Spain has a civil law and statute based legal system. Court decisions are not a source of law but are of interpretative value. Spain is a member of the EU and has a federal system with 17 autonomous communities. Basic commercial, corporate and intellectual property law is enacted by the central government while autonomous community governments enact their own legislation for matters such as health, education, the environment and consumer affairs.

Foreign investment in Spain is unrestricted except for investments in the following sectors:

Investments in these sectors and in other regulated activities, such as banking and financial services, is subject to specific regulations and may require administrative authorisation.

There are no exchange control or currency regulations except those relating to money laundering and terrorism, and obligations to provide information to the authorities to allow them to maintain statistical and tax control on the flows of funds.

There are grants for, among other things:

Investment in many regions may benefit from EU Structural Funds. Investments that may qualify for these funds include investments in:

Spain also receives aid from a phase-out fund related to the Cohesion Fund only as its GNI per inhabitant is below the average GNI of the other EU member states.

The most common form of business vehicle used by foreign companies is a limited liability company (sociedad de responsabilidad limitada) (SL), but a corporation (sociedad anónima) (SA) is also used for larger investments and when a subsequent stock market listing is contemplated. An SA is required for investment in certain regulated activities (see Question 2).

The main laws on labour matters are:

The laws apply to Spanish nationals working abroad for Spanish companies if the parties to the employment contract choose Spanish law as the applicable law. Some laws apply irrespective of the choice of law, for example, those on anti-discrimination and the official minimum salary. Spanish labour courts usually have jurisdiction over all issues relating to a labour relationship where the services are provided in Spain.

There is no general requirement that an employment contract be in writing, with the exception of certain types of contracts, such as temporary contracts. Nevertheless, there is a general obligation for employers to inform in writing regarding certain terms of the employment relationship. Employment contracts governing special labour relationships, such as senior executive employment contracts, must also be in writing.

Collective bargaining agreements contain provisions on elements of the relationship that improve those established in the law.

Employees are not entitled to participate in the management of the company. Nevertheless, employees' representatives or, in some cases, the employees themselves, are entitled to receive information regarding certain issues (for example, a proposed merger) and to be consulted when an important decision is to be taken that may affect them (for example, collective substantial modifications of employment conditions or collective redundancies (see Question 10).

Under Spanish Labour Law there are two types of dismissals:

The dismissal can be declared:

In a disciplinary dismissal, the employer must not give prior notice and the employee is not entitled to receive a severance payment, unless the dismissal is declared unfair.

However, for an individual dismissal on objective grounds, the employer must give 15 calendar days' notice in writing to the affected employees and include a detailed explanation of the circumstances causing the dismissal. A copy must be delivered to the employees' representatives. The notice must also include the severance payment of 20 days' salary per year of service up to a maximum of 12 months' salary. This payment must be offered at the same time that the dismissal letter is delivered.

A severance payment is also required in cases of collective dismissals on objective grounds, but this requires a specific procedure, involving authorisation by the labour authorities.

The employee can bring a claim before the labour court and the dismissal can be declared fair, unfair or null and void.

Different procedures apply to individual and collective objective redundancies.

The procedure for individual objective redundancies is simpler. In practice, either agreement is reached with the employees or, almost always, the dismissal is held to be unfair and payment of significant compensation or reinstatement is required. A very restrictive interpretation is carried out by the labour court regarding the reasons argued for individual objective dismissals.

Collective objective dismissals involve negotiations with the employees' representatives (during, at least, 30 days, or 15 days in companies with fewer than 50 employees) and approval by the competent Labour Authority. In practice, agreement with the employees is usually reached, entailing significant severance payments.

All non-EU nationals require a work and residence permit. The administrative cost of obtaining a work depends on the type of authorisation. However, for an ordinary work and residence permit it should be between EUR190 and EUR380 depending on the employee's annual remuneration. The procedure can take about six months, but this varies depending on the:

Under the Personal Income Tax (PIT) Act, individuals are treated as tax residents in Spain if either:

In addition, the PIT Act presumes that an individual is resident in Spain for tax purposes, unless evidence is provided to the contrary, if the individual's spouse and dependent children that are minors are also resident in Spain for tax purposes. In addition, specific provisions can apply when a Spanish tax resident moves to a jurisdiction blacklisted as a tax haven (it can be deemed subject to Spanish taxes for the subsequent four years).

Generally employees are liable for PIT at progressive rates of 24% to 43% of their worldwide earnings obtained during the tax year (from 1 January to 31 December). There is a proposal to increase the tax rate up to a maximum of 45% as of 2011. Certain exemptions and tax allowances are available. In addition, dividends, capital gains and certain interest payments received by individuals are taxed on a separate basis, under different tax rates (ranging from 19% to 21%). Both employers and employees must make monthly social security contributions. These contributions are calculated by applying certain contribution rates to the "contribution base", which depends on the employee's salary and professional category. Employees' social security contributions are payable on a monthly basis (with a standard rate of 6.35% for 2010) and the employee's maximum monthly contribution is about EUR203.07.

Subject to any applicable double tax treaty, non-resident income tax (NRIT) is payable on income obtained in Spain by non-resident taxpayers at a flat rate of 24%. Reduced rates can apply to temporary employment and other kinds of income (such as pensions and retirement benefits). Dividends, capital gains and certain interest payments received by individuals are taxed on a separate basis, at 19%.

Where the employee has a tax liability, the relevant withholdings and payments on account of the employee's PIT or NRIT must be made by the employer on the salary payments. This obligation is independent from the employee's direct liability for PIT or NRIT. However, the employee can deduct the withholdings and payments on account made by the employer from his PIT or NRIT:

Employees who acquire tax residency in Spain as a result of moving to Spain for employment can choose to be taxed according to the NRIT rules during the tax year in which the change of residence occurs and for the following five tax periods if certain requirements are met (among others, that the salary does not exceed EUR600,000 per year).

Social security contributions are payable on a monthly basis at a standard rate (for 2010) of 29.9% for the employer; the maximum monthly employer contribution for 2010 is about EUR956.20 for each employee. Additionally contributions for occupational accidents and illnesses (with a maximum of 7.15%, depending on the type of activity carried out by the company) are payable. The maximum contribution base applies (see above, Tax resident employees).

Under the Corporate Income Tax (CIT) Act entities are regarded as tax resident in Spain if any of the following applies:

In addition, the Spanish tax authorities are entitled to treat as resident in Spain for tax purposes those foreign entities which are resident in a tax haven or in a low tax jurisdiction provided that certain requirements are met.

Generally, entities that are tax resident in Spain are subject to CIT on their worldwide income at a standard rate of 30%.

Small companies (that is, where the group's turnover does not exceed EUR8 million) can enjoy reduced rates (25% to 30%) if certain requirements are met. According to a proposal under parliamentary discussion, this reduced tax rate would also apply for three years after the group exceeds the EUR8 million turnover threshold.

Lower rates (20% to 25%) could be applied by small companies where the group turnover does not exceed EUR5 million, provided certain requirements regarding the increase of number of employees are met.

VAT is payable on the supply of goods or services in Spain. The standard rate is 18% and the reduced rate is 8%. There is a super-reduced rate of 4% on basic essentials. The sale and provision of certain goods and services may be exempt, such as financial services.

Transfers of assets not subject to or exempt from VAT may be subject to this tax at 4% (on chattels) and up to 7% or 8% (on real property), depending on what is transferred and in which region the transfer takes place. Certain transfers of shares in a company holding (directly or indirectly) Spanish real estate properties may be subject to this tax.

Stamp duty is payable on notarial documents executed in Spain that may be filed with public registries, whether or not they have actually been registered. The general rate ranges from 0.25% to 2%, depending on the region.

A 1% tax is charged on:

Finally note that most groups' reorganisation and restructuring transactions (mergers, spin-offs and so on) are not subject to capital tax.

Businesses operating in Spain with a worldwide turnover exceeding EUR1 million are subject to business activity tax. New activities and start-ups may enjoy a two-year exemption from the tax.

An annual tax is payable on real estate at rates that range from 0.3% to 1.1% over the real estate's cadastral value.

This tax is payable on the transfer of urban land and is calculated by applying certain rates (determined by each local council) to the land's value.

NRIT rates for business entities (payable on Spanish source income only) range from 1.5% to 24%, depending on the type of income. Permanent establishments in Spain of non-tax resident business entities are subject to tax, almost with the same conditions as a Spanish company subject to CIT. Tax treaties for the avoidance of double taxation entered into by Spain must be taken into account as they can reduce or eliminate the Spanish tax burden of foreign vehicles or on the distribution of profits from a Spanish permanent establishment.

When the net interest-bearing debt of a Spanish non-financial entity to one or more related individuals or entities not resident in Spain exceeds three times the entity's equity, interest accruing on the excess is deemed to be a dividend distribution. Therefore, a 3:1 debt-to-equity ratio applies to finance arranged by a resident entity with related non-resident entities. Companies resident in an EU member state that is not considered a tax haven for Spanish tax purposes are exempt from these rules, except when general anti-abuse provisions are applicable.

Profits of foreign subsidiaries are imputed to a Spanish parent company when both:

Controlled foreign company rules do not apply where the entity that does not reside in Spain is resident in another EU member state, unless it resides in a territory regarded as a tax haven or when general anti-abuse provisions become applicable.

Spanish companies must assess transactions with related parties on an arm's-length basis.

To determine the fair market value of the transaction, and following the OECD guidelines, the parties must use one of the following criteria:

The first three are preferred.

In addition, the parties must produce and keep appropriate documentation to evidence the valuation used.

To resolve transfer pricing issues on a preliminary basis, a preliminary proposed valuation of transactions between related parties can be submitted to the authorities.

Exports of goods outside the EU are generally exempt from VAT. Imports of goods from outside the EU are generally subject to VAT at 18%. Customs duty and excise duty may also be payable on imports.

Intra-EU supplies of goods between EU VAT-registered traders are subject to VAT in the EU member state in which the goods are received and the acquirer must generally declare the transaction for VAT purposes in its country of residence or place of business. Nevertheless, generally, no VAT costs should arise from the transaction for the acquirer.

Spain has double tax treaties with 91 countries, including almost all of its major trading partners, 75 of which are currently in force. In addition, Spain has entered into five Tax Information Exchange treaties, two of which are currently in force.

The 2007 Defence of Competition Act (Law 15/2007 of 3 July 2007), in force from 1 September 2007, prohibits:

Agreements or decisions that infringe these prohibitions are void.

Although designs normally need to be registered to be protected (see above, Registered designs), the owner of an unregistered design may benefit from certain rights as an owner of a registered design within the territory of protection (whether at national or EU level).

The 2002 Information Society Services and E-commerce Act implements Directive 2000/31/EC on certain legal aspects of information society services, in particular electronic commerce, in the Internal Market. The 1996 Retail Market Act embodies the law governing distance selling. The 2003 Electronic Signature Act regulates electronic signatures, their legal effectiveness and certification services.

The 1999 Personal Data Protection Act implements Directive 95/46/EC on data protection. In addition to notifying the creation of data files to the Spanish Data Protection Agency, companies have several obligations, which, among other things, require them to inform data subjects of how their data is processed and, in some circumstances, to obtain their consent. Special rules apply to international data transfers from Spain to countries outside the European Economic Area with inadequate data protection laws.

Spain has implemented Directive 85/374/EEC on liability for defective products and Directive 2001/95/EC on general product safety. Strict liability is imposed by statute on manufacturers and importers into Europe of defective products where it can be shown that the defect caused the damage. If the manufacturer or importer cannot be identified, the liability is passed on to the distributor of the product.

The government can do any of the following:

In certain circumstances, it is a criminal offence to supply consumers with goods that are not reasonably safe.