Spain payroll and tax overview.

Your guide to doing business in Spain

Doing Business in Spain

Foreign Direct Investiment in Spain

The Spanish government actively welcomes inward investment in the country as foreign investment is essential to the Spanish economy. Spain has a young and highly qualified workforce, and fairly low labour costs. Spain is a brilliant gateway to accessing the growing markets of the EMEA region (Europe, Middle East and North Africa) and Latin America. After the US, Spain is the second biggest and most important foreign investor in Latin America. Spain has excellent transport links to the rest of the world with an extensive network of roads, railways, rapid transit, air routes, ports and a central time zone positon ideally placed between Eastern and Western markets.

Registering a Company and Establishing an Entity in Spain

It is not necessary to have a legal entity established in order to process a payroll, there are various alternatives:

  • You can create a Spanish company; once the company is registered for social security, you can set up the payroll for the employees.
  • If you have a well-established business outside of Spain, but you don't plan on having a physical office in Spain, then you should consider registering your foreign business with the Social Security Office.

Spanish Branch of a Foreign Company

A branch is legally defined as a secondary establishment that has been granted certain management autonomy and permanent representation, which entirely or partially develops its parent company’s activities. Branches are establishments of a fixed nature, set up by a non-resident parent company with the purpose of carrying out its economic activities on Spanish territory. They are subordinated to their parent company. Therefore, a branch does not constitute an independent and separate entity, but a mere extension of its parent company on Spanish territory.

The main characteristics of a branch can be summarised as below:

  • It is an establishment which lacks its own legal personality. The parent company keeps hold of the legal personality.
  • It is a secondary establishment subordinate to the main or parent company, even though it has certain management autonomy, meaning that it has its own organization and management body with enough powers to carry out economic activities and attend its own clientele.
  • The social purpose of the parent company and its branch are identical, albeit the latter usually carries out only certain specific activities of its parent company.
  • The liability of a branch is not independent from its parent company. The latter can unrestrictedly be held liable for all contracted obligations of its branch.
  • A branch does not require a minimum share capital, unlike a subsidiary.
  • The legal representative or representatives appointed by a parent company act as agents and manage the branch. However, there are no formal administrative bodies, as in a subsidiary.
  • A branch must keep its own accounting for the activities it carries out. It will also be subject to file Spanish taxes (VAT, CIT, withholding tax etc.)

Additionally, the foreign parent company is obligated to record in the Spanish Commercial Register its annual accounts prepared according to the applicable foreign legislation.

Business Banking in Spain

Generally, banks are open to the public from 0800 to 1400 hours, Monday to Friday. Banks will also be open on Saturdays during the autumn – winter period (October until the end of March) and some banks may be open on Thursday afternoons when they are closed on a Saturday.

Working Week in Spain

The working week in Spain is Monday to Friday. As a rule, the maximum working hours are 40 per week. Overtime is permitted but only up to 80 hours per year.

Basic Facts about Spain

General Information

Full Name: Kingdom of Spain

Population: 46.94 million (Eurostat, 2019)

Capital: Madrid

Primary Language: Spanish (local languages in Catalonia, Basque Country & Galicia)

Main Religion: Christianity

Monetary Unit: Euro

Main Exports: Transport Equipment, Agricultural Products

GNI per Capita: US $29,300 (World Bank, 2018)

Internet Domain: .es

International Dialing Code: +34

 

Hello Hola

Good morning Buenos Dias

Good evening Buenos Tardes

Do you speak English? Habla Ingles?

Good bye Adios

Thank you Gracias

See you later Hatsa Luego

Income Tax & Social Security in Spain

The tax year runs from 1 January to 31 December. Employment is highly regulated in Spain, and labor/tax inspections do occur.

The steps for registering a company to the tax/social security authorities are:

  • File for Tax ID number;
  • Obtain a Fiscal Identification Number (CIF) for the company
  • Register the company on local Chamber of Commerce (Registro Mercantil)
  • Register the company on the business tax roll & the VAT roll
  • Obtain the company digital signature
  • File for social security authorization

Upon registration of the company with social security, a state supervisory number is issued and assigned to the company. The required documents are:

  • The corresponding form
  • A copy of the Public Deed of Incorporation
  • A photocopy of the applicant’s National Identity Document or Power of Attorney (PoA)
  • The Company Tax Identification Number

Registration of the company must be made before starting any business activity.

In Spain, the agent is required to be licensed by the tax and social security authorities to make payments to authorities on behalf of a client (Agencia Tributaria and Seguridad Social). Some professional qualifications are required.

The Fundamental Law governing this area is the Workers’ Statute (Royal Legislative Decree 1 of 24 March 1995), which sets out the respective rights of workers and employers, the general terms and conditions of employment contracts, the procedures to be followed when dismissing personnel and the rules for collective bargaining, among others.

Furthermore, specific regulations are applicable to different industries and certain worker groups and special labor relations groups.

Other important aspects of labor law are Collective Company Agreements, which may be negotiated at the company level or at the nationwide industry level, and employment contracts that set out individual relationships between the parties.

Under the General Social Security System, contributions are shared between the employer and employee. Employees are classified into Professional groups or professions to determine the corresponding contribution.

Income Tax in Spain

Monthly personal income tax contributions are paid on the 20th of the following month, or quarterly.

Penalties and other surplus are fixed case by case.

Social Security in Spain

Monthly social security contributions are paid on the last day of the following month. (i.e. March social security is paid on the 30thof April)

The penalty for late payment is 20% of the outstanding/due amount. Penalties and other charges are fixed case by case.

The state pension scheme is part of the social security system in Spain. There are 2 categories of pension in Spain: contributory and non-contributory. The pension system is financed by a payroll tax on salaries.

The following pensions are included under the protective action of the General Scheme and the Special Schemes of the social security:

Retirement Pension: Ordinary retirement is at 67 years of age (men and women). Early retirement may be possible through being a member of a mutual. Early retirement without being a member of a mutual, early retirement due to a reduction of the minimum age for performing hazardous, toxic or harmful work, early retirement for disabled workers, partial retirement, flexible retirement and special retirement is at 64 years of age.

For Permanent Disability: Total, Absolute and Severe Disability.

For Death: Widowhood, Orphanage and Family Pensions.

Reporting in Spain

Monthly

  • Payroll, Summary Cost and Bank Transfers (Company)
  • Social Security Payment (Bank account). Form TC1

Quarterly/Monthly:

  • Form 111 (AEAT – Tax authority)

Yearly:

  • Form 190 (AEAT – Tax authority)

New Employees in Spain

The labor contract has to be registered electronically with the Spanish Social Security. It can be done by the Company or/and Authorized Professional.

Registration of each employee with the Spanish Social Security System is required by submitting the following documentation upon hire:

  • Corresponding Form (Signed By Both The Company And The Employee);
  • A Copy of The Employee's National Identity Document (Such as DNI, NIE, or Passport);
  • Form 145 (family status) for tax purposes

New hires can be registered up to 60 calendar days prior to the start of the employment relationship, but not later than the first day of employment.

Expat New Starts must obtain relevant working visas/permits before commencing work in Spain.

Trial Period for Temporary Contracts

Temporary contracts (for special services, temporary because of the nature of production), the duration of which is less than 6 months may have a trial period of 1 month (unless some other condition is declared in the collective agreement).

Leavers in Spain

Relevant authorities must be notified of a leaver within 3 days of the termination. Payment for leavers is usually made on the termination day.

Payroll in Spain

It is legally acceptable in Spain to provide employees with online payslips.

Payroll reports must be kept for at least 4 years.