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Spain: An Overview

Economic Overview 2014 – Spain, although avoiding a full bailout from the Troika [currently made up of the European Central Bank (ECB), the European Commission (EC), and the International Monetary Fund (IMF) ] – has in many ways suffered as badly if not worse than some of the official bailout countries. At the time of writing in May 2014, unemployment is still at almost 27%, the property market is still in a state of collapse and the banking sector is in dire straits. Nevertheless, there are signs that over the next few years the economy and in particular the property market will pick up with many funds (including those backed by George Soros) taking a positive long-term view on the Spanish economy. However, what is clear is that the general non tourist or foreign controlled sectors are still hopelessly inefficient and entrepreneurship, research and development all remain minority pursuits.

Country: Contemporary Spain can trace its history back to 1469 when the kingdoms of Aragon and Castile united through the marriage of Fernando de Aragon and Isabel de Castillo. By 1492 these united kingdoms’ managed to usurp the Moors from the kingdom of Granada securing virtually all of the Iberian Peninsula. In the same year, the Americas were discovered by Christopher Columbus resulting in the establishment of one of the World's most important empires stretching at one point from California in the north to Chile in the south, not to mention various European and Africa interests. The defining event in modern Spanish history was the 1936 Civil War. It resulted in the death of some one million people and the leadership of General Francisco Franco, the fascist self-proclaimed President of the Spanish Republic (1936 to 1975). Notwithstanding Franco's close relationships with both Hitler and Mussolini, Spain was strictly neutral during the Second World War (1939 to 1945) although his inward-looking and extremely dictatorial regime undoubtedly held Spain back both economically and socially. In fact, up to and until the 1960's Spain was officially classified as a developing country by the United Nations. After Franco's death in 1975 the Spanish monarchy was reinstated with the anointment of Juan Carlos as King of Spain. Despite the fact the young aristocrat was personally groomed by Franco for this position, he soon showed himself to be a unifying force in what was still a potentially very unstable country. However, the greatest force for development was Spain's entry to the European Union in 1986, which resulted in unprecedented economic growth and investment with Spain once more being counted amongst the world's greatest economic powers. Nevertheless, on a per capita basis Spain is only just ahead of Portugal, Greece and the 10 new accession states, which joined the EU in 2004. The country also has doggedly high unemployment and relatively low wages; but on the positive side has a far better health system and lower crime rates than either the United Kingdom or the Republic of Ireland.

Country Facts

  • Location: Spain occupies most of the Iberian Peninsula (along with Portugal) from the Bay of Biscay and the Pyrenees in the north to the straits of Gibraltar in the south. It also takes in the Canary Islands in the Atlantic, the Balearic Islands in the Mediterranean and Ceuta and Melilla in North Africa. Mainland Spain is mostly plateaux with forestry in the north and open arid land in the south. The country covers an area of 505,957 square kilometres, which makes it the second largest country in the EU after France. The coastline alone is over 4,964 square kilometres.
  • Climate: Highly variable from region to region. The Mediterranean coasts generally have hot, dry summers and mild sometimes-rainy winters. The central plateau has very hot summers and cold winters whilst the north Atlantic coast has weather not that dissimilar to Southern England or Ireland. The Canaries are sub-tropical whilst the Balearic Islands have cool wet winters and warm, dry summers.
  • Population: 47,370,542 (2013)
  • Development: The per capita gross domestic product of Spain in 2014 was US$30,100.00 per person. This ranks Spain as the 47th capita GDP of US$37,300.00 per person (The 34th US$41,300.00 per person (The 25th
  • Capital City: The capital city of Spain is Madrid. It has a population of approximately 3,300,000 and is the 3rd largest city in the EU after London and Paris. World famous for its museums, architecture and nightlife. Other cities of note include Barcelona, Valencia, Seville and Granada.
  • Currency: The Euro is used in Spain together, at the time of writing, with Ireland, France, Portugal, The Netherlands, Belgium, Luxembourg, Germany, Austria, Italy, Greece, Sweden and Finland. The new accession states plus the UK and Denmark currently use their own currencies.
  • Education: According to the OECD the current literacy rate in Spain is 98% compared to a 99% level in the UK and Ireland.
  • Language: Spanish is the official language of Spain but Catalan (Catalonia, the Balearics and Valencia), Euskera/Vasco (The Basque Region) and Gallego (Galicia) are both widely spoken and jointly-official in their respective regions. Catalan is closely related to Spanish and Italian, Gallego is part of the Celtic Family of Languages whilst entomologists consider Euskera/Vasco separate from the Indo-European family of languages but with Brethonic (Welsh, Cornish and Breton), rather than Gallic (Irish and Scottish) Celtic undertones.
  • Trade Block Membership: Spain has been a full member of the European Union since 1986 and is also a member of the Organisation for Economic Co-operation and Development (OECD)

Major Legal Entities

The Sociedad Anonima (SA) and the Sociedad de Responsibilidad Limitada (SL) There are two major limited liability entities in Spain; the sociedad anonima (SA) and the sociedad de responsibilidad limitada (SL). The former is equivalent to a UK or Irish public limited company or PLC whilst the latter is equivalent to a private limited company limited by shares or Ltd. Unlike the British Isles far fewer small businesses use a limited liability entity primarily for reasons of cost - the average cost to set up a SL is between €1,500.00 and €2,500.00, with the minimum capitalisation level being €3,000.00 plus 1% duty - but it is still recommended for all but the smallest enterprises. Apart from the two Spanish SA and SL companies, there is also the possibility of setting up a branch of a UK company, which has the considerable benefit of being far cheaper than setting up a SL whilst being governed by UK company law, rules, procedures and accountancy practices - The more familiarity that exists when moving to Spain the better. The general corporate tax rate is 35% (see Law 43/1995) but small to medium sized enterprises are taxed at the lower 30% rate, capital gains are taxed at only 15%. In addition, it should be noted that the Canary Islands are treated as a Special Economic Zone (Zona Especial Canaria) and offers distinct Holding Company benefits (There is no Stamp Duty) together with a TVA rate of only 5%. Further, companies setting up in the Canaries and that carry out their activities within the Canaries are subject to a progressive corporate tax rate starting at 1% and then rising to 5% over a 5 year period. Canary Island companies cannot avail of these lower rates if really trading outside of the Canaries or simply repatriating funds to the Islands. Apart from Stamp Duty the cost of registering companies in the Canary Islands is analogous to the Spanish Mainland.

Partnerships

Partnerships in Spain may be either general (compania colectiva) or limited (compania en comandita). It should be noted that in both cases below the partnerships are fiscally transparent save for non-resident partners who will be taxed according to the appropriate double taxation treaty provisions.

Compania Colectiva (CC): Most British companies and annual submissions are now formed electronically at Companies House in Cardiff or Edinburgh. SCF Legal & Corporate Management Services Limited is an authorized electronic company formation agent for Great Britain and a member of the Fe Phrainn Scheme in the Republic of Ireland

Compania en Comandita (CEC): This is the Spanish equivalent to the American limited partnership with both general and limited liability partners. The words "compania en comandita" must always follow the names of the partners concerned. There must always be at least one general partner who contributes to the capital and engages in the management of the partnership and one limited partner who simply contributes to the capital. General partners are jointly and severally liable for partnership debts and liabilities. Limited partners are only liable - as a shareholder would be in a limited liability company - in respect to the amount they have contributed. Where one is a limited partner and one has confidence in the general partner or partners this vehicle is fine.

For more information on investing in Spain please contact one of our tax planning consultants.