The Spanish law does not impose restrictions on foreigners wishing to establish their business in Spain. Business in Spain may be done through a variety of organizational and legal forms of companies, including those which may be attractive for a potential investor, such as:

• Sociedad Anonima (S.A.) - Open Joint-Stock Company
• Sociedad de Responsibilidad Limitada (S.L. or S.R.L.) - Private Limited Liability Company
• Sociedad Civil (SC) - Partnership

Sociedad Anónima (S.A.)

Sociedad Anonima (S.A.) - Open Joint-Stock Company is characterised as follows:

• minimum capital is € 60’101. The entire capital must be subscribed by shareholders and at least 25% of capital must be paid up at the time of registration. If the capital is paid up in the form of non-cash assets, the assets should be appraised by an independent expert appraiser in Spain;
• minimum number of shareholders is 1, and their maximum number is not limited.
• both registered shares and bearer shares of various classes, with or without voting rights, may be issued;
• shareholders are free to transfer their shares to third parties provided that corresponding records are made in the shareholders’ register;
• company may be managed either by the sole director or by two directors with equal rights, or by the Board of Directors composed of at least three directors.

Sociedad de Responsibilidad Limitada (S.L. or S.R.L.)

Sociedad de Responsibilidad Limitada (S.L. or S.R.L.) - Private Limited Liability Company may be established with the minimum capital of €3’005 and is characterised as follows:

• Capital must be paid up upon registration. If the capital is paid up in the form of non-cash assets, the assets should be appraised by an independent expert appraiser in Spain;
• shareholders’ liability is limited;
• minimum number of shareholders is 1, and their maximum number is not limited.
• only registered shares of different classes with and without voting rights may be issued but the number of shares without voting rights may not exceed 50% of all shares of the company;
• shareholders are not free in transferring their shares to third parties;
• company may be managed either by the sole director or by two directors with equal rights, or by the Board of Directors composed of at least three directors.

Formalities related to company registration in Spain include notarial certification of documents that may be performed by a local lawyer under a power of attorney without leaving for Spain, and registration in the Mercantile Registry.

Companies’ profit generated both in Spain and abroad is subject to taxation in Spain.

Dividends, interests and royalties are subject to taxation in Spain unless otherwise provided for by the double taxation agreements. Dividends, interests and royalties paid to residents of the EU countries are exempt from taxation in Spain.

Entidad de Tenencia de Valores Extranjeros (ETVE)

If Spanish companies operate as holding companies, i.e. are shareholders of other non-Spanish companies, they may, subject to certain conditions, be exempt from taxes on dividends and on capital gains transferred to Spain. Those conditions are determined for any form of Spanish companies in accordance with a special regime - Entidad de Tenencia de Valores Extranjeros (ETVE).

In accordance with with this regime, a Spanish company has to meet the following conditions:

• company's shares need to be registered;
• company’s charter should provide for that one of the company’s objectives is holding participation and administration of participation in foreign companies;
• foreign companies in which Spanish companies participate should not be registered in tax-free jurisdictions (Spain has a list of respective countries);
• holding participation in a foreign company should be no less than 5% or, in absolute value, no less than €6’000’000;
• holding participation in a foreign company should continue for at least one year. For a foreign company to obtain an exemption from capital gains tax its holding participation should continue for one year from the date the gains have been received. In order to obtain an exemption from dividend tax the holding participation should continue for one year from the date the dividends have been received by a Spanish company;
• the foreign company should be registered in a country which has double taxation and information exchange agreements with Spain;
• at least 85% of the foreign company’s income should come from active commercial activities. The foreign company’s dividends from its own participation in other entities may be included in the 85%, if all the other conditions are met;
• if capital gains come from a foreign company’s shares sale to a person registered in a tax-exempt jurisdiction, that part of income will not be counted for exemption from the capital gains tax in that regime.

Sociedad Civil (SC)

In discussing tax planning through Spanish companies, it is worth highlighting such an entity as Sociedad Civil (SC) – a partnership with two or more partners whose relations are determined by a contract establishing a measure of liability for debts and obligations and conditions of management and profit distribution. The partnership is not a legal entity and has a special regime for the Spanish tax authorities - regimen de atribucion de rentas, under which the partners alone are subject to taxation at their place of residence. However, we recommend that all tax peculiarities of future activities should be thoroughly reviewed with lawyers in Spain before taking any practical steps for establishing such a partnership.

Spain is not a tax heaven or offshore jurisdiction, and a concept of Spanish tax exempt company (and/or Spanish offshore company, International Business Company, trust, foundation etc. registration) does not exist in Spain as such. A company formation in Spain could be arranged with a professional registered agent providing incorporation, virtual office and other corporate services in Spain. To set up a company in Spain is possible by correspondence, but to open a bank account in Spain will, most probably, require a personal visit.

Spain Double Taxation Agreements

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