investing in spain a guide for chinese businesses -...

Investing in SpainA guide for Chinese BusinessesIn collaboration with the Chinese Embassy in Spain

A journey of ten thousand miles begins with just one step

Chinese proverb

Investing in Spain - A guide for Chinese Businesses 3

Contents

Letter of Endorsements 8

Chinese Embassy in Spain 8

ICBC 9

Foreword 10

1. Introduction to Spain 11

1.1. Location 11

1.2. Population and language 11

1.3. Government 12

1.4. Business environment 12

1.5. Financial centre 12

1.6. Benefits to business 13

1.7. Currency 13

1.8. Foreign investment 14

1.9. Operating costs 14

2. Spain – China economic and trade relations 16

2.1. Institutional framework 16

2.2. Commercial exchange 17

2.3. Trends and future development 19

3. Chinese investment into Spain 20

3.1. Chinese overview 20

3.2. The appeal of Spain 21

3.3. Deal rationale 22


4. Main business structures 23

4.1. The incorporated company 23

4.2. Branch or representative office of an incorporated foreign company 31

4.3. Business regulation 36

4.3.1. Reorganisation process: national and international mergers and acquisitions 36

4.3.2. Foreign investments in Spain 41

5. Corporate Governance 44

5.1. Overview 44

5.2. Appliance and compliance 44

6. Accounting and auditing 46

6.1. Overview 46

6.2. Reporting requirements 46

6.3. Accounting principles and standards 48

6.4. Audit requirements and standards 48

6.5. Frequently asked questions 49

7. Taxation 51

7.1. Overview of Spanish taxation 52

7.2. Principal direct taxes 52

7.2.1. Corporate income tax 52

7.2.2. Personal income tax 63

7.2.3. Non-resident income tax 66

7.2.4. Inheritance and gift tax 68


7.3. Principal indirect taxes 68

7.3.1. VAT 68

7.3.2. Transfer tax 69

7.3.3. Capital duty 70

7.3.4. Stamp tax 70

7.3.5. Property tax 70

7.3.6. Customs and excise duties 70

7.3.7. Tax on certain means of transport 71

7.3.8. Other taxes 72

7.4. Avoidance of double taxation 72

7.4.1. Foreign tax credits/ Exempt income 72

7.4.2. Tax treaties 72

7.4.3. Republic of China – Spain tax treaty 75

7.4.4. Hong Kong – Spain tax treaty 76

8. Labour environment 76

8.1. Overview 76

8.2. Employment of foreigners 77

8.3. Employment and remuneration 77

8.4. Social Security and benefits 78

8.5. Termination of employment 78

9. Banking sector in Spain 79

9.1. Entering the Spanish banking market 79

9.1.1. Formalities for setting up a bank in Spain 79


9.1.2. Branch of an EU bank in Spain 80

9.1.3. Branch of a foreign non EU bank in Spain 80

9.2. Regulation of the banking Business 80

9.2.1. Spanish supervisory authorities 80

9.2.2. Mergers and acquisitions of Spanish banks 80

9.3. Corporate income tax 81

9.3.1. Attribution of profits 81

9.3.2. Minimum amount of “free” capital for Spanish tax purposes 81

9.3.3. Specific tax computation considerations for branches of Chinese banks 82

9.4. VAT 84

9.4.1. Output VAT: the VAT exemption on financial services 84

9.4.2. Input VAT recovery 84

9.5. Withholding taxes 86

9.5.1. Withholding tax on interest income 86

9.5.2. Withholding tax on interest payments 86

9.6. Reporting obligations 87

9.7. Leasing and asset finance 87

9.7.1. Legal requirements 87

9.7.2. Types of leases recognised (by law) 88

9.7.3. Finance leases 88

9.7.4. Financial regulations / supervisory requirements 89

9.7.5. Regulatory requirements for lease transactions 89


10. Institutional framework for attracting foreign investment to Spain 90

10.1. Spanish Government Institutions 90

10.2. Support framework in regions and relevant cities 91

10.3. Grants and subsidies to attract foreign investment 96

Appendix 101

I. China’s 12th Five Year Plan 101

A) Introduction 101

B) Strategic Priorities of the 12th FYP 101

C) Strategic Emerging Industries Plan 101

D) What economic measures will the government be likely to take? 102

E) Major issues and implications 103

II. How Can ICBC Help? 105

III. How can Deloitte help? 109

IV. Deloitte International Tax Source 114

V. Office locations 115

VI. Deloitte team involved in this edition 118

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Letter of Endorsements

China established the diplomatic ties with Spain in 1973 and upgraded the relations to comprehensive strategic partnership in 2005. In recent years, both countries have joined hands together to meet the financial crisis, which helped increase political mutual trust, expand cooperation in fields like culture and education and bring economic & trade relations into a spotlight for both societies.

In 2010, the growth in Spain’s exports to China surpassed that in its imports from China and the bilateral trade amounted to US$ 24.4 billion. Spain and China have become each other's most important trading partner, and the bilateral goods trade, in particular, has reached a relatively mature stage of development. The number of Chinese tourists to Spain is expected to total 300,000 in 2013.

As more and more commodities and people go global, the pace of international allocation of China’s capital speeds up as well. In 2010, China reported nearly US$ 60 billion of outward investment in non-financial sectors, one of the hugest among the developing countries. In the future, China’s inward investment and outward investment will tend to be more balanced and China will soon become a global investment giant.

Spain is among the most developed countries of the world. With close ties with EU and Latin America markets, it boasts a high degree of market openness, advanced infrastructures and complete investment promotion systems, thus being an investment destination which the Chinese businesses cannot ignore. China’s aggregate investment in Spain is not huge at present, but the operation is generally good and well on a stage featuring accelerated rise. Either investing in Spain or jointly carrying out global strategic cooperation with Spanish businesses is of great significance to the sustainable development of both economies.

The Chinese government encourages businesses to earnestly study and actively adapt to local investment environment, observe laws and rules, follow local customs and merge into local society. Mutual understanding is the first step for future cooperation. Therefore, we hope the cooperative publishing of the guide for investing in Spain can play a positive role in promoting the investment by Chinese businesses in Spain.

Zhu Bangzao Ambassador of the People´s Republic of China in Spain


‘Going Global’ has become a strategically important policy for China to deepen its opening up and proactively participate to international economic cooperation. With greater exposure to the world economy, China has built up enormous overseas economic interest with vast of enterprises and overseas Chinese around the globe. The huge needs for financial service of overseas Chinese enterprises and individuals have laid a solid foundation for Chinese banks to follow their globalized customers to provide support worldwide.

ICBC has been playing an active role in support of Chinese enterprises going globalization in recent years. By the end of 2010, ICBC had 203 overseas branches and subsidiaries in 28 countries and regions, thus the global financial service network covering Asia, Europe, Africa, America and Australia has been basically established. ICBC has contributed to so many aspects of overseas Chinese enterprises daily operations such as financing, merge and acquisition, capital raising and wealth management, that has greatly propelled our clients´ business booming.

Spain is one of the major destination countries for foreign direct investment. The recent years have seen a remarkable increase of Chinese investment flow into Spain. The establishment of ICBC´s new branch in Madrid is the most recent highlight of the achievement of Sino-Spanish economic cooperation and development. ICBC becomes the first Chinese bank to set its footprint in Spain, a meaningful move for the Chinese enterprises exploring the Spanish market. We strive to provide excellent financial services to Chinese and Spanish customers and aim to be a financial bridge between China and Spain to boost bilateral economic and trade relationship.

As such, we feel really honored to have the chance of being part of the editor team of this Investment Guide in Spain. I hope this book will be a useful tool for Chinese enterprises to better understand the investment environment of Spain. ICBC Spanish Branch will always be ready to partner our customers to make contribution to the enhancement of economic relationship between China and Spain.

Liu GangGeneral Manager of ICBC Spain Branch

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It is an honour for me to introduce the first edition of the Investing in Spain guide. This guide couldn’t come at a better time, at a moment when Spain has been declared as China’s best friend in Europe; Spain - China economic relations are getting stronger by the day, and Chinese investment into Spain is growing faster than ever.

China is already Spain’s principal commercial partner from outside the European Union. Spain’s imports from China have more than quadrupled in the last ten years and our exports are also growing at healthy rates. Furthermore, all signs point to the fact that this relationship will continue to grow in the future. The number of Chinese companies in Spain is steadily increasing, and the setting up of the first Chinese financial institutions will make Spain an even more attractive destination for them.

As we can see in the 12th Five Year Plan approved in March 2011, it is clear that China’s Government will continue to push for a rapid development of the country. Economic growth targets are set to continue at high single digits during the 2011-2015 period. The main driver of this outstanding growth will be an increase in private consumption. According to the 12th FYP, China’s development model will undergo major change from an exports driven economy to a consumption driven one. Domestic demand will grow faster than the economy, and its contribution to China’s GDP will also increase significantly.

In order to achieve these targets, China’s consumption of natural resources from abroad will continue to increase, and the import to China of western brands and technologies will rise dramatically, as Chinese companies use them to satisfy their customers’ needs. In this context, Spain will strengthen its position as a benchmark destination for Chinese investors.

Deloitte and its Chinese Services Group (CSG) are committed to developing long-term partnerships with the Chinese business community and to support the entrance of Chinese companies in Spain. We are convinced there are considerable opportunities to strengthen our mutual trade and investment relationships, and will do our utmost to promote them. Our professionals, with extensive experience and knowledge of the Spanish market, are in a unique position to help any Chinese investors understand the Spanish market and bridge any cultural gap that would otherwise pose a major challenge for them. The CSG, at all times in cooperation with the China firm, serves as the unifying force to market, facilitate and deliver Deloitte professional services to our Chinese clients in Spain.

Both China and Spain have much to offer each other. I hope this guide, coordinated and tailored for Chinese investors, with the full support of the Chinese Embassy in Spain and ICBC, will become the tool of reference when targeting Spain. I am confident it will help you make the right choices when deciding whether to invest in Spain and it will be a pleasure for me to offer you all our help when doing business in Spain.

Fernando RuizCEO of Deloitte Spain

Foreword


1. Introduction to Spain1.1. LocationSpain is one of the fifty largest countries in the world, with an area of 505,955 square kilometres.

Most of its territory is the Iberian Peninsula, while the rest is composed of the Balearics and the Canary Islands plus the cities of Ceuta and Melilla -situated on the coast of Africa.

Because of its privileged geographical situation -the Iberian Peninsula is located in the extreme south west of Europe and only 14 kilometres away from Africa- Spain has great strategic value: it acts as a bridge between the Mediterranean on one side and Africa and America on the other. The Spanish coastline runs along the Mediterranean Sea and the Atlantic Ocean.

The climate in the different parts of Spain can vary greatly:

•In the North, the weather is temperate. Often with little change from summer to winter, and rain is common year round.

•The Centre is characterised by hot summers and cold winters. In this area it does not rain very often, but when it does, it rains heavily.

•In southern Spain, the summers are hot and winters range from cool to cold.

1.2. Population and languageIn 2011 the Spanish population is estimated to stand at around 47 million, some 5.7 million of whom are foreign residents.

The population of Spain is concentrated mainly in large cities.

Madrid, the capital city of Spain, has more than 3 million inhabitants -more than 6 million if we take into account the outlying area. Barcelona, with an official population of 1.6 million, is the second largest city in Spain. They are followed by Valencia (809,267 inhabitants), Seville (704,198 inhabitants), Zaragoza (675,121 inhabitants), Malaga (568,507 inhabitants) and Bilbao (353,187 inhabitants).

The official language of Spain is Castilian Spanish. However, Spanish is not the only language spoken in Spain. There are many other officially-recognised languages in the following Autonomous Communities: Catalonia, Galicia, the Basque Country, Valencia and the Balearic Islands.

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1.3. GovernmentSpain’s political regime is a constitutional monarchy, with a hereditary monarch and a parliament based on a two-House system. The maximum institution is the Spanish Crown. Juan Carlos I is both the King and the Head of State. He is in charge of moderating the regular functioning of the institutions, as well as being the highest representative of the Spanish state in international relations.

The Spanish Constitution is the legal framework of the political organisation of the Spanish nation. According to the Constitution, the powers of the state are separated into three branches: legislative, executive and judicial. Legislative power is held by parliament, while executive power is represented by the government. The head of the government is proposed by the King and elected after the renewal of parliament.

Spain is divided into provinces and into other larger units –the Autonomous Communities. There are 17 Autonomous Communities: Andalusia, Aragon, Asturias, the Balearic Islands, the Canary Islands, Cantabria, Castilla-León, Castilla-La Mancha, Catalonia, Extremadura, Galicia, Madrid, Murcia, Navarre, Basque Country, La Rioja and Valencia. There are also two cities –Ceuta and Melilla– each with a Statute of Autonomy. Each Autonomous Community has its own parliament and regional government.

The Constitutional Court must safeguard the constitutionality of the laws and resolves any conflict arising between the Autonomous Communities and the state.

Spain is a democracy based on the supreme values of its legal system which are the concepts of freedom, justice, equality and political pluralism.

1.4. Business environmentSpain is an EU member state and a member of the OECD.

Spain is a large economy and a popular destination for foreign investment. The services sector dominates the economy, with retail, tourism, banking and telecommunications accounting for a significant proportion of economic activity. The tourism industry is particularly important and Spain is one of the most popular tourist destinations in the world. The most prominent manufacturing industry is vehicle production. The bulk of Spanish trade is with the EU, although trade with Latin America and Asia has grown in recent years.

1.5. Financial centreThe city of Madrid is considered to be the financial centre of Spain. In this regard, the two largest banks in Spain –Santander and BBVA- have established their headquarters in Madrid.

The prestigious business schools Instituto de Empresa and IESE are also located in Madrid.


The regulation and supervision of the Bank of Spain safeguards the soundness of the Spanish banking system. This system has been acknowledged by news agencies such as the Dow Jones International News, multilateral institutions such as the European Central Bank and other central banks like the Bank of England.

The Spanish stock index is a leader in contracted fixed-income products and has been growing at a rate far above the international average.

1.6. Benefits to businessCurrently, Spain is one of the most internationally-oriented countries in the world. With regard to the trading of goods, Spain is ranked 16th in the world as an exporter and 13th as an importer; while in the trading of services it occupies 7th place as an exporter and 9th place as an importer (WTO “International Trade Statistics 2010” report.)

Spain’s human and technological resources make it a very attractive country for the international business community. Spain has a highly developed infrastructure network and it is very well communicated by road, train –highly developed network of high-speed trains: AVE-, air - two of the biggest airports in Europe- and sea.

The Spanish market is one of the biggest in Europe with 47 million consumers and spending power above the European average.

As a member of the EU, Spain is directly connected to the members of the European Union.

Spain has the highest number of double taxation and investment protection agreements signed with Latin America. Moreover, many Spanish companies are leaders in the Latin American markets.

Because of its geographical proximity to North Africa, Spain is an important connection point between Europe and the African market.

The Spanish language is also a key factor as there are currently more than 450 million Spanish speakers and it is the official language of 22 countries.

1.7. CurrencyAs Spain is a member of the European Union, its official currency has been the euro since 2002.

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Exchanges rates in June 2011:

€1: June 2011

China (¥) 9.3

UK (£) 0.8

United States (US$) 1.4

Hong Kong (HK$) 11.1

Japan (Yen) 116.8

Switzerland (SFr) 1.2

1.8. Foreign investmentSpain has liberalised its foreign investment rules to attract foreign capital and to bring domestic rules into line with the principles of the Treaty on the Functioning of the European Union.

Foreign investments generally only have to be “reported” after they have been made, except in the case of investments from tax havens, which as a general rule must be reported to the Investments Registry of the Ministry of Economy and Finance in advance; the same applies to foreign investment in activities directly related to public order, national security and public health systems, and real property investments for diplomatic missions by states that are not EU member states.

The Spanish government protects strategic sectors of the economy, and industry-specific legislation restricts foreign investment in the following sectors: air transport and radio industries; areas relating to raw materials of strategic interest; private security and television; industries linked to manufacturing, marketing or distributing arms and explosives; and activities related to national security. In addition, special rules govern investments in certain sectors (e.g. the pharmaceutical industry and mining).

1.9. Operating costsThe main factors that a company must take into account when deciding on a suitable location include the recurring expenses related to the operation of a business, or to the operation of a device, component, piece of equipment or facility.

The tables below show electricity and natural gas prices for industrial use in Spain:

Electricity prices in Spain

(euro per Kilowatt-hour, VAT excluded)

Comsumption price

Less than 10 KW 0.14

More than 15 KW 0.16


On the other hand, the price of water depends on variables such as the consumption or the season. In this regard, the price in Madrid for 2011 varies between €0.38 /m3 and €1.39 /m3.

Another major cost that must be analysed is that relating to the rental of office space that a business occupies. It is important to stress that rentals in Spain vary notably depending on the region. In this regard, the following figure shows the average price for 2010 depending on the area of Madrid (as a reference of a first tier city):

Natural gas prices in Spain

(euro per Kilowatt-year, VAT excluded)

Comsumption price

5,000 KWh or less 0.14

5,000 KWh-50,000 KWh 0.16

50,000 KWh-100,000 KWh 0.39

More than 100,000 KWh 0.36

70

370

270

170

€/m2/YearMax Avg Min

CBDCity centrer

Periphery

No city centrer

Source: BNP Paribas Real Estate Research

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2. Spain – China economic and trade relations2.1. Institutional frameworkIn the modern era, diplomatic relations were established by both the Chinese and Spanish Governments in 1973.

Furthermore, a few years ago –in 2005-, the two economies decided to embark on a new project in which they would become strategic partners and provide mutual aid through the signing of the Strategic Association Agreement. For the purpose of clarification, said agreement recognised the ongoing commercial relationship established between China and Spain under the same conditions that others, such as France, the UK and Germany, also enjoyed at that time.

Institutional relations have been notably strengthened in recent years. To mark the recent opening ceremony of Expo Shanghai 2010, numerous dignitaries such as the Minister of Industry, Tourism and Trade, the Director General of the Public Treasury, the Prime Minister and others had the opportunity to visit China. In addition, Spain was visited by the Deputy Minister of the Chinese National Committee for Development and Reforms (NDRC), the main economic advisor to the Prime Minister, Zhu Zhixin, the deputy minister for trade, Zhong Shan, the Deputy Minister of the Ministry for Railways, An Limin, and the Deputy Chairman of the CCPIT, Zhang Wei (in a ceremony with the Spanish Employers Confederation -CEOE-, its Spanish counterpart).

Recently, in 2011 the Spanish Prime Minister along with the Ministry of Industry, Tourism and Trade and the State Secretary for the Economy visited China. Furthermore, in January 2011 the deputy Prime Minister Li Keqiang visited Spain.

Among the most significant projects and agreements recently signed between both nations, the following should be mentioned:•Economic and industrial cooperation treaty (1984).•Scientific and technical cooperation agreement (signed 1985).•Double tax treaty (in force since 1992).•Mutual investment protection and promotion agreement (in force since 2008).


2.2. Commercial exchangeSpanish exportsThe total volume of Spanish exports to China in 2009 amounted to nearly €2,000 M whereas those registered in 2010, amounted to €2,650 M –a rate of growth of 33.13%.

The total volume of exports in 2010 related mainly to the sale of:•Raw materials and semi-finished plastic products (10.46%)•Automotive accessories (9.49%)•Steel products (4.48%)

The data for 2009 and 2010 is as follows:

Main Spanish Export Products(millon Euros)

2009 2010 Growth

Amount % Amount % %

Raw materials and semi-finished plastic products 231.87 11.67% 277.11 10.46% 19.51%

Automotive equipment, components and accesories 102.33 5.15% 251.25 9.49% 145.53%

Iron and steel products 114.00 5.74% 118.72 4.48% 4.14%

Pharmachemicals products 80.27 4.04% 102.62 3.88% 27.85%

Organic chemicals 115.60 5.82% 102.41 3.87% -11.41%

Marble and related goods for construction 59.99 3.02% 87.60 3.31% 46.01%

Copper and its alloys 60.00 3.02% 86.51 3.27% 44.19%

Semi-finished copper products and the related alloys 33.98 1.71% 84.53 3.19% 148.78%

Metal and non-metal ores (except copper and zinc) 63.86 3.22% 71.59 2.70% 12.11%

Raw and tanned hide and leather 43.15 2.17% 71.47 2.70% 65.63%

Source: Spanish Customs Authorities

Spanish ImportsThe total volume of Spanish imports from China in 2009 amounted to nearly €14,500 M whereas those registered in 2010, amounted to €18,870 M –a rate of growth of 33.13%.

The total volume of imports in 2010 related mainly to the purchase of:•Women’sclothing(10.22%)•Computerhardware(8.25%)•Telecomparts&equipment(5.88%)•Electronicdevices(4.51%)

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The data for 2009 and 2010 are as follows:


2009 2010 Growth

Amount % Amount % %

Women´s clothing 1,688.16 11.68% 1,927.48 10.22% 14.18%

Computer hardware 964.99 6.67% 1,557.14 8.25% 61.36%

Telecomunications equipment 926.87 6.41% 1,108.45 5.88% 19.59%

Electronic parts 484.93 3.35% 851.76 4.51% 75.65%

Footwear 569.98 3.94% 764.40 4.05% 34.11%

Organic chemicals 430.01 2.97% 556.54 2.95% 29.42%

Men´s clothing 506.74 3.51% 553.53 2.93% 9.23%

Iron and steel products 357.00 2.47% 537.14 2.85% 50.46%

Toys 402.26 2.78% 505.23 2.68% 25.60%

Leathers goods 381.41 2.64% 492.36 2.61% 29.09%

Source: Spanish Customs Authorities

Evolution of Spain’s balance of trade Spain’s balance of trade is usually marked by severe deficits due to the low volume of Spanish exports entering the Chinese market. However, it has been observed that Spanish sales have begun to increase slightly over the last two years.

In fact, in 2010 the Spanish trade deficit reached €16,219 M. Also, the foreign trade coverage rate has improved to the extent that in 2010 it reached 14% pointing to greater growth in the volume of exports than in imports.

Foreign capital companies represent half of Chinese imports, with approximately one third of the imports relating to the manufacturing trade. Foreign direct investment (FDI) in China constitutes the main source of Chinese imports.

In principal, it could be argued that the current weak level of industrial placement and positioning of Spanish companies in the Chinese economy could have a significant impact on the access of Spanish exports, together with other factors such as access barriers and the profile of the Spanish export companies.


The data for 2008, 2009 and 2010 are as follows:


2008 2009 2010

Amount % Amount % Amount %

Spanish Exports 2,152.60 1.2% 1,989.40 -7.6% 2,648.09 33.1%

Spanish Imports 20,492.60 10.8% 14,454.20 29.5% 18,867.09 30.5%

Trade Balance 18,339.80 12.1% 12,464.90 32.0% 16,219.02 30.1%

Trade Coverage Rate 10.5% - 13.8% - 14.0%

Source: Compiled by Deloitte Spain based on previous charts.

Chinese investment in Spain may appear to be still relatively low and although certain Chinese corporations, such as ICBC bank (since January 2011), HNA (which acquired 20% of NH Hoteles in May of this year), CITIC, ZTE, Huawei and Air China all have a presence in Spain, it has yet to become a significant destination for outward Foreign Direct Investment ("FDI") in comparison with other large economies located in the European Union.

In 2007, Chinese investment in Spain surpassed €2.15 M but in 2008 it dropped significantly to €1.05 M. Although the highest level of investment (€2.76 M) was recorded in 2009, it subsequently fell to €2.2 M in 2010.

2.3. Trends and future developmentSeveral wealthy Chinese territories have recently been faced with a decrease in their competitive advantage based on low salaries. Rich areas have witnessed a significant degree of relocation of labour-intensive and consumer-goods industries (toys, clothing, footwear. etc.) to other Asian economies. As a consequence, the former competitive pressure exerted by these territories on the European Union market has tended to become less price-orientated and based more on the range, quality and innovation of the products.

Furthermore, the population of these territories is acquiring a pattern of consumption and investment which is increasingly similar to that of Europe, a factor that indirectly allows for an increase in the volume of EU products to be traded. Previously, exports were based mainly on the sale of high-quality equipment and luxury goods, which would tend to become less limited as new more basic products gained access to the Chinese economy. Accordingly, those competitors that focused their main competitive advantage on the price-factor should gradually adjust to their new scenario.

In this light, the indicators for 2010 and this current year 2011 so far show an increase in the bilateral trade flows between both economies. It must therefore be emphasized that the Chinese development priorities could give rise to opportunities for Spanish companies, in two different ways:

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•As an advantage for technological-intensive sectors (e.g. renewable energies, water treatment and biomed) before Chinese companies operating in these sectors develop the subsequent technologies in their own right.

•As a more stable form for medium and high-range consumer goods (fashion, food and beverages).

Nevertheless, in the medium and long term horizon, the development and growth of bilateral relations would be determined by factors such as the growth of current modest Spanish production investment in China.

Most importantly, the future of Spain’s bilateral relations with China would significantly depend on (i) the capacity of China to continue to open up and the growth of its economy (ii) growth of household disposable income above the actual GDP and promotion of personal consumption, as the main element to drive demand, (iii) an in-depth analysis of the intervention procedures adopted by the public sector in the economy through public enterprises and highly active financial and industrial policies.

3. Chinese investment into Spain3.1. Chinese overviewThe strengthening of the Chinese economy, growing at 11.9% and 10.3% during the first two quarters of 2010, is behind the rise in outbound investment that we are seeing from China. Such a rapid rate of development has resulted in further M&As, as Chinese investors are becoming victims of their own success. China’s economy is rapidly moving up the value chain, as Chinese consumers are seeing their purchasing power increase. Therefore, Chinese manufacturers are being pushed to seek more cost effective centres of production and are facing increasing challenges to meet the demands of their customers for higher quality and design. Chinese investors are now looking to diversify their operations away from the mainland and are looking for reputed brands, technology and resources. Spain is a good target that meets their requirements.

In the near future, Chinese banks will play a very important role in facilitating Chinese outbound investments. Over the past few years Chinese financial institutions have opened a large number of branches around the world, including Spain, and we expect this trend to continue as Chinese companies and investors will continue to focus on overseas markets to diversify their investments.

Spain offers a number of benefits to a potential investor, which is why many Chinese companies chose to establish their operations here, and many others are considering Spain as their target country for investments. Benefits such as incentives for foreign investors, the broadest network of double taxation and investment protection agreements, and strong government commitment to attracting foreign investment are oriented towards helping foreign companies to set up in Spain and take advantage of the market for their individual needs.


Spain is the third largest recipient of Chinese FDI in Europe, and according to official data, Chinese FDI into Spain grew at a Compound Annual Growth Rate (CAGR) of 44.3% between 2003 and 2009. The overall stock of Chinese FDI in Spain is already over €8 million. Although the figure might not seem too big, the underlying trend is outstanding, meaning that Spain is becoming an increasingly attractive destination for Chinese investment. As proof of this affirmation, and according to several reports, the number of Chinese companies in Spain is forecast to double by 2013.

Since Spain started receiving FDI from China, the sector pattern of Chinese investment appeared to be in intermediate commercial goods, real estate and textiles; nowadays the investment focus is changing and the Spanish renewables and electronic components sectors are gaining appeal as investment targets. Spain is becoming a very attractive location for Chinese investors looking to start their European and Mediterranean operations. The fact that Spanish multinationals have a strong position and experience in Latin American markets is also an attractive point for Chinese companies seeking to profit from their experience.

Following the implementation of the 12th Five-Year Plan, we expect a surge in Chinese investment entering Spain, not only with the aim of entering the Spanish or European markets, but also as a way of acquiring renowned brand and world-class technologies to import them back to their home markets. Foreign brands acquisition and importing to their domestic markets by Chinese investors have become the new way for Chinese companies to gain a competitive advantage over their counterparts, especially in those sectors where Chinese domestic markets are already saturated such as retail, food and beverage or aviation spaces.

3.2. The appeal of SpainAs China develops and its domestic consumption markets start to gain speed, Chinese companies are starting to feel increasing pressure from both foreign and Chinese competitors. This trend will not only continue in the coming years, but will become even stronger, putting pressure on companies’ margins and market share. Therefore, Chinese companies have had to look at foreign markets in search of the competitive advantages that they are losing at home. Furthermore, Chinese companies wish to become the leaders in their home markets and to achieve this objective it will not be enough to try to outpace their domestic competitors, they will also need to beat multinational competition from abroad to become global leaders.

In their search for competitiveness and new markets Spain has much to offer Chinese investors. According to the World Bank, Spain is the 49th country in the world, and 10th in Europe, in terms of ease of doing business in the country. The country is the fifth biggest economy in Europe with a GDP per capita of US$ 31.946, and historically it has been among the biggest consumer markets of the European Union, with average per capita spending above the EU average. Additionally, Spain was ranked as the most popular and friendly destination for expatriates in Europe.

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When targeting European and Latin American markets, Spanish companies can be the perfect partner for Chinese companies. Our companies already have vast experience, deep knowledge and a good reputation in both markets. Therefore, cooperating with a Spanish company would place any Chinese company in a much better position when entering these markets, and would enable them to benefit from our companies’ reputation and knowledge of the target market.

In terms of the country’s resources and infrastructures, Spain offers a pool of highly qualified workers at a very competitive cost, lower than their European peers; some of the best infrastructures in Europe, including the best high-speed train network; two of Europe’s biggest airports and the busiest ports in southern Europe. Spain’s extensive logistics network has direct connections with Europe, Latin America and the entire Mediterranean area.

As an investment opportunity for Chinese investors, Spain offers a range of high potential brands and companies with European level standards of design, technology and management. Spanish brands and technologies are acknowledged around the world for their top quality and high level of design, placing them in an unbeatable position to be exported abroad. The country’s strategic geographical location, with access to North Africa, Europe and Latin America, together with its economic openness and competitiveness, makes it a very attractive location for foreign investors.

Spain is not only a big consumer market with a high degree of purchasing power, but also offers a range of domestic high quality brands easily exportable to and marketable on the Chinese market. Spain’s renewable energies such as wind and solar power generators are amongst the most advanced technologies in the world. Brand acquisitions, as well as the purchase of advanced technologies are also crucial for Chinese outbound appeal and in this sense, Spain has a lot to offer Chinese corporate investors looking to strengthen their position and expand market shares not only in the international, but also in their domestic markets.

3.3. Deal rationaleAre earliest matches the best matches? This is a good question that should be raised before any overseas investment.

Indeed, one of the main risks that Chinese acquirers have traditionally faced was their inexperience in the field of cross-border purchases.

Ensuring that the reasons for acquiring any foreign target are duly checked from a professional perspective is a key driver for a successful investment strategy.

Being surrounded by good quality advice, especially by teams with solid international background, is the best guarantee to avoid succumbing to the so-called “window shopper mentality” where the inexperience of Chinese acquirers can lead them to take wrong decisions based on unreal synergies.


The process of searching for outbound investment goes from target origination through to post-merger integration, including detailed valuation exercises or tax structuring support in order to close the acquisition under a complete long-term strategic vision.

Fluent communication with the counterparts and the development of soft skills at the time of running the deal process are excellent ingredients to reach a win-win situation for all.

Lastly, understanding the importance of cultural barriers when transacting is a paramount concern in the outbound investment process.

Chinese investors need to realise that their international growth should be based on in-depth knowledge of the cultural framework of each jurisdiction involved.

Involving a professional team with extensive experience at international and local level is an excellent approach to be able to bridge any cultural gaps.

Although it is true that over the years Chinese investors have improved their ability in the art of deal-making when buying foreign assets, addressing all of these concerns remains a “must” in any potential foreign acquisition.

4. Main business structures.4.1. The incorporated company.The incorporation of companies in Spain is mainly governed by the Consolidated Spanish Limited Liability Companies Law 1/2010 of July 2nd (Texto Refundido de la Ley de Sociedades de Capital). It recently adapted Spanish legislation to incorporate European Community company law directives and substantially amends the former Companies Law of 1989 and Limited Liability Companies Law of 1995.

Chinese companies setting up a company in Spain may do so by creating a wholly-owned subsidiary (a company whose shares are 100% owned by the Chinese parent company, or may join others in establishing a company that is jointly owned by various shareholders).

This chapter explains the most common types of companies / joint ventures that can be registered in Spain as well as their differences and advantages/ disadvantages.

Accordingly, set out below is a brief explanation of the principal forms of Company in Spain: the Public Limited Liability Company (Sociedad Anónima – S.A.), Private Limited Liability Company (Sociedad de Responsabilidad Limitada – S.L.), New Enterprise Limited Company (Sociedad Limitada Nueva Empresa- S.L.N.E.), General and Limited Partnerships (Sociedad Colectiva and Sociedad Comanditaria), Joint Ventures, and European Public Limited-Liability Company (Societas Europaea – SE).

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A. Public Limited Liability Company (Sociedad Anónima - S.A.)As in other countries, an S.A. in Spain is distinct from its members. It provides limited liability for its members and the possibility of unrestricted transfer of shares without its own continuity being affected. Nevertheless, in certain circumstances, a sole shareholder and / or the directors may become liable in respect of the company’s debts.

1. ShareholdersAn S.A. may be listed on a stock exchange or it may be owned by only a few shareholders; it may also be a wholly owned subsidiary of another entity (sole shareholder entity). If the company has only one shareholder, the following further requirements must be met to comply with Spanish regulation:

i. The identity of the sole shareholder must be filed at the Mercantile Registry ("Registro Mercantil").

ii. A Register of Agreements entered into between the sole shareholder and the company must be legalised at the Mercantile Registry in a similar way to the Register of Minutes. These agreements must be transcribed into this Register.

iii. The fact that the company has one shareholder must be stated on all documentation, correspondence, orders, invoices and in all publications which must be made in accordance with the law or the of the company by-laws.

iv. The Notes to the financial statements ("Memoria") should make express and individual reference to agreements between the sole shareholder and the company indicating their nature and terms and conditions.

The founder-shareholders may be Spanish nationals or foreigners, individuals or legal entities. There are no residence or nationality requirements. However, the foreign legal entity shareholders must obtain a taxpayer identification number, for statistical purposes only. If the shareholders are foreign individuals, they must obtain a resident alien identification number (NIE) in order to register the company with the Spanish tax authorities. The procedure to obtain a NIE may take over one month. The NIE must be applied for at a Spanish consulate or by someone (i.e. Deloitte lawyers) in Spain with a power of attorney.

2. Share capitalAn S.A.'s share capital must be at least €60,000. There is no maximum share capital established by law for an S.A. All shares must have a par value and shares may not be issued for less than that par value, although they may be issued at a premium (paid-in surplus). Shares must be “nominative” (registered) until they are fully paid in; thereafter, they may be “bearer” shares.


In order to establish the par value of the shares representing the share capital correctly, it is advisable to set an exact amount of euros as share capital which can be divided into the entire number of shares (i.e. €60,000 of share capital divided into 6,000 shares of a par value of €10).

The initial share capital with which the S.A. proposes to be incorporated (its authorised capital) must be stated in the by-laws and, therefore, in the public deed of incorporation and registered at the Mercantile Registry. Any change to the capital involves an amendment to the by-laws and must be registered at the Mercantile Registry.

An S.A. cannot be set up unless its share capital is fully subscribed and at least 25% of the par value of each share is paid. As for the remaining 75%, any disbursement of that percentage to be made in the form of non-cash assets must be paid in within five years following the initial subscription; if the disbursement is in cash, the maximum term during which the 75% balance must be paid in is established by the by-laws.

Cash contributions must be made in euros; if made in a foreign currency, the euro equivalent must be determined in accordance with the law. Cash contributions must be evidenced by bank deposit receipts issued by the bank, in which the cash contribution has been made, delivered to the Notary Public concerned when the deed of incorporation is executed.

Contributions may also be made in a form other than in cash, as long as certain conditions are met (i.e. report of an independent expert).

An S.A. may acquire its own fully paid-in shares, amounting to up to 20% of its authorised capital, provided that various formalities are complied with, but (i) such an acquisition cannot entail that the net equity be reduced to less than the amount resulting from the sum of share capital plus legal or by-law restricted reserves; and (ii) it must then constitute a restricted reserve of an amount equal to the value of the controlling company‘s shares recognised on the asset side of the balance sheet. If the S.A. is listed on the stock exchange, this 20% limit is reduced to 10%.

The shareholders' liability to third parties is limited to the par value of the shares that they have subscribed.

3. Shareholders' rights:Shareholders' rights include a share in profit distribution, preferential right of subscription in capital increases (except for contributions in kind) and participation in the allocated share capital in the event that the company is wound up.

Shareholders' general rights include attendance at the Annual General Meetings and the exercise of the right to vote as per capital participations rather than as per person.

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Main differences between an S.L. and an S.A.:

4. Directors liability:The provisions in respect of directors’ liability have become much more stringent under Spanish law in recent years. Directors of both S.A.s and S.L.s may incur civil liability when the company, shareholders or creditors have suffered damage due to an unlawful act or omission of the Directors or one carried out without due diligence. Under company legislation, directors may also become jointly and severally liable for all the company’s debts where, in circumstances in which the company ought to be wound-up (in practice, particularly when losses reduce the net worth to below half the value of the share capital), they do not take the necessary steps. However, in such cases the directors shall only be held jointly and severally liable for the debts incurred after the legal grounds for dissolution have arisen.

Directors may also be held liable in relation to the taxes. They may be held criminally liable and failure to comply with Labour Law and Social Security obligations may also lead to directors being held liable when their conduct has been unlawful or negligent.

Directors’ liability may extend not only to directors who have been legally appointed as such, but also to “de facto” directors.

B. Private limited liability company (Sociedad De Responsabilidad Limitada - S.L.)An S.L., like an S.A., may be founded by only one shareholder. The additional requirements in this case are the same as detailed above (point A. Shareholders. points i - iv) in respect of sole shareholder status.

As with an S.A., the shareholders' liability is limited to their contribution to the share capital.

Minimum initial capital of €3,000 is required, which must be paid in full on the company’s incorporation. The capital is divided not into shares but into equal “quotas” ("participaciones sociales"). Each quota carries one vote and must be fully paid before the company can commence trading. There is no minimum size for a quota and there is no maximum share capital established by law for an S.L. Quotas must be in registered form.

In order to establish the par value of the quotas representing the share capital, it is advisable to set an exact amount of euros as share capital which can be divided into the entire number of quotas, (i.e. €3,000 of share capital divided into 300 quotas of par value of 10 Euros).

Public Limited Liability Company (S.A.) Private Limited Liability Company (S.L.)

An S.A.´s capital is divided into shares. An S.L.´s capital is divided not into shares

but into equal quotas.

An S.A.´s share capital may not be less than €60,000. An S.L.´s capital may not be less than

€3,000.


Public Limited Liability Company (S.A.) Private Limited Liability Company (S.L.)

An S.A. can be set up with at least 25% of its share capital

paid (minimum €15,000, for a €60,000 share capital).

An S.L.´s capital must be fully paid up on

incorporation (€3,000).

An S.A. may issue bonds or other marketable securities. An S.L. may not issue bonds or other

marketable securities.

Any contributions made by the shareholders in non-cash

assets must be verified by an independent expert

appointed by the Mercantile Registry.

Contributions in non-cash assets do not

require verification by an expert.

Purchases that do not form part of the ordinary course

of business and which amount to more than 10% of the

share capital within the two first years after incorporation

must be approved by the shareholders at the General

Meeting and be checked by an expert.

Such purchases do not require the approval

of the shareholders at the General Meeting

or verification by an expert.

The shares may be in registered or bearer form. The quotas must be in registered form.

The transfer of shares is essentially free, although it is

possible to state limitations in the by-laws if the shares are

in registered form.

The transfer of quotas to third parties is

essentially limited.

The calling of a General Meeting requires several formalities

(publicity, etc.).

The calling of General Meetings is not so

formal.

There is no maximum number of members of the Board of

Directors, the minimum being three members.

The maximum number of members of

the Board of Directors is twelve, and the

minimum three.

The duration of the term of appointment of the directors

must not exceed six years, unless renewed.

The duration of the appointment of the

directors has no limit unless stated in the

by-laws.

Only one type of governing body can be chosen in the

by-laws, (there are four possibilities: sole director, joint and

several directors, joint directors and Board of Directors).

If it is intended to change the governing body, the by-laws

must be amended and executed in a public deed prior to

the new director / s appointment / s, which must then be

filed at the Mercantile Registry.

The four possibilities can be included in the

by-laws.

If it is intended to change the governing

body, the by-laws do not need to be

amended but the change from one to

another must be executed in a public deed

before a Notary Public and filed at the

Mercantile Registry.

Certain amendments to the by-laws (change of name,

registered office, objects clause) require publications to be

made on the company’s website or, should the latter not

exist, in two newspapers of the related province.

In most cases, no publications are

necessary.

In order to amend the by-laws a report must be prepared

supporting the amendment.

In most cases, no report is required to

amend the by-laws.

There is less shareholder control at an S.A. than at an S.L. There is more shareholder control at an S.L.

than at an S.A.

The shares may be listed on the stock exchange and the

procedure to transfer the shares is easier than at an S.L.

The quotas cannot be listed on the stock

exchange and the procedure to transfer

them is more complex.

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C. New Enterprise Limited Company (Sociedad Limitada Nueva Empresa- S.L.N.E.)This corporate entity is a special type of limited liability company.

As with an S.A. and an S.L., the S.L.N.E. must be set up by public deed, which must be registered at the corresponding Mercantile Registry. However, the procedure is simplified and the use of new technologies is permitted with the aim of expediting the process of setting up companies of this type.

There are, however, a number of characteristics of the S.L.N.E. which make it unlikely to be of interest, in principle, to foreign investors; for example, the founder shareholders must be individuals and on incorporation they may not exceed five. Subsequent transfers may only be to individuals (although after incorporation, transfers of shares may result in there being more than five shareholders).

The name of the S.L.N.E. must be the name and surnames of one of the founders, followed by an alphanumerical code and the indication Sociedad Limitada Nueva Empresa or its abbreviation SLNE. The share capital may not be less than €3,012, or more than €120,202. The S.L.N.E. cannot have a Board of Directors and it is necessary to be a shareholder to be a director.

Legal steps to set up a company (S.A./S.L.)

i. In general terms, the legal steps in order to set up a company are very similar for an S.A. and an S.L.:

ii. Make a prior declaration to the Directorate-General of Commerce and Investments, should the shareholder of the Spanish company be a company from a tax haven country.

iii. Obtain a certificate on behalf of one of the shareholders from the Central Mercantile Registry to the effect that the proposed name of the company has not already been entered in the Register.

iv. Draft the company's by-laws (“Estatutos Sociales”).v. Draft powers of attorney appointing any person in Spain, who will appear before

a Notary Public in Spain to incorporate the company acting for and on behalf of the shareholder(s). Such power of attorney must bear the Apostille of The Hague Convention of 5 October 1961, abolishing the requirement for legalisation for foreign public documents, in order to have legal effects in Spain.

vi. Liaise with the chosen Bank regarding the preparation of the bank certificate evidencing that the funds have been remitted from overseas and credited in the company's account.

vii. Prepare the company’s public deed of incorporation, which must be signed in the presence of a Notary Public by the shareholder(s) or by their attorneys, as the case may be.


viii. Declare the foreign investment at the Directorate-General of Commerce and Investments so that it may be recorded for statistical purposes.

ix. Obtain a taxpayer identification number for each of the shareholders in the company (Número de Identificación Fiscal - NIF) for statistical purposes only.

x. Obtain the provisional taxpayer identification number card for the company (Tarjeta Provisional de Número de Identificación Fiscal - NIF).

xi. File a capital duty return (1% on the share capital). Said tax is currently exempt.xii. File the public deed of incorporation of the company at the provincial Mercantile

Registry.xiii. Legalisation of the Register of Shareholders, Register of Minutes and Register of

Agreements entered into between the Company and its sole shareholder (the latter only if it is a sole-shareholder company).

It usually takes approximately one week to set up the S.A. / S.L. once all the information and documents are gathered plus a further three to four weeks to register it at the Mercantile Registry.

Lastly, it must be noted that the Spanish tax authorities currently require that the non-Spanish resident directors or individual shareholders of Spanish companies obtain a resident alien identification number (NIE) in order to register the company with the tax authorities.

D. General And Limited Partnerships (Sociedad Colectiva and Sociedad Comanditaria)Spanish commercial law allows for both general and limited partnerships. In a general partnership, the members are normally jointly and severally liable for all the debts and obligations of the partnership, whereas a limited partnership is created by one or more general partners (socios colectivos), who are jointly and severally liable without limit for the partnership’s debts and one or more limited partners (socios comanditarios), who are liable only up to the amount of their respective capital contributions.

Limited partnerships in which the limited partners’ interests are in the form of transferable shares are called share partnerships (Sociedad Comanditaria por acciones).

E. Joint VenturesSpanish legislation envisages several types of co-operation companies:

•Unincorporated Temporary Joint Ventures (Uniones Temporales de Empresas): entity created by several companies when setting up a sort of temporary association which is to exist only for a limited period of time and to undertake a specific project. These types of associations do not have separate legal personality and are not corporations.

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•Economic interest grouping (EIG) (Agrupación de Interés Económico – AIE): is a vehicle for a joint venture between Spanish participants. It is similar in concept to a partnership, its participants having joint and several liability for its debts.

To form an AIE, the participants must execute a public deed, incorporating the by-laws. This deed must be filed at the Mercantile Registry. The internal operation of an AIE is similar to that of an S.A.

•European economic interest grouping (Agrupación Europea de Interés Económico- AEIE): is a cross-border version of the AIE. A Spanish AEIE is a separate legal entity and must have its registered office in Spain. It must be registered at the Mercantile Registry, and in almost all respects it is similar in constitution and operation to an AIE.

However, S.A. and / or S.L. companies may also form joint-ventures.

F. European Public Limited Liability Company (Societas Europaea – SE)The introduction of the SE is an important company law development in the EU and may provide easier cross-border mergers and changes of registered office and cost savings. However, as many issues affecting the SE are subject to national law, it is not an entirely uniform new entity. Although this type of company has been included in Spanish law since 2005, very few entities have opted for this type of corporation.

Some of the basic characteristics of the SE are: the minimum share capital is €120,000; the registered office of the SE must be located in the same Member State as its head office; there is no central registration and an SE shall be registered in the Member State in which it has its registered office at the registry designated by its law.

The formation of an SE requires involvement of entities of at least two different Member States. There are four ways in which an SE may be formed: merger; formation of a holding SE; incorporation of a subsidiary SE and conversion of an existing company into an SE. An SE may itself set up one or more subsidiaries in the form of SEs.

The Regulation also provides for the possibility of an SE transferring its registered office from one Member State to another.


As regards the structure and management of the SE, the Regulation provides that the SE shall comprise:

i. A general meeting of shareholders; and

ii. Either a supervisory body and a management body (two-tier system) or a governing body (one-tier system).

Directive 2001/86/EC is designed to ensure that employees have a right of involvement in issues and decisions affecting the life of their SE.

4.2. Branch or representative office of an incorporated foreign companyChinese companies wishing to expand their business activities into new territories will often consider establishing a branch or even a representative office instead of incorporating a new company.

A. Branches Of Foreign Companies (Sucursal Extranjera)From a tax point of view, branches are permanent establishments of non-resident entities.

It is important to take into account that a branch in Spain is not a separate legal entity from its parent company. Nevertheless, the branch has certain autonomy of operation. As with an S.A. and an S.L., any type of activity can be performed by a branch although the parent company is fully liable for the debts of the branch.

The branch must have the same name as the parent company plus the words "Sucursal en España" ("Branch in Spain").

It is important to note that for fiscal and foreign transactions, the arm’s length principle applies to operations between the parent company and the branch. Separate accounts must be kept.

A branch of a non-resident company must appoint a resident individual or legal entity to represent it. The representative appointed will be the person who deals with the tax authorities before the expiry of the deadline for filing the declaration of income earned in Spain. The appointment of a representative to act as tax representative must be reported to the local tax administration office within 2 months of the date of the appointment. This representative is normally one of the branch’s legal representatives, as registered in the Mercantile Register, but if those legal representatives are themselves non-resident, a resident individual or legal entity must be appointed instead.

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The representatives may be held jointly and severally liable for the tax debts of the permanent establishments of the non-resident entities they represent.

If the parent company's financial statements are not filed at the Mercantile Registry of its country of origin (or if they are so filed but do not comply with the requirements of Spanish law, the financial statements of the branch itself must be filed at the Mercantile Registry in Spain. When filed in Spain, the financial statements of the branch are open to public inspection.

1. Main advantages and disadvantages:

Advantages Disadvantages

There is no minimum working capital requirement.

More risk, because branches are liable to third parties up to the full amount of the parent company's equity (in the case of a Spanish company, only the equity in that company is at risk).

It is an inexpensive way to break into an unknown market.

It is not the ideal vehicle for substantial projects, because the parent company runs the entire risk and there is no division between the activities of the parent company and those of the branch.

It is an appropriate vehicle for low cost projects and those with a low turnover.

The fact that it is a foreign company could make some clients or creditors less willing to do business with it, thus making it difficult to obtain loans, contracts, etc.

Possibility for the parent company of offsetting the branch's losses for tax purposes in the same financial year in which they are incurred.

Corporate income tax payable by the branch is normally deductible by the parent company, as well as the transfer of working capital.

The branch is more solvent, because the parent company is liable to third parties up to the full amount of its equity.

Spanish law does not allow the simple conversion of a branch into a subsidiary company.


2. Main differences between a branch and a public limited liability company (S.A.) and a private limited liability company (S.L.):

i. Public and private limited liability companies must be wound up if their accumulated losses reduce their net worth to less than the 50% of their share capital, unless that capital is reduced or increased, or if the capital is reduced below the legal minimum. Moreover, the share capital of public limited liability companies must be formally reduced when losses have reduced net assets to less than two-thirds of the share capital and equilibrium is not restored in the following financial year.

ii. Public and private limited liability companies must transfer 10% of net profit for each year to the legal reserve until the balance of this reserve reaches at least 20% of the share capital. Until the legal reserve exceeds 20% of share capital, it can only be used to offset losses, provided that sufficient other reserves are not available for this purpose.

iii.S.A and S.L. companies are taxed in the same way. Branches are considered to be Permanent Establishments (PE) and, in general terms, they are taxed in Spain applying the same rules as those applicable to subsidiaries, with certain exceptions.

The main difference between subsidiaries and branches is that, in order to determine taxable income, the payments which the PE makes to its Head Office (or any other PE the Head Office may have) for royalties, interest, commissions, or in exchange for technical assistance or for the use or assignment of other assets or rights, are not deductible in the calculation of non-resident income tax.

On the other hand, management and general administrative expenses incurred by the Head Office are deductible to the extent that they are allocated to the branch, they are provided for in the accounts of the PE, that the amounts, criteria and method of distributing the costs are set out in a document filed with the tax return, and the costs are allocated on a rational and continuous basis.

A Spanish subsidiary, on the other hand, may claim as deductible expenses any payments made to the parent company in respect of management fees, technical assistance, interest and royalties, the cost of which must be fixed on an arm's length basis since the companies are related. Specific formal requirements have to be met for certain expenses.

Nonetheless, please bear in mind that the tax deductibility of expenses on transactions carried out between related entities (applicable to certain types of entity, i.e., subsidiaries, branches, representative offices, etc) would depend on whether these transactions represent a real advantage or use for their recipient.

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Moreover, it should be highlighted that Royal Decree 1793/2008, of 3 November amending the Corporate Income Tax Regulations, was published on 18 November 2008. Mainly Articles 18 to 20 of that Royal Decree regulate the documentation obligations affecting (i) transactions between related entities; (ii) the group to which the tax payer belongs; and (iii) the tax payer itself. In accordance with Transitional Provision Three of the Royal Decree, these obligations have had to be complied with since 19 November, 2008, three months after the entry into force of the Royal Decree. Please note that pursuant to Article 18.3 of Royal Decree 1793/2008, transactions between entities in the same tax consolidation group are exempt from the above-mentioned documentation obligations.

3. Legal steps to set up a branch

A branch must be set up in the presence of a Spanish notary public who will require the following documents:

i. A certificate from a bank in Spain to the effect that the working capital, if any, of the branch has been transferred and credited to a current account opened in the branch's name.

ii. A certificate issued by a notary public stating that the parent company has been duly incorporated, that the Memorandum and By-laws have been duly approved and that the directors have been duly appointed.

iii. A certificate of the minutes of the General Meeting or Board Meeting of the parent company at which it is resolved to set up the branch, detailing the allocated capital, if any, the objects, registered office and financial year of the branch. Representatives of the branch should be appointed and their powers defined and an individual must be empowered to appear before a notary public in Spain to execute the public deed setting up the branch. A tax representative should also be appointed.

iv. A sworn translation into Spanish of the parent company's Memorandum and By-laws.

It will also be necessary to:

a. Make a prior declaration to the Directorate-General of Commerce and Investments should the parent company be resident in a tax haven.

b. Record the foreign investment at the Directorate-General of Commerce and Investments so that it may be recorded for statistical purposes only.


c. Obtain a non-resident taxpayer identification number (Número de Identificación Fiscal - N.I.F.) for the foreign company

d. Obtain a provisional taxpayer identification number (Número de Identificación Fiscal provisional - N.I.F.) for the branch.

e. File the public deed setting up the branch at the corresponding Mercantile Registry.

f. File a capital transfer tax return.

4. Main disbursements:

i. Fees of the notary public (the amount will depend on the working capital, if any);ii. Mercantile Registry fees (the amount will depend on the working capital, if any); iii. Translation costs for obtaining a sworn translation of the parent company’s Memorandum

and By-laws.

It usually takes approximately 1 week to set up the branch plus a further 3 to 4 weeks to register it at the Mercantile Registry.

B. Representative Office (Oficina De Representación)A representative office is one that, unlike a branch or a company, has no power to conclude contracts with customers of any type in Spain.

It is very important to stress that if the idea is to conduct business activities in Spain, the representative office would not be the most appropriate vehicle. Therefore, since the final purpose of these entities is very different, it is crucial to determine the exact type of structure required in Spain. Although representative offices are very “simple” in principle, they should only be used for certain activities.

1. Legal steps to set up a representative officeAs with a branch, a representative office must be set up in the presence of a Spanish notary public who will require the following documents:

i. A certificate from a bank in Spain to the effect that the capital of the representative office, if any, has been transferred and credited to a current account opened in the representative office's name.

ii. A certificate issued by a notary public stating that the parent company has been duly incorporated, that the Memorandum and By-laws have been duly approved and that the directors have been duly appointed.

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iii. A certificate of the minutes of the General Meeting or Board Meeting of the parent company at which it is resolved to set up the representative office, detailing the allocated capital, if any, the objects and the registered office of the representative office. Representatives should be appointed and their powers defined and someone must be empowered to appear before a notary public in Spain to execute the public deed setting up the representative office. A tax representative should also be appointed.

iv. A sworn translation into Spanish of the parent company's Memorandum and By-laws.

It will also be necessary to:

a. Sign the public deed opening the representative office in the presence of a notary public.b. Obtain a non-resident taxpayer identification number (Número de Identificación Fiscal -

N.I.F.) for the foreign company.c. Obtain a provisional taxpayer identification number (Número de Identificación Fiscal

provisional - N.I.F.) for the representative office.d. Appoint a tax representative for non-resident income tax purposes.e. File a capital transfer tax return.

2. The main disbursements will include:i. Fees of the notary public.

ii. Translation costs for obtaining a sworn translation of the parent company’s Memorandum and By-laws.

It is not necessary to file the public deed opening the registered office at the Mercantile Registry.

It usually takes approximately 1 week to open the representative office once all the information and documents have been gathered.

4.3 Business regulation 4.3.1 Reorganisation process: national and international mergers and acquisitionsA. OverviewMergers and acquisitions are partnering strategies used by businesses to meet current challenges and to take advantage of the opportunities afforded by the new European framework.

The Law on structural changes to companies (March 2009) unifies Spanish law on the subject of mergers and, in certain aspects, it differs from European Union regulations, since the Spanish law envisages new methods and simplifies certain procedures.


It introduces a new regulatory framework for structural changes to companies (alterations of a company’s legal form, mergers and spin-offs; transfers en bloc of assets and liabilities; the transfer of the registered office abroad), and establishes a common legal framework for all companies in Spain.

Likewise, it regulates cross-border mergers for the first time, by transposing Directive 2005/56/EC into Spanish law and, specifically, regulates mergers between Spanish and non-EU companies.

B. National and international mergers and other structural changes to companiesStructural changes are those alterations of a company that go beyond the basic amendments of the company’s by-laws and affect the equity structure or corporate form of the company.

These structural changes which Spanish companies are able to undertake are, mainly, the alteration of a company’s legal form, mergers and spin-offs; transfers en bloc of assets and liabilities and the transfer of the registered office abroad.

1. Alteration of a company’s legal form.The alteration of a company’s legal form is a structural modification whereby a company adopts a different legal structure while preserving its legal status.

In addition to further legal requirements, the alteration of a company’s legal form requires a resolution of the General Meeting. This resolution has to be published in the Official Gazette of the Mercantile Registry and in an important newspaper (however, the resolution does not have to be published if an individual notification of the resolution is sent to all the shareholders and creditors).

Afterwards, the resolution is executed as a public deed and must be recorded at the appropriate Mercantile Registry.

2. Mergers.There are a number of ways to acquire a company, other than simply purchasing it, one of which is a merger with another company.

There are two main types of merger: merger by absorption, and merger by setting up a new company. The merger by absorption entails the acquisition of one company by another. In this case, the company that is taken over is wound up and its assets become the property of the company that takes it over.

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On the other hand, two or more companies may join forces to establish a new company. The original companies are wound up and their assets become the property of the newly-created company.

Mergers between companies quoted on the stock market are sometimes carried out by means of a public takeover bid, whereby a company publicly announces its intention to acquire a number of shares in another company, allowing it to take control of that company.

Depending on the industry or activity in which the companies are involved, mergers may be horizontal (between companies competing in the same industry), vertical (a company merges with the company which supplies its raw materials, for example, or with the company that distributes its final products) or conglomerates (merger between companies which do not have any connection with each other, with the aim of sharing services such as management, accounting, etc.).

In order for a merger to take place, the boards of directors of all the companies involved must approve the corresponding draft terms of merger . After the required time has elapsed to allow creditors to express their right of objection (one month), only two procedures need be carried out to make the merger official:

– formalising the merger resolutions in a public deed before a notary public, and – registering the said public deed at the corresponding Mercantile Registry.

Finally, it should be highlighted that not only intra-EU cross-border mergers but also international cross-border mergers are regulated for the first time in the Spanish Law on structural changes to companies.

3. Spin-offs.The spin-off of a company is a structural change by means of which a part of a company (or the whole company) is divided into two or more parts and these parts are transferred to a new company or to an existing company. The shareholders of the company carrying out the spin-off would receive a number of shares of the beneficiary company in proportion to the number of shares they own in the original company.

4. Transfers en bloc of assets and liabilities.Through a transfer en bloc of assets and liabilities, a company may transfer all of its assets to a partner or to a third party, for a fee which must not include stocks, shares or membership fees of the assignee.

5. Transfer of the registered office abroad.The transfer of the registered office of a Spanish company abroad is possible and, likewise, a foreign company may transfer its registered office to Spain.


C. Acquisition of companiesAnother alternative to be considered when deciding to wind up a business is the sale or the transfer of the business. This type of transaction allows the seller to receive a financial return on the investment and work put in, while maintaining economic activity and saving jobs. The buyer, on the other hand, acquires a business that is up and running.

The sale and transfer could be performed through a sale of the shares of the company or through the sale of the assets and goodwill comprising the business (thus attempting to leave the debts with the company).

The sale of shares is a way to indirectly acquire all the components of the business of a company (assets and liabilities, rights and obligations). On the other hand, through the purchase of assets, the purchaser acquires all or a portion of the elements that make up the business of the company (assets and rights), whereas, where possible, the liabilities and obligations are excluded.

The acquisition of the business’ assets and goodwill entails peculiarities that, under certain circumstances, make this transaction more complex than the acquisition of the company’s shares:

•The acquisition of certain rights, such as the rights assigned by the seller under certain agreements, may require the other party’s consent to the transfer.

•The transfer of the clients’ goodwill could be difficult in certain situations.•The transfer of rights may lead to a worsening of financial conditions (e.g. rent increases for

the lease of premises).•Impossibility of transferring certain rights held by the seller (permits, licenses, authorisations,

subsidies held by the seller, etc.).

Should an individual or a legal entity wish to purchase a company, the following steps must be met:

1. Qualifying round.The seller may prepare a sale prospectus which is a document showing the actual situation of a company, its assets and liabilities, etc. This prospectus enables the buyer to conduct a limited financial assessment of the company, to establish its real value and proceed with a bid at a fair price.

During this qualifying round, the buyer has access to confidential information about the seller and thus both parties should enter into a non-disclosure agreement (‘NDA’) to make sure that the buyer does not use confidential information about the seller for purposes other than assessing its interest in acquiring the company.

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Finally, this qualifying round may lead to a memorandum of understanding (‘MOU’) being entered into by the parties. This MOU expresses a convergence of will between the parties, indicating an intended common line of action. In some cases, depending on the exact wording, MOUs can have the binding power of a contract (although in Spain, this enforceability has been argued).

To obtain such a prospectus, as well to assess or even participate in the complex process of buying a business, prospective buyers and sellers can get in touch with companies offering professional intermediation and advice on mergers and acquisitions.

2. Due diligence review process.Afterwards, the parties may start a due diligence review process whereby the buyer examines the financial, legal, tax and labour-related aspects of the potential target (and during this process, the buyer may be able to identify any ‘deal breaker issues’).

The findings of the due diligence enable the buyer to obtain a favourable position in the negotiation of the purchase agreement (the issues arising as a consequence of the due diligence review may affect the purchase price, the payment conditions or the guarantees to be requested from the seller).

In addition, this due diligence review process is useful for determining the scope of the representations and warranties of the purchase agreement.

3. Purchase agreement.Finally, the seller and the buyer enter into a purchase agreement, the terms and conditions of which vary depending on whether the buyer is acquiring the shares of the target or the assets and other rights of the target.

The main aspects to be taken into consideration when acquiring a company (either its shares or its assets) are:

– The price and terms of payment. – The seller’s liability. – Representations and warranties. – The seller’s guarantees.

Under certain circumstances, the parties may sign the purchase agreement, but the transaction (the acquisition of the ownership of the target and the payment of the purchase price) may be completed after the conditions precedent agreed upon between the parties have been fulfilled (e.g. authorisations from public authorities or compliance with specific obligations set forth in the purchase agreement).


D. Anti-trust mattersMergers and acquisitions of a certain size (in terms of turnover and / or market share) must be reported to the Spanish National Competition Commission for authorisation. This process aims to avoid mergers and acquisitions that could jeopardize free competition.

The Spanish National Competition Commission (‘Comisión Nacional de la Competencia’) is the government agency in charge of ensuring and promoting effective competition in Spanish markets and consistent enforcement of the Competition Law.

When turnover and / or market share breach certain thresholds, the merger or acquisition must be authorised by the European Competition Authority.

4.3.2 Foreign investments in SpainMany years ago Spain liberalized its foreign investment rules to attract foreign capital from (i) non-resident individuals (Spanish nationals or foreigners domiciled outside Spain); (ii) legal entities with registered address outside Spain; and (iii) public agencies of foreign countries.

Foreign investments must generally be notified to the Spanish authorities after they have been made, except in the cases of (i) investments from tax havens, which generally must be declared to the Investments Registry of the Ministry of Economy and Finance in advance; and (ii) foreign investments in activities directly related to public order, national security and public health systems, and real estate property investments for diplomatic missions by states that are not EU Member States, which must be previously approved by the Spanish Council of Ministers.

Certain foreign investments in Spain below € 3,005,060.52 do not need to be reported unless the investment comes from a tax haven.

Regulated investments in Spain. These are:

1. Investments in Spanish companies (such as the incorporation of Spanish subsidiaries and the acquisition of shares of Spanish companies).

2. The setting up of branches of foreign companies in Spain.

3. The acquisition of securities that by their nature give the owner the right to participate in the share capital or carry voting rights in a Spanish company.

4. Investments in mutual funds registered in the Register of the Spanish National Securities Market Commission.

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5. The acquisition of property situated in Spain when the total amount exceeds € 3,005,060.052, or for any amount, in the case of investments made from tax havens.

6. Incorporation of or participation in cooperatives, joint property or foundations, when the total amount exceeds € 3,005,060.052, or for any amount, in the case of investments made from tax havens.

In general terms it is sufficient for the investment to be reported to the Register of Foreign Investment of the Ministry of Industry, Tourism and Trade after completion, for administrative and economic purposes only. The declaration must be made within one month from the date the investment was made.

- If the investment is made before a notary public, the term of one month will be counted from the date of execution of the investment before the Spanish notary public.

- In case of transactions related to securities not traded in secondary markets deposited at a depository or administrative entity, the term of one month will be counted from the date on which the deposit is carried out.

- In case of acquisition of registered shares, the term of one month will be counted from the date of the registration in the book of registered shares.

- For investments from a country that is treated as a tax haven, a declaration has to be made beforehand, which will be valid for six months from the date of submission. However, if the investment is not carried out within the timeframe of six months, a new declaration must be submitted before an investment can be made. Subsequently, when the investment is made, the investment must be notified.

Foreign investments not mentioned above are deregulated, and therefore, need not be notified to the Spanish authorities.

However, any investments carried out in the sectors of air transport, radio, minerals and mineral raw materials of strategic interest, mining rights, television, gaming, telecommunications, private security, manufacturing, trade or distribution of weapons and explosives for civil use and activities related to national defence, must comply with specific legislation.

The Directorate-General for Trade and Investments of the Ministry of Industry, Tourism and Trade can require Spanish companies with foreign shareholders and Spanish branches of foreign entities to file an annual report on the status of their foreign investments.


Also, Spanish branches of foreign companies are required to submit annual reports regardless of the amount of their share capital or net equity.

Also, S.L.s with foreign investments are obliged to declare the changes in these investments by filling the corresponding form at the Directorate-General for Trade and Investments of the Ministry of Industry, Tourism and Trade, if they meet any of the following requirements:

- Companies with a share capital or net equity higher than € 3,005,060.052, provided that:

a. Foreign investors hold 50% or more of their share capital; orb. One of the foreign investors holds 10% or more of their share capital or of their voting

rights.

- Spanish holding companies when the foreign investors hold 50% or more of the share capital or a single foreign investor holds 10% or more of their share capital or their voting rights.

The Directorate-General may also require all those obliged to report foreign investments to provide the authority with all the necessary information regarding the notification and status of the foreign investment.

The Spanish Council of Ministers may, however, change the regime applicable to foreign investments and apply certain rules and procedures for investments in Spain, whereby government approval from the Council of Ministers must be obtained to carry them out, also applicable to takeovers by a foreign investor of any large economically significant Spanish enterprise. To date, the Council of Ministers has restricted foreign investments in Spain in matters related to national defence, such as the production or marketing of arms, munitions, explosives and other armaments.

In the case of listed companies: (i) acquisitions by non-residents of more than 5% of their share capital or (ii) acquisitions of less than 5% that enables the investors to form part of the company’s managing bodies require prior approval from the Directorate-General.

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5. Corporate Governance5.1. OverviewCorporate governance is the set of processes, customs, policies, laws, and institutions affecting the way a corporation is managed, administered and controlled. In Spain, corporate governance regulations are aimed at listed companies; they contain recommendations and mandatory regulations included in the Code of Good Corporate Governance of the Spanish National Securities Market Commission (“CNMV”) approved in May 2006. Companies may also create and adopt their own corporate governance policies.

However, other regulations regarding corporate governance are set forth throughout the Spanish corporate legal system.

Expectations in Spain and on the part of international institutional investors for good governance and related matters are increasing, and refer to matters such as those concerning the board of directors of a company, the creation of standing committees and the increase in transparency regarding the reports on the company’s activities and composition.

5.2. Appliance and complianceSpanish corporate governance legislation is mainly focused on:

1. Ensuring the basis for effective corporate governance in companies;2. The observance of shareholders’ rights (i.e. attendance and voting rights at general

meetings).3. The observance of the control of the company exercised by the shareholders;4. The role of shareholders at the company’s general meetings in accordance with good

corporate governance;5. The non-discriminatory treatment of shareholders;6. The disclosure and transparency of the company’s managing bodies, such as the board of

directors and general meetings;7. The composition and responsibilities of the board of directors;8. The regulation, according to good corporate governance practices, of the committees

appointed by the board of directors; and9. The regulation of the company’s audit committee.

In Spain there is a tendency for shareholders and members of the board of directors of a company to follow the principles set forth in the Code of Good Corporate Governance and in Spanish legislation.

Consequently, those responsible for disclosing information (accurately and faithfully) are the company and its directors.


Therefore, the functions of the members of the board of directors in relation to corporate governance are (i) to pursue the company’s object and management and to adopt all necessary means therefor and (ii) to monitor and control how executives and officers achieve the company’s purposes and pursue its interests.

The Code of Good Corporate Governance recommends rules be set forth for the appointment of directors and for the updating of their personal / professional information, and that a mechanism be established to enable the board to function regularly and responsibly.

Spain is currently updating the role of employees in corporate governance in line with the EC recommendation dated 15 February 2005 for supervising the internal audit function and reviewing the risk management system. In this sense the company can charge employees with reporting irregularities.

Listed companies in Spain must provide the market with information / documentation on the compliance with good corporate governance principles: specifically an annual financial report within four months from the closing of the business year including (i) the annual financial statements and (ii) the directors’ report (which includes the corporate governance report) reviewed by its auditors.

The annual report on corporate governance should contain (i) information on the ownership structure of the company; (ii) the management and administrative structure of the company; (iii) any related-party transactions between the company and its shareholders and directors and officers and intra-group transactions; (iv) information on the risk control system; (v) the rules for general meetings; (vi) details on compliance with corporate governance recommendations and any reasons or explanations for any non-compliance with certain aspects and (vi) a description of the risk monitoring and internal management system regarding the transfer of financial information.

Good corporate governance is also particularly important to shareholders and members of the boards of directors of unlisted companies. In Spain, a major step forward has been taken in the guidance to providing a practical and pragmatic corporate governance framework for unlisted companies. However, how good corporate governance principles should be applied depends on each company’s circumstances and on the judgment of its governing body.

Deloitte can, pursuant to Spanish and international provisions for corporate governance, assess companies established in Spain for compliance with good corporate governance principles and expectations and prepare or review the company’s corporate governance structure.

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6. Accounting and auditing6.1 OverviewIt is clearly best practice for a new business to keep detailed records of all the transactions it carries out and, for a company, this is a legal requirement. As a general rule, this information must be registered at the Mercantile Registry corresponding to the company’s place of business.

For any company other than the very smallest, this information must be in the standard company account format provided for in the Spanish National Chart of Accounts (2007), and these accounts must be audited.

A financial audit must necessarily be performed by a registered auditor or audit firm (such as Deloitte) and the related report must be issued in accordance with the requirements and provisions of the Spanish Audit Law. An audit consists of verifying and deciding whether the financial statements present fairly the equity, financial position and results of operations of the audited entity in accordance with the regulatory financial reporting framework applicable to it. Where applicable, an audit also includes verifying that the accounting information in the directors’ report is consistent with that contained in the financial statements.

6.2 Reporting requirementsa) Separate financial statements

The format and content of a company’s annual financial statements (commonly known in Spain as separate financial statements) are governed mainly by the Spanish Commercial Code and the Spanish National Chart of Accounts.

Spanish accounting standards are broadly consistent with International Accounting Standards, although there are some differences.

The financial statements must be authorised for issue by the company’s directors within the three-month period following the reporting date. These financial statements must subsequently be approved by the shareholders at a general meeting and registered at the corresponding Mercantile Registry.

The financial statements consist of a balance sheet, an income statement, a statement that reflects the changes in equity during the year, a statement of cash flows and notes to the financial statements. The structure and content of these documents are governed by the Spanish National Chart of Accounts.


Much of the detail that is required can be disclosed in the notes accompanying the financial statements, but certain specific items must be shown on the balance sheet or income statement, as appropriate.

Classifications at a broader level of a company’s business, such as activities in different business segments or geographical areas must generally be shown separately to show their respective contributions to revenue. Specific transactions with related parties must also be disclosed.

A company must disclose in the notes to the financial statements the accounting policies applied, the key factors taken into account by management when measuring and estimating uncertainty and representations as to whether or not errors have been corrected in the year or whether or not there have been changes in the application of accounting policies.

The financial statements must be accompanied by a directors’ report prepared by the company’s directors. This report must contain, inter alia, a fair presentation of the company’s business performance and situation and a description of the main risks and uncertainties facing it.

Specialised enterprises such as insurance companies, banks and other financial institutions are subject to specific requirements. In addition, SMEs may exclude certain disclosures from their financial statements and, in certain cases, may apply simplified accounting policies.

b) Consolidated financial statements

A group of companies whose parent is a Spanish company may, if certain requirements are met, be obliged to issue consolidated financial statements. In this case, the group may choose between issuing its consolidated financial statements in accordance with Spanish accounting principles and issuing them in accordance with International Financial Reporting Standards (IFRSs). This choice is not available to listed groups, which must necessarily apply IFRSs.

Except in certain specific circumstances, a company is obliged to prepare consolidated financial statements when for two consecutive years at least two of the three following limits are exceeded by the group taken as a whole:

Assets RevenueAverage number of employees

€ 11,400,000 € 22,800,000 250

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6.3 Accounting principles and standardsThe accounting principles and standards contained in the Spanish National Chart of Accounts must lead a company’s financial statements to present fairly its equity, financial position and results of operations. For this purpose, the company’s transactions must be accounted for on the basis of their economic substance and not only on the basis of their legal form. There are no detailed guidelines on fair presentation in the accounting standards and, therefore, professional judgment must be applied.

The financial statements must be worded clearly so that the information provided is comprehensible and useful for the users thereof when they are taking their business decisions.

As a general rule, the financial statements are prepared in accordance with the going-concern principle of accounting. Economic events are recognised when they occur, regardless of when the related payments or collections are made. Also, accounting policies must be applied on a consistent basis over time, and when applying them company management must be prudent in the estimates and measurements to be made in conditions of uncertainty.

Lastly, asset and liability items and income and expense items must not be offset.

6.4 Audit requirements and standardsIf certain legally established limits are exceeded, a company’s financial statements must be reviewed by registered auditors.

The auditors must be appointed by the company’s shareholders at a general meeting before the end of the period to be audited for an initial period of not less than three years and not more than nine. The auditors may be re-appointed by the shareholders for maximum three-year periods once the initial period has elapsed.

The shareholders may not revoke, without just cause, the auditors’ appointment before the end of the period for which they were appointed.

The auditors must check whether the financial statements present fairly the company’s equity, financial position and results of operations and, where applicable, whether the accounting information in the directors’ report is consistent with that contained in the financial statements for the year. As a result of their work, the auditors must issue a detailed report, in conformity with the Spanish Audit Law. The auditors will have a minimum period of one month from the date on which they are provided with the financial statements authorised for issue by the directors in which to present their report.


Audit procedures are established by firms individually, based on the guidelines of accounting bodies and the law, supported by auditing standards. Auditors commonly devise tests and analyses to assess the effectiveness of a company’s internal control systems before performing further tests on the financial statements under review. Statistical sampling, circularisation, the use of computer test packs and physical inspection are just some of the procedures commonly used.

6.5 Frequently asked questions1. What type of organisations must be audited?

Limited liability companies (including both private and public limited liability companies) must be audited when for two consecutive years at least two of the three following limits are exceeded:

Assets Revenue Average number of employees

€ 2,850,000 € 5,700,000 50

In addition, any organisations can be audited if the shareholders or owners so wish.

2. How are the audit fees calculated?Audit fees are based on the time spent on the work calculated using rates which reflect the expertise of the professionals involved. The hourly rates are set by each professional audit firm.

The time taken to conduct an audit is a reflection of both the standard of the company’s internal control systems and accounting efficiency and its size.

The fees for audit services must be established before the auditors start their work and must be set for the whole period in which the work will be performed.

3. What sort of audit procedures are used? How should the company prepare for the audit?The company should always decide on its own timetable for the production of audited financial statements, although there are time limits provided for by Spanish corporate law. The timetable details can be discussed by the company and the auditors in order to deliver a cost-effective and efficient product. Information needed by the auditors in order to express their opinion has to be furnished by the company and the timetable should allow for this.

The accounting policies and procedures necessary to implement them need to be agreed at an early stage and all problems should be addressed by an executive with the appropriate level of authority within each organisation.

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4. When must the financial statements be registered?The financial statements must be registered at the corresponding Mercantile Registry within a period of one month from the date of their approval by the shareholders at a general meeting.

Failure by the corresponding managing body to meet its obligation to file the financial statements within the legally established period will mean that none of the company’s documents will be registered at the Mercantile Registry while this situation continues to exist. The company will also be fined, at a varying amount, for this situation.

5. Must companies keep mandatory books of account?Yes. All companies must keep orderly accounting records that are suitable for their business activities and which must make it possible to monitor all their transactions on a chronological basis and to periodically prepare balance sheets and inventories. For this purpose, companies must necessarily keep inventories and financial statements books and a journal.

As a general rule, these books have to be kept by the traders, together with their business correspondence, documentation, vouchers and receipts, for six years from the date of the most recent entry posted therein.

The accounting records must be kept either directly by the traders or by other duly authorised persons.

6. Are there major differences between generally accepted accounting principles in China and Spain?The answer in brief is yes. A discussion of all the differences falls outside the scope of this book, but it should be borne in mind that accounting standards around the world are not the same and timely discussions with financial advisers are recommended so that the specific circumstances of any particular company can be highlighted and discussed.

7. Can Deloitte help me set up an accounting system, give me tax and management consulting advice and generally guide me on business matters?Yes, it can assist in these ways, provided that its professional independence is maintained. A Chinese company may initially need technical assistance or more general advice. Deloitte can offer specific assistance on the establishment of the accounting and reporting systems, advice on computer systems, training assistance and the temporary loan of staff.


7. TaxationSpain has one of the most favourable frameworks for establishing a platform for international investments. The main attractiveness of Spanish tax jurisdiction from an investment perspective could be summarised as follows:

•The participation exemption regime, for foreign source dividends and capital gains.

•The special tax regime for holding companies.

•The wide range of tax treaties: Spain is a strategic country in which to invest taking into account its tax treaties with countries all over the world. In particular, Spain is the leading European country in terms of the number of tax treaties signed with Latin American countries.

•Its attractive location for carrying out research activities taking into account the available patent box regime and the tax credits applicable to R&D activities (up to 25% with an additional 17% tax credit on some qualifying expenditure).

•Attractive jurisdiction for individuals moving from other jurisdictions under certain circumstances.

All these issues are detailed in the following sections.

Additionally, Spain is one of the 27 EU Member States. EU tax policy supports the Union’s principles of the single market and free movement of capital. Tax policy in the European Union (EU) can be classified in two main categories: direct taxation, which remains the sole responsibility of Member States; and indirect taxation, which affects the free movement of goods and the freedom to provide services. The measures undertaken by Member States with regard to direct taxation consist mainly of the coordination of their policies in order to prevent tax avoidance and double taxation as well as to provide the Member States with a fair tax framework within. From an indirect tax perspective, VAT has been harmonised and common VAT rules have been implemented.

To sum up: EU tax policy benefits European residents, since it ensures an internal European market and guarantees that competition between Member States is not distorted by differences in indirect taxation rates and systems. Measures have also been adopted to prevent the adverse effects of tax competition if companies transfer taxable bases between European Union Member States.

From the Spanish point of view, as detailed below, business activities would be principally subject to the Corporate Income Tax Law, which, in general terms, taxes profits obtained at a rate of 30%.

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7.1. Overview of Spanish taxationRegarding the functional structure of Spanish taxation, there are three different levels: State taxes, regional (autonomous community) taxes and municipal taxes. The most significant taxes are levied both at the national level (although some of the national taxes are managed by the Autonomous Communities) and municipal level (by the municipal authorities).

The Spanish tax system is organised around the concept of taxes and charges (“Tributos”), which can be broken down as follow:

•Taxes(“Impuestos”).•Levies(“Tasas”).•Specialcontributions(“Contribucionesespeciales”).

Neither levies nor special contributions are addressed in this document, since they are levied on public services or on individual benefits derived from public services.

At state level, taxes are managed by the State Tax Agency (Agencia Estatal de Administración Tributaria -“AEAT”-), an autonomous body within the Ministry of Economy and Finance. National State taxes devolved to the regions or regional taxes are administered by the regional governments. Local taxes are usually managed by municipal governments, unless they do not assume these powers- in which case they are managed by the AEAT.

The provinces of the Basque Country and Navarre collect most of the taxes accrued in their territories and remit a portion to the central government, under an agreement signed every five years.

7.2. Principal direct taxes7.2.1. Corporate income taxResidenceA company is resident in Spain if it is incorporated in Spain, has its registered office in Spain or its effective management is in Spain.

An entity resident in a tax haven or a no-tax jurisdiction may be presumed to be a tax resident in Spain if its main assets consist of real property or rights located or exercised in Spain or its principal place of business is in Spain, unless the entity can demonstrate that its effective management and administration are carried out in the other country and there are valid business reasons for establishing the entity in the tax haven or no-tax jurisdiction other than the management of shares or other assets.

Taxable scope From a general perspective, all Spanish entities with separate legal personality (i.e. public and private limited liability companies and partnerships) and foreign entities are liable for Spanish corporate income tax.


Spanish resident companies are subject to corporate income tax on worldwide profits and capital gains; whereas non-resident companies are taxed only on Spanish-source income and gains, subject to the provisions of a double taxation treaty where applicable. Branches are generally taxed in a manner similar to subsidiaries.

RatesThe standard 30% corporate income tax rate applies to the worldwide profits of resident companies.

A reduced rate of 25% applies to the first €300,000 of taxable profit for small and medium enterprises (i.e. companies with annual revenue of less than €10 million), with the 30% rate applying to taxable profits exceeding €300,000.

No distinction is made between the tax rates on distributed and reinvested profits. However, a deduction for reinvested extraordinary profits may apply, according to which, if certain requirements are met, the final rate applicable to reinvested profits is 18%.

Special rates apply to certain companies, such as listed collective investment institutions, including real estate investment trusts (1%), certain co-operatives (20%) and entities involved in oil and gas research and exploitation (35%). Special regimes also exist for Spanish and European Economic Interest Groupings, temporary business associations, private equity companies and funds and industrial and regional development companies.

Taxable profitTaxable profit in Spain is comprised of total revenue less deductible expenses and is generally computed on the basis of the P&L statement as adjusted for tax purposes.

•Ordinarybusinessincome

Capital gains are treated as ordinary business income taxable at the applicable tax rate (either the standard 30% or the aforementioned progressive 25%-30% rate for small and medium enterprises whose revenue in the previous tax year was less than €10 million).

However some capital gains could be exempt (i.e. under the participation exemption regime, capital gains derived from the sale of an ownership interest owned in a non-resident company -except these located in tax havens- by a holding company provided that certain requirements are met).

•Deductibleexpenses

Business expenses are deductible if they are directly linked to economic activities performed by the taxpayer and are properly recorded and documented. Payments of real estate tax and local surcharges on these taxes are deductible when determining the corporate income

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tax base, as are interest and royalty payments. Restrictions are imposed on the deduction of expenses incurred on payments made to entities or persons resident in territories deemed to be tax havens.

Non-deductible expenses include corporate income tax, criminal and administrative fines and penalties, surcharges for the late payment of taxes, gifts, provisions to internal pension allowances, amounts directly or indirectly representing a return on equity and expenses for services related to transactions performed with persons or entities resident in tax havens unless the taxpayer proves that the expense relates to a transaction that was actually performed.

•Depreciationandamortisation

The allowable depreciation must be calculated taking into account the useful life of the asset and its normal use as established in the Corporate Income Tax Regulations.

In general terms, depreciation is deductible provided that it is duly booked and its amount corresponds to an effective decline in value.

Under the Corporate Income Tax Law, depreciation is considered to be “effective” when it is determined:

– On the basis of the rates and limits established in official tables. – On the basis of the declining balance method: the declining balance method is applicable to all assets except buildings and furniture, and allows depreciation to be shifted towards the early years of the useful life of an asset.

– On the basis of the sum-of-the years’-digits method: under the sum-of-the-years’-digits method, the sum is determined on the basis of the depreciation period established in official tables.

– On the basis of a plan approved by the tax authorities.

Depreciation/amortisation of property, plant and equipment and intangible assets is based on historical cost, using straight-line rates chosen by the company within the limits set for each industry by the Ministry of Economy and Finance.

The official tables specify the following annual rates: commercial buildings, 1%-2%; industrial buildings, 1.47%-3%; office furniture, 5%-10%; machinery, 5.55%-12%; vehicles, 7.14%-16%; computers, 12.5%-25%; and software, 16.7%-33%. Leased assets are subject to the same depreciation rates as other assets.


Depreciation/amortisation may be taken on tangible and intangible assets. However, in the case of intangible assets, Spanish GAAP were adapted to IFRSs, applicable to reporting periods beginning on or after 1 January 2008. The main changes made to Spanish GAAP relate to the impairment of intangible assets.

Intangible assets with a finite useful life qualify for annual amortisation limited to 10% for the period of time in which they give rise to the obtainment of income, provided they are acquired for valuable consideration from an unrelated entity. Software licenses are an exception to the general intangible asset rule, as they are amortised on the basis of a specific table provided for in the related tax regulations.

Intangible assets with indefinite useful lives are not amortised for accounting purposes, although a 10% amortisation correction may be applicable for tax purposes, provided that certain requirements are met.

Similarly, goodwill is not amortised according to the Spanish GAAP. From the tax perspective, 5% of the original amount of the goodwill may be deducted provided such goodwill was acquired for valuable consideration from an unrelated entity and a reserve for the amount deducted is set up.

Additionally, the Corporate Income Tax Law allows accelerated or even unrestricted depreciation for certain investments, for small and medium enterprises, etc.

•Dividends

Dividends received from resident or non-resident companies are subject to corporate income tax and qualify for double (both domestic and international) taxation tax credits.

– When dividends are paid by a Spanish company, a tax credit of up to 100% could be applied, provided that the dividends are paid by entities in which an interest of at least 5 percent is held, provided that this interest has been held uninterruptedly during the one-year period prior to which the distributed income becomes claimable or, failing that, be maintained subsequently for the time required to complete that period.

– When the dividend is paid by a non-resident entity, double taxation tax credits are deductible for any foreign tax paid in the country of the payor. (See Double taxation tax relief).

– Alternatively, an exemption for foreign source dividends could be applicable provided that certain requirements are met. (See Participation exemption).

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•Losses

Operating losses may be carried forward for up to 15 years, starting from the first business year in which profits are earned in the case of newly incorporated entities. The carry back of losses is not allowed.

Notwithstanding the above, the Spanish government issued a decree on 19 August 2011 (Royal Decree-Law 9/2011) that makes temporary changes to the corporate income tax, including a restriction on the offset of net operating losses (NOLs) carried forward.

The decree was published in the Official State Gazette on 20 August and applies as from that date.

The corporate income tax changes are as follows:

– The decree introduces a temporary limitation on the offset of NOLs carried forward. For the years 2011, 2012 and 2013, companies with a turnover between € 20 million and € 60 million will be able to offset 75% of taxable income with NOLS brought forward and companies whose turnover exceeds € 60 million will be able to offset 50%. Previously, there was no restriction.

– Additionally, the period for offsetting tax losses from previous years is extended from 15 years to 18 years (effective for tax periods beginning as of 1 January 2012). This 18-year extension applies regardless of whether tax losses were incurred in periods beginning in 2011, 2012 and 2013, or in subsequent or prior years. This extension of time is applied to all taxpayers.

Tax incentives for certain investments and activities•Unrestricteddepreciation

In business years commencing in the period from 2011 to 2015, unrestricted depreciation can be taken on newly acquired fixed assets and real estate assigned to business activities. This incentive provides for depreciation for tax purposes on a discretionary basis.

•Reductionoftaxbaseduetoassignmentofcertainintangiblefixedassets:“Patentbox”

The Corporate Income Tax Law provides for a 50% reduction in the tax base relating to gross revenues arising from the assignment of the right to use certain intangible assets such as qualifying intellectual property (IP):

– Patents, secret formulae or processes, designs or models, plans or rights on information concerning industrial, commercial or scientific experience.

– Know-how.


The following intangible assets are excluded: trademarks, copyright on literary, artistic or scientific works including films, publicity rights, software and leases of industrial, commercial or scientific equipment.

This reduction is not applicable in the tax year following that in which the qualifying IP income exceeds six times the cost of development. Therefore, the total cost of the IP development can be recovered substantially in full by applying this incentive.

The IP must be created in-house, i.e. the company developing the intangible assets must be the same company as that which assigns them.

The assignee must not reside in a tax haven and must effectively use the IP for business activities. Detailed records of the related income are required.

•Taxcredits

Tax credits are available for certain activities (i.e. for research, development and innovation activities -R&D&i-, for environmental investments, for development of information and communication technologies, assets of cultural interest, professional training, employment of disabled people, payments to pension plans, etc.) These tax credits allow the deduction of a rate which ranges from 1% to 25% (+17% on certain qualifying expenses), of the expenses incurred on the performance of the corresponding activity.

International double taxation relief: ordinary credit methodSpanish domestic law grants a unilateral tax credit to corporate income tax payers for direct taxes incurred that are similar to Spanish income taxes. Generally, the credit will be granted for an amount equal to the lower of the tax payable in Spain on the income or the actual tax incurred by the taxpayer (if a tax treaty is applicable, the tax payable that might arise from it).

In addition to a direct tax credit for foreign income tax paid, a credit for underlying tax also will be available, i.e. a credit for the tax previously paid by a non-resident payor of dividends to a Spanish company. This credit is granted for dividends paid by a non-resident subsidiary in which the Spanish entity held, directly or indirectly, an ownership interest of at least 5% for at least one year prior to the date on which the dividend becomes claimable or if the 5% ownership interest is maintained until the one-year period requirement is fulfilled.

The amount of these credits cannot exceed the tax payable in Spain had the profits been obtained in Spain.

Unused tax credits may be carried forward for ten years.

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Participation exemption: dividends and capital gainsUnder the Spanish participation exemption regime, dividends received by a Spanish entity that holds at least 5% of the shares of a foreign entity for a continuous period of at least one year, with the foreign entity being subject to a tax comparable to Spanish corporate income tax (a requirement that is considered to be met if it is resident in a country with which Spain has a tax treaty with an exchange of information clause), not being resident in a tax haven and obtaining at least 85% of its profits from business activities, are exempt.

Capital gains obtained by a resident company on the sale of shares of a non-resident company, which are generally taxable in Spain, are exempt if the conditions for the participation exemption are met. However, anti-avoidance rules may render all or part of the gains taxable in the case of circular schemes, loss-making companies or mergers.

Where the requirements for the exemption are not met, double taxation could be avoided through the ordinary credit method.

Other exempt income: Business profits obtained through a permanent establishmentWhen a resident company obtains business profits through a permanent establishment abroad, exemption shall be applied if:

•the income derived through the permanent establishment has effectively been subject to a tax comparable to Spanish corporate income tax. This is deemed to be met if the permanent establishment is established in a country with which Spain has a tax treaty containing an exchange of information clause (currently all of its treaties). The exemption, however, is not granted if the tax authorities prove that the permanent establishment carries out, in the same market, the same activities that were previously carried out by a Spanish-resident subsidiary; and

•the permanent establishment is not resident in a tax haven. This requirement is waived if the permanent establishment is resident in another EU Member State and the taxpayer proves that it was established in that state for sound business reasons, it carries on business activities and at least 85% of the income of the permanent establishment has been earned from the performance of business activities abroad.

If the head office has previously deducted losses incurred by a permanent establishment, the exemption applies only to the profit exceeding the amount deducted.

The exemption is generally applied on a country-by-country basis. In the case of permanent establishments, however, it is calculated separately for each establishment.

Special regime for international holding companiesThere is a special regime for international holding companies (ETVE regime), under which dividends and capital gains received by an ETVE (i.e. an international holding company) from its foreign subsidiaries are exempt when the following requirements are fulfilled:


Dividends and capital gains received by an ETVE from qualifying subsidiaries are exempt from corporate income tax, provided the requirements for the participation exemption regime (discussed above) are met.

The ETVE held an ownership interest of at least 5% in the non-resident entity during a one-year period (even if that period is completed afterwards). The 5% ownership interest requirement will be deemed to have been met if the stake in the non-resident company exceeds €6 million.

The regime is available to any Spanish resident entity, provided its company object includes the management of holdings in non-resident entities and the substance requirement (adequate resources) to manage this activity is met.

Dividends distributed by the ETVE to a non-resident shareholder will not be subject to Spanish income tax. Capital gains obtained by that shareholder as a result of the transfer of the ownership interest in the ETVE will similarly not be subject to Spanish corporate ncome tax, provided certain requirements are met. If the dividends are distributed to a resident shareholder, the latter will be entitled to double taxation relief. And if capital gains are obtained by a resident shareholder, he will be entitled to opt between double taxation relief or a participation exemption benefit.

Transactions between related parties. Transfer pricingSpanish transfer pricing legislation requires that transactions with related parties be carried out on arm’s length terms and that taxpayers prepare transfer pricing documentation. Spain generally incorporates the OECD’s transfer pricing guidelines with respect to valuation methods. The main methods available for determining market prices are the comparable uncontrolled price, the cost-plus and the resale price methods. If none of these methods are applicable, the profit split and the transactional net margin methods should be applied.

Documentation of related party transactions must be kept, with significant penalties for the failure to comply with this obligation.

A taxpayer may conclude an advance pricing agreement (APA) with the tax authorities that entitles the company to: (1) use its proposed method of valuing transactions for four fiscal years; (2) value R&D contributions; and (3) establish management expenses. In certain circumstances, an APA may be rolled back to the prior accounting period.

Thin capitalizationUnder the Spanish thin capitalization rules when a company’s direct or indirect net interest-bearing borrowings from non-resident related individuals or legal entities, excluding banks, are greater than three times the company’s capital for tax purposes, the interest accruing in respect of the surplus should be regarded as dividends for Spanish tax purposes and, therefore, would not be tax deductible in Spain, and would potentially be subject to Spanish withholding tax. When applying this rule, the average net interest-bearing borrowings and the

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capital for tax purposes for the year under review must be used. The capital for tax purposes consists of the company’s equity excluding the profit/loss for the year.

However, these thin capitalization rules are not applicable when the foreign related financing is granted by a resident in another EU Member State, provided that that state is not deemed to be a tax haven for Spanish tax purposes.

However, thin capitalization rules could apply whenever the financing is indirectly arranged with a non-EU company, since the EU company would be a mere vehicle for passing through financing from a non-EU company to a Spanish entity, giving rise to the applicability of those rules.

To date, the Spanish Directorate-General of Taxes has issued several rulings regarding back-to-back loans or guaranteed financing, and is somewhat sensitive in this regard, in the sense that it considers situations such as these to constitute indirect indebtedness.

According to the Spanish authorities, “indirect indebtedness” arises when a non-resident company related to the Spanish borrower, although not the lender, assumes the risk of any possible default by the borrower. However, it should be noted that in order to determine whether the non-resident related company should be obliged to cover the default of the Spanish borrower, all the facts involved in each transaction should be taken into account (i.e. the financial structure of the company or the possibility of that company being involved in an event of default).

It is important to bear in mind that interest charged by a related party should be valued on an arm’s length basis in order to avoid transfer-pricing issues.

Valuing transactions at arm’s length value has become an important issue since the debt-equity ratio of 3:1 was eliminated for loans granted by EU residents to their Spanish associates.

Controlled foreign companiesThe “control foreign companies” (“CFC”) rules apply when a Spanish taxpayer (entity or individual) has a shareholding in a foreign entity that is classified as a CFC, and the CFC obtains certain types of income.

An entity is deemed to be a CFC when:

•it is a non-resident entity (excluding EU residents if the taxpayer can show that the CFC was set up for valid economic reasons and engages in active business activities);

•the Spanish taxpayer, alone or with related parties, holds a direct or indirect interest of 50% or more in the capital, equity, results (profits) or voting rights;

•and the foreign tax paid by the non-resident entity on income subject to the Spanish CFC rules is less than 75% of the tax calculated in accordance with Spanish tax rules.


Only specific categories of income are subject to the CFC rules (in general, passive income), mainly:

•income derived from the ownership of real property, unless such income derives from the performance of activities that qualify as business activities for Spanish tax purposes;

•dividend income;•capital gains derived from real property and shareholdings;•income derived from the lending of capital;•income derived from the provision of services and from insurance and financial activities;

Nonetheless, exceptions to the application of said CFC rules may apply, such as de minimis rules, income from the provision of certain services and insurance and financial activities and certain dividends and capital gains.

Where CFC rules are applicable, the attribution is made on the basis of the percentage of the Spanish resident's interest in the CFC.

Dividends paid out of profit that has already been attributed under the CFC rules are not subject to Spanish corporate/personal income tax.

Credits are allowed against Spanish corporate income tax for foreign income tax effectively paid by the CFC and/or its subsidiaries on income subject to attribution and foreign withholding tax deducted on dividends paid out of profits previously subject to attribution. The credit is limited to the amount of the Spanish corporate income tax liability corresponding to the income subject to attribution. Taxes paid in tax havens may not be credited.

Administration-Filing formsA company’s tax period is its business year. The tax period may not exceed twelve months.

Companies must file a tax return and pay any tax due within the first 25 calendar days after a period of six months following the close of the business year.

Corporate income taxpayers are required to make three advance payments of corporate income tax during the year, in April, October and December. The advance payment may be calculated by following two methods:

•Applying a 18% rate to the tax due in the previous year;•Applying a rate equal to five-sevenths of the corresponding tax rate (for taxpayers taxable at

the standard 30% rate), the prepayment would be 21% on the taxable profit for the period from the beginning of the tax period to the end of the prepayment period: i.e. from the beginning of the tax period to 31 March (prepayment for April), 30 September (prepayment for October) and 30 November (prepayment for December).

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The latter method is mandatory for taxpayers whose revenue exceeded €6,010,121.24 in the twelve months before the beginning of the current year tax period. A taxpayer whose revenue does not exceed that amount can make the advance payment by applying the 18% rate to the tax payable for the previous year.

In addition, by virtue of Royal Decree-Law 9/2011 the percentage of the corporate income tax prepayments corresponding to October and December 2011 and the three installments for years 2012 and 2013 is increased from 21% to 24% for entities with a turnover between € 20 million and € 60 million, and to 27% for entities whose turnover exceeds € 60 million.

Consolidated tax returnsSpain permits the filing of a consolidated income tax return and the offsetting of profits and losses within the group of Spanish companies (subject to certain limitations).

A group of companies may be taxed on the basis of a consolidated balance sheet, subject to shareholder agreements at every entity level and subsequent communication to the tax authorities.

To qualify as a group for such purposes, a Spanish resident company must own directly or indirectly at least 75% of its Spanish subsidiaries that are subject to corporate income tax (70% if the companies are officially listed on the stock exchange). The parent’s ownership interest must be held on the first day of the tax period in which the consolidated regime applies and must be maintained throughout the entire tax period. All the companies in the group must have the same tax period and the reporting period must not exceed twelve months.

Statute of limitationsThe general statute of limitations period is four years from the statutory filing deadline or the date the return is actually filed, if later. Where an amended return is filed after the deadline, the four-year period restarts.

However, when tax losses or tax credits deducted were generated in previous years that had already become statute-barred, the tax authorities could request the taxpayer to provide evidence for those losses or credits by producing the related documentation.

RulingsIn general, the Spanish tax authorities can issue binding rulings in advance on the tax consequences of a proposed transaction.


7.2.2. Personal income taxResidenceAn individual is considered a resident for personal income tax purposes when at least one of the following requirements is fulfilled:

•the individual is present in Spain for more than 183 days in a calendar year;•Spain is the individual’s main centre or business base or the place where his/her professional

activities or economic interests are located, either directly or indirectly;•the taxpayer’s spouse and dependent children habitually reside in Spain.

Residents in Spain are subject to personal income tax on their worldwide income; non-residents are subject to tax only on Spanish-source income. This circumstance must be proved to the tax authorities. Generally speaking, the Spanish tax authorities require a certificate of residence in another country issued by the tax authorities of that country. Alternatively, it must be possible to show that (a) he/she has spent 183 days or more of that year in another country; and (b) the direct and indirect centre of his/her vital and economic interests or business or professional activities is not in Spain.

An individual who changes his/her residence to a tax haven will not lose Spanish-resident status in the tax period in which the move is made and in the following four tax periods.

A non-resident individual who is resident in an EU Member State may opt to be subject to Spanish personal income tax if the individual can demonstrate that his/her habitual residence is in another EU Member State and that at least 75% of his/her total income during the year was obtained as salary or professional income in Spain.

Taxable incomeThere are six types of income for personal income tax purposes:

i. salary income (rendimientos del trabajo); ii. income from movable capital (rendimientos del capital mobiliario); iii.property income (rendimientos del capital inmobiliario); iv. professional income (rendimientos de actividades económicas); v. capital gains (ganancias y pérdidas patrimoniales); and vi.imputed income (rentas imputadas). Income is imputed in the following cases:

– immovable property, other than a permanent dwelling; – attribution of income; – international fiscal transparency regime (CFC or flow-through regime); – income from unit-linked insurance policies that do not meet certain legal requirements; – transfer of the rights of publicity; and – income of collective investment institutions (IICs) established in tax havens.

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All these types of income are treated on the basis of the rules specifically applicable to them, for valuation purposes. Specific expenses are deductible from each type of income.

It should be noted that some income is exempt from personal income tax:

– dividends up to €1,500 per year;

– qualifying prizes (listed);

– certain types of welfare benefits and indemnities paid by the government;

– mandatory indemnities received as severance pay or for termination of employment up to the maximum legal amount. The entire amount becomes fully taxable, however, if the taxpayer is hired within the next three calendar years either by the former employer or by any associated enterprise under a parent-subsidiary relationship;

– indemnities for physical or mental injuries in the statutory amount or under a court order or an insurance contract;

– public scholarships granted for any level of education (including a doctorate) and those granted by qualifying non-profit organizations regulated in Law 49/2002;

– court-ordered child support;

– Spanish-source income from sea and/or air transport enterprises (as expressly granted under international reciprocity arrangements by the Ministry of Economy and Finance);

– employment income (limited to €60,100 per year) earned abroad if it has been effectively taxed in the country of source under a tax comparable to the Spanish tax; and

Once determined, the components of taxable income are aggregated in two main groups as follows:

– the general income is the aggregate of employment income, property income, professional income and capital gains, including capital gains not included in savings income.

– savings income comprises both (i) income from movable capital (dividends, interest and monetary return or payment in kind on life or disability insurance contracts); and (ii) capital gains that arise on the transfer of assets.


RatesIn general terms, Spain levies personal income tax at progressive rates ranging from 24% to 45% (the top rate varies depending on the region of residence).

However, as from 1 January 2010, savings income and capital gains are subject to a flat rate of 19% on the first €6,000 and of 21% on income exceeding this amount.

Special rates for “new residents”An individual who is assigned to work and live in Spain may elect to be taxed as a non-resident for the first six years of the assignment. Under such an arrangement, the individual is taxed at a flat rate of 24% on the gross amount of the income (i.e. no deductions or allowances are granted).

To qualify for the aforementioned non-resident taxation status, several requirements must be fulfilled:

•the individual must not have been a tax resident in Spain for the previous ten years;•s/he must work in Spain for a Spanish tax resident company or a PE of a non-resident

company;•s/he must not earn tax-exempt income in Spain under the Spanish Non-Resident Income Tax

Law;•s/he must not earn more than €600,000 of salary income (otherwise, the standard rate will

apply).

Double taxation tax reliefApart from the exemption applicable to income obtained abroad (see. Taxable income), foreign taxes paid may be deducted from Spanish tax (limited to the amount that would have been payable in Spain).

AdministrationThe tax period for individuals is the calendar year.

Individuals must file a tax return and pay the tax due within six months following the end of the tax year.

The minimum salary income threshold for filing a tax return is €22,000. However, an individual with total annual household income of at least €11,200 must file a tax return when income is paid by more than one employer, and the income received from the second and successive employers is at least €1,500.

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7.2.3. Non-resident income taxNon-residents are subject to Spanish tax only on Spanish-source income. However, this taxation should be foreseen and allowed by the provisions of a double taxation treaty where applicable.

A taxpayer who is a non-resident must prove this circumstance to the tax authorities. For this purpose, the Spanish tax authorities generally require a certificate of residence in another country issued by the tax authorities of that country.

For individuals, it should be possible to show that (a) s/he has remained 183 days or more in that year in another country; and (b) the direct and indirect centre of his/her vital and economic interests or his/her business or professional activities is not in Spain.

Permanent establishmentBased on the existence or non-existence of a permanent establishment in Spain, the non-resident will be taxed under different rules.

Under Spanish Law, non-resident company and individuals are considered to operate through a permanent establishment in Spain when she/he/it continuously or habitually uses in Spain installations or workplaces of any kind in which she/he/it carries on all or part of her/his/its activity or when she/he/it acts therein through an agent authorised to enter into contracts in the name and for the account of the taxpayer who uses said powers habitually.

In particular, management headquarters, branches, offices, factories, plants, warehouses, shops or other establishments, mines, oil and gas wells, quarries, agricultural, forestry or livestock operations and any other place of prospecting for or extraction of natural resources, and building, installation or assembly works with a duration of over six months shall be considered permanent establishments.

Non-resident entities or individuals acting through a permanent establishment in SpainWhen a non-resident acts in Spain through a permanent establishment, she/he/it is taxed on income from professional activities. These taxpayers are generally subject to the same rules as those provided for in the Corporate Income Tax Law, with some differences.

However, in determining taxable income, interest, royalties, fees and payments for technical assistance paid to the head office are generally not deductible.

Reasonable executive and general administrative expenses are deductible if they are duly substantiated, shown in the accounts of the permanent establishment, and relate to the business operations of the permanent establishment.

Branches are generally taxed in a similar manner to subsidiaries.


This taxation should be foreseen and allowed by the provisions of a double taxation treaty where applicable.

Non-resident individuals or entities not acting through a permanent establishment in Spain A non-resident not acting through a permanent establishment in Spain is taxed on an income-by-income basis.

Spanish-source income, which includes:•income from professional activities;•dividends, interest, royalties and other income from movable capital when paid by a resident

of Spain; •property income earned in Spain; and •capital gains from the disposal of movable or real property if located in Spain and securities

issued by Spanish residents.

These types of income are taxed in Spain as follows, unless an applicable tax Treaty provides for a lower rate.

•Dividends paid to a non-resident are subject to 19% withholding tax.

•Intercompany dividend payments made to residents of other EU Member States are exempt from Spanish withholding tax (due to the implementation of the EC Parent-Subsidiary Directive) if the foreign parent has held at least 5% of the share capital of the Spanish company for one year before dividends are declared or if the one-year holding period is subsequently completed. Said exemption does not apply when the majority of the voting power at the parent is held by non-EU residents, unless the parent effectively carries on a business activity related to that of its subsidiary, effectively manages its subsidiary and has the appropriate human and material resources, or was incorporated for valid economic reasons and not just to benefit from the exemption.

•Interest paid to a non-resident is subject to 19% withholding tax unless a lower rate applies under a tax treaty or the payment is made to a resident of another EU Member State. Interest on bank deposits and government bonds is exempt.

•Royalties paid to a non-resident are subject to 24% withholding tax unless the rate is reduced by a tax treaty or the royalties qualify for exemption under the EC Interest and Royalties Directive. The Directive is not fully applicable for royalties until 1 July 2011 (prior to this date, the withholding rate is 10% for qualifying EU entities).

•Capital gains obtained in Spain by non-residents are, in general, subject to 24% withholding tax unless lower rates are allowed under a tax treaty.

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•A 19% branch remittance tax applies to after-tax profits paid to a head office (in addition to the normal corporate income tax rate). This tax does not apply to branches of EU entities or entities based in a country that has signed a tax treaty with Spain (unless the treaty provides otherwise). There is a special tax on estates owned by non-resident entities.

•Non-resident entities that own or control Spanish real property are subject to a 3% special tax on the officially appraised value of the property. This tax does not apply to foreign states, public institutions, international bodies, entities covered by a tax treaty (with an exchange of information clause), entities engaged in business activities in Spain, companies listed on the secondary stock market or non-profit entities.

7.2.4. Inheritance and gift taxInheritance and gift taxes are imposed on all Spanish resident heirs, beneficiaries and recipients at rates ranging from 7.65% to 34%. However, in most regions, the tax has been substantially reduced for resident individuals by a 99% allowance in favour of descendants, ascendants and spouses.

This tax is also imposed on non-residents in Spain receiving assets (e.g. estates) located in Spain.

7.3. Principal indirect taxes7.3.1. VATValue added tax (VAT) is an indirect tax, which is imposed at every stage of production, distribution, or delivery of goods or services. VAT is designed to tax final consumption by taxing the value added at each stage of the manufacturing and selling process.

The VAT charged by the seller to his customers is called “output VAT” and the VAT paid to his suppliers of goods and services used for his business activities is called “input VAT”). The taxpayer can deduct input VAT from the output VAT and consequently the tax is borne by the final consumer.

Certain transactions are exempt from VAT, including supplies of services and goods relating to insurance and financial activities, health, education and the lease of residential property. Special reference should be made to transfers of securities. However, in some cases such transfers could be subject to transfer tax (see Transfer Tax).

VAT does not apply in the Canary Islands (where another indirect tax similar to VAT but with some differences, e.g. lower tax rates, is applicable) or in the North African enclaves of Ceuta and Melilla.


VAT payers are normally entitled to deduct VAT on the supplies of goods and services they receive, if they regularly produce other goods and services subject to VAT, or if VAT was paid on transactions relating to international trade or on deductible transactions conducted outside Spain.

The standard VAT rate is 18%. There are two reduced rates, 8% and 4%, the latter of which applies to basic goods.

Registration is mandatory for all VAT payers carrying out transactions in Spain and a special VAT identification number is required when a company carries out intra-community transactions (i.e. within the European Union).

VAT returns must be filed monthly if the revenue for the previous period exceeds approximately €6,010,121.24; otherwise, quarterly filing is required.

Spain has a consolidated VAT regime under which VAT payers may elect to file a consolidated VAT return by aggregating the individual VAT payable or refundable of each entity in the group.

7.3.2. Transfer taxCompanies pay transfer tax on various transactions that are not part of their normal business activities.

The principal rates are 7% for transfers of real property, 4% for transfers of movable property and administrative concessions and 1% on certain real property rights.

Autonomous Communities are entitled to apply a different rate in certain areas, and most have opted to apply a 7% rate to real property transfers.

Special reference should be made to transfers of securities. Article 108.1 of Securities Market Law 24/1988 (“Law 24/1988”) provides for VAT and transfer tax exemption for transfers of securities (including shares of companies). However, Article 108.2 of Law 24/1988 establishes a restriction on the exemption provided for in Article 108.1.

Under this restriction, the exemption from transfer tax does not apply to transfers of securities or shares of entities i) at least 50% of whose assets consist of real property located in Spain provided the purchaser acquires, directly or indirectly, more than 50% of the stake of the company, as a consequence of the acquisition; or ii) whose assets include securities enabling it to exercise control over another entity 50% of whose assets consist of real property located in Spain.

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7.3.3. Capital dutyCapital duty is levied at 1%.

For companies, the duty applies on contributions of capital, mergers and certain other substantial changes in corporate structure. For individuals (shareholders of a company), the duty applies on liquidations of and capital reductions at companies in which they have ownership interests.

Since 3 December 2010, incorporations of companies, capital increases, other contributions from shareholders that do not imply a share capital increase or the movement to Spain of the place of effective management of the business or its registered office when neither of them were located in another Member State are exempt from capital duty.

7.3.4. Stamp taxStamp tax is levied at 0.5% of the value of the subject matter of notarised documents registered in a public register, although all the Spanish regions have increased the general rate to 1% (except the Canary Islands, where the rate is 0.75%).

7.3.5. Property taxLandowners must pay real property tax to the local authorities, up to a maximum of 1.1% of the cadastral value for urban property and up to a maximum of 0.9% of the cadastral value for rural property.

Additional taxes are imposed on the increase in urban land values when land is transferred.

7.3.6. Customs and excise dutiesAs an EU Member State, Spain applies the EU Community Customs Code, which sets out the general rules and procedures, which means that all Member States apply legislation and collect duties with the same criteria and efficiency, since once in the EU, the free movement principle applies. That means that goods move freely within the customs territory of the European Union, without paying customs duties or any commercial restriction or customs requirements being applied.

As a result, national rules must be adapted to Community directives.

The Spanish Customs & Excise Department with the Customs of the other Member States of the EU, has direct relations with the Customs of countries which are not part of the European Union, especially with the candidates to join the European Union, with Latin America and the North of Africa. Relations involve all the fields of information exchange and mutual assistance in the fight against fraud and smuggling, and technical assistance for the development and modernisation of the Customs. For this purpose, Spain has signed the following bilateral and multilateral conventions:


•EU/Other countries (including protocols of mutual assistance of Association Conventions): USA, Hong Kong, Korea, Norway, Andorra, Canada, Turkey, Albania, Algeria, Armenia, Palestinian Authority, South Africa, Azerbaijan, Bulgaria, Chile, China, Croatia, Egypt, Faroe Islands, India, Antigua, Former Republic of Macedonia, Georgia, Iceland, Israel, Japan, Jordan, Kazakhstan, Kyrgyzstan, Lebanon, Liechtenstein, Mexico, Moldavia, Morocco, Montenegro, Russian Federation, San Marino, Switzerland, Tajikistan, Tunisia, Ukraine, Uzbekistan.

•Multilateral Spain/Other countries: Convention between the Customs National Management of Latin America, Spain and Portugal on cooperation and mutual assistance.

•Conventions within the EU: Naples II Convention and SIA Convention.

•Bilateral Spain/other countries: Germany, Algeria, Argentina, Austria, Cuba, USA, France, Italy, Morocco, Mexico, Norway, Portugal, Sweden, Russian Federation, Turkey.

Excise taxes are imposed on the consumption of certain products (i.e. the production or import of alcoholic beverages, tobacco, oil and gas, electricity and certain motor vehicles).

These taxes are levied in the country of destination and are only due at a given stage of the consumption cycle. Therefore, they are due at different times depending on the kind of product involved, i.e. when these products leave the authorised factories or warehouses, when they are imported in Spain, when they are consumed, etc.

These taxes are generally levied at lump-sum rates (with ad valorem rates for cigarettes). The rules regarding the valuation of the transactions, exemptions and tax payable depend on the product.

The Canary Islands, Ceuta and Melilla are generally exempt from these taxes, although excise duties apply to alcohol in the Canary Islands.

7.3.7. Tax on certain means of transportA vehicle registration tax applies at ad valorem rates on the final registration in Spain of most new and used vehicles, including most types of passenger cars, most pleasure or sporting boats and motorised aircraft. There are certain exemptions.

The rate of the registration tax ranges from 0% to 12%, depending on the vehicles and on the CO2 emissions they make.

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7.3.8. Other taxesInsurance companies carrying out taxable transactions pay a tax of 6% on paid premiums.

Companies pay municipal governments an economic activity tax. The self-employed and small firms with annual revenue of less than €1 million are not subject to that tax. Larger firms are exempt during their first two years of operations. Rates increase on the basis of the amount of a company’s turnover.

Any person undertaking construction projects requiring permission from the municipal government must pay a construction tax to the municipal government at a top rate of 4%; rates are set for each municipality.

7.4. Avoidance of double taxationSpanish direct tax regulations contain specific rules for the avoidance of double taxation. In general, these rules permit the deduction of the taxes paid abroad with the limit of the tax that would have been payable in Spain had the profits been obtained in Spain.

7.4.1. Foreign tax credits/ Exempt incomeThese credits cannot exceed the tax that would have been payable in Spain had the profits been obtained in Spain:

•When the double taxation arises at a resident entity or a non-resident acting through a permanent establishment, the double taxation mechanism applies. (See Corporate income tax. Double taxation relief).

•When the double taxation arises for a resident individual or a non-resident not operating through a permanent establishment, the double taxation mechanism is that provided for in the Personal Income Tax Law (see Personal income tax. Double taxation tax relief).

Additionally, it should be noted that by virtue of the exemption regime, specific types of income obtained abroad are exempt in Spain, provided that certain requirements are met (i.e. dividends, transfer of shares, profits obtained through a permanent establishment abroad, salaries obtained abroad, etc.) (see Corporate income tax: Participation exemption, other exempt income; Personal income tax: Taxable income).

7.4.2. Tax treatiesAs mentioned for non-resident income tax purposes, any taxation of a non-resident should be foreseen and allowed by the provisions of a double taxation treaty if any.

In this regard, Spain is a strategic country in which to invest taking into account its tax treaties with countries all over the world. In particular, Spain is the leading European country in terms of the number of tax treaties signed with Latin American countries.


Following is a summary of the main withholding tax rates applicable under the tax treaties in force in Spain:

Treaty Partner Dividends (%) Interest (%) Royalties (%)

India 15 15 10/20

Slovakia 5/15 0 5

Indonesia 10/15 10 10

Hungary 5/15 0 0

Canada 15 15 0/10

Malaysia 0/5 10 5/7

Korea (R.O.K.) 10/15 10 10

Ecuador 15 5/10 5/10

Mexico 5/15 10/15 10

Bulgaria 5/15 0 0

Iceland 5/15 5 5

Venezuela 0/10 4.95/10 5

Belgium 0/15 10 5

Poland 5/15 0 10

Australia 15 10 10

Czechoslovakia 5/15 0 5

Austria 10/15 5 5

Greece 5/10 8 6

Japan 10/15 10 10

Israel 10 5/10 5/7

Algeria 5/15 5 14/7

Lithuania 5/15 10 5/10

United Arab Emirates 5/15 0 0

Tunisia 5/15 5/10 10

Jamaica 5/10 10 10

Bosnia and Herzegovina 5/10 7 7

Netherlands 5/10/15 10 6

Brazil 15 15 10/15

Chile 5/10 5/15 5/10

United Kingdom 10/15 12 10

Sweden 10/15 15 10

New Zealand 15 10 10

Philippines 10/15 10/15 10/15/20

Pakistan 5/7.5/10 10 7.5

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Norway 10/15 10 5

South Africa 5/15 5 5

Macedonia 5/15 5 5

Morocco 10/15 10 5/10

France 15 10 5

Trinidad and Tobago 0/5/10 0/8 5

Bolivia 10/15 15 15

Thailand 10 10/15 5/8/15

Moldova 0/5/10 5 8

Iran 5/10 7.5 5

Czech Republic 5/15 0 5

Argentina 10/15 0/12.5 3/5/10/15

Saudi Arabia 0/5 5 8

Serbia 5/10 10 5/10

Cuba 5/15 10 5

Finland 10/15 10 5

Turkey 5/15 10/15 10

Italy 15 12 4/8

Egypt 9/12 10 12

Germany 10/15 10 5

Latvia 5/10 10 5/10

Costa Rica 5/12 0/5/10 10

Ireland 15 0 5/8/10

Russia 5/10/15 5 5

Croatia 0/15 8 8

Switzerland 0/15 0 5

China (P.R.C.) 10 10 10

Malta 0/5 0 0

Albania 0/5/10 6 0

Estonia 5/15 0/10 5/10

Portugal 10/15 15 5

Slovenia 5/15 5 5

Romania 10/15 10 10

United States 10/15 0/10 5/8/10

Luxembourg 5/10/15 10 10

Vietnam 7/10/15 10 10

Information obtained from database “TaxAnalysts.com”


Additionally, tax treaties with the following countries/jurisdictions have not yet come into force: Armenia, Bahamas, Barbados, Belgium, Georgia, Germany (new version), Hong Kong, Kazakhstan, Kuwait, Luxembourg, Nigeria, Panama, Peru, San Marino, Senegal and Singapore.

7.4.3. Republic of China – Spain tax treatyThe China-Spain tax treaty, in force since 20 May 1992, follows the OECD Model Tax Treaty.

However, there are certain differences with respect to the aforementioned Model:

•Article 17. Artistes and athletes Income obtained in this connection is exempt from tax in which the related activities are exercised when the events are supported by public or government funds of the other state.

•Article 20. Teachers and Researchers Almost none of the OECD countries have included this Article, which provides that the income of teachers and researchers is exempt from tax if certain requirements are met.

•Article 21. Students, Apprentices and Trainees This Article which, follows the United Nations Model Tax Treaty, establishes for non-resident students of the other contracting State specific rules for the exemption of income obtained in that State.

•Article 22. Items of income This Article provides for the taxation of other items of income arising from sources outside the other contracting state, without establishing any limit. If there is a permanent establishment in either of the States, the taxation should be determined on the basis of Articles 7 and 14 of the tax treaty.

•Article 24. Methods of eliminating double taxation

– Spanish residents: When taxes have been paid in China, Spain allows as a deduction from income tax an amount equal to the tax paid in China. This tax credit may not, however, exceed the portion of the income tax attributable to the income that may be taxed in China. For this purpose, the amount of Chinese tax levied shall be deemed to be equal to 15% of gross dividends, 10% of gross interest, and 15% of gross royalties.

– Chinese residents: The amount of income tax payable in Spain may be deducted from the Chinese tax levied on that resident. The amount of this credit, however, may not exceed the amount of Chinese tax on that income.

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Additionally, the underlying taxes could be deducted, provided that the income received is in the form of a dividend paid by a company resident in Spain to a company resident in China and which owns not less than 10% of the shares of the latter.

The main rates provided for in this tax treaty are as follows


China 10 10 10

7.4.4. Hong Kong – Spain tax treatyOn April 1, 2011, a tax treaty was signed between Hong-Kong and Spain, which follows the OECD model tax treaty.

This tax treaty is not yet in force.

However, once it becomes applicable Hong Kong will be excluded from the Spanish list of tax havens.

The main rates provided for in this tax treaty are as follows:


Hong Kong 0/10 5 5

8. Labour environment8.1. OverviewThe main characteristic of Spanish Labour Law is its complexity, arising from a wide variety of factors. First of all, the administrative organisation of the state in regions, as previously mentioned, called Autonomous Communities, which have legislative and executive competences regarding certain issues. Laws and other regulations are enacted by the central government and the various authorities of the Autonomous Communities. Thus, labour competences are not always centralised in a single state authority, but are allocated among the various administrative authorities of the state.

Secondly, in addition to the regulations established by the authorities, employees and employers establish working and production conditions through collective bargaining agreements, with terms agreed by both parties. Collective bargaining agreements may be company agreements or general industry agreements, whose scope of application can be nationwide, Autonomous Community or province-wide. Consequently, depending on the economic activity of the company and its location, the labour rules to be observed vary.

Lastly, from a practical standpoint, please bear in mind that the interpretation of labour regulations made by judges and tribunals (case law) is essential due to the general principle of “in dubio pro operario” (“in case of doubt in favour of the worker”) established in the Labour Law.


8.2. Employment of foreignersNationals of the European Economic Area (“EEA”) member states do not need permits to work in Spain although EEA nationals who will be residing more than three months in Spain must register on the Central Register of Aliens. Country members of the European Economic Area and Swiss citizens enjoy similar rights under a different set of agreements.

Non-EEA employees must apply to the Ministry of Labour and Social Affairs for work permits. All permits are renewable. Foreigners with a Spanish relative, workers necessary to install foreign imported machinery, top executives and others receive preferential treatment. The period of validity is different depending on the type of each work permit. Under Spain’s labour laws, foreigners legally working in Spain enjoy the same rights and obligations as Spanish nationals.

8.3. Employment and remunerationLike other European countries, Spain maintains a system based on a labour code and standardised employment contracts (usually permanent). Legislation exists, among other purposes, to:

•Create a legal framework for temporary employment agencies; •Specify provisions related to termination, labour mobility, wages, working hours, paid

holidays, collective bargaining and part-time work; and•Set out specific types of employment contracts.

Working hoursThe legal working week is 40 hours, although many companies have reduced working hours to 37 or 38. The Workers Statute maintains a 40-hour legal working week but permits total hours to be distributed irregularly over the year if such an arrangement is part of a collective bargaining agreement.

Each employee has the statutory right to a block of one-and-a-half days off a week (two days a week for workers under 18). The Workers Statute allows employees and employers to negotiate blocks of three days off over a fortnight.

The Workers Statute also allows employees and employers to negotiate extensions to the statutory nine-hour day if a 12-hour rest period is maintained between shifts. Employees under 18 may not legally work for more than eight hours per day, including training; employers using apprenticeship contracts should take this limit into account.

Overtime regulations are dictated by national law and collective bargaining agreements. There is a statutory annual maximum of 80 hours of overtime per employee.

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WagesThe Ministry of Labour and Social Affairs establishes the minimum wage annually (in December) for the following year; increases usually match the expected inflation rate.

Industrial actionLocal representatives of the Ministry of Labour and Social Affairs determine whether a strike is “legal”, “abusive” or “illegal”. Employees must give five days’ written notice to call a legal strike (strikes in the public service sector require ten days’ notice). Legal strikes may be called by a simple majority of workers’ representatives (if a quorum of 75% is present) or by secret vote of a simple majority of the workforce (if 25% or more have requested the vote).

During a strike, workers are represented by a strike committee with a maximum of twelve members. Employers agree with the committee to appoint maintenance personnel. Strikers are not permitted to force non-strikers to abandon their jobs. No wages need be paid during a legal strike, but social payments and unemployment compensation continue. The employer may not hire new personnel and striking workers may not be hired by another employer.

8.4. Social Security and benefitsSocial security coverage is mandatory for employees and the self-employed, with social contributions paid by both the employee and the employer. General contingency contributions represent 28.3% of an employee’s wages with the employer paying 23.6% and the employee paying 4.7%. In addition, companies have to pay specific contributions on the basis of the economic activity carried on. Large enterprises offer a variety of special employee benefits, not all of which are mandatory, such as housing, lunches, nurseries, recreational facilities, medical insurances, life insurance policies, pension plans, low-cost loans, training courses and transport.

8.5. Termination of employmentAn employer must obtain approval from the government labour authorities for collective redundancy procedures. Collective redundancy procedures are defined as the termination of employment contracts for economic, technical, organisational or production-related reasons that, within a 90-day period, affect at least 10 employees in companies with fewer than 100 employees; 10% of the workforce in companies with 100–300 employees; or 30 employees in companies with 300 or more employees. Collective dismissal also includes the dismissal of all employees on the payroll, where there are more than five employees. After following a specified procedure, the employer may be authorised to terminate the relevant employment contract.

When a worker is dismissed, the size of the termination payment depends on whether the dismissal is justified or unjustified. Justified dismissals, for “objective causes” (i.e. economic, technical, organisational or production-related reasons) require payment of 20 days’ salary per year worked with the firm, up to a maximum of 12 months. Unjustified dismissals require payments of 45 days’ salary per year worked, with a maximum of 42 months’ payment. No


payments are required if an employee is dismissed for disciplinary reasons and the dismissal is declared fair and justified.

To terminate an individual in top management with a special labour relationship, a minimum three months’ notice (up to a maximum of six months ‘notice) or the notice period established in the employment contract is required. In the case of disciplinary dismissal the Law does not establish a minimum notice period but this is usually agreed upon in the contract.

9. Banking sector in Spain9.1. Entering the Spanish banking market Retail banking services, intended for the consumer, small- and medium-sized enterprises, makes up more than 50% of the banking business in the EU. The Spanish banking system traditionally specialises in retail banking and this has given it a clear competitive advantage.

In Spain, retail banking services are provided principally by banks and saving banks. However, the Spanish banking sector is currently being restructured because of the economic crisis and a new solvency criteria required by law. Due to this restructuring, savings banks are undergoing a process that involves the separation of their financial activity into a newly created bank majority owned by the savings banks.

For Chinese banks or investors intending to enter into the banking sector the following options are available under Spanish regulation:

•Setting up a bank in Spain.•Opening a branch of an EU bank in Spain, which has no legal personality.•Establishing a branch of a foreign non-EU bank in Spain.•Acquiring an existing bank already incorporated in Spain.

9.1.1. Formalities for setting up a bank in SpainPursuant to Royal Decree 1245/1995, to create a credit institution in Spain, prior administrative authorisation from the Ministry of Economy and Finance is required.

To obtain such an authorisation, compliance with an extensive series of requirements is essential and must be certified before the Bank of Spain. These requirements vary depending on the nature of the credit institution and cover all aspects of the organisation such as minimum capital required, shareholders, Board of Directors, administrative structure, procedures for control, feasibility of the project, etc.

As soon as the authorisation has been obtained and once it has been constituted and registered with the Bank of Spain the bank may enjoy the benefits of an EU passport in order to offer its services in other EU Member States, either through a branch or under the freedom of services regime.

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9.1.2. Branch of an EU bank in SpainAn EU bank may avail itself of the benefits of the EU passport and carry on banking activities in Spain after the Home State Regulator notifies the Bank of Spain, either by setting up a branch or under the freedom of services regime.

Furthermore, no prior authorisation from the Bank of Spain would be necessary, and there may be no need to meet the usual requirements for the establishment of the new bank.

9.1.3. Branch of a foreign non EU bank in SpainThese credit institutions will not be entitled to the benefits of the EU passport and, therefore, need to obtain prior authorisation from the Bank of Spain if they want to operate in Spain through branches. The process of opening a branch will be equivalent to the creation of a new Spanish credit institution.

9.2. Regulation of the banking Business 9.2.1. Spanish supervisory authorities In Spain, institutions that provide banking services are supervised by the Bank of Spain and those which provide investment and inssurance services, are supervised by the Spanish Securities Market Commission (Comisión Nacional del Mercado de Valores or “CNMV”) and the Directorate General of Insurance ( Dirección General de Seguros y Fondos de Pensiones or “DGS”) respectively.

9.2.2. Mergers and acquisitions of Spanish banksDue to the economic crisis that began in the summer of 2007, savings banks have undergone an intense concentration process. The aim of this concentration process is to improve their efficiency through capacity reduction. In parallel, credit institutions have made a full-scale transparency drive, disclosing all the data on their actual situation and their risks (in particular their real estate exposure and dependency on wholesale funding), and they have also set about writing down sharply their most problematic assets.

Falling confidence and the subsequent difficulties in obtaining funding on international markets have made it necessary to adopt measures to ensure that the progress made over the past few months in restructuring savings banks is successfully completed. Such measures have included the creation of the Fund for the Orderly Restructuring of the Banking Sector (FROB).

Saving banks are immersed in a banking transformation and besides the FROB they are looking for foreign investors.

In order to acquire a bank or equities from a credit institution the investor must obtain the regulatory approval from the Spanish supervisory authorities.


9.3. Corporate income tax9.3.1. Attribution of profits A branch in Spain of a Chinese bank will normally be deemed to be a permanent establishment of the Chinese bank for Spanish tax purposes. As explained, this means that the branch will be subject to Spanish Non-Resident Income Tax (“NRIT”) on the net taxable income deemed attributable to its Spanish activity in a similar manner to Spanish resident banks that are subject to Spanish Corporate Income Tax (“CIT”). The applicable tax rate on the net taxable profits of the branch will be 30%, the same applicable to resident banks under CIT rules.

In determining the amount of profit attributable to the branch, one guiding principle is that the branch should be taxed in Spain on the profits which the branch “might be expected to make if it were a separate and independent enterprise engaged in the same or similar activities under the same or similar conditions”, taking into account the functions performed, assets used and risks undertaken by the Chinese bank through the branch.

Hence the Spanish taxable profit of a branch in Spain of a Chinese bank is expected to include not only income derived from the ordinary trade of the branch, but also income derived from any assets which must be allocated to the branch (because of being functionally connected to the activity of the branch), as well as any capital gains (or losses) derived from the transfer of such assets.

9.3.2. Minimum amount of “free” capital for Spanish tax purposesOne particular issue in achieving a correct attribution of taxable profit to a banking branch in operation consists of the amount of minimum “free” capital that must be allocated to it for Spanish purposes in order to support the functions it performs, the assets it uses and the risks it assumes. By “free” capital we refer to a minimum amount of capital which does not give rise to a tax deductible allowance in Spain form of interest expense deduction.

Currently, it is generally accepted that in order to arrive at an arm´s length attribution of profits to a branch an allocation of a minimum amount of free capital to it is required, even though Spanish tax legislation does not expressly provide for a set of rules giving detailed guidelines on the level of minimum “free” capital that a branch is expected to have for Spanish tax purposes.

Until a few years ago this was not an area of particular concern to branches of foreign banks operating in Spain. The traditional tax approach of branches of foreign banks was regulatory-based as the most habitual position in the industry was to assume that the level of capital assigned to a branch for regulatory and accounting purposes should be deemed acceptable also for Spanish tax purposes. For many years the Spanish tax auditors neither considered this position as controversial nor actively challenged it.

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Although Spanish legislation passed in relation to this matter has remained unchanged over the years, in practice, the OECD guidelines highlighted in the report entitled “Attribution of profits to permanent establishments” released in 2008 and in the latest updates of the Commentaries to Article 7 of the OECD´s Model Tax Convention on Income and Capital have influenced the approach taken by the Spanish tax authorities in some recent audits of branches of foreign banks.

Since, as explained, there are no official or approved guidelines on how to calculate the minimum free capital assigned to a branch of a foreign bank that may be accepted by the Spanish tax authorities, there is a margin for interpretation. The case-by-case approach seems sensible here and branches of foreign banks are therefore advised to discuss this matter with their advisors in order to assess their particular position in this area and whether the capital assigned for regulatory and accounting purposes may be deemed acceptable as minimum “free” capital for Spanish tax purposes.

9.3.3. Specific tax computation considerations for branches of Chinese banksIn practice, assuming that the accounting books of the branch reflect a true and fair view of the fact that the key functions performed, assets used and risks borne by the branch are consistent with the OECD guidelines on attribution of assets and risks to permanent establishments for tax purposes, the NRIT tax base of the branch will be determined on the basis of the branch’s accounting profit or loss calculated under Spanish GAAP, which must then be adjusted (upwards or downwards) taking into account the provisions of Spanish CIT.

It should be noted that the Spanish GAAP applicable to banking branches is that set by the Bank of Spain for banks , which reflects the Bank of Spain´s adaptation of IFRS. Therefore, the result under the Bank of Spain accounting rules is the starting point to calculate the Spanish tax base.

An area where differences typically arise between the accounting profit or loss of banking branches and the Spanish tax base is the credit loss allowance. The Spanish tax regulations deal in certain detail with the requirements that the credit loss allowances recognised by resident banks and branches of foreign banks need to meet in order to be considered tax deductible in Spain.

Most of the differences in this area between accounting and tax relate to timing; hence they typically have an impact on the deferred tax asset computation of the branch.

Credit loss allowances that are specific in nature (those which are specifically assigned to cover particular loans or credit risks considered on an individual basis) are only deductible when they have been booked in the local records of the branch and up to the minimum level of coverage set by Bank of Spain accounting regulations. Allowances recognised in excess of the minimum coverage are in principle non-tax deductible. One relevant practical implication is that


where the branch calculates the specific credit loss allowance following criteria established in the policies of its head office (or in general where the amount of the specific allowance recognised is deemed to be in excess of the minimum coverage established under Bank of Spain regulations), differences may arise between the amount of the credit loss allowance for accounting purposes and the tax deductible allowance.

Certain restrictions apply, however, to credit loss allowances recognised in respect of certain risks which may be deemed non-tax deductible in nature. For instance and without going into detail, the specific allowances recognised in respect of the following loans are generally deemed non-tax deductible, although certain exceptions might apply:

•government loans or credits that have a government guarantee; •loans that are secured by “rights in rem” over finished dwellings; •loans that result from restructuring or renewal of credit after default or impairment of

previous loan facilities; •loans granted to related parties (however, in certain circumstances such as in case of Court

resolution on a dispute over the amount or existence of the loan, these provisions may be allowed);

•loans granted to certain entities or bodies, such as political parties, trade unions, business and professional associations, etc. (except in certain circumstances, such as Court declared bankruptcy);

Country risk provisions may generally be deducted for tax purposes provided that they have been recognised following Bank of Spain accounting rules, do not exceed the minimum coverages set by the Bank of Spain and fulfil certain requirements on the nature and conditions of the transactions.

Provisions that have been calculated on a global basis (i.e. not specifically assigned to cover individualized risks) are as a general rule deemed non-tax deductible. However, the tax regulations permit the tax-deductibility of a given amount of the allowance, which must be determined on the basis of tax calculations carried out in accordance with specific rules.

A reasonable amount of expenses incurred abroad for the benefit of the branch, such as management and general administration expenses as well as expenses incurred in support functions performed abroad may be allowed by the branch for Spanish tax purposes, provided that:

•they are appropriately recorded in the branch´s accounting statements;•the amounts to be allocated, the allocation method and the distribution of the expenses are

documented in a report to be submitted to the tax office; and•the allocation methods adopted are economically sound and are consistently applied over

time.

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Broadly, the rest of the CIT rules are generally applicable in respect of the taxable implications of other non-banking specific matters (e.g. amortization, depreciation and impairment of assets, provisions to cover certain risks, transfer pricing regulations, non-deductible expenses, taxation of dividends, use of carry-forward losses, tax credits etc.). (We refer to our comments in the section on CIT).

9.4. VAT9.4.1. Output VAT: the VAT exemption on financial servicesMany transactions carried out by banks and other entities in the financial services industry are treated as VAT exempt services for Spanish VAT purposes.

The scope of the VAT exemption on certain financial services includes, among others, the following transactions: the issuance of, or any dealings with, money or security for money; the advancing of funds and/or the granting of credit as well as making arrangements for credit; any dealings with shares, stocks, bonds, debentures, promissory notes, bills of exchange (excluding collection services relating to such bills and factoring of debts); and the operation of any current, savings and deposit accounts.

Where the VAT exemption on certain financial services applies, banks and financial entities registered for Spanish VAT purposes (such as in principle a branch in Spain of a foreign bank) are not required to charge output VAT to their customers.

9.4.2. Input VAT recovery The application of the VAT exemption to financial services has a major impact on the financial services industry. Indeed, banks and other entities in the financial services industry cannot fully deduct input VAT on services or goods supplied to them, so long as the financial services they supply themselves are, to a significant extent, VAT exempt, and hence do not entitle them to deduct input VAT.

As a result, input VAT incurred by banks and branches of foreign banks on the acquisition of goods and services typically constitutes an area of cost for the financial services industry, since only a limited amount of it can be recovered, as explained below.

This stems from the fact that the VAT services that qualify for the VAT exemption on certain financial services generally do not entitle the taxpayer to deduct the input VAT incurred in the acquisition of goods and services. Likewise, as a general rule, the VAT exemption on financial services is applied automatically, so it cannot be waived in order to allow deduction of the input VAT.


Nonetheless, some transactions carried out by banks are deemed taxable and do not qualify for the VAT exemption on financial services (e.g. leases, some advisory services, etc.). Likewise, under certain conditions, some services on which output VAT is not charged may, as an exception, qualify for the deduction of input VAT (for instance, loans granted to traders not established in the European Union).

Under Spanish VAT legislation, entities that carry on activities that qualify for VAT deduction and others that do not, which is generally the case of banks and other entities in the financial services industry, may partially recover some of the input VAT incurred in the acquisition of goods and services in proportion to the amount of the transactions they carry out that qualify for input VAT deduction.

The Spanish VAT Law regulates different methods and special rules that are relevant when calculating the VAT recovery rate:

•The “general” VAT recovery rate mechanism, which is based on a percentage calculated on an annual basis as the ratio of the turnover of transactions carried out that qualify for input VAT deduction in relation to the total turnover of the branch (which must be determined according to VAT rules), which is then applied to the total input VAT of the branch.

•The “special” VAT recovery rate allows 100% recovery of input VAT incurred in acquisitions of goods and services provided that they are used exclusively in carrying on activities that qualify for full deduction of the VAT borne, whereas a 0% recovery rate must be applied to input VAT incurred on services/goods acquired by the financial entity which are allocated exclusively for carrying out activities that do not qualify for VAT deduction. For the input VAT incurred in the purchase of services/goods that are partly allocated to carrying on activities that qualify for such a right and others that do not, a recovery rate would be calculated for such items under the general VAT recovery rate rules. In order to apply the special deductible proportion rule, an application must be made by filing the corresponding form with the Spanish Tax Authorities.

•A different “sector of activity” is deemed to exist for VAT purposes when an entity carries on different types of business activities with potentially significantly different VAT recovery regimes as defined in the VAT Law (e.g. a banking business with a low recovery rate and leasing and/or real estate business with a potentially higher VAT recovery rate). Where different “sectors of activity” exist, VAT recovery rules can be applied separately for each sector of activity.

In view of the limitations on input VAT recovery, intra-group services within banking groups may potentially increase the group’s tax bill. In order to minimise the VAT cost arising from intra-group transactions, choosing to set up a VAT group in Spain and other methods of structuring the provision of services within the groups, are popular alternatives in the Spanish financial services industry.

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9.5. Withholding taxesWe discuss below potential withholding implications on interest income earned by a branch of a Chinese bank on its loan portfolio. We also discuss potential withholding implications on outbound interest payments made on funding assigned to or received by the branch.

9.5.1. Withholding tax on interest income In relation to loans granted to Spanish-resident entities and traders and/or branches in Spain of non-residents, interest income will be exempt from Spanish withholding tax if it is obtained by a resident bank and/or by a branch in Spain of a foreign bank. The Spanish withholding tax exemption does not apply to interest from government and corporate bonds and other securities in the portfolios of banks and branches in Spain of foreign banks.

In the case of cross-border loans, interest income from loans granted by a branch of a Chinese bank to non-resident entities and persons may be subject to foreign withholding tax according to the tax provisions applicable in the particular jurisdiction where the interest income arises.

In this regard, a branch in Spain of a Chinese bank does not generally have access to the network of Tax Treaties signed by Spain with third countries (unlike Spanish resident banks, which may avail themselves of the Spanish Tax Treaty network). It should be analysed on a case-by-case basis whether a branch in Spain of a Chinese bank may apply the provisions of the respective Tax Treaty with China and the State in which the interest originates.

Where foreign withholding tax is borne on interest income from abroad, the branch of a Chinese bank would be given an ordinary credit in Spain in order to relieve potential double taxation due to the interest income arising outside Spain when it is taxed again at the branch. Accordingly, the branch should be entitled to offset against the Spanish NRIT due the lower of:

•the foreign withholding tax effectively borne abroad on the related foreign-source income; or

•the Spanish NRIT liability attributable to such interest income.

9.5.2. Withholding tax on interest paymentsIn relation to interest payments made by the branch, interest income paid by the branch is generally subject to 19% Spanish withholding tax, although some exceptions and special rules may apply, including the following:

•Interest paid to holders of non-resident bank accounts is exempt from Spanish withholding tax.

•Interest paid to Chinese-resident entities is subject to Spanish withholding tax of 10%, in accordance with the China - Spain Tax Treaty.

•Interest obtained by entities or persons resident in another European Union Member State is exempt from Spanish withholding tax.


9.6. Reporting obligations Credit institutions that provide services in Spain have reporting obligations to the supervisory authorities in accordance with the activities carried out by such institutions. Although these obligations are extensive it should be noted that they are very standardised.

In this context, credit institutions have to report all aspects relating to the performance of banking services to the Bank of Spain and any issues concerning investment and/or ancillary services to the CNMV. In the event that the credit institution carries on insurance activities, the DGSFP is responsible for monitoring and meeting the entity’s reporting obligations.

Likewise, the Executive Service for the Prevention of Money Laundering (“SEPBLAC” in Spanish) will be responsible for overseeing and monitoring the fulfilment of money laundering reporting obligations.

One important characteristic of the Spanish banking sector that foreign investors must take into account is that the Spanish banking sector has an “ex ante” deposit-guarantee scheme. This guarantee scheme collects funds in advance on a regular basis against the profit and loss accounts of the member Banks by means of obligatory contributions.

In addition to Spanish withholding tax obligations, banks and branches in Spain of foreign banks are subject to a wide range of tax reporting obligations whereby they are obliged to disclose significant amounts of information to the tax authorities on transactions carried out with their customers as well as with their suppliers. In general, compliance with these obligations requires specific IT banking systems to be developed in order to provide timely and accurate information.

9.7 Leasing and asset finance9.7.1 Legal requirementsUnder Spanish regulations, leasing is not an activity that is reserved for credit entities. The main activity reserved for credit entities is the raising of funds from the public through deposits. Therefore, it is not necessary to obtain authorisation from the Spanish Regulator (Bank of Spain) in order to carry on this activity.

However, the majority of entities that carry on leasing activities in Spain are financial entities supervised by the Bank of Spain (Banco de España) such as banks, savings banks (Cajas de Ahorro), credit co-operatives (Cooperativas de Crédito), the Spanish State Financing Agency (Instituto de Crédito Oficial) or financial credit establishments (Establecimientos Financieros de Crédito).This is due to the fact that in order for tax benefits to apply to leasing transactions, certain requirements must be met to be agreed upon with the financial entity. In this respect, leasing transactions may be agreed upon with any entity but tax benefits will only apply if the leasing agreement is entered into with one of the above-mentioned entities and complies with certain legal requirements.

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9.7.2 Types of leases recognised (by law)Spanish legislation only regulates one type of lease: finance leases, as this is the only type of lease to which tax benefits are applicable. Other types of leases are possible but they do not benefit from tax advantages.

9.7.3 Finance leasesThe definition of a finance lease is as follows: an agreement for the sole purpose of assigning the use of movable or immovable assets acquired by the lessor for such purpose in accordance with the lessee’s specifications and in exchange for the lease payments set forth in the agreement. The user is granted a purchase option which may be exercised upon the expiry of the lease term. Under a finance lease, the lessee must use the leased asset for agricultural, fishing, industrial, commercial, craft, servicing or professional activities.

A finance lease may only be entered into by financial entities: banks, savings banks, credit co-operatives and financial credit establishments. The obligations are as follows:

i. The lessor must acquire the goods and deliver them in accordance with the customer’s instructions.

ii. The customer must hold the goods uninterruptedly (i.e. not sell or transfer them) while they are owned by the financial entity.

iii.On expiry, the lessor must allow the purchase option to be exercised (transfer of ownership to the customer).

iv. The lessor must assign to the customer the owner’s right to legal action against the supplier.v. If the customer becomes insolvent, the financial entity may impose its ownership and

segregate the leased asset from the customer’s assets that are subject to the insolvency proceeding.

Finance lease agreements must meet the following requirements to qualify for the application of tax benefits:

a) They must be for a minimum term of two years in the case of movable goods and of ten years in the case of real estate or industrial facilities.

b) The finance lease instalments must be stated in the respective agreements making a distinction between the portion relating to recovery of the cost of the good by the lessor entity, excluding the value of the purchase option, and the charge made by the lessor, notwithstanding any indirect taxation that may apply.

c) The annual amount of the portion of the lease instalments corresponding to recovery of the cost of the good must remain equal or increase throughout the lease term.

d) Finance lease agreements must include an option in favour of the user to purchase the asset at the end of the lease term.


In case of a breach of the terms of the lease, the lessor may terminate the agreement and recover the goods through a special procedure.

Non-finance leasesIn the area of movable property, there is one kind of non-finance lease. There are no specific rules applicable to these agreements and there are also no restrictions on which entities may perform this type of transaction.

In these agreements, the manufacturer (lessor) gives the use of essential goods to the business owner (lessees) and, therefore, there are only two parties involved because there is no supplier. Maintenance, spare parts and liability for hidden defects are the lessor’s responsibility. These agreements are different, from an economic point of view, from “renting” agreements which can also be used by consumers.

LeasebackIn this kind of lease, the lessor acquires real estate belonging to the customer (lessee), to whom they grant the use of such property for a certain price for a specific period of time, during which the lessee can regain ownership of the real estate.

9.7.4 Financial regulations / supervisory requirementsWhere finance lease transactions are performed by financial entities established in Spain, these entities are subject to authorisation and supervision by the Bank of Spain (Banco de España). In particular, the Bank of Spain ensures that Spanish financial entities comply with the various rules with respect to capital adequacy, equity, solvency and accounting requirements.

Spanish regulations also encompass a special type of financial entity: financial credit establishments (Establecimientos Financieros de Crédito), which can perform leasing and other financing activities (factoring, granting of credit, financing of transactions, issue and management of credit cards, acting as guarantors) but cannot raise reimbursable funds from the public. They must be authorised by the Bank of Spain but, as the scope of their activities is more restrictive than banks’, they are not subject to such stringent regulations (Royal Degree 692/1996, of April 26, of Financial Credit Entities).

The procedure for obtaining authorisation is very similar to that for the incorporation of banks and savings banks but the requirements laid down for financial credit establishments are more flexible, and require a lower minimum share capital than that required for banks and savings banks, and fewer members are required to make up the Board of Directors.

9.7.5 Regulatory requirements for lease transactionsAll lease agreements, regardless of whether or not they are classified as finance leases, are subject to compliance with general legislation on advertising and the protection of consumers, users and personal data. It is worth noting that lease agreements are normally entered into as part of economic/professional activities and not for a particular purpose.

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Lease agreements entered into with financial entities must also comply with specific rules on advertising and transparency applicable to agreements signed by financial entities with their customers (Order of 12 December 1989, on interest rates, fees, customer information and advertising of credit entities, Bank of Spain Circular 8/1990, of 7 September, on transparency rules and customer protection and Order EHA/1718/2010, of 11 June, on the advertising of banking services and products).

10. Institutional framework for attracting foreign investment to Spain10.1. Spanish Government InstitutionsThe Spanish Government has been particularly aware of the importance of promoting foreign investments through specific institutions since 2000. In addition, the current economic crisis and its deep impact on Spain’s economy has increased the need to encourage foreign companies to invest in Spain.

The main institution created to encourage foreign investment is the State Company for the Promotion and Attraction of Foreign Investment (“Invest in Spain”). It was created in 2005 as part of the Department of Foreign Trade within the Ministry of Industry, Tourism and Trade.

The main objectives of “Invest in Spain” are:

•To promote an appropriate investment climate

by identifying investors’ potential needs and

suggesting appropriate measures to meet

them.

•To attract foreign investment by focusing

on the countries, sectors and companies in

international businesses with the greatest

growth potential.

•To foster initiatives to promote and attract

inward investment to Spain and promote

and coordinate a suitable climate for foreign

investment.

•To provide an image of Spain as a competitive

and increasingly international country.

Promotion of

good investment

climate

Identification o

high hpotencial

international

businesses

Fostering activitie

to attract

investment

Creating an

attractive image of

spain

Apart from compiling specific information and guides on establishing a company in Spain, another important function of “Invest in Spain” is to publish reports on specific topics, such as “Why Spain?”, which gives an overview of the different factors to encourage investors to consider investing in Spain.

Another service provided by “Invest in Spain” on its website is the Aid and Incentives Search service. This service allows investors from different countries to search for specific aid available


for each country and see whether there are specific budget lines according to the selected criteria or the planned project or investment.

Specific information is also available on each region in Spain because there can be major differences between regions with respect to certain issues such as tax incentives.

As a member of the EU, Spain can offer direct access to European aid programmes for potential investors, thereby providing a greater incentive to invest in Spain. This aid and the programmes are coordinated by several Spanish Ministries such as: the Ministry of Industry, Tourism and Trade, the Ministry of Science and Innovation and the Ministry of Economy and Finance, among others.

10.2. Support framework in regions and relevant citiesSpain has a complex structure differing between the country’s regions. It is organised in 17 regions (Autonomous Communities), divided into provinces, and two Autonomous Cities (Ceuta and Melilla).

1 Madrid: Madrid International Development Company (PromoMadrid) 2 Castilla la Mancha: Institute for the External Promotion of Castilla-La Mancha (IPEX) 3 Extremadura: Extremadura Avante4 Castilla y Leon: ADEurope Foundation 5 Galicia: The Galician Institute for Economic Promotion (IGAPE) 6 Asturias: Economic Development Institute of the Principality of Asturias, IDEPA7 Cantabria: Cantabria Regional Development Organisation (SODERCAN)8 Basque Country: La Sociedad para la transformación competitiva (SPRI Group)9 La Rioja: Economic Development Agency of La Rioja (ADER)10 Navarre: Navarre Development Organisation (SODENA)

11 Aragón: Aragon Exterior (AREX)12 Catalonia: Invest in Catalonia. ACC1Ó13 Valencian Community: Valencia Export Institute (IVEX)14 Balearic Islands: Institute for Business Innovation of the Balearic Islands (IDI)15 Murcia: Institute for the Development of the Region of Murcia16 Andalusia: Innovation and Development Agency of Andalusia, IDEA.17 Canary Islands: Canary Islands Economic Promotion Agency (PROEXCA)18 Ceuta: Company for the Development of Ceuta (PROCESA) 19 Melilla: Public Association for the Promotion of Melilla, PROMESA

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23

15

4

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8

9

10

1112

13

14

16

1718

19

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In addition to “Invest in Spain”, which is a central government institution, each Autonomous Community has its own entities created to support foreign investment in each region.

This map represents every region in Spain and the institutions responsible for supporting investment and helping foreign companies requiring assistance and advice for starting up businesses.

Following is a description of each institution:

•The Innovation and Development Agency of Andalusia (IDEA) contributes to the economic and social development of the region, offering the best services to companies and employers and promoting business spirit, innovation and cooperation within the field of science and technology and the competitiveness of its productive structure.

One of the Agency’s stated objectives is to attract investment and national and international companies

It prepares studies and specific information for potential investors on such subjects as Andalusia’s most significant business sectors, macroeconomic and demographic data and also publishes information on specific grants offered by Andalusia to foreign companies.

•Aragon: the Government of Aragon works through the agency, Aragon Exterior, to support the success of new investment projects in Aragon. It provides all the information required by a new investor to assess whether Aragon is the most suitable place to start up a business.

Exterior Aragón provides the following services, free of charge:

– Searches for business locations, land, offices, warehouses, cutting out all the intermediaries.

– Contacts with local suppliers. – Help with processing licences. – Identification of all the European, national, regional and local grants and economic. incentives available for the investment project.

– Legal advice. – Searches for sources of financing. – Processing visas and residence permits. – Establishment of executives (homes, international schools).

•Asturias: the Economic Development Institute of the Principality of Asturias (IDEPA) is a public entity created in 1983. It is responsible for business promotion in Asturias and its main objective is the promotion and improvement of the Asturian business network. To achieve this objective, the institute works along two lines: attracting new investment and improving the competitiveness of regional companies.


•Balearic Islands: the Institute for Business Innovation of the Balearic Islands (IDI) is the website of the regional Ministry of Economy and Finance aimed at promoting the benefits of doing business in the Balearic Islands in order to attract foreign investors. It also connects entrepreneurs with business ideas and the capital (investors) to put them into action.

•Basque Country: the institution in charge of promoting investments is the SPRI Group which was created in 1981 with the aim of supporting the Basque business network, focusing on competitiveness and its position in the global market.

One of the main objectives of the SPRI Group is to attract, develop and maintain foreign investment and partnerships, particularly in high value-added industries, such as renewable energies, the aerospace industry, the electric vehicle industry or bioscience.

•Canary Islands: the Canary Islands Economic Promotion Agency (PROEXCA) is a public company attached to the Ministry of Finance of the Canary Islands, which aims to promote and encourage the internationalisation of local businesses and the implementation of policies for economic development and investment attraction.

The organisation provides information on the economic attractions of the islands, and acts as an intermediary between entrepreneurs and developers to aid new investment in the islands through support services, recruitment and project funds for investment, with the help of specialised consultants.

•The Cantabria Regional Development Organisation (SODERCAN) makes an active contribution to strengthening the industrial fabric of Cantabria. Its main activities are:

– The promotion of entrepreneurial talent and start-ups. – Attracting foreign investment. – Support for the development of enterprises capable of competing. – Support for the transformation of mature companies struggling to compete in a global market economy.

– Development of the Knowledge Society and dealings with public authorities.

•Castilla y León: the ADEurope Foundation promotes activities aimed at generating value-added business projects in strategic sectors for Castilla y León through the development of specific programmes for attracting investment.

ADEurope provides various services to potential investors:

– Assistance with location searches for projects. – Information on the regional economic environment. – Human Resources. – Operating costs.

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– Useful contacts. – Assistance with searches for local partners. – Information on investment incentives, R&D, employment, training and others. – Advice on finding funding. – Personalised assistance throughout the investment process. – Travel Assistance prospecting Castilla-Leon.

•The Institute for the External Promotion of Castilla-La Mancha (IPEX) is an agency attached to the region’s Ministry of Economy and Finance which is responsible for attracting investment to the region.

•Catalonia: The ACC1Ó agency promotes company competitiveness. It encourages innovation, internationalisation and attracts investment.

Its main objectives in relation to the attraction of investment are:

– To promote new investment, reinvestment and expansion of businesses in Catalonia and boost the development of new business activities in Catalonia to act as a magnet for investments with high value added.

– To assist with the consolidation of companies in Catalonia, enabling strategic investment agreements between companies.

•Ceuta: The Company for the Development of Ceuta (PROCESA) is responsible for the management of the initiatives financed by European Structural Funds, in addition to facilitating and encouraging projects and initiatives to benefit the region.

•Extremadura: The Extremadura AVANTE agency was created in 2010 to foster business start-ups in Extremadura by providing products and services to potential investors.

•Galicia: the Galician Institute for Economic Promotion (IGAPE) was created in 1993 as a public entity affiliated to the Ministry of Economy and Industry (part of the Xunta de Galicia or autonomous community government).

Its mission is to foster new businesses, encourage improvements in the productivity and competitiveness of companies already established in the region, to attract foreign investment and to promote the internationalisation of Galician companies. It also provides companies wanting to set up business in Galicia with support, information and help with managing grants for starting up businesses in the region.

•The Economic Development Agency of La Rioja (ADER) is a public agency of the regional Ministry of Economic Development. The agency’s main objective is to foster and benefit companies in order to aid economic growth in the region. The initiatives it promotes are aimed at helping Spanish and foreign companies to establish businesses.


•Autonomous Community of Madrid: the Madrid International Development Company (PromoMadrid) is a public entity belonging to the regional Ministry of Economy and Finance created in 2004.

Its main objectives are to support companies in starting up business abroad and also to attract and retain foreign investment. It undertakes any initiatives required to improve the image, perception and reputation of the region.

•Melilla: the Public Association for the Promotion of Melilla (PROMESA) helps encourage economic activity by managing grants and providing services to local companies and new investors, such as economic information and information on the benefits of investing in the region.

•Murcia: the Institute for the Development of the Region of Murcia undertakes many activities to improve economic growth in the region and attract investment, such as facilitating access to finance for business projects involving investment in fixed assets, quality, technology, globalisation and industrial equipment, and also participates in the creation of innovative financing instruments to support SMEs and entrepreneurs.

•The main objective of the Navarre Development Organisation (SODENA) is to promote the generation and development of business projects for Navarre from Spain and abroad and take part in initiatives aimed at improving the region’s economic competitiveness.

•The aim of the Valencia Export Institute (IVEX) is to attract investment that generates wealth and employment in the region and to select business projects with high value added and a considerable technological component. The following are examples of its activities:

– Attracting multinational companies, agencies and public R&D with an industrial impact to boost new investment and help develop regional clusters based on own capabilities.

– Strengthening systematic initiatives to attract knowledge-intensive activities carried on by multinational enterprises, giving priority to those that already have production facilities in Valencia.

Not only have the Autonomous Communities developed institutions, agencies and other mechanisms to attract foreign investment to Spain, but big cities such as Madrid, Barcelona and Seville have also created their own specific institutions.

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The Economic Development Agency “Madrid Emprende” was created in 2005 and is attached to the city’s Department of Economy, Employment and Civic Participation. Its main objective is to promote the business competitiveness of Madrid.Initiatives developed by “Madrid Emprende” include: the promotion of entrepreneurial talent, improvement of business infrastructure, supporting innovation in small- and medium-sized enterprises (SMEs) and the promotion of foreign investment.

“Sevilla Global” was established in 2000 as a local public limited company. Its main purpose is to develop a new local urban economic strategy and foster business development.

“Promalaga”, belonging to Malaga city council, promotes the benefits offered by Malaga to foreign and national investors, and also provides support and financial services to existing and newly created companies in Malaga.

10.3. Grants and subsidies to attract foreign investmentThe Spanish Central Government and Autonomous Community Governments have developed an extensive system of programmes, grants and aid to promote investment, employment, competitiveness and economic growth.

Another contributing factor in attracting investment to Spain is that, as result of Spain’s EU membership, Spanish institutions are involved in developing and managing European funds which represent a large proportion of the total incentives offered to start-ups.

To foster the commercial activities of foreign companies, Spain has signed agreements to avoid double taxation with the main countries doing business in Spain. This helps avoid tax evasion and facilitates a better control of the economic flows between nations.

In 1990 an agreement was signed in Beijing, Agreement between the Government of Spain and the Government of the Republic of China for the avoidance of double taxation and preventing tax evasion with respect to Taxes on Income and on Capital.


The main lines of action defined to encourage investment in Spain are:

•Training and employment. Incentives for training and employment can mean significant savings in labour costs for the beneficiaries.

The main activities carried out by the Spanish Government are as follows:

– Incentives are given to companies for training programmes, in the form of reductions in social security contributions.

– Promoting the creation of permanent employment through grants to employers.

– As a result of the economic situation, Royal Decree 1975/2008, of 28 November, on urgent economic, tax and employment measures and access to housing was approved. This law created new types of incentives for the promotion of permanent contracts for "unemployed workers with family responsibilities" through reductions in employers’ social security contributions.

– Others aid and subsidies to generate stable employment and economic activities in particular areas of Spain.

– Law 35/2010, of 17 September, on urgent measures to reform the employment market contains a number of measures to achieve the goal of the legislation by creating a support system to foster youth employment and job opportunities for the unemployed.

•Research and Development (R&D). Grants and subsidies in this area include grants for the promotion of innovation projects, technological upgrading and research and development, which have been a priority for the Spanish government.

In line with the VII European Union Research, Development and Innovation Framework Programme for 2007-2013, the government approved the VI National Research, Development and Innovation Plan for 2008-2011, and expects to double the financing compared with the previous period and improve incentive management. These subsidies are co-financied by the EU Structural Funds.

Some of the main programmes and strategic plans developed under the Research and Development initiative are as follows:

– “Programa INGENIO 2010, CONSOLIDER and AVANZA: aimed at increasing public and private investment in R&D&I.

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– “Plan AVANZA2”: its main objectives are to:

– Contribute to economic recovery by encouraging the widespread and intensive use of information and communication technologies (ICT).

– Promote and strengthen the demand for a specialised ICT industry.

– The Centre for Industrial Technological Development (CDTI) promotes innovation and the technological development of companies, by providing funding on preferential terms, as well as advice and support to companies wishing to submit European cooperative projects under Research and Development Programmes such as EUREKA.

– State Innovation Strategy (e2i):

– “Program Innocredit”: to finance innovative projects through credit lines provided by the Spanish State Financing Agency (ICO).

– “Program Inventa”: to co-finance large industrial centres for competitiveness, through the Ministry and the ICO.

– “Program Invierte”: to support venture capital in the early stages of "large unique strategic projects" with a high technological component.

•Renewable energy. The 2011-2020 Plan for Renewable Energies in Spain (Renewable Energy Plan in Spain or "PER") aims to increase the growth and development of renewable energies in Spain.

The Energy Diversification and Saving Institute (IDAE) has been developing a number of specific aid programmes in the renewable energy industry:

– Strategic Projects Aid Programme: designed to provide incentives to companies carrying out multi-year investment projects in energy saving and efficiency technologies.

– Biomcasa Programme (biomass programme): aimed at increasing the supply of biomass generated energy, in line with the needs of potential users of hot water and air conditioning in buildings.

– Geotcasa Programme (geothermic energy): created to establish a system for financing geothermic installations in buildings for authorised companies and to promote a quality offering in line with the needs of potential users of hot water and air conditioning in buildings.

– Solcasa Programme (solar energy), this programme aims to set up a system of financing for solar thermal facilities in buildings for authorised companies.


•Central State financial aid and incentives for Spanish regions: in compliance with European Union limits and requirements, to encourage productive investment in certain areas of Spain, help reduce regional inequalities and strengthen inter-territorial lower income regions.

The Spanish regions offering the best incentives are:

– Extremadura and the Canary Islands: 40% of eligible net investment. – Andalusia: 30% of the net investment from 1 January 2011 to 31 January 2013. – Castilla-La Mancha and Galicia: up to 30% of the investment.

Regional incentives include:

– Repayable subsidies on approved investments. – Interest subsidies on loans obtained from financial entities. – Grants for repayment of the above loans. – Subsidies for the employer’s social security contribution for common contingencies for a maximum number of years determined by regulations.

Additionally, some regions (Autonomous Communities) provide additional incentives for investment in areas not covered by State regulations. The main incentives are:

– Repayable grants. – Special conditions for loans and credits. – Technical advice and training. – Tax incentives. – Guarantees. – Social security deductions.

Some of the Autonomous Communities have special incentives such as the Canary Islands Special Zone (ZEC), approved by the European Commission in January 2000. It was created to attract and encourage the investment of capital and international companies that make a decisive contribution towards social and economic progress in the Canary Islands. At present, the benefits of the ZEC zone are valid until 31 December 2019 and may be extended subject to authorisation by the European Commission.

•European Union: the aid granted by the European Union is aimed at promoting the development of those regions of Member States with the lowest wealth and employment, and those suffering from industrial relocation processes.

Those incentives supplement development plans financed by the Spanish State. They are channelled through the government and the financial institutions which act as intermediaries.

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The most important instruments include:

– European Investment Bank: the EIB supports projects that foster the development of disadvantaged regions and those of interest that benefit the EU as a whole.

– European Investment Fund: its two main objectives are to provide guarantees for loans of all kinds and to acquire and manage temporary minor holdings in companies involved in the implementation of trans-European networks.

– Structural funds: these are used to finance public and private initiatives to achieve structural improvements in the Member States and to close the gap between the most affluent and poorest EU countries. Currently, these funds are the European Development Fund (ERDF) and European Social Fund (ESF).

– Research Programmes, Development and Innovation (R & D + I): the main programme is the Seventh Framework Programme for Research and Technological Development (FP7), which is the main EU instrument for funding research in Europe during the 2007-2013 period.


AppendixI. China’s 12th Five Year PlanA) IntroductionAfter nearly two years of planning, in March 2010 the 12th Five Year Plan (FYP) was ratified by the CPC Central Committee. The Plan will be China’s economic and social guide for the period from 2011 to 2015. The 12th FYP highlights the development of an “inclusive growth” pattern for the country. Through this inclusive growth, the country will develop in the coming years at a slower rate but with a greater focus on quality, while prioritising sustainable growth and creating a consumer-driven economy. The Chinese government’s main objective will be to maintain the country’s social stability and the redistribution of wealth.

Compared to previous plans, the 12th FYP marks a turning point in the pattern of China’s economic growth, as the country faces the need to develop a sustainable economic growth model based on the increase of domestic consumption and diminishing dependence on the foreign trade sector. In order to achieve its objectives, the Government has once again emphasised the key role of imported technologies, as well the need for private finance, both foreign and domestic.

The Plan is built around four basic pillars: (1) encouraging domestic consumption and addressing social inequality; (2) consolidating and upgrading strategic industries; (3) developing the western and central areas of the country; and (4) promoting energy efficiency and environmental protection.

B) Strategic Priorities of the 12th FYPThe 12th FYP centres on the expansion of domestic demand and the reform and upgrading of domestic systems and industries to promote quality-oriented economic growth.

The Plan’s Strategic Priorities are as follows:

•Encouragingdomesticconsumption.•Balancingsocialinequalityandimprovingsocialwelfare.•Consolidatingandupgradingindustrialsectors.PromotingtheStrategicEmergingSectors.•Balancingregionaldevelopment,focusingonCentralandWesternChina.•Sustainabledevelopmentandenergyefficiency.•Reformoffinancialandtaxationsystems.•Sustainableurbanisationandmodernisationofruralandagriculturalinfrastructure.

C) Strategic Emerging Industries PlanAs part of the 12th FYP, the Chinese Government has placed particular emphasis on the so-called Strategic Emerging Industries. These are seven industries chosen by the Government for their importance for upgrading the country’s industry, the great potential they show in terms of demand and as export platforms and the opportunities offered for China to become a global leader in those industries.

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The Seven Strategic Emerging Industries are:

•Energyefficiencyandenvironmentalprotection.•Nextgenerationinformationtechnologies.•PharmaandBiotechnology.•High-endmanufacturing.•NewEnergies.•NewMaterials.•NewEnergyAutomotive.

Government plans are that by 2015 these seven emerging strategic industries will account for 8% of GDP, compared to 3% in 2010, and reach 15% of GDP in 2020. An ambitious investment plan has been prepared for the development of the emerging strategic industries:

Strategic Emerging Industries Expected Investment

Energy efficiency and environmental protection

¥ 3 trillion by 2015

Next generation information technologies

¥ 1 trillion to be invested in IT by 2014

Pharma and Biotechnology 2009-2011, planned ¥ 850 billion in investments for health care system reform

High-end manufacturing ¥ 1.5 trillion by 2015

New Energies ¥ 5 trillion in total by 2020 (¥ 3 trillion for hydropower, wind power, nuclear power, solar energy; ¥ 1 trillion for smart grid; ¥ 1 trillion for new energy vehicles, clean coal etc. Rail: ¥ 3.5 trillion and Subway: ¥ 1 trillion by 2015

New Materials ¥ 750 billion by 2015

New Energy Automotive Up to ¥ 1 trillion by 2020

D) What economic measures will the government be likely to take? In order to achieve the 12th FYP targets, the Chinese Government will need to implement several economic measures to boost the country’s production and strengthen its people’s spending power. We foresee that the most important economic measures will be as follows:

•Increase industrial demand for steel, energy, construction materials, non-ferrous metals, etc. through state-sponsored construction of housing, transportation and utility infrastructure and industrial upgrading.

•Stimulate domestic consumption using direct subsidies to consumers, wage increases, price controls and improved logistics efficiency.


•Expand channels of financing for enterprises and improve financial services through the liberalisation of interest rates and diversification of financial services.

•Guarantee the control of supply and pricing of major commodities by central government.

•Gradually position the ¥ as an international currency. Reduce the growth of imports of important resources and commodities, particularly production factors; while simultaneously increasing exports of value-added products to guarantee a continuous contribution to economic growth.

•Expand Chinese presence in international markets, especially in African and Middle Eastern countries, which have low barriers to entry for Chinese firms and carry significant strategic advantages.

E) Major issues and implicationsThe 12th FYP period marks a possible turning point in the pattern of China’s economic growth, driven by internal and external pressures. This is a very ambitious economic and social development plan that will require considerable effort by China’s central government to promote the required regulatory reforms. Considerable private sector involvement will also be required to cover the financing needs of the development plan.

Social imbalancesFirst of all it will be necessary to increase the minimum wage of urban and rural workers and improve their employment conditions through the implementation of a pension system and the upgrading of basic healthcare systems. Growing social imbalances between urban and rural populations is a major concern for the government and it will therefore promote the adoption of new agricultural technologies to increase productivity. The government will also accelerate the development of affordable housing, increasing the housing supply for low- and middle-income sections of society and reform the household registration system (Hukou system).

InvestmentDomestic and outbound investment and the use of foreign FDI will need to be reformed to promote the consolidation of traditional industrial sectors and encourage the internationalisation of Chinese companies. Incoming FDI would be encouraged to focus on high-tech and emerging industries rather than industries with over-capacity problems, highly polluting industries or industries of national strategic importance. At the same time, the government will promote the expansion of the services industry and encourage domestic enterprises to invest, operate, acquire and cooperate overseas.

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Continental China The development of China’s second- and third-tier cities away from the coast will require considerable investment in infrastructure, telecommunications and public services. Industrial production centres will need to be relocated away from the cities and site production facilities away from the coast. The Chinese government will need to grant subsidies and tax incentives and also build over 85,000 km of new roads and 40,000 km of high-speed railways.

Tax system reform The Chinese tax system will require further upgrading to ensure social equality and guard against possible asset bubbles by levying a property tax, for instance, and to ensure that the government earns revenues from resources, real estate and other sources.

Green energyImplementation of the industrial development envisaged in the FYP will require an enormous amount of energy and resources. The country will need to promote energy efficiency and the use of renewable energies. It will therefore need to promote private investment in renewable energies such as wind, solar and hydraulic energy generation. Environmental protection and the creation of waste treatment plants will be major challenges for China’s development in coming years.

Implications for SOEs State Owned Enterprises will need to improve their real competitiveness overseas. Cross-border expansion and/or investment can combat decreasing competiveness in the domestic market, as monopolistic pricing models wane in effectiveness. For instance, in 2009 CNPC beat Exxon Mobil as the leading company in global market capitalisation in its Industry. However, its profit per capita is US$ 10,000, in comparison to Exxon Mobil’s US$ 500,000.

China is urgently seeking sources of supply to reduce its dependence on imported resources. State-owned enterprises will play a major role in large outbound M&A energy, resources, and agricultural sectors. Enterprises will need to develop overseas strategies to effectively evaluate and manage the risks relating to policies, laws, price assessment and integration.

Implications for Private Enterprises Like State Owned Enterprises, private enterprises will be encouraged to go abroad to look for investment opportunities. Accordingly, they will need to improve their international competitiveness and establish an appropriate outbound strategy.


II. How Can ICBC Help? Industrial and Commercial Bank of China Limited (ICBC), established in January 1984, is the largest commercial bank in China. On October 27th, 2006, ICBC was listed on the stock exchanges of Shanghai and Hong Kong. Through its worldwide network consisting of 16,227 domestic offices, 203 overseas offices and 1,562 correspondent banks, ICBC provides comprehensive financial products and services to more than 4.12 million corporate banking customers and 259 million retail banking customers. ICBC has strong international presence and trans-markets operations around the globe on top of its leading position in most commercial banking areas in domestic market. As of 31 December 2010, ICBC recorded total assets of ¥ 13.45 trillion (equivalent to US$ 2.03 trillion) and ranked top among listed banks worldwide in terms of capitalization, profitability and customers’ deposits.

In October 2010, ICBC obtained the approval from Bank of Spain to the banking license for its branch in Spain, which signifies ICBC’s successful landing on the Spainish market and becoming the first Chinese commercial bank, and only one by now, to set up operating branch in Spain.

ICBC (Europe) S.A Sucursal en España (ICBC Spain Branch) commenced business on 24 January 2011, offering comprehensive, professional, flexible and diversified banking services at all times. We are positioned to become a financial bridge between China and Spain to boost bilateral economic and trade relationship. Our customers include Spanish overseas Chinese individuals, Chinese invested companies, enterprises with Sino-Spanish trade and investment ties, Spanish corporate, Multinationals and financial institutions. By virtue of ICBC Group’s leading market position, quality customer base, diversified business structure, strong innovation and excellent brand value, ICBC Spain Branch can cater to various financial requirements such as account opening, deposits, remittances, financing, and wealth management etc.

We have a team of experienced, professional, vigorous and creative staff who work closely with our clients to understand and analyze their needs. We hope to forge a long-term and reliable partnership with our clients to grow and thrive together. For those Chinese and Spanish customers who look to explore trade and investment opportunities in both markets, ICBC Spain can be a dependable business partner and the banking brand of best choice.

Products & ServicesRetail Banking1. Deposits

Current deposit and time deposit in €, US$ and ¥ (Renminbi, the Chinese Yuan). Structural deposit product tailored to customer’s unique needs available. ´Opening Account Witness´ is our featured service.

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2. RemittanceFund transfers in €, US$ and ¥. Featured products include ¥ Express Payment and Pre-settlement ¥ Exchange Remittance. Fund transfer between China and Spain through ICBC is faster and more cost-efficient, and ¥ remittance is our unique products in local market.

3. Banking CardsA range of banking card products including Euro Debit Card, Credit Card, China UnionPay Dual-currency Card etc.

4. Foreign ExchangeForeign exchange and currency conversion between €, US$ and ¥ etc.

5. Wealth ManagementComprehensive investment and wealth management products.

6. Internet BankingConvenient internet banking for account management, deposit and fund transfer.

7. Certificate and guaranteeIssuance of deposit certificate and guarantees.

8. OthersOther services include Safe Deposit Box, Pledged Personal Loans, Insurance Referrals and son on.

Corporate Banking1. Deposits

Current deposit and time deposit in €, US$ and ¥. Structural deposit product tailored to customer’s unique needs available.

2. Syndicated LoanParticipate in syndications in primary and secondary markets.

3. Corporate LoanTerm loans, Revolving Facilities, Overdraft, Discount and Factoring.

4. Project FinancingVarious project financing as well as Aircraft Financing and Ship Financing.

5. Trade FinanceLetter of Credit, Import & Export Financing, Packing Loan, Shipping Guarantee, International Factoring and Forfeiting etc.


6. International Trade SettlementStandard settlement services such as L/C, T/T and Collection payments, all types of Bank Guarantees, especially ¥ payment for cross-border trade with Chinese importers & exporters.

7. Treasury BusinessFX trading, currency and interest hedging products, and ¥ related products.

8. OthersCorporate Internet Banking, Global Cash Management, Investment Banking Consultancy, Payroll Service and other featured products.

Examples of how ICBC can helpAs part of the ICBC Group, ICBC Spain Branch has close links with ICBC branches in China and ICBC group companies across a variety of countries and markets to offer innovative solutions to our customers´ financial needs both in China and Spain.

•Case Example 1: Establishing new company in SpainA Chinese company is setting up a new business in Spain. ICBC Spain Branch helps the company open account to receive capital fund, and issue the certificate of funding for the company to complete commercial registration formalities. Moreover, the Bank provides account and banking card services to the Chinese expatriate staff of the company to meet their daily spending needs.

•Case Example 2: Business Operation in SpainThe Spanish branch of a Chinese company operates and sells in local market. ICBC Spanish Branch provides the following services:

– Opening accounts for the company and its staff to meet the daily settlement and payment needs, and payroll service.

– Supply chain finance to facilitate the company’s purchase of raw materials. – Factoring service based on the company’s account receivables to help it expand sales. – Other value-added services including wealth management, risk mitigation solutions.

•Case Example 3: Merger and AcquisitionA Chinese corporate is in the process of acquiring a significant part of shares of Spanish company, and has a plan to set up a joint-venture in China in near future. ICBC Spain Branch joins hands with the investment banking arm of ICBC Group in Hong Kong to provide investment banking services to the company. The solution package includes acquisition finance structuring, initial public offering in Hong Kong when conditions mature, or issuance of ¥ debt.

•Case Example 4: Parent Guaranteed Financing to SubsidiaryIn most cases it’s not easy for the Spanish subsidiary of a Chinese company to get sufficient

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credit from local banks at the infant stage of its business. If in China ICBC maintains satisfactory business relationship with and has enough credit line for the parent company, it can issue a bank guarantee, against the counter guarantee of the parent company, to ICBC Spain Branch. Then ICBC Spain Branch will grant a loan to the subsidiary company in Spain.

•CaseExample5:GlobalCashManagementA Chinese multinational company sets up its European regional headquarter in German and has a branch in Spain. The German headquarter wants to closely monitor the Spanish branch’s account movement and make fund transfer conveniently whenever necessary. ICBC Spain Branch designs the internet-banking based Cash Management Solution which enables the company to easily check details of its Spanish branch’s account at any time, and realize pooling and distribution of funds through different levels of authorization.

ContactIndustrial and Commercial Bank of China (Europe) S.A Sucursal en EspañaPaseo de Recoletos, 3, 28004, Madrid, SpainTel: +34 912168888Fax: +34 912168866Website: www.icbc.com.es


III. How can Deloitte help?Chinese Services GroupDeloitte’s large client base in China consists of both state-owned and privately owned enterprises ranging in size from medium to very large enterprises. We have considerable experience working with Chinese enterprises and a history of successfully supporting their globalising activities. We are therefore familiar with the particular needs of enterprises in China that are investing globally and describe below the special support structures we have created to provide the highest level of support and the principles on which our service relationships are based.

The Deloitte global network contains a platform that is unique among professional services firms – the Chinese Services Group (CSG). Over the course of its seven-year history in the Deloitte organisation, the CSG has become a unique resource in the market for companies, government bodies and investment organisations both in China and abroad. The network extends to all corners of the globe and our understanding of serving Chinese companies from Düsseldorf to Lagos and from Perth to Sao Paulo is vast.

The CSG serves as the unifying force to market, facilitate and deliver Deloitte professional services to both multi-national corporations investing in China and Chinese companies expanding overseas. Operating as a platform to leverage China expertise, bridge the cultural gap and to ensure client service excellence, the Global CSG, in coordination with the China firm, complements a multi-member firm, multi-industry, multi-functional and multi-disciplinary approach.

Deloitte's CSG practice has coverage in nearly 120 locations around the world, spanning six continents. With such an expansive geographical reach, combined with a decentralised group of dedicated China practitioners ready to serve your company, Deloitte can serve you no matter where you expand overseas.

GCSG Coverage

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Our global practiceThe Deloitte global network comprises more than 168,000 people in 140 countries. Our commitment to clients and ability to team across borders continue to set our member firms apart in the marketplace. Deloitte member firms believe that to be called global advisers, it isn’t enough to have a presence everywhere around the world and clients in every city; what’s crucial is having a culture of collaboration that draws upon our strengths, regardless of location. Our culture is the strength of Deloitte. We look forward to embrace the challenges ahead and achieve our vision to be the Standard of Excellence.

Our practice in ChinaFrom being the first foreign accounting organisation to establish a presence in Shanghai, Deloitte is now one of the largest professional services organisations in the Chinese Mainland. With a network of offices in Beijing, Chongqing, Dalian, Guangzhou, Hangzhou, Hong Kong SAR, Jinan, Macau SAR, Nanjing, Shanghai, Shenzhen, Suzhou, Tianjin, Wuhan and Xiamen, we have over 8,000 people located across the most vibrant economic areas in China. Backed by our global network, we deliver the full range of audit, tax, consulting and financial advisory services to our national, multinational and growth enterprise clients.

Deloitte was the first foreign accounting organisation to establish a presence in China, opening an office in Shanghai in 1917, and is now one of the largest professional services organisations in China. Our clients include over 800 MNCs and their affiliated companies and around one-third of all companies listed on the Hong Kong Stock Exchange.

Our practice in SpainDeloitte is the leading professional services company in Spain. It bases its leadership on the excellence of its professionals’ knowledge and on its client service approach in all its service lines. The Deloitte network in Spain is composed of over 4,200 professionals and 20 offices across Spain, including all of Spain’s major cities, such as Madrid, Barcelona, Zaragoza, Valencia, San Sebastian, La Coruña, Bilbao and others.

In order to provide a specialised service to its clients, Deloitte structures its human capital into industries and geographical areas, thus contributing greater value added by providing a quality service adapted to and catering for the special features of each organisation. This division by industry allows us to have teams of experts in almost all the various industries and to gain in-depth knowledge of the Spanish market.

Our Services Our business model, with in-depth competencies in audit, tax, consulting and financial advisory services, uniquely positions Deloitte to deliver superior value and assist clients in managing change. Member firms are assisting companies to comply with new regulatory requirements so that they can successfully participate in the public capital markets. Deloitte is integrating clients’ technology, processes and human capital so that they can compete more effectively. Below is a high-level introduction to the key services related to outbound investment:


Audit ServicesWith our experience in local and international laws and regulations, we can assist you with the all-important obligation of meeting applicable reporting requirements. Our audit specialists examine your financial statements and accounting records to give you an independent opinion on reports to shareholders, directors, trustees and others. Our traditional role as Auditors also places us in an ideal position to build up a clear understanding of your business, enabling us to help you identify the major risks and opportunities in your strategies and activities. Additionally, we provide financial statement reviews, fact-finding reports on financial information, capital verification assurance, business operation assessment, and reporting services for foreign exchange and special purposes.

As your Reporting Accountants, we help prepare and submit audited statements and accounts in compliance with listing requirements. At the pre-listing stage, we can play a pivotal role in assisting you with approaching sponsors and underwriters, and in providing consultation and advice in your negotiations with them. With state of the art technology, our professionals deliver efficient and cost effective audit solutions to you.

Consulting ServicesAs the world’s largest management consulting firm, we help organisations build value by providing insights that create new futures and doing the hard work to improve performance. Delivering this kind of value requires a broad range of talent and capabilities – across human capital, strategy & operations and technology – and importantly, aligned to the unique needs of specific sectors, businesses and organisations.

Our clients look to us for the ability to implement the ideas we present. They expect excellent performance that draws upon our breadth of industry and service experience. Simply put, we provide our clients with world-class insights that generate tangible and measurable impact.

Enterprise Risk ServicesWith continual technological innovation, increased accountability at boardroom and senior management levels and changes to the regulatory environment, managing risk has become more complex. Our Enterprise Risk Services (ERS) combine to help you better identify, measure and manage risk and enhance the reliability of your control system and procedures.

Financial Advisory ServicesThe Financial Advisory practice at Deloitte provides expert and in-depth advice to corporate clients, private equity houses, MBO/MBI teams, entrepreneurs and government. We offer strategic and financial advisory services to help assess, measure and minimise the impact of fraud on business; business and advisory services to companies and their stakeholders in both in-court and out-of-court reorganisations and much more.

Our China Financial Advisory team is part of Deloitte's Asia Pacific network and, as a result, we are experienced in advising on complex cross-border assignments at a local level and offer you a breadth of sector expertise that few can rival. We are able to draw upon specialist

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knowledge within Financial Advisory and work across other areas of the firm to help you successfully implement a solution no matter how complex it may be.

The breadth of our skills is just the starting point. We combine these skills to develop well-rounded solutions based on a full understanding of your ambitions, your business and the environment in which you compete. We believe this integrated approach gives clients of Deloitte a clear commercial advantage.

Tax ServicesWhether you are looking to expand overseas or to invest in Hong Kong or the Chinese Mainland, you will need to maximise the efficiency and effectiveness of your assets. Our tax specialists are made up of professionals from the organisation’s international tax practice, as well as local consultants, a number of whom are former tax officials with a thorough understanding of tax systems and regulations in Hong Kong, the Chinese Mainland as well as in any other tax jurisdictions in which you may be interested.

IV. Deloitte International Tax SourceProfessionals of the member firms of Deloitte Touche Tohmatsu Limited have created the Deloitte International Tax Source (DITS), an online resource that assists multinational companies in operating globally, placing up-to-date worldwide tax rates and other crucial tax material within easy reach 24/7.

Connect to the source and discover:A unique tax information database for 65 jurisdictions including –

•Corporate income tax rates;•Domestic withholding rates;•Historical corporate rates;•In-force and pending tax treaty rates on dividends, interest and royalties;•Indirect tax rates (VAT/GST/sales tax); and•Holding company and transfer pricing regimes.

Guides and Highlights – Deloitte’s Taxation and Investment Guides provide an analysis of the investment climate, operating conditions and tax system of most major trading jurisdictions while the companion Highlights series summarizes the tax landscape of more than 130 jurisdictions.

Tax publications – Global tax alerts and newsletters provide regular and timely updates and analysis on significant cross-border tax legislative, regulatory and judicial issues.

Tax tools – Our suite of tax tools include annotated, ready-to-print versions of the holding company and transfer pricing matrices; expanded controlled foreign company coverage for DITS countries; and information exchange matrix and monthly treaty update; and expanded coverage of VAT/GST/Sales Tax rates.


Webcasts – Live interactive webcasts and Dbriefs by Deloitte professionals give you valuable insights into important tax developments affecting your business.

DITS is free, easy to use and always available!www.dits.deloitte.com

V. Office locationsDeloitte offices in China

Beijing Branch8/F Office Tower W2The Towers, Oriental Plaza1 East Chang An AvenueBeijing 100738China (PRC)Phone: 86-10-8520 7788Fax: 86-10-8518 1218

Chongqing Room 10-12, 13/F International Trade Center Chongqing38 Qing Nian RoadYu Zhong DistrictChongqing 400010China (PRC)Phone: +86 23 6310 6206Fax: +86 23 6310 6170

Dalian BranchRoom 1503 Senmao Building147 Zhongshan RoadDalian 116011China (PRC)Phone: 86-411-8371 2888Fax: 86-411-8360 3297

Guangzhou Branch26/F Teemtower208 Tianhe RoadGuangzhou 510620China (PRC)Phone: 86-20-8396 9228Fax: 86-20-3888 0119 – 0121

Hangzhou BranchRoom 605, Partition AEAC Corporate Office, 18 Jiaogong RoadHangzhou 310013China (PRC)Phone: 86-571-2811 1900Fax: 86-571-2811 1904

Hong Kong SAR Office35/F One Pacific Place88 QueenswayHong Kong, SAR China (PRC)Phone: 852-2852 1600Fax: 852-2541 1911

Macau SAR19/F The Macau SquareApartment H-N43-53A Av. do. Infante D. HenriqueMacau, SAR China (PRC)Phone: 853-2871 2998Fax: 853-2871 3033

Nanjing BranchRoom B, 11th Floor GoldenEagle Plaza89 Hanzhong RoadNanjing 210029China (PRC)Phone: 86-25-5790 8880Fax: 86-25-8691 8776

Shanghai30/F Bund Center222 Yan An Road EastShanghai 200002China (PRC)Phone: 86-21-6141 8888Fax: 86-21-6335 0003

Shenzhen Branch13/F China Resources Building5001 Shennan Road EastShenzhen 518010China (PRC)Phone: 86-755-8246 3255Fax: 86-755-8246 3186

Suzhou BranchSuite 908, Century Financial Tower1 Suhu Road Industrial ParkSuzhou 215021China (PRC)Phone: 86-512-6289 1238Fax: 86-512-6762 3338

Tianjin Branch30/F The Exchange North Tower No.1189 Nanjing Road, Heping DistrictTianjin 300051China (PRC)Phone: 86-22-2320 6688Fax: 86-22-2320 6699

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Deloitte offices in Spain

A CoruñaFerrol, 1 A Coruña 15004SpainPhone: +34 981 12 46 00Fax: +34 981 12 46 08

AlicanteMaisonnave, 28 bisAlicante 03003SpainPhone: +34 965 92 17 70Fax: +34 965 22 89 67

BarcelonaAvenida Diagonal 654 Barcelona 08034SpainPhone: + 34 93 280 40 40Fax: + 34 93 280 28 10

BilbaoCalle Ercilla, 24Bilbao 48011SpainPhone: +34 944 44 70 00Fax: +34 944 22 88 21

GranadaAcera del Darro, 10Granada 18005SpainPhone: +34 958 80 56 76Fax: +34 958 80 56 78

HuescaEdificio Félix de AzaraCtra. Zaragoza N-330, KM 566Huesca 22197SpainPhone: +34 91 514 50 00Fax: +34 91 514 51 80

Las PalmasPresidente Alvear, 52Las Palmas de Gran Canaria 35007SpainPhone: +34 928 47 25 10Fax: +34 928 26 98 26

MadridPlaza de Pablo Ruiz Picasso,1Torre PicassoMadrid 28020SpainPhone: 00 34 91 514 50 00Fax: 00 34 91 514 51 80

MálagaEdificio Málaga Plazac/ Don Cristián, 2Malaga 29007SpainPhone: + 34 95 207 55 00Fax: + 34 95 207 55 10

Wuhan BranchUnit 2, 38/F New World International Trade Tower568 Jianshe AvenueWuhan 430022, PRCChina (PRC)Phone: +86 (27) 8526 6618Fax: +86 (27) 8526 7032

Xiamen BranchUnit E, 26/F International Plaza8 Lujiang Road, Siming DistrictXiamen 361001, PRCChina (PRC)Phone: +86 (592) 2107 298Fax: +86 (592) 2107 259


MurciaAvda Teniente Montesinos, 10Planta 17Edificio Torre GodoyMurcia 30100SpainPhone: +34 968 27 09 10Fax: +34 968 27 09 11

OviedoCalle Palacio Valdés 9pl. 1ª y 2ª. Edificio Palacio ValdésOviedo 33002SpainPhone: +34 985 21 98 49Fax: +34 985 21 88 57

Palma de MallorcaAvda Comte de Sallent nº3 Palma de Mallorca 07003 SpainPhone: +34 971 71 97 27Fax: +34 971 71 00 98

PamplonaAvda. Pío XII, 30 BisPamplona 31008SpainPhone: +34 948 17 00 86Fax: +34 948 17 27 91

San SebastiánPza. Julio Caro Baroja, 2, 2ª Planta San Sebastián 20018SpainPhone: +34 943 26 78 00Fax: +34 943 26 78 01

SevillaAmérico Vespucio, 13Isla de la Cartuja Sevilla 41092SpainPhone: +34 954 48 93 00Fax: +34 943 26 78 01

TenerifeLeoncio Rodríguez, 3Edificio El CaboSta. Cruz de Tenerife 38003SpainPhone: +34 922 20 94 50Fax: +34 922 20 94 55

ValenciaAv. de Aragón, 30Edificio EuropaValencia 46021SpainPhone: +34 96 307 09 00Fax: +34 96 307 09 60

VigoAv. García Barbón, 106Vigo 36201SpainPhone: +34 986 81 55 00Fax: +34 986 81 55 06

ZaragozaMaria Zambrano, 31Ed. World Trade CenterTorre Oeste - Plta. 16 Zaragoza 50018SpainPhone: +34 976 21 46 75Fax: +34 976 23 55 40

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VI. Deloitte team involved in this edition

CoordinationFernando AnayaSenior Manager [email protected]

Chinese Services GroupFernando Pasamó[email protected]

Fernando AnayaSenior Manager [email protected]

José SotomayorSenior Consultant [email protected]

Mercantile DepartmentGonzalo [email protected]

María José GilSenior [email protected]

Accounting DepartmentRaúl [email protected]

Tax DepartmentBrian [email protected]

Fernando AnayaSenior [email protected]

Verónica [email protected]

Labour DepartmentGuillermo [email protected]

Borja Palacios [email protected]

Banking Department (Regulatory issues)Gloria Herná[email protected]

Virgina [email protected]

Banking Department (tax issues)Ignacio Garcí[email protected]

Pedro de la IglesiaSenior [email protected]

Public Sector ConsultancyIgnacio Niñ[email protected]

Alberto Gutié[email protected]

Belén GarcíaSenior [email protected]

CIBS DepartmentCarlos MartínSenior [email protected]

Arturo Calvo Senior [email protected]

China FirmTimothy KlattePartner (Shanghai)[email protected]

For more information, please, visit www.deloitte.es

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu Limited and its member firms.

Deloitte provides audit, tax, consulting, and financial advisory services to public and private clients spanning multiple industries. With a globally connected network of member firms in more than 150 countries, Deloitte brings world-class capabilities and deep local expertise to help clients succeed wherever they operate. Deloitte's approximately 170,000 professionals are committed to becoming the standard of excellence.

This publication contains general information only, and none of Deloitte Touche Tohmatsu Limited, Deloitte Global Services Limited, Deloitte Global Services Holdings Limited, the Deloitte Touche Tohmatsu Verein, any of their member firms, or any of the foregoing’s affiliates (collectively the “Deloitte Network”) are, by means of this publication, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This publication is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your finances or your business. Before making any decision or taking any action that may affect your finances or your business, you should consult a qualified professional adviser. No entity in the Deloitte Network shall be responsible for any loss whatsoever sustained by any person who relies on this publication.

© 2011 Deloitte, S.L.

Designed and produced by CIBS, Communications, Corporate Image and Business Support, Madrid.

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