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Investing in Spain: Advantages and Disadvantages

in legal

Spain is a country with great potential for foreign investors. Since the economy bottomed out in 2013, many and very different companies have decided to enter the Spanish market in order to benefit from the economic upturn.

In the first half of the year 2019 alone, foreign investment in Spain amounted to around 18 billion euros, 21% more than in 2017 and 43% above the average for the last five years.

The climate for investment in Spain is and remains good. Despite a plethora of emergency regulations in recent months, the intentions of the legislator can be readily assessed and certain sectors are benefiting from the still low salaries by European standards and the attraction that some of Spain’s major cities exert on young talent. This in turn leads to a higher level of education of the available workforce with labour law that is comparatively attractive for entrepreneurs.

For all those who have ever thought about starting a business in Spain, here is an initial overview of the advantages and disadvantages of the various forms of company.

Limited Liability Company (Sociedad de Responsabilidad Limitada, S.L.)

The limited liability company (Sociedad de Responsabilidad Limitada, S.L.) is the most common legal form in Spain.

Advantages:

  • The partners’ liability for company debts is limited to the assets contributed;
  • There are no restrictions on the choice of the company name;
  • The minimum company capital is low at € 3,000.00;
  • There is no upper limit for the company capital;
  • The number of possible partners is not limited;
  • The company capital can be invested in cash or in-kind;
  • Contributions in kind do not have to be valued by an independent expert;
  • There is no prescribed minimum or maximum participation per shareholder;
  • The partners enjoy a great deal of freedom in concluding contracts and agreements among themselves.

Disadvantages:

  • It is mandatory to keep formal accounts;
  • The management costs are higher than, for example, in comparison to the sole proprietor;
  • A non-competition clause applies to the manager;
  • An S.L. cannot be listed on the stock exchange;
  • The shareholders can always be identified by others.

Public limited company (Sociedad Anónima, S.A.)

The largest types of companies in Spain are usually public limited companies (Sociedad Anónima, S.A.).

Advantages

One of the main advantages is that the company can be listed on the stock exchange. According to Spanish law, some company activities can only be carried out with this type of company; these include, for example, insurance.

Disadvantages:

  • The appointment of the managing directors is only possible for a limited period of time for a maximum of six years;
  • The minimum share capital is relatively high (60.000,00 €);
  • An independent expert must be consulted for the valuation of the contributions in kind.

The legal form of the S.A. is altogether more administration-intensive and more costly than the S.L.

New Limited Liability Company (Sociedad Limitada Nueva Empresa, S.L.N.E.)

Since 2003, a special form of company foundation has existed in Spain, the so-called Sociedad Limitada Nueva Empresa, or new limited liability company.

The legal form of the S.L.N.E. has some advantages over the S.L and the S.A., especially the simplification of formalities and accounting.

Advantages:

  • A particularly fast foundation procedure that can be completed within 48 hours;
  • It only requires a generic corporate purpose;
  • Simple company organs;
  • There is no obligation to keep a register of partners;
  • During the first 2 years can ask for an extension of payments of the taxes.

Disadvantages:

  • With the S.L.N.E. the company name cannot be freely chosen and is the name of one of the shareholders, but after the incorporation, it can be changed.;
  • In addition, legal entities cannot be shareholders and only can have 5 shareholders; this makes this form of company uninteresting for many international investors.
  • They cannot have a board of directors.

Individual Entrepreneur (Autónomo)

Finally, the legal form of the Autónomo should be mentioned, for those who are considering becoming self-employed in Spain. it is only applicable to individuals, not to companies.

Advantages

Operating as a sole trader has the following advantages:

  • Only a few formalities are required to establish self-employment;
  • There are fewer administrative costs, which can make a sole proprietorship profitable.

Disadvantages

  • The partner has unlimited liability;
  • The liability with the private assets for the debts arising from the business activity;
  • In the case of large profits, high tax rates may apply due to taxation as a natural person.

In view of the protectionist tendencies around the globe, the return to (“new”) normality in Spain will also mean that stricter regulations for foreign investment will have to be expected and that investments will have to be planned wisely and with foresight, especially since any necessary permits could at least delay the investment.

For this reason, we highly recommend you to have professional advice regarding this matter. You can contact GMTax Consultancy by email or phone.