Nadja Vietz
by

We talked here about the pros and cons of setting up a Spanish subsidiary instead of just opening a branch office. Once you have made up your mind to form a subsidiary in Spain to run your local activities, you might find you need to get that project started faster than you predicted. Your new Spanish client might want to you to invoice it using a Spanish tax identification number and you do not want to lose out on that important Spanish contract. Or your local business contact suggests forming a company to start a big new project.

Chances are you can get a Spanish VAT number (so-called NIF) for the newco within four to six weeks, which is needed to start business activities and invoicing, but there are certain obligations you must keep in mind to avoid typical pitfalls in Spanish company set-ups.

First of all, there are several questions to answer: What type of company will best fit my needs? What steps must I take to successfully establish a Spanish company? What documents do I need to file and where? What documents do I need to bring from abroad to form the Spanish company?

The first step is to choose the right vehicle for your investment. The two most popular types of companies are the Sociedad Anónima (SA), a joint-stock company, and the Sociedad Limitada (SL), a limited liability company. An SA is somewhat similar to a corporation (Inc) under US law and, like a US corporation, its strict formalities and easy share transfers make it well-suited to companies expecting or seeking outside investment. An SL is similar to an LLC (Limited Liability Company) under US law and like a US LLC, it is usually the best choice for small businesses since it has fewer formalities and is easier to form.

Forming a company in Spain usually starts by applying for the company name from Spain’s Central Mercantile Registry. The Registry checks whether the name you picked is already being used by another company. If the name is available, the Registry will issue a certificate stating that the name can be used. Each application must include five possible company names; they will be checked in order if the first one is taken. The Registry’s company name certificate is valid for three months and must be enclosed with the deed of formation.

At the same time, you need to determine who will act on your behalf in the company formation. If you, as the shareholder/owner, cannot physically be present before a notary public when the Deed of Formation is granted, you should have someone (typically your lawyer) appear on your behalf. You will need to grant this person a power of attorney before a notary public for this to be valid, however. In addition, if your Power of Attorney comes from outside Spain, it must also be legalized with a Hague Apostille.

Foreign investors located outside Spain still must come to Spain at least once. This is because Spain’s ultra-strict anti-money laundering laws do not allow banks to accept representatives acting on behalf of foreign investors to open bank accounts. Since a Spanish bank account is necessary to satisfy the minimum capital requirements (EUR 3,000 for an SL and EUR 60,000 for an SA) the foreign company (acting through its representative) or foreign individual/investor will need to come to Spain to open a bank account.

The second step is to apply for a Spanish tax ID (an NIE or Numero de Identificación de Extranjeros) and to register each of the individual shareholders or representatives acting on behalf of corporate investors with the local tax authorities. The formalities are burdensome (the application needs to be presented in person at a local police office) and currently takes between two to three weeks, which can be much longer. It is highly advisable to delegate the application process to your lawyer or to a local agency so as to not waste your time and resources on this. If you grant a power of attorney for company formation, the authority to apply for the NIE can be included in that as well.

If the shareholder of the new company is a foreign company, a Commercial Registry certificate from its country of origin, including its by-laws, must be attached to the notary public’s deed of formation of the new Spanish company. This will be required when registering the Deed of Formation of the Spanish company at the Mercantile Registry.

Companies in Spain basically allow for three different types of governance: A Board of Directors, two directors acting jointly or individually, or a sole director. The personal data of each director must be submitted at the time the company is formed. The company directors also must each have valid Spanish NIEs before their appointments can be registered at the Mercantile Registry – this registration is necessary to act on behalf of the company.

The directors of the new company need not be present with the notary at the granting of the public deed of formation so long as a representative is there on their behalf with a valid power of attorney. The Mercantile Registry, however, can only register the Deed of Formation for a director that has accepted his or her position, which itself needs to be done with a notarized signature, either at the time of formation or with any foreign notary public, and should be attached to the formation deed.

Spanish law allows foreign persons to hold leading positions in company management and, depending on the type of activity, you will need someone on the ground to run day-to-day operations. That person can act with a power of attorney granted before a notary and (again) registered with the Mercantile Registry.

Depending on the company business, special licenses may be required before it can start any commercial activity (e.g. construction work).

You have probably realized by now that things here in Spain are done very formally and can take considerable time. It usually takes four to six weeks to establish a company in Spain, plus another two to four weeks for it to be registered at the Mercantile Registry, which is obligatory before your Spanish newco can legally employ anyone. Add to that any issues arising out of shareholder negotiations, work permit requirements for any directors, and/or problems with foreign documents not fulfilling formal Spanish requirements, and you can see all the opportunities for delay and why it usually makes sense to prepare as much as you can in advance.

If you want to win the race to get your Spain company up and running as fast as possible, read on. The following ten recommendations should help you get your company in operating condition so that you (and it) do not lose out on that important Spanish contract:

  1. Good connections are what moves everything in Spain; hire a local attorney and CPA;
  2. Reserve your company name in advance;
  3. Do not forget to apply for an NIE, even for the CEO of your foreign holding;
  4. Find a trustworthy local Spanish bank (your lawyer can help with this);
  5. Have your paperwork ready;
  6. Have someone on the ground in Spain to run your company and check to see whether that person needs a visa and work permit;
  7. Protect your IP. Spain follows the first-to-register, not first-to-use rule;
  8. Be prepared for problems;
  9. Be prepared for everything to eventually work out just fine;
  10. Be patient!