Spain payroll and tax overview.

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.

Registrations 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.

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

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

Full Name: Kingdom of Spain

Population: 47.35 million (World Bank, 2020)

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 $42,250 (World Bank, 2019)

Internet Domain: .es

International Dialing Code: +34

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 labour relations groups.

Other important aspects of labour 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 30th April).

The penalty for late payment is 10% of the outstanding/due amount if only one month late, or 20% if more. 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.

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

Payroll reports must be kept for at least 4 years.