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FAQs

Company formation, accounting, taxes
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Company Formation

Accounting

Taxes

Employment / Social security


Company Formation

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What is a Spanish NIE number: "Numero de Identificacion de Extranjero"

NIE, is a tax identification number which identifies you to the Spanish tax authorities. The NIE number is necessary for buying a home in Spain, opening a bank account, identifying before the Spanish Tax Agency (AEAT) and even forming a company in Spain.

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How do you apply for a NIE?

Any foreigner can obtain a NIE applying in person in the Chief Police Office in Spain or in the Spanish Consulate / Embassy in your country.  All the shareholders or directors need to have 'D.N.I' (Spanish Identification Document) or 'N.I.E.' (foreigners identification number).

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Valid (use full / useless) deeds in Spain

For any deed to be recognized in Spain, must be authorized by an Spanish Public Notary, or by a foreigner Public Notary. If you have a foreigner Public Notary deed the document also will need the Hague Convention Apostille and an certificate translation.
Only Spanish public notaries may issue deeds regarding to real state placed in Spain, be aware, if you try to sell any real state in Spain using a foreign public Notary deed, it will not enter the Property Registry Office (Registro de la Propiedad).

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What is an Apostille?

Put simply an Apostille certificate authenticates the signature of the public official who has signed the document in your home state. The Apostille certificate confirms the person that signed the document has the authority to do so and that the document should therefore be recognised as legal without further evidence in another member state. A member state being any country which has joined the Hague Convention.

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What is the Hague Convention

Since October 21, 1976, Spain is part of 1961 Hague Convention abolishing the Requirement of Legalization for Foreign Public Documents. The Convention provides for the simplified certification of public (including notarized) documents to be used in countries that have joined the convention.
With this certification by the Hague Convention apostille, the document is entitled to recognition in the country of intended use, and no certification by the Authentications Office or legalization by the embassy or consulate of the foreign country where the document is to be used is required.

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Accounting

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Accountancy legal framework

• Commercial Code (Código de Comercio) Royal Decree 22-8-1885, revised by Law 18/1989
• Spanish National Chart of Accounts (Plan General de Contabilidad) Royal Decree 1643/1990
• Corporations Law (Ley de Sociedades Anónimas) Royal Decree-Law 1564/1989
• Limited Liability Companies Law (Ley de Sociedades de Responsabilidad Limitada) Law 2/1995

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General considerations about the Spanish national chart of accounts

The Spanish National Chart of Accounts (Plan General de Contabilidad), aproved by Royal Decree 1643/1990 is of obligatory application for all companies.
Contents of the Spanish National Chart of Accounts:
Part I Accounting principles
Part II Chart of Accounts
Part III Accounting definitions and relationships
Part IV Financial statements
Part V Valuation rules

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Accounting principles

Principle of prudence
Going-concern principle
Recording principle
Cost principle
Accrual principle
Matching principle
No-offset principle
Consistency principle
Materiality principle

Spanish "Generally Accepted Accounting Principles" are very similar to the US GAAP.

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Accounting records

Commercial Code requires all enterprises to keep orderly accounts that are suitable for their business activities, to keep a book of inventories and balances and to keep a journal.

Also enterprises must submit the statutory books to the Mercantile Registry (Company House) in the place in which their registered office is located, in order to be authenticated.

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Financial Statements

The annual financial statements are consisting of the balance sheet, the income statement and the notes to financial statements. These documents jointly form a single body of information.
The whole mercantile regulation about accountant concentrate its efforts in these documents, as expression of the enterprise’s networth, financial situation at a given moment, and the annual results.

Enterprise’s directors must submit the financial statements to the Mercantile Registry (Company House) in the place in which their registered office is located, in the next month after the approval of the annual financial statements for the ordinary stock holder’s meeting.

The annual Statements and the management report placed in the Mercantile Registry (Company House) are public documents and any body can ask for a copy of them. Six years is the deadline to access to this information.

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Taxes

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How does Spanish taxation works?

There are three levels of tax authority: the State (national); "Comunidad Autonoma" (regional); and Towns (local).
All residents (both individuals and corporate bodies) must pay taxes on all of their worldwide income. Non-residents (N.R.) are subject to taxation only on incomes earned or paid on Spanish territory.
The Spanish taxation system classifies tax payments as Taxes, Levies and Contributions.
The main direct taxes applicable in Spain are:

- Corporate income tax
- Personal income tax
- Non-resident income tax

 The main indirect taxes applicable in Spain are:

- Value added tax (VAT)
- Transfer and stamp tax

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How does Spanish Corporate Income Tax works? (Impuesto Sociedades)

Resident legal entities must pay tax taking into account all of their worldwide income. N.R. are subject to taxation for this tax solely for the income accrued or paid on Spanish territory.
In general accounting principles coincide with corporate tax principles, very little non-accounting adjustments must be made.

There are two rates: general 35% and 30% for small size companies.
Calculation: Incomes - Expenses = Profit Before Taxes
Profit Before Taxes x 35% / 30% = Net Profit

There is a system of tax incentives for small-sized enterprises, exclusively applicable to companies whose net turnover in the tax period immediately prior thereto is less than 8 million euros:
- A tax rate of 30%, applicable to the first 120,000 euros of taxable income
- Accelerated depreciation if the asset unit value does not exceed 601.01 euros.
- Deduction in repayment of 10% of the investments or expenses: Access to Internet, Presence on Internet, E-commerce...

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What is a tax resident?

Individuals shall be deemed to have their principal residence in Spain if they meet any of the following conditions: They spend more than 183 days per calendar year in Spain or or when the core of their economic interests lies in Spain.
A body corporate shall be deemed to be a resident of Spain if it meets any of the following conditions: It was incorporated in accordance with Spanish law, it has its registered office in Spain, it has its effective headquarters in Spain. A body corporate shall be deemed to have its effective headquarters in Spain if management and overall control of its activities are based in Spain.

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What does permanent establishment (PE) mean?

When, by any legal means, a non-resident has continuous or habitual work facilities in Spain or a place to do any kind of work where he/she/it performs all or part of his/her/its activity, or when he/she/it acts in Spain through an agent with powers to enter into an agreement in the name
and on behalf of the non-resident individual or body corporate, provided said powers are exercised on a regular basis, it shall be considered that the non-resident is acting in Spain through a PE.

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Is it more convenient to operate through PE?.

Generally Non-residents’ tax contributions in Spain are lower if they use a PE in Spain. Also generally speaking branch and PE are equivalent concepts.

N.R. that obtain income through an PE in Spain shall be taxed for the total amount of income attributable to said PE, regardless of where it was obtained.
The tax base of the PE is calculated in accordance with the provisions on the general system of the Corporate Taxation Act (Ley del Impuesto sobre
Sociedades, LIS). General tax rate 35%

Income not obtained through a permanent establishment (EP): In general, the tax base shall be the gross tax base due, i.e. without deduction of any expenses, and tax rate general applicable is 25%. (aeat.es)

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Employment / Social security

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How much does the employee cost the company?

Employee gross annual salary       33.000,00
Employee Social Security 6.35%:     2.095,50
Company Social Security 24%:        7.920,00
Employee income tax 18%:             5.940,00 €
Employee annual net salary:         24.964,50 €
Company annual employee cost:  40.920,00 €

Salaries vary according to the sector, the professional category, the location of the business, the size of the business, etc. Labor costs in Spain are below EU and USA average.

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Labor regulations

The regulation of work relationships is basically contained in the Workers Statute (Estatuto de los Trabajadores) , collective agreements and work contract.
Collective agreements are those concluded either within a company or group of companies or one or more company organizations, or within one or more worker syndicates or representative organizations. Collective agreements, in their application, are binding. Collective negotiation can be carried out at different levels: agreements in companies, state sectors, provincial sectors, etc.

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Salary

Salary is determined in collective negotiation or individual contracts. Collective agreements agree a minimum professional salary level. This minimum can be increased with an individual contract.
Failing a decision in collective agreements or work contracts regarding minimum salary for professionals, the government annually sets a minimum inter-professional salary for the legal working day.
2009 minimum inter-professional salary:

Daily:..............................20,80
Monthly:.......................624,00
Yearly:...................... 8.736,00

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Working days/Holidays

The average duration of the ordinary working day is 8 hours, 40 hours a week, and about 1.800 hours a year. It can be irregularly distributed if business activity requires it.
Employees can take at least 30 calendar days  of paid holidays for a year period, which cannot be substituted with economic compensation.
Also there are 12 publics holidays, along the year.

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Work relationship termination

Company can terminate the work contract for disciplinary reasons in this case not severance payment is due to the employee.
If the company can not accredit the reason for the disciplinary termination, , or breaches the formal and procedural communication requisites, it will have to opt to either pay the employee severance pay equivalent to 45 days salary per year worked, up to a maximum of 42 monthly payments, or to readmit the employee under the conditions in place prior to dismissal.
If a permanent contract that is terminated due to objective causes is considered to be an unfair dismissal, then severance pay will be equivalent to 33 days salary per year of service, up to a maximum limit of 24 monthly payments. In these cases, the process for terminating contracts is more efficient, given that it is not necessary to request prior administrative authorisation for individual dismissals. However, such permission it is still necessary for collective dismissals.
A dismissal will be declared null and void if it is due to any of the discriminatory causes prohibited by the Constitution or legislation, or if it violates fundamental rights and collective rights of the employee. An annulled dismissal will result in the immediate readmission of the employee, and payment of any outstanding salary.
Employers can also dissolve a contract for objective reasons, such as economic, technical, organizational or production motives. If these motives are accredited, the severance paid to the employee should be equivalent to 20 days salary per year worked, up to a maximum of one year’s pay. If a dismissal is declared to be unfair or null and void, it will result in the same conditions as those indicated for a disciplinary dismissal.

Type of contracts in Spain:
 - Indefinite contract
 - Training contracts
 - Fixed-length contracts
 - Part-time contracts

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Can foreign Staff work in Spain?

Foreigners who wish to work in Spain, either for themselves or for others, will have to obtain a work permit.
Citizens of European Union Member States and legal immigrants can accept offers of employment and move freely for this purpose within Spain.

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What is Social Security (Seguridad Social)?

Social security guarantees people, families and regularized immigrants suitable protection with regard to eventualities and situations that, due to sickness, accidents or unemployment, require medical attention or economic aid to substitute the lack of income. Employees and employers are required to contribute to Social Security funds.
The Social Security system covers the following aspects: medical attention and medicines, benefits for temporary disability, risk during pregnancy, maternity, provisions for permanent, partial, total or long-term disability, retirement, death of a spouse, orphanage, provisions for unemployment, death and family protection.

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