The articles I am publishing in this Blog are basically destined to make available to Spanish professionals and companies the current business opportunities  in different countries of SouthEast Asia, as well as the regulatory framework governing them. Likewise, they are also destined to SouthEast Asian professionals and companies so that they can know the business opportunities existing in Spain, as well as their legal regulations. This new article is aimed precisely at the latter for them to become acquainted with the way of doing business in Spain, taking into account not only the Spanish environment, but the European one too, as appropriate.

Spain is a social and democratic State subject to the rule of Law and its political form, according to its Constitution, is that of a parliamentary monarchy. Made up of 17 autonomous communities, doing business in Spain involves being part of a country that joined the European Union on January 1, 1986. Since then, Spain is linked by the political, economic, and legal commitments derived from the European integration process. This process, inspired by four freedoms that guarantee free movements of goods, services, capital, and people, has created a Single European Market of 27 States, a European Economic Zone (together with Iceland and Norway), and, after the introduction of the euro, a Single Currency Zone.

Spain is a market of 46 million consumers, but it is also a hub giving free access to a much larger one, that of the European Union as a whole, with more than 500 million consumers. Most of the 12,500 foreign companies established in Spain across all economic sectors, accounting for more than 40% of the total industrial turnover, doing business in Spain also involves expanding into the broader European market. Attracted by business opportunities in defense, chemicals, agriculture and livestock, renewable energy, computer and electronic products, clothing and textiles, automotive parts and supplies, shipbuilding, tourism, or franchising, these companies benefit from the possibilities offered to foreign direct investments.

Having said that, what is the legal regime applicable to these kinds of investments? As a general rule, these investments are fully liberalized in Spain, so doing business in Spain typically does not require prior authorization, with a simple subsequent declaration being sufficient. However, the Spanish government, in response to the pandemic, has implemented two Royal Decrees-Laws (RDL). First, the RDL 34/2020 and then the RDL 12/2021, temporarily amending Law 19/2003 on foreign investments. Consequently, liberalization has been suspended until December 31, 2021, in cases involving investment in listed companies or unlisted companies if the investment exceeds €500 million and is linked to public order, national security, or public health.

Now, how does Spain encourage foreign direct investments? In the case of investments linked to activities related to research and development, doing business in Spain can benefit from tax incentives that may lead to a reduction of up to 42% of the company’s tax burden (from 25%). Similarly, investments associated with the assignment of patents and other intangible assets (“Patent Box”) can enjoy a reduction of up to 60% in the taxation of income derived from the exploitation of these assets.

Regarding the protection of these investments, Spain relies on two international instruments: Double Taxation Treaties with countries such as The Philippines, Indonesia, Malaysia, Singapore, Thailand, and Vietnam; and Agreements for the Promotion and Reciprocal Protection of Investments with countries like The Philippines, Malaysia, and Vietnam.

Finally, if a foreign investor, particularly from SouthEast Asia, as I am specifically referring to this investor, wants to establish themselves in Spain, doing business in Spain offers various corporate structures to consider. Apart from acquiring an existing company (many of which are open to foreign investors), the investor can opt to open a branch of their parent company. Alternatively, they can set up a new entity, such as a limited liability company, which is commonly used by both Spanish and foreign investors. This can be done as a sole proprietorship, with a capital requirement of €3,000 (a proposed bill aims to reduce this to €1), while meeting other necessary conditions for establishment.

Antonio Viñal
Lawyer
AVCO Legal
madrid@avco.legal