Doing Business in Spain

By Raïssa Rouse*

With BREXIT other EU countries become more attractive to US investors, including Spain, not only to do business in Spain but as an alternative for EU operations as a Spanish company will give access to the EU. This is especially true for Florida due to its cultural and language connection with Spain. In addition, on November 27th, 2019, the Protocol to modify the Agreement to avoid Double Taxation between the United States and Spain came into effect. A significant milestone which updated the bilateral tax agreement to avoid double taxation for companies that operate in both countries.
Not unlike any international transactional deal there are many ways to invest in Spain, be it by contract, or ultimately, by buying into a local company or setting up a subsidiary. This short article aims to summarize the basics steps necessary to company formation of the equivalent of a Spanish LLC subsidiary solely owned by a US parent company. This is a very simplified and summarized commentary but in general many of the requirements set out below also apply to investment in an existing Spanish company or setting up a corporation.
Just as the preferred vehicle for foreign investors penetrating the US market is the LLC, the initial advice, and much for the same reasons, is to set up a Spanish LLC (Sociedad Limitada or S.L.) as opposed to a corporation (Sociedad Anónima or S.A.): minimal start-up costs, sole member allowed (unipersonal), simplified corporate books, ease of administration, etc.
Step by Step Guide in General. The first requirement is that you hire a licensed Spanish attorney who can give you basic advice regarding Spanish company law but that also explain the differences between US law and Spanish corporate law. When a US LLC is set up the Spanish client’s concerns is not the actual formation of the company but the different legal environment and business culture. There is much more paperwork in Spain, company formation cannot be done by incorporation services similar to those that exist in the United States, and many, if not most, of the steps described below have to be carried out in person.
Attorney Appointment. Next step would be to draw up Hague apostilled bi-lingual powers of attorney for the law firm and/or lawyer representing the US company as in Spain simply acting as the attorney under a retainer agreement is not sufficient as many Spanish administrative government bodies will require a special or specific but broad (enumerated powers) POA.
From the US Parent Company: The initial documentation to be remitted to the lawyers de minimis should be (1) a certificate of good standing (COGS or certificado de constitución); (2) a document evidencing the parent company’s authorized person such as the appointment of the president, CEO, or manager; (3) evidence of ultimate beneficial owner (titular real) such as a bank form together with a photocopy of biographical page(s) of passport(s) of majority owner(s) meaning more than 25% interest of capital/shareholder/benefit.
The COGS should bear the Hague Apostille, whereas the internal non-official documents, meaning documents that have not been issued by a State agency, should bear a Notary stamp, and then apostilled but not necessarily translated. Should a translation be necessary it is best carried out by a sworn Spanish sworn local translator.
Simply adducing the articles of organization or a printout from the corporate division website will not be sufficient.
ACTIONS UNDERTAKEN BY THE LAW FIRM (not exact order)
1.       Name Search and Reservation (denominación social). Filed with the applicable Mercantile Registrar where the company has decided to establish its registration i.e registered office. PPB does not per se exist, but the US investor needs to counsel on the difference between principal address (sede social) and fiscal address as though Spain is not a federation, the regional autonomies do have separate jurisdiction. The name reservation is valid for three (3) months.
2.       Tax Identification Number. Both the parent company as investor and the NewCo will need to apply for TIN numbers. The subsidiary will obtain a provisional EIN number (which later upon formation becomes permanent). In addition, the authorized person, whether shareholder or manager, depending on the situation, will need an individual TIN number.
3.       Bank Account. The attorney will open a bank account to evidence the requisite initial capital for LLCs, today 3.005,06 Euros or 60.101,21 Euros for corporations. The Bank will issue a certificate evidencing receipt of required investment necessary for later deeding.
4.        Articles of Incorporation or Articles of Organization and By Laws or Operating Agreement.   The formation documents will be drawn up, including the corporate purpose which must be specified. The member, manager, board of directors will be named, and other documents drafted, such as mandatory UBO notarial certificate and POA for subsidiary manager.
5.        Spanish Tax Authorities. Documents, forms, certificates, and stamps from, among others, the Spanish tax authorities (Hacienda) have to be obtained prior to notarization and registration, others soon after: certificate of 1% tax on the investment paid in (capital social); ITP (another tax) paid; definitive EIN obtained. The foreign investment form filed (declaración de inversiones exteriors). The submission of the statement of activity to be carried out (impuesto de actividades económicas (IAE)). VAT number application.
6.       Notary Public. The reserved name certificate, the articles of organization or operating agreement, evidence of the taxes paid, TIN numbers, and so forth, together with the attorney POA are brought before the Notary and the attorney will execute the public formation deed or charter (escritura de constitución) unless the investor personally travels to Spain. No registered agent is necessary.
7.        Recordation. The notarized documents or deeds are then filed within two (2) months with the Mercantile Registrar of the province where the company has decided to set up its registered office. Upon registration the company will obtain the definitive EIN or TIN. There is a publication requirement in the Registrar report (Boletín Oficial del Registro Mercantil or BORME).
8.        Corporate Books. The lawyers will draw up all the necessary written corporate resolutions or minutes including, but not limited to, the member ledger, manager appointment, and the naming of officers, to be included in the corporate book (libro de actas).
The next steps before the company goes live are local Town Hall licensing requirements and employee hiring. We will leave this for a separate article.
Cost and fees actually vary depending on whether an LLC or Inc. Both the tax authorities and the notary charge in accord to the initial investment. Fixed fees for the various forms to be filed with the different government agencies are about 1000 euros for an LLC (quite a bit more for a corporation).  Legal fees depend on the firm hired and the extent of services provided.
*Raïssa Rouse is a Tulane graduate with a J.D in both Civil and Common Law and LL.M in Admiralty (1988) admitted to the Florida bar in 1995. In 2009 she was admitted as Solicitor in England and Wales and later fully admitted lawyer in Spain. Prior to being admitted in Spain she worked in Miami as GC for Spain’s multinational Telefónica US and LatAm subsidiaries. Since 2006 she has been advising Spanish companies on doing business and ultimately setting up in the US: as preliminaries NDA, LOI drafting; to export/import sale agreements; distributor agreements; and ultimately setting up subsidiaries or investment through M&A of companies; business immigration visas; FDA; and trademark law. And in the reverse providing the same services for US companies investing in Spain. Her team includes specialized Spanish lawyers on investment in Spain. In addition, she teaches both at university master programs and through CLE-type courses, lawyers and in-house corporate counsel, and has published a book on international contract drafting in English for the non-common law lawyer.