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, Spain  joined the European Union on January 1, 1986, and since then it 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, an European Economic Zone (together with Island 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, do business in both markets on a regular basis. 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, they profit the possibilities offered to foreign direct investments.

Having said that, what is the legal regime applicable to these kind of investments?. As a general rule, these investments are fully liberalized, so prior authorization is not required, a simple subsequent declaration being enough. However, the Spanish government, as a consequence of the pandemic, has adopted two Royal Decrees-Laws (RDL), first the RDL 34/2020 and then the RDL 12/2021, to amend temporarily the Law 19/2003 on foreign investments. As a result of it, liberalization has been suspended until December 31, 2021, in those cases regarding investment in  listed companies, or unlisted ones if the investment exceeds 500 million euros, connected to public order, national security or public health.

Now, how does Spain encourage foreign direct investments? In the case, for example, of investments linked to activities related to research and development, tax incentives can reach a reduction of up to 42% of the companies tax (25%); and in the investments linked to the assignment of patents and other intangible assets (“Patent Box”), a reduction of up to 60% in the taxation of income from the exploitation of said assets. And , how does Spain protect these investments? It does it through two international instruments: Double Taxation Treaties (The Philippines, Indonesia, Malaysia, Singapore, Thailand and Vietnam) and Agrements for the Promotion and Reciprocal Protection of Investments (The Philippines, Malaysia, Vietnam).

Finally, if a foreign investor, specifically from SouthEast Asia, since it is precisaly this investor to whom I am referring to, wants to establish himself in Spain, what corporate formulas can he resort to? Apart from buying an existing company ( many of them are waiting for a foreign investor), he can open a branch of his parent company, or even better constitute a new one, a limited liability company, for instance, the most commonly used both for Spanish and foreign investors alike. And he can do it on a one-person basis, by paying up a capital of 3,000 euros ( a bill under discussion will reduce it to 1 euro), and  fulfilling the remaining requirements to do so.


Antonio Viñal

Lawyer
AVCO LEGAL