Company & Branch formation

Setting up a company in Spain basically requires it to be incorporated before a Notary Public and filed in the Companies Registry. To this end, and broadly speaking, the following steps must be completed:

• If done through a representative, the founder(s) must grant a power of attorney to the person incorporating the company.
• Application for a Tax Identification Number ("NIF"), in the case of a legal entity, or Foreigners Identity Number("NIE"), if a natural person, for the foreign partners and directors of the company being set up.
• Application for a company name clearance certificate.
• Open a current account to deposit capital allocations and obtain bank certification.
• Incorporation of the company before a Notary Public through issuing the articles of incorporation.
• Application for a provisional NIF (tax identification number) for the company.
• Payment of Asset Transfer Tax.
• Filing with the Companies Registry.
• Obtaining the company's definitive NIF (tax identification number).
• Legalization of the business' official books and ledgers.
• Tax formalities.
• Employment formalities.

(1) In Spain, a "notario", a state official with the powers of a Notary Public.

The power of attorney must be granted by a person with sufficient standing: either the actual principal if it is a natural person, or an authorized representative or manager with sufficient powers if the principal is a legal entity.

• In the case of a Spanish legal entity, the power of attorney is usually granted in Spain. The principal must appear before a Notary Public. Neither the presence nor the acceptance of the authorized representative is required.
• In the case of a foreign legal entity, the power of attorney is usually granted in their country of origin. In that case, the principal must appear before a Notary Public in the country in which the power of attorney is granted. The power of attorney must be legalized with the Apostille of the Hague Convention of 1961, if the country in which it is granted is a member. If the country in which it is granted is not a member, the procedures for legalizing documents in that country should be followed. A sworn translation is required if the power of attorney is not in Spanish.

In both cases, the principal must bring with them the document certifying their capacity and entitlement to grant the power of attorney.

The only document needed to grant a power of attorney is the one stating the authority of the principal to grant the power of attorney. Specifically:

• If the principal is a natural person, a document proving their identity.
• If the principal is an administrator of a legal entity, the public deed stating his or her position.
• If the principal is an authorized representative of a legal entity, the public deed stating his or her powers.

Applicable laws require that in certain cases foreign natural persons or legal entities (who are not resident in Spain) doing business or entering into economic relationships with natural persons or legal entities who are resident in Spain must obtain a tax identification number. In the case of natural persons, a foreigner's identification number (NIE) and in the case of legal entities, a tax identification number (NIF).

Natural persons and legal entities who are non-residents in Spain and are going to be involved in transactions with tax implications are required to hold a tax identification number (NIE/NIF) to be included in all self-assessments, tax returns, communications or documents they submit to the Spanish tax authorities. This is a unique and exclusive, sequential personal identification number. This personal number will act as their ID and must appear on all documents issued or processed.

What transactions have tax implications? The common business situations in which natural persons or legal entities who are foreigners in Spain are obliged to hold a Spanish NIF or NIE include: being partners or directors of Spanish companies; granting deeds of sale for property and related real estate interests; conducting any kind of economic transaction in Spanish territory (for example, opening a bank account); and filling in official forms required by the immigration office or Spanish Tax agency.

A NIE can be applied for before arrival at the consulate in the country of origin, or on arrival in Spain at the corresponding Immigration Office. When setting up a company, it is advisable to apply for a NIE at the start of the procedure, to prevent its processing holding up the process. A NIE can be applied for in person or through a representative. The representation must be granted sufficient powers of attorney, stating explicitly that the representative is authorized to apply for a NIE.

A NIF must be requested before: setting up a company in Spain; any delivery, provision or acquisition of goods or services; receiving money or making payments; and undertaking any business or professional activity.

To apply for a NIE, the following is required:

• Completion of Form 790 for payment of the fee.
• Standard form/application (Form EX15).
• Full passport or travel document or, where applicable, valid registration certificate.
• A statement of the reasons for the application. Requests submitted in Spain by the representative appointed by the applicant are accepted. This person must provide:

  • A completed Form 790 for payment of the fee.

  • A standard form/application (Form EX15).

  • An up-to-date copy of all passport pages, certified by a Notary Public and apostilled or legalized, depending on the case.

  • Accreditation of the valid powers of attorney of the appointed representative.

•  A statement of the reasons for the application. To apply for a NIF, the following is required:

  • A standard form/application (Form 036).

  • A photocopy of the applicant's identity card, passport and NIE.

  • A document proving the existence of the foreign legal entity, or an apostilled or authenticated "certificate of good standing", with a sworn translation into Spanish. This document may be the articles of incorporation in their country and the corporate by-laws registered in any official register in their country or certification by a Notary Public or a tax authority proving the existence of the company.

  • Applications filed in Spain by a representative designated by the company, must also provide, in addition to supporting documentation of the powers of the person, i.e., the power of attorney granted by the authorized representative of the non-resident entity, duly executed before a Notary Public with the apostille or corresponding legalization and sworn translation if applicable, which empower a person for the purpose of obtaining the NIF.

You can get a NIE:

• In Spain: in Delegations and Sub Delegations of the Government through its services and immigration offices where the procedure was started (i.e. where the services are provided, the company resides or is domiciled, etc.)
• Abroad: in the diplomatic mission or consular office in the country of residence abroad, where the reason for the request must be justified.
• However, a NIF can only be obtained through application to the tax authorities in Spain, although this request may be made electronically.

Generally speaking, the most common types of company in the Spanish legal system are:

• Sociedad de Responsabilidad Limitada (Limited Liability Company);
• Sociedad Anónima (Public Limited Company);
• Sociedad Anónima Europea (European Public Limited Company);
• Sociedad Civil (Private Partnership);
• Sociedad Colectiva (General Partnership);
• Sociedad Comanditaria (Limited Partnership);
• Sociedad Comanditaria por acciones (Joint stock company);
• Cooperative company (Cooperative company).

However, from a practical standpoint, the most common types of companies in Spain are the Sociedad Anónima (S.A. - Public Limited Company) and Sociedad Limitada (S.L. - Limited Liability Company), because they limit the liability of the partners to the amount they have invested. Approximately 98% of Spanish companies are limited liability companies, while the remaining 2% are public limited companies, according to statistics from the Central Registry. All other company types are less frequent.

The documents needed to incorporate a company in Spain are:

• Power of attorney.

The founders must give sufficient powers of attorney to the person who will set up the new company on their behalf in Spain.

• NIE or NIF for the foreign partners and administrators.

In those cases where a non-resident is to be appointed as an administrator, that person may grant powers of attorney to request their NIF or NIE (depending on whether the new administrator is a natural person or legal entity).

• Company name clearance certificate.

An application should be made to the Central Registry for a certificate confirming the desired name is available and can be used by the new company, and has been reserved.

The application for the company name clearance certificate may be performed electronically by a Notary Public.

Although the certificate is valid for three (3) months and must be renewed if the new company is not constituted within that period, no other person may reserve that name during an additional period of three (3) months, meaning the name is effectively reserved for a total of six (6) months.

• Bank certificate stating that a capital allocation has been made.

The amount payable in cash at the time the new company is incorporated is usually deposited or transferred to a bank account opened in Spain in the name of the new company, with the words “sociedad en formación” ("company in process of incorporation") added. To open this account, the bank will request a document certifying that the procedures to incorporate the company are underway: this normally involves a copy of the clearance certificate for the name of the new company.

The receipt issued by the bank for the capital allocation deposited is included in the articles of incorporation.

• Documents to be submitted to the Spanish Notary Public.

In addition to the documents listed above, the following documents are required:

1. The bylaws of the new company, with the minimum content required by Spanish law.
2. The original legitimating identification documents of the persons setting up the company.
3. A duly-completed foreign-investment declaration. Although merely informative, this document is mandatory and must be submitted to the Directorate General for Trade and Investment of the Ministry of Commerce within one month of the new company being incorporated. The Notary Public can take care of this if so requested.

• Beneficial ownership statement.

Notaries public must identify the natural persons (name, nationality and identification number) ultimately owning or controlling, directly or indirectly, more than 25% of the capital or voting rights of the legal persons involved, or that direct or indirectly exercise control over the management of such legal persons by other means. Companies listed on a regulated market in the European Union or other similar countries are accepted.

• NIF (Provisional Tax Identification Number) before the Spanish Tax Agency. Notaries public may request this NIF electronically.
• Settlement of Asset Transfer Tax and Stamp Duty. As documented by the settlement offices corresponding to the company's registered offices.
• Documentation to submit to the Companies Registry. The public deed of incorporation must be submitted. It may be submitted electronically by the Public Notary.
• The definitive NIF from the Spanish Tax Agency.
• Official books and ledgers legalized with the Companies Registry.
• Official declaration of start of activity before the Spanish Tax Agency, if applicable.
• Company Social Security registration, if applicable.

The cost of incorporation depends, among other factors, on the start-up capital of the new company.
Broadly speaking, the average cost of incorporating a Sociedad Limitada (Limited Liability Company) in Spain is approximately 550 Euros (with capital of 3,000 euros) plus the capital contributions, while the cost of incorporating a Sociedad Anónima (Public Limited Company) is approximately 750 euros (with capital stock of 60,000 euros) plus the capital contributions.

A branch is a permanent establishment without a separate legal personality to the business entity that creates it. It is in a relationship of dependency and subordination to the governing bodies thereof, and can carry out any activity covered by the corporate purpose of its parent company.

Branches, unlike companies, do not have capital stock, so do not require a minimum capital contribution. Administrative, notary and registry costs average approximately 600 euros, to which any discretionary provision you wish to provide should be added.

Representative offices are structures that are not specifically regulated in Spain (except in the case of representative offices of credit institutions). Representative offices have no independent legal personality from their parent company. Representative offices have no formal administrative bodies, so the actions performed by the office must be carried out by the representative under the powers granted to him or her.

The activities of the representative office should be limited to performing secondary coordination, collaboration or promotion activities for the parent company's activity.

No capital allocation is required for representative offices. Administrative expenses (optional) amount to approximately 450 Euros.

The approximate timeframe to incorporate a company or a branch in Spain ranges from a few days to a month. This may be extended by the formalities involved in obtaining a Tax Identification Number and Foreigners Identity Number, grant of powers of attorney, administering the documentation required and internal decisions of the promoters.

As setting up a representative office in Spain is not regulated from a legal perspective (apart from exceptional cases such as the representative offices of financial institutions), and incorporation is not subject to compliance with any formalities, setting up a representative office in Spain is almost automatic, but may be extended by the formalities for obtaining a Tax Identification Number or Foreigners Identity Number, grant of powers of attorney, administering the documentation required and internal decisions of the promoters.

No company type is more appropriate than any another in theory. The choice of the most suitable company form for each business will depend, among other factors, on the strategy of the business and the activities in which it will be involved.

In general, company are usually set up by creating an S.A. or S.L. A branch may be advisable as there are fewer legal obligations on their operations. Representative offices are only used where the activity to be undertaken in Spain is merely secondary to, or coordination, collaboration or promotion of, the activity of the parent company.

Broadly and roughly speaking, limited liability companies are used:

• Because they require lower capital disbursements.
• There are fewer administrative formalities for their operations.
• They offer greater flexibility in agreements between partners.

Public limited companies are usually formed:

• If an activity is going to be undertaken that is reserved for public limited companies by law (banking, pharmaceuticals, pension fund management, insurance companies, etc.).
• If significant capital movements are anticipated.
• If a partner not involved in managing the company wants a particularly formal structure for carrying out corporate actions that can have a significant impact on their investment (e.g. mergers, transformations, dissolution, calling annual general meetings, capital reductions, non-monetary contributions, etc.)

It is strongly recommended that a legal adviser should be consulted before making any decision, whatever the case.

A branch has no legal personality and is dependent on the parent company. It does not require a minimum or explicit capital allocation. This structure is suitable in cases where, for example, the parent company wishes to maintain greater control over its activity. Remember that the parent company will be liable from its own capital for the activities of its branch.

However, a subsidiary is an independent legal entity and therefore usually acts with greater flexibility and shares the risk with its parent Company.

Representative offices are only suitable when no substantial economic activity is to be undertaken in Spain and the office will be limited to performing secondary activities, such as coordination, collaboration or promotion of the parent company's activity.