authorizations can be renewed for a two-year        them to hold a valid national identity card or passport.
  period. Once renewed, an authorization will allow its holder
  to engage in any type of work anywhere in Spain. Work               Other foreign citizens included in the Community system should
  authorizations are granted taking into account the                  obtain a residence card.
  employment situation in Spain (that is, the need for labor
  and the level of unemployment for the jobs offered). Every
                                                                      There is currently a transitional legal regime in place for citizens
  quarter the Spanish National Employment Institute publishes
                                                                      from certain States that recently joined the European Union
  a catalog of jobs that are difficult to fill which provides a
                                                                      (Slovakia, Slovenia, Estonia, Hungary, Lithuania, Poland, and the
  breakdown by province of the occupations for which
                                                                      Czech Republic).
  foreigners can be hired.

   In addition, the Decision of December 30, 2005, of the Office
   of the Secretary of State for Immigration and Emigration           11. SOCIAL SECURITY SYSTEM
   approves the annual contingent of foreign workers (that is,
   the projections of non-EU-national and nonresident labor that      As a general rule, all employers, their employees, self-employed
   the domestic market will need, distinguishing between              workers, members of manufacturing cooperatives, domestic
   industries and provinces).                                         personnel, military personnel, civil servants who reside and/or
• However, there are certain preferential situations, such as         perform their duties in Spain are required to be registered with,
  foreigners who have Spanish family ties, workers necessary to       and pay contributions to, the Spanish Social Security System.
  assemble and repair imported machinery, or senior                   Even unemployed persons (subject to certain conditions) must
  executives. In these cases, the domestic employment                 pay contributions to the Social Security System.
  situation does not have to be certified. Authorizations for self-
  employed work and residence are granted for an initial one-         There are certain Bilateral Agreements on Social Security
  year period and can be renewed on expiry for further two-year       between Spain and other countries, which regulate the effects on
  periods.                                                            Spanish public benefits of periods of contribution to the Social
                                                                      Security Systems of other States. The Agreements also determine
Where a worker has resided legally and continuously in Spain for      the State in which Social Security contributions are to be paid in
five years and has renewed his or her work and residence permits      cases of relocations and temporary or permanent assignments
(whether for self-employed or employed work), he or she may           abroad.


Business in Spain
Labor and Social Security regulations
14
 Table 5

 TYPES OF WORK AUTHORIZATION

   AUTHORIZATION TYPE                            SCENARIO                                                 DURATION


 Frontier workers         Employed or self-employed work authorization for          Five years at most, renewable on expiry.
                          workers residing in the frontier area of a neighboring
                          State to which they return each day. Its validity is
                          restricted to this territorial area.

 Temporary work           Permitted types of work:                             The term of the contract, subject to a one-year limit
                                                                               (except in the case of seasonal authorizations), and
                          • Seasonal work for 9 months at most within a period
                                                                               not renewable, except for the renewals provided for
                            of 12 consecutive months.
                                                                               in labor legislation.
                          • Project work or services (assembly of industrial
                            plants, infrastructure, etc.).

                          • Senior management, professional sportsmen and
                            women, artistes in public performances, and such
                            other groups as may be determined by legislation.

                          • Training and trainee work.


 Crossborder work         Granted to foreigners who work for a company            One year at the most, renewable for another year
                          established in a country that does not belong to the EU at the most.
                          or the European Economic Area, and who are assigned
                          temporarily to Spain in the following cases:

                          • Execution of an agreement between the foreign
                            company and the company established in Spain
                            that will receive the services.

                          • Temporary assignment of workers between
                            companies of a Group (including training).

                          • Temporary assignment of highly qualified workers to
                            supervise or advise on construction work or services
                            that Spanish companies perform abroad.



Since January 1, 1986, the date of Spain’s accession to the EU, EU        Security legislation will be that of the country in which the
Social Security legislation applies to Spain. Two EU Regulations          worker carries on his activity. There are some exceptions to
(Regulation Nos. 1408/71 and 574/72, as amended by                        this general rule.
Regulation No. 1249/92) ensure that the workers to whom they
                                                                      • If a worker of one EU Member State is temporarily relocated
are applicable are not adversely affected from a Social Security
                                                                        to another Member State to work for his company in that
standpoint by moving from one Member State to another
                                                                        other Member State, the worker will remain subject to the
(Switzerland is included for these purposes).
                                                                        Social Security legislation of the first Member State, provided
                                                                        that the foreseeable duration of the work to be done does not
The following basic rules apply in such cases:
                                                                        exceed 12 months and he or she is not sent to replace
• Workers are subject only to the Social Security legislation of        another employee who has completed the period of time for
  one Member State. As a general rule, the applicable Social            which he or she was relocated. This 12-month period can be


                                                                                                                       Business in Spain
                                                                                                    Labor and Social Security regulations
                                                                                                                                       15
11. Social Security system




   extended for an additional period of the same duration. After        bring their contributions into line with the contribution base for
   that it may be extended again if the competent authorities of        their respective category.
   both States so agree.
                                                                        For 2006, the maximum contribution base is t2,897.70 per
• If certain requirements are met, the time during which a
                                                                        month for all professional categories and groups. The minimum
  worker of one Member State contributes to the Social Security
                                                                        bases have been increased according to the professional
  System of another Member State will count as a period of
                                                                        categories and contribution groups, from January 1, 2006 vis-à-
  contribution to his or her own country’s Social Security System
                                                                        vis those in 2005, by the same percentage as the increase in the
  for the purpose of determining if the grace periods required
                                                                        official minimum wage.
  for his or her future benefits under his or her own national
  Social Security System are met.
                                                                        Therefore the situation for the general Social Security program in
                                                                        2006 is as follows:
There are different contribution programs under the Spanish
Social Security System:
                                                                         Table 6
a) General Social Security program.
                                                                         CONTRIBUTION PROGRAMS
b) There are other situations within the general Social Security
program qualifying for special treatment, namely:                                                               Minimum Base    Maximum Base
                                                                                       Category
                                                                                                                (Euros/month)   (Euros/month)
   •    Artists.

   •    Railroad workers.                                                Engineers and graduates                   881.10         2,897.70

   •    Sales representatives.                                           Technical engineers and
                                                                         assistants                                 731.10        2,897.70
   •    Bullfighting professionals.
                                                                         Clerical and workshop
   •    Professional soccer players.                                     supervisors                               635.70         2,897.70

c) Special Social Security programs for:                                 Unqualified assistants                    631.20         2,897.70

   •    Agricultural workers.
                                                                         Clerical officers                         631.20         2,897.70
                                                                         Messengers                                631.20         2,897.70
   •    Seamen.
                                                                         Clerical assistants                       631.20         2,897.70
   •    Self-employed workers.

   •    Civil servants and military personnel.                                                                 Minimum Base     Maximum Base
                                                                                        Category
                                                                                                                (Euros/day)      (Euros/day)
   •    Domestic personnel.

   •    Coal miners.                                                     Foremen classes 1 and 2                    21.04            96.59
   •    Students.                                                        Foremen class 3 and craftsmen              21.04            96.59
                                                                         Laborers                                   21.04            96.59
Classification under these programs depends on the nature,
conditions and characteristics of the activities carried on in Spain.    Workers under 18 years of age              21.04            96.59

Unless one of the special programs applies, the general Social
Security program. Under this program, Social Security                   The contribution rates applicable to employers and employees
contributions are paid partly by the employer and partly by the          in the General Social Security Program in 2006 are shown in
employee. Personnel are classified under a number of                    Table 7.
professional and job categories for the purpose of determining
their Social Security contribution. Each category has maximum           The total employer contribution rate is increased by higher
and minimum contribution bases, which are generally reviewed            percentages for occupational accident and occupational disease
from year to year. Employees whose total compensation exceeds           contingencies, depending on how hazardous the employee’s
the maximum base, or does not reach the minimum base, must              work is, in accordance with the system of scales established by


Business in Spain
Labor and Social Security regulations
16
 Table 7
                                                                          t2,897.70 per month. The minimum contribution base for 2006
                                                                          is t785.70 per month.
 CONTRIBUTION RATES
 EMPLOYERS/EMPLOYEES                                                      For their part, executive directors who receive compensation and
                                                                          who do not have actual control of the company should be included
                                        Employer   Employee      Total    under the General Social Security program for employees as
                                          (%)        (%)          (%)     workers “treated as” employees (i.e., without entitlement to
                                                                          unemployment benefit or the Wage Guarantee Fund).
 General contingencies                     23.6         4.7       28.3
 Unemployment
                                                                          12. PREVENTION OF OCCUPATIONAL RISKS
 • General rule (1)                         6.0        1.55       7.55
 • Full-time fixed-term contracts            6.7        1.6        8.3    Under Law 31/1995, amended by Law 54/2003, on the
                                                                          Prevention of Occupational Risks and its implementing
 • Part-time fixed-term contracts            7.7        1.6         9.3   legislation, employers must ensure the health and safety of their
 Professional training                      0.6          0.1        0.7   employees, which does not only mean complying with the
                                                                          legislation and remedying situations of risk, but also planning
 Wage Guarantee Fund                        0.4          —         0.4    preventive action from the outset of their business activities and
                                                                          planning ongoing action to perfect the existing protection levels.
 Total general rule                        30.6       6.35      36.95     This includes the obligation to perform risk assessments, adopt
                                                                          measures in emergency cases, provide protective equipment and
 Total full-time fixed-term                                               to ensure the health of employees, which includes ensuring that
 contracts                                 31.3         6.4        37.7   pregnant or breastfeeding women do not perform tasks which
                                                                          may put them or their unborn children/babies at risk.
 Total part-time fixed-term
                                                                          All employers must have a prevention service to provide advice
 contracts                                 32.3         6.4       38.7
                                                                          and assistance in prevention tasks, for which the employer should
                                                                          nominate one or more workers. In companies with fewer than six
 (1) It includes: indefinite-term contracts (including part-time
                                                                          workers, this service may be provided directly by the employer,
 indefinite-term contracts and indefinite-term contracts for seasonal
 work), and fixed-term contracts (in the form of training contracts,
                                                                          provided that it customarily conducts its business at the
 relief and substitute contracts, except for contracts under which        workplace and has the necessary capacity to do so. It is also
 reductions are received pursuant to Royal Decree-Law 11/1998), and       possible for a prevention service to be organized externally or
 any type of contract made with disabled workers who have been            outsourced. Prevention services are fully governed by Royal
 recognized as having a degree of disability of not less than 33%         Decree 392/1997, which implements Law 31/1995.
 percent of their physical or mental capacity.
                                                                          The Prevention Delegates, as employee representatives with
                                                                          specific risk prevention duties, supervise, monitor and advise on
Royal Decree 2930/1979, the percentages of which will be                  any measure in this area.
reduced by 10%.
                                                                          Furthermore, at companies with more than 50 employees, a
It is worth noting the recent legislative reform brought about by         Health and Safety Committee must be established and employers
Law 36/2003, of November 11, on economic reform measures                  must consult this Committee regularly on employee health and
with regard to the Social Security program for self-employed              safety procedures.
workers. Before this Law, these workers were only covered for
temporary incapacity from the fifteenth day after the date of the         A failure to comply with these obligations may give rise to liability
leave. Law 36/2003 has extended this protection to make it                at administrative, labor, criminal and civil law. The Ministry of
equivalent to that established for employees, so that self-               Labor and Social Affairs may impose substantial fines in the case
employed workers’ benefits are on an equal footing with the               of very serious infringements.
benefits of the general Social Security program. The maximum
contribution base for 2006 in the Special Social Security program         Apart from Law 54/2003, which amends Law 31/1995 and the
for self-employed workers is, like that of the Seneral program,           Labor Infringements and Penalties Law and reforms the


                                                                                                                            Business in Spain
                                                                                                         Labor and Social Security regulations
                                                                                                                                            17
12. Prevention of occupational risks




legislative framework for the prevention of occupational risks,    Decree 1215/1997 establishing the minimum health and safety
bringing Spanish law into line with EU regulations on health and   requirements for the use of work equipment by workers in
safety at work, the entry into force of Royal Decree 171/2004 in   temporary work at a height.
April 2004 should also be highlighted. The Royal Decree
implements Article 24 of Law 31/1995 on the Prevention of          Increasingly stringent regulations on the prevention of
Occupational Risks with regard to the coordination of business     occupational risks are being implemented in Spain and the EU to
activities and also Royal Decree 2177/2004, which amends Royal     afford greater protection to workers.




Business in Spain
Labor and Social Security regulations
18
interes@interes.org
www.investinspain.org




Prepared by:
                        MINISTERIO              SECRETARÍA DE ESTADO
                        DE INDUSTRIA, TURISMO
                        Y COMERCIO              DE TURISMO Y COMERCIO
Business in Spain


Intellectual
property law




                    6
Spanish industrial and intellectual property legislation is consistent
with the intellectual property laws of other EU Member States, and
Spain has ratified the principal international treaties in this area.
This means that anyone can obtain protection of their rights in
Spain even if they are not Spanish nationals, and that Spanish
nationals can be protected in most other countries.

This chapter describes the different ways to obtain protection in
Spain for trademarks, patents, utility models, plant varieties,
industrial designs, topographies of semiconductor products and
computer software, while also commenting on the legal solutions
that currently exist to stop intellectual property infringements.




Sociedad Estatal para la Promoción y Atracción de las Inversiones Exteriores, S.A.U. RM: Tomo 21818, libro 0, folio 15, sección 8, hoja M-388683,
Inscripción 1. NIF: A-84479013. Depósito legal: M-24716-2006.
Published 2006
Business in Spain


Intellectual
property law
  1. Introduction                                                 3
 2. Trade marks                                                   3
     2.1. National trade marks                                    3
     2.2. International system                                    4
     2.3. Community trade marks                                   4
 3. Protection of inventions in Spain                             5
     3.1. Patents                                                 6
     3.2. PCT - Patent Cooperation Treaty                         6
     3.3. Utility models                                          6
 4. Plant varieties                                               7
 5. Industrial designs                                            7
     5.1. National System                                         7
     5.2. Community System                                        7
     5.3. International System. The Hague agreement               8
 6. Topographies of semiconductor products                        8




6
 7. Computer programs                                             8
 8. Unfair competition                                            9
 9. Action against infringement of intellectual property rights   9
     9.1. Civil actions                                           9
     9.2. Criminal action                                         9
Exhibit. Intellectual property conventions                        10
                                                                                                                                                                                                    FRANCE
                                                     La Coruña                                                          Santander
                                                                                                                                                     San Sebastián
                                                                                       Oviedo                                              Bilbao
                                                                      Lugo               Asturias                      Cantabria
                                          Santiago de Compostela                                                                              País
                                                                                                                                             Vasco                Pamplona
                                              Pontevedra    Galicia                                                                            Vitoria
                                                                   Orense                                                        Burgos                       Navarra
                                                                                                     León                                      Logroño
                                                                                                                                               La Rioja                              Huesca                                       Gerona
                                                                                                                      Palencia                                                                       Lérida   Cataluña
                                                                                                       Castilla y León                          Soria
                                                                                                               Valladolid                                                    Zaragoza
                                                                                                Zamora                                                                                                                     Barcelona
                                                                                                                                                                           Aragón
                                                                                       Salamanca                      Segovia                                                                                  Tarragona

                                                                                                                                 Madrid     Guadalajara
                                                                                                              Ávila      Comunidad                                          Teruel
                                                                                                                          de Madrid
                                                                                                                                                         Cuenca
                                                                                                                                                                                           Castellón de la Plana
                                                     PORTUGAL                                                           Toledo                                                                                              Palma De Mallorca
                                                                                                                                                                                              Valencia
                                                                                      Cáceres                             Castilla - La Mancha                               Comunidad
                                                                              Extremadura                                                                                    Valenciana                                      Baleares
                                                                            Badajoz
                                                                                       Mérida                         Ciudad Real                             Albacete


                                                                                                                                                                                        Alicante

                                                                                                         Córdoba                                                Murcia
                                                                                                                                    Jaén
                                                                                                                                                                         Murcia
                                                                                           Sevilla          Andalucía
                                                                      Huelva
                                                                                                                                     Granada

                                                                                                                       Málaga                        Almería
                                                                                         Cádiz


                                                                                                      Ceuta



                                                                                                                                                    Melilla



                                                                                                            MOROCCO


            Santa Cruz de Tenerife
                                 Canarias
                             Las Palmas de Gran Canaria




Business in Spain
Intellectual property law
2
1. Introduction




1. INTRODUCTION                                                         • Madrid Agreement.

                                                                        • Madrid Protocol.
Intellectual property is one of a company’s main assets. It is
therefore vital to ensure that it is properly protected before
investing in a new market.
                                                                        2. TRADE MARKS
In Spain, with rare exceptions, the registration principle prevails,
                                                                        A trade mark is any sign the main function of which is to
which means that there can be no right to an invention or a
                                                                        distinguish the goods and services of one undertaking from those
distinctive sign unless it has been previously registered. Spain,
                                                                        of other undertakings. It also plays an important role in
unlike the United States for example, follows the “first-to-file”
                                                                        advertising and goodwill consolidation.
system. The first person to apply for registration will have priority
rights therefore use will give no rights against third parties except
in the case of well-known marks.                                        Rules on distinctive signs and on trade marks in particular, are
                                                                        effective and necessary instruments in the fields of business policy
                                                                        and consumer protection.
The principle of territoriality also prevails in the registration
system, which means protection is only available in countries
where the trademark or patent is registered. In other countries,        When introducing a good or service on the Spanish market, steps
the trademark or patent could in principle, be freely used by third     must be taken to ensure that the trade mark:
parties. Consequently, the registration of a trademark or a patent      1. May be freely used;
in its country of origin does not grant automatic protection in
other countries, therefore protection must be sought by                 2. May be registered; and
registration in each relevant country.
                                                                        3. Has no negative connotations, i.e. it is commercially suitable.

Intellectual property rights are assets, and, like tangible goods,
                                                                        Before marketing the good or service, a search should be
may be assigned, encumbered or transferred by any means
                                                                        conducted to determine whether an identical or similar mark has
provided by law.
                                                                        been registered previously for an identical or similar good or
                                                                        service, thereby possibly pre- venting the sign from being used in
Third parties may obtain licenses to use registered rights in           the territory.
exchange for payment.
                                                                        After confirming that no prior third-party rights are being
Spain has ratified the main International Conventions in this
                                                                        infringed, consideration can be given to the various procedures
area, which with rare exceptions, allow non-Spanish nationals to
                                                                        for obtaining registration in order to secure exclusive rights and
protect their rights in Spain.
                                                                        prevent the mark from being used by other companies. Obtaining
                                                                        registration also involves checking that the mark is not generic,
Spain’s membership of the European Union has also forced                deceptive, descriptive or contrary to public policy or accepted
Spanish legislation to implement the guidelines laid down by the        principles of morality.
Community Directives on Intellectual Property, and Spain is
therefore in line with Europe.
                                                                        Since April 1996, the procedures through which a registration
                                                                        having effect in Spain can be obtained are as follows:
A list of the main conventions is provided in the Exhibit at the end
of this Chapter.                                                        • National system.

                                                                        • International system: Madrid Agreement - Madrid Protocol.
The main Intellectual Property Conventions ratified by Spain
include the following:                                                  • Community Trade Mark.
• Agreement on Trade-Related Aspects of Intellectual Property
                                                                        2.1. National trade marks
  Rights (TRIPS Agreement).

• Paris Convention.                                                     National trade marks are registered by the Spanish Patent and
                                                                        Trade Mark Office. These marks may consist of a large number of
• Patent Cooperation Treaty (PCT).
                                                                        signs capable of being represented graphically, using words,
• European Patent Convention.                                           names or surnames, signatures, numbers and number


                                                                                                                           Business in Spain
                                                                                                                   Intellectual property law
                                                                                                                                           3
2. Trade marks




combinations, slogans, drawings, colours and three-dimensional         within one year (pursuant to the Agreement) or 18 months
shapes including their packaging.                                      (pursuant to the Protocol), the trade mark will be registered.

Since the Trade Marks Law, Law 17/2001, of December 17, came           This however is not an open system because it can only be used
into force, on July 31, 2002, the Spanish Office only examines ex      by natural or legal persons who are domiciled or who have a real
officio whether any absolute grounds for refusal of registration       and effective establishment in a country signatory to one or both
apply (mainly, that the mark is not generic, misleading,               of the above conventions and may, on the basis of a registration
descriptive or contrary to public policy) and no longer addresses      or application at the Trade Marks Office of such State, obtain an
relative grounds for refusal (the existence of identical or similar    international registration effective in all or some of the countries
marks registered for identical or similar products, with the           of the Madrid Union.
likelihood of confusion). Relative grounds for refusal are only
considered where owners of earlier signs oppose the application
                                                                       The possibility of filing international trade ark applications in the
filed for a certain trade mark.
                                                                       Spanish language as of April 1, 2004 heralds a significant break-
                                                                       through for international trade mark protection.
The Spanish Patent and Trade Mark Office will not refuse trade
marks ex officio based on relative grounds but shall perform a
                                                                       The adoption of Spanish as the third working language of the
computer search to notify the holders of previous identical or
                                                                       Madrid Protocol (together with English and French), will surely
similar signs, for informative purposes only, of the application, in
                                                                       promote commercial relations due to the internationalisation of
case they are interested in filing notice of opposition.
                                                                       Spanish companies abroad and to the attraction of international
                                                                       entrepreneurial activities to Spanish markets.
In the last three years significant progress in the implementation
of criteria consistent with the predominant systems in other
European countries, (e.g. a higher level of protection granted to      Said initiative will also be an added incentive for Spanish-
well-known trade marks) has been made, also recently allowing          speaking countries to join the Madrid System for the international
on-line trade mark filing, as contemplated in the eighth               registration of trade marks, offering their nationals the possibility
Additional Disposition of the Trade Marks Law.                         of filing applications in their native tongue and an affordable and
                                                                       efficient way of obtaining and maintaining their trade marks.
Trade mark registration is valid for ten years and can be renewed
indefinitely for further ten-year periods; however the registration    The most relevant additions to the Madrid System are the United
may lapse if the trade mark is not renewed, if it is not effectively   States of America, where the Protocol became effective on
used during an uninterrupted five-year period, or if it becomes        November 2, 2003, and the European Union, which ratified the
generic or deceptive.                                                  Madrid Protocol on October 1, 2004.


2.2. International system                                              The European Union’s accession to the Madrid Protocol is the first
                                                                       time that the EU as a regional body, adheres to a WIPO treaty.
The “International System” comprises the Madrid Agreement of           The extraordinary importance of said accession lies in the
1891 and the Protocol to the Madrid Agreement of 1989                  encouragement and development of economic activities and
administered by the World Intellectual Property Organization           competition, and the improvement of the degree of integration
(WIPO) with headquarters in Geneva.                                    and operation of the internal market.


It is important to point out that although known as the                2.3. Community Trade Marks
“International System”, it is not strictly speaking an international
registration but rather a system in which various national             The main feature of the Community trade mark (CTM) is its
registrations may be obtained through a unified administrative         unitary character. A single procedure and a single registration
procedure.                                                             provide the owner of a trade mark with registered protection in
                                                                       the whole European Union, which from January 1st 2007, shall
The applicant must designate the countries where he wishes to          include two new Member States: Bulgaria and Romania,
obtain protection. WIPO then proceeds to notify the national           making a total of 27 Member States. The Community trade mark
Offices of the designated countries and if no oppositions are filed    covers a market of circa 500 million consumers with a single
pursuant to the national laws of each of the countries concerned       registration.


Business in Spain
Intellectual property law
4
It is important to point out that the Community trade mark does        Extended CTMs may not be challenged based on absolute
not replace trade mark rights in each Member State. The                grounds for refusal (e.g. because the CTM is descriptive in
national, international and Community trade mark systems               Bulgarian), however, the owners of earlier national rights in the
coexist and in some cases complement each other.                       new Member States may prevent the use of the extended CTMs in
                                                                       the territory covered by the right, provided that such rights were
The Community trade mark system provides a single registration         acquired in good faith before the date of accession and provided
which grants direct protection in all the Member countries of the      further that it is possible pursuant to the applicable national
European Union through a single application and a unitary              legislation.
procedure. Thus, rather than filing applications in each of the
Member States where the relevant goods or services are to be           As we mentioned in the previous section, the future adherence of
offered, traders in Europe may obtain exclusive rights over the        the European Union to the Madrid Protocol will allow to
trade mark throughout the European Union with a single                 interweave the CTM application procedure and the International
Community trade mark registration.                                     trade mark registration System, enabling any citizen based in an
                                                                       E.U. State to protect its trade marks as a Community trade mark
This system is open to virtually all companies the world over since    and also as an international registration in Member States of the
any company domiciled or with an establishment in the European         Madrid Protocol.
Union or in a country which is a party to the Paris Convention, or
domiciled in a member state of the World Trade Organization,           Another important advantage of the Community trade mark is
can obtain a CTM registration.                                         that no evidence of use is required to obtain registration, and use
                                                                       of a mark in any Member State is sufficient to maintain its
The Community trade mark is administered by the Office for             validity. Once registered, a Community trade mark is valid for 10
Harmonization of the Internal Market (OHIM) which is based in          years. This period can be renewed for further 10-year terms
Alicante, Spain.                                                       subject to the payment of the appropriate fee.


The application may be submitted in any of the 20 official             The Community trade mark confers its proprietor the right to
languages of the European Union, although the applicant is             prevent unauthorised third parties throughout the entire
required to designate a second language (English, French,              European Union from using signs that because of their identity
Spanish, Italian or German) which could become the language of         with or similarity to the mark and the identity or similarity of the
opposition, revocation or invalidity proceedings.                      goods or ser- vices they cover could generate a likelihood of
                                                                       confusion. It is relevant to mention regarding infringement
                                                                       actions that measures against the violation of trade mark rights
The OHIM only examines marks on absolute grounds (i.e. it will
                                                                       may be enforced in any Member State of the European Union.
check to ensure that the mark is not descriptive, generic,
                                                                       Community trade mark infringement actions are brought before
deceptive or contrary to public policy or accepted principles of
                                                                       Community trade mark courts, which are national courts
morality in any of the European Union countries). It does not
                                                                       designated by each of the Member States.
examine applications on relative grounds (i.e. it will not refuse
registration “ex-officio” on account of the existence of any earlier
trade mark applications or registrations in the European Union).       In this regard, we must mention Law 8/2003, of July 9, the
It is up to the owners of these registrations to oppose the            Bankruptcy Reform Law (which modifies Law 6/1985 on the
application, and disputes will be clarified before the OHIM. There     Judiciary), which designates the mercantile courts and the
are more than 4 million trade marks in the European Union and          Alicante Provincial Court as first and second instance Community
finding one which can be freely used and registered as a               Trade Mark courts in Spain, respectively, making their jurisdiction
Community trade mark is therefore not always easy.                     extensive to these effects to the entire national territory.


The main legal consequence of the Community Trade Mark
system enlargement due to the adherence of the aforementioned          3. PROTECTION OF INVENTIONS IN SPAIN
new Member States is the automatic extension of all Community
Trade Marks filed before the date of said adherence, (whether          Inventions are fully protected under Spanish law through a
they have already been registered or not) to the territories of the    number of instruments such as patents, utility models, and
new Member States, without any administrative intervention nor         industrial designs, which guarantee the exclusive exploitation by
the payment of additional fees.                                        their proprietors or by authorised third parties.


                                                                                                                           Business in Spain
                                                                                                                   Intellectual property law
                                                                                                                                           5
3. Protection of inventions in Spain




3.1. Patents                                                           relating to generic drugs, does not constitute infringement for a
                                                                       limited period before the end of patent term.
Patents seek to boost investments in R+D and to develop a
country’s technology. The State grants exclusive rights to the         The term of patents is 20 years from the date on which the
invention for a specific term (generally 20 years) on the              application was filed in Spain. A maintenance fee, which is
understanding that once this period has expired, the invention         subject to a gradual annual increase, is due yearly. Once the 20-
will become public domain in the benefit of society.                   year period has lapsed, anyone may make, use, offer for sale, or
                                                                       sell or import the invention without permission of the paten- tee,
The patent owner may exploit the invention and prevent third           provided that matter covered by other unexpired patents is not
parties from exploiting it, marketing it or putting it into the        used. The Complementary Protection Certificate for
course of trade without consent. During the duration of the            pharmaceutical and phytosanitary products, which has been in
patent, third parties may only exploit the invention where the         force since 1998, extends the patent term by up to a maximum of
necessary license has been granted.                                    5 years for the time it took to obtain the relevant administrative
                                                                       authorization required to market the products.
To be patentable, an invention must be new, involve an inventive
step and be capable of industrial application. Consequently, the       In addition to the national patent application system, regional
three main requirements to obtain a patent are as follows:             registration systems are also available. Such systems allow the
                                                                       applicant to obtain protection for the invention in one or more
a. Novelty.
                                                                       countries; however each country determines whether or not to
b. Inventive step.                                                     protect the patent in its territory pursuant to the applicable
                                                                       legislation.
c. Industrial application.
                                                                       Lastly, since Spain’s ratification of the Munich European Patent
Discoveries, scientific theories, mathematical methods, literary,      Convention (EPC) in 1973, Spain may be designated in a
scientific, artistic and any other aesthetic creations, schemes for    European patent application. European patents are administered
per- forming mental Laws, playing games or doing business are          by the European Patent Office, based in Munich. The EPC system
not considered patentable. It is not possible to get a patent for an   allows the registration of a bundle of national patents
invention if it is a new animal or plant variety; a method of          enforceable in the countries designated by the applicant.
treatment of the human or animal body by surgery or therapy; or
a method of diagnosis.
                                                                       3.2. PCT – Patent Cooperation Treaty
The amendment of the Patents Law implementing the European
Directive for the legal protection of bio-technological inventions     Spain has also ratified the PCT, which simplifies and reduces the
constitutes a significant step forward in this field. It should be     cost of obtaining inter- national patent protection through unified
noted that although it is expressly admitted that inventions of        initial application procedures and search reports, which are
this kind are patentable, clear restrictions are established,          necessary to determine the novelty of the invention and the
particularly emphasizing the defence of ethics and public policy       inventive step. By filing one international patent application
by excluding patents where their exploitation is contrary to these     under the PCT you can simultaneously seek protection for an
principles.                                                            invention in over one hundred countries throughout the world.
                                                                       However as opposed to the European patent, registration is
                                                                       granted by each of the relevant national Offices.
In Spain both inventions and procedures may be patentable.
Pharmaceutical products have been patentable since 1992.
                                                                       3.3. Utility models
Especially relevant to pharmaceutical patents is the probable
modification of the Spanish Patent Law in order to include the         This form of protection is intended for new inventions involving an
“Bolar clause” or “Bolar provision”.                                   inventive step whereby an object is given a configuration,
                                                                       structure, or constitution that results in an advantage,
According to this exemption, which should be envisaged in              appreciable in practice, for its use or manufacture.
Spanish patent legislation pursuant to the proposed Law of Safety
and Rational Use of Drugs and Sanitary Products, performing            A lesser degree of invention is required for utility models than for
research and tests for preparing regulatory approval, particularly,    patents and, unlike patents, utility models require only national


Business in Spain
Intellectual property law
6
and not absolute novelty. They are granted for a non-extendable       5.1. National System
period of 10 years.
                                                                      The 20/2003 Industrial Design Law is the result of the efforts to
This system of protection is particularly suitable for protecting     modernise intellectual property legislation, particularly with
tools, objects and devices of practical use.                          regard to industrial models, which, until recently was regulated
                                                                      by a law dating from 1929.

4. PLANT VARIETIES                                                    Amongst the most relevant features of said Law is the so-called
                                                                      twelve-month “grace period” which allows the holder or a third
Plant varieties constitute a category of intellectual property the    authorised party to disclose the design without destroying its
legal status of which relates in many ways to that of patents. A      novelty. This allows a proprietor the opportunity to determine
plant variety may be considered distinct if it is clearly             whether seeking protection for a design is likely to be worth the
distinguishable from any other variety whose existence is a           money and time registration before the Spanish Patent and
matter of common knowledge on the date of application;                Trademark Office requires.
uniform if it is sufficiently uniform in the expression of its
characteristics; and stable if it remains unchanged after repeated
                                                                      Registration is granted for a period of five years from the date on
propagation.
                                                                      which the application was filed, renewable for further five-year
                                                                      periods up to a maximum of 25 years.
At present, the protection of plant varieties is regulated in Spain
by the Law 3/2000, of January 7, of the Legal System of Plant
Variety Protection and in the EU by (EC) Council Regulation No.       It is also important to emphasize that the owner of a design shall
2100/94, of July 27, on Community Plant Variety Rights.               have the right to use the design and to obtain relief should any
                                                                      third party use it without consent after its registration is
The aforementioned Law 3/2000 has been modified by Law                published.
3/2002, of March 12, in order to recognise Spanish Autonomous
Communities as competent authorities in plant variety rights          In short, the current Industrial Design Law endeavours to put an
registration-related procedures.                                      end to deliberate copying, counterfeiting and piracy and foster
                                                                      creativity and innovation.
As of October 1, 2004, the Spanish Criminal Code expressly
included the counterfeiting of plant varieties, the unauthorised      5.2. Community System
reproduction or multiplication thereof, and the unauthorised use
of the name of said varieties as infringing Laws, which are           Community designs are protected in the European Union by
penalised with fines, special disqualification and even prison.       Council Regulation 6/2002, which creates a uniform and unified
                                                                      legal framework within the EU in areas as significant as the
                                                                      automobile, textile, and shoe industries.
5. INDUSTRIAL DESIGNS
                                                                      The essential feature of the Community design system is the
Unlike patents and utility models, industrial designs and models      recognition of both registered and unregistered designs provided
protect the aesthetic appearance of goods rather than their           these meet the requirements of novelty and individual character.
functional novelty.
                                                                      A Registered Community Design (RCD) is filed before the OHIM
Industrial models are objects that can serve as prototypes for the
                                                                      and gives its owner exclusive right to use and prevent the use by
manufacture of a pro- duct and that can be described in terms of
                                                                      unauthorised third parties of said design. It has a life of five years
their structure, configuration, ornamentation or representation.
                                                                      that can be renewed for further five-year periods up to a
                                                                      maximum of 25 years.
At present there are three procedures through which designs may
be protected:
                                                                      The Unregistered Community Design (UCD) protects a design for
• National system.                                                    a period of three years form the date on which the design was
                                                                      first made available to the public within the Community and gives
• Community Designs.
                                                                      the right to prevent the commercial use of the design only if the
• International system.                                               use results from copying.


                                                                                                                          Business in Spain
                                                                                                                  Intellectual property law
                                                                                                                                          7
5. Industrial designs




The UCD is particularly advantageous for those sectors of              7. COMPUTER PROGRAMS
industry, which produce short-lived designs (e.g. fashion). Since
the duration of registration is of lesser importance, a three-year
                                                                       Unlike the situation in other countries, computer programs are
protection period is reasonable.
                                                                       not patentable in Spain since the Spanish Patents Law expressly
                                                                       excludes them from the list of patentable inventions.
The current design legislation encourages innovation and
development of new products, providing mainly individual and
medium-sized designers with a simple, cost-efficient, unitary          A special chapter is devoted to computer programs in the 1996
system with effect in all the European Union similar to that of        Spanish Intellectual Property Law. Computer programs and their
Community trade marks.                                                 accompanying documentation are protected as copyright and,
                                                                       with certain exceptions, are treated in the same way as literary
                                                                       works.
5.3. International System. The Hague Agreement

The Hague Agreement Concerning the International Deposit of            In Spain, copyright exists from the moment the related work is
Industrial Designs (a WIPO-administered treaty) gives the owner        created, without any registration being required and with
of an industrial design the possibility to have his design protected   automatic protection therefore being granted. However, the
in several countries by simply filing one application.                 option of filing the work with the Intellectual Property Register, as
                                                                       evidence to be used against third parties in the event of copyright
                                                                       infringement, exists.
A national of any contracting party may protect its designs in any
of the Member States, filing a single international deposit either
with WIPO or the national office of a country, which is party to       Computer programs are protected for 70 years from the death of
the treaty. Such application shall be subject to the applicable        their author if the author is a natural person. If the author is a
national legislation of each of designated Member States.              legal person, the period of protection is 70 years from January 1
                                                                       of the year following the year in which the program was lawfully
In this regard, we must also mention the entry into force in Spain     published or of the year of its creation if it was not published.
of the Geneva Law, concerning the international registration of
industrial designs, on December 23, 2003, which simplifies the
                                                                       Like any literary or artistic work, computer programs create
enlargement of geographic protection established by The Hague
                                                                       various economic and “moral” rights. Moral rights cannot be
Agreement.
                                                                       waived or assigned. They entitle the author to decide, amongst
                                                                       other things, whether his work is to be published and how, to
                                                                       demand that he be recognized as the author of the work and that
6. TOPOGRAPHIES OF SEMICONDUCTOR PRODUCTS                              the integrity of the work is observed, to alter the work and to
                                                                       withdraw it from the marketplace.
Spanish legislation grants a period of protection of 10 years for
topographies of semiconductor products, which are integrated
                                                                       In Spain the author of the work is assumed to be the owner of
semi- conductor circuits known as “chips”. The subject-matter of
                                                                       the rights unless the work was created in the course of his
protection is not the integrated circuit itself but the way in which
                                                                       employment. In this case, the owner of the copyright will be the
it is physically mounted and the physical arrangement of all its
                                                                       commissioning party.
elements.


For a semiconductor product to qualify for protection from the         However it should be noted that the Proposal of Community
Spanish Patents and Trade Marks Office, the topography must be         Directive on the Patentability of Inventions Implemented by
the result of the creator’s own intellectual efforts and must not      Computer is currently being prepared. These inventions are
be commonplace among manufacturers of semiconductor pro-               defined as those that may only be implemented using a
ducts. The law requires originality and creativity.                    computer, computer network or other programmable apparatus.


The governing provisions are to be found in Law 11/1988, the           After this Directive has been approved, the 25 EU countries
result of the transposition to Spanish law of Community Directive      should adopt the provisions necessary for its compliance, within
87/54/EEC of December 16, 1986.                                        the term established for the purpose.


Business in Spain
Intellectual property law
8
8. UNFAIR COMPETITION                                                  • all necessary steps to prevent the continuation of the
                                                                         infringement; and/or:
Intellectual property rights are also protected by unfair
                                                                       • Publication of the judgment against the infringer.
competition legislation. Spain introduced unfair competition
legislation in 1991, which is proving to be highly effective in
                                                                       The owner of the rights may also seek injunctive relief to ensure
practice.
                                                                       the effectiveness of the actions.

The concept of unfair competition is very wide since any conduct
                                                                       9.2. Criminal action
objectively contrary to good faith is deemed to be unfair. The law
includes amongst such forms of conduct Laws of confusion and
                                                                       Following the amendment of the Spanish Criminal Code,
deception, gifts which lock consumers into contractual
                                                                       counterfeiting of plant varieties and parallel import activities are
obligations or which create confusion as to price, and Laws of
                                                                       expressly recognised as criminal offences as of October 1, 2004.
denigration, comparison, imitation, exploitation of another’s
                                                                       Said offences are punished with terms of imprisonment and fines
reputation, breaches of confidentiality, incitement to breach of
                                                                       ranging from twelve to twenty four months.
contract, infringement of laws on discrimination and dumping.
                                                                       Said amendments of the Spanish Criminal Code establish sterner
The main forms of unfair competition in relation to trade marks        penalties where the offence is aggravated by certain
are unlawful Laws of imitation that take unfair advantage of a         circumstances. In such cases, imprisonment ranges from one to
third party’s reputation or efforts.                                   four years, fines from twelve to twenty-four months, and a two to
                                                                       five-year special disqualification from practicing the profession
Unfair competition rules also deal with know-how by defining as        related to the offence committed.
unfair competition the disclosure or exploitation of industrial or
other business secrets obtained lawfully on the understanding          Please note the day-fine system consists of an economic penalty
that they would be kept confidential, without the consent of their     from a minimum of t1.20 to a maximum of t300.51,
owner.                                                                 established according to the nature of the infringement and the
                                                                       economic situation of the convict.

9. ACTION AGAINST INFRINGEMENT OF INTELLECTUAL                         We must also mention Law 28/2002, of October 24, for partial
   PROPERTY RIGHTS                                                     reform of the Criminal Procedure Law, also known as the “Fast
                                                                       Lawsuits Law”, and the basic Law supplementary thereto. This
The owner of intellectual property rights may enforce its rights in    Law enables criminal offence against intellectual property rights
Spain bringing the appropriate civil and criminal actions against      to be pursued faster and more effectively. Failure to bring charges
infringers.                                                            does not impede the preliminary investigation for prevention and
                                                                       insurance of criminal offence against intellectual property.
9.1. Civil actions
                                                                       Lastly, special reference is made to the proposed Law for the
The procedure to bring actions before the Civil Courts is ruled by     extension of protection of intellectual property rights and the
the Civil Procedure Law, which establishes the ordinary trial as the   adoption of procedural rules to ensure the enforcement of the
procedure path for the trade mark’s owner to defend his rights         relevant Community Regulations.
against third par- ties’ infringements.
                                                                       The aim of the proposed Law is to comply with Directive
The trade mark owner whose right has been infringed can claim:         2004/48/EC of the European Parliament and of the Council of 29
                                                                       April 2004 on the enforcement of intellectual property rights, the
• an order for the cessation of the Laws infringing the
                                                                       objective of which is to ensure that intellectual property rights
  intellectual property rights;
                                                                       enjoy a high, equivalent and homogeneous level of protection in
• damages;                                                             the internal market. In order to achieve said objective, however, it
                                                                       is relevant to mention that the Patent Law, Trade Mark Law,
• seizure of the goods produced or imported;
                                                                       Industrial Design Law and the Civil Procedure Law shall
• to be awarded the seized objects or means of production;             necessarily be modified.




                                                                                                                          Business in Spain
                                                                                                                  Intellectual property law
                                                                                                                                          9
Exhibit. Intellectual property conventions




 EXHIBIT

 INTELLECTUAL PROPERTY CONVENTIONS

                                              IP                           Trade Marks                     Patents           Designs     Copyright
            COUNTRY
                                    Paris           WTO1        Madrid      Madrid                                           Madrid       Berne
                                 Convention        (Trip’s)2   Agreement    Protocol     CTM3       PCT4             EPC5   Agreement   Convention


  Afghanistan                                         O
  Albania                            X                X           X            X                     X                E                     X
  Algeria                            X                O           X                                  X                                      X
  Andorra                            X                O                                                                                     X
  Angola                                              X
  Antigua and Barbuda                X                X                        X                     X                                      X
  Argentina                          X                X                                                                                     X
  Armenia                            X                X           X            X                     X                                      X
  Australia                          X                X                        X                     X                                      X
  Austria                            X                X           X            X          X          X                X                     X
  Azerbaijan                         X                O           X                                  X                                      X
  Bahamas                            X                O                                                                                     X
  Bahrain                            X                X                        X                                                            X
  Bangladesh                         X                X                                                                                     X
  Barbados                           X                X                                              X                                      X
  Belarus                            X                O           X            X                     X                                      X
  Belgium                            X                X           X            X          X          X                X        X            X
  Belize                             X                X                                              X                         X            X
  Benin                              X                X                                              X                         X            X
  Bhutan                             X                O           X            X                                                            X
  Bolivia                            X                X                                                                                     X
  Bosnia and Herzegovina             X                O           X                                  X                E                     X
  Botswana                           X                X                                              X                                      X
  Brazil                             X                X                                              X                                      X

  1. WTO: World Trade Organization.
  2. TRIP’S: Trade Related Intellectual Property Rights.
  3. CTM: Community Trade Mark.
  4. PCT: Patent Co-operation Treaty.
  5. EPC: European Patent Convention.
  6. E: Non EU members states that have completed agreements for extension with the European Patent Organization.
  7. O: Governments with the status of observers that should commence negotiations for adhesion in the term of 5 years after the acquire such
  status.
  8. A: Countries joining European Union in 2007
  * Recent signatory State.



Business in Spain
Intellectual property law
10
EXHIBIT

INTELLECTUAL PROPERTY CONVENTIONS

                                            IP                           Trade Marks                     Patents             Designs     Copyright
           COUNTRY
                                  Paris           WTO1        Madrid      Madrid                                             Madrid       Berne
                               Convention        (Trip’s)2   Agreement    Protocol     CTM3       PCT4             EPC5     Agreement   Convention


Brunei                                              X
Bulgaria                           X                X           X            X          A          X                X           X          X
Burkina Faso                       X                X                                              X                                       X
Burundi                            X                X
Cambodia                           X               X*
Cameroon                           X                X                                              X                                       X
Canada                             X                X                                              X                                       X
Cape Vert                                           O                                                                                      X
Central African Republic           X                X                                              X                                       X
Chad                               X                X                                              X                                       X
Chile                              X                X                                                                                      X
China                              X                X           X            X                     X                                       X
Colombia                           X                X                                              X                                       X
Comoros                            X                                                              X*                                       X
Congo                              X                X                                              X                                       X
Costa Rica                         X                X                                              X                                       X
Côte d’Ivoire                      X                X                                              X                            X          X
Croatia                            X                X           X            X                     X                E           X          X
Cuba                               X                X           X            X                     X                                       X
Cyprus                             X                X           X            X          X          X                X                      X
Czech Republic                     X                X           X            X          X          X                X                      X
Denmark                            X                X                        X          X          X                X                      X
Djibouti                           X                X                                                                                      X
Dominica                           X                X                                              X                                       X

1. WTO: World Trade Organization.
2. TRIP’S: Trade Related Intellectual Property Rights.
3. CTM: Community Trade Mark.
4. PCT: Patent Co-operation Treaty.
5. EPC: European Patent Convention.
6. E: Non EU members states that have completed agreements for extension with the European Patent Organization.
7. O: Governments with the status of observers that should commence negotiations for adhesion in the term of 5 years after the acquire such
status.
8. A: Countries joining European Union in 2007
* Recent signatory State.



                                                                                                                                  Business in Spain
                                                                                                                          Intellectual property law
                                                                                                                                                 11
Exhibit. Intellectual property conventions




 EXHIBIT

 INTELLECTUAL PROPERTY CONVENTIONS

                                              IP                           Trade Marks                     Patents           Designs     Copyright
            COUNTRY
                                    Paris           WTO1        Madrid      Madrid                                           Madrid       Berne
                                 Convention        (Trip’s)2   Agreement    Protocol     CTM3       PCT4             EPC5   Agreement   Convention


  Dominican Republic                 X                X                                                                                     X
  Ecuador                            X                X                                              X                                      X
  Egypt                              X                X           X                                  X                         X            X
  El Salvador                        X                X                                                                                     X
  Equatorial Guinea                  X                O                                              X                                      X
  Estonia                            X                X                        X          X          X                X        X            X
  Ethiopia                                            O
  European Communities                                X                        X
  Fiji                                                X                                                                                     X
  Finland                            X                X                        X          X          X                X                     X
  France                             X                X           X            X          X          X                X        X            X
  Gabon                              X                X                                              X                         X            X
  Gambia                             X                X                                              X                                      X
  Georgia                            X                X                        X                     X                         X            X
  Germany                            X                X           X            X          X          X                X        X            X
  Ghana                              X                X                                              X                                      X
  Greece                             X                X                        X          X          X                X        X            X
  Grenada                            X                X                                              X                                      X
  Guatemala                          X                X                                                                                     X
  Guinea                             X                X                                              X                                      X
  Guinea-Bissau                      X                X                                              X                                      X
  Guyana                             X                X                                                                                     X
  Haiti                              X                X                                                                                     X
  Honduras                           X                X                                                                                     X

  1. WTO: World Trade Organization.
  2. TRIP’S: Trade Related Intellectual Property Rights.
  3. CTM: Community Trade Mark.
  4. PCT: Patent Co-operation Treaty.
  5. EPC: European Patent Convention.
  6. E: Non EU members states that have completed agreements for extension with the European Patent Organization.
  7. O: Governments with the status of observers that should commence negotiations for adhesion in the term of 5 years after the acquire such
  status.
  8. A: Countries joining European Union in 2007
  * Recent signatory State.



Business in Spain
Intellectual property law
12
EXHIBIT

INTELLECTUAL PROPERTY CONVENTIONS

                                            IP                           Trade Marks                     Patents             Designs     Copyright
          COUNTRY
                                  Paris           WTO1        Madrid      Madrid                                             Madrid       Berne
                               Convention        (Trip’s)2   Agreement    Protocol     CTM3       PCT4             EPC5     Agreement   Convention


Hong Kong                                           X
Hungary                            X                X           X            X          X          X                X           X          X
Iceland                            X                X                        X                     X                X           X          X
India                              X                X                                              X                                       X
Indonesia                          X                X                                              X                            X          X
Iran                               X                O           X            X
Iraq                               X                O
Ireland (Republic of)              X                X                        X          X          X                X                      X
Israel                             X                X                                              X                                       X
Italy                              X                x           X            X          X          X                X           X          X
Jamaica                            X                X                                                                                      X
Japan                              X                X                        X                     X                                       X
Jordan                             X                X                                                                                      X
Kazakhstan                         X                O           X                                  X                                       X
Kenya                              X                X           X            X                     X                                       X
Popular Republic of Korea          X                            X            X                     X                            X          X
Republic of Korea                  X                X                        X                     X                                       X
Kuwait                                              X
Kyrgyzstan                         X                X           X            X                     X                            X          X
Laos                               X                O
Latvia                             X                X           X            X          X          X                X           X          X
Lebanon                            X                O                                                                                      X
Lesotho                            X                X           X            X                     X                                       X
Liberia                            X                            X                                  X                                       X

1. WTO: World Trade Organization.
2. TRIP’S: Trade Related Intellectual Property Rights.
3. CTM: Community Trade Mark.
4. PCT: Patent Co-operation Treaty.
5. EPC: European Patent Convention.
6. E: Non EU members states that have completed agreements for extension with the European Patent Organization.
7. O: Governments with the status of observers that should commence negotiations for adhesion in the term of 5 years after the acquire such
status.
8. A: Countries joining European Union in 2007
* Recent signatory State.



                                                                                                                                  Business in Spain
                                                                                                                          Intellectual property law
                                                                                                                                                 13
Exhibit. Intellectual property conventions




 EXHIBIT

 INTELLECTUAL PROPERTY CONVENTIONS

                                              IP                           Trade Marks                     Patents           Designs     Copyright
           COUNTRY
                                    Paris           WTO1        Madrid      Madrid                                           Madrid       Berne
                                 Convention        (Trip’s)2   Agreement    Protocol     CTM3       PCT4             EPC5   Agreement   Convention


  Libya                              X                O                                             X*                                      X
  Liechtenstein                      X                X           X            X                     X                X        X            X
  Lithuania                          X                X                        X          X          X                X                     X
  Luxembourg                         X                X           X            X          X          X                X        X            X
  Macao                                               X
  Republic of Macedonia
  (The former Yugoslav
  Republic of Macedonia)             X                X           X            X                     X                E        X            X
  Madagascar                         X                X                                              X                                      X
  Malawi                             X                X                                              X                                      X
  Malaysia                           X                X                                                                                     X
  Maldivas                                            X
  Mali                               X                X                                              X                                      X
  Malta                              X                X                                   X                                                 X
  Mauritania                         X                X                                              X                                      X
  Mauritius                          X                X                                                                                     X
  Mexico                             X                X                                              X                                      X
  Micronesia                                                                                                                              X*
  Republic of Moldova                X                X           X            X                     X                         X            X
  Monaco                             X                            X            X                     X                X        X            X
  Mongolia                           X                X           X            X                     X                         X            X
  Morocco                            X                X           X            X                     X                         X            X
  Mozambique                         X                X           X            X                     X
  Myanmar                                             X

  1. WTO: World Trade Organization.
  2. TRIP’S: Trade Related Intellectual Property Rights.
  3. CTM: Community Trade Mark.
  4. PCT: Patent Co-operation Treaty.
  5. EPC: European Patent Convention.
  6. E: Non EU members states that have completed agreements for extension with the European Patent Organization.
  7. O: Governments with the status of observers that should commence negotiations for adhesion in the term of 5 years after the acquire such
  status.
  8. A: Countries joining European Union in 2007
  * Recent signatory State.



Business in Spain
Intellectual property law
14
EXHIBIT

INTELLECTUAL PROPERTY CONVENTIONS

                                            IP                           Trade Marks                     Patents             Designs     Copyright
          COUNTRY
                                  Paris           WTO1        Madrid      Madrid                                             Madrid       Berne
                               Convention        (Trip’s)2   Agreement    Protocol     CTM3       PCT4             EPC5     Agreement   Convention


Namibia                            X                X           X            X                     X                            X          X
Nepal                              X               XX                                                                                     X*
The Netherlands                    X                X           X            X          X          X                X           X          X
New Zealand                        X                X                                              X                                       X
Nicaragua                          X                X                                              X                                       X
Niger                              X                X                                              X                            X          X
Nigeria                            X                X                                             X*                                       X
Norway                             X                X                        X                     X                                       X
Oman                               X                X                                              X                                       X
Pakistan                           X                X                                                                                      X
Panama                             X                X                                                                                      X
Papua New Guinea                   X                X                                              X
Paraguay                           X                X                                                                                      X
Peru                               X                X                                                                                      X
Penghu, Kinmen and
Matsu (Customs Territory
other than Taiwan)                                  X
Philippines                        X                X                                              X
Poland                             X                X           X            X          X          X                X                      X
Portugal                           X                X           X            X          X          X                X                      X
Qatar                              X                X                                                                                      X
Romania                            X                X           X            X          A          X                X           X          X
Russian Federation                 X                O           X            X                     X                                       X
Rwanda                             X                X                                                                                      X

1. WTO: World Trade Organization.
2. TRIP’S: Trade Related Intellectual Property Rights.
3. CTM: Community Trade Mark.
4. PCT: Patent Co-operation Treaty.
5. EPC: European Patent Convention.
6. E: Non EU members states that have completed agreements for extension with the European Patent Organization.
7. O: Governments with the status of observers that should commence negotiations for adhesion in the term of 5 years after the acquire such
status.
8. A: Countries joining European Union in 2007
* Recent signatory State.



                                                                                                                                  Business in Spain
                                                                                                                          Intellectual property law
                                                                                                                                                 15
Exhibit. Intellectual property conventions




 EXHIBIT

 INTELLECTUAL PROPERTY CONVENTIONS

                                              IP                           Trade Marks                     Patents           Designs     Copyright
           COUNTRY
                                    Paris           WTO1        Madrid      Madrid                                           Madrid       Berne
                                 Convention        (Trip’s)2   Agreement    Protocol     CTM3       PCT4             EPC5   Agreement   Convention


  Saint Kitts and Nevis              X                X                                             X*                                      X
  St. Lucia                          X                X                                              X                                      X
  Saint Vincent and the
  Grenadines                         X                X                                              X                                      X
  Samoa                                               O
  San Marino                         X                            X                                  X
  Sao Tome y Príncipe                X                O
  Saudi Arabia                       X                O                                                                                     X
  Senegal                            X                X                                              X                         X            X
  Seychelles                         X                O                                              X
  Sierra Leone                       X                X           X            X                     X
  Singapore                          X                X                        X                     X                         X            X
  Slovak Republic (Slovakia)         X                X           X            X          X          X                X                     X
  Slovenia                           X                X           X            X          X          X                X        X            X
  Solomon Islands                                     X
  South Africa                       X                X                                              X                                      X
  Spain                              X                X           X            X          X          X                X        X            X
  Sri Lanka                          X                X                                              X                                      X
  Sudan                              X                O           X                                  X                                      X
  Suriname                           X                X                                                                        X            X
  Swaziland                          X                X           X            X                     X                                      X
  Sweden                             X                X                        X          X          X                X                     X
  Switzerland                        X                X           X            X                     X                X        X            X
  Syria                              X                            X            X                     X                                      X

  1. WTO: World Trade Organization.
  2. TRIP’S: Trade Related Intellectual Property Rights.
  3. CTM: Community Trade Mark.
  4. PCT: Patent Co-operation Treaty.
  5. EPC: European Patent Convention.
  6. E: Non EU members states that have completed agreements for extension with the European Patent Organization.
  7. O: Governments with the status of observers that should commence negotiations for adhesion in the term of 5 years after the acquire such
  status.
  8. A: Countries joining European Union in 2007
  * Recent signatory State.



Business in Spain
Intellectual property law
16
EXHIBIT

INTELLECTUAL PROPERTY CONVENTIONS

                                            IP                           Trade Marks                     Patents             Designs     Copyright
          COUNTRY
                                  Paris           WTO1        Madrid      Madrid                                             Madrid       Berne
                               Convention        (Trip’s)2   Agreement    Protocol     CTM3       PCT4             EPC5     Agreement   Convention


Tayikistán                         X                O           X                                  X                                       X
Tanzania                           X                X                                              X                                       X
Thailand                                            X                                                                                      X
Togo                               X                X                                              X                                       X
Tonga                              X                O                                                                                      X
Trinidad & Tobago                  X                X                                              X                                       X
Tunisia                            X                X                                              X                            X          X
Turkey                             X                X                        X                     X                X           X          X
Turkmenistan                       X                                         X                     X
Uganda                             X                X                                              X
Ukraine                            X                O           X            X                     X                            X          X
United Arab Emirates               X                X                                              X                                       X
Uruguay                            X                X                                                                                      X
Uzbekistán                         X                O           X                                  X                                      X*
Vanuatu                                             O
Venezuela                          X                X                                                                                      X
Vietnam                            X                O           X                                  X                                       X
Yemen                                               O
Yugoslavia
(Serbia and Montenegro)            X                O           X            X                     X                E           X          X
Zambia                             X                X                        X                     X                                       X
Zimbabwe                           X                X                                              X                                       X

1. WTO: World Trade Organization.
2. TRIP’S: Trade Related Intellectual Property Rights.
3. CTM: Community Trade Mark.
4. PCT: Patent Co-operation Treaty.
5. EPC: European Patent Convention.
6. E: Non EU members states that have completed agreements for extension with the European Patent Organization.
7. O: Governments with the status of observers that should commence negotiations for adhesion in the term of 5 years after the acquire such
status.
8. A: Countries joining European Union in 2007
* Recent signatory State.



                                                                                                                                  Business in Spain
                                                                                                                          Intellectual property law
                                                                                                                                                 17
interes@interes.org
www.investinspain.org




Prepared by:
                        MINISTERIO              SECRETARÍA DE ESTADO
                        DE INDUSTRIA, TURISMO
                        Y COMERCIO              DE TURISMO Y COMERCIO
Business in Spain


Legal framework
and tax implications
of e-commerce in Spain



@
                         7
The main legal and tax issues to be taken into account in Spain with respect to
e-commerce are discussed in this chapter.

In Spain, as in neighboring countries, e-commerce-related activities are now subject to
specific legislation. Therefore, in transactions involving e-commerce, there is a need to
consider the legislation on online sales, advertising, standard contract terms, electronic
signatures, data protection, intellectual and industrial property. Apart from these
specific laws, it is also necessary to examine the general legislation on civil and
commercial contracts.

E-commerce raises tax issues that are difficult to address from a purely Spanish
perspective. For this reason, the Spanish tax authorities have preferred to wait until a
consensus is reached on the measures to be adopted at a European level and even
worldwide. Progress has been made in reaching a consensus on the VAT treatment of
“online e-commerce”. As for the direct taxation issues, it is foreseeable that any
consensus will take the form of a coordinated, uniform interpretation of the various
criteria determining the tax treatment of e-commerce, rather than a legislative change.
A good example of this are the amendments made to the commentaries on the OECD
Model Convention.




@
Sociedad Estatal para la Promoción y Atracción de las Inversiones Exteriores, S.A.U. RM: Tomo 21818, libro 0, folio 15, sección 8, hoja M-388683,
Inscripción 1. NIF: A-84479013. Depósito legal: M-24716-2006.
Published 2006
Business in Spain


Legal framework
and tax implications
of e-commerce in Spain


 1. Introduction                                                                      3
2. Defining regulatory principles                                                     3
    2.1. Civil and Commercial Legislation                                             3
    2.2. Telematic billing                                                            4
    2.3. Electronic signature                                                         5
    2.4. Electronic money                                                             5
    2.5. Personal data protection                                                     6
    2.6. Intellectual and industrial property and domain names                        6
    2.7. Law 34/2002 on e-commerce and information society services                   7
3. Tax implications of e-commerce in Spain                                            10
    3.1. Problems, general principles and initiatives taken in relation to taxation   10




7
    3.2. Direct taxation                                                              11
    3.3. Indirect taxation                                                            12
                                                                                                                                                                                                   FRANCE
                                                    La Coruña                                                          Santander
                                                                                                                                                    San Sebastián
                                                                                      Oviedo                                              Bilbao
                                                                     Lugo               Asturias                      Cantabria
                                         Santiago de Compostela                                                                              País
                                                                                                                                            Vasco                Pamplona
                                             Pontevedra    Galicia                                                                            Vitoria
                                                                  Orense                                                        Burgos                       Navarra
                                                                                                    León                                      Logroño
                                                                                                                                              La Rioja                              Huesca                                       Gerona
                                                                                                                     Palencia                                                                       Lérida   Cataluña
                                                                                                      Castilla y León                          Soria
                                                                                                              Valladolid                                                    Zaragoza
                                                                                               Zamora                                                                                                                     Barcelona
                                                                                                                                                                          Aragón
                                                                                      Salamanca                      Segovia                                                                                  Tarragona

                                                                                                                                Madrid     Guadalajara
                                                                                                             Ávila      Comunidad                                          Teruel
                                                                                                                         de Madrid
                                                                                                                                                        Cuenca
                                                                                                                                                                                          Castellón de la Plana
                                                    PORTUGAL                                                           Toledo                                                                                              Palma De Mallorca
                                                                                                                                                                                             Valencia
                                                                                     Cáceres                             Castilla - La Mancha                               Comunidad
                                                                             Extremadura                                                                                    Valenciana                                      Baleares
                                                                           Badajoz
                                                                                      Mérida                         Ciudad Real                             Albacete


                                                                                                                                                                                       Alicante

                                                                                                        Córdoba                                                Murcia
                                                                                                                                   Jaén
                                                                                                                                                                        Murcia
                                                                                          Sevilla          Andalucía
                                                                     Huelva
                                                                                                                                    Granada

                                                                                                                      Málaga                        Almería
                                                                                        Cádiz


                                                                                                     Ceuta



                                                                                                                                                   Melilla



                                                                                                           MOROCCO


           Santa Cruz de Tenerife
                                Canarias
                            Las Palmas de Gran Canaria




Business in Spain
Legal framework and tax implications of e-commerce in Spain
2
1. Introduction




1. INTRODUCTION                                                          2. DEFINING REGULATORY PRINCIPLES

E-commerce-related activities are now being regulated more               2.1. Civil and Commercial Legislation
specifically by Spanish legislation. Therefore, in commercial
transactions performed by telematic means, regard should be              2.1.1. Civil and Commercial Codes
had to legislation on distance sales, advertising, standard
contract terms, electronic signatures, data protection, intellectual     Electronic contracts are fully subject to the rules established by
and industrial property, and e-commerce and information society          the Spanish Civil Code on obligations and contracts and by the
services. Apart from these specific laws, it is also necessary to look   Commercial Code.
to the general legislation on civil and commercial contracts.

                                                                         Both the Civil Code and the Commercial Code were amended by
In any event, the Spanish legislature is currently making resolute       Law 34/2002 on E-Commerce and Information Society Services in
headway in regulating transactions of this nature. Examples of its       order to specifically establish that in contracts concluded by
aim to legislate on matters relating to new information                  automatic means, there is consent from the moment acceptance
technologies include the E-Commerce and Information Society              is expressed.
Services Law, and, more recently, Electronic Signature Law
59/2003.
                                                                         2.1.2. Remote sales

A fundamental point to bear in mind when undertaking any
                                                                         Equally applicable to electronic sales is Retail Trade Law 7/1996 in
initiative in the area of electronic transactions is that the
                                                                         its Chapter on remote sales. This Law defines “remote sales” as
applicable legislation varies depending on the potential recipient
                                                                         sales concluded without the simultaneous physical presence of
of the related offer. Consequently, there is greater leeway for the
                                                                         the buyer and the seller, where the seller’s offer and the buyer’s
parties to agree if the transaction takes place between companies
                                                                         acceptance are conveyed exclusively by a means of distance
(business to business, B2B) than if the commercial dealings are
                                                                         communication of any nature and within a distance contract
between a company and a private consumer as the final recipient
                                                                         system organized by the seller. Therefore, sales made by telematic
(business to consumer, B2C), since, among others, consumer
                                                                         means would be treated as remote sales, although the specific
protection legislation will apply in the latter case.
                                                                         legislation on information society services and e-commerce would
                                                                         preferentially apply.
In the tax sphere, e-commerce raises issues that are difficult to
address from a purely Spanish perspective. Perhaps for that              This Law establishes that distance sale offers must contain at least
reason, the Spanish tax authorities have not seen fit to adopt           the following:
unilateral measures, preferring to wait until a consensus is
reached on the measures to be adopted regionally and even                • The seller’s identity.
worldwide. As will be explained below, the process of reaching a
consensus on the                                                         • The special features of the product, the price, and the
                                                                           shipping expenses and, if applicable, the cost of using the
                                                                           distance communication technique if it is calculated on a
VAT treatment of “online e-commerce” is fairly advanced, as is
                                                                           basis other than the basic rate basis.
shown by the recent approval of the EU Directive on e-commerce
and its consequent transposition into Spanish law from July 1,           • The payment method, and delivery or types of fulfillment of
2003 onwards.                                                              orders.

                                                                         • The period for which the offer remains valid and, if applicable,
As for the direct taxation issues (the existence of permanent
                                                                           the minimum term of the contract.
establishments, the legal characterization of income, the transfer
pricing problem and the application of the “place-of-effective-          • The existence of a right to withdraw or terminate the contract
management” rule), it is foreseeable that consensus will take the          and, if applicable, the circumstances and conditions in which
form of a coordinated, more uniform interpretation of the various          the seller could supply a product of equivalent price and
criteria determining the tax treatment of e-commerce, rather               quality.
than a legislative change. As will be explained later, an example
of this greater coordination is the amendment made to the                • The out-of-court dispute resolution procedure, if applicable, in
commentaries on the OECD Model Convention.                                 which the seller participates.


                                                                                                                         Business in Spain
                                                                              Legal framework and tax implications of e-commerce in Spain
                                                                                                                                         3
2. Defining regulatory principles




In sales of this type, consumers are also afforded a number of          • To provide the consumer with prior information on all the
rights, such as:                                                          terms of the contract at least 3 days before the conclusion of
                                                                          the contract, and to send the consumer the full wording of
• The need for their express consent to the distance transaction,         the standard terms by any suitable means.
  so that the failure to reply cannot be construed as acceptance
  of the offer.                                                         • To send to the adhering party a receipt and information on all
                                                                          the terms of the contract concluded. This information must be
• Prohibition on unsolicited shipments, where such shipments              sent immediately or when the good is delivered or when the
  include a request for payment.                                          contract is concluded, and it must be in writing or on another
                                                                          durable medium proposed by the adhering party and that is
• The right to withdraw (with exceptions in cases such as the             fit for the communication effected.
  sale of assets subject to financial market rate fluctuations that
  the seller cannot control) within seven days from the receipt         • The adhering party can exercise the right to withdraw from
  of the product, the exercise of which is not subject to any             the contract, without incurring any penalty or expense, within
  formality or penalty.                                                   seven business days, according to the official calendar of the
                                                                          adhering party’s place of habitual residence. Time in the
                                                                          seven-day period will start running upon receipt of the
2.1.3. Consumer protection
                                                                          merchandise when the purpose of the contract is the delivery
                                                                          of goods or from the conclusion of the contract when the
Whenever e-commerce activities are targeted at consumers, it is
                                                                          contract is for the provision of services. If the information on
also necessary to comply with consumer protection legislation,
                                                                          the standard terms or the documentary confirmation is
namely Consumer and User Protection Law 26/1984.
                                                                          provided after the delivery of the merchandise or the
                                                                          conclusion of the contract, time in the seven-day period will
Also, if in making the contract there is an intention to incorporate      start running from the performance of this obligation.
predisposed clauses into a plurality of contracts, regard must be
had to Standard Contract Terms Law 7/1998, Article 5.3 of which         • The pre-formulating party also has the burden of proving that
is implemented by Royal Decree 1906/1999 on telephone or                  it has performed the duties imposed by the Royal Decree.
electronic contracts with standard terms.                                 Such duties include that of ensuring the existence and
                                                                          content of prior information on the terms, the delivery of the
                                                                          standard terms of, and documentary support for, the contract
The Royal Decree establishes the requirements that must be met
                                                                          and, if applicable, the express waiver of the adhering party to
by distance contracts concluded by telephone, or by electronic or
                                                                          the right of withdrawal.
telematic means and which contain standard contract terms.
“Standard contract terms” means pre-formulated terms the
                                                                        In this same framework of consumer protection, as a result of
inclusion of which in a contract has been imposed by one of the
                                                                        Directive 1999/44/EC, Law 23/2003 on Consumer Goods Sale
parties (regardless of who actually drafted them, or their external
                                                                        Warranties was enacted and contains a raft of measures aimed at
appearance, scope, or other circumstances) and which have been
                                                                        ensuring a minimum uniform standard of consumer protection.
drafted for inclusion in numerous contracts.
                                                                        The main innovative feature of this Law is the establishment of a
                                                                        free 2-year warranty for consumers on all consumer goods. The
This rule does not apply expressly to certain types of contract such    Law aims to offer consumers a range of possible remedies when
as, for example, government contracts, employment contracts,            the goods acquired are not in keeping with the terms of the
contracts for the incorporation of companies, contracts for             contract, enabling consumers to demand their repair or
regulating family relations, contracts relating to financial services   substitution.
that are regulated by their own specific legislation, and so on.
                                                                        2.2. Telematic billing
Conversely, the rules imposed by this Royal Decree apply to those
contracts which contain standard contract terms that have been          The noteworthy legislation in this area is the Order of the Ministry
adhered or consented to in Spain, whatever the law applicable to        of Economy and Finance1, dated December 3, 2002, which re-
them.                                                                   implements the telematic billing system envisaged in Value

To such effect, the Royal Decree imposes the following obligations
when contracting by telephone or by electronic or telematic             1   www.mineco.es/
means with standard contract terms:


Business in Spain
Legal framework and tax implications of e-commerce in Spain
4
Added Tax Law 37/1992 and repeals the Order of the Ministry of          governing the concept of the hierarchical or voluntary
Economy and Finance dated March 22, 1996.                               representative.

For these purposes, “electronic billing” is defined as billing based
                                                                        Furthermore, the Electronic Signature Law regulates the activity
on the use of advanced electronic signature systems or any other
                                                                        of certification service providers issuing certificates that link
electronic data exchange system which permits the authenticity
                                                                        signature verification data to a certain signatory. The Government
of the source of the electronically issued invoices and the integrity
                                                                        also has a service to publicize information on the certification
of their contents to be guaranteed.
                                                                        service providers operating in the market.

In addition, “electronic invoice” is defined as any electronic
document, which meets the issue and content conditions                  Given that it is not necessary to obtain prior authorization in
imposed by Royal Decree Law 1496/2003 regulating the duty of            order to provide certification services, the Ministry of Industry,
dispatch and delivery of invoices by traders and professionals          Tourism and Trade2 is empowered to use independent and
(please see section 3 of this chapter).                                 technically qualified entities to monitor and inspect certification
                                                                        service providers.
2.3. Electronic signature
                                                                        Furthermore, in order to be able to offer their services,
In order to ensure the technical security and legal certainty of        certification service providers must arrange liability insurance of
business activities using new technologies, Electronic Signature        at least t3 million to cover any risk of liability for damage or loss,
Law 59/2003 was enacted in late 2003.                                   although the Law makes this requirement flexible by permitting
                                                                        providers to combine various insurance instruments in order to be
This new Law aims to promote more widespread use of the                 able cover such amount.
electronic signatures as an instrument that generates trust and
security in telematic communications, thereby contributing to the
                                                                        2.4. Electronic money
development of e-commerce and of the “e-government.”

“Electronic signature” is defined by the Law as a set of data, in       The Spanish legislation on electronic means of payment is
electronic form, attached to or associated with other electronic        somewhat scarce. Despite this, Law 44/2002 on Measures for the
data, which can be used as a method for identifying the                 Reform of the Financial System regulates e-money in the Chapter
signatory. A separate class of electronic signature is the              on “technological innovation.” This Law transposes Directive
“advanced electronic signature,” which is recognized as a               2000/46/EC on the taking up, pursuit of and prudential
signature which permits the signatory to be identified and the          supervision of the business of electronic money institutions.
integrity of the data signed to be verified, since it is linked
exclusively to the signatory and to the data to which it relates and    “Electronic money” is defined by the Law as the monetary value
since it has been created by means that the signatory can keep          as represented by a claim on the issuer which is stored on an
under his sole control.                                                 electronic device, issued on receipt of funds of an amount not less
                                                                        in value than the monetary value issued and accepted as a
The Law includes the new concept of “recognized electronic              means of payment by enterprises other than the issuer.
signature” with a view to making it possible to distinguish an
electronic signature that meets the technical and legal
requirements necessary to be considered equivalent to a                 A number of specific management and control procedures
handwritten signature. Also defined are the concepts of                 ensuring the sound operation and stability of the financial system
“electronic date” and “statement of certification practices.”           are required in order to issue electronic money. Accordingly, the
                                                                        Ministry of Economy and Finance (following a report by Bank of
                                                                        Spain3) will be responsible for approving the creation of Electronic
Under the new Law, both individuals and legal entities can act as
                                                                        Money Institutions, and the Bank of Spain will be responsible for
signatories. In this way, the Law aims to encourage the placing of
                                                                        monitoring and inspecting these institutions and for ensuring
orders and issuing of invoices by telematic means, while at the
                                                                        they are recorded on the register created for that purpose.
same time safeguarding legal certainty for the entity holding the
electronic signature and for the third parties who have dealings
with it. However, electronic certificates of legal entities will not    2   www.mityc.es/
alter civil and commercial legislation as regards the provisions        3   www.bde.es


                                                                                                                          Business in Spain
                                                                               Legal framework and tax implications of e-commerce in Spain
                                                                                                                                          5
2. Defining regulatory principles




2.5. Personal data protection                                        • The establishment of minor, serious or very serious
                                                                       infringements as a result of breaches of the obligations
Another aspect that may have e-commerce implications is the            imposed by this Law, with penalties of up to t601,012.10.
possible processing of any personal data under transactions of
this nature.                                                         Royal Decree 994/1999, approving the Regulations on security
                                                                     measures for automated filing systems containing personal data,
Personal Data Protection Organic Law 15/1999 regulates the           provides that technical and organizational measures must be
processing of an individual’s personal data obtained by public       taken to ensure the security of automated filing systems. Such
and private entities in the course of their duties. Under the Law,   measures will vary depending on the nature of the personal data
personal data cannot be used indiscriminately and there are          being processed.
penalties in the event of a breach of the statutory obligations.
The Organic Law applies to “personal data,” meaning any              It should also be noted that communications of data involving
information concerning identified or unidentified individuals.       the international movement of personal data require the prior
Accordingly, it does not apply to data concerning legal entities.    authorization of the Director of the Data Protection Agency, when
                                                                     such data is to be sent to countries without a level of protection
Personal data protection legislation revolves around the following   comparable to that of Spain, except in a number of specific cases
principles:                                                          such as, for example, when the data subject gives his or her
                                                                     unambiguous consent to the transfer of his or her data. In this
• The data subject must give prior consent to the processing of
                                                                     connection, it is assumed that EU Member States ensure an
  his or her personal data, except for the exceptions envisaged
                                                                     adequate level of protection. In other cases, a declaration in this
  by the Law.
                                                                     connection is required from the EU Commission or a ruling from
• The processing of specially protected data (i.e., data referring   the Spanish Data Protection Agency that the data protection
  to ideology, labor union membership, religion, beliefs,            offered by the country in question is appropriate.
  ethnicity, health, and sex life) require the data subject’s
  express consent (in writing in the first four cases).              Although still in the preparation phase, the draft regulations
• The data subject must be informed of a number of matters in        implementing Personal Data Protection Organic Law 15/1999 are
  relation to the envisaged processing of his or her personal        currently being prepared and are expected to be approved in the
  data.                                                              coming months. These Regulations would include many of the
                                                                     standards and recommendations that the Spanish Data
• Personal data may only be processed where they are                 Protection Agency has been issuing in recent years on the
  adequate, relevant and not excessive in relation to the            practical application of, and ways to execute, the various
  purpose for which they have been obtained.                         principles that govern personal data protection. In this respect,
• Personal data may only be communicated to a third party if         the Regulations would govern matters such as ways of obtaining
  the data subject has given his or her prior consent for such       consent, in particular where data is processed for marketing
  purpose, unless such communication is permitted by the Law.        purposes, the outsourcing of personal data processing or the way
                                                                     in which data subjects can exercise their rights of access,
• When the communication is addressed to a third party               cancellation, rectification and opposition. The Regulations are
  classified by the Law as a data processor, which provides a        also expected to include a chapter on the security measures that
  service entailing access to such data, prior consent by the        must be taken by data controllers, regardless of whether the data
  data subject is not required, but the relationship must be         is processed by automatic or manual means.
  regulated in a contract for services that includes a number of
  provisions established by the Law.                                 2.6. Intellectual and industrial property and domain
• Data subjects are afforded the rights of access, rectification,         names
  cancellation, and opposition to and of the processing of their
  personal data.                                                     2.6.1. Intellectual property
• The creation of personal data filing systems must be
                                                                     The legal protection of intellectual property is hugely important
  previously notified to the Spanish Data Protection Agency4,
                                                                     when engaging in e-commerce in the “information society.” For
  the agency in charge of enforcing this legislation.
                                                                     this reason, it is essential to determine as clearly as possible the
                                                                     ownership of the rights which can flow from content and
4   www.agpd.es/                                                     information based on new technologies, the main hallmark of


Business in Spain
Legal framework and tax implications of e-commerce in Spain
6
which is to facilitate the transmission and broad dissemination of      to harmonize the economic rights of reproduction, distribution
such content and information. The key Spanish legislation in this       and public communication, and to regulate the new forms of
area is Legislative Royal Decree 1/1996, approving the Revised          interactive on-demand services, adapting the rules governing
Intellectual Property Law.                                              these rights to the new operating procedures existing in the
                                                                        Information Society. One of the points most debated in preparing
Article 10 of the Revised Law establishes that all original literary,   the Bill is the regulation of the right to remuneration for private
artistic or scientific creations expressed by any means or on any       copies.
medium, whether tangible or intangible, currently known or
invented in the future, are intellectual property. Accordingly, any     2.6.2. Industrial property
creations meeting the originality requirement are capable of
being protected, including graphic designs and source codes of,         When engaging in e-commerce, regard should also be had to
and information contained on, websites.                                 industrial property matters. Inventions can be patented and, with
                                                                        respect to e-commerce, patents on encryption and compression
Website content will be afforded such protection as pertains to         algorithms may be established. However, Article 4.c of Patents
the specific category of the content (graphics, music, literary         and Utility Models Law 11/1986 provides that plans, rules, and
works, audiovisual, databases, etc.) and, therefore, the person in      methods for conducting a business, as well as software, cannot
charge of the website must hold the related rights, either as the       be patented.
original owner (of the collective work under his management or
developed by employees) or as a licensee.                               2.6.3. Domain names

Intellectual property has two clearly differentiated facets: on the
                                                                        Another essential issue for Internet operators to take into account
one hand, the author’s moral right to the work in question, which
                                                                        is the registration and use of domain names. In this respect,
is nonwaivable and inalienable, that is to say, the right to the
                                                                        regard must be had to Order ITC/1542/2005 approving the
paternity of the work, to demand that its integrity be respected,
                                                                        National Plan for Internet Domain Names under the country code
and to modify the work or withdraw it from the market; and on
                                                                        for Spain (“.es”), which repeals the previous Order
the other hand, the author’s economic right to the work, which is
                                                                        CTE/662/2003.
waivable and alienable even after death, and is composed of the
rights of reproduction, distribution, transformation, and public
communication.                                                          Under this new order, Red.es, a public for-profit entity, continues
                                                                        to perform the function of the public authority assigning domain
                                                                        names under the “.es” code.
In protecting intellectual property, the owner may seek both civil
and criminal remedies. The Revised Law affords the holder of the
rights of exploitation the possibility of applying for the cessation    The previous order sought to reduce the restrictions on the
of unlawful activities (e.g., a website unlawfully disseminating a      assignation of domain names under the “.es” code by reducing
protected work could be closed down) and of seeking damages.            the existing registration prohibitions, especially those which
From a criminal law standpoint, the protection of intellectual          affected geographical or generic terms, and increasing the
property on the Internet is based on Article 270 of the Criminal        legitimacy and type of domain names that could be requested
Code, which defines crimes against intellectual property as the         under the “.es” code.
reproduction, plagiarism, distribution or public communication of
a literary, artistic or scientific work, in whole or in part, or the    Notwithstanding the above, evidence or linkage between the
transformation, interpretation or performance thereof affixed on        domain name applied for and the individual interested in
any type of medium or communicated by any means, without the            registering it was still required. The new rules change the
permission of the holders or assigns of the relevant intellectual       requirements necessary to obtain a “.es” domain name,
property rights.                                                        considerably reducing the “a priori” monitoring of applications
                                                                        for such domain names and allowing them to be transferred to
Notwithstanding the foregoing, it is expected that a Law will soon      third parties.
be enacted to transpose Directive 2001/29/EC on the
harmonization of certain aspects of copyright and related rights        In line with the international trend, Order ITC/1542/2005
in the information society, which would amend the Revised               simplifies the system for assigning domain names, which can be
Intellectual Property Law. In this regard, the Lower House of the       requested directly from the granting authority or through an
Spanish Parliament is debating a Bill for this reform. The Bill seeks   agent.


                                                                                                                        Business in Spain
                                                                             Legal framework and tax implications of e-commerce in Spain
                                                                                                                                        7
2. Defining regulatory principles




Thus, second-level domain names under the code “.es” will be           • the contracting for goods and services through electronic
assigned on a “first come, first serve” basis. This assignment can       means;
be requested by individuals or legal entities and entities without
legal personality that have interests in or ties with Spain.           • the organization and management of auctions using
However, those which coincide with a first-level domain name or          electronic means or of virtual shopping centers or markets;
with generally known names of Internet terms will not be
                                                                       • the management of purchases on the network by groups of
assigned.
                                                                         persons;

It is also established that domain names under the codes               • the sending of commercial communications;
“.com.es,” “.nom.es,” “.org.es,” “.gob.es” and “.edu.es” may be
                                                                       • the supply of information through telematic channels; and
assigned in the third level. Third-level domain names will also be
assigned on a “first come, first serve” basis. The persons or          • video upon demand, as a service that the user may select
entities that can apply for the domain names will vary according         through the network and, in general, the distribution of
to the codes. Thus, for example, the Spanish Public Authorities          contents upon individual request.
and the public law entities attached to them can request domain
names under the “.gov.es” code.
                                                                       The ECISSA will apply to information society service providers
                                                                       established in Spain. In this respect, the provider is considered to
In general, the domain name must fulfill the rules of syntax, that     be established in Spain when its place of residence or registered
is, the only valid characters are letters of the Spanish alphabet,     office is located in Spanish territory, provided that it coincides
numbers (“0”-“9”) and the hyphen, provided that the last-              with the place where its administrative management and
mentioned is not the first or the last character, and the name         business administration are actually centralized. Otherwise, the
must be a minimum of three and a maximum of sixty-three                place where such management or direction is performed will be
characters long, etc.                                                  considered.

Furthermore, the new National Plan establishes that the right to       Likewise, the ECISSA will apply to services rendered by providers
use a domain name under the “.es” code is transferable provided        who are resident or have a registered office in any other State
that the acquiror meets the requirements necessary to own the          when the services are offered through a permanent
domain name and that the transfer is notified to the assigning         establishment located in Spain. Therefore, the use of
authority.                                                             technological means located in Spain to provide or access the
                                                                       service will not alone determine that the provider has an
Also, one of the main new features of Order ITC/1542/2005 is the       establishment in Spain.
establishment of an extrajudicial body of mediation and
arbitration for the resolution of disputes concerning the              The above notwithstanding, the requirements of the ECISSA will
assignment of “.es” domain names.                                      apply to service providers established in another State of the
                                                                       European Union or the European Economic Area when the
2.7. Law 34/2002 on e-commerce and information                         recipient of the services is located in Spain and the services affect:
     society services
                                                                       • intellectual or industrial property rights;

Law 34/2002 on e-commerce and information society services             • advertising issued by collective investment institutions;
(ECISSA), in force since October 12, 2002, transposes Directive
2000/31/EC of the European Parliament and of the Council,              • direct insurance activities;
relating to certain legal aspects of the services of the information   • obligations arising from contracts with consumers; or
society, particularly e-commerce on the domestic market.
                                                                       • the lawfulness of non-requested commercial communications
The ECISSA defines as information society services any service           by e-mail.
provided for a valuable consideration, long-distance, through
electronic channels and upon individual request by the recipient,      In any case, the organization, transfer, amendment and
including also those not paid by the recipient, to the extent that     extinguishment of rights in rem on real properties located in
they constitute an economic activity for the provider. Specifically,   Spain will be subject to the formal requirements of validity and
the following are deemed to be information society services:           effectiveness established by the laws of Spain.


Business in Spain
Legal framework and tax implications of e-commerce in Spain
8
The ECISSA includes important new features in respect of the                 or responsible administrative authority has ordered that
information society service providers and e-mail activities, among           it be withdrawn or that access to it be impeded.
which we may note:
                                                                        — Data storage or hosting service providers will not be
• The principle of free provision of services not subject to prior        liable for stored information if they are unaware that
  authorization is established to provide information society             such information is unlawful or, if they are so aware, they
  services, except as regards public policy, public health                act diligently to withdraw or render access to the data
  protection, public security or consumer protection.                     impossible.
• The following obligations are imposed on information society
                                                                        — The providers of services providing links or search
  service providers:
                                                                          instruments or contents will not be liable if they are
   — To notify a domain name that it is used for their                    unaware of the unlawful nature of the activity or the
     identification on the Internet, within one month, to the             information to which they refer or recommend or, if they
     registry where they are entered to acquire legal status or           are so aware, if they act diligently to omit or render
     for the sole purposes of publicity.                                  useless the respective link.
   — To put in place the means to permit the recipients of the       • A specific system is established for commercial
     services and the responsible bodies to access easily,             communications through electronic channels, without
     directly and free of charge, to the information on the            prejudice to the legislation in force on commercial, publicity
     provider (corporate name, registered office, registration         and personal data protection matters. Thus, commercial
     particulars, tax identification number, etc.), on the price       communications through electronic channels must be clearly
     of the product (stating if it includes applicable expenses        identifiable, stating the individual or corporation for whom
     and shipping expenses) and on the codes of conduct to             they are performed, including at the beginning of the
     which it has adhered.                                             message the word “publicidad” (advertisement) and stating
   — For providers of intermediation services, to cooperate            clearly the conditions for access and participation, in the case
     with the responsible authorities in interrupting the              of discounts, prizes, gifts, competitions or promotional
     provision of information society services or in                   games.
     withdrawing contents.
                                                                        Additionally, advertising or promotional communications sent
   — In respect of network and e-mail service and network               by e-mail or similar form of communication that have not
     operators, access suppliers and data hosting service               been previously requested or expressly authorized by the
     providers, to withhold the connection and traffic data             recipients are prohibited.
     during the provision of an information society service for
     a maximum of 12 months, upon the terms established by              However, Law 32/2003 introduced an exception to the
     the implementing legislation pending approval.                     previous obligation of obtaining express consent from the
                                                                        recipient of commercial communications. Thus, under the
• A specific system of liabilities is established for information
                                                                        new exception, express consent will not be necessary when
  society service providers, without prejudice to the provisions
                                                                        there is a pre-existing contractual relationship, provided that
  of civil, criminal and administrative legislation.
                                                                        the supplier had lawfully obtained the recipient’s contact data
   — Network operators and access suppliers will not be liable          and that the commercial communications refer to goods or
     for the information transmitted unless they have                   services of the provider’s own company which are similar to
     originated the transmission, changed the data or                   those for which the recipient initially made a contract.
     selected these or their recipients.
                                                                        Contacts through electronic channels are regulated,
   — Service providers that make a temporary copy of the data           recognizing the effectiveness of the agreements made
     requested by users are not liable for the stored                   through electronic channels when consent has been granted
     information unless they change it, permit access by                and other requirements necessary for their validity are met.
     recipients who fail to comply with the conditions                  Additionally the following policies are established for
     established for the purpose, fail to observe the generally         contracts made through electronic channels:
     accepted standards for the update of the information,
     interfere in the lawful use of the technology, fail to             — The requirement that a document should be placed on
     withdraw the stored information or do not render their               record in writing is considered to be met when it is
     access impossible when they become aware that a court                contained on electronic support.


                                                                                                                     Business in Spain
                                                                          Legal framework and tax implications of e-commerce in Spain
                                                                                                                                     9
2. Defining regulatory principles




   — Documents on electronic support are admitted as                  3. TAX IMPLICATIONS OF E-COMMERCE IN SPAIN
     documentary evidence in lawsuits.
                                                                      3.1. Problems, general principles and initiatives taken in
   — Determination of the legislation applicable to the
                                                                           relation to taxation
     contract made through electronic channels will be
     governed by the provisions of international private law.
                                                                      Except for Spain’s commitments to the European Union on value
   — A series of obligations is established prior to the              added tax (“VAT”), at present there is no tax regime in Spain
     commencement of the contracting procedures relating to           which specifically regulates the trading of goods and services on
     the information that should be furnished on the                  the Internet. Therefore, the same taxes and the same rules as
     formalities for the making of the contract, the validity of      those for other forms of commerce apply. This approach is in tune
     offers or proposals of contracts and the availability, if any,   with the principles enunciated by the Spanish Tax Agency in the
     of general contracting conditions.                               Report of the Commission analyzing the impact of e-commerce
                                                                      on the Spanish tax system prepared by the Office of the Secretary
   — The offeror is obliged to confirm receipt of the                 of State for Finance.
     acceptance within 24 hours after its receipt by an
     acknowledgement sent by e-mail or equivalent means to            With respect to VAT and formal VAT obligations, the three basic
     that used in the contracting procedure, permitting the           bodies of legislation emanating from the European Union are as
     recipient to file such confirmation.                             follows:

   — Agreements made through electronic channels in which             • Council Directive 2002/38/EC of May 7, 2002 amending
     the consumer participates will be assumed to have been             temporarily Directive 77/388/EEC (Sixth Directive on the
     made in the place where the consumer has his                       uniform basis of assessment for VAT) as regards the value
     customary place of residence. When these contracts are             added tax arrangements applicable to radio and television
     made between entrepreneurs or professionals, they will             broad- casting services and certain electronically supplied
     be assumed to have been made, in the absence of a                  services, which was transposed into Spanish law in 2003
     provision on the matter, in the place where the service            through the relevant amendments to VAT Law 37/1992.
     provider is established.
                                                                      • Council Regulation (EC) No. 792/2002 of May 7, 2002
   — The recognition is made of a cause of action for cessation         amending temporarily Regulation (EEC) no. 218/92 on
     against conduct contravening the ECISSA that is                    administrative cooperation in the field of indirect taxation
     detrimental to collective or general consumers’ interests          (VAT) as regards additional measures regarding electronic
     and the promotion of the out-of-court settlement of                commerce.
     dispute.
                                                                      • Council Directive 2001/115/EC of December 20, 2001
   — Minor, serious and gross infringements are established             amending Directive 77/388/EEC with a view to simplifying,
     due to failure to comply with the obligations imposed in           modernizing and harmonizing the conditions laid down for
     the ECISSA, with penalties of up to t600,000.                      invoicing in respect of VAT. The terms of this Directive have
                                                                        been transposed into Spanish legislation through Royal
                                                                        Decree 1496/2003 regulating billing obligations. This Royal
Lastly, Final Provision Eight of the ECISSA has been implemented        Decree takes effect from January 1, 2004.
through the approval of Royal Decree 292/2004, of February 20,
creating the public label of trust in Information Society Services
and E-Commerce and regulating its requirements and the                The first two bodies of legislation referred to are temporary in
procedure whereby it is granted. This Royal Decree seeks to           scope since they must be reviewed by the EU Council before June
encourage the use of codes of conduct, especially those which         30, 2006, which must either adopt the necessary measures on
are drawn up with the participation of consumer and user              an adequate mechanism for taxation in the place of consumption
associations that use the consumers’ arbitration system or other      or extend the three-year period.
extrajudicial systems for resolving disputes with consumers. The
Royal Decree also creates a public label of trust which is intended   The provisions of these Directives and their transposition into
to aid consumers and users in distinguishing which seals and          Spanish law are examined in the section on the indirect taxation
codes provide a suitable level of protection.                         of e- commerce.


Business in Spain
Legal framework and tax implications of e-commerce in Spain
10
3.2. Direct taxation                                                • In order for a server to constitute a fixed place of business it
                                                                      must be permanent, in that it must be located in a certain
Despite there being no differences in the tax treatment of income     place for a sufficient length of time. What counts is whether,
obtained electronically, there are a number of issues that have       in fact, it is moved from one place to another rather than
been addressed by both the OECD and by the Spanish tax                whether or not it can be moved. In this regard, a server used
authorities themselves:                                               for e-commerce can be a permanent establishment
                                                                      regardless of whether or not there are personnel to operate
a) The permanent establishment issue.
                                                                      that server, where no personnel are required for the operation
b) Legal characterization of income generated by the sale of          assigned to the server.
   goods and services on the Internet.
                                                                       When determining whether or not the server installed by a
c) Determination of taxable income and the transfer pricing            given company in a country constitutes a permanent
   problem.                                                            establishment of that company, it is particularly important to
                                                                       analyze whether the company engages in business activities
d) Application of the place of effective management rule to
                                                                       specific to its corporate purpose through that server or
   determine the tax residence of taxpayers engaging in e-
                                                                       whether, on the contrary, it only engages in activities of a
   commerce.
                                                                       preparatory or auxiliary character (such as advertising,
                                                                       market research, data gathering, providing a
The most relevant considerations and the progress made in
                                                                       communications link between suppliers and customers, and
analyzing those issues are summarized below:
                                                                       making backup copies).

3.2.1. The permanent establishment issue                            • ISPs do not generally constitute permanent establishments of
                                                                      companies that engage in e-commerce on websites since ISPs
The issue specifically addressed is whether one or more of the        are not normally agents of a dependent status for those non-
following elements can be regarded as permanent                       resident companies.
establishments in the country where a company selling a good or
supplying a service on the Internet is located:                     3.2.2. Legal characterization of income
• Server.
                                                                    The second relevant issue in this area concerns the
• Website on server.                                                characterization of income and, in particular, the possibility that
• ISP (Internet Service Provider).                                  certain goods delivered on line may, merely by virtue of the fact
                                                                    that they are protected by intellectual or industrial property laws
In January 2003, the OECD published new commentaries on the         (such as music, books and, in particular, software), be
Articles of the Model Tax Convention. Specifically, a new           characterized as generators of royalties and, therefore, be subject
commentary on Article 5 (in relation to the definition of           to taxation in the country of source.
“permanent establishment”) has been introduced so as to take
account of the elements which define new forms of commerce.         The amendments added to the commentaries on the OECD
                                                                    Model Convention characterize as business profits (instead of
The main conclusions drawn from the new commentary are as           royalties) almost all payments made for all intangible goods
follows:                                                            delivered electronically, on the ground that the subject-matter of
                                                                    those transactions are copies of images, sounds or text rather
• A distinction must be made between a computer or server
                                                                    than the right to exploit them commercially. However, the
  (which can constitute a permanent establishment) and the
                                                                    position of Spain in relation to the acquisition of rights in
  software used by that computer (which cannot constitute a
                                                                    software has been qualified, in a remark added to the
  permanent establishment). This distinction is important
                                                                    commentaries on the OECD Model, as the payment of these
  because the entity that operates the server hosting the
                                                                    rights may be considered to be a royalty.
  website is normally different from the entity that carries on
  business over the Internet (hosting agreements).
                                                                    It should also be noted that under Article 13 of the Revised Text of
• A website does not in itself constitute tangible property and,    the Non-resident Income Tax Law, approved by Legislative Royal
  therefore, cannot be deemed a “place of business” if this is      Decree 5/2004, of March 5, amounts such as those paid for the
  defined as facilities, equipment, or machinery capable of         use or the granting of use of rights in software are characterized
  constituting a permanent establishment.                           as royalties.


                                                                                                                    Business in Spain
                                                                         Legal framework and tax implications of e-commerce in Spain
                                                                                                                                  11
3. Tax implications of e-commerce in Spain




Also, in some tax treaties signed by Spain, income derived from          of the parties involved) make the traditional rules on determining
the grant of the right to use software is expressly characterized as     which country has the jurisdiction to tax the worldwide income
a royalty. In those cases where no mention is made, such as the          obtained by one enterprise (based on the principle of residence
Spain-US tax treaty, for the purpose of characterizing the               by reference to the place of formation, the place of the registered
applicable tax rate, the tax authorities have interpreted that the       office, or the place of effective management) more difficult to
transfer of software cannot be characterized as a scientific or          apply to taxpayers engaging in e-commerce.
literary work and, therefore, cannot benefit from the rates
specially envisaged for such work.                                       Indeed, the parameters established in the tax treaties for the
                                                                         purpose of apportioning tax powers among States in case of
Lastly, as stated in the latest rulings issued by the tax authorities,   conflict (most of them based on the “place-of-effective-
it should be noted that the income resulting from granting the           management” principle) are overridden in an area such as e-
right to use software will not be characterized as royalties where       commerce, where the various managing bodies of the same
it implies the transfer of a standardized software program which         enterprise can be located in different jurisdictions and be totally
is intended exclusively for personal or professional use by the          mobile during the year. In this regard, it can be extremely difficult
acquirer. Likewise, the grant of an access right to a database was       to determine which place is the enterprise‘s place of effective
recently characterized by the tax authorities as royalties as they       management, and this can lead to double taxation or no
considered that protected databases may be the subject of                taxation at all.
intellectual property rights.
                                                                         Although the international organizations that have examined this
3.2.3. Determination of taxable income and the transfer                  issue and the Spanish tax authorities themselves are aware of
       pricing problem                                                   this problem, they have yet to arrive at clear conclusions on how
                                                                         to resolve it. Accordingly, a close watch must be kept on progress
The extensive use of intranets among different companies                 in the work being done in this area.
belonging to multinational groups and the enormous mobility of
transactions over computer networks create highly complex                3.3. Indirect taxation
problems when applying the traditional arm’s-length principle to
valuing intercompany transactions. This is because:                      It is in the area of VAT where the most relevant coordinated
                                                                         legislative measures have been adopted.
• E-commerce encourages the detachment of activities from
  their location since it hugely multiplies transactions between         The indirect taxation implications for e-commerce mainly concern
  companies within the same group; and                                   “online e-commerce,” a term that refers to products supplied on
• the special characteristics of online trade in content and             the Internet in digitized form (books, software, photographs,
  services on the Internet make it very difficult to ascertain the       movies, music, and so on) and downloaded by a customer in real
  market value of commercial transactions, above all bearing in          time onto his or her computer, having clicked on to the supplier’s
  mind that, sometimes, electronic content can be downloaded             website and paid for the products in question (in contrast to
  and services can be received free of charge.                           offline supplies where products sold on the Internet are
                                                                         subsequently delivered by using conventional means of
                                                                         transportation).
Due to the above, tax authorities in OECD countries (including
Spain) are advocating the development of bilateral or
                                                                         Offline e-commerce poses fewer technical difficulties in relation to
multilateral systems for advance pricing agreements, applying
                                                                         the VAT treatment of transactions because it still involves the
the OECD transfer pricing guidelines to e-commerce. Noteworthy
                                                                         physical supply of a tangible good. Accordingly, the traditional
in this regard is the creation of an EU Joint Transfer Pricing Forum
                                                                         VAT concepts apply: domestic transactions, intra-Community
in which, among other matters, nonlegislative measures are
                                                                         acquisitions, and schemes for distance sales or imports.
being proposed to enable a uniform application of the OECD
guidelines in the European Union.
                                                                         The main VAT issues arising in relation to e- commerce (especially
                                                                         online e-commerce) are in essence the following:
3.2.4. Application of the rule of “place-of-effective-
       management”                                                       • The definition of “taxable event” as a supply of goods or
                                                                           services in online e- commerce transactions and the
The special characteristics of e-commerce (which include easy              application of the relevant rules for determining the place of
detachability from location, relative anonymity, and the mobility          supply in order to determine its VAT treatment.


Business in Spain
Legal framework and tax implications of e-commerce in Spain
12
• The determination of the VAT rates applicable to the different       • The services are deemed to have been supplied in the territory
  types of e-commerce.                                                   where Spanish VAT applies if:

• The adaptation of the formal obligations and management                 — the recipient is a trader or professional and his place of
  of VAT to the realities of e-commerce and, particularly, the              business is in Spain;
  obligations regarding invoices.
                                                                          — the supplier is established in Spain and the recipient is a
Each of these issues is briefly outlined below:                             nontrader residing in the EU or having an unidentifiable
                                                                            domicile;
3.3.1. Definition of “taxable event” as a supply of goods
                                                                          — the services are supplied from outside the EU and the
       or services for the purpose of determining the place
                                                                            recipient is a nontrader domiciled in Spain;
       of supply
                                                                          — the recipient is a trader or professional, the services are
Law 53/2003 of December 30, on Tax, Administrative, Labor and               actually consumed in Spain, and the services have not
Social Security Measures introduced certain changes to the                  been deemed supplied pursuant to the above rules in the
current VAT Law with a view to redressing the damaging                      EU, Canary Islands, Ceuta or Melilla.
economic distortions now suffered by EU-based operators, and to
bring the VAT Law into line with the changes introduced by
                                                                       In this connection, the place of supply for electronically supplied
Directive 2002/38/EC. This Directive is based on the premise that
                                                                       services can be summarized in accordance with Table 1.
all EU Member States will uniformly treat transactions performed
electronically as supplies of services:                                • As regards determining who is the taxable person, it has been
                                                                         decided to fully apply the current legislation (Article 84 of the
• The services affected by the changes are electronically
                                                                         VAT Law) which establishes that:
  supplied services including transactions for computer
  software, data processing, and other similar services relating          — In general, the supplier of services is the taxable person,
  to the use of computers and the supply of information,                    regardless of where he is established.
  provided that they are supplied for consideration, when their
  transmission is sent initially and received at destination by           — In special circumstances, the recipient of the services
  electronic data processing equipment. The fact that the                   (rather than the supplier) is the taxable person and is
  supplier and recipient of a service communicate by e-mail                 obligated to reverse charge the VAT under the “reversal
  does not of itself mean that the service is an electronically             of VAT liability” mechanism (this applies only where the
  supplied service.                                                         supplier is a trader not established for VAT purposes in



 Table 1

 DETERMINING OF THE PLACE OF SUPPLY

                Supplier                                            Recipient                                          Place of Supply


  EU / Non-EU                            Trader established in Spain                                           Spain

  EU / Non-EU                            Non-EU trader and actual consumption in Spain                         Spain

  Spain                                  Nontrader resident in the EU                                          Spain

  EU                                     Nontrader resident in Spain                                           Country of origin

  Non-EU                                 Nontrader resident or domiciled in Spain                              Spain (Application of
                                                                                                               special scheme)


                                                                                                                       Business in Spain
                                                                            Legal framework and tax implications of e-commerce in Spain
                                                                                                                                     13
3. Tax implications of e-commerce in Spain




         Spain and the customer receiving the services is a trader        Lastly, as noted above, Directive 2001/115/EC has been
         or professional established in Spain).                           transposed into Spanish Law by Royal Decree 1496/2003, of
                                                                          November 28, regulating billing obligations, with effect from
    — Finally, in cases where the supplier of the services is not
                                                                          January 1, 2004.
      established in the EU and the customer is a final
      consumer (in Business to Consumer, or “B2C,”
                                                                          The new Royal Decree on billing establishes the legal rules
      transactions), the supplier of the services is the taxable
                                                                          applicable to the sending of invoices electronically, establishing
      person. However, with a view to simplifying their
                                                                          that they may be sent electronically if the recipient has given its
      obligations, suppliers only have to register (electronically)
                                                                          express consent and the electronic means used in the
      for VAT in one Member State, although they will have to
                                                                          transmission guarantee the authenticity of the origin and the
      charge the VAT relating to each of the jurisdictions where
                                                                          integrity of its contents.
      their customers are located and pay it over (also by
      telematic means) to the tax authorities of the Member
      State in which they are registered. Subsequently, that              For these purposes, the guarantee of the authenticity of origin
      Member State will reapportion the VAT collected among               and the integrity of the contents of invoices sent electronically can
      the other countries.                                                be evidenced by an advanced electronic signature, by an
                                                                          electronic data interchange (EDI) or by other systems proposed by
It should also be mentioned that the recipient will be jointly and        the parties concerned, provided that they have been previously
severally liable for VAT, and for any applicable penalty in that          authorized by the tax authorities.
connection, if by his negligent or wilful act or omission, he avoids
being properly charged VAT.                                               Invoices can also be kept in an electronic format provided that it
                                                                          ensures the legibility of the invoices in the original format, in
Non-established traders or professionals applying this special            which they have been received, as well as the data and
scheme in Spain will be entitled to a refund of the VAT borne             mechanisms that guarantee the authenticity of their origin and
under the refund procedure for non-established traders without            the integrity of their contents.
the condition of reciprocity of treatment (generally imposed by
the VAT Law) applying to them in this case.                               The Royal Decree on billing keeps in force Order 3134/2002 of
                                                                          December 3 of the Ministry Economy and Finance, implementing
3.3.2. Determination of the VAT rates applicable to the                   the applicable rules on electronic invoices, until a new Ministerial
       various types of e-commerce                                        Order is made to regulate this matter.

In line with the view held by the Spanish tax authorities, the            The Order applies to persons resident in Spain or operating there
standard VAT rate of 16% will apply in all cases, since it is a type of   through a permanent establishment and expressly acknowledges
service for which the VAT Law makes no special provision.                 that electronic invoices will be accepted for the purposes of
                                                                          charging and deducting VAT and for supporting expenses or
3.3.3. Formal obligations and management of taxes                         credits taken for the purposes of other taxes. The contents of
                                                                          invoices issued electronically must be the same as those of
As regards formal obligations and the management of taxes,                invoices issued conventionally.
both the EU and the Spanish tax authorities ascribe to the
principle that this form of commerce should not be hindered by            For such purpose, as in the case where invoices are sent
the imposition of formal obligations that reduce the speed with           electronically, the authenticity of the origin of such invoices and the
which transactions should be performed.                                   integrity of their contents must be evidenced by using an advanced
                                                                          electronic signature based on the use of an electronic certificate
Of particular relevance in this regard is the Council Regulation          and generated by a signature creation device approved by the
(EEC) No. 218/92 on administrative cooperation in the field of            Spanish State Tax Agency, in accordance with Resolution 2/2003,
indirect taxation (VAT), which, among other matters, provides             of February 14, on certain aspects relating to telematic billing.
that individuals and legal entities involved in intra-Community
transactions can access the databases kept by the tax authorities         In order to use an electronic billing system, a prior application
of each Member State. This possibility of identifying reliably the        must be submitted to the Spanish State Tax Agency, and will be
status under which the recipient is acting (trader, professional or       automatically approved in cases where the prospective system
final consumer) is absolutely decisive for the proper tax treatment       has been recognized previously in the Resolution mentioned in
of each transaction.                                                      the preceding paragraph.


Business in Spain
Legal framework and tax implications of e-commerce in Spain
14
interes@interes.org
www.investinspain.org




Prepared by:
                        MINISTERIO              SECRETARÍA DE ESTADO
                        DE INDUSTRIA, TURISMO
                        Y COMERCIO              DE TURISMO Y COMERCIO
Business in Spain


Useful addresses


>
                    8
This chapter contains the contact details of the most important
Economic and Commercial offices of Spain abroad.




>
Sociedad Estatal para la Promoción y Atracción de las Inversiones Exteriores, S.A.U. RM: Tomo 21818, libro 0, folio 15, sección 8, hoja M-388683,
Inscripción 1. NIF: A-84479013. Depósito legal: M-24716-2006.
Published 2006
Business in Spain


Useful addresses
 1. Relevant institutions                                                   3
2. Other institutions                                                       4
3. Stock exchanges and National Securities Market Commission                4
4. Official banks                                                           5
5. Autonomous Community and Autonomous City investment promotion agencies   5
6. Spanish economic and commercial offices abroad                           7




8
                                                                                                                                                                                                   FRANCE
                                                    La Coruña                                                          Santander
                                                                                                                                                    San Sebastián
                                                                                      Oviedo                                              Bilbao
                                                                     Lugo               Asturias                      Cantabria
                                         Santiago de Compostela                                                                              País
                                                                                                                                            Vasco                Pamplona
                                             Pontevedra    Galicia                                                                            Vitoria
                                                                  Orense                                                        Burgos                       Navarra
                                                                                                    León                                      Logroño
                                                                                                                                              La Rioja                              Huesca                                       Gerona
                                                                                                                     Palencia                                                                       Lérida   Cataluña
                                                                                                      Castilla y León                          Soria
                                                                                                              Valladolid                                                    Zaragoza
                                                                                               Zamora                                                                                                                     Barcelona
                                                                                                                                                                          Aragón
                                                                                      Salamanca                      Segovia                                                                                  Tarragona

                                                                                                                                Madrid     Guadalajara
                                                                                                             Ávila      Comunidad                                          Teruel
                                                                                                                         de Madrid
                                                                                                                                                        Cuenca
                                                                                                                                                                                          Castellón de la Plana
                                                    PORTUGAL                                                           Toledo                                                                                              Palma De Mallorca
                                                                                                                                                                                             Valencia
                                                                                     Cáceres                             Castilla - La Mancha                               Comunidad
                                                                             Extremadura                                                                                    Valenciana                                      Baleares
                                                                           Badajoz
                                                                                      Mérida                         Ciudad Real                             Albacete


                                                                                                                                                                                       Alicante

                                                                                                        Córdoba                                                Murcia
                                                                                                                                   Jaén
                                                                                                                                                                        Murcia
                                                                                          Sevilla          Andalucía
                                                                     Huelva
                                                                                                                                    Granada

                                                                                                                      Málaga                        Almería
                                                                                        Cádiz


                                                                                                     Ceuta



                                                                                                                                                   Melilla



                                                                                                           MOROCCO


           Santa Cruz de Tenerife
                                Canarias
                            Las Palmas de Gran Canaria




Business in Spain
Useful addresses
2
1. Relevant institutions




1. RELEVANT INSTITUTIONS                                 Fax: 00 34 (91) 595.84.46
                                                         E-Mail.: director.general@tributos.meh.es
INTERES Invest in Spain                                  Web: www.meh.es
Orense 58, 3rd fl
28020 Madrid                                             DIRECCIÓN GENERAL DEL TESORO Y POLÍTICA FINANCIERA
Ph.: 00 (34) 91 503 58 00                                (GENERAL DIRECTORATE FOR THE TREASURY AND
Fax: 00 (34) 91 503 58 03                                FINANCIAL POLICY)
E-mail.: interes@interes.org                             Paseo del Prado, 6
Web: www.investinspain.org                               28014 Madrid
                                                         Ph: 00 34 (91) 209.95.00
SECRETARÍA DE ESTADO DE TURISMO Y COMERCIO               Fax: 00 34 (91) 209.97.45
(SECRETARY FOR TOURISM AND TRADE)                        E-Mail: director tesoro@tesoro.meh.es
Paseo de la Castellana, 162                              Web: www.tesoro.es
28071 Madrid
Ph: 00 34 (902) 446.006                                  CENTRO DE DESARROLLO TECNOLÓGICO INDUSTRIAL (CDTI)
Fax: 00 34 (91) 457.80.66                                (CENTRE FOR DEVELOPMENT OF INDUSTRIAL TECHNOLOGY)
E-Mail: info@mityc.es                                    C/ Cid, 4
Web: www.mityc.es                                        28001 Madrid
                                                         Ph: 00 34 (91) 581.55.00
INSTITUTO ESPAÑOL DE COMERCIO EXTERIOR (ICEX) (SPANISH   Fax: 00 34 (91) 581.55.94
INSTITUTE FOR FOREIGN TRADE)                             E-Mail: info@cdti.es
Paseo de la Castellana, 14-16                            Web: www.cdti.es
28046 Madrid
Ph: 00 34 (91) 349.61.00 / (902) 349.000                 DIRECCIÓN GENERAL DE POLÍTICA DE LA PEQUEÑA Y MEDIANA
Fax: 00 34 (91) 577.07.50                                EMPRESA (GENERAL DIRECTORATE FOR SMALL AND MEDIUM-
E-Mail: icex@icex.es                                     SIZED ENTERPRISE (SME) POLICY)
Web: www.icex.es                                         C/ María de Molina, 50, (2nd fl.)
                                                         28046 Madrid
DIRECCIÓN GENERAL DE COMERCIO E INVERSIONES (DGCI)       Ph: 00 34 (91) 545.08.20 / 900.190.092
(GENERAL DIRECTORATE FOR TRADE AND INVESTMENTS)          Fax: 00 34 (91) 545.08.90
Paseo de la Castellana, 162                              E-Mail: infopyme@ipyme.org
28071 Madrid                                             Web: www.ipyme.org
Ph: 00 34 (91) 349.36.56
Fax: 00 34 (91) 349.60.08                                DIRECCIÓN GENERAL DE TRABAJO
E-Mail: dgcominver.sscc@mcx.es                           (GENERAL DIRECTORATE FOR LABOR)
Web: www.mcx.es                                          C/ Pío Baroja, 6
                                                         28009 Madrid
SUBDIRECCIÓN GENERAL DE INCENTIVOS REGIONALES            Ph: 00 34 (91) 363.18.00
(GENERAL SUBDIRECTORATE FOR REGIONAL INCENTIVES)         Fax: 00 34 (91) 363.20.38
C/ Castelló 117 (2nd fl.)                                Ph. info: 00 34 (91) 363.18.85
28006 Madrid                                             E-Mail.: sgon@mtas.es
Ph: 00 34 (91) 545.08.09                                 Web: www.mtas.es
Fax: 00 34 (91) 545.09.80
E-Mail: sgincentivos@sgpg.meh.es                         SECRETARÍA DE ESTADO DE INMIGRACIÓN Y EMIGRACIÓN
Web: www.dgfc.sgpg.meh.es                                (SECRETARIAT OF STATE FOR INMIGRATION AND EMIGRATION)
                                                         C/ José Abascal, 39, (1st fl.)
DIRECCIÓN GENERAL DE TRIBUTOS                            28003 Madrid
(GENERAL DIRECTORATE FOR TAXES)                          Ph: 00 34 (91) 363.70.00
C/ Alcalá, 5                                             Fax: 00 34 (91) 363.16.51
28014 Madrid                                             E-Mail: sgas@mtas.es
Ph: 00 34 (91) 595.80.00                                 Web: www.mtas.es / www.extranjero.mtas.es


                                                                                                     Business in Spain
                                                                                                      Useful addresses
                                                                                                                     3
1. Relevant institutions




DIRECCIÓN GENERAL DE ASUNTOS Y ASISTENCIA CONSULARES   CONSEJO SUPERIOR DE INVESTIGACIONES CIENTÍFICAS (CSIC)
(GENERAL DIRECTORATE FOR CONSULAR AFFAIRS)             (SPANISH COUNCIL FOR SCIENTIFIC RESEARCH)
Edificio Torres Ágora                                  C/ Serrano, 117
C/ Serrano Galvache, 26                                28006 Madrid
28033 Madrid                                           Ph: 00 34 (91) 585.50.00/50.01/50.50
Ph: 00 34 (91) 379.16.05                               Fax: 00 34 (91) 411.30.77
Fax: 00 34 (91) 577.70.34                              E-Mail. webmaster@csic.es
Web: www.mae.es                                        Web: www.csic.es

AGENCIA ESTATAL DE ADMINISTRACIÓN TRIBUTARIA (AEAT):
DPTO. DE ADUANAS E IMPUESTOS ESPECIALES (STATE TAX
ADMINISTRATION AGENCY: CUSTOMS AND TARIFFS             2. OTHER INSTITUTIONS
DEPARTMENT)
Avda. Llano Castellano, 17                             CONSEJO SUPERIOR DE CÁMARAS DE COMERCIO
28034 Madrid                                           INDUSTRIA Y NAVEGACIÓN DE ESPAÑA (CSC)
Ph: 00 34 (91) 728.94.50                               (SUPREME COUNCIL OF CHAMBERS OF COMMERCE,
Fax: 00 34 (91) 729.20.65                              INDUSTRY AND NAVIGATION OF SPAIN)
Web: www.aeat.es                                       C/ Ribera del Loira, 12
                                                       28042 Madrid
MINISTERIO DE AGRICULTURA, PESCA Y ALIMENTACIÓN        Ph: 00 34 (91) 590.69.00
(MINISTRY OF AGRICULTURE, FISHING AND FOOD)            Fax: 00 34 (91) 590.69.08/10
Paseo de la Infanta Isabel, 1                          E-Mail: info@cscamaras.es
28014 Madrid                                           Web: www.camaras.org
Ph: 00 34 (91) 347.50.00
Fax: 00 34 (91) 347.54.12
                                                       CONFEDERACION ESPAÑOLA DE ORGANIZACIONES
E-Mail: informat@mapya.es
                                                       EMPRESARIALES (CEOE) (THE SPANISH EMPLOYERS
Web: www.mapya.es
                                                       CONFEDERATION)
DIRECCIÓN GENERAL DE INVESTIGACIÓN                     C/ Diego de León, 50
(GENERAL DIRECTORATE FOR RESEARCH)                     28006 Madrid
Paseo de la Castellana, 160                            Ph: 00 34 (91) 566.34.00
28071 Madrid                                           Fax: 00 34 (91) 562.80.23
Ph: 00 34 (91) 349.43.92                               E-Mail: ceoe@ceoe.es
Fax: 00 34 (91) 349.41.33                              Web: www.ceoe.es
Web: www.mec.es
                                                       INSTITUTO DE CONTABILIDAD Y AUDITORÍA DE CUENTAS
INSTITUTO NACIONAL DE EMPLEO                           C/ Huertas, 26
(NATIONAL EMPLOYMENT INSTITUTE) (INEM)                 28014 Madrid
C/ Condesa de Venadito, 9                              Ph: 00 34 (91) 389.56.00
28027 Madrid                                           Fax: 00.34. (91) 429.94.86
Ph: 00 34 (91) 585.98.88                               E-Mail: icac@icac.meh.es
Fax: 00 34 (91) 377.58.81                              Web: www.icac.meh.es
E-mail.: inem@inem.es
Web: www.inem.es
                                                       CONFEDERACIÓN ESPAÑOLA DE LA PEQUEÑA Y MEDIANA
COMPAÑÍA ESPAÑOLA DE FINANCIACIÓN DEL DESARROLLO       EMPRESA (CEPYME) (THE SPANISH SMALL AND MEDIUM- SIZED
(COFIDES)                                              ENTERPRISE (SME) CONFEDERATION)
C/ Príncipe de Vergara, 132, (9th fl.)                 C/ Diego de León, 50
28002 Madrid                                           28006 Madrid
Ph: 00 34 (91) 745.44.80/562.60.08                     Ph: 00 34 (91) 411.61.61
Fax: 00 34 (91) 561.00.15                              Fax: 00 34 (91) 564.52.69
E-Mail: cofides@cofides.es                             E-Mail: cepyme@cepyme.es
Web: www.cofides.es                                    Web: www.cepyme.es


Business in Spain
Useful addresses
4
AGENCIA ESPAÑOLA DE COOPERACION INTERNACIONAL (AECI)   E-Mail: bolsabilbao@bolsabilbao.es
(SPANISH AGENCY FOR INTERNATIONAL COOPERATION)         Web: www.bolsabilbao.es
Avda. Reyes Católicos, 4
28040 Madrid                                           BOLSA DE VALENCIA (VALENCIA STOCK EXCHANGE)
Ph: 00 34 (91) 583.81.00                               C/ Libreros, 2-4
Fax: 00 34 (91) 583.83.10/3                            46002 Valencia
E-Mail: infoaeci@aeci.es                               Ph: 00 34 (96) 387.01.00
Web: www.aeci.es                                       Fax: 00 34 (96) 387.01.33/60
                                                       E-Mail: webmaster@bolsavalencia.es
ASOCIACIÓN ESPAÑOLA DE CONTABILIDAD Y ADMINISTRACIÓN   Web: www.bolsavalencia.es
DE EMPRESAS
C/ Rafael Bergamín, 16 B
28043 - Madrid                                         4. OFFICIAL BANKS
Ph: 00 34 (91) 547.37.56
Fax: 00 34 (91) 541.34.84                              BANCO DE ESPAÑA (BANK OF SPAIN)
E-Mail: info@aeca.es                                   C/ Alcalá, 48
web: www.aeca.es                                       28014 Madrid
                                                       Ph: 00 34 (91) 338.50.00
                                                       Fax: 00 34 (91) 531.00.59
3. STOCK EXCHANGES AND NATIONAL SECURITIES MARKET      E-Mail: webmaster@bde.es
   COMMISSION                                          Web: www.bde.es

                                                       INSTITUTO DE CRÉDITO OFICIAL (ICO) (OFFICIAL CREDIT
COMISIÓN NACIONAL DEL MERCADO DE VALORES (CNMV)
                                                       INSTITUTE)
(SPANISH NATIONAL SECURITIES MARKET COMMISSION)
                                                       Paseo del Prado, 4
P° de la Castellana, 19
                                                       28014 Madrid
28046 Madrid
                                                       Ph: 00 34 (91) 592.16.00
Ph: 00 34 (91) 585.15.00
                                                       Fax: 00 34 (91) 592.17.00
Fax: 00 34 (91) 319.33.73
                                                       E-Mail: www.ico.es
E-Mail: inversores@cnmv.es
Web: www.cnmv.es

BOLSA DE MADRID (MADRID STOCK EXCHANGE)                5. AUTONOMOUS COMMUNITY AND AUTONOMOUS CITY
Plaza de la Lealtad, 1                                    INVESTMENT PROMOTION AGENCIES
28014 Madrid
Ph: 00 34 (91) 589.26.00                               ANDALUCÍA
Fax: 00 34 (91) 589.12.52                              AGENCIA DE INNVOACIÓN Y DESARROLLO DE ANDALUCÍA
E-Mail: info@bolsamadrid.es                            C/ Torneo, 26
Web: www.bolsamadrid.es                                41002 Sevilla
                                                       Ph.: 00 34 (95) 503.08.31
BOLSA DE BARCELONA (BARCELONA STOCK EXCHANGE)          Fax: 00 34 (95) 503.07.98
Paseo de Gracia, 19                                    E-mail: internacional@agenciaidea.es
08007 Barcelona                                        Web: www.agenciaidea.es / informacion@ifa.es
Ph: 00 34 (93) 401.35.55                               Web: www.ifa.es
Fax: 00 34 (93) 401.36.25
E-Mail: informacion@borsabcn.es                        ARAGÓN
Web: www.borsabcn.es                                   ARAGÓN EXTERIOR S.A. (AREX)
                                                       C/ Joaquín Costa, nº4 (4th fl.)
BOLSA DE BILBAO (BILBAO STOCK EXCHANGE)                50001 Zaragoza
C/ José María Olábarri, 1                              Ph: 00 34 (976) 22.15.71
48001 Bilbao                                           Fax: 00 34 (976) 21.89.74
Ph: 00 34 (94) 403.44.00                               E-Mail: info@aragonexterior.es
Fax: 00 34 (94) 403.44.30                              Web: www.aragonexterior.es


                                                                                                   Business in Spain
                                                                                                    Useful addresses
                                                                                                                   5
5. Autonomous Community and Autonomous City investment
   promotion agencies



ASTURIAS                                                       51000 Ceuta
INSTITUTO DE DESARROLLO ECONÓMICO DEL PRINCIPADO DE            Ph.: 00 34 (95) 652 82 72
ASTURIAS (IDEPA)                                               Fax: 00 34 (95) 652 82 73
Parque Tecnológico de Asturias                                 E-mail: procesa@procesa.es
33420 Llanera (Asturias)                                       Web: www.procesa.es
Ph: 00 34 (985) 98.00.20
Fax: 00 34 (985) 26.44.55                                      EXTREMADURA
E-Mail: idepa@idepa.es                                         SOFIEX (SOCIEDAD DE FOMENTO INDUSTRIAL)
Web: www.idepa.es                                              Avda. José Fernández López nº 4
                                                               06800 Mérida (Badajoz)
CANTABRIA                                                      Ph: 00 34 (924) 31.91.59
SODERCAN, S.A., (SOCIEDAD PARA EL DESARROLLO REGIONAL          Fax: 00 34 (924) 31.92.12
DE CANTABRIA)                                                  E-mail: informacion@sofiex.es
C/ Hernán Cortés, 39                                           Web: www.sofiex.es
39003 Santander
Ph: 00 34 (942) 31.21.00                                       GALICIA
Fax: 00 34 (942) 21.70.11/27.32.40                             IGAPE (INSTITUTO GALLEGO DE PROMOCIÓN ECONÓMICA)
E-mail: información@sodercan.com                               Complejo Administrativo San Lázaro, s/n
Web: www.sodercan.com                                          15703 Santiago de Compostela (La Coruña)
                                                               Ph: 00 34 (981) 54.11.80
CASTILLA-LA MANCHA
                                                               Fax: 00 34 (981) 54.11.90
Instituto de Promoción Exterior de Castilla-La Mancha (IPEX)
                                                               E-Mail: informa@igape.es
P.I. Santa María de Benquerencia
                                                               Web: www.igape.es
C/ Río Cabriel, s/n
45071 Toledo                                                   ISLAS BALEARES
Ph: 00 34 (925) 286 650                                        INSTITUTO DE INNVOVACIÓN EMPRESARIAL
Fax: 00 34 (925) 286655                                        Camí de son Rapinya, s/n
E-Mail.: consultasipex@jccm.es                                 07013 Palma de Mallorca
Web: www.ipex.es                                               Ph: 00 34 (971) 17.76.70
                                                               Fax: 00 34 (971) 17.76.49 / 78.48.65 / 17.60.55
CASTILLA-LEÓN
                                                               E-Mail.: info@idi.caib.es
EXCAL
                                                               Web: www.idi.es
C/ Recondo s/n, Estación Campo Grande
47007 Valladolid
                                                               ISLAS CANARIAS
Ph: 00 34 (983) 29.39.66
                                                               PROEXCA (SOCIEDAD CANARIA DE FOMENTO ECONÓMICO, S.A.)
Fax: 00 34 (983) 20.98.03
                                                               C/ Nicolás Estévanez, nº 30-B, (2nd fl.)
E-Mail: excal@excal.es
                                                               35007 Las Palmas de Gran Canaria
Web: www.excal.es
                                                               Ph: 00 34 (928) 30.74.56
CATALUÑA                                                       Fax: 00 34 (928) 30.74.67
CIDEM - (CENTRO DE INNOVACIÓN Y DESARROLLO                     E-Mail.: promocion@sofesa.canarias.org /
EMPRESARIAL)                                                   info@proexca.canarias.org
Paseo de Gracia 129                                            Web: www.proexca.es
08008 Barcelona
Ph: 00 34 (93) 476.72.84/00                                    LA RIOJA
Fax: 00 34 (93) 476.73.03/00                                   CONSEJERÍA DE HACIENDA Y PROMOCIÓN ECONÓMICA. AGENCIA
E-mail: catalonia@cidem.gencat.net                             DE DESARROLLO ECONÓMICO DE LA RIOJA
Web: www.cidem.com                                             C/ Muro de la Mata, 13-14
                                                               26071 Logroño
CEUTA                                                          Ph: 00 34 (941) 29.15.00
PROCESA (SOCIEDAD DE PROMOCIÓN Y DESARROLLO DE CEUTA)          Fax: 00 34 (941) 29.15.43 / 44
C/ Padilla, s/n                                                E-Mail: ader@ader.es
Edificio Ceuta Center, (1st fl.).                              Web: www.ader.es


Business in Spain
Useful addresses
6
MADRID                                             E-Mail: info@invest-vci.com
PROMOMADRID (DESARROLLO INTERNACIONAL DE MADRID,   Web: www.invest-vci.com
S.A.) Suero de Quiñones, 34, 4ª Planta
28002 Madrid                                       ZEC Tenerife
Ph: 00 34 (91) 745.01.27                           (ZONA ESPECIAL CANARIA)
Fax: 00 34 (91) 411.09.13                          Avenida José Antonio, 3 – (fifth fl) Edificio Mapfre
E-mail: info@promomadrid.com                       38003 – Santa Cruz de Tenerife
Web: www.promomadrid.com                           Ph: 00 34 (922) 29.80.10
                                                   Fax: 00 34 (922) 27.80.63
MELILLA                                            E-Mail: zec@zec.org
PROYECTO MELILLA, S.A.                             Web: www.zec.org
Polígono Industrial de SEPES C/La Dalia, nº 26
52006 Melilla
Ph: 00 34 (95) 267.98.04                           6. SPANISH ECONOMIC AND COMMERCIAL OFFICES
Fax: 00 34 (95) 267.98.10                             ABROAD
E-mail.: info@promesa.net
Web: www.promesa.net                               ABIDJAN (Ivory Coast, Liberia, Sierra Leone, Guinea-Conakry,
                                                   Niger, Burkina Fasso)
MURCIA                                             Impasse Ablaha Pokou
INSTITUTO DE FOMENTO DE LA REGIÓN DE MURCIA        Cocody Danga Nord 08BP876
Avda. de la Fama, 3                                04 P.O. Box 957
30003 Murcia                                       Abidjan 04 (Ivor y Coast)
Ph: 00 34 (968) 36.22.07                           Ph: 00 (225) 22.44.09.95
Fax: 00 34 (968) 36.61.63                          Fax: 00 (225) 22.44.27.14
E-mail: comext@infor.carm.es                       E-Mail: abidjan@mcx.es
Web: www.ifrm-murcia.es
                                                   ALMATY (Kazakhstan)
NAVARRA                                            Baitusymou 102
SODENA, SOCIEDAD DE DESARROLLO DE NAVARRA          Almaty 480072
Avda. Carlos III el Noble, 36, 1º Dcha.            E-mail: almaty@mcx.es
31003 Pamplona                                     Economic and Commercial
Ph: 00 34 (848) 42.19.42                           Director : D. Fernando Mier Durante
Fax: 00 34 (848) 42.19.43                          Ph: 00 (73272) 50.09.06/07
E-mail: info@sodena.com                            Fax: 00 (73272) 50.35.30
Web: www.sodena.com                                E-mail: fmier@mcx.es

PAÍS VASCO                                         AMMAN (Jordan)
SPRI (SOCIEDAD PARA LA PROMOCIÓN Y RECONVERSIÓN    Abed El Hamid Sharaf St.
INDUSTRIAL, S.A)                                   Ahmed Abbas and Sons Building
C/ Gran Vía, 35-3º                                 P.O. Box 927148
48009 Bilbao                                       AMMAN - 11110 (Jordan)
Ph: 00 34 (94) 403.70.00                           Ph: 00 (962-6) 560.12.81/568.92.05
Fax: 00 34 (94) 403.70.22                          Fax: 00 (962-6) 560.31.61
E-Mail: info@spri.es                               E-Mail: amman@mcx.es
Web: www.spri.net
                                                   ANKARA (Turkey)
VALENCIA                                           And Sokak, 8/14
VALENCIAN COMMUNITY INVESTMENTS                    06680 Cankaya
C/ Doctor Romagosa, 1, 2nd Room i                  ANKARA (Turkey)
46002 Valencia                                     Ph: 00 (90-312) 468.70.47
Ph: 00 34 (96) 342.73.50                           Fax: 00 (90-312) 468.69.75
Fax: 00 34 (96) 342.73.53                          E-Mail: ankara@mcx.es


                                                                                                      Business in Spain
                                                                                                       Useful addresses
                                                                                                                      7
6. Spanish economic and commercial offices abroad




ALGIERS (Algeria)                                      Ph: 00 (961-1) 325.633/325.622/327.500
46, Rue Mohamed Chabane                                Fax: 00 (961-1) 333.203
16030 Algiers (Algeria)                                E-Mail: beirut@mcx.es
Ph: 00 (213-21) 92.26.97/92.27.11/26.95/94
Fax: 00 (213-21) 92.26.90                              BELGRADE (Serbia, Montenegro, Federal Yugoslavian Republic)
E-Mail: argel@mcx.es                                   Vojuode Suplikca, 40
                                                       11118 Belgrade (Federal Yugoslavian Republic)
ASUNCIÓN (Paraguay)                                    Ph: 00 (38-111) 380.68.32
Quesada 5864                                           Fax: 00 (38-111) 380.74.67
Asunción (Paraguay)                                    E-Mail: belgrado@mcx.es
Ph: 00 (595-21) 664.776/662.865/662.853
Fax: 00 (595-21) 664.670                               BERLIN (Germany)
E-Mail: asuncion@mcx.es                                Lichtenstemalle, 1
                                                       D-10787 Berlin (Germany)
ATHENS (Greece)                                        Ph: 00 (49-30) 229.21.34
Vasileos Konstantinou, 44                              Fax: 00 (49-30) 229.30.95
Athens 116-35 (Greece)                                 E-Mail: berlin@mcx.es
Ph: 00 (30-1) 210 724.71.95 /90
Fax: 00 (30-1) 210 729.17.36                           BERNE (Switzerland)
E-Mail: atenas@mcx.es                                  Guttenbergstrasse, 14
                                                       CH 3011 Berne (Switzerland)
BAGHDAD (Irak)                                         Ph: 00 (41-31) 381.21.71
Hay Babil                                              Fax: 00 (41-31) 382.18.45
Area 929 Street 5, House nº 38                         E-Mail: berna@mcx.es
Bagdad (Irak)
Ph: 00 (964-1) 718.57.13/718.62.11/(873).762.243.463   BOGOTÁ (Colombia)
(satellite) (8821) 650.100.172                         Carrera 9, nº 99-07 Oficina 901
Fax: 00 (873) 600.053.771 (satellite)                  Torre La Equidad
00 (964-1) 718.73.99                                   Bogotá (Colombia)
E-Mail: bagdad@mcx.es                                  Ph: 00 (57-1) 655.54.00
                                                       Fax: 00 (57-1) 250.00.07
BANGKOK (Thailand, Laos, Cambodia, Myanmar)            E-Mail: bogota@mcx.es
26 th Floor, Serm-Mit Tower
159 Sukhumvit 21 Road                                  BRASILIA (Brazil)
10110 Bangkok (Thailand)                               Avenida das Naçoes, lote 44, quadra 811
Ph: 00 (66-2) 258.90.20/258.90.21                      70429-900 Brasilia D.F. (Brazil)
Fax: 00 (66-2) 258.99.90                               Ph: 00 (5561) 242.93.94/244.49.66
E-Mail: bangkok@mcs.es                                 Fax: 00 (5561) 242.08.99
                                                       E-Mail: brasilia@mcx.es
BEIJING (Mongolia, China and North Korea)
14, Liang Ma He Nanlu, 2-2-2                           BRATISLAVA (Slovak Republic)
Tayuan Of. Building                                    Prepóstska, 10
100600 Beijing (China)                                 851 02 Bratislava (Slovak Republic)
Ph: 00 (86-10) 65.32.20.72/31.03/32.35.04              Ph: (00-4212) 5441.57.30
Fax: 00 (86-10) 65.32.11.28                            Fax: (00-4212) 5441.58.30
E-Mail: pekin@mcx.es                                   E-Mail: bratislava@mcx.es

BEIRUT (Lebanon)                                       BRUSSELS (Belgium and Luxembourg)
Tabaris, Gebrantueini Square                           Rue Montoyer, 10, 1º
Ashada Bldg. 4th Floor                                 B-1000 Brussels (Belgium)
Beirut (Lebanon)                                       Ph: 00 (32-2) 551.10.40


Business in Spain
Useful addresses
8
Fax: 00 (32-2) 551.10.69                                       CASABLANCA (Morocco)
E-Mail: bruselas@mcx.es                                        31 Rue Faïdi Califa
                                                               (Ed. Lafayette)
BRUSSELS (EU)                                                  Casablanca 21000 (Morocco)
Boulevard du Règente, 52                                       Ph: 00 (212-22) 31.31.18
1000 Brussels (Belgium)                                        Fax: 00 (212-22) 31.32.70
Ph.: 00 (32-2) 509.86.11                                       E-Mail: casablanca@mcx.es
Fax: 00 (32-2) 511.19.40
E-Mail: buzon.oficial@reper.mae.es                             CHICAGO (USA) (Illinois, Indiana, Iowa, Minnessota, Missouri,
                                                               Nebraska, North Dakota, South Dakota, Ohio, Wisconsin,
BUCHAREST (Romania, Moldavia)                                  Kentucky, Kansas, Michigan)
Bd. Dacia, 42 (16 antiguo)                                     500 N. Michigan Av.
79403 Bucharest (Romania)                                      15th Fl. (Suite 1500)
Ph: 00 (42-1) 210.07.40/210.07.41                              Chicago, Illinois 60611 (USA)
Fax: 00 (42-1) 210.04.97                                       Ph: 00 (1-312) 644.11.54
E-Mail: bucarest@mcx.es                                        Fax: 00 (1-312) 527.55.31
                                                               E-Mail: chicago@mcx.es
BUDAPEST (Hungary)
Nádor Utca, n 23 II 2                                          COPENHAGEN (Denmark, Lithuania)
1051 Budapest (Hungary)                                        Vesterbrogade, 10-3°
Ph: 00 (36-1) 302.00.74                                        1620 Copenhaguen V (Denmark)
Fax: 00 (36-1) 302.00.70                                       Ph: 00 (45-33) 31.22.10
E-Mail: budapest@mcx.es                                        Fax: 00 (45-33) 21.33.90
                                                               E-Mail: copenhague@mcx.es
BUENOS AIRES (Argentina)
Avda. Leandro N. Alem, 690-6
                                                               DAKAR (Senegal, Mauritania, Gambia, Mali, Guinea Bissau,
1001 Buenos Aires (Argentina)
                                                               Cape Vert)
Ph: 00 (54-11) 43.11.49.44/5/6
                                                               3-5 Avenue Carde, 2 éme étage droit
Fax: 00 (54-11) 43.12.66.19
                                                               B.P.: 4146, Dakar (Senegal)
E-Mail: buenosaires@mcx.es
                                                               Dakar (Senegal)
                                                               Ph: 00 (221) 821.03.68/821.86.93
CAIRO (Egypt, Sudan, Ethiopia, Djibouti)                       Fax: 00 (221) 821.49.66
19 Boulos Hanna St.                                            E-Mail: dakar@mcx.es
Midan Finney / Dokki
Cairo (Egypt)
Ph: 00 (20-2) 336.15.88/336.53.74                              DAMASCUS (Syria, Cyprus)
Fax: 00 (20-2) 336.15.77                                       61 Al Hidjaz Al Jadid St.
E-Mail: elcairo@mcx.es                                         Damascus (Syria)
                                                               P.O. Box 2738
                                                               Ph: 00 (963-11) 333.00.15/333.36.19
CARACAS (Venezuela, Netherlands Antilles, Barbados, Antigua,
                                                               Fax: 00 (963-11) 333.73.68
Bahamas, Suriname, Bermudas, Dominica, Grenada, Saint Kitts
                                                               E-Mail: damasco@mcx.es
& Nevis, Saint Vincent & The Grenadines, St. Lucía, Guyana,
Trinidad and Tobago, and Aruba)
Avda. Francisco de Miranda. Edificio Parque Cristal            DUBAI (United Arab Emirates, Qatar)
Los Palos Grandes                                              Emirates Towers Offices, 26th Floor, of. 3
P.O. Box. (1060-A)                                             P.O. Box 504929
1060 Caracas (Venezuela)                                       Dubai (United Arab Emirates)
Ph: 00 (58212) 284.92.77 / 285.58.48/29.13                     Ph: 00 (971-4) 330.01.10
Fax: 00 (58-212) 284.99.64                                     Fax: 00 (971-4) 330.01.12
E-Mail: caracas@mcx.es                                         E-Mail: dubai@mcx.es


                                                                                                               Business in Spain
                                                                                                                Useful addresses
                                                                                                                               9
DUBLIN (Ireland)                                Fax: 00 (848) 825.01.74
35, Moleswor th St.                             E-Mail: hochiminhcity@mcx.es
Dublin - 2 (Ireland)
Ph: 00 (353-1) 661.63.13                        HONG KONG (Macao, HongKong)
Fax: 00 (353-1) 661.01.11                       2004, Tower One, Lippo Centre
E-Mail: dublin@mcx.es                           89 Queensway, Admiralty
                                                Hong Kong (China)
DÜSSELDORF (Germany)                            Ph: 00 (852) 25.21.74.33/25.22.75.12
Jägerhofstrasse, 32                             Fax: 00 (852) 28.45.34.48
40479 Düsseldorf (Germany)                      E-Mail: hongkong@mcx.es
Ph: 00 (49-211) 49.36.60
Fax: 00 (49-211) 49.97.11                       ISLAMABAD (Pakistan) (Afganistán)
E-Mail: dusseldorf@mcx.es                       Street 6, Ramna 5.
                                                Diplomatic Enclave
GENEVA (Switzerland)                            P.O. Box: 1144
49, Avenue Blanc                                Islamabad (Pakistan)
1202 Geneva (Switzerland)                       Ph: 00 (9251) 227.94.84
Ph: 00 (41) 227.32.85.93                        Fax: 00 (9251) 208.87.74
Fax: 00 (41) 227.38.64.76                       E-Mail: islamabad@mcx.es
E-Mail: ginebra@mcx.es
                                                ISTAMBUL (Turkey)
GUATEMALA CITY (Guatemala, Nicaragua, Belize)   Cumhuriyet Cad., 18 k
Edificio Géminis 10, Torre Sur                  5 Dör tler Apt. Elmadag
Oficina nº 1701                                 Istambul
12 calle 1-25, zona 10                          Ph: 00-90-212-196.61.61/83.00
01010 Guatemala C.A. (Guatemala)                Fax: 00-90-212-296.88.30
Ph: 00 (502) 335.30.11/12/13/14                 E-Mail: estambul@mcx.es
Fax: 00 (502) 335.30.16
E-Mail: guatemala@mcx.es                        JAKARTA (Indonesia)
                                                JI. H. Agus Salim, 61
HAVANA (Cuba)                                   P.O.Box 41
Calle nº 22, 516, entre 5ª y 7ª Miramar 11300   Kosgoro Yakarta 10350 (Indonesia)
La Habana (Cuba)                                Ph: 00 (62-21) 310.74.90/391.75.43/44
Ph: 00 (53-7) 204.81.00/204.81.98               Fax: 00 (62-21) 319.301.64
Fax: 00 (53-7) 204.80.17                        E-Mail: yakarta@mcx.es
E-Mail: lahabana@mcx.es
                                                JOHANNESBURG (South Africa Republic, Lesotho, Swaziland,
HELSINKI (Finland, Estonia)                     Botswana, Mozambique and Zimbawe)
Pohjoisesplanadi, 27 C                          8th floor, Fedsure Towers
00100 Helsinki (Finland)                        13 Fredman Drive
Ph: 00 (358-9) 685.05.30                        P.O. Box: 781050
Fax: 00 (358-9) 685.05.353                      Sandton 2146, Johannesburg (South Africa Republic)
E-Mail: helsinki@mcx.es                         Ph: 00 (27-11) 883.21.02
                                                Fax: 00 (27-11) 883.26.24
HO CHI MINH CITY (Vietnam)                      E-Mail: johannesburgo@mcx.es
Pham Ngoc Thach Guest house
25, Phung Khac-Khoan                            KIEV (Ukraine)
District 1,                                     Vul Skovorody, 19 A-7ª
Ho Chi Minh City (Vietnam)                      04070 Kiev (Ucrania)
Ph: 00 (848) 825.01.73                          Ph: 00 (380-44) 494.29.40


Business in Spain
Useful addresses
10
Fax: 00 (380-44) 494.29.42                                   LOS ANGELES (California, Alaska, Arizona, Hawai, Idaho,
E-Mail: kiev@mcx.es                                          Montana, Nevada, New Mexico, Washington, Wyoming,
                                                             Colorado, Oregon, Utah)
KUALA LUMPUR (Malaysia, Brunei)                              1900 Avenue of the Stars-Suite 243
20th floor, Menara Boustead                                  Los Angeles, CA 90067 (USA)
69, Jalan Raja Chulan                                        Ph: 00 (1-310) 277.51.25
50200 Kuala Lumpur (Malaysia)                                Fax: 00 (1-310) 277.51.26
P.O. Box 11856 - 50760 Kuala Lumpur                          E-Mail: losangeles@mcx.es
Ph: 00 (60-3) 21.48.73.00
Fax: 00 (60-3) 21.41.50.06                                   LUANDA (Angola, Republic of the Congo, Democratic Republic of
E-Mail: kualalumpur@mcx.es                                   the Congo, Sao Tomé and Principe, Zambia and Namibia) Rua
                                                             Jaime Cor tesão, 16
LAGOS (Nigeria, Ghana, Benin, Togo, Chad, Cameroon, Gabon,   Luanda (Angola)
Equatorial Guinea, Central African Republic)                 Ph: 00 (244-2) 22 35.02.27/35.19.38/3.50.121
Plot 933 Idejo St.                                           Fax: 00 (244-2) 22.35.01.42
P.O. Box 50495 Ikoyi                                         E-Mail: luanda@mcx.es
Victoria Island-Lagos (Nigeria)
Ph: 00 (234-1) 261.58.32/262.16.25                           MANILA (Philippines)
Fax: 00 (234-1) 261.74.27                                    27th Floor, Yuchengco Tower RCBC Plaza
E-Mail: lagos@mcx.es                                         Sen. Gil Puyat J. Puyat Avenue
                                                             Makati City, Metro Manila (Philippines)
LA PAZ (Bolivia)                                             Ph: 00 (63-2) 843.37.74/37.75/37.83
Avda. Arce, esq. Rosendo Gutiérrez                           Fax: 00 (63-2) 843.37.90
Edif.. Multicentro                                           E-Mail: manila@mcx.es
Torre B, piso 7, Oficina 702
P.O Box 1577 – La Paz                                        MEXICO CITY (México)
Ph: 00 (591-2) 214.10.16                                     Av. Presidente Masarik, nº 473, Esq. Moliere
Fax: 00 (591-2) 244.01.88                                    Colonia Los Morales - Polanco
E-mail: lapaz@mcx.es                                         11510 Mexico D.F. (Mexico)
                                                             Ph: 00 (52-555) 281.23.50
LIMA (Peru)                                                  Fax: 00 (52-555) 281.21.30/24.51
Avda. Jorge Basadre, 405                                     E-Mail: mexico@mcx.es
Apartado de Correos 270067
San Isidro-Lima, 27 (Peru)                                   MIAMI (Florida, Alabama, Arkansas, Georgia, Louisiana,
Ph: 00 (511) 442.17.88/89                                    Mississippi, Oklahoma, Tennessee and Texas)
Fax: 00 (511) 442.17.90                                      2655 Le Jeune Road, Suite 1114
E-Mail: lima@mcx.es                                          Coral Gables
                                                             Miami FI 33134, Florida (USA)
LISBON (Portugal)                                            Tlf. 00 (1-305) 446.43.87
Campo Grande, 28 - (2º A/B/E)                                Fax: 00 (1-305) 446.26.02
1700 - 093 Lisbon (Portugal)                                 E-Mail: miami@mcx.es
Ph: 00 (351-21) 781.76.40
Fax: 00 (351-21) 796.69.95                                   MILAN (Italy)
E-Mail: lisboa@mcx.es                                        Via del Vecchio/Politecnico, 3-16º
                                                             Milan 20121 (Italy)
LONDON (United Kingdom)                                      Ph: 00 (39-02) 78.14.00
66, Chiltern Street, 2nd and 3rd. fl.                        Fax: 00 (39-02) 78.14.14
LONDON W1U 4LS (U.K.)                                        E-Mail: milan@mcx.es
Ph: 00 (44-20) 74.67.23.30
Fax: 00 (44-20) 7487.55.86/7224.64.09                        MONTERREY (México)
E-Mail: londres@mcx.es                                       Avda. De la Industria nº 555 - B (4th fl.)


                                                                                                            Business in Spain
                                                                                                             Useful addresses
                                                                                                                          11
Col Campestre                                                  Fax: 00 (1-613) 563.28.49
San Pedro Garza García                                         E-Mail: ottawa@mcx.es
CP. 66265 Nuevo León, México
Ph: 00 (5281) 83.35.99.92                                      PANAMA CITY (Panamá, Costa Rica)
Fax: 00 (5281) 83.35.99.94                                     C/ 50 y 53 Obarrio, Edif. Banco Atlántico (8th fl.)
E-Mail: monterrey@mcx.es                                       Apartado 8028 Panama, R.P.
                                                               Ph: 00 (507) 269.41.82/269.40.18
MONTEVIDEO (Uruguay)                                           Fax: 00 (507) 264.34.58
Plaza Cagancha 1335                                            E-Mail: panama@mcx.es
Piso 10, Of. 1001
Montevideo 11100 (Uruguay)                                     PARIS (France) (Martinica, Guadalupe, La Reunión, Polinesia
Ph: 00 (598-2) 900.03.37/900.83.26/900.74.77                   Francesa, Guayana Francesa, Nueva Caledonia, Monaco,
Fax: 00 (598-2) 902.16.00                                      Andorra)
E-Mail: montevideo@mcx.es                                      11, Avenue D’lena
                                                               75016 Paris (France)
MOSCOW (Armenia, Belarus, Georgia, Kyrgyzstan, Russian         Ph: 00 (33-1) 53.57.95.50
Federation, Business Center “Mojovaya”                         Fax: 00 (33-1) 47.20.97.22
UI Vozdvizhenka, 4/7                                           E-Mail: paris@mcx.es
(Entry: UI Mojovaya, 7 stro. 2 3º)
125009 Moscú                                                   PARIS (OECD Permanent Representation)
Ph: (00.7-495) 78.392.81 / 82.83 / 84.85                       22, Avenue Marceau
Fax: (00.7-495) 78.392.91 / 86                                 75008 PARIS (France)
E-Mail: moscu@mcx.es                                           Ph: 00-33-1.44.43.30.31/32/34
                                                               Fax: 00-33-1.40.70.06.54
                                                               E-Mail: paris.ocde@mcx.es
NEW DELHI (India, Nepal, Sri Lanka, Bangladesh and Maldives)
2 Palam Marg. Vasant Vihar
                                                               PRAGUE (Czech Republic)
110057 New Delhi (India)
                                                               Stepánská, 10
Ph: 00 (91-11) 2614.64.77/614.51.96/52.05/52.06
                                                               12000 Prague-2 (Czech Republic)
Fax: 00 (91-11) 2614.59.56/32.17
                                                               Ph: 00 (420-2) 2494.12.55/56/57/58/59/60
E-Mail: nuevadelhi@mcx.es
                                                               Fax: 00 (420-2) 2494.11.15/12.26
                                                               E-Mail: praga@mcx.es
NEW YORK (New York, Connecticut, Maine, Massachusetts, New
Hampshire, New Jersey, Pennsylvania, Rhode Island, Vermont)    QUITO (Ecuador)
405 Lexington Av. (44th floor)                                 Edif. Forum 300, (10th fl.)
New York 10174-0331 (USA)                                      Avda. República 396 y Diego de Almagro
Ph: 00 (1-212) 661.49.59/60/61/62                              Quito (Ecuador)
Fax: 00 (1-212) 972.24.94/867.60.55                            Ph: 00 (593-2) 254.47.16/61.74/255.57.02/75.04
E-Mail: nuevayork@mcx.es                                       Fax: 00 (593-2) 256.41.74
                                                               E-Mail: quito@mcsx.es
OSLO (Norway, Iceland)
Karl Johansgate, 18C                                           RABAT (Morocco)
0159 Oslo (Norway)                                             78, Av. du Chellah
Ph: 00 (47) 23.31.06.80/83                                     Rabat (Morocco)
Fax: 00 (47) 23.31.06.86                                       Ph: 00 (212-3-7) 76.07.41/17.07/61.36
E-Mail: oslo@mcx.es                                            Fax: 00 (212-3-7) 76.81.82
                                                               E-Mail: rabat@mcx.es
OTTAWA (Canada)
151 Slater St., Suite 801                                      RÍO DE JANEIRO (Brazil)
Ottawa-Ontario K1P 5H3 (Canada)                                Praia de Botafogo, 142 / 502
Ph: 00 (1-613) 236.04.00/09                                    22250-040 Rio de Janeiro, R.J. (Brazil)


Business in Spain
Useful addresses
12
Ph: 00 (5521) 2553.50.09/53.14                                SANTO DOMINGO (Dominican Republic, Jamaica, Haiti)
Fax: 00 (5521) 2551.71.71.                                    Avda. W. Churchill
E-Mail: riodejaneiro@mcx.es                                   Esq. Luis F. Thomén
                                                              Edif. Torre BHD, (4th fl.) Sector Evaristo Morales
                                                              P.O. Box: 21421
RIYADH (Saudi Arabia, Oman,Yemen, Bahrain and Kuwait)
                                                              Santo Domingo (Dominican Republic)
Avd. King Fahad-Distrito Olaya –Area C
                                                              Ph: 00 (1809) 567.56.82
Edificio Al Faisaliah Tower (11 fl.)
                                                              Fax: 00 (1809) 542.60.26
P.O. Box 94327
                                                              E-Mail: santodomingo@mcx.es
11693 Al Riyadh (Saudi Arabia)
Ph: 00 (966-1) 464.51.25/461.21.54/273.47.07
                                                              SAO PAULO (Brazil)
Fax: 00 (966-1) 273.47.05/462.13.03
                                                              World Trade Center
E-Mail: riad@mcx.es
                                                              Av. Das Naçoes Unidas 12551-(Conj. 1603) 16º
                                                              Brooklin Novo-CEP 04578-903
ROME (Italy, Albania, San Marino y Malta)                     São Paulo S.P. (Brazil)
Viale delle Milizie, 12                                       Ph: 00 (5511) 30.43.79.77
00192 Rome (Italy)                                            Fax: 00 (5511)30.43.79.73
Ph: 00 (39-06) 372.82.06/372.81.27/372.82.23                  E-Mail: saopaulo@mcx.es
Fax: 00 (39-06) 372.83.65
E-Mail: roma@mcx.es                                           SEOUL (Korea)
                                                              Suite 1607, Kyobo Bldg. Kwanghwamun
SAN JUAN DE PUERTO RICO (Puerto Rico, North American Virgin   1-1, Chongro, 1-ka - Chongro-Ku
Islands)                                                      Seoul 100-714 (Korea, Rep.)
Capital Center Building I                                     Ph: 00 (82-2) 736.84.54/5/86
239 Av. Arterial Hostos, ste. 705                             Fax: 00 (82-2) 736.84.56
Puerto Rico 00918-1476                                        E-Mail: seul@mcx.es
P.O. Box 193179 – San Juan PR 00919-3179
Ph: 00 (1-787) 758.63.45                                      SHANGHAI (China)
Fax: 00 (1-787) 758.69.48                                     Westgate Mall (25th fl.)
E-Mail: sanjuan@mcx.es                                        1038 Nanjing XI Road
                                                              200041 SHANGHAI (China)
                                                              Ph: 00 (86-21) 62.17.26.20/26.10
SAN SALVADOR (El Salvador)                                    Fax: 00 (86-21) 62.67.77.50
Boulevard del Hipódromo                                       E-Mail: shanghai@mcx.es
Edificio Gran Plaza
2º P. Local 206
                                                              SINGAPORE (Singapore)
Colonia San Benito
                                                              7 Temasek Boulevard, 19-03
San Salvador (El Salvador)
                                                              Suntec Tower One
Ph: 00 (503) 22.75.78.21/22.75.78.22
                                                              Singapore 038987
Fax: 00 (503) 22.75.78.23
                                                              Ph: 00 (65) 6 732.97.88/732.97.89
E-Mail: sansalvador@mcx.es
                                                              Fax: 00 (65) 6 732.97.80
                                                              E-Mail: singapur@mcx.es
SANTIAGO DE CHILE (Chile)
Av. 11 de Septiembre 1901                                     SOFIA (Bulgaria, FYR of Macedonia)
Esq. C/ Marchant Pereira, (8th fl.)                           Dragan Tzankov, 36, World Trade Center INTERPRED
750-0503 Providencia                                          Bloque B, (8th fl.)
Santiago de Chile (Chile)                                     206 suite
P.O.Box: 4099                                                 1040 Sofia
Ph: 00 (56-2) 204.97.86                                       Ph: 00 (3592) 971.20.01/969.38.67/969.31.85
Fax: 00 (56-2) 204.58.14                                      Fax: 00 (3592) 971.20.63
E-Mail: santiagochile@mcx.es                                  E-Mail: sofia@mcx.es


                                                                                                             Business in Spain
                                                                                                              Useful addresses
                                                                                                                           13
STOCKHOLM (Sweden, Letonia)                                Fax: 00 (31-70) 360.82.74
Spanska Ambassadens Handelsaudehing                        E-Mail: haya@mcx.es
Sergels Torg, 12
SE-11157 Stockholm (Sweden)                                TOKYO (Japan)
Ph: 00 (46-8) 24.66.10                                     3 Fl., 1-3-29, Roppongi
Fax: 00 (46-8) 20.88.92                                    Minato-Ku
E-Mail: estocolmo@mcx.es                                   Tokyo 106-0032
                                                           Ph: 00 (81-3) 55.75.04.31
SYDNEY (Australia, New Zealand, Fidji, Papua New Guinea,   Fax: 00 (81-3) 55.75.64.31
Solomon Islands, Tonga)                                    E-Mail: tokio@mcx.es
Edgecliff Centre, Suite 408
203 New South Head Road,                                   TORONTO (Canada)
Edgecliff NSW 2027 Sydney (Australia)                      2, Bloor Street East, Suite 1506
Ph: 00 (61-2) 9362.42.12/3/4                               Toronto-Ontario M4W 1A8
Fax: 00 (61-2) 9362.40.57                                  Ph: 00 (1-416) 967.04.88
E-Mail: sidney@mcx.es                                      Fax: 00 (1-416) 968.95.47
                                                           E-Mail: toronto@mcx.es
TAIPEI (Taiwan)
10-F-B1, nº 49                                             TRIPOLI (Libya)
Minsheng East Rd. Sec                                      Wesait El-Ebdery – Zona Fashlum
3.104 Taipei, Taiwan                                       P.O.B. 3572
Ph: (00-886-2) 25184905                                    Tripoli (Libya)
E-Mail: taiwan@mcx.es                                      Ph: 00 (218-21) 340.23.63/64/66/67
                                                           Fax: 00 (218-21) 340.23.59
                                                           E-Mail: Tripoli@mcx.es
TEGUCIGALPA (Honduras)
Ave. República de Panamá 1720, (2th fl.)
                                                           TUNIS (Tunisia)
Edificio Ciicsa - Col Palmira
                                                           130, Av. Jugurtha
Tegucigalpa (Honduras)
                                                           1082 Tunis (Tunisia)
Ph: 00 (504) 235.57.50 / 231.17.60
                                                           Ph: 00 (216-71) 78.81.03/78.03.39/79.66.43
Fax: 00 (504) 235.57.51
                                                           Fax: 00 (216-71) 78.76.02
E-Mail.: tegucigalpa@mcx.es
                                                           E-Mail: tunez@mcx.es

TEHERAN (Iran, Afghanistan)                                VIENNA (Austria, Slovenia)
26 Golgasht St. Africa Ave.                                Stubenring 16 - 1
19158 Teheran (Iran)                                       P.O. Box 604
Ph: 00 (98-21) 201.61.18/2201.59.10/2204.15.28             A-1011 Viena (Austria)
Fax: 00 (98-21) 2204.90.23                                 Ph: 00 (43-1) 513.39.33/34
E-Mail: teheran@mcx.es                                     Fax: 00 (43-1) 513.81.47
                                                           E-Mail: viena@mcx.es
TEL-AVIV (Israel)
2,Ibn Gavirol St., (4th fl.)                               VILNIUS (Lituania)
64077 Tel-Aviv (Israel)                                    Victoria Building
Ph: 00 (972) 3695.56.91/3695.57.04                         Jasinsicio 16B-LT01112 Vilnius
Fax: 00 (972) 3695.29.94                                   Ph: 00 (370-5) 254.68.00/02
E-Mail: telaviv@mcx.es                                     Fax: 00 (370-5) 254.68.01
                                                           E-Mail: vilnius@mcx.es
THE HAGUE (The Netherlands)
Spaanse Ambassade                                          WARSAW (Poland)
Burg Patijnlaan, 67                                        Genewska, 16
2585 B.J. The Hague (The Netherlands)                      03-963 Warsaw (Poland)
Ph: 00 (31-70) 364.31.66/345.13.13/363.55.09               P.O. Box 111


Business in Spain
Useful addresses
14
Ph: 00 (48-22) 617.94.08/63.68/616.09.54                   Fax: 00 (1-202) 466.73.85
Fax: 00 (48-22) 617.29.11                                  E-Mail: washington@mcx.es
E-Mail: varsovia@mcx.es
                                                           ZAGREB (Croacia, Bosnia and Herzegovina)
WASHINGTON (North Carolina, South Carolina, Delaware,      Savska 41/1 (Zagrepcanka Building)
Maryland, Virginia, West Virginia, District of Columbia)   1000 Zagreb (Croacia)
2375 Pennsilvanya Av. N.W.                                 Ph: 00 (385-1) 617.69.01/617.72.23
Washington, D.C. 20037-1736 (USA)                          Fax: 00 (385-1) 617.66.69
Ph: 00 (1-202) 728.23.68                                   E-Mail: zagreb@mcx.es




                                                                                                      Business in Spain
                                                                                                       Useful addresses
                                                                                                                    15
interes@interes.org
www.investinspain.org




Prepared by: