Guide To Business 2011

Gua de negocios en Espaa
Guide to business in Spain
2011
Edition/Edicin
MINISTERIO DE ECONOMA Y COMPETITIVIDAD
Guide to business in Spain Gua de negocios en Espaa
Guide to business in Spain Gua de negocios en Espaa
This guide was researched and written by Garrigues on behalf of INVEST IN SPAIN. This guide is correct to the best of our knowledge and belief at the date mentioned below. It is, however, written as a general guide so it is necesary that specific professional advice be sought before any action is taken. Madrid, January 2011
Esta publicacin ha sido redactada por el despacho de Garrigues, basndose en una investigacin realizada por esta misma firma, a peticin de INVEST IN SPAIN. Esta gua es correcta, a nuestro leal saber y entender, en la fecha abajo sealada. No obstante, ha sido redactada como gua general, por lo que es necesario solicitar asesoramiento profesional especfico antes de emprender ninguna accin. Madrid, enero 2011
Spain profile Perfil de Espaa
Establishing a business in Spain Establecerse en Espaa
Tax system Sistema fiscal
Investment aid and incentives in Spain Ayudas e incentivos a la inversin en Espaa
Labor and Social Security regulations Legislacin laboral y de Seguridad Social
Appendix I: Company and commercial law Anexo I: Legislacin en materia de sociedades Appendix II: The Spanish financial system Anexo II: El sistema financiero espaol Appendix III: Accounting and audit issues Anexo III: Aspectos contables y de auditora
Intellectual property law Propiedad industrial e intelectual
Legal framework and tax implications of e-commerce in Spain Marco jurdico e implicaciones fiscales del comercio electrnico en Espaa
Useful addresses Direcciones tiles
investinspain@investinspain.org www.investinspain.org
Prepared by: Elaborado por:
Spain profile
Spain is in an outstanding position worldwide in terms of the importance of its economy: the 12th largest economy in the world by GDP, the 7th largest receiver of foreign direct investment (FDI), the 10th largest issuer of FDI and the 7th largest exporter of commercial services. Spain has a modern economy based on knowledge, in which services represent 72% of business activity. It is an international center for innovation that benefits from a young and highly qualified population of a proactive nature, and competitive costs, especially as regards graduate and post-graduate employees. The country has worked hard to equip itself with state-of the art infrastructures capable of fostering the future growth of the economy. And this has been done alongside a major commitment to R&D, with a considerable increase in public expenditure in this area. There are interesting business opportunities for foreign investors in Spain in high value-added and strategic fields with a huge potential for future growth such as the ICT, renewable energy, biotechnology, environment, aerospace and automotive sectors, because of the attractive competitive environment. And in addition to gaining access to the Spanish national market, an attractively large market of 47 million consumers with a high purchasing power, companies can also gain access to the markets of the EMEA region (Europe, Middle East and North Africa), and especially to those of Latin America, as a consequence of the prestige and strong presence of Spanish companies in these regions. The main characteristics of our country are described in this chapter: demographics, political and territorial structure, economy and the foreign trade sector.
Spain profile
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3 4 9 11 15 17 18 21
1. Introduction 2. The country, its people and quality of life 3. Spain and the European Union 4. Infrastructure 5. Economic overview 6. Domestic market 7. Foreign trade and investment 8. Legislation on foreign investment and exchange control regulations
Guide to business in Spain Spain profile 2
1.Introduction
1.INTRODUCTION
Spain is one of the most significant economies in the world: 12th in terms of size and an attractive destination for foreign investment, making Spain the 7th largest recipient of FDI worldwide1. Spains appeal for foreign investment lies not only in its domestic market, with its high purchasing power, but also in the possibility of operating with third markets from Spain. This is so because Spain offers a privileged geo-strategic position within the European Union giving access to over 1,700 million potential clients in the EMEA Region (Europe, Middle East and Africa). Its strong economic, historic and cultural ties also make Spain the perfect gateway to Latin America. Furthermore, Spain is a modern knowledge-based economy with services accounting for 71.91 percent of economic activity. The country has become a center of innovation supported by a young, highly-qualified work force and competitive costs in the context of Western Europe. This chapter gives a brief description of Spains vital statistics - the latest facts and figures which explain the demographics, the political framework and the economic structure of the country.
FDI stock, World Investment Report 2010 (2009 figures)
2. The country, its people and quality of life

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2. THE COUNTRY, ITS PEOPLE AND QUALITY OF LIFE

2.1 Geography, climate and living conditions
The Kingdom of Spain occupies an area of 504,782 square kilometers in the southwest of Europe, and is the second largest country in the EU. The territory of Spain covers most of the Iberian Peninsula, which it shares with Portugal, and also includes the Balearic Islands in the Mediterranean Sea, the Canary Islands in the Atlantic Ocean, the North African cities of Ceuta and Melilla and some surrounding rocky islands. Despite the differences among the various regions of Spain, the country can be said to have a typical Mediterranean climate. The weather in the northern coastal region (looking onto the Atlantic and the Bay of Biscay) is mild and generally rainy throughout the year, with temperatures neither very low in the winter nor very high in the summer. The climate on the Mediterranean coastline, including the Balearic Islands, Ceuta and Melilla, is mild in the winter and hot and dry in the summer. The most extreme differences occur in the interior of the Peninsula, where the climate is rather dry, with cold winters and hot summers. The Canary Islands have a climate of their own, with temperatures constantly around 20 Celsius degrees and only minor variations in temperature between seasons or between day and night. Spain has an excellent quality of life and is very open to foreigners. Almost 8,000 kilometers of coastline, abundant sporting facilities and events and social opportunities are crowned by the diversity of the countrys cultural heritage as a crossroads of civilizations (Celts, Romans, Visigoths, Arabs, Jews, etc.).
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FRANCE
La Corua Santiago de Compostela Pontevedra Lugo Santander Oviedo
Asturias
Cantabria
Bilbao
San Sebastin Pamplona
Galicia
Orense Len Palencia Burgos
Pas Vasco
Vitoria Logroo
Navarra
Huesca Lrida Zaragoza
La Rioja
Soria
Castilla y Len
Zamora Salamanca Valladolid Segovia
Catalua
Tarragona
Gerona
Aragn
Madrid Guadalajara Teruel
Barcelona
vila
Comunidad de Madrid
Toledo
PORTUGAL
Badajoz
Cuenca
Castelln de la Plana Valencia
Palma De Mallorca
Extremadura
Mrida
Cceres
Castilla - La Mancha
Ciudad Real Albacete
Comunidad Valenciana
Baleares
Alicante Crdoba Sevilla Huelva Mlaga Jan
Murcia
Murcia
Andaluca
Granada
Cdiz
Almera
Ceuta
Melilla
MORROCO
Santa Cruz de Tenerife
Canarias
Las Palmas de Gran Canaria
2.2 Population and human resources

The population of Spain in 2010 was 47 million people, with a population density of more than 93 inhabitants per square kilometer. Spain is a markedly urban society (see Table 1), as evidenced by the fact that more than 32% of the population lives in the capitals of the provinces.
Table 1
THE BIGGEST CITIES IN SPAIN*

POPULATION
Madrid Barcelona Valencia Sevilla Zaragoza Mlaga Murcia Palma de Mallorca Las Palmas de Gran Canaria Bilbao
3,273,049 1,619,337 809,267 704,198 675,121 568,507 441,345 404,681 383,308 353,187
* Figures refer only to the municipal district of each city. Source: Report about population in Spanish cities at January 1, 2010. National Statistics Institute/Official State Gazette.
Spanish is the official language of the country. There are other Spanish languages that are also official in the corresponding Autonomous Communities (regions), according to their Statutes of Autonomy. Education is compulsory until the age of 16 and English is the main foreign language studied at school. Spain has a labor force of 23.1 million people, with a participation rate around 60% according to the Labor Force Survey (released in the fourth quarter 2010). Compared with other OECD countries, Spains population is relatively young: 15.6% is under 16 years old, 67.5% is between 16 and 64 years old, and only 16.9% is 65 and over, according to 2010 figures. Additionally, as seen in Table 2 below, Spain has been receiving a significant inflow of immigrants in recent years that has offset the consequences of an aging population.
Table 2
FOREIGNERS RESIDENT IN SPAIN BY CONTINENT OF ORIGIN

2008 2009 2010*
Europe America Asia Africa Oceania Unknown TOTAL
1,917,069 1,354,158 270,210 922,635 1,839 7,588 4,473,499
2,007,633 1,479,014 299,743 944,696 1,903 8,243 4,791,232
2,126,991 1,338,274 300,091 986,382 1,750 1,014 4,754,502
Source: Ministry of Labour and Social Affairs2. *Data at September 30, 2010.
Spains labor force structure by economic sector underwent significant changes sometime ago, with a noteworthy increase in the working population employed in the services industry and a drop in the number of people working in agriculture and industry (Chart 1 and Table 3).
Chart 1
LABOR FORCE STRUCTURE BY ECONOMIC SECTOR IN 2010

Construction 9%
73%
4%
Services
14% Industry
Source: National Statistics Institute Data 4Q 2010.
Construction 9%
Agriculture
73%
4% Agriculture Services 14% Industry
Table 3
EVOLUTION OF LABOR FORCE STRUCTURE BY ECONOMIC SECTOR (Percentage)

2008 2009 2010
Agriculture Industry Construction Services
4.0 15.3 11.0 69.7
4.2 14.4 9.7 71.7
4.4 14.3 8.5 72.8
Source: National Statistic Institute. Labor Force Survey, 2010.

2 http://extranjeros.mtin.es/es/InformacionEstadistica/Informes/
Extranjeros30Septiembre2010/Archivos/Informe_trimestral_30_09_2010.pdf
Spain is ranked 4th in Europe in terms of persons with university-level education in the sciences and technology, behind Germany, France and the United Kingdon. (However, Spain has a higher ratio per population, according to Eurostat). Lastly, in keeping with the commitment entered into with the European Union to promote job creation, the Spanish government has implemented significant changes to the job market since the mid-nineties, introducing a greater degree of flexibility in employment. Nevertheless, as a result of the current global economic crisis, and the evolution of the Spanish economy away from laborintensive sectors towards sectors involving new technologies, the unemployment rate in Spain has increased significantly. This led the government to implement the Spanish Economic and Employment Stimulus Plan, known as Plan E. This Plan contained a comprehensive program of over 100 economic policy measures, including short-term fiscal stimulus measures with measures aimed at supporting demand and making structural reforms, with the aim of enhancing the competitiveness of the Spanish productive system. The economic effort linked to this Plan accounted for is very significant, accounting for approximately 2.3% of GDP in 2009, making it the highest fiscal stimulus in the EU, topped only by the US among the major world economies. The measures implemented focused on supporting employment, mainly through the Local Investment Fund, on reducing taxes for businesses and families and on increasing access to financing through the Official Credit Institute (ICO). The Plans strategy, the most symbolic element of which is the Sustainable Economy Law, consists of a program of structural reforms with the two-fold purpose of making the economy more sustainable and competitive, thereby boosting confidence among all parties in the economy. Some of the noteworthy key reforms recently or soon to be approved and which are expressly aimed at enhancing competitiveness include, (i) the labor reform and other employment measures ratified by Law 35/2010, (ii) the Integral Industrial Policy Plan, and (iii) the Professional Services Law. The Spanish government has focused in 2010 on applying and implementing its overall program of reforms, known as the Sustainable Economy Strategy, in order to accelerate the transition towards a more balanced, competitive and innovative growth model. A number of reforms undertaken in 2010 will culminate in the first half of 2011, specifically, the labor reform, the reform of the financial system and the pension reform.
2.3 Political institutions

Spain is a parliamentary monarchy. The King is the Head of State3 and his primary mission is to arbitrate and moderate the regular functioning of the countrys institutions in accordance with the Constitution. He also formally ratifies the appointment or designation of the highest holders of public office in the legislative, executive and judicial branches4. The Constitution of 1978 enshrined the fundamental civil rights and public freedoms as well as assigning legislative power to the Cortes Generales5, executive power to the Government of the nation, and judicial powers to independent judges and magistrates. The responsibility for enacting laws is entrusted to the Cortes Generales, comprising the Congreso de los Diputados (Lower House of Parliament) and the Senado (Senate), the members of which are elected by universal suffrage every four years. The Cortes Generales exercise the legislative power of the nation, approve the annual State budgets, control the actions of the Government and ratify international treaties. The Government6 is headed by the Presidente del Gobierno (President of the Government) who is elected by the Cortes Generales and is, in turn, in charge of electing the members of the Consejo de Ministros (Council of Ministers). The members of the Council of Ministers are appointed and removed by the President of the Government at his or her discretion. For administrative purposes, Spain is organized into 17 Autonomous Communities (Regions) each of which generally comprises one or more provinces, plus the Autonomous Cities of Ceuta and Melilla in Northern Africa; the total number of provinces is 50. Each Autonomous Community (Region) exercises the powers assigned to it by the Constitution as specified in its Statute of Autonomy. These Statutes also stipulate the institutional organization of the Community concerned, consisting generally of: a legislative assembly elected by universal suffrage, which enacts legislation applicable in the Community; a Government with executive and administrative functions, headed by a President elected by the Assembly, who is the Communitys highest representative; and a Superior Court of Justice, in which judicial power in the Communitys territory is vested. A Delegate appointed by the Central Government directs the Administration of the State in the Autonomous Community (Region), and co-ordinates it with the Communitys administration. The Autonomous Communities (Regions) are financially autonomous and also receive allocations from the general State budgets. As a result of the structure described above Spain has become one of the most decentralized countries in Europe.
www.casareal.es www.poderjudicial.es 5 www.congreso.es 6 www.la-moncloa.es

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3.Spain and the European Union
3. SPAIN AND THE EUROPEAN UNION

Spain became a full member of the European Economic Community in 1986. Therefore, EU legislation is fully applicable in Spain. In this connection and according to figures published by the European Commission, Spain fully complies with the objectives established by the European Council and has implemented 3,079 Directives into national law. A major impact of European Union membership for Spain, and for the other Member States, came in the mid-nineties with the advent of the European Single Market and the European Economic Area, which created a genuine barrier-free trading space. Since then, the EU has advanced significantly in the process of unification by strengthening the political and social ties among its citizens. Spain, throughout all this process, has always stood out as one of the leaders in the implementation of liberalization measures. Since January 1, 2007, with the addition of Rumania and Bulgaria, the European Union membership now stands at 277. With the aim of strengthening democracy, efficiency and transparency within the EU and, in turn, its ability to meet global challenges such as climate change, security, and sustainable development, the 27 EU Member States gathered together on December 13, 2007, to sign the Treaty of Lisbon, which entered into force subject to prior ratification by each of the 27 member states on December 1, 2009. Previously, between June 4 and 7 the European Parliament elections took place8. Spain holds significant responsibilities within the EU, evidenced by the fact that it is, along with Poland, the fifth country in terms of voting power in the Council of Ministers. In 2010, Spain assumed the Council Presidency of the European Union for the fourth time, for the period from January to June. The introduction of the Euro (on January 1, 2002) heralded the start of the third Spanish presidency of the European Council and represented the culmination of a long process and the opening-up of a veritable array of opportunities for growth for Spanish and European markets. Since January 1, 2011, with the addition of Estonia, Euro Zone membership now stands at seventeen. The euro has led to the creation of a single currency area within the EU that makes up the worlds largest business area, bringing about the integration of the financial markets and economic policies of the areas member states, strengthening ties between the member states tax systems and bolstering the stability of the European Union. Furthermore, the adoption of a single European currency has had a clear impact at an international level, raising the profile of the Euro-Zone at both international and financial gatherings (G-7 meetings) and within multilateral organizations. The economic and business stability offered by the
7 8
www.mae.es www.eurpa.eu
euro have been contributing to the growth of the Spanish economy, as well as its international political standing. Spain is the EU member state that has received the most structural and cohesion funds, which have been put to use to finance infrastructure and development projects. Indeed, it is estimated that between 2007 and 2013, Spain is set to receive upwards of 31.5 billion in the guise of various structural and cohesion funds, making it the EUs second largest recipient of such funds, second only to Poland. Under the decisions adopted by the Council of Europe in London in 2005, Spain was also awarded a special 2-billion allowance set aside for R&D activities, with which the government, in partnership with the private sector, has set in motion initiatives in this area to co-finance. Noteworthy among such initiatives was the launch of Programa Ingenio 2010 in a bid, essentially, to reach a situation in which public and private investment in R&D&I accounted for a significant percentage of GDP. In this connection, the initial results of Programa Ingenio 2010, released in 2008, revealed that R&D investment accounted for 1.2% of GDP in 2006 (representing the largest increase since 1991), while business investment in this area reached 0.67% of GDP. Since its implementation in March 2005, the Ministry of Science and Innovation has made a committed investment of 3.02 billion, generating 95,000 jobs (through direct, indirect and induced employment) and involving over 4,000 research groups and 20,000 researchers. The ultimate objective of Ingenio 2010, in line with the commitments of the Lisbon Treaty, is to place Spain in a better position within the EU and the OECD, both in terms of knowledge generation and competitiveness, through technological innovation. Ingenio 2010 initiatives have been incorporated into the 2008-2011 National R&D&I Plan, under which total domestic spending on R&D&I is projected to rise until it accounts for 2.2% of GDP. The Governments determination to boost investment in R&D&I is evidenced by public spending on these activities, which has grown steadily in recent years. In the 2010 General State Budget Law, State R&D&I policy had a budget of 9.27 billion, allocated mainly to financing civil research. The civil R&D&I budget of close to 7.95 billion has risen approximately 173% since 20049, a particularly significant increase within the context of the budgetary constraints brought about by the current economic situation.
Informe Espaa hoy 2010 (Prime Ministers Office)
4.Infrastructure
4.INFRASTRUCTURE
The Government intends to continue with its program of heavy investment in this area in the future, as is borne out by the Strategic Infrastructure and Transport Plan, which plans to make a total investment of over 248 billion in the period 2005-202010. Railway transportation takes center stage in the Plan, accounting for almost 50% of the total investment. The motorway and dual carriageway network, of nearly 14,000 kilometers, has undergone constant renovation with a view to enhancing its efficiency. The Governments investment package means that Spain will be able to call on a wide-reaching motorway and dual carriageway network, granting direct access to all Spaniards and meaning that 94% of the population is never more than 30 kilometers from a high capacity road. With this in mind, 1,500 kilometers of motorway are expected to enter into service during the period 2008-2012, with work underway on a further 1,600 kilometers. As far as railway transport is concerned (where Spain has a network of over 15,000 kilometers), highspeed networks have become one of the top priorities in the Governments infrastructure plans, with plans for a 10,000 kilometer network by 2020. Consequently, all Spanish cities will have direct access to the network, and 90% of the countrys citizens will be less than 50 kilometers away from a station on the network. In this regard, at the outset of 2008, the number of provinces already benefiting from the existing high-speed infrastructure was 33, covering 63.8% of the total surface area of Spain and some 73% of the countrys total population. Moreover, Madrid will be connected by high-speed train to the French border, via Zaragoza (Aragn), Barcelona (Catalua) and via Vitoria and Irn (Pas Vasco). As things stand, Madrid already has highspeed train connections to numerous Spanish cities via the following lines: 1) Madrid-Seville; 2) Madrid-Zaragoza-Huesca; 3) Madrid-Zaragoza-Camp de Tarragona-Barcelona; 4) Madrid-Malaga; 5) Madrid-Segovia-Valladolid; 6) Madrid-Albacete; and 7) Madrid-Valencia. Finally, it is worth noting the freight sector liberalization since January 2005, which has led to the creation of private enterprises that transport goods by railway. The ultimate aim is to encourage the transportation of goods by railway in general, with a view to reducing the costs of the Spanish industrial sector, increasing the energy efficiency of transportation and reducing greenhouse gas emissions. Air transport links up the main Spanish cities and, with approximately 250 airlines operating out of the countrys 47 airports, Spain is connected to the worlds leading cities. Spain is a major hub for lines linking the Americas and Africa to Europe. Thus, the most significant investments in the pipeline are aimed at the two principal international airports in Madrid and Barcelona. With the inauguration of Terminal 4 in February 2006, Madrids airport saw its capacity increase to 70 million passengers per year, having been recognized in 2009 as the worlds eleventh largest airport (by passenger footfall) by the Airport Council International. Elsewhere, with the inauguration of the T1 terminal at
10
www.fomento.es
the Barcelona airport in June 2009, its annual capacity stands at 55 million passengers per year, with the potential to increase such capacity to 70 million passengers per year. In line with the 20052020 Strategic Infrastructure and Transport Plan, the Plan Canarias has been launched, paving the way for an investment of almost 3 billion in Canary Islands airports11. Furthermore, with over 46 international ports on the Atlantic and Mediterranean coasts, Spain can boast excellent maritime transport links. The Strategic Infrastructure and Transport Plan forecasts an increase of up to 75% in the capacity of Spanish ports, cementing their position as intermodal hubs by 2020. Specifically, during the period 2008-2012 it will increase in the capacity of sheltered water, docking space and land surface area by 7, 26 and 30%, respectively. In 2010, the first Seaside Motorway between Spain and France entered into operation, linking Gijn with the French port of Nantes-Saint Nazaire, and the second Seaside Motorway between the ports of Vigo, Algeciras and those of Nantes-Saint Nazaire and Le Havre in France is also expected to enter into operation. This will permit a more sustainable alternative in some of the main flows with the EU. In addition, with a view to improving the competitiveness of ports, the amendment made in August 2010 to the Ports Law will reduce restrictions on inter- and intra-port competition and will, in short, boost the competitiveness of Spanish ports in the global economy. Spain is well equipped in terms of technological and industrial infrastructure, having seen a boom in recent years in technological parks in the leading industrial areas, as well as around universities and R&D centers. There are currently 80 technological parks12 (44 of which are now fully operational) housing over 5,115 companies, mainly engaged in the telecommunications and IT industries, in which a large number of workers are employed in R&D activities. 8.59 billion has been budgeted for R&D&I for 2011. As mentioned before, with a view to achieving future goals, the government created the INGENIO 2010 Program, initiatives from which have been incorporated into the 2008-2011 National R&D&I Plan. Spain can also boast a solid telecommunications network, with an extensive conventional fiber optic cable network (64,000 km) covering the country almost in its entirety, on top of one of the worlds largest undersea cable networks and satellite link-ups spanning the five continents. Particularly noteworthy is the significant deregulation set in place some years ago in the majority of industries, the telecommunications industry included, meeting the deadlines set for such purpose by the EU with ease. Among other advantages, this deregulation has meant a more competitive range of products on offer as borne out by costs, essential for economic development. Last, it is worth noting the significant investments made in hydraulic infrastructures, which have improved the possibility of guaranteed water availability.
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12
www.aena.es (press release) Members of the Association of Science and Technology Parks in Spain. www.apte.org
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Freeways Freeways of toll Freeways in construction Other main highways

Santiago de Compostela La Corua Lugo
FRANCE
Asturias
Santander Oviedo
Cantabria
Burgos Palencia
San Sebastin Bilbao Pas Pamplona
Galicia
Orense Len
Vasco
Vitoria
Navarra
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Pontevedra
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Logroo
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Gerona
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Zamora Salamanca vila Valladolid Segovia
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Aragn
Comunidad Madrid de Madrid

Cuenca Toledo
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Castelln de la Plana
PORTUGAL
Cceres
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Extremadura
Mrida Badajoz
Comunidad Valencia Valenciana

Alicante
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Murcia
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Granada Almera
Canarias
MORROCO
ROAD NETWORK
High speed (more than 250 km/hour) High speed in construction High planned speed Fast line (more than 200 km/hour) Long distance rail routes
Santiago de Compostela La Corua Lugo Santander
FRANCE
Asturias
Oviedo
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Galicia
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Comunidad Madrid de Madrid

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Cceres
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Extremadura
Mrida Badajoz

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Murcia
Murcia
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Granada Almera
Canarias
MORROCO
RAILWAYS
Main ports
Ferrol-San Cimbrao La Corua Vilagarca Marn- Pontevedra Vigo Santiago de Compostela Avils Gijn Santander Bilbao Pasajes Santander Cantabria
FRANCE
Pas Vasco
Asturias Galicia
Oviedo
Pamplona
Vitoria
Navarra Catalua
Zaragoza Barcelona Barcelona
La Rioja Castilla y Len

Valladolid
Logroo
Aragn Comunidad Madrid de Madrid

Castelln
Tarragona
PORTUGAL
Toledo
Extremadura
Mrida
Valencia Comunidad Valencia
Palma de Mallorca Baleares
Valenciana
Alicante
Baleares
Murcia
Murcia Sevilla Huelva Baha de Cdiz Sevilla Mlaga Baha de Algeciras Ceuta Santa Cruz de Tenerife Motril Almera
Andaluca
Cartagena
Santa Cruz Las Palmas de Tenerife Las Palmas de Gran Canaria
Canarias
Melilla
MORROCO
PORTS
acroneM
acrollaM ed amlaP
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International Airports National Airports Control centers of Navigation

Santiago de Compostela Pontevedra La Corua
La Corua Avils
FRANCE
Asturias
Santander
Santander
San Sebastin
Galicia
Santiago
Lugo
Oviedo Len
Len
Vigo
Orense
Bilbao Cantabria BilbaoPas San Sebastin Vitoria Pamplona Vasco Vitoria Navarra Pamplona Burgos
Palencia Burgos
La Rioja
Soria
Logroo Logroo
Huesca
Catalua
Lrida
Reus
Gerona
Castilla Valladolid y Len

Zamora Salamanca vila Valladolid
Salamanca
Huesca
Zaragoza
Sabadell
Gerona
Zaragoza
Barcelona
Barcelona
Segovia Guadalajara
Madrid/Barajas Comunidad deMadrid Madrid
Aragn
Tarragona
Menorca
Madrid/Cuatro VientosTeruel
Madrid/Torrejn Cuenca
PORTUGAL
Cceres
Badajoz
Toledo
Palma de Mallorca
Palma de Mallorca
Extremadura
Mrida
Ciudad Real
Valencia
Albacete
Albacete

Alicante
Ibiza Alicante
Baleares
Badajoz
Crdoba Sevilla
Murcia
Jan
Granada
Crdoba
Murcia
Murcia/San Javier
Sevilla Huelva
Jerez
Andaluca
Mlaga
Granada
Almera
Cdiz Ceuta
Tenerife Norte
Mlaga
Almera
Melilla
Fuerteventura Melilla

La Gomera El Hierro
Canarias
Gran Canaria
Tenerife Sur
MORROCO
AIRPORTS
5. Economic overview
5. ECONOMIC OVERVIEW
The structure of the Spanish economy is that of a developed country, with the services sector being the main contributor to GDP, followed by industry. These two sectors represent approximately 87% of Spains GDP with agricultures share today representing a 2.5% of GDP, and declining sharply as a result of the countrys economic growth (see Table 4).
Table 4
STRUCTURE OF GDP (% of total, current prices)

2008 2009 2010*
Agriculture and fishery Industry Construction Services

Source: *Eurostat data 3Q 2010
2.86 17.39 11.55 68.20
2.57 15.24 10.83 71.36
2.54 15.44 10.11 71.91
In terms of year-on-year growth, actual GDP rose 0.2%, despite remaining unchanged in the second half of the year, thus continuing the gradual recovery first observed in the second half of 2009.
Chart 2
GDP GROWTH (% growth rate, 1995 constant prices)
4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5 -2 -2.5 -3 -3.5 -4 -4.5 -5
4.2 3.6 3.4 2.7 1.5 1 0.7 2.7 3 3.1 1.8 1,.8
3.6
3.1 2.7 0.9 0.3 -0.1 1.7
-3.7 -4.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: Bank of Spain Data up to 3Q 2010

4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 -0.5 -1 -1.5 -2 -2.5 -3 -3.5 -4 -4.5 -5
4.22.7 3.6 3.4 2.7 1.5 1 0.7 0.3 -0.1 3 3.1 1.8 1,.8 3.1 2.7 0.9 1.7 4 3.6 -3.7 -4.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Spain
Spain Euro Zone
Euro Zone
In light of the international crisis which has grown gradually worse and has spread around the world until becoming a global crisis, the prudent budgetary policy followed in Spain in recent years (with a ratio of government debt to GDP that is 22 points below the European average) permits the pursuit of counter-cyclical and structural policies aimed at favoring an economic model based on growth offered by new sectors located higher up in the value chain, such as renewable energy, biotechnology or information technologies and telecommunications. Moreover, inflation in Spain has slowly fallen since the end of the 1980s. Average inflation between 1987 and 1992 was 5.8%; it dropped below 5% for the first time in 1993, and it has been shrinking progressively since then. The year-on-year inflation rate at December 2010 was 3%.
Table 5
GROWTH FOR OECD COUNTRIES (Percentages)

Real GDP Growth 2008 2009 2010
EU countries Germany France Italy United Kingdom Spain Other countries United States Japan Total Euro Zone Total OECD
0.7 0.1 -1.3 -0.1 0.9 0.4 -1.2 0.3 0.3
-4.7 -2.5 -5.1 -4.9 -3.7 -2.6 -6.3 -4.0 -3.4
3.5 1.5 1.1 1.4 -0.1 2.9 4.0 1.7 2.8*
Source: Bank of Spain. *Data OCDE up to 2Q 2010
6.Domestic market
6. DOMESTIC MARKET
The growth of the Spanish economy in the last two decades has been driven by strong demand and a substantial expansion of production in the context of an increasingly open economy. Today Spain has a domestic market of 47 million people with a per capita income (ppp) of 22,886 by INE for the year 2009, and an additional injection of demand coming from the 52.7 million tourists who visit the country every year. The close links with Latin America and North Africa and the obvious advantages of using Spain as a gateway to those countries are worthy of mention. Table 6 reflects the evolution of production and demand components. The slowdown in the Spanish economys growth has been due mainly to sluggish recovery of domestic demand, which has not been offset by the increase in foreign demand.
Table 6
GROWTH OF PRODUCTION AND DEMAND COMPONENTS (Percentages)

2009 2010
Production components Agriculture and fishery Industry Energy Construction Services Demand components Private consumption Public consumption Gross fixed capital formation Domestic demand Exports of goods and services Imports of goods and services
Source: Bank of Spain.
1.0 -13.6 -6.4 -6.2 -1.0 -4.2 3.2 -16.0 -6.0 -11.6 -17.8
-1.3 0.9 3.0 -6.3 0.5 1.2 -0.7 -7.6 -1.1 10.3 5.4
13
www.iet.tourspain.es. (Data 2010)
7.Foreign trade and investment
7. FOREIGN TRADE AND INVESTMENT

In recent years, rapid growth in international trade and foreign investments has made Spain one of the most internationally-oriented countries in the world. With regard to the trading of goods, Spain is ranked 16th in the world as an exporter and 13th as an importer; while in the trading of services it occupies 7th place as an exporter and 9th place as an importer14. The share of Spanish exports and imports of goods with respect to global figures amount to 1.7% and 2.3%, respectively. The share of exports and imports of services with respect to global figures stand at 3.6% and 2.80%. The breakdown by industry of foreign trade is relatively diversified, as can be seen in the following table:
Table 7
DISTRIBUTION OF EXPORTS AND IMPORTS 2009* (as a % of total)

Exports Imports
Capital goods Automobile industry Chemical products Food Semi-manufactured non-chemical products Consumer goods Energy products Other goods Raw materials Durable consumer goods
Source: Ministry of Industry, Tourism and Trade. * Data available for the period January-November 2010
20.1% 16.3% 15.4% 14.9% 12.2% 8.5% 5.0% 3.4% 2.4% 1.9%
Capital goods Energy products Chemical products Consumer goods Automobile industry Food Semi-manufactured non-chemical products Raw materials Durable consumer goods Other goods
19.9% 18.2% 15.2% 10.8% 10.4% 10.4% 7.5% 3.7% 3.4% 0.4%
As would be expected, the countries of the EU are Spains main trading partners. Accordingly, during 201015, Spanish exports to the European Union accounted for 67.8% of total exports and sales to the Euro Zone 55.7% of the total. As for imports, those originating from the European Union accounted for 54.8% of the total and those from the Euro Zone 44.1%.
14 15
WTO International Trade Statistics 2010 report. Annual data published by the Spanish Ministry of Industry, Tourism and Trade. (Report of November 2010).
Specifically, Spains leading trade partners are France and Germany. Beyond the EU, of note are Asia and Africa, which have displaced Latin and North America from their traditional role as Spains main trade partners outside the EU. As regards foreign direct investment, Spain is positioned as one of the main recipients of investment worldwide. Specifically, according to the UNCTAD, in 2009 Spain was the 7th largest recipient of foreign direct investment in the world with $670.6 billion, 5th in the EU. Moreover, Spain is also one of the main foreign direct investors in the world: $645.9 billion in 2009 for a rank of 10th largest investor worldwide16. Lastly, with a view to providing ongoing support for the internationalization of Spanish enterprise, the Enterprise Internationalization Fund (FIEM) was created in 2010 as a vehicle to finance official support in this regard, with the aim of promoting exports by Spanish companies and direct Spanish investment abroad.
Graph 3
30,000 25,000 20,000 15,000 10,000 5,000 0
FOREIGN INVESTMENT IN SPAIN (1994-2010*) (Million euros)
*Data available for the period JanuarySeptember 2010. Source: Registry of Foreign Investments. Ministry of Industry, Tourism and Trade.
30,000 25,000 20,000 15,000 10,000 5,000 0
1994 1996 1997 2000 2001 2003 2004 2006 2008 2009 2002 2005 2007 1999 2010 1998 1995
1994
1996
1997
2000
2001
2004
2003
2006
Gross investment
5,000 Gross investment Net investment
Net investment
16
FDI stock UNCTAD World Investment Report 2010 Report.
2008
2009
2002
2005
2007
1999
2010
1998
1995
5,000
As a summary of Spanish foreign trade, the balance of payments is attached.

Table 8
SPAINS BALANCE OF PAYMENTS* (Millions of euros)

2009 2010
I. Current account Trade Balance Services Balance Income Net Current Transfers II.Capital Account III.Financial Account Total (excluding Bank of Spain) Direct investment Portfolio investment Other investment Financial derivatives Bank of Spain Reserves Claims with the Eurosystem Other net assets IV.Net errors & omissions
-58,298.7 -45,111.2 25,328.4 -30,535.6 -7,980.3 4,057.3 57,580.1 47,115.6 -1,102.8 44,920.8 8,963.7 -5,666.1 10,464.5 -1,563.5 6,146.1 5,881.8 -3,338.7
-47,673.7 -46,361.3 27,462.3 -21,447.8 -7,326.8 6,491.6 45,720.4 30,024.1 573.7 28,847.7 -6,624.6 7,227.3 15,696.3 -813.6 9,787.5 6,722.3 -4,538.3
(*) Data available for the period January-December 2009 and 2010. N.B.: A positive sign in the current and capital accounts means a surplus (receipts greater than payments) and represents a net loan from Spain to the rest of the world (increase in assets or decrease in liabilities), whereas in the financial account a positive sign means a net inflow of capital and represents a net loan from the rest of the world to Spain. A negative sign in reserves means an increase.
8. Legislation on foreign Investment and exchange control regulations
8. LEGISLATION ON FOREIGN INVESTMENT AND EXCHANGE CONTROL REGULATIONS

This section covers the main aspects of the Spanish legislation on exchange control and foreign investments. Although these areas are fully liberalized, there are specific reporting obligations to be accomplished. As a general rule, foreign investments are subject only to notification after the investment has been made. Exchange controls and capital movements are fully liberalized and in all areas there is complete freedom of action.
8.1 Legislation on foreign investment

Royal Decree 664/1999 deregulated practically all transactions of this kind (with the provisions and exceptions set forth below), eliminating the requirement for prior verification and adapting Spanish domestic law to the rules on the freedom of movement of capital contained in Articles 56 et seq. of the Treaty of the European Union. The most noteworthy aspects of the applicable rules are as follows: Foreign investments are, as a general rule, subject only to notification after the investment has been made. The only exceptions are: (i) Investments from tax havens, which in general must be notified beforehand (DP-1 form), and (ii) foreign investments in activities directly related to national security, and real estate investments for diplomatic missions by States that are not members of the European Union and require prior verification from the Spanish Council of Ministers. There is no obligation for foreign investments to be formalized in the presence of a Spanish notary public (unless specific legislation provides otherwise). Solely investments in the air transportation and radio industries, in industries relating to minerals and raw mineral materials of strategic interest and mining rights, in the television, gaming, telecommunications and private security industries, in industries concerned with the manufacturing, marketing or distributing of arms and explosives for civilian use, and in national security-related activities (these latter activities are subject to the clearance rules contained in the Royal Decree), will be subject to the requirements imposed by the relevant body established by industry-specific legislation. 8.1.1.Investors Investors can be: Non-resident individuals (that is, Spanish nationals or foreigners domiciled abroad, or who have their principal place of residence there). Legal entities whose registered offices are located abroad.
Public agencies of foreign States. A Spanish company in which foreign shareholders have a majority holding is not deemed to be an investor. A change of registered office of legal entities or a change of residence of individuals is enough to change the classification of an investment as a Spanish investment abroad or a foreign investment in Spain. 8.1.2 Regulated Investments Foreign investments in Spain, for the purpose of the obligation to report which is analyzed later, could be carried out through any of the next operations: Participation in Spanish companies, including their incorporation and subscription and acquisition of shares in corporations or the subscription of shares in limited liability companies, and any legal transaction under which voting and other non financial rights are acquired. Establishment of and increase of capital allocated to branches. The subscription and acquisition of marketable debt securities issued by residents (debentures, bonds, promissory notes). Participation in mutual funds recorded in the Registers of the Spanish National Securities Market Commission17. The acquisition by non-residents of real estate located in Spain valued at more than 3,005,060, or where the investment originates from a tax haven, whatever its amount. The formation, formalization or participation in joint ventures, foundations, economic interest groupings, cooperatives and joint-property entities, with the same characteristics as in the previous paragraph regarding the value of the investment. Foreign investments not included in the above list (such as participating loans), are totally deregulated, and no notice is required. Notwithstanding the foregoing, said investments may be subject to industry-specific regulations and the rules on exchange control and notification of monetary flows to or from other countries remain in force. 8.1.3 The party required to report foreign investments As a general rule, the owner of the investment and, in addition, any Spanish notary public acting in the transaction is obliged to report the investment to the authorities (the forms reporting foreign investments in Spain, when the intervention of a notary public is required, must be signed and serviced of process by the same before their presentation at the General Directorate of Trade and Investments). However, investments in certain assets (mutual funds, securities, registered shares) may require other individuals to report the investment (credit, financial, deposit-taking or management entities, the Spanish company receiving the investment).
17
www.cnmv.es/index.htm
8.1.4 Reporting rules (i) General rule As a general rule, foreign investments indicated in section 8.1.2 above and the liquidation thereof must be reported after the event to the Investments Register at the Ministry of Industry, Tourism and Trade18. (ii) Exceptions Investments from tax havens must be reported before and after the event, except in the following cases: Investments in marketable debt securities issued or offered publicly, whether or not they are traded on an official secondary market, and units in mutual funds recorded in the Registers of the Spanish National Securities Market Commission. Where the foreign interest does not exceed 50% of the capital stock of the Spanish company in which the investment is made. It is important to stress that this prior reporting obligation is not equivalent to a verification or authorization requirement and, once the investment has been reported, the investor may make his investment without having to wait for any reply from the authorities. 8.1.5 Monitoring of foreign investments The General Directorate for Trade and Investments19 (DGCI) of the Ministry of Industry, Tourism and Trade can require Spanish companies which have foreign shareholders and Spanish branches of nonresident persons specifically or generally to file an annual report on the status of their foreign investments (D4 and D8 DGCI forms). The General Directorate may also require the parties required to report foreign investments to provide the information necessary in each particular case. 8.1.6 Suspension of the deregulation rules The Spanish Council of Ministers can suspend the application of the deregulation rules in certain cases, which will require investments concerned to undergo a prior procedure to obtain administrative clearance from the Council of Ministers. Up to date, the Council of Ministers has exercised the powers of suspension described above only in respect of foreign investments in Spain in activities directly related to national security, such as the production or marketing of arms, munitions, explosives and other armaments (except in the case of listed companies, in which case only acquisitions by non-residents of more than 5% of their capital stock, or acquisitions of less than 5% that enable such investors to form, directly or indirectly, part of their managing bodies, will require clearance).
18 19
www.mityc.es www.mcx.es
8.2 Exchange control regulations

Exchange control and capital movements are fully liberalized and in all areas there is complete freedom of action. In this sense, Law 19/2003, on Movement of Capital and Foreign Transactions and for the Prevention of Money Laundering, repealed Law 40/1979, on Exchange Control Legal System (with the exception of chapter II), and modified Law 19/1993, on Certain Measures for the Prevention of Money Laundering, but maintained the principle of liberalization of movements of capital. Law 19/2003 should have been implemented by regulations before January 8, 2004, but this has been done only partially. In this regard, Royal Decree 54/2005 has modified the regulations of Law 19/1993, approved by Royal Decree 925/1995. However, no other regulations have been implemented and, until they are, according to the First Temporary Provision of Law 19/2003, all regulations approved implementing Law 40/1979 will remain in force in everything not opposed to Law 19/2003. Additionally, Law 36/2006, on measures for the prevention of tax fraud, has modified Law 19/1993 in connection with certain aspects of the prevention of money laundering. The main features of the Spanish exchange control scenario currently in force can be summarized as follows: 8.2.1 Freedom of action As a general rule, all acts, businesses, transactions and operations between residents and nonresidents which involve or may involve payments abroad or receipts from abroad are completely deregulated. This deregulation includes payments or receipts made either directly or by offset of the underlying transactions, as well as transfers to or from abroad and variations in accounts or financial debtor or creditor positions abroad. It also covers the import or export of means of payment. 8.2.2 Safeguard clauses and exceptional measures The EU provisions will be able to prohibit or restrict the performance of certain transactions and the respective collections, payments, bank transfers or variations in accounts or financial positions in respect of third countries. The Spanish Government may also impose prohibitions or restrictions in respect of one or a group of States, a certain territory or an extra-territorial centre, or suspend the system of liberalization for certain acts, businesses, transactions or operations. 8.2.3 Statistical information In order to calculate the Spanish balance of payments and to maintain statistical control of monetary flows there are certain mechanisms for payments to and receipts from abroad.
Currently, these mechanisms are as follows: As a general rule, payments, receipts and transfers between residents and non-residents, denominated either in euros or in foreign currency, should be made through deposit-taking entities (normally banks) registered in the Bank of Spains Official Register20 to whom the resident party must provide with certain data (e.g. names and addresses of both parties) and specifically with a description of the transaction giving rise to the payment, receipt or transfer. The debits and credits posted to bank accounts held in Spain by non-residents are also subject to this regime. The debits and credits posted to bank accounts held abroad by residents must be notified to the Bank of Spain using specific forms if they exceed a specified threshold or if expressly requested by the Bank of Spain. Payments and receipts between residents and non-residents can be made, in Spain or abroad, in coins, bank notes and bearer checks, denominated either in euros or in foreign currency, and must be declared by the resident party within 30 days if they, in general terms, exceed 6,000 (although the limit depends on the form of payment). Non-residents intending to credit bank accounts held in Spain by non-residents by means of bank notes or bearer checks, in euros or foreign currency, or to transfer abroad such means of payment, are obliged to evidence the origin of such funds. Otherwise, the registered entities will not be able to proceed with these transactions. Additionally, non-residents are required to justify the origin of the funds they use to acquire bank checks, payment orders or other instruments, both in euros and in foreign currency, at a registered entity, or to carry out sales and purchases of bills against other bills in authorized currency exchange establishments. Exceptionally, the Spanish Ministry of Industry, Tourism and Trade may, by making the relevant regulations, require prior clearance or declaration for payments, receipts or transfers to or from abroad arising from certain transactions yet to be specifically defined. 8.2.4 Specific transactions to be reported to the Bank of Spain For purely statistical and informative reasons, residents involved in businesses or transactions abroad should declare them in the following cases: Financing and deferrals of payments and receipts for more than one year between residents and non-residents deriving from commercial transactions or the provision of services. Offsets of credits and debits between residents and non-residents deriving from commercial transactions or the provision of services.
20
www.bde.es
Offsets of credits and debits deriving from intermediation in financial markets by intermediary entities. Financial loans received by residents from non-residents or granted by residents to non-residents. Securities such as bonds, promissory notes, etc. not traded on Spanish stock exchanges issued by Spanish residents and acquired by non-residents are considered as financial loans from nonresidents. The notification of foreign loans and credits provided by non-residents to residents requires (prior to the first draw-down of funds of the loan or credit provided) the resident borrower concerned to obtain a financial transaction number (NOF) when the amount thereof is equal to or higher than 3,000,000, and it is not necessary to file any returns for lower amounts. This NOF must be indicated in all the collection and payment notices relating to the transaction. Specifically, the procedure for the assignment of a NOF is as follows: If the amount of the financing is less than 3,000,000, the transaction is excluded from the reporting obligation unless the Bank of Spain requires it because the aggregate amount of various transactions exceeds the limit established. If the amount is between 3,000,000 and 6,000,000, unless the financing is provided by a non-resident that is resident in a tax haven in accordance with RD 1080/1991, the NOF may be assigned not only by the Bank of Spain but also directly by any registered entity acting on behalf of the Bank of Spain, for which the resident borrower concerned must fill out a Form PE2 containing a preprinted number which is the NOF. In any other cases, the NOF must be assigned by the Bank of Spain, for which a Form PE-1 must be filled out. With regard to loans and credits exceeding 3,000,000 deriving from tax havens, the Bank of Spain may request from the resident borrowers all the information it may deem relevant or make as many verifications needed in order to identify the conditions of the transaction before proceeding to register the transaction and assign the NOF. Additionally, the Spanish authorities and the Bank of Spain may request any data in order to monitor such transactions for statistical and tax purposes. 8.2.5 Import and export of certain means of payment and movement in national territory Order EHA/1439/2006, on the declaration of movements of means of payment for the purposes of the prevention of money laundering, in force from February 13, 2007, establishes that the export of coins, bank notes and bearer checks, denominated either in euros or in foreign currency, although deregulated, is subject to prior declaration for purely informative purposes if the amount involved exceeds 10,000 per individual per trip. If the declaration is not made, the Spanish customs officials will retain these means of payment.
The import of the above-mentioned means of payment by non-residents is subject in certain cases to prior declaration to the Spanish customs authorities if higher than 10,000 (per individual per trip). The movement in national territory of forms of payment consisting of cash, bank bills and bank checks made out to bearer and denominated in national or any other currency, or any physical means, including electronic, that are designed for use as a form of payment, for amounts equal to or higher than 100,000, must also be reported previously. For purposes of this Order, movement shall be deemed to mean any change of place or position verified outside the domicile of the holder of the means of payment. 8.2.6 Types of bank accounts Non-resident individuals and legal entities can hold bank accounts on the same conditions as resident individuals and legal entities. The only requirement is to provide documentary evidence, on opening the bank account, of the non-resident status of the holder of the account. Additionally, such status must be confirmed to the authorized bank every two years. Other minor formalities are stipulated. Moreover, residents may, subject to certain declaration requirements, freely open and hold bank accounts abroad either in euros or in foreign currency (the opening of such bank accounts by resident parties must be declared to the Bank of Spain)and bank accounts in Spain denominated in foreign currencies at registered entities (without being subject to any information requirement). 8.2.7 Residence for exchange control purposes For exchange control purposes, individuals are deemed to be resident in Spain if they have their customary place of residence in Spain. Legal entities with registered offices in Spain, and the permanent establishments and branches in Spain of legal entities or of individuals who are resident abroad, are likewise resident in Spain for exchange control purposes. Non-residents for exchange control purposes are individuals with their customary place of residence abroad, legal entities with registered offices abroad, and the permanent establishments and branches abroad of Spanish resident individuals or entities. Individuals or entities are deemed to have their customary residence in Spain if they comply with the requirements set forth in the tax legislation to be considered as residents in Spain for tax purposes but with the specifications established by regulations (currently there are no regulations on this matter). 8.2.8 Notaries anti-money laundering obligations The Law 10/2010, of prevention of money laundering and terrorist financing, of April 28 (replacing Law 19/1993, of December 28), as well as Royal Decree 1804/2008, of November 3, the Order EHA/114/2008, of January 29, and the Notarial Organization and Regime Regulations, have specified and developed how notaries shall meet certain obligations imposed to them for the prevention of money laundering.
Indeed, notaries status as public attesting officials, deriving from their continuous involvement in economic and financial transactions, as well as their capacity as public officials with an obligation to collaborate with the central government authorities, constitutes the ultimate basis of the duty incumbent on them to supply and require information regarding such transactions. For this purpose, and as a result of the recent amendment referred to, the notary public must verify who the beneficial owner granting the public document before the notary is. For the purposes of Law 10/2010, beneficial owner means: a) The natural person(s) on whose behalf a transaction or activity is being conducted. b) The natural person(s) who ultimately owns or controls a legal entity (other than companies listed on a European Union or a equivalent third country regulated market) through direct or indirect ownership or control over 25% of the shares or voting rights in that legal entity, or who otherwise exercises control over the management of a legal entity. c) The natural person(s) who is the beneficiary of or exercises control over 25 % or more of the property of a legal arrangement or entity which administer and distribute funds; or where the individuals that benefit from the legal arrangement or entity have yet to be determined, the class of persons in whose main interest the legal arrangement or entity is set up or operates.
Sociedad Estatal para la Promocin y Atraccin de las Inversiones Exteriores, S.A.U. RM: Tomo 21818, libro 0, folio 15, seccin 8, hoja M-388683, Inscripcin 1. NIF: A-84479013. Depsito legal: M-3674-2007. Published 2011 This guide was researched and written by Garrigues on behalf of INVEST IN SPAIN. This guide is correct to the best of our knowledge and belief at the date indicated below. It is, however, written as a general guide so it is necesary that specific professional advice be sought before any action is taken. Madrid, January 2011
Establishing a business in Spain
Setting up a business in Spain is simple. The type of business entities available are in keeping with those existing in other OECD countries and there is also a wide range of possibilities capable of meeting the needs of the different types of investor who wish to invest in or from Spain. It is also worth noting that foreign investment restrictions and exchange controls have been virtually eliminated in line with the EU legislation on deregulation in this area. This chapter describes the basic requirements of the different business structures for investing in Spain, as well as the key formalities that a foreign investor must fulfill in order to set up or start up each of therm.
Establishing a business in Spain
2
3 4 5 6 13 16 23 27
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Guide to business in Spain Establishing a business in Spain 2
1. Introduction 2. Different ways of doing business in spain 3. Tax identification number (N.I.F.) and foreigner identity number (N.I.E.) 4. Incorporation of a corporation 5. Formation of a branch 6. Other alternatives for operating in spain 7. Other alternatives to INVEST IN SPAIN 8. Dispute resolution
1. Introduction
FRANCE
Asturias
Cantabria
Bilbao
Galicia
Pas Vasco
Vitoria Logroo
Navarra
La Rioja
Soria
Castilla y Len
Catalua
Tarragona
Gerona
Aragn
Barcelona
vila
Comunidad de Madrid
Toledo
PORTUGAL
Badajoz
Cuenca
Palma De Mallorca
Extremadura
Mrida
Cceres
Baleares
Murcia
Murcia
Andaluca
Granada
Cdiz
Almera
Ceuta
Melilla
MORROCO
Canarias
1. INTRODUCTION
This chapter takes a practical look at the main alternatives open to a foreign investor interested in establishing a business in Spain, as well as the main steps, costs and legal requirements involved. Several alternatives are analyzed in this chapter, including both the establishment of business by the investor itself, either through the incorporation of a company or a branch, or through a joint venture with other enterprises already established in Spain. Other channels for conducting business without a physical presence, such as distribution, agency, commission and franchising agreements are also considered. The following steps are explained throughout this chapter: Setting-up of a Spanish corporation and formation of a Spanish branch (sections 3 and 4). Acquisition of shares in an existing Spanish corporation (section 6.1). Acquisition of real estate located in Spain (section 6.2). Finally, this Chapter contains a final section on disputes resolution in Spain, to be carried out through the national courts or arbitration, this last having proven well-suited to the settlement of such disputes.
2. Different ways of doing business in Spain
2. DIFFERENT WAYS OF DOING BUSINESS IN SPAIN

Various alternatives are open to the foreign investor once the decision to invest in Spain has been taken: The incorporation of a Spanish company (an S.A. or any other of the forms of undertakings described in Appendix I, section 2 of this Guide), or the formation of a branch or permanent establishment. Spanish law provides for a variety of vehicles that can be used by foreign companies or individuals for investing in Spain. Traditionally, the corporation (S.A.) has been the form most commonly used, although the limited liability company (S.L.) has gained popularity in recent years. Association with other businesses already established in Spain. Foreign investors may find a joint venture with a Spanish company to be the most appropriate form of presence in Spain, since it allows the parties to share risks and combine resources and expertise. A joint venture can be set up under Spanish law in a number of ways: An Economic Interest Grouping (Agrupacin de Inters Econmico, E.I.G.) and a European E.I.G. (E.E.I.G.) A Temporary Business Association (Unin Temporal de Empresas or U.T.E.) A silent partnership (contrato de cuenta en participacin) with a Spanish company. Joint ventures through Spanish corporations or limited liability companies. However, it is not necessary for every investor willing to operate and/or distribute his goods or services in Spain to set up a new business or enter into an association with an existing one. Penetration of the Spanish market, providing a satisfactory response to existing demand, may be achieved using the various forms of distribution agreements available in Spain, without establishing a centre of operations. The alternatives include: Signing a distribution agreement. Operating through an agent. Operating through commission agents. Franchising. Each of these forms of doing business in Spain offers different advantages that should be balanced against the potential problems that each may pose and that need to be considered from the tax and legal points of view.
3. Tax identification number (N.I.F.) and foreigner identity number (N.I.E.)
3. TAX IDENTIFICATION NUMBER (N.I.F.) AND FOREIGNER IDENTITY NUMBER (N.I.E.)

The applicable Spanish legislation currently requires that any individual or legal entity with economic or professional interests in Spain, or involved in a relevant way for tax purposes, must hold a tax identification number (in the case of legal entities) or a foreigner identity number (for individuals). These documents, the first of which is issued free of charge and the second at a small cost, must be obtained in order to set up a company, but also to file and process certain documentation with the Spanish authorities. The steps to be taken are as follows: (i) Assignment of a tax identification/foreigner identity number to directors of the company to be set up who do not have a Spanish national identity document: (a) if the director is a legal entity, a specific form (Form 0361) must be filed with the competent authorities, along with certain documentation, and a number is automatically assigned; (b) if the director is an individual, a Foreigner Identity Number (N.I.E.), which will also serve as a N.I.F., must be applied for by either one of the following methods: In Spain: at the General Directorate of Police. If directors do not appear in person, a duly notarized and apostilled or legalized general or special power of attorney is needed for each of the directors, as well as a certified true copy of their passport. Abroad: at Spanish diplomatic missions or consular offices. (ii)Assignment of a tax identification/foreigner identity number to any shareholders of the company: A specific form (Form 036) must be submitted to the competent authorities (in the case of legal entities) or a N.I.E. must be applied for (for individuals) following the procedures described above. Throughout the above process, the shareholders and/or director(s) acting through a representative must grant sufficient powers of attorney to fulfill these formalities.
1 Form 036 can be obtained from offices of the Spanish tax authorities or downloaded directly from the website www.aeat.es (Modelos y formularios / Declaraciones/Todas las Declaraciones).
4.Incorporation of a corporation
4. INCORPORATION OF A CORPORATION
The most common form of legal entity under Spanish corporate law is the corporation (Sociedad Annima - S.A.), and the second most common is the limited liability company (S.L.). (Other corporate forms are described in Appendix I, section 2 of this Guide). It should be noted that similar steps and expenses are involved for both legal forms. Section 4.1.1 describes the ordinary steps necessary for establishing a corporation which would be applicable to limited liability companies, without prejudice the special characteristics of this type of companies. However, the recent enactment of Royal Decree-Law 13/2010, of December 3, on tax, employment and deregulation measures to promote investment and the creation of employment, has established certain measures to speed up the formation of limited companies by telematic means, the main characteristics of which are detailed in section 4.1.2.
4.1.Legal steps
Example: incorporation of an S.A. through cash contributions. The formal act of incorporation takes place in the presence of a notary public, who executes the related public deed of incorporation (including the articles of incorporation). The share capital must be fully subscribed and at least 25% paid in at the time of incorporation; the remaining 75% must be paid in within the period stipulated in the by-laws. The Law does not stipulate a deadline for payment of unpaid amounts through cash contributions, but establishes a maximum period of five years for payment through non-monetary contributions. The minimum share capital required is 60,000 (compared with the much lower figure of 3,000 for an S.L., which must be paid in full at incorporation). The basic requirements for establishing a corporation are as follows: Issue by the Spanish Central Commercial Register of a certificate of clearance for use of the name of the new company2. This step should precede all others, to ensure that the proposed name can in fact be used. The certificate of clearance is valid for six months from the date of issue. Obtainment of the provisional N.I.F. of the new company3. Obtainment of the provisional N.I.F. is a necessary formality for the filing of transfer tax returns (see below), the execution of the public deed of incorporation of the company and the registration of the company in the corresponding Commercial Register. There are two procedures for obtainment of the provisional N.I.F:
2 The certificate of clearance may be obtained: Directly from the offices of the Central Mercantile Register with a certificate application form. By mail, by sending an application or letter to the offices of the Central Mercantile Register. The Register will reply by sending the certificate cash on delivery to the address indicated in the application. By telematic means, by filling out the form on the website www.rmc.es (http://www.rmc.es/Deno_solicitud.aspx). 3 Application for the N.I.F. or C.I.F. should be made before the Tax Office corresponding to the companys registered office (http://www.aeat.es).
Ordinary procedure: Execution by the future shareholders of an agreement of intent to set up the new company. The minimum terms of such an agreement are as follows: (a) the type of company to be set up, (b) the corporate purpose of the company, (c) the initial share capital, and (d) the registered office. However, this document is executed for the mere purpose of the obtainment of the provisional N.I.F. of the new company, which is why the terms of the agreement can later be amended in the deed of incorporation (see below). Once the mentioned agreement is entered into, it is needed to carry out a formality, which is free of charge, before the Tax Authority, and consists of the fulfillment of a specific form and certain other documents (including the future shareholders agreement) to submitted to the competent authorities, with a provisional number being assigned automatically to the company. Once the company has been registered in the Commercial Register, it must obtain a definitive N.I.F. within a maximum of six months from assignment of the provisional N.I.F. Telematic procedure: The notary authorizing the deed of incorporation applies to the Spanish tax authorities for assignment of a provisional N.I.F. by telematic means. Once the company has been registered, the commercial registrar will also send the registration details of the Company to the tax authorities by telematic means and the tax authorities will notify the notary and the registrar of the definitive nature of the N.I.F. In order for the Spanish authorities to issue a definitive N.I.F., the formalities relating to assignment of a N.I.F. and N.I.E. to the foreign directors and shareholders of the company must be completed, as detailed in Chapter 2, section 3. Document containing representations by the beneficial owner of the shareholder(s) of the new company. Prior to the incorporation of the company, a document containing representations by the beneficial owner of the shareholder(s) of the new company must be executed before a notary. Law 10/2010, of April 28, on the Prevention of Money Laundering and Terrorist Financing requires the founders of a company to provide a declaration by the beneficial owner, that is, by the individual(s): on whose behalf it is intended to establish a business relationship or take part in transactions; and/or who, in the last instance, directly or indirectly own(s) or control(s) more than 25% of the capital stock or voting rights of a legal entity, or who by any other means exercise(s) direct or indirect control over the management of a legal entity. Companies listed on a regulated market of the European Union or other equivalent third country are excepted; and/or who hold or exercise control over 25% or more of the assets of a vehicle or legal entity that manages or distributes funds, or, where the beneficiaries are still to be designated, the category of persons for whose benefit the legal entity or vehicle is created or mainly acts.
Execution of the public deed of incorporation of the company before a Spanish notary public. (i) Evidence of the identity of the founder shareholders. The public notary will require the persons who appear before him for this purpose to exhibit: Evidence of their identity. The powers of attorney (if applicable) to represent a third party on whose behalf any of them appears. If a shareholder is represented at the act of incorporation, the powers of attorney used must satisfy certain requirements and, if issued abroad, must be duly legalized. There are two main procedures for such legalization: Execution of the powers of attorney in the presence of the Spanish Consul in the foreign investors home country. The foreign investor appears before the Spanish Consul, provides evidence of his identity and grants the related powers of attorney. If a company, rather than an individual, is the foreign shareholder, apart from his identity, the person appearing before the Spanish Consul must provide evidence of his authorization to act in the name and on behalf of the shareholder and to grant the powers of attorney to the designated person. The Spanish Consul may demand any documentation he considers necessary, and will proceed to execute a public deed of powers of attorney, in Spanish, to the person designated. This power of attorney can be used directly in Spain. Execution of the powers of attorney in the presence of a foreign public authenticating officer. The foreign investor appears before the authenticating officer, gives evidence of his identity and grants the related powers of attorney. If the foreign investor is a company, its representative shall execute the powers of attorney in the presence of the public authenticating officer, who certifies the document as well as the identity and authorization of the representative of the foreign investor to grant the powers of attorney. The signature of the foreign authenticating officer would also require subsequent legalization (either by the apostille procedure approved by The Hague Convention of October 5, 1961, or by a Spanish Consul abroad). Under this second procedure, the powers would normally be issued in the language of the authenticating officer who attests to the act so a sworn translation into Spanish would also have to be prepared. (ii) Evidence of payment and whether it is to be made in cash or in kind (if applicable). Payment of the contribution in cash may be evidenced using the corresponding bank documentation, which must be submitted to the notary involved in the act of incorporation of the company. (iii)The name clearance certificate from the Commercial Register (see above). (iv)The company bylaws. (v) The form (to be signed by the notary, if applicable) for subsequent declaration of the foreign investment to the General Directorate for Trade and Investment of the Ministry of Economy and Finance (D.G.C.I.") (See Chapter 1, section 8 for further information).
It is worthwhile noting in this section that under Spanish labor legislation, non-EU nationals intending to work in Spain must obtain a special work visa and a work and residence permit. The Spanish labor authorities grant different work permits depending on the type of work and its duration. For more information regarding visas and work and residence permits please see Chapter 5. Workers who have resided legally and continuously in Spain for five years and have renewed their work and residence permits (both for self-employed and for employed work), may obtain a longterm residence permit. After obtaining such a permit, the worker must apply for a resident alien identity card, which will be renewed every five years. Nationals from other Member States of the European Union, the European Economic Area and Switzerland do not need work permits either as employees or as self-employed workers, since Spain fully applies EU legislation on the free movement of workers. Citizens of the above are therefore entitled to be employees or self-employed workers, on the same terms as Spanish citizens. Self-employed workers or employees, students and other beneficiaries of the right to permanent residence, provided that they are citizens of the European Union Member States or of other States included in the European Economic Area may live in Spain without a residence card. It will be sufficient for them to hold a valid national identity card or passport and to register themselves on the appropriate Register of Foreigners (for stays exceeding three months). Family members of EU citizens may reside in Spain without having to obtain a work or residence permit, although they will have to apply for a card for family members of EU citizens. Other foreign citizens included in the European Union system must obtain a residence card. Filing of transfer tax form (pursuant to Royal Decree-Law 13/2010, of December 3, on tax, employment and deregulation measures to promote investment and the creation of employment, the incorporation of a company is exempt from transfer tax) (See Chapter 3, section 2.7 for further information). A special form (Form 600) must be filed within a maximum period of 30 days from the act of incorporation. Again, this is a necessary requirement for registration of the company in the Commercial Register. Registration in the Commercial Register. Once the above steps have been completed, the companys public deed of incorporation is filed at the Commercial Register for its formal registration. Subsequent declaration of the investment to the D.G.C.I. Prior declaration is in certain cases required, especially for foreign investments originating in territories or countries deemed to be tax havens. (See section 8 of Chapter 1 for more detailed information). Registration of the company for I.A.E. (Business Activity Tax). Newly incorporated companies must use the same special form used to request a tax identification number, to describe their business activity, and specify the article of the Law by virtue of which they are exempt from
this tax (newly incorporated companies or companies starting a new business are exempt from this tax for the first two tax periods). This step must be completed before the company starts operation. Registration of the company for V.A.T. purposes. (See Chapter 3, section 2.6 for further information) Obtainment of an opening license from the relevant municipal council. Registration of the company for Spanish social security and occupational accident insurance purposes, and registration of the employees for social security purposes. (See Chapter 5 section 11, for further information). Compliance with certain procedural formalities at the local office of the Ministry of Labor and Social Affairs. The following chart shows the main steps for incorporation of a company through cash contributions:
Table 1
PRELIMINARY STEPS TO INCORPORATE A COMPANY

Certificate of clearance of the corporate name Granting of powers of attorney for the incorporation Declaration of intentions of the shareholders regarding the incorporation of a company
PRELIMINARY STEPS
Assingment of a provisional tax identification number Opening of bank account Determination and deposit of the capital stock Determination of the body of administration Reparation of the corporate by-laws
Execution of the public deed of incorporation before spanish notary public
Payment of transfer tax
Registration with the Mercantile Register
Assigment of the definitive tax identification number Declaration of the investment before the Ministry of Industry, Tourism and Trade
As a general rule, incorporation takes between six and eight weeks although this period may be considerably longer if a N.I.E. must be obtained for any of the foreign directors. For additional information please visit www.investinspain.org and the web page www.ipyme.org. Additionally, companies may wish to consult the one-stop business office (www.vue.es), which provides integrated advisory and processing services to entrepreneurs. 4.1.1.Simplified regime for the formation of limited liability companies Notwithstanding the above, the following table contains the main characteristics of the simplified procedures for the formation of limited liability companies, as approved by Royal Decree-Law 13/2010.
Table 2
Reduced mode
Super scheme
Requirements
Applicable only to limited liability companies with: Shareholders that are exclusively individuals. Capital not exceeding 30,000. Managing body: sole director, various directors acting severally or two joint directors.
Applicable only to limited liability companies with: Shareholders that are exclusively individuals. Capital not exceeding 3,100. Bylaws in line with any of those approved by the Ministry of Justice (Order JUS/3182/2010, of December 9).
Issue of certificate of clearance for use of name Period for execution of deed
The notary, the interested party or anyone authorized by it may apply by telematic means for a certificate of clearance for use of the name (which may contain up to five different names) to be issued by the Central Commercial Register, which shall issue the certificate within one (1) business day of the application. One (1) business day from the receipt of the certificate of clearance for the use of the name issued by the Central Commercial Register, once the notary has submitted all the relevant information. Same day as receipt of the certificate of clearance for the use of the name issued by the Central Commercial Register.
Sending of an authorized copy to the Commercial Register Period for assessment and registration in the Commercial Register
The authorized copy of the deed of incorporation shall be sent by telematic means by the notary to the Commercial Register corresponding to the registered office of the company on the same day it is executed.
Three (3) business days, as from the receipt of the deed by telematic means.
Within seven (7) business hours (according to the opening hours of the registry) of the receipt of the deed by telematic means.
Table 2 (cont.)
Reduced mode
Super scheme
Correction of defects identified by the registrar Evidence of registration and appointment of directors
Possibility of granting the notary the power to correct any defects identified by the registrar in his assessment by electronic means, provided that the correction is in keeping with the assessment and the duly informed intention of the parties. Electronic or hard-copy certificate, issued at the request of the interested party, at no additional cost, by the commercial registrar on the same day as registration. Notification to the authorizing notary that the registration was completed, with the corresponding registry data: same day as registration. Registry data added to the notarial protocol by the notary.
Notarial and registration fees
Notary: 150. Registrar: 100.
Notary: 60. Registrar: 40.
4.2.Costs
Exempt from Transfer tax in accordance with Royal Decree-Law 3/2010 (See section 2.7 of Chapter 3). Fees of the notary public handling the incorporation, which are charged on a sliding scale based on the share capital. For guidance purposes, the official rates amount to 90 for the first 6,010, after which the following range is applied: 0.45% down to 0.03% for share capital in excess of 6,010 and below 6,010,121. For any amount in excess of 6,010,121, the notary will receive the amount that is agreed upon by the founder shareholders. Fees for registering the company in the local Commercial Register, following its incorporation in the presence of the notary. There are official rates that amount to 6.01 for the first 3,005, after which a sliding scale of officially approved charges is applied. These range from 0.1% down to 0.005% for capital in excess of 6,010,121. The total fee is capped at 2,181 and may not exceed this amount. Opening license tax. A one-off municipal levy, ordinarily a relatively small amount. Other expenses (e.g. professional fees), which are not readily quantifiable.
5.Formation of a branch
5.FORMATION OF A BRANCH
In general terms, the requirements, procedural formalities and costs of forming a branch in Spain of a foreign company are very similar to those for the incorporation of a subsidiary as a company. The main legal steps and costs are summarized below, highlighting the main differences with respect to the incorporation of a subsidiary.
5.1.Legal steps and costs

Execution of the public deed recording the opening of a branch in the presence of a Spanish notary public. This step consists of the public formalization before a notary public of the resolution to open a branch previously adopted by the competent body of the foreign parent company. In addition to the documentation required in the case of a subsidiary (evidence of the identity of the person who appears before him, his powers of attorney to represent the parent company, evidence of payment and whether it is to be made in cash or in kind (if applicable), the notary public will also require evidence of the existence of the parent company, its by-laws, the names and personal details of its directors and the resolution to form the branch previously adopted by the appropriate representatives or committees within the parent company. Assignment of a Tax Identification Number (N.I.F.)*. Appointment of an individual or legal entity residing in Spain to represent the parent company in dealings with the Spanish tax authorities regarding its tax obligations. Payment of transfer tax on the contributions made if the entity operating through a branch has its registered office and effective place of management in a non-EU country. (See section 2.7 of Chapter 3 for further information). Registration in the Mercantile Register*. Subsequent declaration to the D.G.C.I. In some cases, prior declaration is required. (See section 8 of Chapter 1 for more detailed information). Registration of the branch for I.A.E. (Business Activity Tax) purposes*. Registration of the branch for V.A.T. purposes*. Payment of opening license tax*. Registration for social security purposes*4. (See section 11 of Chapter 5 for further information). Compliance with the labour formalities*.
* Sigue los mismos procedimientos que en el caso de una sociedad.
5.2.Branch versus subsidiary

The main differences that should be taken into consideration are summarized below. From a Spanish legal standpoint, the main differences between a branch and a subsidiary are as follows: Minimum share capital: Subsidiary incorporated as an S.A.: 60,000 Subsidiary incorporated as an S.L.: 3,000 Partnership limited by shares: 60,000 General partnership or branch: no legal minimum A subsidiary is a separate legal entity, whereas a branch has the same legal identity as its parent company. The liability of the shareholders of a subsidiary incorporated as an S.A. (or S.L.) for the debts of the subsidiary is limited to the amount of the capital contributions they make or undertake to make, (with certain exceptions Appendix I, section 3). In the case of a branch, there is no limit to the parent companys liability. From a tax standpoint (for further tax information, see section 2 of Chapter 3), both the branch and the subsidiary are, in general terms, liable for Spanish corporate income tax at 30% on their net income, although the following considerations should be taken into account: The remittance of branch profits and the payment of a subsidiarys dividend to a non-EU parent company resident in a non-treaty country are taxable in Spain at the rate of 19%; if the parent company is EU-resident, the remittance or dividend is usually tax-exempt. If the parent company is resident in a non-EU country with which Spain does have a tax treaty, the dividends would be taxable at the reduced treaty rate and the remittance of branch profits would, under most of the treaties, be exempt from tax in Spain. Share of parent company overheads: In practice, it is usually easier for these expenses (if any are imputed) to qualify as deductible in the case of a branch than in the case of a subsidiary. Interest on loans from a foreign parent company to its Spanish branch is not tax-deductible for the branch. By contrast, the interest on loans from the shareholders of a subsidiary is normally taxdeductible for the subsidiary, provided that the transaction is valued on an arms-length basis and subject to certain requirements.
5.3. Calculation of Spanish corporate income tax

Below is a very simple example of the calculation of Spanish corporate income tax on the profit obtained by a Spanish subsidiary or by the branch in Spain of a foreign company. (For further information, see section 2.1. of Chapter 3).
Table 3
PARENT COMPANY IN
EU country (1) Treaty country Non Treaty country
Subsidiary: Profit of Spanish subsidiary Spanish income tax (30%) (2) Dividends Withholding tax on dividends Total tax in Spain Branch: Profit of Spanish branch Spanish income tax (30%) (2) Profit remitted to the parent company Withholding tax Total tax in Spain 100 30 70 30 ( 4) 100 30 70 30 ( 6) 100 30 70 13.3 (3) 43.3 100 30 70 30 ( 4) 100 30 70 7 37 ( 5) 100 30 70 13.3 (3) 43.3
(1) Spain has tax treaties in force with all EU countries except Cyprus. (2) (See special tax rate for small and medium-sized companies in Chapter 3). (3) Withholding tax rate = 19%. (4) Exempt, provided certain conditions are met. (5) The withholding tax rate on dividends used in this example is 10% (the most common rate in the tax treaties entered into by Spain). (6) The branch profit tax will apply if provided for in the corresponding tax treaty (e.g. the U.S., Canada and Brazil).
6.Other alternatives for operating in Spain
6.OTHER ALTERNATIVES FOR OPERATING IN SPAIN

6.1.Forms of business co-operation
One of the most common forms of business co-operation between companies is the joint venture (J.V.). Spanish law provides for different forms of joint venture: 6.1.1.Temporary Business Alliances (U.T.E.s) Under Spanish law, U.T.E.s are temporary business alliances set up for a specified or unspecified period of time, for the purpose of carrying out a specific project or service. U.T.E.s allow several companies to operate together in one common project. This form of association is very common for engineering and construction projects but can be used in other sectors as well. U.T.E.s are not corporations and have no legal personality. In order to qualify for the special regime of flow-through taxation, they must be formed by notarial deed and registered with the Finances Special Register of U.T.E.s at the Spanish Ministry of Economy and Finance. Furthermore, they may be also registered at the Commercial Register. However, U.T.E.s must comply with bookkeeping and accounting requirements similar to those of corporations. U.T.E.s are governed by Law 18/1982, concerning the Tax Regime of Temporary Business Groupings and Associations and Regional Industrial Development Companies, amended, inter alia, by Law 12/1991, Law 43/1995and Law 62/2003. 6.1.2.Economic Interest Groupings (E.I.G.s) E.I.G.s are created with a view to help members achieving their objectives. The E.I.G.s may not act on behalf of their members nor may they substitute them in their operations. Consequently, the E.I.G. is most commonly used to provide centralized services within the context of a broader association or group of companies, such as centralized purchasing, sales, information management or administrative services. One of the key differences between U.T.E.s and E.I.G.s is that E.I.G.s are entities of a mercantile nature with a separate legal personality. Spanish law lays down certain requirements for E.I.G.s: They may not interfere with their partners decisions on personnel, finance or investment matters, nor are they allowed to manage or control their activities. They may not hold, directly or indirectly, a portfolio of investments in other companies, unless it is necessary to acquire shares or holdings in order to fulfill the E.I.G.s purpose, in which case the shares or holdings must be transferred immediately to its partners. They must be formed by notarial deed and registered in the competent Commercial Register.
E.I.G. members are considered personally and severally liable for the entitys debts, albeit secondarily to the E.I.G. Their main obligation is to contribute to the E.I.G.s capital on the agreed terms and to share in its expenses. There are two main governing bodies in an E.I.G.: the members meetings and the managers. The managers are jointly liable with the E.I.G. for all tax obligations accrued and for any damage caused, unless they are able to prove that they acted with due diligence. E.I.G.s are mainly governed by Act 12/1991, of April 29, on Economic Interest Groupings. The European E.I.G. (E.E.I.G.) also has a separate legal identity and E.E.I.G.s incorporated in Spain share the main features contemplated in EU Regulation 2137/85, which establishes the basic rules governing E.E.I.G.s. 6.1.3.Participation Account Agreement (silent partnership) This form of business partnership, similar in nature to an unincorporated partnership agreement, consists of a financial collaboration whereby one or more entrepreneurs (nonmanaging investorparticipants) provide cash contributions or contributions in kind to another entrepreneur (the managing participant) in order to take up an interest in the results of the activities of the managing participant. This interest refers to both the positive and negative results (i.e. income or losses) of the business in question. The contributions, whether cash or in kind, do not qualify as capital contributions as such, but rather as an agreement which simply confers a right on the nonmanaging investors to share in the results of the business concerned. Nonmanaging investors do not therefore have shareholder status at the managing company. As indicated in the Commercial Code, this type of agreement does not require any legal formality (public deed or filing with the Commercial Register). However, in practice, the contracting parties tend to record the agreement in a public deed that can serve, if necessary, as proof before third parties. Under current legislation, remuneration obtained by nonmanaging investors must be recorded as an expense in the accounts of the managing participant. Lastly, the execution of this agreement in a public instrument is regarded as a taxable event under the corporate transactions heading of the Transfer Tax Law. 6.1.4.Joint ventures through Spanish corporations or limited liability companies. A significant number of joint ventures use corporations and limited liability companies as vehicles. Consequently, reference should be made to comments made in other sections of this Guide on the formation, basic characteristics and features of the governing bodies of corporations and limited liability companies. (See this Chapter and Annex I).
6.2.Distribution, agency, commission agency and franchising agreements

6.2.1.Distribution agreements In practice, distribution agreements are often confused with agency agreements. Nevertheless, they are different and have distinct regulations and characteristics. Distribution agreements offer a highly interesting alternative means of organizing a company or branch or entering into commercial cooperation agreements with previously existing entrepreneurs in order to carry out their operations in Spain, since a considerably lower initial investment is required. There are several types of distribution agreement. It is worth noting that such agreements are not regulated, allowing the parties broad discretion to decide on the contents of the contract, given the current lack of specific legislation on this area. Under a distribution agreement, one of the parties undertakes to purchase and resell goods belonging to the other party. Distributors are legal entities that form an intrinsic, albeit not truly integrated, part of the commercial network of the venture, united by a business relationship and a desire to increase sales. Agreements in the Spanish distribution networks or system can be divided into the following broad categories: Commercial concession or exclusive distribution agreements: The supplier not only undertakes not to provide his products to more than one distributor within a specified territory, but also not to sell those products himself within the territory of the exclusive distributor. Sole distribution agreements: The only difference with the above agreement is that, in this case, the supplier reserves the right to supply the agreed products to users in the territory of the concession. Authorized distribution agreements under the selective distribution system: Owing to their nature, certain products require special treatment by distributors and sellers. The form of distribution used in both cases is called selective distribution, as distributors are carefully selected on the basis of their capacity to handle technically complex products and to maintain a particular image or brand name. As regards the taxation of distribution agreements, non-resident manufacturers not established in Spain will record business income in Spain on the sale of their goods to distributors, which is generally not taxable in Spain (for further information, see Chapter 3). For information on the taxation of individual or corporate distributors resident in Spain, see Chapter 3.
6.2.2.Agency agreements Article 1 of Spanish Act 12/1992, on Agency Agreements, which implemented Directive 86/653/EEC, provides the following definition of agency agreements: "Under an agency agreement, an individual or legal entity, known as an agent, agrees with another on a continuous or regular basis, for remuneration, to promote commercial acts or transactions for the account of another or to promote or conclude them for the account and in the name of others, as an independent intermediary and without assuming the risk and hazard of such transactions, unless otherwise agreed. The agent is an independent intermediary who does not act independently, but rather for and on behalf of one or more principals. The agent must, of his own accord or through his employees, negotiate and, if required by contract, conclude on behalf of the principal, the commercial acts or operations he is instructed to handle. Other specific regulations provide that: An agent cannot subcontract his activities unless expressly authorized to do so. An agent is authorized to negotiate the acts or operations detailed in the agency agreement, but can only conclude them on behalf of the principal when expressly authorized to do so. The agent may act on behalf of different principals, unless the related goods or services are identical or similar, in which case the consent of the existing principals is required. There are three types of remuneration for an agent: A fixed sum, a commission, or any combination of the two. As a general rule, the restraint of trade clause restricting or limiting the activities that can be carried out by the agent once the agency agreement has been terminated can never be valid for more than two years after the termination of the agency agreement. The following constitute the obligations of the principal: To act loyally and in good faith in its relations with the agent. To provide the agent with all the documentation he needs to engage in his activity. To provide the agent with all the information required to perform the agreement. To pay the agreed compensation. To accept or reject transactions proposed by the agent. One of the essential elements of the agency agreement is that the agents work must always be compensated. The compensation may consist of a fixed amount, a commission or a combination of both.
With respect to the tax treatment of agency agreements, the key issue is to determine whether a commercial agent can be considered as a permanent establishment in Spain of the principal, which will in turn depend on whether or not there is a relationship of dependence between them. As regards the taxation of residents and non-residents in Spain, see Chapter 3, section 2.3. 6.2.3.Commission agency agreements This is the mandate under which the authorized agent (commission agent) undertakes to perform or to participate in a commercial act or agreement on behalf of another (the principal). Commission agents may act: In their own name, acquiring rights against the contracting third parties and vice versa. On behalf of their principal, who acquires rights against third parties and vice versa. The main obligations of commission agents are as follows: To represent their principals as if their interests were their own and to perform their engagement personally. Commission agents may delegate their duties if authorized to do so and may use employees under their responsibility. To account for amounts that they have received as commission, to reimburse any excess amount and to return any unsold merchandise. In general, commission agents are not liable to their principal for the performance of the related agreements by third parties, although this risk can be secured by a commission del credere. Commission agents are barred from buying for their own account or for the account of others, without the consent of their principal, the goods that they have been instructed to sell, and from selling the goods that they have been instructed to buy. The principal undertakes to pay a commission and to respect the retention and preference rights of the commission agent. The claims of the commission agent against the principal are protected by the right to retain the goods. As regards the tax treatment of transactions under this type of agreement, non-resident principals not established in Spain record business income in Spain on the sale of their goods, which is generally not subject to taxation in Spain (for further information, see Chapter 3, section 2.3). For information on the taxation of individual or corporate commission agents residing in Spain, see Chapter 3, section 2.3. 6.2.4.Differences and similarities between agency agreements and commission agency agreements The main similarity between the two types of agreement is that, in both cases, an individual or legal entity undertakes to pay another compensation for arranging a business opportunity for the former
to conclude a legal transaction with a third party, or for acting as the formers intermediary in concluding the transaction. The main difference between them is that agency agreements involve an engagement on a continuous or regular basis, whereas commission agency agreements involve occasional engagements. 6.2.5.Franchising Franchising is a system for marketing goods, services and/or technology. It is based on close, ongoing cooperation between undertakings that are legally and financially distinct and independent (the franchisor and its individual franchisees). Under this system, the franchisor grants a right to, and imposes an obligation on, its individual franchisees, for a specific market, to pursue the business or commercial activity previously carried out by the former with sufficient experience and success, using the concept and system defined by the franchisor. In return for a direct and/or indirect consideration, this right entitles, and obliges, individual franchisees to use the brand name and/or trade or service mark for the goods or services, the knowhow and the technical and business methods, which must be specific to the business, material and unique, the procedures and other intellectual property rights of the franchisor, backed by the ongoing provision of commercial and technical assistance under, and during the term of, the relevant franchising agreement between the parties, all of the above regardless of any supervisory powers conferred on the franchisor by contract. Commercial concession or distribution agreements will not necessarily be considered franchises where an entrepreneur undertakes to acquire products (usually brand products) under certain exclusive rights in an area in order to resell them, again under certain conditions, as well as to offer purchasers of the products after-sale services. In addition, the following are not considered to be franchises: (i) the grant of a manufacturing license, (ii) the licensing of a registered trademark to be used in a particular area, (iii) transfers of technology or (iv) a license to use a commercial emblem or logo. The applicable Spanish legislation is (i) Law 7/1996, of January 15, regulating retail trade, which was designed to establish the basic conditions for carrying on franchise activity and to create the Register of Franchisors (as amended by Law 1/2010, of March 1), (ii) Royal Decree 201/2010, of February 26, regulating the exercise of the commercial activity on franchise regimen and the communication of information to the Register of Franchisors, and (iii) Royal Decree 378/2003, which refers to Regulation (EC) No. 2790/1999, of December 22, 1999, relating to the application of Article 81.2 of the Treaty to certain categories of vertical agreements and concerted practices and Regulation (EC) no. 1400/2002, of July 31, 2002, for the motor vehicles sector. In Spain, prior to the start of their franchising activity in the territory of more than one Autonomous Region, the franchisor shall register with a public administrative Register of Franchisors, which is hierarchically subordinate to the General Directorate for Internal Trade of the Ministry of Industry,
Tourism and Trade. This Register will take charge of registering franchisors at the instance of the Autonomous Region in which they are domiciled, or directly at the request of the party concerned, whether or not it is domiciled in Spain. They must also regularly update the list of franchisors, provide information and issue franchisors with the relevant supporting certificates. With regard to the various types of agreement, the following are worth mentioning: Industrial franchising agreements (for the manufacture of goods), distribution franchising agreements (for the sale of goods) and service franchising agreements (relating to the provision of services). The advantages offered by a franchising agreement include the fact that a franchising agreement is a form of product and/or service distribution that enables a uniform distribution network to be swiftly created with limited investment. Franchising also enables independent traders to set up installations more rapidly and with greater chances of success than if they did so themselves without the knowhow and assistance of the franchisor. Antitrust law requirements must be thoroughly considered when defining the content of franchising agreements. Last, as regards the tax treatment of franchising agreements, the nature of the consideration paid by the franchisee to the franchisor should be analyzed, since it could be considered a royalty and business income, or only a royalty, depending on the different services rendered and the rights granted. For information on the tax treatment of the franchisee, see section 2 of the Chapter 3. According to the experts, franchising has seen spectacular growth in Spain in recent years, giving rise to what is now a well-established franchising system.
7.Other alternatives to invest in Spain
7.OTHER ALTERNATIVES TO INVEST IN SPAIN

7.1.Acquisition of shares of an existing corporation
7.1.1.Legal steps Transfers of shares in a limited liability company must, in all cases, be attested to by an authenticating officer. Transfers of shares in Spanish corporations must be attested to by an authenticating officer where so required by Spanish legislation or if so agreed on by the parties. The authenticating officer will require evidence of the following: the identity of the parties involved and, if applicable, the related powers of attorney (if one or both of them act on behalf of another individual or entity), and the sellers title to the shares. Prior to the transfer of shares before the authenticating officer, a document containing representations by the beneficial owner of the appearing parties must be executed before a notary. Law 10/2010, of April 28, on the Prevention of Money Laundering and Terrorist Financing requires the founders of a company to provide a declaration by the beneficial owner, that is, by the individual(s): on whose behalf it is intended to establish a business relationship or take part in transactions; and/or who, in the last instance, directly or indirectly own(s) or control(s) more than 25% of the capital stock or voting rights of a legal entity, or who by any other means exercise(s) direct or indirect control over the management of a legal entity. Companies listed on a regulated market of the European Union or other equivalent third country are excepted; and/or who hold or exercise control over 25% or more of the assets of a vehicle or legal entity that manages or distributes funds, or, where the beneficiaries are still to be designated, the category of persons for whose benefit the legal entity or vehicle is created or mainly acts. Subsequent declaration to the D.G.C.I. (in some cases, prior declaration is required. See section 8 of Chapter 1 for more detailed information). Payment of transfer tax, if applicable: As described in the transfer tax section see section 2.7 of Chapter 3, transfers of shares of companies whose assets consist mainly of Spanish real estate5 are, in certain cases, subject to a transfer tax of 7% (certain Autonomous Communities and Cities have not enforced their own legislation and are still applying a 6% rate, while the applicable rate in the Canary Islands is 6.5%).
5 Provided that: (i) the control of the entity is acquired or, if it is already held, increased, or (ii) the transferred holding has been obtained as a consequence of a contribution of immovable properties carried out in the three preceding years.
7.1.2.Costs Fees of the authenticating officer attesting to the transaction: In the case of a notary public, the scale applicable for the incorporation of a subsidiary or the formation of a branch is also applicable here. In the case of a Spanish Consul abroad, a similar sliding scale tied to the price fixed is applicable. By way of example, there is a minimum fee for amounts below 1,202, while rates range from 1% down to 0.05% for amounts in excess of 300,506. No transfer tax is levied on this transaction, except in the cases mentioned above. 7.1.3.Special considerations for the acquisition of shares of companies between non-residents Acquisitions of shares of Spanish companies between non-residents that have already taken place abroad may be formalized before a Spanish authenticating officer. The documents to be delivered to the Spanish authenticating officer formalizing the transaction for Spanish purposes may include the special forms on which the investments and corresponding divestment are declared to the D.G.C.I.s Foreign Investment Register.
7.2.Acquisition of real Estate located in Spain

7.2.1.Legal steps General: Execution of the notarized public deed of purchase. The acquisition must be attested to by a Spanish notary public or by a Spanish Consul abroad, to whom it is necessary to show evidence of: (i) the identity of the parties and, if applicable, the related powers of attorney, as well as their respective tax identification numbers (in the same way as described in section 4.1 above for the incorporation of a corporation); (ii) the sellers title to the property and (iii) the effective payment and means by which the purchase was carried out (specifically, whether the payment was received prior to the formalization, the amount, and whether payment was made in cash, by check or any other money transfer instrument or by bank transfer). Prior to the transfer of the real estate, a document containing representations by the beneficial owner of the transferor and the transferee must be executed before a notary (in a similar way to the one described in section 7.1 of this Chapter) Subsequent declaration is required when the amount exceeds 3,005,060 (see Section 8 of Chapter 1). Payment of transfer tax or V.A.T. and stamp tax: If the vendor is an individual or a company not considered as an entrepreneur developing an economic activity, transfer tax would be generally applicable, at the rate of 7% as a general
rule (in this regard it should be noted that the Autonomous Communities and Cities have the right to modify the applicable tax rates). (See section 2 of Chapter 3 for more detailed information). If the vendor is an individual entrepreneur or a company, developing an economic activity, the following cases may arise: Transfers of buildable land (or land in the process of being developed) and first delivery of buildings: V.A.T. at 18% (8% if the building is for housing) plus stamp tax, in general, at 1%. The stamp tax rate may be modified by the Autonomous Communities. This regime also applies to refurbished buildings in accordance with VAT legislation or buildings that are supplied for refurbishment or subsequent demolition with the aim of developing them in the future-. Transfers of rural land (unbuildable or non in the process of being developed) land and second or subsequent delivery of buildings: Transfer tax or V.A.T. V.A.T. can be applied if the acquirer is an entrepreneur or professional who is entitled to deduct 100% of the input V.A.T. and the vendor chooses to pay V.A.T. rather than transfer tax, while meeting certain requirements6. If the real estate is located in the Canary Islands (where V.A.T. is not applicable (see section 3.1. of Chapter 3)), the following would be applicable: If the vendor is subject to Canary Islands Indirect General Tax (C.I.I.G.T.) (individual or company) the following cases can arise: Transfer of buildable land and first delivery of buildings: C.I.I.G.T. at 5% plus stamp tax at 0.75% (0.4% if it involves real estate that will constitute the principal residence and certain requirements are met). Transfer of rural (unbuildable) land and second or subsequent delivery of buildings: Transfer tax at 6.5% (4% if it involves real estate that will constitute the principal residence and certain requirements are met) or C.I.I.G.T. C.I.I.G.T. is applicable if the acquirer is an entrepreneur or professional, and if the vendor chooses to pay C.I.I.G.T. rather than transfer tax, while meeting certain requirements. If the vendor is not subject to C.I.I.G.T.: Transfer tax (regardless of the nature of the real estate). Registration of the property at the Official Property Register. This step should be completed as soon as the public deed of purchase is notarized and the taxes referred to above have been paid, in order to ensure that the acquirers property rights are duly protected.
6 The stamp tax rate applicable to public deeds documenting transfers of real estate where the vendor waives the V.A.T. exemption, can be higher than the general rate of the stamp tax, in certain Autonomous Communities (1.5% or 2%).
7.2.2.Costs Notary public fees (as in previous sections). Transfer tax or V.A.T. and stamp tax (see above). Property Register fees. For guidance purposes, the official rates amount to 24 if the value of the property does not exceed 6,010, thereafter rates of between 0.175% and 0.02% are applied. The total fee is capped at 2,181 and may not exceed this amount. Municipal tax on the increase in urban land value (see section 4 of Chapter 3). This tax is levied by municipalities and is based on the deemed increase in the value of urban land from the date of the last sale to the date of the current sale (with a minimum of 1 year and a maximum of 20). In onerous transfers, this tax is payable by the seller. The amount of this tax depends (among other circumstances) on where the land is located (and, accordingly, on its cadastral value) and on the holding period of the immovable property at hand. Property tax. This tax (Impuesto sobre Bienes Inmuebles) is levied annually, every January 1, on the cadastral value of the real estate owned. (see section 4 of Chapter 3)
8.Dispute resolution
8.DISPUTE RESOLUTION
8.1.State court proceedings
Organic Act 6/1985 regulates the constitution, operation and governance of Courts and Tribunals in Spain. For judicial purposes, the State is organized on a territorial basis into municipalities, judicial districts, provinces and Autonomous Communities, in which the Justices of the Peace, the Courts of First Instance, the Administrative Courts, the Labor Courts, the Criminal Courts, the Appellate Courts and the Higher Courts of Justice have jurisdiction. The Supreme Court and the Audiencia Nacional (the latter only for certain specific matters) have jurisdiction over the entire national territory. The former is the highest court instance with the exception of the guarantee of constitutional rights, which are safeguarded by the Constitutional Court. Act 1/2000 is the Spanish Civil Procedure Act and came into force on January 8, 2001. Criminal, labor and administrative proceedings are governed, respectively, by the Criminal Procedure Act passed by the Royal Decree dated September 14, 1882, the Consolidated Text of the Labor Procedure Act, passed by Royal Legislative Decree 2/1995 and Act 29/1998 on the Administrative Jurisdiction. Although the Spanish civil procedural system should be considered as a civil law system, certain features of the Civil Procedure Act have their roots in the common law system. An example of this is the predominance of the oral proceeding. The Civil Procedure Act reduces formalities and promotes more expeditious proceedings and a quicker and more efficient response from the courts. Spain has signed numerous bilateral and multilateral treaties on the recognition and enforcement of foreign judicial decisions.
8.2.Arbitration
Arbitration is increasingly seen as a genuinely alternative system for the settlement of commercial disputes. Companies, aware of the greater speed, efficiency and flexibility of arbitration in comparison with action before the courts, are seen to be increasingly keen to turn to arbitration. Furthermore, Spanish Courts support arbitration and normally uphold and enforce arbitration clauses and awards without hesitation. Act 60 of December 23, 2003 on Arbitration (the Arbitration Act) permits individuals or corporations to make agreements to submit to one or more arbitrators the disputes that have arisen or may arise on matters which they are free to dispose of by law. The Arbitration Act is mostly inspired by the UNCITRAL Model Law on International Commercial Arbitration. In the same way, Royal Decree 231/2008, of February 15, regulates the Consumers Arbitration System, in particular, regarding those issues aroused between the consumers or users and the companies in relation to the legal rights granted to consumers. The Arbitration Act reinforces anti-formalist criteria in several ways. It allows for the arbitration agreement to be recorded in any kind of information technology format, provided it can be retrieved for future consultation.
The Arbitration Act allows for the granting of interim measures by the arbitrators. This faculty is in line with the Civil Procedure Act, which allows judges to grant interim measures although an arbitration proceeding is still pending to be ruled. In this sense, the jurisdiction of arbitrators and judges to grant interim measures is concurrent, this means that parties are allowed to request interim measures either to arbitrators either to Spanish Courts. Under the Arbitration Act it is possible to enforce an arbitral award, ruled in Spain, even if proceedings to set aside the award are still pending. In that case, a State Court may only suspend the enforcement proceedings if the party against whom the award is being enforced posts security for an amount equal to the amount set out in the award, plus the potential damages arising out of the delay in enforcement of the award. The grounds for refusal to recognize or enforce arbitral awards appearing in the Arbitration Act are based on the contents of the UNCITRAL Model Law grounds nearly verbatim, which in turn are based almost in their entirety on the New York Convention of 1958. Spain has adhered to the New York Convention of 1958 and to the European Convention on International Commercial Arbitration signed in Geneva on April 21, 1961. Spains adherence to a Model Law arbitration regime makes international arbitration in Spain more accessible for cross-border practitioners and their clients. The Arbitration Act brings Spain ever closer to becoming an ideal seat for international arbitration, particularly where Latin American interests are involved, given Spain's convenient geographical location in southern Europe, its competitive cost structure in comparison with other European forums and its linguistic and cultural ties to Latin America.
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Tax system
The Spanish tax system is modern and competitive. The tax burden in Spain, (i.e. tax and social security contributions as a percentage of GDP), is four points lower than in the EU-27 zone. The Spanish Tax Agency (AEAT) offers the taxpayers a wide range of services in order to facilitate the fulfillment of their tax obligations. For this purpose, among others measures, it provides the taxpayers with computer programs that facilitate the preparation of their tax forms and promotes its electronic submission and payment by using an electronic official certificate. The AEAT has been recognized as one of the most innovative and efficient tax agencies in the world. The main taxes of the Spanish tax system are analyzed in this chapter.
Tax system
%
2. Central Government taxes 4. Local taxes
Guide to business in Spain Tax system 2
3
3 4 89 102
1. Introduction to the Spanish tax system
3. Special regimes of certain Autonomous Communities
1.Introduction
FRANCE
Asturias
Cantabria
Bilbao
Galicia
Pas Vasco
Vitoria Logroo
Navarra
La Rioja
Soria
Castilla y Len
Catalua
Tarragona
Gerona
Aragn
Barcelona
vila
Comunidad de Madrid
Toledo
PORTUGAL
Badajoz
Cuenca
Palma De Mallorca
Extremadura
Mrida
Cceres
Baleares
Murcia
Murcia
Andaluca
Granada
Cdiz
Almera
Ceuta
Melilla
MORROCO
Canarias
1. INTRODUCTION TO THE SPANISH TAX SYSTEM

The Spanish tax system is modern and competitive, as is evidenced by a tax burden four points below that of its neighboring countries and by the limited number of applicable taxes.
FRANCE
La Corua Santander Oviedo Santiago de Compostela Pontevedra Lugo
Asturias
Cantabria
Bilbao
San Sebastin
Galicia
Pas Vasco
Pamplona
Vitoria
Orense
Len
Burgos
Logroo
La RiojaNavarra
Soria
Castilla y Len
Valladolid Segovia
Palencia
Huesca
Lrida
Catalua
Tarragona
Gerona
Zaragoza
Zamora
Aragn
Teruel
Barcelona
Salamanca
vila
Comunidad de Madrid
Madrid
Guadalajara
PORTUGAL
Cuenca
Toledo
Palma De Mallorca
Badajoz
Extremadura
Mrida
Cceres
Baleares
Ciudad Real
Albacete
Alicante
Crdoba
Jan
Murcia
Murcia
Sevilla
Andaluca
Huelva
Granada
Cdiz
Mlaga
Almera
Ceuta
Melilla
MORROCO
Canarias
The Spanish State Tax Agency has distinguished itself through its technological leadership within the Government. It is one of the most modernized European tax agencies, in the vanguard of offering electronic public services, such as online services to tax certificates and the option of filing tax returns online. The Spanish tax system comprises three kinds of taxes: impuestos (true taxes), tasas (dues and fees) and contribuciones especiales (special levies). The tasas and contribuciones especiales are collected in return for a public service provided by the authorities or for any type of benefit as a result of public works or services. In Spain taxes are levied by the Central Government, by the Autonomous Communities (regional) and by local authorities. This chapter concentrates on the taxes levied by the Central Government, including those administered and collected by regional and local authorities. However, given their importance, a reference is made to the special regimes applicable in the Canary Islands, the Basque Country and Navarra.
2.Central Government taxes
2. CENTRAL GOVERNMENT TAXES

National taxes in Spain can be classified as follows: Direct taxes: On income: Corporate income tax. Personal income tax. Non-resident income tax. On assets (affecting only individuals): Inheritance and gift tax. Wealth tax. Indirect taxes: Value added tax (VAT). Transfer tax and stamp tax. Excise taxes. Customs duties on imports. Tax on insurance premiums.
2.1 Corporate income tax

The regulation of Corporate Income Tax is contained in the Revised Corporate Income Tax Law, approved by Legislative Royal Decree 4/2004, of March 5, and in the Regulation approved by Royal Decree 1777/2004, of July 301. The key factor in determining the application of corporate income tax is residence. A company is deemed to be resident in Spain for tax purposes if it meets any of the following conditions: That it was incorporated under Spanish law. That its registered office is located in Spain. That its effective management headquarters are in Spain.
1 November 18, 2008 marked the publishing of Royal Decree 1793/2008, of November 3, amending the Corporate Income Tax Regulations and, in particular, on the documentation obligations with respect to transactions performed with related parties.
The Tax Administration can presume that entities, theoretically resident in tax havens or territories with zero taxation, have their tax residence in Spanish territory when their principal assets directly or indirectly consist of property situated in Spain or rights that are exercised there, or when their principal activity is carried out therein, unless it is proven that their administration and effective management takes place in the other country or territory and that their establishment and operation in Spain was for valid and compelling commercial and business reasons and not just as a means of managing securities or assets. For the purposes of determining which entities reside in tax havens, the provisions of Article 1 of Royal Decree 1080/1991, of July 5, (which contains 482 territories which have been classified as such) will apply. However, tax haven status will not apply to countries or territories on the list which have signed with Spain a tax treaty with an exchange-of-information provision (or exchange-ofinformation agreement) expressly indicating that the country or territory will no longer be considered a tax haven once the treaty applies and for its duration. In turn, the status of zero-taxation country or territory will be given to countries or territories which do not apply a tax identical or analogous to personal income tax, corporate income tax or nonresident income tax. For a tax to be considered identical or analogous to the above taxes, its purpose must be to tax income and/or gains, regardless of whether the subject-matter of the tax consists of the income and/or gains, the revenues or their indicative elements3. In addition, where Spain has signed a tax treaty, a tax of an identical or analogous nature which applies for the above-mentioned purposes will be deemed to exist. Lastly, it is considered that effective exchange of information exists with a country or territory if the following applies to such country or territory: A tax treaty which includes an exchange-of-information provision (provided that there are no express limitations on its scope), or A tax information exchange agreement (provided that its fitness for the above purposes has been expressly established). In the event of a conflict of residence, the provisions of Spains tax treaties with other countries will, where applicable, prevail.
The Agreement on Exchange of Information on Tax Matters between the Kingdom of Spain and the Principality of Andorra was published in the Official State Gazette on November 23, 2010, and will enter into force on February 10, 2011. Therefore, as of the entry into force, Andorra will no longer be included in the list of tax havens. 3 It is also established that the obligatory contributions effectively made by an individual to a public welfare system to cover contingencies similar to those covered by the Social Security shall be classified as an identical or substantially similar tax for personal income tax purposes, as long as the country or territory concerned does not levy a tax that is identical or substantially similar to personal income tax.
2
Resident companies are taxed on their worldwide income. Taxable income includes all the profits from business activities, income from investments not relating to the regular business purpose, and income derived from asset transfers. In this connection, regard should also be had to the provisions of Spains tax treaties with other countries which, where applicable, may influence the determination of the taxation in Spain. Taxation of nonresident entities is regulated separately under the Revised Non-Resident Income Tax Law approved by Legislative Royal Decree 5/2004, of March 5, was also amended by the aforementioned Law 35/2006. 2.1.1 Taxable income The Corporate Income Tax Law establishes three methods for determining taxable income: the direct assessment method, the indirect assessment method and the objective assessment method. Under the direct assessment method (which is generally applicable), taxable income is defined as the difference between period revenues and period expenses. Taxable income is based on the income disclosed in the financial statements adjusted in accordance with tax principles. Business expenses are deductible if they are properly recorded and supported. 2.1.1.1 Revenue and expense allocation criteria The tax principles for allocating revenues and expenses to determine taxable income generally coincide with accounting principles. Tax law identifies the accrual method as generally applicable for revenue and expense recognition purposes. Additionally, all expenses must be recorded in order to be deductible (except in certain cases, such as unrestricted depreciation). For tax purposes, in the event of conflict between an accounting standard and a tax principle, the latter will prevail. However, expenses recorded in a fiscal year subsequent to their accrual, or revenues recorded in a fiscal year prior to their accrual, are allocated for tax purposes in the year in which they are recorded, provided that such practice does not give rise to lower taxation than that which would apply in the event of the proper recognition of the expenses and revenues in the taxpayers books. For certain transactions, companies are permitted to use special allocation methods other than the accrual method (e.g. deferred price transactions). If allocation criteria other than those expressly envisaged in the tax regulations are applied, the rationale for their use must be duly supported and they must be approved by the Government. 2.1.1.2 International fiscal transparency regime (Controlled Foreign Corporations provisions) This regime, according to which resident corporate income taxpayers shall include in their tax base income obtained by its nonresident subsidiaries although such income has not been actually distributed, becomes applicable when: The taxpayer (Spanish company) holds 50% or more of the capital stock, equity, voting rights or results of the non-resident company. Notwithstanding the above, this regime will not be
applicable when the non-resident entity is tax resident of another EU Member State provided that the taxpayer evidences that (i) the formation and operations of the nonresident entity are based on valid economic reasons and (ii) it performs business activities. Ownership interests held by related entities or individuals (resident or non-resident) are included in determining such holding. The tax (corporate income tax or similar) paid by the non-resident on the attributable net income must be less than 75% of that which would have been payable under Spanish regulations. The net income derives from: a) Ownership of real estate or rights in rem, unless such real estate is used for an entrepreneurial activity or licensed to another non-resident group company (as defined in Article 42 of the Commercial Code). b) Share in equity and transfer to third parties of capital (with certain exceptions, such as financial assets held in order to meet statutory requirements, etc.). c) Lending, financing, insurance and service activities (except services directly related to export activities) with related resident companies which incur deductible expenses. The attribution does not take place if more than 50% of this type of income derives from transactions carried out with unrelated entities. d) Income from transfers of assets or rights included in a) or b) above. The attribution of net income does not take place (except for the case c) above) when the nonresident company obtains such income from an entity in which its direct or indirect holding amounts to at least 5% of its capital stock if: The former engages in directing and managing its investment. At least 85% of the revenues of the latter entity derive from entrepreneurial activities. Additionally, a general exception to the applicability of the regime for the income addressed in letters a), b) and d) above is established when the attributable income is below: 15% of the total net income obtained by the non-resident entity or, 4% of the total revenues of the non-resident entity. The above limits may also be computed on a foreign group basis, as legally defined. In any case, the attributed net income cannot be higher than the total net income of the nonresident entity. The attribution will take place in proportion to the direct or indirect holding in the non-resident entity and the amount of net income to be attributed will be determined in accordance with the principles and criteria established in the corporate income tax legislation.
The Spanish entity will not include in its tax base the portion of distributed dividends received which derives from income previously attributed. Specific income can only be included in the tax base once, regardless of the manner or the entity at which it is disclosed. This legislation entitles the Spanish company to a tax credit on the amount of corporate income tax (or similar) actually paid by the non-resident entity and its subsidiaries as defined by law (in proportion to the net income attributed) and the tax actually paid as a result of the distribution of dividends. The limit for this tax credit is the Spanish tax. No tax credit is permitted for taxes paid in tax havens. Where the investee is resident in a country or territory classed as a tax haven it will be presumed that: a) The amount paid by the entity not resident in Spain attributable to any of the classes of income previously referred to in letters a) to d), in relation to a tax identical or similar to corporate income tax, is lower than the 75% that would have been applicable in accordance with the corporate income tax rules. b) The income obtained by the investee arises from the mentioned classes of income. c) The income obtained by the investee is 15% of the acquisition cost of the holding. These assumptions are refutable and do not apply if the investee consolidates its financial statements, pursuant to Article 42 of the Commercial Code, with one or more of the entities which are obliged to include in their taxable income the income obtained from non-resident entities. 2.1.1.3 Market price valuation As a general rule, assets must be valued under the methods provided in the Commercial Code. Despite this fact, any variations in their value caused by applying the fair value method will have no effect for tax purposes if they do not have to be taken to income. Notwithstanding the above, in certain cases, market valuation (i.e. valuation on an arms-length basis) must be applied for tax purposes. This method is applicable to: Donated assets. Assets contributed to entities and the securities received in exchange. Assets transferred to shareholders in the event of dissolution, the withdrawal of shareholders, capital reductions with refund of contributions, paid-in surplus and the distribution of income. Assets transferred as a result of mergers, absorptions and full or partial spin-offs. Assets acquired through swap transactions.
Assets acquired as a result of exchanges or conversions. It should be noted that current legislation provides for a special tax neutrality regime when certain of the transactions described above are carried out as part of a corporate reorganization (i.e. mergers, spin-offs, non-monetary contributions of lines of business and share exchanges as well as nonmonetary contributions of assets if certain requirements are met)4. Under this regime, provided that certain requirements are met, the gains disclosed on the valuation at market prices of the assets and rights transferred may be excluded from the transferors tax base, thereby not entailing an acquisition cost for tax purposes for the acquirer. Transactions between related entities may be valued at arms-length value, being understood as such the one which would have been agreed between independent persons or entities under normal market conditions. The Tax Administration may verify that the valuation given to transactions performed between related entities is in accordance with arms-length value and make the adjustments which it considers appropriate in relation to valuations which are not in accordance with the above-mentioned armslength value in relation to Corporate Income Tax, Personal Income Tax and Nonresident Income Tax. For the purposes of carrying out such verification the Tax Administration may use the documentation furnished by the taxable person and the data and information which it has in its possession. However, the Tax Administrations valuation of a certain transaction will also be applicable to the rest of the related persons or entities that are involved in such transaction. In this respect, the Administrations valuation will not give rise to taxation of higher income for corporate income tax, personal income tax or non-resident income tax, than that actually derived from the transaction for the persons or entities as a whole that performed it. Related entities must justify such valuation by means of the appropriate documentation, which must be kept available for inspection by the Tax Administration. In this connection, Royal Decree 4/2004, of March 5, 2004 the Tax Regulation - (amended by Royal Decree 1793/2008, of November 3, 2008, and by Royal Decree 897/2010, of July 9, 2010), implements the obligations on documentation, being consistent with the guidelines set by the work carried out within the European Union in this area. The current Spanish rules on transactions between related parties (i.e., controlled transactions) were introduced by Law 36/2006, as an integral part of the Corporate Income Tax Law. Law 36/2006, which introduced the obligation on taxpayers to value their transactions with related entities at arms-length prices, entered into force on December 1, 2006.
4 The regime also applies to transfers of registered office of a European company or a European cooperative society from one EU Member State to another.
In this regard, Royal Decree 1793/2008, November 3, 2008, included in the Tax Regulation introduces various provisions implementing the Revised Corporate Income Tax Law, as we will briefly describe below. First of all, the Royal Decree lays down guidelines for performing the comparability analysis for the purpose of establishing normal market value, and they reflect the guidelines set by the OECD. Second, the new legislation regulates the deductibility requirements for related-party cost contribution arrangements. A third section is devoted to the documentation which the tax payer must furnish at the request of the tax authorities to support the arms-length nature of the prices used in its related-party transactions5. ln this regard the Royal Decree requires taxpayers to provide two sets of data/documentation: On the one hand, data on the group to which the taxpayer belongs, describing its structure; the various entities making it up; the nature, amounts and flows of related-party transactions; and, in general, the groups transfer pricing policy. On the other hand, the appropriate supporting documentation of the same entity, identifying the entities related to it, including a comparability analysis, as well as justification for the valuation method chosen, and any documentation supporting the valuation of its transactions. Royal Decree-Law 13/2010, of December 3, 2010, on procedures in the area of tax, labor and deregulation to promote investment and job creation, established that, for tax periods commencing starting on or after January 1, 2011, said documentation will not be required of persons or entities whose net revenues of the tax period are less than 10 million, provided that the total transactions performed in that period with related persons or entities do not exceed the overall market value of 100,000. A further section seeks to regulate secondary adjustments, in line with the definition given to them in the Corporate Income Tax Law, by indicating that secondary adjustments will relate to the difference between the agreed price and the arms-length value and that such difference will be recharacterized according to the appropriate type of income (for instance, in the case of a shareholder receiving services from its subsidiary at a price below their arms-length value, it could be construed that there had been a distribution of dividends)6.
5 The documentation obligations apply to transactions carried out on or after February 19, 2009. 6 The secondary adjustments could mean that other taxes became chargeable (for instance if an item of income were recalculated as a dividend, it could trigger the obligation to withhold tax from the payee)
Lastly, the Royal Decree establishes the documentation obligations for taxpayers that perform transactions with entities or persons resident in tax havens, and regulates the procedure for advance pricing arrangements7. Besides the above, the failure to provide, or the provision of incomplete, inaccurate or false data in the documentation which, in accordance with the applicable legislation, must be kept available for inspection by the Tax Administration, will be considered a serious infringement. It will also constitute a serious tax infringement the fact that the arms-length value shown in the documentation provided by the taxpayer (it is presumed that the arms-length value must be shown by such documentation) differs from that declared in corporate income tax, personal income tax and non-resident income tax returns. As regards the punitive procedure applicable to such tax infringement the following must be considered: 1. When the performance of a valuation correction by the Tax Administration is not appropriate, the penalty will consist of a fine of 1,500 euros per item of information and 15,000 euros "per collection of information which is omitted, inaccurate or false", referred to each documentation obligation established in the applicable legislation for the group or for each entity as taxpayer. In the case of persons or entities whose net revenues are lower than 10 million but whose overall transactions with related parties exceed the market value of 100,000meaning that they are obliged to make the documentation available to the tax authoritiesthe penalty will be limited to the lower of the following two amounts: 10% of the total value of the transactions performed in the tax period. 1% of net revenues. 2. When the performance of a valuation correction by the Tax Administration is appropriate, the penalty will consist of a proportional fine of 15% over the amount resulting from the valuation corrections of each transaction, being the minimum amount of such penalty the double of the penalty that would have corresponded by applying the rule described in 1) above. The amount of these penalties can be reduced in the terms envisaged in the General Taxation Law (Law 58/2003, of December 17). The following are deemed to be related persons or entities: a) An entity and it shareholders. b) Entities and their directors.
7 There are limitations on the documentation obligation in the case of transactions by individuals or by enterprises of a reduced size, among others.
c) An entity and the spouses of, or persons related by direct or collateral consanguinity or affinity up to the third degree of kinship to, its members or participants, board members or directors. d) Two entities belonging to a group. e) An entity and the members or participants of another entity, where the two entities belong to a group. f) An entity and the board members or directors of another entity, where the two entities belong to a group. g) An entity and the spouses of, or persons related by direct or collateral consanguinity or affinity up to the third degree of kinship to, the members or participants of another entity, where the two entities belong to a group. h) An entity and another entity in which the first-mentioned entity has an indirect holding of at least 25 percent of the capital stock or equity. i) Two entities in which the same members, participants or their spouses, or persons related by direct or collateral consanguinity or affinity up to the third degree of kinship, have a direct or indirect holding of at least 25 percent in the capital stock or equity. j) An entity resident in Spain and its permanent establishments abroad. k) An entity not resident in Spain and its permanent establishments in Spain. l) Two entities that form part of a group taxed under the regime for groups of cooperative entities. In cases where relatedness is defined on the basis of the relationship between the members or investors and an entity, the holding must be at least 5 percent, or 1 percent in the case of securities admitted to listing on a regulated market. The reference to director shall include de iure and de facto directors. A group exists where an entity exerts or can exert control over another entity or other entities pursuant to Article 42 of the Commercial Code, regardless of where they have their residence or of the obligation to prepare consolidated financial statements. OECD methods are applicable for determining market prices between related parties as follows: Firstly, three different methods can be used: Comparable uncontrolled price method (market price of the goods or of comparable items). Cost plus method. Resale price method. Secondarily, two subsidiary methods are established (based on the profit which must be obtained by the entities involved in relation to a collection of transactionsaggregation) for cases in which, due to the complexity or the information relating to the transactions, the above-mentioned methods cannot
be adequately applied (based on the price of the transaction): (i) the profit split method and (ii) the transactional net margin method. Additionally, the corporate income tax legislation envisages the possibility of reaching advance pricing agreements with the tax authorities. Thus, a taxpayer may submit to the tax authorities a proposal for valuing its transactions with related entities based on market conditions. If the proposal is approved by the tax authorities, such valuation is valid for tax purposes for a maximum period of four tax years8. 2.1.1.4 Thin capitalization rule Where the direct or indirect net remunerated indebtedness of an entity tax resident in Spain (other than a financial institution) to one or more related persons or entities not residents in Spain exceeds the result of applying a coefficient of 3 to capital for tax purposes (equity of the entity excluding income or loss for the year), the interest accrued on the excess will be treated as a dividend and thus will be nondeductible for the Spanish company. The rule commented in the preceding paragraph will not be applicable when the non-Spanishresident related entity is tax resident in another EU Member State, unless it is resident of a territory classified as tax haven. The taxpayer may submit a (duly supported) proposal for applying a higher ratio. If the proposal is approved, a different ratio may be applied. This possibility is not applicable to transactions made with or by persons or entities resident in countries or territories legally defined as tax havens. 2.1.1.5 Changes in residence, cessation of business by permanent establishments, transactions performed with persons or entities resident in tax havens Lastly, the tax base must in general include the difference between the value per books and the normal market value of the assets which: Are owned by a resident entity that transfers its place of residence abroad. Are allocated to a permanent establishment located in Spanish tax territory that ceases operations. Having been previously allocated to a permanent establishment located in Spain, are transferred abroad. It should be noted that income deriving from the transfer of assets that were formerly attached to the business activity of a permanent establishment, will be also imputed to such permanent
8 Advance pricing arrangements may also be reached in connection with contributions for research, development and technological innovation or management expenses and in connection with the part of management expenses that may be allocated to a permanent establishment in Spain of a non-resident entity.
establishment provided that the transfer would have taken place within the three tax periods following the one on which the referred asset left being attached to the business activity. Also, the tax authorities can value at market price any transactions with persons or entities resident in territories defined in the relevant regulations as tax havens if the valuation agreed upon has led to lower or deferred taxation in Spain. 2.1.1.6 Inventory valuation There are no special tax rules in this connection. Accordingly, all inventory valuation methods (FIFO, acquisition cost or weighted average cost) applicable for accounting purposes are also acceptable for tax purposes. The same rules apply to inventory depreciation. 2.1.1.7 Value adjustments Depreciation Depreciation qualifies as a deductible expense only if it is effective and is recorded in the accounts (with certain exceptions such as goodwill (see page 19 in this Chapter) or the accelerated depreciation applicable to certain activities, such as research and development). Official depreciation rates There are official rate tables (updated by Royal Decree 1777/2004) which, if complied with, relieve the company of the need to prove effectiveness. Examples of the current official rates are:
Table 1
ANNUAL DEPRECIATION RATE (%)

Maximum Minimum
Industrial buildings Commercial buildings Office furniture Computers Software Vehicles Machinery
3 2 10 25 33 16 12
1.47 1 5 12.5 16.7 7.14 5.55
There are special rules for assets used on a daily basis in more than one ordinary shift of work and for assets acquired second hand. Declining-balance depreciation Under this method, which is permitted for all assets except buildings, furniture and household goods, depreciation can be shifted to the early years of the assets useful life, when the
effective depreciation may be greater by applying a coefficient to the declining balance of the assets book value. Sum-of-the-years-digits method This system is also permitted for all assets except buildings, furniture and household goods, and the sum of the digits is determined on the basis of the depreciation period established in the official tables. Other depreciation methods Companies which, for technical reasons, wish to depreciate their assets at different rates than those fixed by the official tables and also wish to obviate the uncertainties involved in proving the effective depreciation, can seek prior approval from the tax authorities for special depreciation plans with such annual rates of depreciation. Finally, companies of certain kinds and in certain industries (e.g. mining companies, industries in the process of reorganization, etc.) may be authorized to depreciate their assets at their discretion in accordance with the special laws regulating each industry. Amortization of intangible assets Intangible assets are amortized by the same methods as those applicable to tangible fixed assets throughout their economic life. Intangible assets with a definite useful life may be amortized over ten years provided that: (i) they were acquired for valuable consideration, (ii) the transferee and transferor are not part of the same group of companies within the meaning defined in Article 42 of the Commercial Code, irrespective of residence and the obligation to prepare consolidated financial statements. If both companies are part of the same group, the deduction will be made with respect to the acquisition price of the assets paid by the transferor where they were acquired by unrelated individuals or entities. Where the useful life is less than ten years, the maximum annual limit will be calculated based on such duration. Otherwise, the amortization expense will only be tax deductible if the taxpayer proves that it relates to an irreversible decline in value of the assets. An intangible asset recorded in respect of goodwill can be amortized over twenty years provided that, in addition to the two requirements mentioned above for intangible assets with a definite useful life, a restricted reserve has been recorded, at least for the tax-deductible amount, on the terms provided in corporate legislation. If this reserve cannot be recorded, the deduction is conditional upon the reserve being recorded against the first income figure in the following years. This deduction is not conditional upon it being recorded in the statement of income. The deducted amounts will reduce the value of goodwill for tax purposes.
Lastly, the amortization of intangible assets with an indefinite useful life will be deductible over ten years if they were acquired for valuable consideration and the transferee and transferor are not part of the same group of companies within the meaning defined in Article 42 of the Commercial Code, irrespective of residence and the obligation to prepare consolidated financial statements (if both companies form part of the same group, the deduction will be applied to the acquisition price of the assets paid by the transferor where they were acquired by unrelated individuals or entities). This deduction is not conditional upon it being recorded in the statement of income. The deducted amounts will reduce the value of the assets for tax purposes. In any other case, the depreciation will only be tax deductible if the taxpayer proves that it is due to the irreversible loss in value of the assets. Financial lease contracts Under Spanish law, financial lease contracts (provided by finance entities, as legally defined) for movable assets must have a minimum term of two years, and those for real estate must have a minimum term of ten years, and the annual charge corresponding to the depreciation of the cost of the asset must remain the same or increase over the term of the lease. Lease payments (interest plus the portion of principal relating to the cost of the asset) are deductible, except those for land (although in this case the interest portion will be deductible) and for other non-depreciable assets. However, the ceiling on the deductibility of the depreciation cost of the asset is twice the maximum depreciation rate per the official tables. Assets leased with purchase option When the amount payable for exercising the purchase option is less than the amount resulting from subtracting from the assets value the total maximum depreciation corresponding to those assets throughout the duration of the assignment, the transaction will be considered a financial lease and be treated as explained in relation to this type of lease. Where the asset has been transferred previously by the transferee to the transferor, the transaction will be deemed a form of financing and, therefore, the transferee will continue to depreciate the asset under the same conditions and for the same value as prior to the transfer. Accelerated depreciation with maintenance of employment9 Accelerated depreciation will be allowed for investments in new property, plant and equipment and investment properties used for economic activities, received by the taxpayer in the tax periods commenced in 2011, 2012, 2013, 2014 and 2015 without needing to maintain employment (unlike in the case of the unrestricted depreciation applicable in 2009 and 2010, and initially extended to 2011 and 2012 by Royal Decree 6/2010, of April 9, 2010, with the
Additional Provision No. 11 regulating the unrestricted depreciation of new fixed assets has been amended by Royal Decree-Law 13/2010, effective for tax periods commencing on or after January 1, 2011.
9
same employment maintenance requirement). The deduction will not be conditional upon whether it has been recognized in income. This rule will also apply to those types of investments made under finance leases that meet the abovementioned requirements by taxpayers who determine their tax bases under the directestimate rules, on condition that the purchase option is exercised. This rule will apply to investments received within the tax periods mentioned in that point, which relate to new assets ordered under works agreements or investment projects which, in both cases, require a performance period of more than two years between the order date or start date for the investment and the date on which it is received or brought into operation, in the case of investments in progress made within tax periods commencing in 2011, 2012, 2013, 2014 and 2015. In the cases of investments relating to assets obtained under works agreements or investment projects which, in both cases, require a performance period of more than two years between the order date or start date for the investment and the date on which it is received or brought into operation, even if these dates occur after the end of the tax periods commenced in 2011, 2012, 2013, 2014 and 2015, accelerated depreciation shall be allowed only for the investment in progress made within the tax periods commenced in 2011, 2012, 2013, 2014 and 2015. Where such assets are made available to the taxpayer after December 3, 2010, but before the first tax period commencing on or after January 1, 2011, they may be depreciated without restriction as of the first fiscal year commencing after January 1, 2011, without needing to maintain employment. However, assets made available before December 3, 2010, cannot be depreciated according to the new rules, and where the taxpayer has applied the rules for unrestricted depreciation with employment maintenance, the employment must be maintained on the conditions established in the applicable law. Diminution in value of assets Impairment losses on receivables for foreseeable bad debts This provision covers the foreseeable losses in the realizable value of accounts receivable. The deductibility of this provision is subject to certain requirements. Under these requirements, the only method applicable is the individual balance method, whereby the status of each receivable is individually analyzed. The deduction of this provision is subject to satisfaction of any of the following tests: a) The balance must be more than six months past due. b) The debtor must have been held to be in insolvency.
c) The debtor must have been taken to court for the criminal act of dealing in assets to defraud creditors. d) The obligations must have been claimed in court or the subject of a lawsuit or arbitration proceeding. Losses to cover the risk of bad debts of related entities cannot be recorded for tax purposes for receivables from related parties unless the related parties concerned are insolvent. Similarly, losses to cover the risk of foreseeable bad debts from public entities or receivables for which sufficient guarantees have been provided cannot be recorded for tax purposes. Losses to cover the risk of foreseeable bad debts by financial Institutions, as defined by law, are subject to specific rules. Impairment losses related to equity securities A deduction in respect of impairment losses relating to equity securities not listed on a regulated market cannot be higher than the difference arising in the reporting year between the opening and closing balance of shareholders equity (equity method) on the basis of either the accounts prepared by the directors or the accounts approved by the shareholders. For listed securities, impairment losses are tax deductible to the extent of the difference between the year-end stock market price and the price at the beginning of the tax year. Impairment losses relating to investments in entities resident in countries or territories deemed to be tax havens are not deductible unless those entities file consolidated financial statements with those of the entity that incurred the impairment loss as defined in Article 42 of the Commercial Code, or unless those entities are resident in an EU Member State and the taxpayer evidences that the formation and operations of the nonresident entity are based on valid economic reasons and it performs business activities. In the aforementioned conditions, the difference (between equity values at the beginning or end of the fiscal year) will be tax deductible in proportion to the ownership interest held, without its needing to be recognized in the income statement, where the securities represent an interest in the capital of group, jointly controlled and associated entities as established in corporate law, provided that the value of the ownership interest, reduced by the amounts deducted in previous tax periods, exceeds the value of the investees equity at fiscal year-end which corresponds to such interest, adjusted in the amount of unrealized gains existing at acquisition date and which remain at valuation date. The deductible difference may not exceed the amount of such excess. In this regard, the equity shall be determined as established in the Commercial Code and other accounting regulations, and the difference (between equity at the beginning and end of the year, subject to the limit indicated in the preceding paragraph), if any, will be adjusted by the current years expenses that are not tax deductible in accordance with the Corporate Income Tax Law.
The deducted amounts will reduce the value of the ownership interest, and will be considered value adjustment, amortization or impairment of such interest for tax purposes. These amounts will be included as a positive adjustment to the tax base of the tax period in which the equity value at year-end exceeds the value at the start of the year, having regard to the contributions or reimbursements thereof made during the year, with the limit of said excess. The notes to the financial statements shall include information on the amounts deducted in each tax period, the variation in the investees equity over the fiscal year, the amounts included in the tax base of the period and those outstanding inclusion. On the other hand, impairment losses on debt securities listed on regulated markets are deductible, to the extent of the overall loss, including the positive and negative variations in value experienced in the tax period by all of those listed securities held by the taxpayer. Impairment losses which have a known repayment value and are not listed on regulated markets or are listed on regulated markets in countries or territories deemed to be tax havens are not deductible. Financial goodwill10 Where securities representing a holding in the equity of entities not resident in Spain are acquired and the income or gains obtained by such entities qualify for exemption under Article 20.bis of the Corporate Income Tax Law, the amount of the difference between the acquisition cost and underlying book value of the holding on the acquisition date will be allocated to the assets and rights of the entity not resident in Spain, and any portion of the difference that has not been allocated will be deductible from taxable income, subject to an annual limit of one twentieth of its amount.
Following several complaints, the European Commission notified Spain on October 10, 2007 of the commencement of an investigation proceeding on the consistency of the tax amortization of financial goodwill on the acquisition of nonresident entities with the legislation on State aid (Article 88(2) of the EC Treaty). The European Commission considered that the tax amortization of financial goodwill constitutes State aid and is incompatible with EC Treaty provisions insofar as it relates to acquisitions of EU enterprises. The Commission has required Spain to eliminate Article 12.5 of the Revised Corporate Income Tax Law in the case of intra-EU transactions. There is a transitional regime for enterprises that acquired their investments before publication of the decision to initiate the formal investigation in the Official Journal of the European Union (December 21, 2007). On January 12, 2011, the Commission approved the final decision on Article 12.5. According to that decision, the application of Article 12.5 in respect of third countries constitutes state aid which must be recovered in relation to transactions carried out after the date of the Opening Decision. Article 74 of Law 39/2010, of December 22, 2010, approving the General State Budgets for 2011, has modified the wording of Article 12.5 of the Revised Corporate Income Tax Law in order to adapt domestic legislation to the Commission decision in relation to intra-EU transactions.
10
This deduction, consisting of the amortization of financial goodwill on the acquisition of nonresident entities will not apply to the acquisition of securities representing shares in the equity of entities resident in another EU Member State carried out on or after December 21, 2007. This deduction is not consistent with the tax credit for export activities, but is consistent with impairment losses on the equity securities of companies not listed in a regulated market. In the tax periods in which this deduction is to be made, the taxpayer must file with the tax authorities the following information together with its corporate income tax return: a) In relation to the direct investee: 1. Name and percentage holding. 2. Description of its activities. 3. Value and date of acquisition of the holdings, as well as their underlying book value, determined on the basis of standardized financial statements. 4. Support for the rules on standardization of valuation and timing, as well as the attribution to the assets and rights of the investee of the difference existing between the acquisition cost and underlying book value of its holdings on the date of their acquisition. b) Amount of investment made in the acquisition of holdings in entities not resident in Spain and included in the tax credit base for export activities. Provisions The following expenses are not deductible: a) Those resulting from implied or tacit obligations. b) Those relating to long-term compensation and other personnel benefits, except for the contributions of the sponsors of pension plans subject to certain requirements. c) Those concerning the costs of performing contracts which exceed the expected financial returns from them. d) Those resulting from restructurings, unless they refer to legal or contractual obligations, not merely tacit obligations. e) Those relating to the risk of sales returns. f) Personnel expenses relating to payments based on equity instruments, used as a form of employee compensation, either paid in cash or by awarding the instruments to employees. Any expenses that are not deductible according to the foregoing list will be included in the tax base for the tax period in which the provision is used for its intended purpose.
However, the following provisions, among others, are tax-deductible: Expenses relating to environmental actions under a plan prepared by the taxpayer and accepted by the tax authorities. Expenses relating to insurance reserves made by insurance companies, to the extent of the minimum amounts established in applicable legislation. With that same limit, the amount recorded in the fiscal year for the equalization reserve will be deductible for purposes of determining the tax base, even where it has not been included in the income statement (provisions for outstanding premiums or fees will not be consistent, for the same balances, with provisions to cover foreseeable bad debts). The expenses relating to risks resulting from repair and inspection warranties (and ancillary expenses for sales returns), up to the limit resulting from applying to the sales with outstanding warranties at the end of the tax period the average warranty expenses as a percentage of total sales under warranty in the current and the two preceding tax periods. 2.1.1.8 Nondeductible expenses Amounts directly or indirectly remunerating equity. Corporate income tax. Criminal and administrative fines and penalties, and surcharges for the late payment of taxes. Gambling losses. Free gifts. (i) Gifts to certain entities (foundations, etc.), (ii) of assets registered in the Register of Assets of Cultural Interest, (iii) assets aimed at contributing to the conservation of assets of cultural interest or (iv) to the performance of activities of general interest, which would give right to deduct a 35% of the tax credit base determined in accordance with Law 49/2002, up to a limit of 10% of the net taxable income of the year. The amounts exceeding said limit could be applied in the tax periods ending in the 10 subsequent and immediate years). Expenses for services relating to transactions performed directly or indirectly with individuals or entities resident in designated tax havens or paid through individuals or entities resident in tax havens (unless the payer can prove that the expense arose from a transaction effectively performed). Provisions to internal pension allowances. Additionally, some expenses charged by related entities (such as management fees and R&D contributions) must meet certain formal requirements in order to be tax deductible.
2.1.1.9 Capital gains and losses By contrast with other countries, Spanish corporate income tax treats income resulting from the transfer of assets in the same way as other income. Accordingly, such income is generally added to (deducted from) regular business income to determine the taxable income and a tax credit for reinvestment is applicable in some cases, as explained below (see heading 2.1.3.1 in this Chapter). Special rules are envisaged for determining income resulting from real estate transfers to take into account the declining value of money. Under these rules, the acquisition cost and the annual depreciation are corrected by applying certain coefficients. 2.1.1.10 Income derived from stakes in a SICAV (open-end investment company) Starting on September 23, 2010, the income derived from a capital reduction or distribution of additional paid-in capital by the shareholders (corporate income taxpayers) of a SICAV is subject to a special treatment. In the case of capital reductions, the shareholders of the SICAV must include in their corporate income tax base the total amount received in the capital reduction, limited to the increase in the redemption value of the shares since their acquisition or subscription until the moment of the capital reduction. The shareholders will not be entitled to apply any tax credit because of this transaction. In the case of distributions of additional paid-in capital, the shareholders must include in their tax base the total amount obtained in the distribution, without being able to apply any tax credit in this connection. This regime will also apply to the shareholders of collective investment undertakings equivalent to SICAVs and registered in another Member State of the European Union (and, in any case, it will apply to the companies covered by Directive 2009/65/EC of the European Parliament and of the Council, of July 13, 2009, on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities. 2.1.1.11 Loss carryforwards As a general rule, a resident entity can carry forward its tax losses for offset against the taxable income of the following fifteen years. For newly-incorporated entities, this fifteen-year period commences in the first fiscal year in which the entity reports taxable income. The taxpayer must prove, by producing the related tax returns or self-assessments, accounting records and the appropriate documentary support, the origin and amount of the tax losses to be offset, whenever the tax losses were incurred. Loss carrybacks are not permitted.
2.1.2 Tax rates Spains current standard corporate income tax rate applicable in tax periods commencing in or after January 2008 is 30. Special rates are applicable to certain entities such as listed collective investment institutions including real estate investment funds (1%), certain cooperatives (20%) or entities engaging in oil and gas research and exploitation activities (35% in tax periods that commenced in or after January 1, 2008). In the case of listed corporations for investment in the real estate market (known as SOCIMIs), the tax rate is 19%, pursuant to 2010 General State Budget Law 26/2009, of December 23 (the General State Budget Law) amending Law 11/2009, of October 26, regulating SOCIMIs. For small and medium-sized companies, as mentioned below (see heading 2.1.9 in this Chapter) the tax rate applicable to the first 300,000.00 of taxable income is 25%. Any taxable income above that amount is taxed at a 30% rate.11 2.1.3 Tax credits, withholdings and prepayments Under this heading we will describe the main tax credits applicable for 2011. In line with the process started in 2007 some of them, such as the tax credit for export activities, will be progressively reduced until they are completely removed in a few years12 2.1.3.1 Tax credit for reinvestment of extraordinary income There is a general tax credit equal to 12% of the gains included in taxable income in tax periods that commenced in or after January 2006 which were obtained from transfers of assets (the types of asset are mentioned below), on condition that the transfer proceeds are reinvested. A partial tax credit can be taken if the proceeds are partially reinvested, by applying the 12% tax credit to the portion of the gain proportional to the amount reinvested. The reinvestment must be made within a period commencing one year before and ending three years after the date on which the asset transferred is made available. However, a special reinvestment plan may be submitted where the reinvestment cannot be made in the abovementioned periods due to the technical characteristics of the reinvestment (If more than one transfer
Royal Decree-Law 13/2010 increased to 300, 000 the amount of the tax base subject to the reduced rate of 25%, applicable for tax periods starting on or after January 1, 2011. 12 For tax periods starting on or after January 1, 2011, the following tax credits have been abolished: tax credit for the promotion of information and communication technologies; tax credit for export activities; tax credit for investment in vehicle navigation and tracking systems; tax credit for adaptation of vehicles for the disabled and for daycare centers for employees' children; tax credit for environmental investments; tax credit for professional training expenses; and tax credit for company contributions to employee pension plans.
11
of securities is made in the same period, time in the above-mentioned period will start running from the end of the tax period). The amount of the gain qualifying for the tax credit will not include impairment losses relating to any transferred assets that were deductible, or amounts charged in respect of accelerated depreciation and to be included in the tax base as a result of the transfer of the assets on which it was claimed. The portion of the gain that has given the right to claim a double taxation tax credit will not be included in the tax credit base either. The tax credit will be taken in the period in which the reinvestment is made and will be taken without any limit on the tax payable. However, where the reinvestment takes place before the transfer, the tax credit must be taken in the period in which the transfer is made. Types of asset transferred: Gains on transfers of the following types of assets qualify for the above tax credit: a) Tangible fixed assets or intangible assets or real estate investments that have been used for the business activity and have been in operation for at least one year prior to the transfer. b) Securities which represent at least 5% of the capital stock of any kind of entities (excluding those which do not confer an interest in its capital stock or equity) and have been previously held for at least one year. Such transfer may not be made in the framework of operations for the dissolution or liquidation of these entities. The calculation of the stake transferred will refer to the tax period. For the purposes of calculating the length of ownership, the FIFO rule will be applied (those acquired first will be deemed to have been transferred first). The calculation of the interest transferred will refer to the tax period. When the transferred securities relate to entities that have assets that were not used for business activities, per the balance sheet for the last year-end, in a percentage of over 15% of total assets, the credit will not be applied on the portion of the gain obtained on the transfer relative to the percentage obtained. This percentage will be calculated by reference to the consolidated balance sheet if the transferred securities relate to an investment in the equity of a parent of a group, within the meaning defined in Article 42 of the Commercial Code, irrespective of residence and of the obligation to prepare consolidated financial statements, in which multigroup and associated entities will be included on the terms of corporate legislation. The taxpayer can, however, determine that percentage by reference to the market values of the assets on its balance sheet.
Reinvestment requirements The following are the assets in which the transfer proceeds must be reinvested: a) Tangible fixed assets, intangible assets or real estate investments used for business activities that must be put into operation within the reinvestment period. b) Securities which represent at least 5% of the capital stock of any kind of entities, excluding those which do not confer an interest in its capital stock or equity. The calculation of the stake acquired will refer to the period established for making the reinvestment. These securities may not give rise to any other tax incentive at the level of the tax base or tax payable, but value corrections, exemptions envisaged in article 21 of the Corporate Income Tax Law and tax credits for the avoidance of international double taxation are not considered as such. In general, this tax credit is incompatible with tax deductibility of the amortization of the financial goodwill arising in the acquisition of stakes in non-resident entities (established in article 12.5 of the Corporate Income Tax Law), regardless the period in which the value correction is made. The Law provides for certain restrictions on the reinvestments that qualify for these purposes, especially in relation to intragroup transfers. The assets in which the reinvestment is made must continue to be held by the taxpayer in operation for five years, except for justified loss, or for three years in the case of movable assets, unless their useful life is shorter. If the assets are transferred before the end of that period, the tax credit will be forfeited (unless the net book value or proceeds, if less, is reinvested as described above). If the tax credit is forfeited in a year subsequent to that in which it is used, the relevant tax payable and latepayment interest must be paid over to the tax authorities. The reinvestment will be deemed to have been made when the assets in which it is made are made available to the taxpayer. In the case of assets under financial lease agreements, the reinvestment will also be deemed to have been made on the date on which the asset transferred is made available (for the cash value of the asset). In the latter case, if the purchase option is not exercised, the reinvestment will be deemed not to have been made (the reinvestment being a condition subsequent). 2.1.3.2 Investment tax credits A 8% tax credit for investments made in certain assets of cultural interest, provided that they are held for at least four years. Capitalizable expenses incurred in the acquisition, maintenance, upkeep or repair of such assets also qualify for this tax credit. A 18% tax credit for investments made in Spanish motion picture or audiovisual productions. The production cost is reduced, in order to apply the tax credit, by the portion financed by the financial co-producer.
A 5% tax credit is envisaged for investment in a motion picture financed by the financial coproducer (subject to a ceiling of 5% of the income for the year derived from such investment). A 3% tax credit for investments made in the publication of books. The portion of these investments (to protect the environment, made in certain assets of cultural interest, in satellite vehicle navigation and location systems, in access platforms for people with disabilities and wheelchair securing facilities incorporated into public passenger road transportation vehicles, in Spanish motion picture or audiovisual productions, and in the publication of books) financed with subsidies does not qualify for a tax credit. A tax credit for 25% of the expenses incurred in the tax period on scientific R&D. If the investment made exceeds average expenses incurred in the previous two years, 42% is applied to the excess. In addition, a tax credit for 8%13 of the expenses incurred in the tax period on technological innovation. Research and development (R&D) expenses included in the tax credit base must relate to activities carried out in Spain or in any member state of the European Union or of the European Economic Area. R&D expenses shall include the amounts paid by the taxpayer individually or in collaboration with other entities to fund the conduct of R&D activities in Spain or in any member state of the European Union or of the European Economic Area. The amount of the base for this tax credit is reduced by 65% of any subsidies received to encourage such activities. Apart from the tax credit for R&D expenses a tax credit is established for investments in tangible fixed assets and intangible assets (excluding investment in buildings or land) to be used exclusively for R&D activities, which will qualify for a tax credit for R&D activities (not technological innovation) on the following conditions: The base of the tax credit will be the amount of the investments in the above-mentioned assets, net of 65% of the subsidies received. The investments are deemed to be made when the assets are put into operation. The tax credit rate in these cases will be 8%. The assets acquired must remain at the company until their specific purpose in the research and development activities is accomplished, unless their useful life is shorter. This tax credit will be inconsistent with the other tax credits provided for the same investments in the Chapter on Tax Credits to encourage the pursuit of certain activities, but will be consistent with the tax credit for reinvestment of extraordinary income.
13
The Sustainable Economic Bill envisages increasing the tax credit rate to 12%.
2.1.3.3 Tax credit for hiring workers with disabilities The requirements for qualifying for this tax credit are as follows: The contract must be an indefinite-term, full-time contract. The amount of the tax credit will be 6,000 per disabled person/year by which the average labor force increases, with respect to the immediately preceding year. In general, the abovementioned tax credits (arising from the following investments or expenses: made in certain assets of cultural interest, in Spanish motion picture or audiovisual productions, in the publication of books, in R&D and technological innovation, for hiring workers with disabilities, and reinvestment of extraordinary income) are limited to 35% of the gross tax payable, net of domestic and international double taxation tax credits and of tax allowances (the limit will be raised to 50%14 where the R&D and technological innovation tax credit relating to expenditure and investment in the tax period exceed 10% of the gross tax payable) However, any excess can be carried forward for use in the following ten years (in the case of the tax credit for scientific research and technological innovation activities, the period will be up to fifteen years). The period will be counted from the first subsequent year in which an entity reports taxable income in the case of newly-incorporated entities or entities offsetting prior years losses by effective contributions of new resources. 2.1.3.4 Tax credit for domestic double taxation of dividends and on transfers of shares This credit completely eliminates double taxation when the resident company collecting the dividend owns at least 5% of the resident company paying the dividend and had its holding during the 12month period prior to the date on which the distributed dividend becomes claimable or, failing that, be maintained subsequently for the time required to complete that period. If these requirements are not met, double taxation is not avoided altogether, since 50% of the dividend received is taxed (or 100% should certain anti-abuse provisions be applicable). The right to a 100% tax credit is also granted in cases in which, having maintained the 5% stake, such stake has been decreased to a 3% minimum because the investee has carried out a transaction under the special tax regime for mergers, spin-offs, transfers of assets and securities exchanges. Such tax credit will apply where the dividends are distributed within the three years following the decrease
14 The Sustainable Economy Bill envisages raising this overall limit to 60% if the tax credits for R&D&I.
in percentage stake, provided that, in the year in which the dividend is distributed, the shares are not transferred or the stake does not fall below the minimum required percentage of 3%.15 The credit can also be taken on transfers of shares in respect of the amount of undistributed earnings generated in the period of ownership of the holding, provided that the requirements described above are met. Additionally, the credit applies (in respect of the amount of undistributed earnings) in the following cases: liquidation of a company; acquisition by a company of its own shares for amortization purposes; withdrawal of shareholders; dissolution of a company without liquidation (mergers, total spin-offs or global transfers of assets and liabilities). The above-mentioned tax credits are subject to certain limits (with some exceptions) including most notably: When the distribution of the dividend or of the share in profits does not result in the inclusion of income in the tax base. When the distribution of the dividend or of the share in profits causes an impairment loss in the ownership interest for tax purposes. When the undistributed income relates to income not included in the tax base of the investee company because it was offset by tax losses. Any excess tax credit can be carried forward for use in the following seven years. 2.1.3.5 Tax credit to avoid international double taxation Traditionally, Spanish legislation has adopted the credit method and the underlying tax credit (for dividends) to avoid international double taxation. An amendment to the legislation dated June 2000, introduced a pure exemption system subject to compliance with certain requirements. The exemption co-exists with the tax credit system (the tax payer may opt for one or the other, although the application of both is incompatible). 2.1.3.6 Tax credit system Under this method, all the income or capital gains obtained abroad by companies resident in Spain are included in the tax base in calculating the tax due. The amount of tax effectively paid abroad will be deducted from the tax due, up to the limit of the tax that would have been payable on the
15
This change, which took effect for tax periods starting on or after January 1, 2001, was introduced by Law 34/2010, of August 5, 2010, approving the Amendment of Public Sector Contracts Law 30/2007, of October 30, 2007, Law 31/2007, of October 30, 2007, on contracting procedures in the water, energy, transportation and postal services sectors, and Law 29/1998, of July 13, 1998, regulating the Judicial Review Jurisdiction to adapt the first two laws to EU legislation.
income had it been obtained in Spain. In making the calculation, all the income obtained in the same country will be included, except in the case of permanent establishments, where the income obtained by each of them will be grouped (country per country mechanism). When the tax base includes dividends or shares in profits paid by an entity not resident in Spain, the tax effectively paid by the non-resident entity in respect of the income from which the dividends or shares in profits were paid will be deducted (underlying tax). This deduction, together with that mentioned in the previous paragraph, may not exceed the gross tax that would have been payable in Spain on such income. The underlying tax is deductible without a level limit (i.e. the tax borne by the subsidiaries, by the subsidiaries of such subsidiaries, etc.). To qualify for the tax credit, a direct or indirect holding of at least 5% in the capital of the non-resident entity must be owned uninterruptedly for the one-year period immediately prior to the distribution of the dividend (or the one-year period must be completed after the distribution), and the resident entity must include in its tax base not only the income distributed but also the taxes borne by said foreign entities. Any amounts not deducted due to insufficiency of the gross tax payable may be carried forward for use in the following ten years. 2.1.3.7 Exemption system applicable to income from business activities carried on abroad through subsidiaries or permanent establishments Under the exemption system, dividends or profit participations derived from holding securities representing the equity of entities which are not resident in Spanish territory and the income (gains) obtained from the transfer of these securities are tax exempt in Spain provided the following requirements are met: a) The direct or indirect interest in the capital or equity of the non-resident entity must be at least 5% and this interest must have been held by the Spanish entity uninterruptedly during the year prior to the date on which the profit distributed becomes claimable (or will be maintained for the time necessary to complete a year). b) That the non-resident entity has been subject to a tax of an identical or analogous nature to the Spanish corporate income tax in the tax year in which the profit which is distributed has been obtained. It is considered that the non-resident entity is subject to a tax of identical or analogous nature to the Spanish corporate income tax if the non-resident entity is resident in a country with which Spain has a treaty to avoid international double taxation and such treaty contains an exchange of information clause. The exemption does not apply when the non-resident entity resides in a tax haven as legally defined unless it resides in a European Union member State and the taxpayer evidences that its formation and operations are based on valid economic reasons and that it performs business activities. c) The income from which the dividends or profit participations arise must be derived from the carrying on of business activities abroad as defined by the Law. This requirement will be deemed to
be met when at least 85% of the revenues for the year of the subsidiary relate to operating (i.e. not subject to Spains controlled foreign corporationsCFCrules) income obtained abroad, as well as to dividends from sub holdings arising from qualifying operating subsidiaries. The exemption applies in the case of capital gains when the requirements provided for in b) and c) above are met in every year of the holding, and the requirement set in a) on the date on which the transfer takes place. Regarding the computing of the one-year period, account may be taken of the period during which the holding was owned by companies that meet the conditions to be considered as forming part of the same group of companies according to Spanish mercantile legislation. In any case, if the exemption has been applied to foreign-source dividends, the decline in the value of the holding may not be included in the tax base, regardless of the manner or the tax period in which it occurs, up to the amount of those dividends. The Law also states that, if the non-resident entity whose holdings are being transferred has, in turn, a direct or indirect holding in entities resident in Spain or possesses assets in Spanish territory (and the market value of the holdings in the Spanish-resident entities or of the assets located in Spain exceeds 15% of the market value of its total assets), the exemption would be limited to the part of the income that relates to the net increase in undistributed profits generated by the investee entity during the time the holding was owned. Furthermore, the law establishes provisions that limit the application of the exemption, as in cases in which the entity transferring the holdings has made a tax-deductible adjustment to the value of the holding transferred. In this case, the exemption is limited to the excess of the income obtained on the transfer over the amount of the adjustment deducted. Similarly, if the holding in the non-resident entity had been acquired from another entity that meets the conditions referred to in Article 42 of the Commercial Code for forming part of a group of companies, any loss disclosed on the transfer of the holding will be reduced (in order to determine the amount of tax exempted) by the amount of the income obtained on the transfer of the same holding to which the exemption had been applied. Furthermore, any income obtained on the transfer will be taxed up to the amount of the loss on previous transfers included in the tax base for corporate income tax purposes. Apart from the above provisions, the Law also stipulates certain cases in which the exemption is not applied, such as, for example, when the entity resident in Spain is a Spanish or European Interest Grouping (EIG), or a Temporary Business Association (UTE) (see p. 32), the acquirer resides in a tax haven, or the business activity abroad is carried on for the main purpose of qualifying for this tax regime unless, in this latter case, evidence is provided of other valid economic grounds. It will be assumed that the business activity abroad is carried on mainly to qualify for the tax regime if it is simply relocated, i.e. when the same activity carried on by the subsidiary abroad had previously been carried on in Spain by another entity, which has ceased to carry on business and has a relationship of the type referred to in Article 42 of the Commercial Code.
Lastly, income obtained abroad through a permanent establishment will be also tax exempt provided that the requirements previously referred are met (business activity, identical or analogous tax and not located in a tax haven). It should be noted that the losses incurred by the establishment will be deductible, although tax must be paid subsequently on future income up to an amount equivalent to the losses previously deducted. 2.1.3.8 Withholdings and prepayments Non-operating income, such as interest, rent and dividends, is subject to withholding tax at source, as a prepayment against the final tax liability. In addition, with certain exceptions, lessees of certain types of real estate must make withholdings of 19% of the rent paid to the related lessors. Spanish companies are also required to make three tax prepayments (in April, October and December of each year) based on the taxable income for the first three, nine or eleven months of the calendar year, applying a rate equal to 5/7 of the applicable tax rate (for taxpayers taxable at the standard rate, the prepayment would be 21%). Certain reductions, withholdings, prepayments on account and installment payments made for the tax period shall be deducted from the resulting tax payable. This method is obligatory for taxpayers whose volume of business exceeds 6,010,121.04 in the 12 months prior to the date on which their tax period commences, and optional for any taxpayer that expressly decides to follow the method. Taxpayers whose volume of business does not exceed said amount, make the prepayments by applying the rate of 18% to the gross tax payable (net of the related tax credits) of the last tax year whose deadline for filing a return has elapsed. The withholdings and prepayments can be taken as tax credits in the annual return for the corresponding year. If the sum of such credits exceeds the final tax payable, the company is entitled to a refund for the excess prepaid. 2.1.4 Consolidated taxation status Spanish tax law envisages the possibility of certain corporate groups being taxed on a consolidated basis. The filing of a consolidated return has significant advantages, most notably the fact that the losses of some group companies can be offset against the profits of others. Also, since inter-company profits are eliminated in calculating consolidated income, the arms-length test being applied in the valuation of inter-company transactions could be irrelevant16.
16 In such cases, the Corporate Income Tax Regulations exempt the documentation obligation generally applicable to related-party transactions, for transactions performed within the tax group.
For tax purposes, a consolidated group consists of the resident controlling company, which must be subject to (and not exempt from) corporate income tax, or by a permanent establishment of a nonresident company, and those of its Spanish subsidiaries in which they have effective direct or indirect ownership interests of at least 75%17. In order to request the application of the consolidated tax regime, the controlling company or permanent establishment must have a direct or indirect holding of at least 75% in the capital stock of another company on the first day of the tax period in which this tax regime applies and said holding must be maintained throughout the tax period. Resolutions for group companies to be taxed on a consolidated basis must be adopted by the shareholders meeting (or equivalent body if they are not formed under the Commercial Code), and the tax authorities must be notified at any time during the tax period immediately prior to that in which the consolidated tax regime is applied. The regime will be applicable indefinitely so long as its application is not waived. 2.1.5 Other special taxation regimes Corporate income tax legislation contains provisions governing special taxation regimes, established mainly as a result of the nature of the taxpayer or of the activities carried on by entities in a specific economic sector: 2.1.5.1 Spanish and European Economic Interest Groupings (EIGs). These entities and their shareholders are subject to the general corporate income tax rules, with some exceptions, among others: they do not pay corporate income tax on the portion of their taxable income attributable to shareholders resident in Spain. The non-resident shareholders of a Spanish EIGs are taxable pursuant to the Non-Resident Income Tax Law and pursuant to the rules contained in the tax treaties. The non-resident shareholders of a European EIG are only taxable in Spain, for the EIGs income allocated to them, if they are considered to have a permanent establishment in Spain. 2.1.5.2 Temporary Business Associations (Uniones Temporales de Empresas or UTEs). These entities are taxed in the same way as EIGs. However, the foreign-source income (derived from activities carried out abroad) of UTEs is tax-exempt (subject to application to the tax authorities). The losses obtained by a UTE abroad are imputed to the tax bases of its members. If, in future years, the UTE obtains income it must be included in the tax base of its members up to the limit of the losses previously included.
17 Law 11/2009, of October 26, regulating Listed Corporations for Investment in the Real Estate Market, has introduced a reduction in the minimum holding of a parent company in its subsidiaries from 75% to 70% for the purposes of the definition of tax group, so long as they are subsidiaries whose shares are admitted to trading on a regulated market. The reduction will apply in tax periods beginning on or after January 1, 2010.
2.1.5.3 Other special tax systems Other special tax systems apply to venture capital companies and funds, industrial and regional development companies and collective investment institutions. Special regimes for economic sectors apply to both mining companies (with special provisions relating mainly to accelerated depreciation of certain assets and reductions in the tax base due to the applicability, subject to certain requirements, of the depletion factor), companies engaging in oil and gas research and exploitation activities (which, although subject to tax at a higher rate -35%-, may reduce, with certain limitations, their tax base by applying the depletion factor and are subject to special depreciation and loss carryforward provisions, etc.) and to shipping entities on the basis of tonnage. A special tax regime also applies to SOCIMIs. SOCIMIs are corporations whose main purpose is the acquisition and development of urban real estate for leasing purposes, including building refurbishment and holding shares in certain entities. As mentioned earlier the tax rate applicable to entities of this type is 19%. 2.1.6 Foreign-securities holding entities Current legislation of the regime governing foreign-securities holding entities (in Spanish, ETVE) underlines the same as one of the most competitive in the European Union. The main features of this special regime are summarized below: 2.1.6.1 Corporate purpose and application of the regime It is sufficient to notify the decision to apply the regime to the Ministry of Economy and Finance (no permission has to be granted by the authorities). The securities or interests representing the holding in the capital of the foreign-securities holding entities must be registered securities or interests. This special regime is not available for listed companies. Regarding the corporate purpose of the ETVE, it is sufficient for the corporate purpose to include the management and administration of securities representing the equity of entities not resident in Spanish territory, by means of the appropriate organization of material and personal resources. Moreover, an ETVE may be a member of a consolidated tax group, if it meets the relevant requirements, although this regime is not applicable to Spanish or European Interest Groupings and Temporary Business Associations, and entities which have as their principal activity the management of movable or immovable assets under certain conditions. 2.1.6.2 Treatment of the income obtained by the ETVE from holdings in non-resident entities Firstly, the dividends or shares in the profits of entities not resident in Spain, and income deriving from the transfer of the holding, are exempt subject to the requirements and conditions provided for under the exemption method to avoid international double taxation.
Secondly, a minimum holding of at least 5% must be owned in the non-resident entity to apply the aforementioned method. For the purpose of applying the exemption provided for in the ETVE regime, the minimum holding requirement is deemed to be met if the acquisition value of the holding is over 6 million. Holdings of less than 5% may be held in second and subsequent level subsidiaries (when the 6 million requisite is maintained), if these subsidiaries meet the conditions referred to in Article 42 of the Commercial Code for forming part of the same group of companies as the first-level foreign entity and file consolidated financial statements. The above notwithstanding, when the holding in the non-resident entity had been valued in accordance with the rules pertaining to the neutral tax regime, and the application of these rules, even in a previous transfer, had resulted in the non-inclusion of income in the tax base for corporate income tax, personal income tax or non-resident income tax, deriving from the transfer of the holding in an entity resident in Spain, the exemption will apply only to the income relating to the positive difference between the transfer value and the normal market value of the holding in the non-resident entity at the time of acquisition by the transferring entity. The rest of the income obtained on the transfer will be included in the tax base for the period. 2.1.6.3 Treatment of income distributed by the ETVE If the recipient of the income is an entity subject to Spanish corporate income tax, the income received will entitle the recipient to the tax credit for domestic double taxation. In case the recipient is an individual subject to Spanish personal income tax, the income distributed will be considered general income and he may apply the tax credit for taxes paid abroad on the terms provided for in personal income tax legislation. Finally, when the recipient is an individual or entity not resident in Spain, the profits distributed will not be deemed to have been obtained in Spain and, in this respect, the first distribution of profits will be deemed to derive from exempt income. In this sense, the distribution of additional paid-in capital is to be treated in the same way as the distribution of income. 2.1.6.4 Treatment of the capital gains obtained on the transfer of the holdings in the ETVE When the shareholder is an entity subject to Spanish corporate income tax, it may apply the exemption to avoid double international taxation described above in respect of the part of the income relating to holdings in non-resident entities that meet the relevant requirements, and the tax credit for domestic double taxation of capital gains in respect of the corresponding portion of the income obtained, on the terms provided for in the legislation governing the tax credit for domestic double taxation. When the shareholder is a person or entity not resident in Spain, the income relating to the reserves allocated with a charge to the exempt income or to the value differences imputable to the holdings in non-resident entities which fulfill the requirements to apply the exemption to foreign source income, will not be deemed to have been obtained in Spain.
No special rules have been introduced for individual resident shareholders, who will be subject to personal income tax legislation. 2.1.7 Neutral tax regime for restructuring operations In order to facilitate corporate reorganizations (mergers, spin-offs, contributions of assets, and exchanges of securities and transfers of registered office of a European company or a European cooperative society from one EU Member State to another) , the Spanish tax system provides for a well-established special regime based on the principles of non-intervention by the tax authorities and tax neutrality, which guarantees the deferral of or exemption from taxation, as appropriate, in respect of both direct and indirect taxation, for taxpayers carrying out such operations, along the same lines as the rest of the EU Member States. According to such regime, in the case of mergers, the absorbing company can deduct for tax purposes up to a limit of a 5% annually, under certain circumstances18, the amount of the difference between the acquisition cost of a holding above the 5% and its underlying book value that cannot be allocated to the assets and rights acquired, in conformity with the rules for preparing consolidated financial statements. In this respect, the taxpayer, in the tax periods in which it is going to benefit from this tax measure, should file to the tax authorities the following information jointly with its corporate income tax return: a) Identifying details of the transferor and of the percentage holding owned in it. b) Value and date of acquisition of the holdings in the transferor, as well as their underlying book value, determined on the basis of standardized financial statements. c) Support for the following: Explanation of the rules on standardization of valuation and timing as well as for the attribution to the assets and rights of the transferor of the difference existing between the acquisition cost and underlying book value of its holdings on the date of dissolution of that entity. That the holding has not been acquired from persons or entities not resident in Spain or from individuals resident in Spain, or from a related entity if the related entity, in turn, acquired the holding from those persons or entities. It shall be deemed that this requirement has been satisfied where the amount of the difference between the acquisition cost of a holding above the 5% and its underlying book value that cannot be allocated to the assets and rights acquired, has been taxed either in Spain or another EU Member State, under any transfer of the holding.
18 The difference allocated to assets and rights will be amortizable for tax purposes if the same requirements are met.
That the transferee is not, in relation to the transferor, in any of the situations provided for in Article 42 of the Spanish Commercial Code. 2.1.8 Tax incentives for small and medium-sized enterprises Enterprises whose net sales in the immediately preceding tax period (or in the current period in the case of newly-incorporated enterprises) amount to less than 10 million qualify for certain tax incentives19. If the enterprise belongs to a group of companies within the meaning of Article 42 of the Commercial Code, the net sales figure will be calculated for the group as a whole. The special regime also applies: During the three successive tax periods following that in which the 10 million threshold is reached (provided that the conditions are met for these entities to be deemed entities of a reduced size, both in the period in question and in the two preceding tax periods). Where the 10 million threshold is exceeded as a consequence of a business restructuring carried out under the special tax neutrality regime, provided that all the entities involved in the transaction meet the conditions to be deemed entities of a reduced size, both in the tax period in which the transaction is performed and in the two preceding periods. The incentives can summarized as follows: Accelerated depreciation of their tangible fixed assets up to certain limits, provided that certain job creation requirements are met. This possibility is inconsistent with the tax credit for reinvestment of extraordinary income. Accelerated depreciation of new fixed assets whose unit value does not exceed 601.01 (up to an aggregate limit of 12,020.24), without having recorded it for accounting purposes. Entitlement to increase by 2 the maximum depreciation rates permitted per the official depreciation tables (without having recorded it for accounting purposes) for new tangible fixed assets and intangible assets (except, amongst others, goodwill and trademarks, which can be depreciated by multiplying by 1.5 the maximum depreciation rates permitted per the official depreciation tables). Ability to record provisions for bad debts based on 1% of the balance of their accounts receivable at the end of the tax period. The tax rate for these enterprises is 25%, applicable to the first 300,000 of taxable income. Any taxable income above that amount is taxed at 30%.
19
This threshold has gone from 8 to 10 million, effective for tax periods commencing on or after January 1, 2011.
With effect in tax periods beginning on or after January 1, 2011, the tax rate applicable to small and medium size companies has been decreased from 25% to 20% if the tax base is between 0 and 300,000, and from 30% to 25% in the case of taxable income above 120,202.41), if the following requirements are met: Net revenues must be below 5 million. The average labor force must be smaller than 25 employees (regard will be had to the persons employed, pursuant to employment and labor legislation, taking into account the number of working hours engaged compared with full-time work). Jobs must be maintained or created by them. To qualify for the reduced tax rate, in the twelve months following the beginning of each of the tax periods in question, the enterprises average labor force must not be less than one or smaller than the average labor force in the twelve months before the beginning of the first tax period starting on or after January 1, 2009. Deduction of 9% of the volume of period investments and expenses aimed at improving access through the Internet and at improving internal processes through the use of information and communications technologies has been introduced. 2.1.9 Formal requirements The tax period is the companys business year, and its financial statements and accounting records are the basic documentation to support its annual tax return. The returns must be filed and the tax paid within 25 days following the six months after the end of the business year.
2.2 Personal income tax

This tax, which is one of the pillars of Spains tax system, is currently governed by Law 35/2006, of November 28, on Personal Income Tax, and by Royal Decree 439/2007, of March 30, 2007, approving the Personal Income Tax Regulations. As discussed below, the taxation of non-resident individuals is regulated in a separate law (the Revised Non-Resident Income Tax Law). 2.2.1 Persons subject to the tax The following persons are subject to personal income tax: Individuals habitually resident in Spanish territory. Individuals of Spanish nationality who are habitually resident abroad and fulfill any of the conditions laid down in the Law (e.g. diplomatic and consular services, etc.). Moreover, any Spanish national who establishes his residence for tax purposes in a tax haven will remain subject
to personal income tax (this rule will apply in the year in which residence is changed and for the following four years). A taxpayer is deemed to be habitually resident in Spanish territory if any one of the following conditions is met: The taxpayer is physically present in Spanish territory for more than 183 days in the calendar year. Sporadic absences are included in determining the length of time a taxpayer is present in Spanish territory, unless tax residence in another country is proved. In the case of territories designated in the regulations as tax havens, the authorities may require the taxpayer to prove that he was present in the territory in question for 183 days in the calendar year (excluding absences due to cultural or humanitarian cooperation, for no consideration, with the Spanish authorities). The main center or base of the taxpayers activities or economic interests is in Spain, either directly or indirectly. In the absence of proof to the contrary, an individual is presumed to be resident in Spain if his/her spouse/husband (from whom he/she is not legally separated) and dependent under-age children are habitually resident in Spain. Individuals who are payers of non-resident income tax and are resident in a Member State of the European Union may elect to be taxed under Spanish personal income tax if they demonstrate that their habitual domicile or residence is in another EU Member State and that at least 75% of their total income during the year was obtained as salary income or business income in Spain. Finally, it should be borne in mind the existing regime by virtue of which non-resident individuals who are seconded to Spain due to labor reasons, and become tax resident in Spain, can elect to be taxed in Spain as non-residents, when certain requirements are met, during the year in which residence is changed and for the following five tax periods (see heading 2.3.3 in this Chapter). 2.2.1.1 Taxable event Taxpayers subject to personal income tax are taxed on their entire worldwide income, including the income of foreign entities in certain circumstances (international fiscal transparency system), unless the non-resident entity is resident of a EU Member State in a manner similar to that described above for corporate income tax, and capital gains (and losses) in the calendar year, net of the necessary expenses (as defined in the Law) incurred to obtain such income. 2.2.1.2 Taxation system and taxpayer The possibility of being taxed individually or jointly (as a family unit) is regulated. However, there is only one tariff but divided in two parts: the general one and the Autonomous Community one.
2.2.1.3 General structure of the tax The Law distinguishes a general tax base and a savings tax base. The general base is the result of adding the following two balances: a) The balance resulting from adding and offsetting against each other, without limit, the following income and attributions of income: Salary income. Income from real estate. Income from movable capital derived from the assignment of own funds to entities related to the taxpayer. This rule does not apply (in which case such income must be included as savings income) where: they are entities of the kind provided for in Article 1.2 of Legislative Royal Decree 1298/1996, of June 28, Adapting the Law Currently in Force on Credit Institutions to the Law of the European Communities, provided that such income does not differ from the income that would have been offered to groups similar to the persons related to such institutions; the amount of own funds assigned to a related entity does not exceed the result multiplying equity by three, to the extent that it relates to the taxpayers interest in the related entity. Other income form movable capital which is not considered savings income, such as that derived from the assignment of the right to use the image, that from intellectual property when the taxpayer is not the author and that from industrial property which is not attached to business activities performed by the taxpayer. Income from business activities. Imputation of income from real estate. Imputation of income from entities under the international fiscal transparency system. Imputation of income from assignment of rights of publicity. Changes in the value of units in collective investment undertakings established in tax havens. b) The positive balance resulting from adding and offsetting against each other, exclusively, capital gains and losses which are not considered savings income (i.e. those not derived from the transfer of assets). If its balance is negative, it may be offset against 25% of the positive balance, if any, of income and attributions. The rest of the negative balance will be offset in the following four years with the same setoff rules, the legislation establishing an express mandate for the setoff to be made of the maximum amount that the rules allow. The savings tax base is formed by the positive balance resulting from adding the following balances:
a) On the one hand, the positive balance resulting from adding and offsetting against each other, exclusively, the following income: Income derived from an entity due to the status of partner, shareholder, associate or stakeholder. Income from movable capital derived from the assignment of own funds to third entities not related to the taxpayer or derived from related entities that meet the requirements in order not to be included as general income (indicated in the previous section). The monetary return or payment in kind on capitalization transactions and life or disability insurance contracts. If the inclusion and setoff of such income against each other leads to a negative result, this amount may only be offset against the positive balance of this income which is obtained in the following four years, and only the maximum limit allowed by the law may be offset. b) On the other hand, only the capital gains and losses which are classified as savings income will be included and offset against each other. If such result is negative, it may only be offset against positive balances of this type of income which are shown in the following four years, and only the maximum limit allowed by the law may be offset. 2.2.1.4 Exempt income Noteworthy among the exemptions is that relating to salary income for work performed abroad. This exemption will apply to salary income accrued during the days spent by the employee abroad up to a limit of 60,100 per year, if certain requirements are met: Salary income has to be paid in respect of work effectively performed abroad. Namely, the taxpayer must be rendering services physically abroad. In the case of services rendered by related entities to each other, an advantage or benefit occurs or may occur for the recipient The recipient of the services must be either a non-Spanish-resident entity or a permanent establishment situated abroad of a Spanish resident company. A tax identical or similar to the Spanish personal income tax must exist in the other country, and such country must not be a territory classified as a tax haven. This requirement will be deemed to be met when in that territory a Convention for the Avoidance of Double Taxation with an exchange of information clause with Spain is applied. The exempt income received for work performed abroad must be calculated (i) by reference to the number of days that the worker actually spent abroad and the specific income relating to the services provided outside the country, and (ii) to calculate the daily amount earned for the work performed abroad a proportional distribution method must be used, by reference to the total number of days in the year, aside from the specific income relating to the jobs concerned.
This exemption is incompatible with the regime established for non-taxable excess allowances (i.e. exempt per diems for travel), but not with the regime established for ordinary travel, accommodation and meal allowances (not subject to tax). Furthermore, an exemption is envisaged for capital gains arising on the transfer of the taxpayers principal residence, where the total amount is reinvested in the acquisition of a new principal residence within two years following the transfer date, under certain conditions20. 2.2.1.5 Salary income Imputation of salary income: When the salary income has been generated over a period exceeding two years and, at the same time, the requirement that it has not been obtained on a periodic or recurring basis is met, or when the income is classified by regulations as irregular, only 60%21 of this income will be imputed. However, starting on January 1, 2011, the amount on which such reduction can be applied may not exceed 300,000 (annually). The reduction is extended in certain circumstances for certain types of income. If the income arises from the exercise by employees of stock options, the amount of the income to which the 40% reduction applies cannot exceed the result of multiplying the annual average salary of the aggregate of personal income taxpayers (22,100) by the number of years during which the income is generated. For these purposes, in the case of income obtained at particularly irregular time intervals, the applicable time period will be five years. The limit mentioned in the previous paragraph will be multiplied by two in certain circumstances. The main permitted deductions from gross salary income to determine net salary income are social security contributions. Once the net salary income has been calculated, the following reductions will be applied: A total of 2,652 euros in general. For net income equal to or less than 9,180 euros, the reduction will amount to 4,080 euros annually. For net income between 9,180.01 and 13,260 euros, the reduction will amount to 4,080 euros less the result of multiplying by 0.35 the difference between the income obtained and 9,180 euros.
20 In cases in which a new home is acquired prior to the transfer of the principal residence and such acquisition took place in the 2006, 2007 or 2008 fiscal years, the two-year term established for transferring the principal residence will be extended to December 31, 2010. 21 At present, the Sustainable Economy Law (currently at the Preliminary Bill stage) is undergoing passage through the Spanish Parliament and seeks to impose a cap on the 40% reduction (currently set at 600,000).
The above-mentioned reductions will be increased by 100% in the case of: Active workers over 65 years who continue or prolong their labor activity (under the conditions which may be established by regulations). Unemployed persons registered in the Employment Office who accept a job which requires a change of their habitual residence to another municipality This increase will be applied in the tax period in which the change of residence takes place or in the following period (under the conditions which may be established by regulations). In addition, persons with disabilities may reduce their net income by 3,264 euros annually (if they obtain salary income as active workers); this reduction will be 7,242 euros when the need for the assistance of third parties is proven or in the case of persons with reduced mobility or with a degree of disability equal to or greater than 65%. The foregoing reductions are also applicable in the case of income from business activities, where the following requirements are met: The income must be determined under the direct-estimate method. All supplies of goods or services must be made to one unrelated party. The deductible expenses must not exceed 30% of the entire amount of reported income. Certain formal and reporting requirements must be fulfilled. No salary income must be received (unemployment benefit does not count for these purposes). At least 70% of the revenues must be subject to tax withholdings or prepayments. The taxpayer must not carry out any business activity through pass-through entities. These reductions cannot result in a negative figure for the net salary income and income from the business activity. The main features relating to compensation in kind are as follows: The valuation of salary income in kind paid by companies which have as their habitual activity the performance of activities which give rise to such income, may not be less than retail price of the goods, right or service in question, ordinary or common discounts being deducted (that discount may not exceed either 15% or 1,000 euros annually). The compensation in kind consisting of the use of company vehicles is valued annually at 20% of the vehicles acquisition cost for the payer (weighted by the percentage of private use of the vehicle). In the case of vehicles under lease, rental or similar arrangements, the 20% rate will apply to the value of the vehicle as if it were new. The result will be weighted according to the percentage of the vehicles private use.
Compensation in kind relating to the use of housing owned or leased by the employer is limited to 10% of the cadastral value (5% if the cadastral value has been updated), subject to a ceiling of 10% of the other salary income. Where there is no cadastral value or the value has not been notified, the value of the compensation will be 5% of 50% of the value for wealth tax (wealth tax) purposes (acquisition cost or value verified by the tax authorities for the purposes of other taxes). The portion of shares or other ownership interests not exceeding 12,000 awarded annually to all employees free of charge or at lower-than-market value will not be considered to be compensation in kind, provided that certain requirements are met. Certain reporting requirements are established (notification to the CNMV where the shares are traded on a stock exchange) in the case of shares or stock options awarded to executives and directors. In addition, in cases where a company acquires treasury stock for this purpose, the resolution of the shareholders meeting must include authorization for the acquisition as well as other particulars. Entities resident in Spanish territory must withhold tax from salary income paid to their employees, regardless of whether the payer of the income is the entity itself or another related resident or non-resident entity. Amounts paid to entities in charge of providing the public service of collective transportation of passengers, with the aim of easing employees commute between their homes and place of work, shall not be deemed salary compensation in kind, up to the annual limit of 1,500 per employee, Indirect payment systems which meet certain conditions shall also be deemed amounts paid to entities in charge of providing said public service (e.g. travel passes). 2.2.1.6 Rental income For the calculation of the net income all the expenses necessary to obtain it can be deducted. The financial expenses and repair and maintenance expenses that can be deducted may not exceed the gross income generated by each property (i.e. such expenses must be calculated property by property, and may not give rise to negative income per property). However, the excess may be deducted under identical conditions in the following four years. The rest of the expenses may give rise to negative net income from immovable property. In cases of leases of residential properties, a 60% reduction will apply to the net income (i.e. gross income less depreciation and amortization, non-State taxes and surcharges, etc.), (the reduction is applied irrespective of whether the net income is positive or negative). The reduction is increased to 100% for cases in which the lessees are aged between 18 and 30 and have certain net salary income or income from business activities in the tax period exceeding the public indicator of income for multiple purposes (in other words, 532.51 per month for 2011).
In addition, if the income was generated over a period exceeding two years, or if it was obtained at irregular time intervals, a 40% reduction will apply. 2.2.1.7 Taxation of savings income Savings income will be taxed as follows: 19%, applicable to the first 6,000 of the net savings tax base. 21%, thereafter. The following types of income (called under the Law other income from movable capital) can benefit from a 40% reduction if they are generated over more than two years or are classified by regulations as clearly irregular: (i) that derived from intellectual property, when the taxpayer is not the author, (ii) that derived from industrial property not used for business activities, (iii) that derived from the lease of furniture, businesses or mines or from the sublease of such assets (received by the sublessor) which are not business activities, and (iv) that derived from the assignment of the right to exploit an image or from the consent or authorization for the use thereof, when the aforementioned assignment does not take place in the course of a business activity. In relation to the income derived from a stake in the equity of entities, there is an exemption limited to 1,500 euros applicable to dividends, premiums for attendance at shareholders meetings, share in profits of any kind of entity (the discrimination of foreign-source dividends being therefore eliminated) as well as the income derived from any kind of assets, except the transfer of bonus shares, which confer a right (under the bylaws or by decision of the corporate bodies) to share in profits, sales, operations, income or similar items of an entity for a reason other than the remuneration of employment. However, this exemption will not apply to dividends and profits distributed or derived from: (i) collective Investment Institutions, (ii) securities or shares acquired within two months before the date on which they have been paid when, after this date, within the same period, a transfer of homogenous securities occurs. With respect to capital gains and losses the following aspects shall be considered: Valuation and tax rate A capital gain or loss on a transfer, whether for valuable consideration or for no consideration, is valued as the difference between the acquisition and transfer values (as legally defined) of the items transferred. All gains and losses which are derived from the transfer of assets will be included in the savings tax base at a rate of 19% for the first 6,000 and 21% thereafter. All other capital gains and losses will be included in the general tax base being taxed according to the general Personal Income Tax scale. Adjustment rates
The Law does not envisage the use of adjustment rates except for real estate. The adjustment rates are aimed at correcting for inflation and were applied to the acquisition cost of the transferred real estate and to the related depreciation. Capital gains derived from assets acquired before December 31, 1994 There is a transitional regime applicable to assets acquired before December 31, 1994, which although involves the disappearance of the so-called diminishing coefficients, consolidates the reduction applicable to the capital gains generated up to a certain date, the transfer of which occurs after that date. In general terms, the gain must be calculated as follows: First of all, the amount of the capital gain will be calculated by applying the rules to determine the gains in force in the year of the transfer. Of that amount a distinction must be drawn between the portion of the gain generated before January 20, 2006 (i.e. up to May 19, inclusive), meaning the proportion which corresponds to the number of days which have elapsed between the date of acquisition and January 19, 2006 in relation to the total number of days which the asset has been owned by the taxpayer. The portion of the gain generated before January 20, 2006 will be reduced by application of the diminishing rates (if these are applicable, i.e. for the assets acquired before December 31, 1994): In the case of real estate or of real estate companies, the gain will be reduced by 11.11% for each year that has elapsed from the acquisition of the asset until December 31, 1994. The gain will not be subject to tax in the case of real estate acquired before December 31, 1985. In the case of shares traded on secondary markets except for securities investment companies and real estate investment companies, the reduction will be of 25%. Consequently, the capital gains derived from assets acquired before December 31, 1991, are not taxed. The application of this percentage extends to securities which are traded on secondary markets defined in Directive 2004/39/EC. In all other cases the reduction will be 14.28%. Consequently, the gain derived from assets acquired before December 31, 1988 will not be taxed. A special rule is established applicable to securities traded on any of the regulated markets and to shares in collective investment institutions. The rest of the gain, i.e. that which is deemed to be generated after January 20, 2006 (inclusive) will be taxed in full (without prejudice to the application, in the case of real estate, of the revision coefficients to correct inflation, in the determination of the price or cost of acquisition).
Capital gains on the transfer for no consideration of a family business and on the transfer of units or shares in collective investment institutions Capital gains on the transfer for no consideration of a family business are tax exempt provided that the assets used by the taxpayer in the business activity after its acquisition had been so deployed for at least five years prior to the transfer date. For this exemption to apply the following requirements shall be met: (i) the transferor must be at least 65 years old or suffer from absolute permanent disability or comprehensive disability; (ii) if the transferor was performing management functions in relation to the family business he must relinquish such functions and not be remunerated after the transfer takes place, (iii) the recipient must keep the assets received for at least 10 years as from the date of the public deed documenting the transaction, and he must not carry out acts or transactions which could lead to a significant decrease in the acquisition value of the business received. In addition, capital gains obtained on the transfer of units or shares in collective investment institutions (investment funds) will not be included provided that the amount obtained is reinvested in assets of a similar nature. In case of capital gains obtained on the transfer of units or shares in collective investment institutions (SICAVs), said capital gains will not be included if, in the year prior to the transfer, the transferors ownership interest in the collective investment institution has at no time exceeded 5%, and if the number of the entitys shareholders exceeds 500. In both cases, the new shares or units subscribed will maintain the value and the acquisition date of the shares or units transferred. Starting on September 23, 2010, a new treatment is established for open-end investment vehicles (SICAVs): In the case of capital reductions made to reimburse contributions, the amount of the reduction shall be deemed income from movable capital, with the limit of the higher of the two following amounts: (i) That relating to the increase in the redemption value of the shares since their acquisition or subscription until the moment of the capital reduction, or (ii) where the capital reduction derives from retained earnings, the amount of such earnings. In this regard, it shall be considered that capital reductions, regardless of their aim, affect firstly the portion of capital that derives from retained earnings, until that portion reaches zero. Any excess over the limit determined according to the above rules will reduce the acquisition value of the relevant shares in the SICAV until it reaches zero. Moreover, any excess that might still exist shall be included as income from movable capital derived from the stake in the equity of all kinds of companies, in the manner established for the distribution of additional paid-in capital. The income mentioned in this section will not benefit from the 1,500 personal income tax exemption established for income obtained through the distribution of dividends. In the case of distribution of additional paid-in capital, the total amount obtained will be deemed income from movable capital, without the value of the stake being reduced.
These rules will also apply to the shareholders of collective investment undertakings equivalent to SICAVs and registered in another EU Member State (and, in any case, they will apply to the companies covered by Directive 2009/65/EC of the European Parliament and of the Council, of July 13, 2009, on the coordination of the laws, regulations and administrative provisions on certain collective undertakings for investment in transferable securities). In addition, there are setoff rules applicable to losses pending setoff on January 1, 2007. 2.2.1.8 Net tax base The general net tax base will be the result of applying the reductions for situations of dependence and old age and for contributions to social provision systems, including those established for persons with disabilities, contributions to protected estates of persons with disabilities and reductions for compensatory pensions. The application of the above-mentioned reductions may not generate a negative general net tax base. Notable among these reductions are contributions to pension funds. In applying this reduction, a number of limits must be respected: The overall maximum amount of the employers contributions to pension funds is 10,000, in general, although this limit increases to 12,500 for employees aged over 50. There is also an overall annual limit on reductions in the general component of taxable income (the lower of (i) 30% of the sum of net earned income and net income from business activities, with the possibility of a 50% increase for employees aged over 50, and (ii) 10,000, or 12,500 for employees aged over 5022) for contributions to the following pension funds (companys own fund or, where possible, a third-party fund): (i) Individual or group pension plans (in the latter case, the employers contributions to the pension plan must be reported for tax purposes), including plans regulated by Directive 2003/41/EC.
(ii) Mutual benefit funds (employers contributions must be reported for tax purposes). (iii) Group insurance plans (employers contributions must also be reported for tax purposes). (iv) Insured pension plans. (v) Private insurance policies covering solely the risk of severe dependence or major dependence.
22
The limits on annual contributions, qualifying for reductions, to pension systems arranged for persons with disabilities are 24,250 for contributions by the participant with disabilities and 10,000 for contributions by relatives or guardians, subject to the overall limit of 24,250 for all contributors, including the person with disabilities.
The reductions will also benefit persons who are related to the taxpayer by kinship, guardianship or fosterage and make contributions to the insurance policies. Premiums paid in this new product category must fulfill the same requirements applicable to contingencies covered, interest guaranteed and actuarial methods employed in insured pension plans, in order to qualify for a reduction. Additionally, the total reductions applied by all the persons that pay premiums in favor of the same taxpayer (including the premiums paid by the taxpayer) may not exceed 10,000 per annum. These premiums are not subject to inheritance or gift tax. Where the general component of taxable income is insufficient to apply the reduction or the abovementioned limit (30%-50%) is reached, the amount in question may be applied for five years following the year in which the contribution is made. This rule does not extend to cases in which the total contributions to pension plans exceed the amount stipulated in the legislation governing pension plans and funds, or to cases in which the overall maximum contributions limit provided by the financial stipulations of the Law on Pension Plans and Funds is exceeded. Contributions to pension plans in which the taxpayers spouse is the participant or member may also qualify for a reduction provided that the spouse does not obtain earned income or income from business activities, or where such income is lower than 8,000 per annum. The maximum reduction limit is 2,000 and the contribution is not subject to inheritance or gift tax. Reductions may be applied to taxable income irrespective of the form of the benefit, i.e. lump sum or annuity (for contributions made as from January 1, 2007, lump sum benefits no longer qualify for the 40% reduction applicable under the Law in force to December 31, 2006). The savings net tax base will be the result of deducting from the savings tax base the remainder (not applied to reduce the general tax base), if any, of the reduction for compensatory pensions, but such operation may not lead to a negative savings net tax base. 2.2.1.9 Reductions in the net tax base to adapt the tax to the personal and family situation of the taxpayer There are certain reductions which will be used first to reduce the general net tax base without making it negative, while any remainder will be used to reduce the savings net tax base. The main applicable reductions are: The taxpayers personal allowance: 5,050 euros annually which will be increased by 918 euros annually for persons over 65 years and by 1,122 euros for persons over 75 years. Allowance for descendants: for each unmarried descendant aged under 25, or descendant with disabilities regardless of age, or person under a guardianship or foster care arrangement living with the taxpayer and not obtaining annual income above 8,000, the taxpayer will be entitled
to a reduction of 1,836 for the first, 2,040 for the second, 3,672 for the third and 4,182 for the fourth and subsequent of these. Where the descendant is aged under 3 the foregoing amounts will be increased by 2,244 annually. The family reductions will not apply if the taxpayers generating entitlement to these amounts file personal income tax returns obtaining income exceeding 1,800 euros or an application for a refund. Allowance for ascendants: 918 euros for each ascendant over 65 years or a person with disabilities who lives with the taxpayer (or dependent boarders) who does not obtain income exceeding 8,000 euros. For ascendants over 75 years it is increased by 1,122 euros. Allowance for disability: (i) Of the taxpayer: in general, 2,316 euros annually, although it will be 7,038 euros annually for persons who prove they have a disability equal to or greater than 65% (there will be an increase of 2,316 euros annually for assistance, if the need for assistance from third parties, or the existence of limited mobility or a disability of at least 65% is proven); (ii) Of ascendants or descendants: for those that confer a right to the above-mentioned allowances, a reduction of 2,316 euros per person and year, although it will be 7,038 euros annually for persons who prove they have a disability equal to or greater than 65% and an increase of 2,316 euros annually for assistance, if the need for assistance of third parties, limited mobility or a disability of at least 65% is proven. For family units formed by spouses who are not separated and, where relevant, underage children or persons with disabilities, before the application of the personal and family allowances, a reduction will be made of 3,400 euros which will be applied, first of all, to the regular net tax base (which may not be negative) and subsequently, if there is a surplus, to the savings net tax base. This prior reduction will be 2,150 euros for single-parent family units, except in cases of living with the father or mother of one of the children that form part of the family unit. 2.2.1.10 Determination of the gross tax payable: tax rates For the calculation of the (national and regional) gross tax payable for the general net tax base which exceeds the amount of the personal and family allowances, a general tax scale and an Autonomous Community tax scale are established. Law 21/2001, on the tax and administrative measures under the financing system of common regime Autonomous Communities and cities with a statute of autonomy, includes, among the taxes transferred, personal income tax, and grants the Autonomous Communities regulatory powers over the taxes transferred. The taxpayers place of habitual residence determines the Autonomous Community in which income is deemed to be obtained for personal income tax purposes. The Law also lays down specific rules to prevent tax-motivated changes of residence.
The tax scales do not vary on the basis of the type of return (joint or separate) chosen by the taxpayer. The general tax scale for year 201123 is the following:
Table 2
TOTAL TAX SCALE

General tax scale Net taxable income up to (Euros) Gross tax payable (Euros) Rest of net taxable income up to (Euros) Tax rate applicable (%)
0,00 17,707.20 33,007.20 53,407.20 120,000.20 175,000.20
0.00 2,124.86 4,266.86 8,040.86 22,358.36 34,733.36
17,707.20 15,300.00 20,400.00 66,593.00 55,000.00 Onwards
12 14 18.5 21.5 22.5 23.5
Regarding the autonomous community rates, the applicable rates shall be those contained in the scale approved by the autonomous community pursuant to Law 22/2009, regulating the system for financing the autonomous communities under the common regime and cities with a charter of autonomy. For those cases where the corresponding Autonomous Community has not approved a specific autonomous tax scale, the total tax scale to be applied (sum of the general tax scale shown above and the autonomous tax scale applicable if no specific autonomous scale had been approved by the corresponding Autonomous Community), would be the following24:
Table 3
TOTAL TAX SCALE

Total tax scale Net taxable income up to (Euros) Gross tax payable (Euros) Rest of net taxable income up to (Euros) Tax rate applicable (%)
0,00 17,707.20 33,007.20 53,407.20 120,000.20 175,000.20
0.00 4,249.73 8,533.73 16,081.73 44,716.72 68,916.72
17,707.20 15,300.00 20,400.00 66,593.00 55,000.00 Onwards
24 28 37 43 44 45
23 The autonomous communities have certain capability to reduce the autonomous scale. 24 This scale is the one approved for 2010. At this time, none (general) has been approved for 2011, without prejudice to those which may have been approved by the various autonomous communities.
The maximum marginal rate would be 45% (as shown in the preceding table). However, it should be noted that certain Autonomous Communities have approved their autonomous tax scale for 2011 and in some of them the referred maximum marginal rate could slightly higher that 45%. For the calculation of the tax payable for the general base, referred to above, the following procedure will be followed: First the scale will be applied to the general net tax base without taking into account the personal and family allowances. The sum derived from applying the same scale to the personal and family allowances will be deducted from the resulting amount (thus, it is intended to tax the allowances progressively at the zero rate and, therefore, that the saving is generated at the minimum rates instead of the current system under which the reductions to the base involve savings at the marginal rates applicable). The tax payable thus obtained divided by the general net tax base will determine the average rate of general taxation. Any net savings tax base not corresponding to the remainder of the personal and family allowances will be taxed at a flat rate of 9.5% for the first 6,000 and at 10.05% thereafter in the case of the national component of the tax, and at 9.5% for the first 6,000 and 10.05% thereafter in the case of the regional component of the tax; in other words, it will be taxed at a combined rate of 19% and 21%, respectively. The sum of the amounts resulting from applying the national and regional tax rates to the general tax base and to the savings tax base as described will determine the national and regional gross tax payable respectively. 2.2.1.11 Net tax payable and final tax payable: Tax credits a) The national net tax payable will be the result of deducting from the national gross tax payable (i) the national tax credits for investment in the habitual dwelling, (ii) 50% of the tax credits for business activities, donations (25% of the amounts donate to certain institutions), income obtained in Ceuta and Melilla, measures for the protection and dissemination of the Spanish Heritage (and of the cities, collections and properties declared World Heritage. A 15% tax credit on the investments and expenses made in relation to such assets), company savings account and the tax credit for renting the habitual dwelling; on the other hand, the regional net tax payable will be the result of deducting from the regional gross tax payable in the regional tranche the tax credit for investment in a habitual dwelling and 50% of the rest of the above-mentioned tax credits, as well as the tax credits which may be established by the Autonomous Community in question exercising its powers, but the (national and regional) net tax payable may not be negative.
Tax credit for investments in the habitual dwelling25 A credit of 15% of the amount invested in acquiring or refurbishing the taxpayers habitual abode is granted; the percentage is applied to the investment made, the purchase expenses and the interest and expenses paid on debt, and the amounts deposited in home-purchase saving accounts and used for the acquisition of the habitual abode. In cases of annulment of a marriage, divorce or judicial separation, the taxpayer whose annual taxable income is less than 24,107.20 could continue applying the tax credit for a habitual dwelling, for the amounts paid in the tax period for the acquisition of what was his habitual dwelling while the marriage existed, provided that it continues to be the habitual dwelling of the common children and the parent in whose company they remain. The maximum base for the tax credit under this heading will be as follows: Where the annual taxable income is 17,707.20 or less: 9,040 annually. Where the annual taxable income is between 17,707.20 and 24,107.20: 9,040 minus the result of multiplying by 1.4125 the difference between the tax base and 17,707.20 annually. Amounts deposited in homebuyer savings accounts by taxpayers whose annual taxable income is less than 24,107.20 only qualify for the tax credit if they are used to purchase the habitual abode within a four26 year-period since the date on which the home-purchase saving account was opened by the taxpayer. A specific system for taxpayers with disabilities is established. Thus, for cases of adaptation or accessibility works for persons with disabilities, the rate will be 10% regardless of whether or not the works are financed. Transitional rules have been put in place for taxpayers who, prior to January 1, 2011, (i) acquired their principal residence, (ii) paid sums for the construction of their principal residence, or (iii) paid sums for construction work and fixtures to adapt the principal residence for use by disabled persons. The taxpayers that apply these transitional rules may take the tax credit, applying it to the maximum tax credit base established according to the wording of the law in force up to 2010, that is, 9.015 for the acquisition and renovation of their principal residence, and 12,020 for construction work and fixtures to adapt the principal residence for use by disabled persons. To be
25 At present, the Sustainable Economy Law (currently at the Preliminary Bill stage) is undergoing passage through the Spanish Parliament. This Law modifies the tax credit for investment in the habitual dwelling by limiting or, where appropriate, eliminating its applicability. 26 Royal Decree 1975/2008, of November 28, 2008, on urgent measures to be adopted in relation to economic, tax, employment and housing access matters, establishes that the balances of homebuyer savings accounts existing at the end of the term of 4 years and which, due to the expiration of such term, must be used to acquire a home for the first time or to restore the principal residence within the period running from January 1, 2008, to December 30, 2010, may be used for such purpose until December 31, 2010, without its entailing the loss of the right to apply the tax credit for investment in the principal residence.
able to apply these transitional rules, the renovation or extension work on the residence, or the construction work and fixtures to adapt the principal residence for use by disabled persons must be finished before January 1, 2015. Moreover, taxpayers whose annual taxable income is less than 53,007.20 may deduct 10% of the amounts paid since the entry into force of Royal Decree-Law 6/2010 (April 14, 2010) up to December 31, 2012, for construction work carried out during the period on the principal residence or the building where it is located, provided that the purpose for the works is to improve energy efficiency, hygiene, health and environmental protection, the use of renewable energies, security and stability and, in particular, to replace electrical, water, gas or other utilities installations, or to aid in the accessibility to the building or the residences, on the terms established in Royal Decree 2066/2008, of December 12, 2008, regulating the State Housing and Renovation Program 20092012, as well as works for the installation of telecommunications infrastructures carried out during the period which enable the access to Internet and digital television services in the taxpayers principal residence. The maximum annual tax credit base will be as follows: a) Where the annual taxable income is 33,007.20: 4,000 annually, b) Where the annual taxable income is between 33, 007.20 and 53, 007.20: 400 annually, minus the result of multiplying by 0.2 the difference between the annual taxable income and 33,007.20. Any amounts paid in the year which are not deducted because they exceed the maximum annual tax credit base may be deducted, up to the same limit, in the following four years. Tax credit for the lease of the taxpayers principal residence A new addition to the General State Budget Law for 2008 was the grant of a tax credit equal to 10.05% of the sums paid by taxpayers in the tax period to rent their principal residence, provided that the taxpayers taxable income is less than 24,107.20 per year. The maximum tax credit base will be as follows: Where the taxpayers annual taxable income is 17,707.20 or less: 9,040. Where the taxpayers annual taxable income is between 17,707.20 and 24,107.20: 9,040 minus the result of multiplying by 1.4125 the difference between the annual taxable income and 17,707.20. b) The final tax payable will be the result of deducting from the total net tax payable (regional plus national) the sum of the international double taxation credits, the 400 tax credit for salary income or income obtained from economic activities27, the withholdings, payments on account
27 Tax credit introduced by Royal Decree-Law 2/2008 on Measures to Foster Economic Activity.
and split payments and the deductions of the underlying tax in relation to income attributed by international fiscal transparency or due to assignment of image rights. Effective January 1, 2010, the General State Budget Law modifies the 400 tax credit for obtaining salary income or income from economic activities. In particular, the following credit can be taken: 400 per year where the taxable income is equal to or less than 8,000. 400 less the result of multiplying by 0.1 the difference between the taxable income and 8,000 per year, where the taxable income is between 8,000.01 and 12,000 per year. Taxable incomes in excess of 12,000 per year will not qualify for the tax credit. The final tax payable may be reduced in turn by the maternity tax credit (subject to the limit, it should be remembered, of 1,200 euros annually). 2.2.1.12 Withholding Payments of income from movable capital, gains on shares or units in collective investment undertakings, salary income, etc. are subject to withholding at source which is treated as a prepayment on account of the final tax. Moreover, employers are obliged to make personal income tax prepayments in respect of compensation in kind paid to their employees. The base and rate of withholding and prepayment for the main types of income are detailed in the table hereunder:
Table 4
THE BASE, RATE OF WITHHOLDING AND PREPAYMENT FOR THE MAIN TYPES OF INCOME
Income Base Rate
General(*) Contracts lasting less than one year Special dependent employment relationships Board of Directors members Courses, talks, assignment of literary, artistic or scientific works Income from movable capital (**) General (***) Full consideration claimable or paid
See below See below (Minimum 2%)
Salary income
Total amount of compensation paid
Minimum 18% 35% 15% 19%
Table 4 (Cont.)
THE BASE, RATE OF WITHHOLDING AND PREPAYMENT FOR THE MAIN TYPES OF INCOME
Income Base Rate
General Professional activities Commencement of activity and subsequent two years Transfers or reimbursements of shares and participations in collective investment schemes (****) Cash prizes Lease/sublease of urban property Amount of revenues or consideration obtained
15% 7% 19%
Capital gains (**)
Amount to be included in the tax base, calculated according to the Personal Income Tax Regulations Amount of the prize Amount of rent and other items paid to the lessor or sublessor VAT
19% 19%
Other income (**)
Intellectual an industrial property Full amounts paid lease/sublease of movable property and businesses Licensing of rights of publicity Full amounts paid
19%
24%
(*) Effective as of January 1, 2009, a new two point reduction of the withholding rate is established (without it being able to be negative), applicable to salary income of taxpayers who have notified the payer of their salary that a portion thereof is used to acquire or refurbish their principal residence for which they use external financing and in respect of which they will be entitled to the tax credit for investment in the principal residence, provided that the total amount of their expected annual income is less than 33,007.20. (**)The establishment of a flat withholding tax/tax prepayment rate of 19% in these cases means that the tax difference between 19% and 21% (in the case of net tax bases exceeding 6,000) must be paid over when filing the relevant tax self-assessment. (***) The amount of the tax prepayment to be made in respect of compensation in kind is calculated by applying the 19% rate to the result of increasing the acquisition value or the cost for the payer by 20%. (****)In general, the withholding obligation will not exist if the transferor decides to reinvest the whole amount obtained in the sale in the purchase of new shares or participations in collective investment schemes (deferral regime envisaged in article 94 of the Law 35/2006).
To calculate the withholding tax applicable to salary income, the deductible expenses and reductions and the personal and family allowances are deducted from the total amount of such income to obtain the taxable income. The tax scale (aggregate of State and Autonomous Community rates) is applied to this amount to obtain the amount of withholding. The applicable withholding tax rate is obtained by dividing the amount withheld by total income. 2.2.1.13 Self-assessment Taxpayers who are required to file a personal income tax return must, when filing their returns, calculate the related tax payable and pay it over in the place and manner and by the deadlines determined by the Ministry of Economy and Finance. The deadline is usually June 30.
Taxpayers who are married and not legally separated, and who are obliged to file a personal income tax return under which tax is payable, may request the suspension of their tax debt in an amount equal to or less than the refund to which their spouse is entitled for the same tax and in the same tax period.
2.3 Non-resident income tax

Non-resident income tax is currently governed by the Revised Non-Resident Income Tax Law, approved by Legislative Royal Decree 5/2004, of March 5, and the Non-Resident Income Tax Regulations approved by Royal Decree 1776/2004. Both of them establish the tax regime applicable to non-resident individuals or entities that obtain Spanish-source income. Taxation of non-residents is dealt with separately from taxation of resident individuals and entities. As was mentioned before, the abovementioned law envisages that non-resident individuals who prove that they are habitually resident in another EU country and that they have obtained in Spain salary income and income from business activities which amounts to at least 75% of their worldwide income, may opt to be taxed as resident individuals. The key factor in determining the tax regime for non-residents is whether or not they have a permanent establishment in Spain. This factor determines the following two ways in which nonresidents may be subject to taxation: 2.3.1 Income obtained through a permanent establishment Non-resident individuals or entities that obtain income through a permanent establishment located in Spain will be taxed on the total income attributable to said establishment, regardless of the place where it was obtained or produced. The concept of permanent establishment in Spanish law is in line with the OECD Model Tax Convention. In the case of a foreign entity or individual resident in a country with which Spain has a tax treaty, the treaty provisions and, specifically, the exceptions to the definition of permanent establishment, will govern the existence of a permanent establishment in Spain. In general terms, permanent establishments in Spain are taxed on their net income at the same rate as Spanish companies (in general, 30%). Non-resident entities or individuals operating through a permanent establishment in Spain are required to withhold taxes or make tax prepayments on the same terms as resident individuals or entities (i.e. on salary income paid, income from movable capital satisfied, etc.). There is a 19% tax (branch profit tax) on the remitted profits of non-residents doing business through a permanent establishment in Spain. In this respect, the Law provides protection to the other EU Member States and also exempts from taxation income obtained in Spain through permanent establishments by entities resident for tax purposes in a State that has signed a tax treaty with Spain which does not expressly provide otherwise, provided that there is reciprocal treatment (unless it resides in a tax haven). This tax would therefore be additional to that already borne by the permanent establishment on its income (30% on revenues net of expenses).
Non-residents who operate in Spain through a permanent establishment are generally required to keep accounting records here, in accordance with the rules and procedures established for Spanish companies. The taxation of the income of permanent establishments envisages three different situations, as follows: As a general rule, taxable income is determined in accordance with the same regulations as are applicable to Spanish-resident companies and, accordingly, the tax rate of 30% (35% in the case of oil and gas research and exploitation activities) would be applicable to net income. Allocated parent company general and administrative overhead expenses are deductible under certain conditions. The permanent establishments tax year will be the calendar year unless stated otherwise. The tax period is also deemed to have ended in the event of the discontinuation of a permanent establishments business activities, withdrawal of the investment initially made in the permanent establishment, or the change of residence of the head office. The permanent establishment may also take the tax credits and relief that might be applicable, in general, for Spanish resident companies. For permanent establishments engaging in installation or erection projects with a duration of over 6 months, for those with seasonal or sporadic activity, or for those engaged in the exploration of natural resources, the tax base is determined in accordance with the rules applicable to non-residents obtaining income in Spain not through a permanent establishment. Such rules also apply in determining the tax return filing and tax accrual obligations of the permanent establishment, which is not obliged to keep books of account (but only documentary support of its transactions). However, these non-residents who operate through a permanent establishment in Spain may also choose to be taxed under the general rules, but such option may only be taken if separate accounts are kept in Spain. This choice must be made at the date of registration in the entities index. If the permanent establishment does not complete a business cycle in Spain which leads to income in Spain, and the business cycle is completed by the parent company (or the non-resident individual who operates in Spain through a permanent establishment) or by other permanent establishments, the tax liability is determined by applying the general taxation rules, whereby revenues and expenses are valued at market prices. However, the tax base will secondarily be determined by applying the percentage established by the Ministry of Economy and Finance for this purpose to the total expenses incurred, and by adding any passive (unearned) income not obtained in the normal course of business (interest, royalties, etc.) and any other capital gains arising from the assets assigned to the permanent establishment. This percentage has been set at 15%. The gross tax payable in this case is determined by applying the standard tax rate, but the tax credits and tax relief provided by the standard corporate income tax system may not be taken. The tax period and tax return filing deadlines are those envisaged in the standard tax rules.
2.3.2 Income obtained not through a permanent establishment Non-resident entities or individuals that obtain income in Spain not through a permanent establishment will be taxed separately on each total or partial accrual of Spanish-source income. Spanish-source income obtained not through a permanent establishment, as defined by the NonResident Income Tax Law, consists mainly of the following items: Non-resident entities or individuals that obtain income in Spain not through a permanent establishment will be taxed separately on each total or partial accrual of Spanish-source income. Spanish-source income obtained not through a permanent establishment, as defined by the NonResident Income Tax Law, consists mainly of the following items: Earnings derived from economic activities pursued in Spain. Earnings derived from the rendering of services where such services (i.e. studies, projects, technical assistance or management support services) are used in Spanish territory. Salary income, which is directly or indirectly derived from work performed in Spain. Interest, royalties and other income from movable capital which remunerate capital used in Spanish territory. Income from marketable securities issued by companies resident in Spain. Income from real estate located in Spain or from certain rights arising there from Legislative Royal Decree 5/2004 treats as income obtained in Spain income attributed to non-resident individuals derived from urban real estate located in Spain and not connected to business activities. Capital gains on the sale of assets located in Spain and on the sale of securities issued by residents. However, certain types of income originated in Spain are not taxable in Spain, most notably the following: Income paid for international sales of goods. Income paid to non-resident persons or entities relating to permanent establishments located abroad, with a charge to these establishments, if the consideration paid is related to the activity of the permanent establishment abroad. Interest and earnings derived from the transfer of equity to a third party, as well as capital gains on movable assets owned by residents of other EU Member States (except tax havens) obtained not through a permanent establishment are deemed to be tax-exempt in Spain. However, capital gains on holdings in entities whose assets consist principally of real estate in Spain, or in which the seller has had, directly or indirectly, at least a 25% interest at some time during the twelve months preceding the sale, are taxable.
In addition, gains on transfers of securities or redemptions of participation units in mutual funds on official secondary securities markets in Spain obtained by non-resident individuals or entities without a permanent establishment in Spain that are resident in a State with which Spain has signed a tax treaty and such treaty contains an exchange of information clause are also tax exempt. The exemption does not apply when the non-resident entity resides in a country or territory classed as a tax haven. Similarly, yields derived from Spanish Government debt securities accruing to non-resident entities obtained not through a permanent establishment are not taxable in Spain, unless they are routed through tax havens. Income derived from non-resident accounts paid by banks or other financial institutions to nonresident entities or individuals (unless payment is made to a permanent establishment in Spain of such entities) as well as that obtained not through a permanent establishment located in Spain and derived from the rental or assignment of containers or ship and aircraft bare-boat charters are also tax exempt. In addition, dividends and shares in profits received by individuals resident in other Member States of the EU or in countries or territories with which there is an effective exchange of information, will be tax exempt subject to the limit of 1,500 euros of the entire income obtained in the calendar year. Dividends from a Spanish subsidiary to its EU parent company are tax-exempt in Spain, provided that certain requisites are met (among others, 10% of participation held during one year). This rule is not applicable if the parent company is located in a tax haven, or when a majority of the voting rights of the parent company is held directly or indirectly by an individual or legal entity non-resident in the EU, unless the parent company effectively engages in a business activity directly connected with the activity of the subsidiary, or has as its business purpose the administration and management of the subsidiary, or evidences that the parent company was formed for valid economic reasons and not merely to take advantage of the tax exemption. Lastly, royalties paid by a Spanish resident company (or by a permanent establishment in Spain of a company resident in another EU Member State) to a company resident in another EU Member State (or to a permanent establishment of an EU resident company in another Member State) are also exempt where certain requirements are met. In 1991 the Spanish tax authorities identified 48 territories classified as tax havens. These include such traditional havens as the Bahamas, Liechtenstein, Monaco, Gibraltar, certain holding companies resident in Luxembourg, etc. The Royal Decree which approved such list is still in force (see regulations on tax havens in the Corporate Income Tax Law). Spanish law generally sets tax rates lower than the standard rate for residents for income accruing to non-residents that do not have a permanent establishment in Spain. The tax is normally levied on the gross income, except for income for services rendered, technical assistance and installation and erection projects, in which case the tax is levied on the difference between the gross income and the
payroll, material procurement and supplies expenses as defined in the relevant regulations. In this connection, non-residents operating in Spain not through a permanent establishment are obliged to withhold and make payments on account from salaries paid as well as other payments subject to withholding or payment on account which can be considered deductible expenses in order to determine the non-resident income obtained in Spain. Capital gains are generally calculated on the basis of the difference between acquisition cost and sale price, to which the same rules as those established for resident individuals are generally applicable. Purchasers of property located in Spain from non-residents that do not have a permanent establishment in Spain must deduct withholding tax at 3% from the purchase price on account of the vendors capital gains tax liability. If the transferred property was acquired by the transferor more than two years prior to December 31, 1996, for withholding tax purposes it should be considered the application of the reduction coefficients commented in the section referred to Personal Income Tax. There are certain exceptions to this obligation to make a withholding, such as cases in which the property is transferred as a non-monetary contribution for the formation of, or capital increase at, a company resident in Spain. The tax rates are as follows:
Table 5
TYPE OF INCOME
Type of Income Tax Rate (%)
General Dividends Interest Transfers or reimbursements of shares and participations in collective investment schemes Capital gains Special cases: Income from reinsurance activities Income obtained by entities engaging in international shipping or aviation Capital gains Seasonal foreign workers
24(*)
19
1,5 4 19 2
(*) See exemptions above. The tax rates applicable to retirement pensions obtained by a nonresident individual will vary between 8% for amounts of up to 12,000, 30% for the following 6,700 and 40% for amounts in excess of 18,700. Royalty payments to entities or permanent establishments residing in the EU are subject to a 10% rate, under certain circumstances. A 0% rate will be applicable as of July 1, 2011.
In the case of non-residents without a permanent establishment in Spain there is no possibility of offsetting losses against future profits or capital gains. Moreover, a non-resident without a permanent establishment can only deduct from the tax payable the amount of the taxes withheld from its income and the amounts corresponding to donations and allowances as described in the Personal Income Tax Law for resident individuals. Liability for non-resident income tax arises whenever Spanish-source income becomes claimable by the non-resident entity or is paid, whichever is earlier; as for capital gains, liability arises when they are generated and in the case of income attributed to urban real estate, on December 31. In general, a separate tax return and supporting documentation must be filed within one month from the above date. It is not necessary to file a separate tax return where tax has already been withheld at source or prepaid on the income. In most cases the above-mentioned tax returns can be filed monthly or quarterly declaring different types of income obtained during the preceding period. In addition, the Law establishes a general obligation of making withholdings and prepayments on account of the income paid to non-residents by entities, professionals and entrepreneurs who are resident in Spain. Some exceptions to this general rule are envisaged in the Law and the Regulations. 2.3.3 Tax regime for non-resident employees assigned to Spain (inbound expatriates) Spanish personal income tax legislation contains a very attractive regime for personnel assigned to Spain due to labor reasons by multinational companies, since it allows individuals who become tax resident in Spain as a result of their assignment to Spain to opt to be taxed either under personal income tax rules or under nonresident income tax rules during the tax period in which their tax residence changes and for the next five tax periods. Under the nonresident income tax rules option, they are only taxed on the income and/or gains that are deemed to have been obtained in Spain, at a standard rate of 24%. The requirements necessary to apply this regime are as follows: The inbound expatriate must not have been resident in Spain during the 10 years preceding his or her assignment to Spain. The assignment to Spain must be the result of an employment contract. The work must actually be performed in Spain. The work must be performed for a company or entity resident in Spain or for a permanent establishment located in Spain of an entity not resident in Spain. The salary income resulting from the work must not be exempt from nonresident income tax.
The foreseeable compensation under the employment contract in each of the tax periods in which this special regime applies must not exceed 600,000 per year26. All salary income received by the taxpayer will be subject to withholding in Spain, even when it is not paid by an entity or establishment resident or located (respectively) in Spain, if the payor of the income is an entity related to the entity or establishment for whom the taxpayer performs his services (in Spain). In order to exercise the option to be taxed under this regime, it is necessary to notify the tax authorities within six months following the date of commencement of the employment that is stated in the notice informing the social security authorities that the employee was hired. The way to notify the tax authorities of the election is through Form 149, as approved by the Ministry of Economy and Finance, which must be filed with the provincial or local tax office applicable to the taxpayers tax domicile. The Form must contain certain information and must be accompanied by certain documentation. 2.3.4 Tax treaties29 Tax treaties may reduce, or even completely eliminate, the taxation in Spain on the income earned by entities which do not have a permanent establishment here. Companies without a permanent establishment in Spain which are resident in countries with which Spain has a tax treaty are generally not taxed in Spain on their business income earned here, nor for capital gains (other than on real estate). However, capital gains on the sale of shares of companies can be taxed in Spain under the special clauses of certain treaties (including most notably shares of real estate companies, transfers of shares when a substantial interest is held, etc.). Certain other types of income (royalties, interest or dividends) are taxed at reduced treaty rates in force, as detailed in the following table:
Amendment inserted by 2010 General State Budget Law 26/2009, of December 23, not applicable to workers arriving in Spain before 2010. 29 For more detailed information visit web page www.aeat.es, section Fiscalidad internacional.
28
Table 5
TREATY TAX RATES (*)

Type of Income Recipient Company's Country of Residence Dividends (%) Interest (%) Royalties(%)
Algeria Argentina Australia Austria Belgium Bolivia Bosnia Herzegovina Brazil Bulgaria
15 or 5 (53) 15 or 10 (1) 15 15 or 10 (2) 15 or 0 (1) 15 or 10 (1) 10 or 5 (44) 15 15 or 5 (1)
5 or 0 (54) 12,5 or 0 (65) 10 5 10 or 0 (25) 15 or 0 (65) 7 15 or 10 (4) 0 (14)
14 or 7 (55) 3, 5, 10 or 15 (19) 10 5 5 15 or 0 (66) 7 15 or 10 (5) 0
(*) The Double Tax Treaty signed between Spain and the former USSR is, from a Spanish tax perspective, currently applicable to the following republics: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Uzbekistan, Tajikistan, Turkmenistan, and Ukraine. Notwithstanding the above, said Double Tax Treaty is not being applied by certain former USSR republics. Notes: (1) The lower rate applies if the recipient company owns 25% or more of the capital of the payer company. (2) 10% if the recipient company has owned 50% or more of the capital of the payer company for at least one year before the date of distribution of the dividend. (3) The lower rate applies if the recipient company owns 50% or more of the capital of the payer company. Spain-Tunisia treaty: other than a partnership. (4) 10% on interest (paid to a financial institution in one of the treaty States) on loans and credits at a term of 10 years or more to finance the acquisition of capital equipment and tools. (5) The lower rate applies for royalties for the use of or license to use the copyright on literary, artistic or scientific works if these are produced by a resident of a contracting State. Spain-Brazil treaty: Films included Spain-Poland treaty: Copyright royalties exempt in source country Spain-Cuba, Spain-Czech Republic, Spain-Slovakia Spain-Italy, Spain-Bolivia and Spain-Morocco treaties: Films excluded (6) 10% if the recipient company has owned 25% or more of the capital of the payer company for at least six months before the year out of whose earnings the dividend is distributed. (7) 1) 10% if: a. The recipient company owns 50% or more of the capital of the payer company. b. The recipient company owns 25% or more of the capital of the payer company and at least one other company resident in The Netherlands also owns 25% or more of the payer company's capital. 5% if the recipient company is not taxable in The Netherlands under Dutch corporate income tax for the same dividends. 15% in all other cases. (8) 10% if the recipient company owns at least 10% of the capital of the payer company. (9) Royalties for licenses for use of patents, drawings, etc. (10) In Germany, interest from Spain is exempt when paid to: Deutsche Bundesbank or Kreditanstalt fr Wiederaufbau of the Federal Republic. (11) Except for interest from Spain paid to a bank resident in Switzerland in respect of loans fully or partly repayable in five years or more. (12) 5% in the case of loans exceeding 7 years.
Table 5 (cont.)

Canada Czech Republic Chile China Costa Rica Colombia Croatia Cuba Denmark30
15 15 or 5 (1) 10 or 5 (44) 10 10 or 5 (44) 5/0 (72) 15 or 0 (1) 15 or 5 (1) 15 or 0 (21)
15 0 (14) 15 or 5 (45) 10 10 or 5 (78) 10 8 (60) 10 or 0(36) 10
10 5 or 0 (5) 10 or 5 (46) 10 or 6 (80) 10 10 8 (59) 5 or 0 (5) 6
(13) 10% if the recipient company has owned 25% or more of the capital of the payer company for at least one year before the date of distribution of the dividend. (14) Interest paid is not subject to withholding tax, unless the beneficial owner carries out an industrial or commercial activity in the Contracting State where the payer is established, or renders professional services in that State through a permanent establishment to which the loan was provided. (15) No tax liability arises if the interest is paid in connection with a loan to a finance entity at more than 5 years or if the beneficiary is the State, a local entity or a government agency or if it is paid in connection with loans for the transfer of industrial, commercial or scientific equipment. (16) 5% for literary, dramatic, musical and artistic rights. 8% for film, tape and commercial, industrial or scientific royalty rights. 10% in all other cases. (17) 5% for credits for the sale of industrial, commercial or scientific equipment, the sale of goods and the execution of construction, installation and erection projects. Loans at 5 years or over are tax-exempt, as is interest paid to the State of Ecuador or its political subdivisions or public financial institutions. (18) Reduce rate for intellectual property rights in the country of origin, excluded films (Spain-Ecuador treaty: 5%). (19) 3% for new rights. 5% for literary, dramatic, musical and artistic rights. 10% for commercial, industrial or scientific royalty rights. 15% in all other cases. (20) The lower rate applies when the beneficiary is a bank (including savings banks in Spain). The 15% rate applies in the remaining cases. (21) The lower rate applies if the recipient company owns 25% or more of the voting rights of the payer company and the provisions of the EU ParentSubsidiary Directive apply. (22) 10% for credits for the sale of industrial, commercial or scientific equipment, and interest paid in connection with bonds. No tax liability arises if bonds are issued by the State, one of its political subdivisions or a local entity or the interest is paid in connection with a loan granted, guaranteed or ensured by the Central Bank or certain financial institutions. (23) 10% for royalty payments made by entities registered with the Philippines Investment Council. 20% for film, TV and radio tapes 15% in all other cases (24) No tax liability arises if: The interest is paid in connection with loans for the transfer of industrial, commercial or scientific equipment or the transfer of goods. The interest is paid to the State, its political subdivisions or public financial institutions, the Central Bank or in connection with loans guaranteed or ensured by the State, one of its political subdivisions or a local entity.
30
Denmark has decided to terminate Treaty with Spain as of January 1, 2009.
Table 5 (cont.)

Ecuador Egypt El Salvador Estonia Finland France Germany Greece Hungary
15 12 or 9 (41) 12 or 0 (75) 15 5 (47) 15 or 10 (1) 15 or 0 (28) 15 or 10 (1) 10 or 5 (41) 15 or 5 (1)
0 or 5 or 10 (17) 10 or 0 (26) 0/10 (58) 10 0 (48) 10 10 or 0(29) 10 or 0(10) 8 or 0 (43) 0 (14)
10 or 5(18) 12 10 10 5 (46) 5 5 or 0 (30) 5 6 0
(25) No tax liability arises if: The interest is paid in connection with loans for the transfer of industrial, or commercial equipment, goods or services. The interest is paid in connection with loans granted, guaranteed or ensured by a public institution to encourage exports. The interest is paid in connection with accounts or nominative advances between financial institutions. (26) No tax liability arises if the collector and beneficiary is the State, one of its political subdivisions, a local entity or the Central Bank. (27)10% for the use of, or right to use, industrial, commercial or scientific equipment. 20% for technical assistance service royalty payments and in all other cases. (28)No tax liability arises if the collector and beneficiary is a company subject to corporate income tax and: - Being resident in France, owns at least 10% of the capital of the payer company. - Being resident in Spain, owns a significant holding in the capital of the payer company. (29) No tax liability arises if the payer is the State or one of its political subdivisions, if the interest is paid in connection with loans for the transfer of industrial, commercial or scientific activities or equipment, or loans granted by financial institutions. (30) No tax liability arises for the use or license to use the copyright on literary or artistic works (films and tapes or visual recorded works excluded), or for the use of, or the right to use, ships or aircraft under bare boat charter, or containers used in international traffic. (31) - 10% if the recipient is a financial institution (including insurance entities) - 0% if the loan is granted by the Central Bank or (in the case of Thailand) by the Export-Import Bank of Thailand, by local authorities or by those institutions owned by the government. - 15% in all other cases. (32) 5% for literary, dramatic, musical, artistic and scientific rights (film, TV and radio tapes excluded). 8% for commercial, industrial or scientific equipment under financial leasing. 15% in all other cases. (33) 5% if a.- the beneficial owner is a company (other than a partnership) that has invested at least 100,000 ECU in the capital of the company paying the dividends; b.- these dividends are exempt in the other Member State. 10% when only one of the above two conditions are met. 15% in all other cases. (34) There is no taxation if: a.- The beneficial owner or payer is a Contracting State, a political subdivisions, a local authority, or an organization of any of the above. b.- Interest from debt securities guaranteed or underwritten by a State. c.- Interest paid by reason of long-term loans (over five years) granted by banks or other financial institutions in a Contracting State may only be taxed in that State.
Table 5 (cont.)

Iceland India Indonesia Iran Ireland Israel Italy Jamaica Japan
15 or 5 (41) 15 15 or 10 (1) 10 or 5 (44) 15 or 0 (21) 10 15 10 or 5 15 or 10 (6)
5 (42) 15 or 0 (26) 10 or 0 (26) 7.5 or 0 (60) 0 (14) 0 or 5 or 10 (38) 12 or 0(61) 0/10 (78) 10
5 10 or 20 (27) 10 5 5, 8 or 10 (16) 7 or 5 (39) 8 or 4 (5) 10 10
d.- Interest paid in relation to the sale on credit of industrial, commercial or scientific equipment may only be taxed in the State in which the beneficial owner is resident. (35) The royalties received for the use of, or the right to use, ships or aircraft under bare boat charter, or containers used in international traffic, may only be taxed in the Contracting State in which the recipient is resident. (36) There is no taxation in the State of origin if the interest is paid: By another Contracting State, a political subdivision or a local entity. By an enterprise of a Contracting State to an enterprise of another State, in relation to the sale on credit of merchandise and industrial, commercial or scientific equipment. By reason of long-term loans (over five years) granted by a credit or financial institution resident in another Contracting State. (37) Exempt when the recipient is the beneficial owner and 1) is a Contracting State or one of its political subdivisions; or 2) the interest is paid by reason of long-term loans (at least seven years) granted by a financial institution. (38) Exempt when paid in relation to loans granted or guaranteed by a State or any public financial institution determined by mutual agreement. Reduced rate of 5% in relation to the sale on credit of industrial, commercial or scientific equipment. (39) 5% for the use of, or the right to use, any copyright of literary, dramatic, musical or artistic work, or for the use of, or the right to use, industrial, commercial or scientific equipment. (40)Only taxable in the State where the recipient is located if it is the beneficial owner and, in addition is 1) a Contracting State, a political subdivision or a local entity, or 2) the payer is a political subdivision or a local entity. (41) The lower rate applies if the recipient company (excluding partnerships) is the beneficial owner and owns 25% or more of the capital of the payer company. (42) Only taxable in the State where the recipient is located if it is the beneficial owner, or the beneficial owner is a Contracting State, a political subdivision or a local entity. (43) Interest from a Contracting State is exempt from taxation in that State if: 1) the payer is the Contracting State, one of its political subdivisions, or one of its local entities, 2) is paid to the other Contracting State, to one of its political subdivisions, to one of its local entities, or to a body (including financial institutions) that belongs in full to this other Contracting State, political subdivision or local entity, or 3) is paid to another body (including financial institutions) in connection with loans granted under an agreement concluded between the contracting States. (44) The lower rate applies if the recipient company (excluding partnerships) is the beneficial owner and owns 20% or more of the capital of the payer company. (45) Reduced rate of 5% in relation to gross interest deriving from: 1) Loans granted by banks and insurance companies, 2) Bonds and securities that are regularly and habitually traded on a recognized securities market, 3) Interest paid in relation to the sale on credit of machinery and equipment by the beneficial owner that is the seller of said machinery and equipment.
Table 5 (cont.)

Korea Latvia Lithuania Luxembourg Macedonia Malaysia Malta Mexico Moldova
10 or 15 (1) 10 or 5 (41) 15 or 5 (47) 15 or 10 (13) 15 or 5 (56) 5/0(74) 5 or 0 (1) 15 or 5 (1) 0, 5 or 10 (77)
10 or 0 (24) 10 or 0 (48) 10 or 0 (48) 10 or 0 (62) 5 0 (57) 10 0 (14) 15 or 10 (20) 0/5 (77)
10 10 or 5 (46) 10 or 5 (46) 10 5 7/5(73) 0 10 or 0 (18) 8
15% in all other cases (46) 5% for the use of, or the right to use of industrial, commercial or scientific equipment. 10% in all other cases. (47) Reduce rate applies if the recipient company (excluding partnerships) is the beneficial owner and owns directly at least 25% of the capital of the payer company. (48) Tax exempt if the beneficial owner is the other Contracting State, a political subdivisions, the Central Bank or any other entity fully controlled by the State, or if there are interest paid in relation to a credit guaranteed by such other State, political subdivisions, public entity or institution, acting in the frame of the promotion of export activities mutually agreed by the authorities of both States. Also exempt when the beneficial owner is a company residing in the other contracting State and the interest is paid in relation to a debt as a consequence of a sale on credit by a company of that other contracting State of any goods or industrial, commercial or scientific equipment to a company residing in the contracting State firstly mentioned, to the extent that such debt does not arise between related parties. (49) Reduce rate applies if the beneficial owner is a partnership and owns directly at least 25% of the capital of the payer company. (50) 10% in relation to interest deriving from a loan granted by a bank, or paid in relation with the sale on credit of goods or equipment to an entity residing in a contracting State. (51) Reduce rate applies if the beneficial owner is a financial entity. 10% in all other cases. (52) 7% if the beneficial owner owns at least 50% of the capital of the payer company, and 10% if it owns at least 25% of the capital of the payer company. (53) Reduce rate applies if the beneficial owner owns, directly or indirectly, at least 10% of the capital of the payer company. (54) Tax exempt if the payer is the other Contracting State Government, a political subdivision, or the beneficial owner is the other Contracting State Government, or one of its political subdivisions, or to a body (including financial institutions) that belongs in full to this other Contracting State, political subdivision or local entity, or Central Bank of that State. Also exempt when the interest is paid in relation to a debt as a consequence of a sale on credit of any goods or equipment, or in relation to a loan granted by a bank residing in the other contracting State. (55) 14% for the use of, or the right to use of literary, artistic or scientific works. (56) Reduce rate applies if the recipient company (excluding partnerships) is the beneficial owner and owns, directly or indirectly, at least 10% of the capital of the payer company. (57) Exempt when the interest is paid in relation to a debt as a consequence of a sale on credit by a company of that other contracting State of any goods or industrial, commercial or scientific equipment to a company residing in the contracting State firstly mentioned, or paid by reason of longterm loans (at least five years) granted by a financial institution (58) Tax exempt if the beneficial owner is the other Contracting State Government, a political subdivision, or the Central Bank. Also exempt when the interest is paid in relation to a loan granted or guaranteed by the Government of the other Contracting State, one of its political subdivisions, or the Central Bank.
Table 5 (cont.)

Morocco Netherlands New Zealand Norway Philippines Poland Portugal Romania Russia
15 or 10 (1) 15,10 or 5 (7) 15 15 or 10 (1) 15 or 10 (8) 15 or 5 (1) 15 or 10 (1) 15 or 10 (1) 15 or 10 or 5 (33)
10 10 10 or 0 (42) 10 or 0 (34) 0 or 15 or 10 (22) 0 (14) 15 10 or 0 (67) 5 or 0 (37)
10 (9) or 5 (5) 6 10 5 or 0 (35) 10, 20, 15 (23) 10 or 0 (5) 5 10 or 0 (68) 5
(59) According to the Protocol, once five years have elapsed as of the date on which the Treaty entered into force (i.e. April 20, 2001), the applicable rate for interest and royalties will become zero. (60) Exempt if the recipient is the beneficial owner of the interest and: 1) Interest is paid in relation to the sale on credit of machinery and equipment to an entity of a Contracting State, 2) Interest is paid in relation to a loan granted by a bank or other financial institution residing in a Contracting State, 3) Interest is paid to the other Contracting State, the Central Bank, or to other banks fully controlled by the other Contracting State. (61) There is no taxation in the State of origin if the interest is paid: 1) By another Contracting State or one of its local entities, a political subdivision or a local entity, 2) is paid to the other Contracting State, or to one of its local entities, or to a body (including financial institutions) that belongs in full to this other Contracting State or one of its local entities, 3) is paid to other institutions or bodies (including financial institutions) in connection with loans granted under an agreement concluded between the contracting States. (62) There is no taxation in the State of origin if the interest is paid: 1) in connection with loans granted by a Contracting State or a resident in such State to the other Contracting State, or to one of its local entities, and 2) in connection with loans granted by a resident of a Contracting State and guaranteed by one of the Contracting States, to a resident of the other Contracting State. (63) Interest paid in relation to public debt issued by a Contracting State could be taxed in the State where the debtor is located. (64) If the recipient of the dividends is the beneficial owner the withholding tax could not exceed the 10% of the gross amount of the dividends. (65) Tax exempt if: a) the payer is the other Contracting State Government, a political or administrative subdivision or local entity; b) are paid to the other Contracting State Government, or one of its political subdivisions, or to a body (including financial institutions) that belongs in full to this other Contracting State, political subdivision or local entity; c) are paid to other institutions or bodies (including financial institutions) in the frame of the financing mutually agreed by the authorities of both States, provided that the term of such loan is less than 5 years. d) Also exempt when the interest is paid in relation to a debt as a consequence of a sale on credit of scientific, industrial or commercial equipment. (66) Tax exempt if royalties are paid for the use of, or the right to use, any copyright of literary, dramatic, musical or artistic work (films excluded). (67) Tax exempt if paid in connection with loans granted or guaranteed by the other Contracting State. (68) The 10% rate is applicable if the beneficial owner carries out, in the Contracting State where the royalties come from, an industrial or commercial activity, or renders professional services through a permanent establishment to which the right or property triggering the payment is effectively linked (provisions of article 7 or 14 will apply). (69) 5% if the actual beneficiary is a company that directly owns at least 10% of the capital stock of the paying company.
Table 5 (cont.)

Saudi Arabia Serbia Slovakia Slovenia South Africa Sweden Switzerland Thailand Trinidad and Tobago
5/0 (1) 10 or 5 (41) 15 or 5 (1) 15 or 5 (1) 15 or 5 (1) 15 or 10 (2) 15 or 10 (1) 10(64) 0, 5 or 10 (76)
5 10 0 (14) 5 or 0 (40) 5/0 (71) 15 or 0 (63) 10 or 0 (11) 0 or 15 or 10 (31) 8
8 10 or 5 (79) 5 or 0 (5) 5 5 10 5 5, 8 or 15 (32) 5
It will only be taxed in the contracting state where the recipient lives if the actual beneficiary is the contracting state, or one of its political subdivisions, one of its local entities or the Central Bank. (70) There is no tax if the recipient resident in another State is the actual beneficiary unless it performs in the other State where the royalties are from a business activity though a permanent establishment and the right or the asset on which the royalties are paid are actually related to it. (71) The 0% rate applies to the interest on loans in which the lender is the State or one of its political subdivisions, or financial institutions under certain conditions, or where the loans are granted in relation to a credit sale of equipment or goods to a company resident in a contracting State. (72) The reduced rate applies if the beneficial owner is a company that directly or indirectly holds at least 20% of the capital stock of the company that pays the dividends. (73) The 5% rate applies to payments for technical services (74) The 0% rate applies where the recipient entitys capital stock is divided into shares or units and it is direct owner of at least 5% of the capital stock of the entity that distributes the dividend. (75) The 0% rate applies if the El Salvadoran payee company directly possesses at least 50% of the capital of a Spanish company which has been tax in connection with the dividend distributed. . (76) The 0% rate applies if the beneficial owner is a company that directly possesses at least 50% of the capital of the company paying the dividend. The 5% rate applies if the beneficial owner is a company directly possessing at least 25% of the capital of the company paying the dividend, and the 10% rate will apply in the other cases. (77) Interest arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in that other State if the recipient is the beneficial owner of the interest and a) is the State, a political subdivision or local authority thereof, or the Central Bank; b) the interest is paid by the State in which the interest arises or by a political subdivision, a local authority or statutory body thereof; c) the interest is paid in respect of a loan, debt-claim or credit that is owed to, or made, provided, guaranteed or insured by, that State or a political subdivision, local authority or export financing agency thereof; d) is a public financial institution; e) is a pension fund that is approved for tax purposes by that State and the income of that fund is generally exempt from tax in that State. (78) The reduced rate will apply where the term of the loan is 5 years or more. (79) The 5% rate applies to royalties paid for the use of, or the right to use copyrights of literary, artistic or scientific works, except for computer programs, including cinematographic films or the films or tapes used for radio or television broadcasting. The 10% rate applies to income paid for the use of, or the right to use, patents, trademarks, drawings or models, plans, secret formulae or processes and computer programs, or for the use of, or the right to use, industrial, commercial or scientific equipment, or information relating to industrial, commercial or scientific experience. (80)The royalties paid for the use of, or the right to use, industrial, commercial or scientific equipment are subject to taxation on 60% of the gross amount of the royalties.
Table 5 (cont.)

Tunisia Turkey United Arab Emirates United Kingdom United States Venezuela Vietnam USSR(*)
15 or 5 (3) 15 or 5 (49) 15, 5 or 0 (69) 15 or 10 (8) 15 or 10 (1) 10 or 0 (1) 15, 10 7 (52) 18
10 or 5 (12) 15 or 10 (50) 0(14) 12 10 or 0(15) 10 or 4.95 (51) 10 0 (58) 0
10 10 0(70) 10 5 or 8 or 10 (16) 5 10 5
Currently, there are various treaties which are at different stages of negotiation or coming into force. Among them, the treaties with Albania, Armenia, Bosnia and Herzegovina, Colombia, Costa Rica, Georgia, Kazajstan, Kuwait, Namibia, Nigeria, Peru, Serbia and Montenegro31, Senegal, Syria, and Uruguay. Additionally, certain treaties are being nowadays renegotiated (for instance, the Spain-USA Treaty). Tax sparing arrangements Due to the existence under Spanish regulations of relief from the tax on certain types of income (mainly interest income), the tax sparing arrangements contained in many of Spains tax treaties are relevant. Under these arrangements the non-resident lender benefits from tax sparing, and therefore can deduct in its country not only the effective tax withheld in Spain from the interest but also the tax that would have been payable had relief not been provided by Spain. 2.3.2.1 Tax on property in Spain of non-resident companies Non-resident companies owning real estate in Spain are subject to an annual tax of 3% on the cadastral value of the property at December 31 each year.
31 Treaty with Serbia and Montenegro has been published in the Spanish Official Gazette of January 25, 2010 and enters into force on March 28, 2010. * The Double Tax Treaty signed between Spain and the former USSR is, from a Spanish tax perspective, currently applicable to the following republics: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Uzbekistan, Tajikistan, Turkmenistan, and Ukraine. Notwithstanding the above, said Double Tax Treaty is not being applied by certain former USSR republics.
This tax does not apply to: International bodies and foreign States and public institutions. Companies resident in countries with which Spain has a tax treaty in force which includes an exchange of information clause, provided that their direct or indirect owners are either Spanish residents or residents in a country with which Spain has a tax treaty with an exchange of information clause. For this exemption to be applicable, non-resident entities must report certain information to the tax authorities on an annual basis (e.g. real estate owned in Spain and the names of the direct or indirect individual owners of the company) to which the related residence certificates must be attached. Companies which have a business activity in Spain, as defined in the regulations, other than merely managing property. Listed companies. Nonprofit charitable or cultural entities which are recognized as such by the State with which Spain has a tax treaty with an exchange of information clause, provided that real estate owned in Spain is used in their ordinary activities. This tax is a deductible expense of the non-resident entity for corporate income tax purposes. 2.3.2.2 Tax representative Non-residents (i) obtaining income in Spain through a permanent establishment, or (ii) obtaining income in Spain from economic activities which do not constitute a permanent establishment and provide entitlement to the deduction of certain expenses, or (iii) which are entities subject to the pass-through regime and carry on business activities in Spain, all or a portion of which is carried on by them, continuously or habitually, through installations or workplaces of any kind, or which act in Spain through an agent authorized to conclude contracts in the name and for the account of the entity, (iv) when they are specifically required to do so by the tax authorities because of the nature or the amount of income obtained, or (v) persons and entities resident in countries or territories with which there is no effective exchange of information, that there are owners of property situated or rights which are fulfilled or exercised in Spain (except for securities listed on organized secondary markets), are required to appoint a Spanish resident as their tax representative before the end of the period for reporting income obtained in Spain. The appointment must be notified to the authorities within two months. Failure to appoint a representative or to notify the authorities can lead to a fine of 2,000. Such penalty will amount to 6,000 for those taxpayers residing in countries or territories with which there is no effective exchange of information. The tax representatives (if residents) of permanent establishments are deemed to be the persons registered as their representatives in the Mercantile Register, or the persons empowered to contract on their behalf.
Persons who, pursuant to the Non-Resident Income Tax Law, are: a) representatives of permanent establishments of non-resident taxpayers, or b) representatives of the entities described in (iii) above, are jointly and severally liable for paying over the tax debts relating to them. The payer of income accrued without the intermediation of a permanent establishment by nonresident taxpayers, or the bailee or manager of the assets or rights of non-resident taxpayers not used by a permanent establishment, shall be jointly and severally liable for the payment of tax debts relating to income paid by him or to income and/or gains from assets or rights whose bailment or management has been entrusted to him. This liability shall not exist where the payer or manager is subject to the obligation to withhold and prepay tax (since they already have such specific obligation and the responsibility that from it could eventually derive). The depository and the party managing the assets of a non-resident or paying income to a nonresident are jointly and severally liable for the tax liabilities arising from those assets or on such income when there is no obligation of withholding.
2.4 Wealth tax

Law 4/2008, of December 23, 2008, in practice abolished net worth tax as it establishes a tax reduction of 100% of the gross tax due for resident and nonresident taxpayers effective from the 2008 fiscal year onwards. This Law also eliminates the articles regulating the obligation to file a net worth tax return and, for nonresidents, to appoint a tax representative in Spain for purposes of this tax.
2.5 Inheritance and gift tax

Inheritance and gift tax applies to Spanish resident heirs, beneficiaries and donees and is charged on all assets received (located in Spain or abroad). Non-resident beneficiaries are also subject to this tax as non-resident taxpayers, and must pay the tax in Spain only on the acquisition of assets and rights (whatever their nature), that are located, exercisable or to be fulfilled in Spain. The inheritance and gift tax base can be reduced by 95% if it results from a transmission mortis causa to spouses, children or adopted children or, in their absence, ascendants, foster parents or collateral relatives up to the third degree of a professional business, an individual enterprise, or interests in entities or usufructs on them of the donor or deceased which were exempt from wealth tax. The requirements are as follows: The beneficiary of a transmission mortis causa must keep the assets received for at least 10 years. The beneficiary cannot carry out transactions that result in a substantial diminution in the value of the assets.
The 95% reduction in the tax base also applies to inter vivos transfers of interests in an individual enterprise, professional business or in entities belonging to the donor which are exempt from wealth tax32 to spouses, descendants or adopted children provided that the following requirements are met (in addition to the two requirements imposed for transmissions mortis causa): The donor must be at least 65 years old or have permanent disabilities. If the donor had been discharging management duties, he/she must discontinue them and stop receiving remuneration in that connection. There is another 95% reduction in the value of the habitual abode of the deceased in case of mortis causa transmission to spouses, ascendants, descendants or collateral relatives of over 65 years when they had lived with the deceased during the two previous years. The tax is calculated by adjusting a tax scale of progressive rates (depending on the value of the estate or gift) with a coefficient that takes into account the previous net worth and the degree of kinship with the donor. As with other taxes transferred to the Autonomous Community Governments, inheritance and gift tax legislation has been adapted to recognize the legislative power of those governments to approve reductions in the tax base and rates and in the coefficients for adjusting the tax payable, based on the taxpayers previous net worth. Inheritance and gift tax legislation also provides that in the case of transmissions mortis causa, the tax must always be paid in the Autonomous Community in which the deceased was habitually resident (except in the case of non-resident testators, jurisdiction for whom rests with the State tax authorities). As for acquisitions of assets or rights by way of gift, or any other inter vivos legal transaction for no consideration, the tax must be paid in the Autonomous Community in which the acquirer is habitually resident (except in the case of transfers of real estate, in which case the Autonomous Community with jurisdiction will be that in which the property is located). Law 22/2009, of December 18, also establishes the reductions, rates and coefficients to be applied if the Autonomous Community in question has not assumed the powers transferred, or where it has not yet made any regulations, in that connection. The Government is considering the possibility of progressively eliminating this tax at central government level, although since it is a tax which the Autonomous Community Governments are responsible for collecting, it has already been eliminated in practice by some Autonomous Community Governments (Cantabria, the Basque Country, Madrid, etc.).33
Or meet the requirements to claim the exemption. Note that in the case of non-resident heirs or donees the applicable legislation will always be central government legislation, regardless of the residence of the decedent or donor, or of the location of the real estate, for instance.
32 33
The tax rates and adjustment coefficients applicable for 2010 (in the absence of rates and coefficients specifically approved by the relevant autonomous community) are the following:
Table 6
APLICABLE RATES
Tax Base (up to Euros) Tax Payable (Euros) Remaining Tax Base (up to Euros) Applicable Rate (%) Tax Base (up to Euros) Tax Payable (Euros) Remaining Tax Base (up to Euros) Applicable Rate (%)
0.00 7,993.46 15,980.91 23,968.36 31,955.81 39,943.26 47,930.72 55,918.17
611.50 1,290.43 2,037.26 2,851.98 3,734.59 4,685.10 5,703.50
7,993.46 7,987.45 7,987.45 7,987.45 7,987.45 7,987.46 7,987.45 7,987.45
7.65% 8.50% 9.35% 10.20% 11.05% 11.90% 12.75% 13.60%
63,905.62 6,789.79 71,893.07 7,943.98 79,880.52 9,166.06 119,757.67 15,606.22 159,634.83 23,063.25 239,389.13 40,011.04 398,777.54 80,655.08 797,555.08 199,291.40
7,987.45 7,987.45 39,877.15 39,877.16 79,754.30 159,388.41 398,777.54 Upwards
14.45% 15.30% 16.15% 18.70% 21.25% 25.50% 29.75% 34.00%
Table 7
REDUCTIONS IN THE TAX BASE IN TRANSMISSIONS MORTIS CAUSA

Transferees Reduction
Group I: Children and adopted children under 21
15,956.87 plus 3,990.72 for each year under the age of 21 of the successor up to 47,858.59 15,956.87
Based on degree of kinship:
Group II: Children and adopted children aged 21 and over, spouses, ascendants and adoptive ascendants
Group III: Collateral family members in second and 7,993.46 third degree of kinship, ascendants and descendant by affinity Group IV: Collateral family members in fourth degree of kinship or further removed and nonfamily heirs Persons with physical, mental or sensorial disabilities (disability of between 33% and 65%) Persons with physical, mental or sensorial disabilities (disability of greater than 65%) Spouses, ascendants, descendants, adoptive or adopted, if beneficiary of insurance policy. 0 47,858.59
150,253.03
Other compatible reductions:
100% of the amounts received under the insurance policy, up to 9,195.49, generally Up to 95% under certain circumstances
Spouses, ascendants, or adopted in case of family businesses or habitual abode.
Table 8
RATES BASED ON DEGREE OF KINSHIP AND PREVIOUS NET WORTH

Groups under article 20 Previous net worth in Euros I and II III IV
0 402,678.11 > 402,678.11 2,007,380.43 > 2,007,380.43 4,020,770.98 > 4,020,770.98
1.0000 1.0500 1.1000 1.2000
1.5882 1.6676 1.7471 1.9059
2.0000 2.1000 2.2000 2.4000 (1)
(1)This coefficient is applicable if the successors are not known, without prejudice to the refund of the respective amount when they are known.
2.6 Spanish Value Added Tax

The EU VAT Directives have been implemented in Spanish law (Law 37/1992, in force since January 1, 1993), and the main provisions of these Directives are harmonized in the different Member States of the European Union. VAT is an indirect tax, and its main feature is that it does not normally entail any cost for traders or professionals, only for the end consumer, since traders or professionals are generally entitled to offset their input VAT against their output VAT. Within Spain, VAT is not applicable in the Canary Islands, Ceuta and Melilla. In the Canary Islands, the Canary General Indirect Tax (IGIC), in force since January 1, 1993, is very similar to VAT and is an indirect tax levied on the supply of goods and services in the Canary Islands by traders and professionals and on imports of goods. The general IGIC rate is 5%. Ceuta and Melilla charge a different indirect tax of their own (tax on production, services and imports). 2.6.1 Taxable transactions The following transactions are subject to VAT when they are carried out by traders and professionals in the course of their business: Supplies of goods, generally defined as the transfer of the right to dispose of tangible property, although certain transactions not involving a transfer of this kind may also be treated as supplies of goods for the purposes of VAT. Intra-Community acquisitions of goods (generally, acquisitions of goods dispatched or transported to Spanish VAT territory from another Member State). Imports of goods: These transactions are subject to VAT regardless of who performs them. Supplies of services.
2.6.2 VAT rates and exemptions VAT rates are as follows: The standard rate is 18%, applicable to most supplies of goods and services. However, there is a reduced rate of 8% applicable to supplies, intra-Community acquisitions and imports of the following, among others: Foodstuffs intended for humans or animals, not including alcoholic beverages. Water. Housing. and to the following services, among others: Transportation of passengers and their luggage. Hotel services. Restaurants. Tickets to the theater and cinema. There is also a very reduced rate of 4% applicable to: Bread, flour, milk, cheese, eggs, fruit and vegetables. Books, newspapers and magazines that are not mainly composed of advertising. Pharmaceutical products. Cars for persons with disabilities. Prostheses for persons with disabilities. Certain subsidized housing. Certain transactions are exempt from VAT (for example, financial and insurance transactions, medical services, educational services, rental of housing). Since the trader or professional performing these activities does not charge VAT on them, they do not give the right to deduct input VAT, as described further on in this report. Other exempt transactions, however, (mainly those relating to international trade, such as exports) do confer the right to deduct input VAT.
2.6.3 Place of supply of taxable transactions Spanish VAT is charged on the transactions referred to above which are deemed to be supplied in Spanish VAT territory. The Law provides rules for determining the place where the various transactions are deemed to take place. In the case of supplies of goods, the general rule is that the goods are deemed to be supplied in Spanish VAT territory where they are handed over to the recipient in Spain. But, however, if the goods are transported in order to be handed over to the recipient, the supply will be deemed to be made in the place where the transportation commences. There are other exceptions to the general rule, such as those established for supplies of goods to be installed or assembled, etc. As for the place of supply of services, it should be noted that February 2008 saw the publication of Directives 2008/8/EC and 2008/9/EC making various amendments to EU VAT legislation, the transposition of which into national law must be phased in as from January 1, 2010. These amendments have been included in a Bill which has yet to be passed by the Upper House of the Spanish Parliament. In view of this situation, the Directorate General of Taxes rendered a Decision dated December 23, 2009, on the application and interpretation of these EU VAT Directives. The following cases can be differentiated with regard to the place of supply of services: As a general rule, services will be deemed to be supplied at the recipients place of business or permanent establishment, where the recipient is a trader or professional; however, if the recipient is a final consumer, the services will be deemed to be supplied at the suppliers place of business. There are, however, exceptions to this general rule: Services related to real estate are deemed to be supplied in the place where the property is located. This rule also applies to services of accommodation at hotels, camping sites and spas. Transportation services (intra-Community or otherwise) are deemed supplied at the recipients place of business, and it is no longer necessary to provide the VAT number that was required in some cases until now. Services consisting of passenger transportation (whatever the recipients status) and of the transportation of goods (except intra-Community transportation) where the recipient is the final consumer, are taxed proportionately to the distance covered within Spanish VAT territory. the intra-Community transportation of goods to final consumers will be taxed in Spain the transportation begins within that territory.
Certain services are deemed to be supplied in Spain where they are physically performed in Spanish VAT territory. This is the case, among others, of cultural, artistic, sports, scientific, educational, recreational and similar activities. The same rule applies to ancillary transportation services and to work on movable tangible property, experts reports, etc. where the recipient is not a trader (if he is, the general rule will apply, i.e., the place of supply is the recipients place of business). Services supplied electronically and telecommunications and television and radio broadcasting services will be deemed to be supplied at the recipients place of business, unless they are supplied by a non-EU supplier to consumers domiciled in Spain, where the services are used or operated in Spain (there is a presumption that the customer resides in Spain if the payment is made out of a demand deposit opened in Spain. It is also established that services to final consumers not established in the EU are not subject to VAT. Restaurant and catering services will be deemed to be supplied in Spain: Where supplied on board a vessel, an aircraft or a train during the section of a transport operation effected within the EU, if the transportation begins within Spanish VAT territory. In the case of a return trip, the return leg is regarded as a separate transport operation. The short-term hiring (30 days in general and 90 days in the case of vessels) of means of transportation will always be taxed where such means are placed at the recipients disposal. Lastly, intermediation services will continue to be taxed where the main transaction is deemed to be performed, if the recipient is not a trader. Otherwise, the general place-of-supply rule (recipients place of business) will apply. 2.6.4 Permanent establishment As mentioned above, the definition of place of business and permanent establishment are relevant when determining the place where transactions subject to VAT are carried out. Additionally, as described below, they are also relevant for defining the taxable person of such transactions. Place of business is defined in the Law as the place where the taxable person centralizes the management of, and habitually exercises, his business or professional activity. Permanent establishment is defined as any fixed place of business from which a trader or professional carries on business activities34. In particular, the following are deemed permanent establishments for VAT purposes:
34 Following the entry into force of the new place-of-supply rules, the socalled force of attraction of permanent establishments is limited so that an activity will only be attributable to a permanent establishment if it acts in the supply of services, that is, where material or human resources attributable to the permanent establishment are organized for the purpose of performing the transaction.
The place of management, branches, offices, factories, workshops, facilities, stores and, in general, agencies or representative offices authorized to conclude contracts in the name and for the account of the taxable person. Mines, quarries or tips, oil or gas wells or other places of extraction of natural products. A construction, installation or assembly project which lasts for more than twelve months. Farming, forestry or livestock operations. Facilities operated on a permanent basis by a trader or professional for the storage and subsequent delivery of his merchandise. Centers for purchasing goods or acquiring services. Real estate operated under a lease or any other arrangement. It is noteworthy that although the definition and cases in which a permanent establishment is deemed to exist are similar for purposes of direct taxes and VAT, they do not fully coincide. 2.6.5 Taxable person The taxable person is the person with an obligation to charge or pay over VAT. This obligation normally lies with the trader or professional that performs the supplies of goods or services or other transactions subject to VAT. There are, however, some exceptions in which the taxable person is the recipient in the transaction. This is generally the case of transactions, located in the Spanish VAT territory, in which the person performing them does not have a place of business or permanent establishment in Spanish VAT territory and the recipient is a trader or professional, regardless of whether or not he is established in Spanish VAT territory. Apart from the obligation to charge VAT, the taxable person must also: File notifications relating to the commencement, modification and end of activities. Request a tax identification number from the tax authorities and notify and evidence it in the cases established. Issue and deliver an invoice for all its transactions. Keep accounting records and official books (specific VAT books). Effective January 1, 2009 for operators that elect to apply the monthly refund regime and January 1, 2012 for all other operators, VAT books must be filed telematically. File periodically, or at the request of the authorities, information relating to its business transactions with third parties.
File tax returns (monthly or quarterly, depending on its volume of transactions, and an annual summary return). Appoint a representative in order to comply with its obligations where the taxable person does not have an establishment in Spanish VAT territory. This obligation only applies to traders that are not established in the EU, unless they are established in a State with which Spain has mutual assistance arrangements in place. 2.6.6 Taxable amount In general terms, the taxable amount for VAT purposes is the total consideration for the transactions subject to VAT received from the recipient or from third parties. VAT legislation also establishes a series of special rules on determining the taxable amount, including rules on self-supplies of goods or services and on cases where the parties are related to each other. Following the reform introduced by the Law on the Prevention of Tax Fraud, the taxable amount for these transactions carried out between related parties will be their normal market value. Normal market value means the value that a recipient at the same stage of sale as that at which the supply of goods or services is made would have to pay on an arms length basis and at the same time in Spanish VAT territory to acquire the goods or services in question from an independent supplier. In the absence of comparables, the legislation establishes that market value means the acquisition or cost price of the goods or the cost of the services. Lastly, the legislation refers to the provisions of the Corporate Income Tax Law on the pricing of transactions between related parties, where applicable. 2.6.7 Deduction of input VAT Under Spanish VAT law taxable persons are generally entitled to deduct their input VAT from their output VAT, provided that the goods and services acquired are used to perform the following transactions, among others: Supplies of goods and services subject to and not exempt from VAT. Exempt transactions which give entitlement to a deduction, with the aim of securing that traders act neutrally in intra-Community or international trade (e.g. exports). Transactions performed outside Spanish VAT territory which would have given rise to the right to deduct had they been performed within that territory. In general, the input tax paid on the acquisition or import of goods or services that are not used directly and exclusively for business or professional activities may not be deducted, although there are specific rules such as those relating to the to tax paid on capital goods (partial offset).
The right to deduct input VAT is also subject to formal requirements and may be exercised within four years. There are several deduction systems, and the main features of each are as follows: 2.6.7.1 General deductible proportion rule This rule applies when the taxable person makes both supplies of goods or services giving rise to the right to deduct and other transactions which do not (e.g. exempt financial transactions). Effective from January 1, 2006, the effect of subsidies on the right to deduct VAT was eliminated. Under the deductible proportion rule, input VAT is deductible in the proportion which the value of the transactions giving the right to deduct bears to the total value of all the transactions carried out by the taxable person in the course of his business or professional activity. In other words, the percentage of deductible VAT is determined under the following formula:
x 100
Transactions that give the right to deduct Total transactions
The resulting percentage is rounded up. 2.6.7.2 Special deductible proportion rule This system is generally elected by the taxable person (the election must normally be made in the month of December prior to the year in which it will apply). The basic features of this deduction system are the following: VAT paid on acquisitions or imports of goods and services used exclusively for transactions giving the right to deduct may be deducted in full. VAT paid on acquisitions or imports of goods and services used exclusively for transactions not giving the right to deduct may not be deducted. VAT paid on acquisitions or imports of goods and services used only partly for transactions giving the right to deduct, may be deducted in the proportion resulting from applying the general deductible proportion rule. 2.6.7.3 Deduction system for different sectors of business activity Where the taxable person carries on business activities in different sectors, it has to apply the relevant deductible rules to each of those activities separately. Business activities in different sectors means activities classed in different groups in the National Classification of Business Activities and the deduction systems applicable to them are also different (this requirement is deemed to be met, among other cases, where under the general deductible proportion rule, the percentage of deductible VAT differs by more than 50 percentage points).
In such a case, the taxable person must apply the general or the special deductible proportion rule, on the terms described above, in each of the business sectors. The VAT paid on acquisitions or imports of goods and services that cannot be specifically allocated to any of the activities will be deducted in the general deductible proportion resulting from its activities as a whole. 2.6.8 Refunds If the VAT charged exceeds the amount of deductible VAT, the taxable person must pay over the difference in its periodic (monthly or quarterly) returns. If, conversely, the amount of deductible VAT exceeds the amount of VAT charged, the taxable person may request a refund of the excess which, as a general rule, can only be claimed in the last return for the year. However, provided certain regulatory requirements are met, taxable persons who register on the Monthly Refund Register may claim a refund of the balance existing at the end of each assessment period. Registering on this Refund Register carries with it the obligation to file VAT returns monthly by telematic means (regardless of the taxable persons turnover) as well as to file VAT books telematically. The period for obtaining the refund is six months from the end of the period for filing the last return of the year (January 30 of the immediately following year) as a general rule and from the end of the period for filing monthly returns in the case of taxable persons registered on the Monthly Refund Register. There are specific rules on the refund of VAT paid in Spain by traders that are not established in Spanish VAT territory. To obtain refunds in these cases, the following requirements must be met: Persons applying for a refund must be established in the European Union or, otherwise, must evidence a reciprocal arrangement in their country of origin for traders or professional established in Spain (in other words, Spanish traders would obtain a refund of an equivalent tax in their country of origin). A trader that is not established must not have carried out transactions in Spanish VAT territory that would make it qualify as a taxable person. Unlike taxable persons established in the European Union, those persons who are not established in the European Union must appoint a representative, resident in Spanish VAT territory; the representative will be responsible for fulfillment of the relevant formal and procedural requirements and will be jointly and severally liable in the case of incorrect refunds and sufficient security may be sought from it for these purposes. Input VAT is refundable in Spain if it was paid on acquisitions of goods and services or imports of goods used to perform transactions that give the right to deduct (both in Spain and in the country where the trader is established).
Refund claims may only be related to the immediately preceding year or quarter, and the time limit for filing them is June 30 of the following year35. 2.6.9 Special system for groups of entities This system, effective from January 1, 2008, is the result of implementing in Spanish legislation the option, set out in the EU VAT Directive, to treat entities that are sufficiently related as a single taxable person. Sufficiently related is defined in the law as applying to a parent company (which cannot be the subsidiary of another company in Spanish VAT territory, on the terms described) and the entities in which it holds a direct or indirect interest in their capital stock of at least 50%, held throughout the calendar year, provided that the entities included in the group have places of business or permanent establishments located in Spanish VAT territory. This system is optional and applies for at least three years, which term is automatically extendible, and any potential waiver of the system also applies for at least three years. The option must be elected by the parent company in the month of December prior to commencement of the calendar year in which it must take effect. The decision to elect the special system must be adopted by the boards of directors of each of the entities that will belong to the group. In its simplest form, the system merely consists of the ability to aggregate the individual VAT returns of the group companies that elect to apply the system, so that the balances of offsettable or refundable VAT of some companies may be offset immediately against the balances of tax payable belonging to the others, thereby reducing or eliminating any financial expense resulting from reporting balances to the tax authorities, for which a refund cannot be claimed as a general rule until the final tax return of the year. Optionally, group companies may request to use a specific method for determining the taxable amount, deductions and waiver of exemptions in intra-group transactions. Under this specific method, the taxable amount would be any direct or indirect costs incurred in whole or in part in supplying goods or services to group companies, provided VAT has actually been paid on them (the costs on which no VAT has been paid cannot be included). This optional method also envisages the power to waive certain exemptions that may be applicable to intra-group transactions, which power which may be exercised on a case-by-case basis for each transaction, and a special system is established for making deductions.
35 A new procedure has been established whereby applications for refunds by EU traders not established in Spain must be submitted via the electronic portal set up for that purpose by their own tax authorities.
As a general rule, the special system for groups of companies establishes a series of specific obligations for the parent company of the group, such as, for example, the obligation to keep a cost accounting information system and prepare a report supporting the allocation method used (in the case of the extended version of the system). The head company must file a joint return once all the individual returns of the group entities have been filed. VAT is settled on a monthly basis, regardless of the volume of transactions. The group of entities may also elect to apply the new monthly refund regime, in which case the parent company will be responsible for filing the relevant census declaration.
2.7 Transfer tax and stamp tax

Transfer tax is levied on a limited number of transactions, including most notably:
Table 9
TRANSFER TAX AND STAMP TAX

Tax rate (*) (%)
Corporate transactions such as incorporation, capital increase/reduction at companies, contributions made by shareholders that do not imply a capital increase, etc. (**) Transfers of real estate Transfers of movable assets and administrative concessions Certain rights on real estate Certain mercantile law public deeds
1 6 4 1 0.5
(*) The Autonomous Communities are entitled to opt to apply a different rate in certain cases. In fact, most of them have opted to apply a 7% rate to real estate transfers, and a 1.5% rate of Stamp Tax to certain transactions. (**) Effective as of January 1, 2009, Law 4/2008 has eliminated the cases in which tax is levied on mergers, spin-offs, asset contributions and exchanges of securities, these transactions being defined in accordance with Articles 83 and 94 of the Corporate Income Tax Law. (special tax neutrality regime, as already commented on ).
However, if the vendor is a company or an individual real estate developer, the transfer of buildable land or the first supply of buildings is taxed under VAT. Second and subsequent supplies of real estate by companies, traders or professionals in the course of their activity may opt to pay either transfer tax or VAT. This option is applicable if the acquirer is a trader or professional who can deduct all his VAT borne and the vendor waives to the VAT exemption, in such case, the acquirer will pay VAT rather than transfer tax (this option is only possible if the recipient can deduct all of the VAT borne). Transfers of shares of Spanish companies are generally exempt from any indirect taxation, except when more than 50% of the capital stock of a company is transferred (or shares increasing the stake in a certain entity when the acquirer already has more than 50%) and at least 50% of the assets of
such company, (the participation units or shares of which are transferred) consist of real estate located in Spain: in this case the transaction will be considered for indirect taxation purposes to be a transfer of real estate subject to transfer tax at 6% (or 7% depending on the Autonomous Community Government competent to levy the tax). Transfer tax is a cost to the acquirer/beneficiary. In real estate transfers, taxpayers not resident in Spain will have their tax domicile, for the purposes of compliance with their transfer tax and stamp tax obligations, in the domicile of their representative, who they must appoint pursuant to the Non-Resident Income Tax Law. In the event of failure to appoint a representative or to notify the authorities, the tax domicile of the non-resident taxpayer will be deemed to be the real estate transferred. Lastly, starting on December 3, 2010, the formation of companies, the increase in their capital, the contributions made by shareholders which do not entail a capital increase, and the relocation to Spain of the companys place of effective management or of the registered office where neither one nor the other had previously been located in an EU Member State, shall be exempt from transfer tax under the corporate transactions heading.36
2.8 Excise taxes

In Spain there are several excise taxes in line with the EU Directives on this matter. These specific consumption taxes are levied on the related products (alcohol and alcoholic beverages, beer, oil and gas and manufactured tobacco) in the manufacturing, processing or import phases. In general, these excise taxes are not applicable in the Canary Islands, Ceuta and Melilla (taxes on alcohol and beer are also applicable in the Canary Islands). The special tax on certain means of transportation was introduced as a consequence of the elimination of the higher VAT rate. This special tax is also applicable in the Canary Islands, Ceuta and Melilla (although in Ceuta and Melilla the applicable rate is 0%). The following headings are provided to determine the applicable rates: Heading 1: Zero rate in mainland Spain, the Balearic Islands and the Canary Islands. a) Vehicles whose official CO2 emissions are not higher than 120g/km, except for quad vehicles and vehicles included under Headings 6, 7, 8 and 9. b) Vehicles with a single engine which is not an internal combustion engine, except for quad vehicles. Heading 2: A 4.75% rate in mainland Spain and the Balearic Islands, and a 3.75% rate in the Canary Islands.
36
Modification made by Law 13/2010.
Vehicles whose official CO2 emissions are higher than 120g/km and lower than 160g/km, except for quad vehicles and vehicles included under Heading 9. Heading 3: A 9.75% rate in mainland Spain and the Balearic Islands, and an 8.75% rate in the Canary Islands. Vehicles whose official CO2 emissions are not lower than 160g/km and are lower than 200g/km, except for quad vehicles and vehicles included under Heading 9. Heading 4: A 14.75% rate in mainland Spain and the Balearic Islands, and a 13.75% rate in the Canary Islands. a) Vehicles whose official CO2 emissions are equal to or higher than 200g/km, except for quad vehicles and vehicles included under Heading 9. b) Vehicles with respect to which a measurement of their CO2 emissions may be required if they are not substantiated. c) Vehicles falling under categories N2 and N3 equipped as homes. d) Quad vehicles. Quad vehicle means a vehicle of four or more wheels, with a handlebar steering system; the driver sits astride and it is equipped with a traction system suitable to be used off the roads. e) Water scooters. Water scooter means a vessel propelled by an engine and designed to be driven by one or more persons sitting, standing or kneeling, on the outside of a hull, not in the inside. Heading 5: A 12% rate in mainland Spain and the Balearic Islands, and an 11% rate in the Canary Islands. a) The vehicles not included under Headings 1, 2, 3, 4, 6, 7, 8 or 9. b) Vessels and boats for recreational or sea sports activities, except for water scooters. c) Planes, light aircraft and other aircraft. Heading 6: A 0% rate on mainland Spain, the Balearic Islands and the Canary Islands. Motorcycles not included under letter c) of Heading 9 whose official CO2 emissions are not higher than 100g/km. Heading 7: A 4.75% rate on mainland Spain and the Balearic Islands, and a 3.75% rate in the Canary Islands. Motorcycles not included under letter c) of Heading 9 whose official CO2 emissions are higher than 100g/km and lower than 120g/km. Heading 8: A 9.75% rate on mainland Spain and the Balearic Islands, and an 8.75% rate in the Canary Islands.
Motorcycles not included under letter c) of Heading 9 whose official CO2 emissions are higher than 120 g/km and lower than 140g/km. Heading 9: A 14.75% rate on mainland Spain and the Balearic Islands, and a 13.75% rate in the Canary Islands. a) Motorcycles not included under letter c) of this Heading whose official CO2 emissions are equal to or higher than 140g/km. b) Motorcycles not included under letter c) of this Heading whose official CO2 emissions are evidenced. c) Motorcycles with an EEC horsepower equal to or higher than 74 kW (100 cv) and a ratio of net maximum power to mass of vehicle in running order, expressed in kW/kg, equal to or higher than 0.66, regardless of their official CO2 emissions. The rates mentioned above will apply unless the autonomous communities have approved other different rates pursuant to Article 43 of Law 22/2009, of December 18, on the tax and administrative measures of the new financing system for the autonomous communities under the ordinary system and cities with a charter of autonomy. There is a 50% reduction in the tax base for vehicles with five to nine seats which are for families with three or more children. Also, there is a special tax on electricity (applicable to all Spanish territory). This tax is levied on the intra-EU production, importation and acquisition of electric power. The tax base is determined by taking that used for VAT purposes and multiplying it by a coefficient of 1.05113. The applicable tax rate is 4.864%.
2.9 Customs duties on imports

Most customs duties levied in Spain are standard-rate duties which are generally payable on imports when the goods clear customs. With very few exceptions the duties are ad valorem, i.e. on CIF or similar invoice value. The rest are minor customs duties relating to storage and deposit rights and the sale of abandoned goods. Following Spains accession to the EU in 1986, the gradual decrease in customs duties between Spain and the EU culminated in their complete elimination on January 1, 1993. Customs duties on imports from countries which do not belong to the EU are those included in the EUs Common Exterior Tariffs. The Harmonized Goods Classification System and the EU Tariff (TARIC) have been in force in Spain since 1987. Also, since Spains accession to the EU, only the exemptions established by the EU have been applicable.
2.10 Tax on insurance premiums

This is an indirect tax which is levied in a single payment on insurance and capitalization transactions based on actuarial techniques and arranged by insurance entities operating in Spain, including those operating under the principle of freedom to provide services, its regulation being as follows: Transactions arranged by insurance entities under agreements with State social security agencies or with public companies entrusted with the management of specific social security regimes are not subject to this tax. There are also numerous exempt activities, such as compulsory social welfare insurance, group insurance providing alternative systems to pension plans, life insurance, capitalization transactions, reinsurance transactions, surety insurance, export credit insurance, agricultural insurance, health insurance, transactions relating to guaranteed pension plans, and certain insurance transactions relating to international transportation and the vessels and aircraft used for such transportation. The tax is levied at a single rate of 6% on paid premiums. The taxpayers under this tax are generally insurance entities carrying out taxable transactions, which must charge this tax in full to the persons taking out insurance subject to the tax. The rules set forth in the VAT regulations shall be applicable for the purposes of charging this tax. The tax becomes due at the time of payment of the premium by the policyholder. Taxpayers (insurance companies) are generally obliged to file a tax return and pay the tax on a monthly basis.
3.Special regimes of certain autonomous communities
3. SPECIAL REGIMES OF CERTAIN AUTONOMOUS COMMUNITIES

3.1 Canary Islands Tax Regime
The Canary Islands enjoy a number of tax benefits intended to compensate for the disadvantages brought about by insularity and distance from the Spanish mainland whose main goal is the attraction of investments to the Canary Islands. The economic and tax regime of the Canary Islands is considered an State Aid, and for that reason is subject to authorization by the European Union. The application of some of the tax benefits has been extended for the 2006 fiscal year, and on December 20, 2006, the European Commission approved the extension of the State Aids for the 2007-2013 period. Royal-Decree Law 12/006, of December 29, 2006, introduced the appropriated modifications in Law 19/1994, of July 6, of modification of the economic and tax regime of the Canary Islands, adapting the Spanish regulation to the conditions for the extended application of this regime. The extended application of the special tax and economic regime for the Canary Islands implied its maintenance, although there are certain changes affecting the main tax benefits in order to comply with the new Rules for State Aids of the European Union for the 2007-2013 period. In addition, on January 16, 2008, it was published in the Official Gazette the Royal Decree 1758/2007, of December 28, which approves the Regulations for the clarification of the enforcement of the main tax incentives included in the Tax and Economic Regime (REF) of the Canary Islands, as established in Law 19/1994, of July 6. The main features of the regime for the 2010 fiscal year are the following: 3.1.1 Direct Taxation Reduction in a 50% of the portion of gross tax payable that relates to income from the sale of tangible goods specific to agricultural, livestock farming, industrial or fishing activities, provided that they have been produced by the taxpayer itself in the archipelago. This reduction applies both to companies (Corporate Income Tax) and to individuals that develop a business activity by the direct assessment method (Personal Income Tax). This tax benefit remains the same way for the 2007-2013 period. The tax credit for investment in fixed assets consisting of 25% of the investment up to a limit of 50% of tax payable net of tax reductions and double taxation credits remains in force in the Canary Islands despite being derogated in the rest of Spain. Increased tax credits rates for investments made in the Canary Islands, with respect to those applicable to investments in the Spanish mainland. In this sense, the tax credit rates in the Canary Islands are increased an 80% over the ones applied in the general regime, with a minimum difference of 20 percentage points. Likewise, the limits for the offsetting of the tax credit against
the tax debt will be increased an 80% over the ones applied in the general regime, with a minimum difference of 35 percentage points. Reduction in the tax base (up to 90% of undistributed income per books for the year) by such amounts as are allocated by companies, in relation to their permanent establishments in the Canary Islands, from their income to a Canary Islands Investment Reserve (Reserva para Inversiones en Canarias or RIC). According to the stance adopted by the tax authorities, taxpayers have a maximum of five years to invest the RIC: the year in which the income is obtained, the year in which the reserve is recorded for accounting purposes and the following three years. Investments will be considered made when put into operation. For the 2007-2013 period, the extended application of the tax regime has produced some very relevant modifications in relation with the RIC. The most important aspects of the regime are as follows: The application of the RIC is exclusively limited to the benefits, obtained from economic activities, that have not been distributed, being excluded, among others, benefits obtained from the transmission of capital goods not allocated to an economic activity (such us the ones that represent the holding in a companys share capital, or the assignment to third parties of own capitals), being excluded also the benefits deriving from the transfer of property of capital goods when the capital gain is offset against the deduction for reinvestment of extraordinary profits as regulated in Article 42 of Corporate Income Tax Law, or from capital goods that have already been used to invest the RIC. It will be deemed as benefits proceeding from permanent establishments in the Canary Islands the ones deriving from operations performed through human and capital resources assigned to it, provided that a mercantile cycle yielding economic results is obtained. Taxpayers whose main business activity concerns rendering financial services or rendering services to other entities of the same Group will only be able to meet their RIC compromises through initial investments. It is distinguished between initial and no initial investments. Initials investments are related to the following assets: New fixed assets: As a consequence of the following operations: Setting up of a new establishment, circumstance that it is understood to happen when the initial investment determines that the permanent establishment is put into operation for the first time for the development of a business activity. Extension of an existing establishment, when the initial investment has as a consequence the overall increase of the value of the fixed assets assigned to it. Diversification of the activity of an establishment for the manufacturing of new products, or for the purpose of obtaining a different product or service, or ones which represent an
essential novelty and not merely formal or secondary, compared to the products or services that the establishment was offering prior to the investment. Fundamental change in the production process of an existing establishment, when the new process has features or applications from a technical point of view that differ essentially from the ones existing in the establishment prior to the investment. Land investments are valid only if these assets have not taken advantage of the RIC before and only if these lands are assigned to lease state subsidized housing, to industrial development or to commercial zones or the restoration of a tourist building located in the last two cases in decline tourist areas. Transportation elements used only for internal purposes. Investments in certain immaterial assets (patents rights, licenses, know-how or unpatented technical knowledge), with the limit of 50% of the value of the investment, except for Small and Medium-sized Enterprises which limit will be 100%. Small and Medium-sized Enterprises can invest in used assets that have not taken advantage of the RIC before. Nevertheless, in case of investment in land, the requirements mentioned before must be observed. Job creation. Job creation in direct relation with initials investments aforementioned in a period of six months since they have came into operation. It means a net increase in the number of employees directly employed in a particular establishment compared with the average over the previous 12 months, which increase must be maintained during 5 years (3 years for Small and Medium-sized Enterprises). Job creation and the variations in the average labor force must be measured regarding all the permanent establishments of a given taxpayer in the Canary Islands. The amount of investment will be the average wage cost of the labor force hired plus Social Security costs, calculated over a period of the first two years after the labor force increase. Non-initial investments (operating aids). Investments that do not comply with the requirements to be considered as initials investments detailed before, or assets that contribute to the improvement and development of the environment, R&D investments, maritime and ground transportation vehicles exclusively assigned to public services. Used assets that have not taken advantage of the RIC before and land investment in the same conditions as mentioned above. Investments consisting in subscription of stock share capital, securities or book-entry debt. The following are considered valid investments: Subscription of shares issued by companies that develop its business activities in the Canary Islands, as well as ZEC companies if these companies invest the amount subscribed in initial investments or in job increase investments.
Subscription of shares issued by venture capital companies that make investments in the other two mentioned companies. In the previous cases, it will be deemed that the RIC investments have been made in the date in which the company that issues the shares puts into operation the capital goods acquired. The three previous cases are considered initial investments, whereas the following ones are considered operating aids. Subscription of book-entry debt issued by the Canary Islands Autonomous Community government, or by Canary Islands local corporations or Autonomous Community government agencies with the limit of the 50% of the RIC allocations. Subscription of securities issued by public entities in order to build or develop public interest infrastructure, with the limit of the 50% of the RIC allocations, and subjected to certain administrative proceedings. Subscription of securities issued by companies in order to build or develop public interest infrastructure for the Canary Islands Autonomous Community, by administrative concession or empowered administrative title, subjected to certain administrative proceedings, and limited as well to the 50% of the RIC allocations. Other relevant requirements are the following: Assets must be situated or be received and used in the Canary Islands, and must also be assigned and needed for the development of an economic activity. In case of investments held in shares or other securities, the amount of the investment to be considered will be the one effectively paid out (including the share premium) at the moment of the subscription. A company that has acquired fixed assets to invest its RIC compromises must maintain the ownership, and actually use, those assets for at least five years (ten years for land investments) or for their useful life, if shorter, and cannot transfer, lease, or assign them to third parties, unless they are used, through an economic activity, for lease or assignment to third parties for their use, provided there is no direct or indirect link with the lessees or assignees of such assets and provided the transactions in question are not financial lease transactions. The possibility of substituting the assets is regulated and it will be applicable only when its useful life is shorter than the period of maintenance. Furthermore, during this same period the Reserve cannot be disposed of (e.g., as a dividend distribution). In relation with real estate lease activity, only tourist companies, state subsidized housing, real estate related to industrial development or shopping areas located in decline tourist areas can take advantage of this regime.
Taxpayers will be able to carry out anticipated investments of future RIC allocations for the benefits obtained until December 31, 2013, but only regarding the profits to be obtained in the three fiscal years following the anticipated investment. The RIC benefit will also apply to personal income taxpayers who perform business activities and determine their income by the direct assessment method, through a tax credit, subject to the limit of 80% of the portion of the gross tax payable that proportionally relates to the net income from economic operations in the Canary Islands. The extended application of the economic and tax regime of the Canary Islands entails formal and information requirements that must be fulfilled when the Income Tax Form is filed (filing of an investment plan) and also in the Annual Accounts (giving detailed information about the RIC allocated, investments made, and maintenance periods). On the other hand, it must be borne in mind that the investment plan might be amended only in certain cases. This tax benefit is incompatible, in relation to the same assets, with the tax credit for investment and with the tax credit for the reinvestment of extraordinary income. Companies whose main business purpose is to render financial services and the entities whose main business purpose is to render services to other companies of the same group will only be able to meet their RIC compromises through initials investments. 3.1.2 Indirect taxation Application of the Canary Islands Indirect General Tax, which is similar to VAT, at the standard rate of 5%. Application of the Tax on Imports and Deliveries of Goods in the Canary Islands (AIEM) on the production and import in the Canary Islands of certain tangible goods. The economic and tax regime of the Canary Islands includes also indirect tax benefits. The entities subject to Corporate Income Tax and residing in the Canary Islands can claim an exemption from transfer tax37 when they are incorporated, increase their capital or acquire capital goods located in the Canary Islands or certain intangible assets (in this last case, 50% of the investments except for Small and Medium-sized Enterprises) only in the acquisitions of investments assets considered as initials investments according to the previously indicated concept regarding the RIC. Goods acquired must be new (only Small and Medium-sized Enterprises can acquire used assets), limitations are introduced for transportation elements, and must be acquired and enter into operation in a period of three months (or at least the promotion, installation or setup, or the filing of permits or projects must be initiated at once) and must be situated or be received in the Canary Islands.
37
With effects as of January 1, 2005, in the Canary Islands Transfer Tax rate has been increased from 6% to 6.5%, and Capital Duty rate from 0.5% to 0.75%.
Under the transfer tax corporate transactions38 heading, incorporations or capital increases will only be exempt to the extent that they are allocated to the investments mentioned above. Are expressly excluded from the application of this benefit capital increases to offset credits. Supplies and imports of goods to the companies referred to in the preceding section as initial investments in new goods (except Small and Medium-sized Enterprises) that are classed as investment goods for such companies are also exempt from Canary Islands Indirect General Tax. The execution of projects having the status of supplies of services resulting in investment goods will also be exempt. This exemption in IGIC will only be applied to taxpayers who do not have the right to deduct the total amount of IGIC borne. Land investments would be valid only if the said lands have not benefited before of the exemption and in relation with lands assigned to lease state subsidized housing, to certain industrial development activities or to the commercial areas or tourist activities focused on the restoration of tourist buildings located on decline tourist areas. On the other hand, Investments and the residence or permanent establishment in the Canary Islands must be kept during five years (ten years for leasing state subsidized housing). If the useful life of goods is shorter than the indicated deadlines or the good is lost or destroyed, they should be replaced. It is allowed the transfer of the assets through an economic activity, for lease or assignment to third parties for their use, provided there is no direct or indirect link with the lessees or assignees of such assets and provided the transactions in question are not financial lease transactions. In relation with real estate leasing activity, only tourist companies, state subsidized housing, real estate related to certain industrial development activities or shopping zones located in decline tourist areas can take advantage of this regime. This exemption can also be applied to the acquisition of capital goods by permanent establishments of companies not residing in the Canary Islands, provided that the requirements above mentioned are met. Vessels and shipping companies registered in the Canarys Vessel Special Register can claim exemption from stamp tax on acts and contracts subject to that tax. Furthermore, for the crew of such vessels, a 90% reduction in employer social security contributions is established, and 50% of the salary income earned by taxpayers subject to Personal Income Tax or to Non-Resident Income Tax, when sailing on those vessels is treated as
38 Starting on December 3, 2010, the formation of companies, the increase in their capital, the contributions made by shareholders which do not entail a capital increase, and the relocation to Spain of the companys place of effective management or of the registered office where neither one nor the other had previously been located in an EU Member State, shall be exempt from transfer tax under the corporate transactions heading.
exempt income for personal income tax purposes. On the other hand, a 90% reduction can also be claimed on the portion of the corporate income tax charge (net of any tax credits for double taxation), which relates to the portion of the tax base resulting from the operation of those vessels. In the case of vessels that regularly travel between ports of the European Union, the benefits for Personal Income Tax, Non-Resident Income Tax and Social Security will only be applied to the crew members that are nationals of any country belonging to the European Union or the Economic European Space. 3.1.3 ZEC Canary Islands Special Zone Canary Islands legislation also establishes the special tax regime of the Canary Islands Special Zone (Zona Especial Canaria or ZEC), which was authorized by the European Commission in January 2000, since the Commission took the view that its application was consistent with the legislation governing the Single Market. The extended application of this regime was included in the negotiating process of the 2007-2013 Guidelines and the ZEC will remain in force until December 31, 2019 for the companies authorized before December 31, 2013, albeit with minor changes in the regime. Nevertheless, entities that obtained the authorization to enter the Official Register of ZEC entities before December 31, 2006 will apply the previous tax regulations until December 31, 2008, that is, Law 19/1994 in its version in force until December 31, 2006. The regime applies to newly-formed entities domiciled in the Canary Islands and registered in the ZEC Official Register of Entities. Registered entities must meet the following requirements: Their registered office and effective place of management must be located in the Canary Islands. At least one of their directors must reside in the Canary Islands. Their corporate purpose must be to engage in the activities expressly provided in the Law. Financial activities are excluded in all cases. They must create at least five jobs within the first six months after authorization, and maintain an annual average labor force headcount of at least the same number while they remain under the regime (this requirement is reduced to three years for the islands that are not head of the province, that is, different than Gran Canaria and Tenerife). In the first two years after authorization, they must make investments of at least 100,000 in the acquisition of tangible fixed assets or intangible assets located or received within the geographical area of the ZEC, and such assets must be used and required for the pursuit of the activities carried on within the ZEC (this requirement is reduced to 50,000 for the islands that are not head of their province).
They must file before the authorities a registration application and a report describing the activities to be carried on. The purpose of the report, the contents of which will be binding on the entity, is to provide assurance of its solvency, viability, international competitiveness, and contribution to the economic and social development of the archipelago. As for the tax regime, operating income obtained by ZEC entities is subject to corporate income tax at a special rate of 4%. Furthermore, the special rates are only applied up to certain maximum amount of taxable base, depending on the type of business activity and net job creation (ranging from 1.5 to 120 million euros per year). Shareholders (legal entities) of a ZEC entity who are resident in Spain cannot claim a tax credit for double taxation of dividends from ZEC entities to the extent that those ZEC entities have been taxed at reduced rates. However, interest, capital gains, and dividends obtained by non-residents from ZEC entities are exempt for non-resident income tax purposes in Spain on the same terms as those applicable to EU residents (even if the shareholder is not an EU resident) when such income or gains are paid by a ZEC entity and originate from transactions performed physically and effectively in the geographical area of the ZEC. The only case in which these exemptions do not apply is if the income or gains are obtained through countries or territories classed by regulations as tax havens, or if the parent company has its tax residence in such territories. ZEC entities are exempt from transfer and stamp tax on acquisitions of assets and rights used by the taxpayer in the course of its business, provided that such assets and rights are located, may be exercised, or must be complied with in the geographical area of the ZEC. Similarly, corporate transactions by ZEC entities are exempt39, except for the dissolution of those entities, and legal instruments related to transactions by, those entities in the geographical area of the ZEC (subject to certain exceptions). Additionally, supplies of goods and services between ZEC entities and imports of goods by ZEC entities are exempt from Canary Islands Indirect General Tax. Finally, it must be borne in mind that, for the 2007-2013 period, ZEC entities are considered valid vehicles for RIC indirect investments made by other taxpayers through the subscription of shares.
39 Starting on December 3, 2010, the formation of companies, the increase in their capital, the contributions made by shareholders which do not entail a capital increase, and the relocation to Spain of the companys place of effective management or of the registered office where neither one nor the other had previously been located in an EU Member State, shall be exempt from transfer tax under the corporate transactions heading.
3.2 Special regime applicable in the Basque Country

3.2.1 The Economic Accord The Economic Accord with the Autonomous Community Government of the Basque Country recognizes the power of the institutions of the provinces of the Basque Country (lava, Guipzcoa and Vizcaya) to regulate taxes. In general, they have full or shared regulatory authority in the area of direct taxation, but far more limited authority in the indirect taxation area. The institutions of the provinces of the Basque Country also have the power to levy, manage, assess, inspect, review and collect taxes, except with respect to import duties and excise taxes on imports. The Economic Accord regulates the applicable connecting factors in order to determine which body of laws, namely, those pertaining to Spain (excluding the Basque Country and Navarra) or those pertaining to the provinces of the Basque Country and to Navarra, apply to taxpayers and the powers to collect and inspect each tax, with revenue-raising power being shared in some cases between various tax authorities. 3.2.2 Corporate income tax Among the principal special features of the provincial corporate income tax legislation, the following are particularly noteworthy: The standard tax rate in force is 28%. In the Basque provinces of lava and Vizcaya, tax losses and credits may be offset and applied in future fiscal years without any time limits (the maximum term of 15 years is maintained in Guipzcoa). Tax deductible nature of goodwill implicit in the acquisition price of holdings in other companies (financial goodwill), limited to the 20% annually, if certain requirements are met. General reduction of 30% of income from intellectual or industrial property (including trademarks), subject to certain requirements. The reduction is 60% where the intellectual or industrial property has been developed by the entity itself. No limitation for applying the reduction related to the costs incurred. Definitive exemption of capital gains obtained on the transfer of tangible fixed assets, intangible assets or real estate investments connected with business operations or non-current assets kept for sale (full exemption); partial exemption (60%) of the income obtained on the transfer for consideration of shares in the capital of all manner of entities, which shares entail a holding of not less than 5% and have been owned for at least one year prior to the transfer, provided that the price obtained on the transfer is reinvested and that the items in which the reinvestment is made are kept for a specific amount of time.
Tax credit against net tax payable, equal to 25% of contributions made to set up Economic Interest Groupings (EIG), provided that the contribution takes the form of a holding in the capital stock of the EIG and is kept for five years after the year in which full payment is made. 10% tax credit on the amount invested in the acquisition of new noncurrent assets forming part of the tangible fixed assets or of real estate investments (excluding land), goods subject to financial lease, computer applications and industrial premises (for renovation), which must be used in the pursuit of the entitys business and cannot be transferred, assigned or leased thereafter for a certain amount of time. Tax credit against net tax payable, equal to 10% of the amount recorded to the productive investments reserve, with a charge to income for the year. This reserve must be used for new noncurrent assets and will be restricted, since the assets for which it is used must remain connected with the pursuit of the business for 5 years and cannot be transferred, assigned or leased to third parties for their use. 30% tax credit against net tax payable on expenses incurred in research and development activities during the period. An additional 50% applies for the excess over the average expenses of the two preceding fiscal years. Additionally, a 20% tax credit applies in respect of costs related to qualified personnel assigned exclusively to R&D activities and expenses relating to projects engaged with universities, public research agencies or innovation and technology centers. Additionally, tax credit against net tax payable, equal to 10% of investments (start-up) in tangible fixed assets or intangible assets (excluding buildings and lands) exclusively used in R&D activities. This tax credit may be taken without limitation. 15%/20% tax credit against net tax payable is also established for certain technological innovation activities. In Guipzcoa, a 20% tax credit for the pursuit of technological innovation activities and a 15% tax credit for the pursuit of NON-technological innovation activities. The foregoing percentages, increased by 20 points, will be applied to any excess over the average expenses from the preceding two years. An additional 20% tax credit may be taken for personnel expenses relating to qualified researchers working exclusively on innovation activities. In Guipzcoa, investments in tangible fixed assets or intangible assets used in innovation activities will also qualify for a 10% tax credit against net tax payable. The tax credit for technological innovation is applied without limitation, while the tax credit for NONtechnological innovation has a limit of 45% of the net tax payable. Tax credit against net tax payable, equal to 10% of period expenses incurred on professional training activities and an additional 15% tax credit for any excess over the average of the preceding two years.
Possibility of applying a tax credit for job creation in respect of the hiring of all types of workers, subject to certain requirements. Tax credit against net tax payable, equal to 10% of business contributions made to community welfare systems, which are attributed to workers (with a limit of 8,000 per worker) and which affect the entire body of workers. There is no obligation to make installment payments on account of the final tax payable. 3.2.3 Personal income tax Among the special features of provincial personal income tax legislation, the following are particularly noteworthy: The standard tax scale has five brackets and the maximum marginal rate is 45%. Flat rate of 20% applied to the savings tax base. Possibility of reduction through contributions to community welfare systems. A voluntary provident entity (EPSV) is a type of vehicle existing only in the Basque Country and more flexible than a pension plan arrangement since it allows funds to be surrendered, provided that they have been held in the entity for at least 10 years, regardless of whether the stipulated contingencies have materialized. Reduction in taxable income as a result of contributions made to EPSVs, pension plans and mutual entities by up to a limit of 8,000 for contributions made by the taxpayer himself, or higher (1,250 per year up to a maximum of 24,250) in the case of participants over 52 years of age, and additionally, the same limit for employer contributions made by the employer for and attributed to the taxpayer. The referred limit will be higher for certain groups of taxpayer (i.e. disabled taxpayers). Adjustment coefficients are applicable for the calculation of the amount of gains and losses with respect to the acquisition cost of all types of assets transferred (and not only real estate). Tax credit for acquisition of principal residence: tax credit of 18% of the amounts paid (investment and financing) each year for the acquisition of principal residence, subject to a maximum amount of 2,160 in tax payable. In the case of legally-defined large families and homebuyers under 35, the tax credit rises to 23%, subject to a limit of 2,760. The total limit is 36,000 per taxpayer. On general terms, the time limit for buying a home with amounts deposited in a housing account is 6 years. Personal and family tax credits are available, with the main tax credits being for descendants, for ascendants, for disability, dependency and according to personal and family circumstances.
3.2.4 Inheritance and gift tax One of the main features of the provincial inheritance and gift tax regime is the exemption from this tax of acquisitions by way of inheritance by the spouse, spousal equivalent, ascendants or descendants of the deceased. 3.2.5 Wealth Tax This tax has been abolished effective as of January 1, 2008, in the provinces of lava and Vizcaya, so as from the 2008 fiscal year, the obligation to declare and pay this tax no longer applies. As of January 1, 2009 the obligation to declare and pay this tax no longer applies in Guipzcoa.
3.3 Special regime applicable in Navarra

Financial and tax dealings between Central Government and the Provincial Government of Navarra are governed by the Economic Agreement, with terms and conditions and powers similar to those under the Economic Accord. 3.3.1 Corporate income tax The main highlights include the following: As from January 1, 2008, the standard tax rate is 30%. Exclusion from the tax base (exemption) of income and/or gains obtained on the transfer for consideration of tangible fixed assets, intangible assets and real estate investments used in the pursuit of the entitys business, provided that the amount obtained on the transfer is reinvested. If the reinvestment is made in securities, the amount excluded will be 50%. Navarra does not include the benefit of unrestricted depreciation/amortization as extensively as the rest of Spain, limiting it to tangible fixed assets and intangible assets used for R&D, R&D expenses and tangible fixed assets whose unit value does not exceed 1,800. Tax credit against net tax payable, equal to 10% of the investments made in new tangible fixed assets or real estate investments used in the pursuit of the business (not applicable to land) subject to certain conditions. Taxable income can be reduced by 45% of the amounts allocated to a special investment reserve. Tax credit against gross tax payable, equal to 40% of the expenses incurred during the tax period on R&D activities. Additionally, a tax credit equal to 10% of the personnel expenses relating to qualified researchers working exclusively on R&D activities and of expenses incurred on R&D projects contracted with universities, public bodies or innovation and technology centers. Tax credit against gross tax payable, equal to 15% of the expenses incurred on technological innovation activities.
There is provision for a tax credit for job creation, for both permanent employment (4,207.08 per worker) and the conversion of temporary contracts into permanent contracts (1,502.53 per worker). There is an obligation to make a single tax prepayment during the first 20 calendar days of October of each year. 3.3.2 Personal income tax The principal special features are as follows: The standard tax scale has 8 brackets and the maximum marginal rate is 44%. The tax rate applicable to savings will be: 18% up to 6,000. 21% thereafter. Reduction in taxable income as a result of contributions made to pension plans and mutual entities by up to the lower of the following limits: 8,000 per year, or 30% of salary income and income from economic activities; in the case of people over 50 the referred limits are increased up to 12,500 per year, or 50% of salary income and income from economic activities. Tax credit equal to 15% of amounts paid during the tax period to acquire or renovate the habitual residence. The maximum annual base for this tax credit is 9,015 and the total base (i.e., the maximum amount the taxpayer may report as a tax credit base throughout the years) is 120,000 in the case of individual tax returns and 240,000 in the case of joint tax returns. The time limit for buying a home with amounts deposited in a housing account is 10 years. There are no adjustment coefficients for the acquisition cost of transferred assets. 3.3.3 Wealth Tax A 100% tax reduction applies to the gross tax payable, thereby eliminating the obligation to declare and self-assess this tax, effective as of January 1, 2008.
4.Local taxes
4. LOCAL TAXES
The Revised Local Finances Law approved by Legislative Royal Decree 2/2004, of March 5, establishes a scheme aimed at rationalizing the local taxation system and facilitating the activity of local entities. Under this legislation, local authorities are empowered to modify some aspects of this type of taxes. This Law, establishes two different types of municipal taxes, which can be classified as follows: Periodic taxes: Tax on real estate (Impuesto sobre Bienes Inmuebles). Tax on business activity (Impuesto sobre Actividades Econmicas). Tax on motor vehicles (Impuesto sobre Vehculos de Traccin Mecnica). Other taxes: Tax on erection and installation projects and construction works (Impuesto sobre Construcciones, Instalaciones y Obras). Tax on increase in urban land value (Impuesto sobre el Incremento del Valor de los Terrenos de Naturaleza Urbana).
4.1 Periodic taxes

4.1.1 Tax on real estate This tax is levied annually on owners of real estate or on holders of rights in rem thereon based on the cadastral value determined pursuant to the Property Cadastre regulations, at different rates up to a maximum of 1.30% for urban property and 1.22% for rural property. 4.1.2 Tax on business activity This tax is levied annually on any business activity conducted within the territory of the municipality. However, the following taxpayers are exempted from this tax: Individuals. Taxpayers who start a business activity within Spanish territory, during the two first tax periods in which they carry out said activity. Taxpayers subject to corporate income tax and entities without legal personality whose net sales (at group level according to article 42 of the Commercial Code) in the previous year were under 1 million. In the case of taxpayers subject to non-residents income tax, the exemption will only apply to those operating in Spain through a permanent establishment, provided that they obtained net sales of under 1 million in the previous year.
The tax payable is calculated on the basis of various factors (type of activity, area of premises, net revenues, etc.). The minimum tax rates published by the Government can be adapted by the municipal authorities. 4.1.3 Tax on motor vehicles This tax is charged on the ownership of motor vehicles and is levied annually on the basis of the horsepower of the vehicle. Municipal councils can double the minimum tax rate.
4.2 Other taxes

4.2.1 Tax on erection and installation projects and construction work This tax is levied on the actual cost of any work or construction activity that requires prior municipal permission, excluding VAT and any similar taxes. The tax rate will be set by each municipal council up to a top rate of 4%, and the tax falls due at the start of the project regardless of whether the permit has been obtained. 4.2.2 Tax on increase in urban land value This tax is levied on the increase disclosed in the value of urban land whenever land is transferred. The taxpayer in transfers for consideration is the transferor and in donations, the transferee. The tax rate is set by the municipal council up to a top rate of 30%. The tax base is the increase in the value of the land. The tax base is determined by reference to the value of the land when the tax falls due, which in the transfer of land will be the value that has been determined for the purposes of property tax. Certain annual percentages will be applied to this value based on the ownership period, which will be determined by each municipal council, and may not be higher than the following limits: (i) Between one and five years: 3.7, (ii) Up to 10 years: 3., (iii) Up to 15 years: 3.2, (iv) Up to 20 years: 3. This tax is deductible for personal income tax purposes from the transfer value of real estate.
EXHIBIT I. Calculation of corporate income tax
EXHIBIT I CALCULATION OF CORPORATE INCOME TAX

A Limited Liability Company tax resident in Spain (Teleco, S.L.) is engaged in the supply of telecommunications services. According to the 2011 financial statements, the company obtained a profit per books of 7,225,000. The company has recorded in its accounts the following transactions which may give rise to the need to make the relevant tax adjustments to the income per books: Teleco, S.L. has its offices in a rented building, and pays to the owner of that building an annual amount in this respect of 200,000. In addition, the company owns a building, which has been rented to a third party. The rental income obtained by Teleco, S.L. amounted to 100,000, and the withholding taxes borne by it amounted to 19,000. The company has recorded a corporate income tax expense amounting to 2,167,500. The company recorded a provision for impairment losses in relation to foreseeable bad debts amounting to 170,000. Of that amount, 125,000 relate to accounts receivable less than six months past-due on the date on which the corporate income tax relating to that year fell due. Teleco, S.L. purchased certain software on July 1 of the previous year, for 600,000. This tax period it recorded an amortization expense for that software amounting to 300,000. In the previous tax period the company recorded a provision for impairment losses in relation to foreseeable bad debts amounting to 350,000, relating to accounts receivable two months pastdue at the date on which the corporate income tax relating to that year accrued. The company recorded a provision for other expenses (provision for incentives) in the amount of 225,000 to cover the expense to be incurred in relation to the bonus payable to employees. However, there is no contract or similar document that records the companys commitment to pay the aforementioned bonus. The company purchased some computers on October 1, 2009 amounting to 60,000. In this tax period it recorded a depreciation expenses totaling 20,000 in relation to those computers. The company incurred expenses on scientific R&D in the amount of 620,000 during the year. The average expenses incurred in the previous two years amounted to 120,000. Teleco, S.L. incurred training expenses for its employees in the amount of 30,000. The average of the expenses incurred in this respect in the two preceding years amounts to 50,000. The company purchased shares in certain companies. In this connection, the company obtained dividends in a gross amount of 105,000, and bore withholding taxes in the amount of 19,950. Such shares were acquired by February 15 and transferred by the end of March. According to the information furnished by the company, tax installment payments were made during the tax period in the amount of 2,400,000.
Exhibit I
2010 CORPORATE INCOME TAX CALCULATION

Income for the year 7,225,000
POSITIVE ADJUSTMENTS 2,167,500 Corporate income tax expense 2010 Provision for impairment losses on receivables 125,000 Excess amortization of Software 102,000 Excess depreciation of computers 5,000 Provision for incentives 225,000 NEGATIVE ADJUSTMENTS Provision for impairment losses on receivables recorded in the previous tax year <350,000> Tax base Tax rate Gross tax payable TAX CREDITS Expenses in scientific R&D Employees training expenses Net tax payable Withholdings and prepayments Withholding on dividends Withholding on rental income Tax installments payments Net amount payable <19,950> <19,000> <2,400,000> 169,800 9,499,500 30% 2,849,850
<240,000> <1,100> 2,608,750
EXHIBIT II. Non-resident case study: income obtained without a permanent establishment
EXHIBIT II:
NON-RESIDENT CASE STUDY: INCOME OBTAINED WITHOUT A PERMANENT ESTABLISHMENT
The Dutch company TPC, B.V. posted one of its employees to Spain in September 2011. This employee worked in the Netherlands until August 2010. The salary of the employee corresponding to the September-December period amounts to 12,000, and is paid by the Spanish branch. The employee continues making contributions to the Dutch Social Security System, amounting to 800 for those four months. In addition, the employee opened a bank account in Spain and he received interest amounting to 100 and bore a withholding tax of 19 on said interest. In 2011 he buys and sells shares of a Spanish company and obtains a capital gain of 100. On another transaction of the same type with shares in another Spanish company, he obtains a capital loss of 20. He also transfers shares of a Dutch company and obtains a capital gain of 50. The employee will be considered as a non-resident in Spain for tax purposes in 2011, as he was not physically present in Spain for more than 183 days and his centre of economic interest was not located in Spain this year. The employee will be taxed separately on each item of income obtained and the tax will accrue when the income falls due or on the date of actual payment if it is sooner. 1. Salary income: the Spanish branch pays his salary and, therefore, it must pay each month (or every three months if its volume of operations in the previous year was less than 6,010,121) withholdings on the gross salary paid, without deducting any expenses. As a result, in this case, the branch would have to pay, in total and in the periods mentioned, to the tax authorities 24% of the gross salary paid to the employee, which amounts to 2,880. 2. Interest on the bank account: as a non-resident, the employee could claim a refund of the 19 withheld by the Bank, as the interest obtained from non-residents bank accounts is exempt from tax. 3. Shares: Only the sale of Spanish shares is subject to taxation. Additionally, gains and losses cannot be offset against each other. Therefore, the capital gain obtained from the sale of the first shares would be taxable. However, according to the Tax Treaty between Spain and the Netherlands, that capital gain can only be taxed in the Netherlands, as the country of residence of the employee, and as a result, it will be exempt in Spain.
EXHIBIT III. Vat case study
EXHIBIT III: VAT CASE STUDY

Spanish company, leader in the sale of specialized machinery, delivers measuring machines for the automotive industry to various countries, among others Spain. The recipients of these machines are taxable persons for VAT purposes, duly registered in their respective countries of residence. In the course of its business activities, the company incurs every month in the following expenses: 900,000 plus VAT for the purchase of raw materials necessary for its production, being all the purchases made within the Spanish market. 30,000 plus VAT for the rental of its factory. 7,500 plus VAT for other business expenses. The goods and services acquired are subject to Spanish VAT at the standard rate of 18% (said acquisitions have taken place in the first semester of 2011). Consequently, the input VAT for the Spanish company every month amounts to 168,750 (i.e. 937,500 x 18%). On the other hand, the Spanish company sells every month of 2011 first semester its products in the Spanish, EU and other international markets according to the following. Spanish sales: 1,000,000 plus VAT EU Sales: 200,000 International Sales: 100,000 The Spanish company must charge VAT for the supplies performed within the Spanish market at the standard rate of 18% (i.e. 1,000,000 x 18% = 180,000). However, the supply of goods to an EU Member State, or the supply of goods to other third territories (export of goods), would be exempt from VAT provided that all the regulatory requirements are met; among others, the demonstration of the transportation of products outside the Spanish VAT territory and that the recipient of the goods is a VAT entrepreneur when the goods are supplied to other EU Member State. As the Spanish companys turnover of the previous year exceeded the amount of 6,010,121.04, the company is considered to be a large company and therefore it is obliged to submit the returns on a monthly basis. Otherwise, the returns must be submitted quarterly. The output VAT must be recorded in such return (i.e. 180,000). However, this amount may be offset with the input VAT borne in the prior acquisitions of goods and services derived from its business activity (i.e. 168,750). The difference between the output VAT and input VAT will amount to 11,250 that will be the final quota to be paid to the Tax Authorities when submitting the return.
Prepared by:
Investment aid and incentives in Spain
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With the aim of fostering investment, employment, competitiveness and economic grwoth, the Spanish ventral goverment and all other public authorities have developed and implemented a wide and comprehensive range of aid instruments and incentives, placing special emphasis on the forstering of indefiniteterm employment and on research, development and technolocical innovation (R&D and TI) Furthermore, since Spain is an EU Member State, potential investors are able to acces European and programs, which provide further incentives for investing in Spain.
Investment aid and incentives in Spain
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Guide to business in Spain Investment aid and incentives in Spain 2
1. Introduction 2. State incentives for training and employment 3. State incentives for specific industries 4. Incentives for investment in certain regions 5. Sme incentives 6. Internationalization incentives 7. E.U. aid and incentives 8. Compatibility
1.Introduction
FRANCE
Asturias
Cantabria
Bilbao
Galicia
Pas Vasco
Vitoria Logroo
Navarra
La Rioja
Soria
Castilla y Len
Catalua
Tarragona
Gerona
Aragn
Barcelona
vila
Comunidad de Madrid
Toledo
PORTUGAL
Badajoz
Cuenca
Palma De Mallorca
Extremadura
Mrida
Cceres
Baleares
Murcia
Murcia
Andaluca
Granada
Cdiz
Almera
Ceuta
Melilla
MORROCO
Canarias
1. INTRODUCTION
With the aim of fostering investment, employment, competitiveness and economic growth, the Spanish central government and all other public authorities have developed and implemented a wide and comprehensive range of aid instruments and incentives, placing special emphasis on the fostering of indefinite-term employment and on research, development and technological innovation (R&D and TI). Furthermore, since Spain is an EU Member State, potential investors are able to access European aid programs, which provide further incentives for investing in Spain. These investment aid measures can be classified as follows: State and regional incentives for training and employment. State incentives for specific industries. Incentives for investments in certain regions. State incentives for SMEs. Incentives for internationalization. EU aid.
Most of the aid that can be obtained from the various agencies depends largely on the specific characteristics of each investment project (i.e. the better the prospects of the project, the more possibilities there are of obtaining financing and aid). In this respect, a search engine for Spanish grants and incentives can be found at the INVEST IN SPAIN website (www.investinspain.org). Using this tool, companies can gain easy access to updated information regarding the grants available for their investment projects. Users can sign up to the automatic alert system which prompts a tailor-made newsflash as suitable grants or subsidies are published. Notwithstanding the tax incentives discussed in other chapters (the basic tax incentives analyzed in Chapter 3 are investment tax credits (for further information go to Chapter 3, epigraph 2), the main general State incentives for investors are described in the following paragraphs.
2.State incentives for training and employment
2. STATE INCENTIVES FOR TRAINING AND EMPLOYMENT

These incentives, which form part of the Government's employment promotion policy and can signify important savings in labor costs, can be divided into two types:
2.1 Training incentives

Since the approval of Royal Decree 395/2007, regulating the Vocational Training for Employment subsystem, the Vocational Training for Employment subsystem has combined both the training aimed at employed workers (Ongoing Vocational Training) and the training aimed at unemployed workers (Occupational Training) under a single model of Vocational Training for Employment. In this context, the Vocational Training for Employment subsystem encompasses a set of instruments and actions aimed at encouraging and extending to companies and to employed and unemployed workers a type of training that meets their needs and contributes to the development of a knowledge-based economy. The main characteristics of the Vocational Training for Employment subsystem are as follows: It is fundamentally funded with the vocational training contributions made by employers and workers, with aid from the European Social Fund and with specific contributions established in the budget of the National Employment Service. Autonomous Communities may also earmark their own funds to finance the management of the projected training initiatives. Groups of workers with difficulties for entering or remaining in the job market (i.e., unemployed women, the disabled, persons affected by and victims of terrorism, etc.) can be given priority to participate in training programs. The Vocational Training for Employment subsystem is made up of the following training initiatives: Demand-based training, company training initiatives and individual leaves of absence for training, financed in whole or in part with public funds, to meet the specific training needs raised by enterprises and their workers. Supply-based training, training initiatives aimed primarily at employed workers and training initiatives aimed primarily at unemployed workers with a view to offering them training which capacitates them for qualified work and access to jobs. Training alternating with work, training initiatives under vocational training contracts and public training/work programs, permitting the worker to combine training with professional practice on the job. Programs to support and accompany training, aimed at improving the efficiency of the Vocational Training for Employment subsystem. In connection with demand-based training, Order TAS/2307/2007, partially implementing Royal Decree 395/2007, regulating the Vocational Training for Employment subsystem in connection with
demand-based training was published in the Official State Gazette on July 31, 2007. Reference must also be made in this connection to the credit allocated to enterprises for demand-based vocational training, which is subdivided into two types: Credit for carrying out own training programs Enterprises can avail themselves of a credit for the training of their workers, in the form of reductions in their social security contributions, calculated by applying the percentage stipulated annually in the General State Budgets Law to the amount paid in for vocational training by each enterprise during the preceding year. In particular, in 2011 enterprises may avail themselves of a credit for the training of their workers equal to the result of applying to the amount paid by the enterprise for vocational training in 2010, the reduction percentage, based on size of enterprise, indicated below: a) Enterprises of 6 to 9 workers: 100%. b) Enterprises of 10 to 49 workers: 75%. c) Enterprises of 50 to 249 workers: 60%. d) Enterprises of 250 or more workers: 50%. Enterprises of 1 to 5 workers may avail themselves of a reduction credit per enterprise equal to 420 instead of a percentage. These figures, which apply to all enterprises in general, are improved for industries especially affected by structural changes in world trade: the textile and clothing, shoe, furniture and toy industries. In turn, enterprises opening new workplaces during any given year, as well as newly formed enterprises, may also avail themselves of a credit for the vocational training of their workers (equal to the amount stipulated in the General State Budgets Law for that year) when they add new workers to their workforce. In particular, in 2010, this credit has been set at 65 per worker. Credit for granting workers individual leaves of absence for training Enterprises granting their workers individual leaves of absence for training may avail themselves of an annual reduction credit additional to that indicated in the preceding paragraph, albeit up to the limit available in the budget stipulated annually in the General State Budgets Law. Enterprises granting their workers individual leaves of absence for training in 2011 may avail themselves of an additional annual reduction credit equal to the salary cost of the leaves reported, up to the following limits: The equivalent of 200 hours costs for enterprises with a workforce of between 1 and 9 workers. The equivalent of 400 hours for enterprises with a workforce of between 10 and 49 workers.
The equivalent of 600 hours for enterprises with a workforce of between 50 and 249 workers. The equivalent of 800 hours for enterprises with a workforce of between 250 and 499 workers. The equivalent of the salary costs of another 200 hours for each additional 500 workers on the enterprises workforce. Notwithstanding the foregoing, the additional credit allocated to all enterprises granting such leaves of absence cannot exceed 5% of the credit stipulated in the National Employment Service budget for the financing of reductions in social security contributions for vocational training for employment. In connection with programs to support and accompany training, Order TIN/2805/2008, implementing Royal Decree 395/2007 on programs to support and accompany training, stipulating the terms regulating the grant of the public subsidies to be used to finance those programs, was published in the Official State Gazette on October 7, 2008. In particular, this Order stipulates the terms regulating the grant of the public subsidies to be used to finance the research and innovation programs foreseen among the programs to support and accompany training provided for under Royal Decree 395/2007, and introduces a transitional provision regarding the possibility of developing the information and guidance programs also provided for under the aforesaid Royal Decree. 1. Subsidies to be used to finance research and innovation programs. 2. Research and innovation programs, as a basis for generating knowledge and experience, are aimed at contributing to the improvement of the vocational training for employment subsystem, fostering quality training of employed workers and the unemployed at industry or inter-industry levels, and disseminating and promoting the subsystem as a whole. In particular, the following types of research and innovation programs are distinguished: a) Prospecting and analysis programs. These programs are aimed at obtaining a more detailed knowledge of the factors making up training demands, of specific training problems and needs in the various industries or territories and of other matters generally affecting vocational training for employment, with a view to anticipating changes in professional qualifications and adapting training modules to the provisions regulating Professional Certificates. b) Programs for preparing and experimenting with innovative products, techniques and/or tools of interest to the improvement of vocational training for employment. These programs will be aimed at furnishing the companies and the various agents active in the management of training unemployed and employed workers with instruments enabling them to improve their organization, planning and development.
c) Programs to evaluate vocational training for employment. These programs will be aimed at evaluating training in the various industries or territories and developing evaluation methodologies and tools for use by the parties participating and managing training, with a view to improving quality. d) Promotion and dissemination programs. These programs are aimed at generating vocational training for employment knowledge networks using virtual workplaces, documentary consultation bases, dissemination campaigns, publications, on-line or in-person discussion forums, good practices guides and any other measure favoring the promotion and dissemination of professional training for employment initiatives, studies, tools and products among employees, employers, business organizations and labor unions and the various training agents, as well as the promotion of groupings of small and medium sized companies for the organization and management of their training programs. Employers, entities or organizations meeting the requirements stipulated in the order regulating the subsidies, and in their respective calls for applications, will be eligible for the subsidies. The procedure for granting these subsidies is initiated ex officio in a public call for applications issued by the Director-General of the National Employment Service or the Autonomous Community body with jurisdiction on the matter. 3. Subsidies to be used to finance information and guidance programs Information and guidance programs are to furnish employees with information, accompaniment and guidance regarding possibilities for training and professional mobility, as well as regarding the ways to access vocational training for employment programs generating vocational skills. Although Order TIN/2805/2008 does regulate the financing of this type of program, its sole transitional provision provides that until specific regulations are approved for this type of program, calls for applications may be published on the basis of the guidelines stipulated in the Order. Thus, a Decision was issued by the State Employment Public Service on July 20, 2010, in which it approved the call for applications for the grant of public subsidies with a charge to fiscal year 2010, to be used for support and accompaniment programs.
2.2 Employment incentives

Currently unemployment in Spain, aggravated as a result of the current international economic crisis, has obliged the government to undertake major reforms in the context of labor relationships and in that of incentives for employers who hire workers under indefinite-term contracts, improving the amounts and defining the eligible groups of employees more selectively. Substantial improvements have also been made to the regulation of vocational training contracts encouraging the use of such contracts by the offer of a total reduction of social security contributions. The Spanish Central Government offers a wide range of employment incentives, consisting mainly of reductions in employer social security contributions, aimed at promoting stable or indefinite jobs (especially for unemployed persons included in groups such as women in general, young people aged 16-30, the long-term unemployed, unemployed people over the age of 45 and people with disabilities). Furthermore, on an exceptional basis, reductions in social security contributions are maintained for temporary contracts executed with disabled workers or with socially-excluded individuals, provided that in both cases they are unemployed and registered at the Employment Office, as well as with persons providing evidence of having been a victim of gender-based violence. Likewise, where the indefinite-term or temporary contract is part-time, the reductions stipulated for each case will be reduced by applying a percentage equal to the percentage of the working day stipulated in the contract, increased by 30%, the result of which may in no case exceed 100% of the stipulated reduction, except in the case provided deductions for hiring people with disabilities trough special employment centers. The incentives, the basic parameters of which are just described above, are contained in Law 43/2006, of December 29, 2006, on improved growth and employment (Ley de mejora del crecimiento del empleo or LMCE), which was amended both by Royal Decree-Law 10/2010 and by Law 35/2010 on urgent measures to reform the job market. The contents of these incentives are summarized in the following tables classed according to the eligible group:
Table 1
INCENTIVES FOR HIRING UNDER INDEFINITE-TERM CONTRACTS

Groups Description Annual amount () Term
Young people*
Aged between 16 and 30 years, with special problems of employability (Art. 10 Royal Decree-Law 10/2010).
Men
Women 3 years 1,000 Women
800
Men
People aged over 45 registered as People aged over 45 * unemployed for at least 12 months (Art. 10 Royal Decree-Law 10/2010).
Socially excluded workers (Art. 2.5 Law 43/2006). Special situations Victims of domestic violence (Art. 2.4 Law 43/2006)**. Victims of gender-based violence (Art. 2.4 Law 43/2006). Disabled persons (Art. 2.2. Law 43/2006). Disabled persons In general (Art. 2.2.1 Law 43/2006). In case of severe disability (Art. 2.2.2 Ley 43/2006). Conversion of vocational training, handover and replacement due to retirement contracts into indefiniteterm contracts prior to December 31, 2011 (Art. 10.3 Royal Decree-Law 10/2010).
3 years
1,200
600 850 1,500 Men < 45 years 4,500 5,100 Men Women 5,350 5,950 People aged over 45 5,700 6,300 Women 3 years 4 years 1,400
Throughout the term of the contract.
Conversion to indefinite ***
500
700
* For contracts executed through December 31, 2011, provided that there is an increase in the employers fixed level of employment. ** Victims of gender-based and domestic violence do not have to meet the requirement of being unemployed and registered as job seekers at the Employment Office. *** Provided that this entails an increase in the employers fixed level of employment, except in the case of handover contracts.
Table 2
INCENTIVES FOR HIRING UNDER TEMPORARY CONTRACTS

Groups Description Annual amount () Term
Disabled persons hired under temporary contracts to foster employment (Art. 2.2.4 Law 43/2006).
In general.
Men < 45 years 3,500
Men > 45 years 4,100 4,700
Women < 45 years 4,100 4,700
Women > 45 years 4,700 5,300 Throughout the term of the contract.
Severe disability.
4,100
Socially excluded persons (Art. 2.5 Law 43/2006). Victims of gender-based or domestic violence (Art. 2.4 Law 43/2006). 600
Table 3
INCENTIVES FOR MAINTAINING INDEFINITE EMPLOYMENT

Groups Annual amount () Term
Indefinite-term contracts of workers aged 60 or more who have worked at the company for 5 or more years (Art. 4.1 Law 43/2006).
50% of the employers contribution for common contingencies, except for sickness, increased annually by 10% up to 100%.
Women whose contract (indefinite-term contract or temporary contract converted into indefiniteterm) is being held in abeyance, who resume work following maternity leave (Art. 4.2 Law 43/2006).
1,200
4 years
Table 4
INCENTIVES FOR HIRING UNDER INDEFINITE-TERM CONTRACTS, UNDER TEMPORARY CONTRACTS OR FOR CONVERSION INTO INDEFINITE-TERM CONTRACTS THROUGH SPECIAL EMPLOYMENT CENTERS
Groups Annual amount Term
Disabled persons who are unemployed and registered as job seekers with the Employment Office (Art. 2.3 Law 43/2006).
100% of the employers social security contributions, including contributions for occupational accidents and sickness and joint collection contributions.
Table 5
INCENTIVES FOR TRAINING CONTRACTS (ARTICLE 11 ROYAL DECREE-LAW 10/2010)

Groups Description Annual amount Term
For contracts executed after June Unemployed persons registered as job seekers at 18, 2010 or executed earlier but renewed between June 18, 2010 the Employment Office. and December 31, 2010 (provided that there is an increase in the employers workforce).
Disabled persons with training contracts.
Disabled persons.
100% of the employers social security contributions for common contingencies, including contributions for occupational accidents and sickness and joint collection contributions (unemployment, Wage Guarantee Fund and vocational training).
Throughout the term of the contract, including renewals.
Following the elimination, under Royal-Decree Law 10/2010, of incentives for workers receiving the unemployment benefits provided for under the Law 27/2009 on urgent measures for maintaining and fostering employment and the protection of unemployed persons, reductions in employers social security contributions will only be deemed valid in cases of collective layoff procedures.
Table 6
INCENTIVES REGULATED UNDER LAW 27/2009 ON URGENT MEASURES FOR MAINTAINING AND FOSTERING EMPLOYMENT AND THE PROTECTION OF UNEMPLOYED PERSONS
Groups Description Incentives and term
Workers under Collective Layoff Procedures.
Workers whose contract is being held in abeyance or whose working time has been reduced temporarily, authorized in a Collective Layoff Procedure, provided that the employer agrees to keep the workers employed for at least 1 year after the year in which the contract was held in abeyance or the working time reduced.
50% of the employers contributions for common contingencies throughout the term of abeyance or reduction, up to a maximum of 240 days. 80% of the employers contributions for common contingencies throughout the term of abeyance or reduction, up to a maximum of 240 days, provided that the employer includes measures to reduce the effects of the temporary regulation among the affected workers or any alternative measure aimed at favoring the employers maintenance of jobs (art. 1.2 bis).
It is important to note that, pursuant to Law 35/2010, this incentive will be applicable to requests for a collective layoff procedure submitted between October 1, 2008 and December 31, 2011. In turn, the increase to 80% could apply to employers in force at June 18, 2010. Finally, must be indicated that Additional Provision 4 of the 2011 General State Budgets Law provides that indefinite-term employment contracts of workers aged 59 or over, with 4 or more years service, may give rise to an entitlement to a 40% reduction in employer social security contributions for ordinary contingencies, except for temporary incapacity arising from them, with respect to the contributions paid as from the date that the aforementioned requirements are met. If the worker has not worked at the enterprise for four years by the time he turns 59, the reduction will apply as from the date on which the four-year term is completed. In general, the duration of the reduction will be one year.
2.3 Incentives and reductions in the employers social security contribution to facilitate the adjustment of employment in industries affected by structural changes in world trade
With a view to facilitating the adjustment of employment in various industries affected by structural changes in world trade, a Decision of the Council of Ministers dated June 9, 2006 authorized the financing, through the budget of the State Employment Public Service, of the grant of various subsidies which, as part of the active employment policies, were aimed at facilitating the adjustment of employment and the re-hiring of surplus workers from industries affected by structural changes due to the opening of world trade. Thus, in 2009, various industries were give a specific treatment through provisions that implement socio-labor measures aimed at supporting those industries: Royal Decree 100/2009, for the shoe manufacture, shoe parts, tanning and leather working industry. Royal Decree 1679/2009, for the furniture industry. Royal Decree 1678/2009, to facilitate the adjustment of employment of the toy industry. These provisions use reductions in the employers social security contribution to support enterprises in connection with training and to provide incentives for keeping employees with indefinite-term contracts on the workforce (by progressively increasing the reductions as the employees age increases from 30 to 55 or more years of age-, and where the employee is a woman) and favoring the re-hiring of the industrys surplus workers.
2.4 Local employment initiatives (no time limit)

In addition to the employment incentives and to socio-labor adjustments, aid and subsidies may also be granted for investment projects aimed at generating economic activity and stable employment in local and regional areas of Spain, subject to the National Employment Institute classing them as investment and employment (I+E) projects or entities. For a project to be classed as I+E, it must meet the following requirements:
A local corporation must support the corporate project by contributing economic and/or material resources, such as infrastructures or services assisting it in the start-up and management of the business. Projects must provide for the hiring of workers or the recruitment of new partners in the case of projects involving cooperatives or labor companies. Projects must provide for the incorporation of a new company with a maximum number of 25 employees at the time of incorporation. Projects must provide for the production of products and/or services which relate to emerging economic activities or, in the case of traditional activities in the area, which cover needs not covered by the existing structure. Projects must meet technical, economical and financial viability requirements. Incentives available for selected projects are as follows: A financial subsidy aimed at the reduction by up to three percentage points of interest rates on loans granted to the company related to its incorporation and establishment. The maximum amount of this subsidy will be 5,108 per indefinite-term job created. A subsidy for the support of management activities (e.g. subsidies for the external contracting of market or technical studies, reports, and/or training programs). This subsidy will only be available during the first year after the incorporation of the company and will cover 75% of the cost of the qualifying services up to a maximum of 12,020. A subsidy for technical assistance for the hiring of highly-qualified technical experts, covering 50% of total labor costs (including employer social security contributions for a maximum period of one year). This is a one-time subsidy with a ceiling of 18,030. A one-time subsidy for each indefinite-term employment contract amounting to 4,808 for each worker hired on a full-time basis (or the related proportion of such overall amount in the case of indefinite-term part-time contracts). This subsidy is not compatible with that described in the preceding point. A subsidy for cooperatives and labor companies amounting to 4,808 per unemployed working partner recruited on an indefinite-term basis. This subsidy is not compatible with those described in the two preceding points. All the aforementioned incentives may be increased by 10% when the project is related to certain activities, among which are those connected with the protection and maintenance of natural areas, waste management, collective transport, the development of local culture and the care of children, the handicapped and the aged.
Applications for these incentives must be submitted to the National Employment Institute (INEM). This is the government body in charge of selecting the eligible projects and granting the aid and subsidies for such projects. These incentives and subsidies are compatible with others granted by other government agencies or public or private entities, although the total amount of the subsidy, whether taken alone or together with aid or subsidies granted by other public authorities, private or public entities, may not exceed 80% of the cost of the subsidized activity. Lastly, Autonomous Community Governments which, as a result of the increasing administrative decentralization process currently underway in Spain, have been transferred management powers in relation to these and other employment programs, may adapt these incentive measures to their own organization.
2.5 Fostering of rural employment

Aid is provided for companies promoting employment initiatives in rural communities (see State incentives for specific industries, Section 3 below).
3. State incentives for specific industries
3. STATE INCENTIVES FOR SPECIFIC INDUSTRIES

The Central Government provides financial aid and tax benefits for activities carried out in certain industries which are considered to be priority sectors in view of their growth potential and their impact on the nations overall economy (e.g. activities in the agrofood industry, energy, mining, technological development, research and development, etc.). In addition, the Autonomous Community Governments provide similar incentives for most of these industries. Financial aid includes both nonrefundable subsidies and interest relief on the loans obtained by the beneficiaries, or combinations of the two. The main official programs supporting the industrial development projects currently in force are:
3.1 Research, technological development and technical innovation

3.1.1 2008-2011 National Plan for R&D and TI Encouraging technological improvement and innovation and research and development projects has in recent years become one of the priorities of public authorities in Spain. In this context, every four years since 1988 the government has prepared the related National Plan for Scientific Research, Development and Technological Innovation, in which it establishes the objectives and medium-term priorities of the research, development and innovation policy. Upon expiration of the previous Plan (the Fifth National Plan for R&D and TI for the 2004-2007 period), the Government approved the Sixth National Plan for R&D and TI for the 2008-2011 period (in line with the Seventh EU R&D and TI Framework Programme for the 2007-2013 period). The Sixth National Plan for R&D and TI for the 2008-2011 period aims to double the financing with respect to the preceding period and to improve aid management. Additionally, the subsidies included under this Plan may be co-financed with EU Structural Funds on the terms and in the cases set forth for such purpose in the respective calls for applications. The basic objectives of the National Plan for R&D and TI (2008-2011), which was set up in line with the provisions of the National Strategy for Science and Technology (Estrategia Nacional de Ciencia y Tecnologa or ENCYT) are (i) placing Spain in the vanguard of knowledge, (ii) promoting a highly competitive corporate fabric, and (iii) creating a favorable environment for investment in R&D and TI, (iv) developing an integral policy for science, technology and innovation, (v) advancing at international level as a basis for the systems qualitative leap, and (vi) fostering societys scientific and technological culture. In summary, the National Plan for R&D and TI for the 2008-2011 period has a structure based on four areas directly related with the Plans general objectives and linked to instrumental programs which pursue specific objectives: (i) generation of knowledge and capacities, (ii) fostering of cooperation in R&D, (iii) industry-wide technological development and innovation, and (iv) strategic
actions (health, biotechnology, energy and climatic change; telecommunications and information society; nanoscience and nanotechnology, new materials and new industrial processes). In order to meet the objectives of the National Plan and in line with the four areas identified, the new Plan covers a set of instruments grouped along six Instrumental Lines of Action: 1. Human Resources. 2. R&D and TI Projects. 3. Institutional strengthening. 4. Infrastructures. 5. Use of Knowledge. 6. Articulation and internationalization of the system. These Lines are developed through thirteen national programs representing the major instrumental initiatives under the National Plan, surpassing the thematic model of former plans: (i) human resources training, (ii) human resources mobility, (iii) human resources hiring and incorporation, (iv) basic research projects, (v) applied research projects, (vi) experimental development projects, (vii) innovation projects, (viii) institutional strengthening, (ix) scientific/technological infrastructures, (x) technology transfer, valuation and promotion of technologically based enterprises, (xi) networks, (xii) public/private cooperation, and (xiii) internationalization of R&D. Additionally, the R&D + TI Plan covers five Strategic Actions which relate to horizontal industries or technologies: (i) strategic action in health, (ii) strategic action in biotechnology, (iii) strategic action in energy and climatic change, (iv) strategic action in telecommunications and the information society, (v) strategic action in nanoscience and nanotechnology, new materials and new industrial processes. These Strategic Actions are aimed at supporting the Governments firmest R&D + TI commitments, with an integral concept valuing the research carried out, as well as its transformation into processes, products and services for society. Also, in the area of administrative management, this new R&D Plan is aimed at reducing the excessive bureaucratic red tape that has to be supported by applicants for the public aid offered under the Plan. The new features include most notably (i) the creation of a single window managed through a single website, as a system for accessing all public aid from the National Government for R&D and TI, (ii) the use by the National Government of a single standardized form to configure calls for applications for all national programs, (iii) the stable publication of the call for applications in the same month throughout the term of the National Plan, (iv) the receipt of proposals, the resolution of calls for applications, the allocation of economic resources and the monitoring of their use, (v) the
publication of a single Order of Specifications per Instrumental Line of Action, as well as a single call for applications per program. Notwithstanding the provisions of each of the relevant calls, in general, the beneficiaries of the aid included under the R&D + TI Plan may be, inter alia, (i) public R&D agencies, (ii) universities, (iii) other public R&D centers, (iv) public and private non-profit R&D centers, (v) enterprises, (vi) technological centers, (vii) business groupings or associations, (viii) innovative business groupings (innovative clusters) and technological platforms, (ix) organizations supporting technological transfer and technological and scientific dissemination and disclosure, (x) research bodies, and (xi) Innovation Intermediaries. Most of the Orders regulating the particular features of each Instrumental Line of Action were published in 2008 and only that relating to Institutional Strengthening is currently pending regulation. Thus, as an example, we set forth below the most important characteristics of (i) the Instrumental Line of Action for R&D + TI Projects, (ii) the Instrumental Line of Action for Human Resources and (iii) the Instrumental Line of Action for Scientific-Technological Infrastructures. (i) Instrumental Line of Action for R&D + TI Projects ORDER PRE/621/2008, regulating the terms, rules on aid and the management of the Instrumental Line of Action for R&D + TI Projects, under the National Plan for R&D + TI (20082011), was published in the Official State Gazette dated March 8, 2008. This Instrumental Line of Action includes the following National Programs, (i) Basic Research Projects, (ii) Applied Research Projects, (iii) Experimental Development Projects and (iv) Innovation Projects, for which each respective call for applications must be in line with the contents stipulated in the aforesaid Order. The main characteristics of the general rules on the aid which can be granted under this Instrumental Line may be summarized as follows:
Table 7
TYPE OF AID
Repayable subsidies, loans and advances
WHO CAN APPLY FOR AID
Companies (including SMEs). Technological Centers. Private university research and development centers . Public R&D + TI centers. Private non-profit research and development centers. Other private non-profit entities. Other public law entities. The following groupings or associations: (i) joint ventures, (ii) economic interest groupings formed by companies or by companies and other entities, (iii) industry-wide non-profit business associations, (iv) innovative business groupings recognized by the Ministry of Industry, Tourism and Trade.
ELIGIBLE PROJECTS AND ACTIONS

Basic research projects. Applied research projects. Experimental development projects. Technical viability studies. Supplementary actions (e.g., actions targeted at society in general and at academic and business sectors in particular, to disclose of the findings of scientific research and technological development activities). Organization of congresses, seminars and conferences.
FORMS OF PARTICIPATION Individual projects or action. Coordinated project or action. Project or action based on cooperation. Project or action carried out by entities located in Scientific and Technological Parks.
Certain calls for applications published for 2011 under the Instrumental Line of Action for R&D + TI Projects. This include most notably the joint Resolution dated December 20, 2010 of the Office of the Secretary of State for Research, approving the 2011 call for applications for the aid to be granted to research projects and supplementary actions under the National Plan for R&D + TI, published in the Official State Gazette on December 21, 2010. This call includes the following three sub-programs of the National Program for Basic Research Projects: (i) sub-program on general basic research projects, (ii) sub-program on actions
supplementary to general basic research projects and (iii) sub-program on basic research projects aimed at agricultural resources and technologies in coordination with the Autonomous Communities and on supplementary actions. The forms of aid foreseen for the three sub-programs are repayable subsidies and advances. Aid in the form of subsidies will be charged to the State Budget and may be funded jointly with the 2007-2013 European Regional Development Fund (ERDF), according to the areas determined therein. Specifically, aid from the ERDF may be the subject of a repayable advance with a charge to the State Budget. Nonetheless, the possible beneficiaries of the aid are indicated individually for each of the subprograms included in the call for applications. Each sub-program is also subject to specific submission deadlines. (ii)Instrumental Line of Action for Human Resources ORDER ECI/266/2008, stipulating the regulations for the grant of public subsidies under the Instrumental Line of Action for Human Resources was published in the Official State Gazette dated February 9, 2008. This Instrumental Line of Action includes the following National Programs, (i) Human Resources Training, (ii) Human Resources Mobility, and (iii) Human Resources Hiring and Incorporation, for which each respective call for applications must be in line with the contents stipulated in the aforesaid Order. The main characteristics of the general rules on the aid which can be granted under this Instrumental Line may be summarized as follows:
Table 8
TYPE OF AID
Repayable subsidies and advances (where expressly provided for in the specific call for applications)
WHO CAN APPLY FOR AID Individuals. Public universities. Public research bodies R&D + TI centers with their own differentiated legal personality connected with or dependent on the national government. R&D + TI centers connected with or dependent on territorial public authorities. Private universities. Public and private non-profit entities. Companies whose main activity consists of the production of goods and services for the market. Industry-wide non-profit business associations. Developers of a scientific and technological park which have the legal form of a non-profit entity. Other legal entities with purposes similar to those of the foregoing.
Table 8 (Cont.)
TYPE OF AID
Repayable subsidies and advances (where expressly provided for in the specific call for applications)
PURPOSE OF THE AID

The purpose of the aid depends on the specific National Program in which it is included: National Program for Human Resources Training: to guarantee an increase in the offer of Human Resources dedicated to research and development and innovation in Spain, as well as the improvement of training and competition levels, including the regulated, non-regulated and ongoing human resources training needed by the knowledge society. National Program of Human Resources Mobility: to favor the geographical and inter-institutional mobility of personnel associated to R&D + TI activities, covering not only the mobility of foreign researchers toward Spain, but also that of Spanish researchers toward other international or national centers. National Program of Human Resources Hiring and Incorporation: to favor the professional career of researchers and technological specialists, as well as to provide incentives for the hiring of doctors and technological specialists by research companies and bodies and to promote the best practices of stable hiring.
ELIGIBLE PROJECTS The specific projects eligible for aid are listed in each approved call for applications.
Some calls for applications have already been published for 2011 under the Instrumental Line of Action for Human Resources, including most notably: Order CIN/3214/2010, approving the 2011 call for applications for the grant of aid under the Inncorpora sub-program, for the hiring of technologists with superior or equivalent vocational training degrees within the National Program for Human Resources Hiring and Incorporation, published in the Official State Gazette dated December 14, 2010. The purpose of this aid is to stimulate the transfer of knowledge and technology to the manufacturing industry and to procure business innovation by facilitating the hiring of technologists. This aid, which may take the form of a subsidy or a loan, has a budget of 100,000,000 for loans and 1,450,000 for subsidies. The aid may be granted to enterprises, technological centers, technological innovation support centers, business associations and scientific and technological parks. Decision dated December 23, 2010 of the Secretariat of State for Research, publishing the 2011 call for applications for the grant of aid under the National Program for Human Resources Hiring and Incorporation for Research.
This call for applications includes 3 sub-programs of the National Plan of reference: (a) the Ramn y Cajal sub-program, for the grant of aid for the hiring of research and development doctors, (b) the Juan de la Cierva sub-program, for the hiring of doctors by R&D centers with a view to including them on research teams, and (c) the Technical Support Personnel subprogram, for the hiring of technical support personnel in their different forms. Lastly, according to the information furnished by the Ministry of Science and Innovation, the 2011 call for applications for the grant of aid under the Torres Quevedo sub-program is soon to be published (in mid-February or at the beginning of March) for the hiring of doctors and technologists to participate in industrial research, technological development or technical viability studies. (iii)Instrumental Line of Action for Scientific-Technological Infrastructures The Official State Gazette dated July 11, 2009 published ORDER CIN/1862/2009, stipulating the terms of reference for the grant of public aid for science and technology under the Instrumental Line of Action for Scientific-Technological Infrastructures under the National Scientific Research, Technological Development and Innovation Plan 2008-2011 and issuing the call for aid applications for 2009 for some of its lines of action. This Order containing terms of reference regulates the grant of aid in the following subprograms: (i) subprogram for design, viability, access and improvement of Singular Scientific and Technological Facilities, (ii) subprogram for scientific and technological actions in scientific and technological parks, (iii) subprogram for the creation and consolidation of technological centers, (iv) subprogram for the acquisition of scientific-technical infrastructures in agrofood R&D and TI centers of the National Agriculture and Food Research Institute, (v) subprogram for scientific-technological infrastructure projects financed jointly with the European Regional Development Fund.
Table 9
TYPE OF AID
WHO CAN APPLY FOR AID Enterprises (including SMEs). Technological centers and technological innovation support centers. Private university research and development centers. Public R&D and TI centers. Private non-profit research and development centers. Other private non-profit entities. Groupings of individuals or legal entities, both public and private, joint property entities or any other type of economic unit or separate assets which, even if lacking legal personality, is able to carry out projects, activities or conducts or which are in a position to merit the grant of the subsidy.
Table 9 (Cont.)
TYPE OF AID
ELIGIBLE PROJECTS AND ACTIONS

Actions relating to the improvement of Singular Scientific and Technical Facilities (Instalaciones Cientficas y Tcnicas Singulares or ICTS). Actions to promote access to ICTS. Preparation of viability studies. Supplementary actions (organization of conferences, seminars or lectures; creation and maintenance of national thematic networks of scientific-technical infrastructures; actions of scientific-technological policy aimed at attending to strategic initiatives of special interest). Projects to introduce or improve infrastructures able to be used for scientific and technological actions. Projects for the acquisition of equipment for scientific and technological infrastructures. Projects aimed at the creation of centers for entities which, at the time of their application, do not engage in any type of activity. Consolidation projects for existing centers. The acquisition and installation of new scientific, technical or technological equipment as well as the improvement of the performance of existing equipment. Creation and improvement of telematic networks.
FORMS OF PARTICIPATION
Individual projects or action. Coordinated project or action. Project or action based on cooperation.
Each year a Working Program is published under the National Plan for R&D + TI, indicating the dates set for all calls for applications under the Plan for the related year. This Program is expected to be published at the end of January 2010 , according to information furnished by the Ministry of Industry, Tourism and Trade and the Ministry of Science and Innovation.
3.1.2. Technological innovation On July 2, 2010 the Council of Ministers approved the State Innovation Strategy (e2I), which serves as the framework for the Governments innovation policy aimed at contributing to the change in production model in Spain by fostering and creating structures which facilitate the optimum use of scientific knowledge and technological development. This Strategy starts with a diagnosis of the status of innovation in Spain and determines the mediumand long-term objectives (for the 2010-2015 period) which are to improve the innovative capacity of the Spanish economy. These objectives include most notably: Increasing annual private investment in R&D by 6,000 million with respect to the figures recorded in 2009. Duplicating the number of innovation enterprises, incorporating 40,000 more enterprises. Increasing the number of medium to high technology jobs by half a million. In order to meet these objectives, the structure of the Strategy is broken down into five areas: (i) creating an environment favorable to innovation, (ii) fostering innovation based on public demand, (iii) international projection, (iv) strengthening territorial cooperation, and (v) human capital. In order to contribute to meeting the objectives of the State Innovation Strategy, the Ministry approval to the Plan Innovaccin, under which it plans to generate more than 93,000 qualified jobs and 3,900 new innovative enterprises or enterprises beginning to innovate. It also intends to obtain approximately 700 million from the European Union under programs such as the Seventh EU Framework Programme or the ERDF, under the Technological Fund Operative Program, inter alia. In private investment in R&D + TI, the Ministry intends to reach 5,000. The Innovaccin Plan is broken down into seven competitions, instrumented on a simplified basis with a view to adjusting them to the needs of the market, including most notably: (i) Innplanta, supporting entities installed in scientific-technological parks, (ii) Innoeuropa, targeted at technological centers under the Seventh EU R&D Framework Programme, (iii) Inncide, valuing the knowledge and findings of research performed at universities and other research centers, by strengthening and stabilizing units promoting and facilitating cooperation and knowledge transfer processes and support for the development of initiatives aimed at the pursuit of their activities, (iv) Innfluye, creating and strengthening stable public-private groups which work towards improving technological capacity and the increase in competition in the national production industry, through knowledge exchange, planning and dissemination activities, (v) Innpacto, aimed at public-private cooperation projects between research bodies and enterprises for the performance of R&D + TI projects aimed at exploitable products based on demand, (vi) Innocampus, to foster academic excellence, and (vii) Inncorpora, aimed at incorporating qualified technologists into the workforce.
3.1.3 INGENIO Program In an attempt to bolster investment in R&D by enterprises, the Spanish Government approved the INGENIO Program, aimed at increasing both public and private investment in R&D. In line with what was agreed by the European Council of Lisbon (2000), its objectives run from (i) increasing the rate of investment in R&D over the GDP so as to attain an R&D investment equal to 2% GDP in 2010, (ii) 55% private investment in R&D in 2010, (iii) attaining, through the Avanza Plan, the EU average in terms of the percentage of the GDP earmarked for CITs . The INGENIO Program is implemented through the following sub-programs: CONSOLIDER SUB-PROGRAM: This strategic funding aims to achieve excellence in research by increasing cooperation between researchers and encouraging large research groups. It offers 5 year strategic financing to teams formed by groups of high-level researchers who present a Research Activity Plan to be carried out jointly. During the first four years of the Programs development, training projects of leading consortiums and the unique installations plan are expected to mobilize approximately 2 billion, of which approximately 50% will be contributed by the State. Along these lines, it is important to note the Plan for the Provision of Incentives, Incorporation and Intensification of Research Activity (I3), which finances the hiring of researchers by universities and public research bodies. The CONSOLIDER projects offer a notable amount of long-term financing for excellent research groups and networks in any areas of knowledge under the National Plan for R&D + TI. The objectives of this initiative are to increase the average size of research groups and to increase the financial budget of the best research lines. AVANZA2 PLAN SUB-PROGRAM: While it was in force, the original Avanza Plan entailed a true wager of the Spanish Government and the Spanish society as a whole in favor of the Society of Information and Knowledge, thus converting the Telecommunications and the Information Society (IS) industry into the strategic industry serving as the catalyst that generates momentum for the development of other industries. With a view to consolidating the milestones reached under the Avanza Plan, the Avanza2 Plan was defined. One of the main objectives of the Plan is to contribute to economic recovery in Spain thanks to the intensive and generalized use of CITs, with special attention to projects which also combine sustainability and energy savings. In summary, following the revitalization of supply under the former Avanza Plan, the main challenge of the Avanza2 Plan is to boost demand and to use the momentum generated by the sectors development to strengthen its own CIT industry specializing in strategic sectors, with special attention to SMEs.
Currently the Avanza2 Plan is in its second phase of development, as a result of the approval, by decision of the Council of Ministers on July 16, 2010, of the 2011-2015 Strategy for the Plan. This Strategy is aimed at updating the initial objectives of the Plan with a view to bringing them into line with the new challenges of the Online Society, focusing efforts on the attainment of ten main objectives: (i) to promote innovative CIT processes at the public authorities, (ii) to extend CITs in health and social welfare, (iii) to bolster the application of CITs to the educational and training system, (iv) to improve the capacity and extension of telecommunications networks, (v) to extend the culture of security between citizens and enterprises, (vi) to increase the advanced use of digital services by citizens, (vii) to extend the use of CIT business solutions at enterprises, (viii) to develop the technological capacities of the CIT industry, (ix) to strengthen the digital contents industry, guaranteeing better protection of intellectual property in the current technological context and within the Spanish and European Legal framework, and (x) to develop ecological CITs. In order to attain the foregoing objectives, the initiatives of the Avanza2 Plan are grouped into five areas of action: Development of the CIT Sector (with special emphasis on SMEs). The objective of this area is to support enterprises (with special attention to SMEs) which develop new CIT products, processes, applications, contents and services, promoting, as basic thematic priorities, Spanish industrial participation in the construction of the Internet of the Future and the development of digital contents. CIT training, which aims to incorporate citizens and enterprise into the IS on a massive basis, placing extra priority on SMEs and their employees. Digital Public Services. The objective of this area is to improve the quality of the services provided by the public authorities on-line, giving special emphasis to support for local entities and the development of the functionalities of the electronic national identity card. This area, which had a provision of funds of 186 million in 2009, will also support the creation of new platforms and contents in the areas of education and health based on the achievements of Avanza, which have placed Spain on the cutting edge worldwide in both fields. Infrastructure. This area aims to reinforce the momentum generated for development and the implementation of the IS in local areas, improving the provision of electronic public services to citizens and enterprises through the use of CIT. The supplementary objectives included in this area of action include most notably the strengthening of the implementation and application of the new legislation on common telecommunications infrastructures (CTI) in buildings and telecommunications channels in the public domain. Trust and security. This area has the twofold objective of (i) strengthening the trust of citizens and enterprises in CIT by way of public policies on information security, and (ii) fostering the accessibility of CIT services.
The Avanza2 Plan establishes various methods of funding in the specific form of a loan. These funding methods are instrumented as cooperation agreements with credit institutions through the ICO, for the purpose of obtaining a grant of preferential loans for the acquisition of equipment and a broadband connection, with a view to encouraging the use of CITs by families and businesses. CIT Loan for Small and Medium-sized Enterprises: The CIT loan is aimed at financing Smalland Medium-sized Enterprises investing in electronic, computer and telecommunication products, including hardware, software, applications, services and contents for: Internet access, including the construction of a company website and portals. The introduction of CIT into corporate processes through advanced management tools such as CRM (customer management systems), ERP (business management systems), supply management systems or document management systems. Electronic trade and electronic invoicing through applications and services which help SMEs to carry out electronic transactions with other agents. The maximum loan will be 100% of the investment, up to a maximum of 200,000 per final beneficiary and calendar year, with a fixed interest rate of 0%, 3-year repayment periods and the possibility of a 3-month grace period. Young People and Graduates Loan: This measure aims to provide financing to young people (between 18 and 35 years of age) and to students registered at Spanish universities for the acquisition of computer equipment with an Internet connection and, optionally, software, antivirus, peripherals and a subscription to a broadband Internet connection. The amount of the loans can be up to 3,000 per final beneficiary and calendar year, with a fixed interest rate of 0% and 5-year repayment periods. Digital Citizen Loan: The objective of this third product is to provide financing to citizens in general for the acquisition of equipment able to be connected to the Internet and, optionally, software, antivirus, peripherals and a subscription to a broadband Internet connection. The amount of the loans can be up to 3,000, with 0% interest, and 3-year repayment periods and the possibility of a 3-month grace period. According to figures furnished by the Ministry itself, following an assessment of the outcome of this line, on the whole, 297,336 loans were granted to citizens and enterprises for an overall amount of more than 1,395 million. Specifically, 97,016 loans were granted to enterprises (CIT Loan) for a total amount exceeding 1,151 million. CENIT (National Strategic Consortiums for Technical Research) Sub-program: The aim of this program is to increase public and private cooperation in R&D and TI by financing large integrated strategic industrial research projects in areas of future technologies and with international exposure.
In order to develop such large projects, a consortium or economic interest grouping needs to be created, composed of at least two large or medium-sized enterprises, two small enterprises and two research bodies (public research bodies, non-profit-making private R+D centers and universities). The projects must have a term of 4 years, with an annual budget of more than 5 million, and 50% of the funding must come from the private sector. The type of aid employed will be a subsidy, which may represent, at the most, 50% of the total cost of the project. This Program has research topics in the following strategic areas (i) Biomedicine and Health Sciences, (ii) Food Technologies, (iii) Information and Communication Technologies, (iv) Technologies for Production and Design, (v) Environment, Sustainable Development and Renewable Energies, (vi) New Materials and Nanotechnology, (vii) Sustainable and Aerospace Mobility, and (viii) Security. The Center for Industrial Technological Development (Centro para el Desarrollo Tecnolgico Industrial or CDTI) will be responsible for implementing and executing the CENIT Program. Lastly, the CENIT aims to strengthen integration between universities and enterprises by providing incentives for the hiring of technologists by universities. 3.1.4 Center for Industrial Technological Development (CDTI) The CDTI (public business entity under the auspices of the Ministry of Science and Innovation) promotes the technological innovation and development of enterprises, its main objective being to contribute to the improvement of the technological level of enterprises through the pursuit of the following activities: Technical/economic evaluation and financing of R&D and TI projects developed by enterprises. Management and promotion of Spanish participation in international technological cooperation programs. Promotion of the international transfer of business technology and support services for technological innovation. Support for the creation and consolidation of technologically based enterprises. With a view to adapting to the EU convergence requirements imposed on the aid used to finance R&D + TI projects, the CDTI lines of financing were recently modified as follows: R&D Projects: The R&D Projects line of the CDTI has the purpose of financing applied business projects for the creation and significant improvement of a productive process, product or services, including both industrial research activities and experimental development.
In particular, this line finances multi-year projects with a minimum budget in the range of 240,000. The instruments for financing the projects included in this line consist of partially repayable aid (only a part of the aid granted must be repaid to the CDTI), for up to a maximum of 75% of the total budget of the approved project. Line of bank pre-financing for CDTI R&D + TI projects: The goal of this line is to help enterprises avoid the problem of having to pre-finance the research planned in each stage of the approved project until the CDTI, following the required certification, makes the relevant payment. The idea is to cooperate with financial institutions in order to boost the revitalizing nature of the financing granted by the Center. Under this line, beneficiaries of aid from the CDTI may receive, in advance, up to 75% of the total aid granted to them. This advance payment is to be instrumented through a bank loan granted on preferred conditions, which will not have to be repaid until the beneficiary receives the aid from the CDTI. Advance of aid: With a view to making the financing targeted at corporate R&D and TI more attractive in the current economic situation, the Ministry of Science and Innovation, through the CDTI, started up a new measure consisting of the advance of 25% of the aid granted, with a limit of up to 300,000, to all enterprises, regardless of size, whose projects are approved by CDTI board of directors holding by the end of July 2009. This measure, which will not have retroactive effects, will remain in force for as long as the current difficulties hindering access to the various lines of banking financing continue to exist. BANK-CDTI line for financing technological innovation: Its purpose is to finance, at a reduced rate, the incorporation of innovative physical capital which improves the enterprises competitive nature, provided that the technology incorporated is emerging in the industry. In particular, this line finances, under minimum aid rules, technological innovation projects whose objectives cover some of the following cases: (i) incorporation and active adaptation of emerging technologies in the enterprise, as well as processes for improving technologies and adapting them to new markets and (ii) application of a new or significantly improved production or supply method (including significant changes to techniques, equipment and/or computer programs). Companies incorporated under the Commercial Code and cooperatives will be eligible for the aid, regardless of size.
Investments eligible for financing are all productive investments in new non-current assets used to improve and modernize the technological element of the enterprise, provided that the investment project complies with the following limits: The part relating to lands and buildings used in the innovation activity, if any, cannot exceed 30% of the investment project. The part relating to intangible investments (personnel, materials, external contractors and other indirect costs), if any, cannot exceed 50% of the total investment project, except in projects cataloged as Information Technologies Projects. The payment date of investments eligible for financing cannot be earlier than 6 months after the date on which the transaction is executed with the financial institution. The financing may total up to 75% of the cost of the investment, bearing in mind that the maximum financing per beneficiary and year will be 1,500,000, and the minimum financing per transaction will be 100,000. Technological Fund: The Technological Fund is a special item under the EU FEDER funds dedicated to the promotion of business R&D + TI in Spain, the CDTI having been designated as manager of most of the Fund. In general, although access to this Fund is open to all Spanish enterprises, in its distribution priority was given to those carrying out projects in the former Objective n 1 regions, for which 90% of the total Fund is earmarked, all other regions obtaining the remaining 10%. INVEST IN SPAIN has a line of aid for foreign investors under this Technological Fund. The 2/2010 call for applications is currently open for this aid, which totals 1,600,000. This call includes a group of measures aimed at bolstering R&D + TI by foreign enterprises (which intend to set themselves up or have already done so), such as (i) aid for pilot experiences for setting up enterprises, or (ii) the development of programs for setting up enterprises. The aid foreseen in this call will be used to cover the expenses incurred on carrying out the project, such as personnel expenses, as well as the cost of, inter alia, materials, buildings, lands or patents acquired or obtained by license. A maximum aid intensity of 80% will be granted to applied research and 60% to experimental development over the total eligible amount, in accordance with the Commission Notice on Community Framework on State Aid for Research and Development and Innovation (2006/C 323/01). The aid ceiling per beneficiary is 200,000 Euros over a period of three fiscal years (Regulation EC regarding the application of Minimis Rule). The eligibility period will run from 1 April 2011 until 31 March 2012, being the 28 April 2011 the deadline for submitting applications.
In particular, the part of the Technological Fund managed by the CDTI is directed toward supporting projects carried out by corporate groupings. For its enforcement, the CDTI designed three new project forms: Integrated projects (usually with a term of between 2 and 3 years). These are major experimental projects whose objective is the development of new technologies. The status of beneficiary requires the formation of an Economic Interest Grouping (EIG) or consortium of at least three independent enterprises, of which one must be regarded as a large enterprise (or, otherwise, two must be medium-sized enterprises) and at least one of which must be an SME. Projects should have a total budget exceeding 5 million. Technological cooperation projects between SMEs (usually with a term of between 2 and 3 years). These are experimental R&D projects aimed at using new technologies to resolve problems common to a specific industry which could represent a significant technological and industrial advance for the regions in which they are carried out. The status of beneficiary requires the formation of an Economic Interest Grouping (EIG) or consortium of at least four independent enterprises, all of which must regarded as SMEs. The minimum amount of this type of project will be 2 million, and no partner may have a total budget of less than 240,000. Projects for cooperation among national enterprises (with a term of between 1 and 3 years). These are experimental R&D projects executed by groupings of enterprises, aimed at developing new technologies, products or processes, and fostering a culture of cooperation among them. The status of beneficiary is attributed to enterprises party to a cooperation agreement, which must be executed by at least two independent enterprises, of which one must be regarded as a SME. This type of cooperation project must have a total budget exceeding 500,000. Invest in Spain also has a line of aid for foreign investors under this Technological Fund. The 2/2010 call for applications is currently open for this aid, which totals 1,600,000. This call includes a group of measures aimed at bolstering R&D + TI by foreign enterprises (which intend to set themselves up or have already done so), such as (i) aid for pilot experiences for setting up enterprises, or (ii) the development of programs for setting up enterprises. The aid foreseen in this call will be used to cover the expenses incurred on carrying out the project, such as personnel expenses, as well as the cost of, inter alia, materials, buildings, lands or patents acquired or obtained by license. NEOTEC Initiative: The NEOTEC initiative has the purpose of opening the way for technological entrepreneurs, from the conception of the business idea through its conversion into a viable idea.
Technology-based enterprises in the small enterprise category which are less than 6 years old are eligible for the NEOTEC aid. In particular, there are two aid instruments differentiated according to the current phase in the life cycle of the applicant: (i) the first known as business creation and (ii) the second known as "business consolidation". The first phase includes recently created enterprises (less than two years after their formation) which need financing and have to prove the business viability of their innovation. In such cases, the CDTI, following an exhaustive evaluation, will provide seed capital in the form of a loan (known as NEOTEC I aid), at 0 interest and without additional guarantees, of up to 70% of the budget of the approved business plan, with a ceiling of 350,000; of 400,000 in case of technological rupture; and of 600,000 in the area of biotechnology. The loan is to be repaid in annual installments of up to 20% of the cash-flow of the enterprise, where this is positive. In order to apply for aid under the second phase, the enterprise must be more than 2 years old, and must submit a 5-year business plan with a minimum budget of 240,000 and including, as eligible costs, investments in fixed assets, expenses incurred on personnel, materials, outsourcing or, as the case may be, expenses incurred on going public. NEOTEC II aid will take the form of a loan, also at 0 interest and without additional guarantees, of up to 70% of the approved budget, with a ceiling of 1,000,000. In any case, the total aid received from both NEOTEC I and NEOTEC II cannot exceed 1,000,000 and, accordingly, if an enterprise has already obtained NEOTEC I aid, the NEOTEC II aid may be reduced so as not to exceed this ceiling. Precisely in an attempt to make available to technological enterprises the possibility of financing through venture capital instruments the NEOTEC Venture Capital Program was designed as a joint initiative of the CDTI and the European Investment Fund (EIF), aimed at making the national venture capital market more dynamic, either by contributing capital to funds being incorporated or by executing joint investment agreements with funds already operating. In order to guarantee maximum flexibility and optimum access, the NEOTEC Venture Capital Program is structured as two actions which are to function through the following vehicles: The NEOTEC Capital Riesgo venture capital company, which is to act as a fund of funds, investing in venture capital investment vehicles managed by qualified teams based in Spain. The Coinversin NEOTEC venture capital company, which is to invest jointly with pre-selected venture capital investment vehicles (acting as a Joint Investment Fund) in Spanish technological SMEs. The CDTI also has a number of international lines of financing, inter alia: (i) Iberoeka (an instrument supporting business technological cooperation in Latin America), (ii) ISI (Bilateral Program with India) and (iii) Canadeka, KSI (Bilateral Program with Korea).
The CDTI also provides Information and tailored advice to enterprises and entrepreneurs on the financing instruments that best cater to their needs and R&D&i projects. Interested enterprises can access this service by completing an electronic form and attaching documentation on the project for evaluation by the CDTI (for more information consult: www.cdti.es/pidi). Lastly, please note that the CDTI also engages in general promotion and in the coordination, evaluation and monitoring of technological innovation proposals and projects submitted by Spanish enterprises to the EUREKA Program, an initiative that supports cooperative R&D and TI in Europe and aims to increase the competitiveness of European enterprises by encouraging technological projects geared towards the development of products, processes or services with clear commercial interest on the international market and based on innovative technologies The most notable programs in which Spain actively participates are the Umbrella Projects (including EUREKATOURISM; EUREKABUILD 2; EULASNETII; PRO-FACTORY; EUROAGRI FOODCHAIN; LOGCHAIN + and ENIWEP) and the Clusters Projects (CELTIC; EURIPIDES; ITEA2, CATRENE and EUROGIA).
3.2 Renewable Energies

The new Renewable Energies Action Plan (Plan de Accin de Energas Renovables or PANER) for 2011-2020 designs and incorporates the new general scenarios and objectives projected by the most recent Community legislation on fostering the use of renewable energy sources, in particular, identified as the need not only (i) to have 20% of the final gross energy consumption of the European Union be energy from renewable sources, but also (ii) to have 10% of the energy consumed by the transportation industry in each EU-Member State be energy from renewable sources by 2020. Based on the essential elements set forth in the PANER, the 2011-2020 Plan for Renewable Energies in Spain (Plan de Energas Renovables en Espaa or PER) was prepared with a view to defining the strategy to follow in coming years so as to be able to continue favoring the growth and development of renewable energies in Spain. Thus, in general, as was the case in previous Plans, the main purpose of this Plan is to bolster the priority aims of the Governments energy policy, which are to guarantee and secure the supply of electricity and to respect the environment, while undertaking to fulfill Spains commitments at Community and international level According to the available projections, one of the main measures included in the 2011-2020 PER will continue to be the grant of incentives to investments in technological innovation made by enterprises in the field of renewable energies, as well as the creation of specific lines of public aid. In line with this support of business investments in renewable energies, the Council of Ministers approved the Action Plan 2008-2010 on the Energy Saving and Efficiency Strategy in Spain (PAE 4+) through which it plans to strengthen Spains position on the cutting edge of energy savings and efficiency.
In this respect, the Institute for Energy Diversification and Saving (IDAE) has set up certain specific aid programs for the renewable energy industry, in compliance with its objectives to foster the use of renewable energies and improve energy efficiency including, most notably, the following: Line of Project Financing and Lease of Services fundamentally aimed at investment projects in energy savings, efficiency and renewable energies, which have a preliminary analysis of technical/economic viability. Under this line the IDAE not only provides advisory and coordination services in all phases of execution and operation of the projects, but also finances them, thus offering the developer an integral solution which enables it to access financing for all of the projects investment costs and to take advantage of the IDAEs technical advice and experience in the development of this type of project. For this reason the IDAEs participation in a specific project under this line requires the execution of two different agreements: (i) a framework agreement for cooperation and services and (ii) a project financing agreement. A variable compensation system is foreseen for this line, according to which the compensation of the IDAE will be determined having regard to the energy yield of the installation, thus enabling the developer to modulate the financial costs of the project. IDAE aid programs for strategic projects: an IDAE line supporting the financing of energy saving and efficiency projects, which aims to supplement and reinforce the efforts being made by the various public authorities to encourage companies to carry out multi-year investment projects in energy saving and efficiency technologies. In particular, this line aims to cover a certain type of project which does not have sufficient support from existing mechanisms, with a vision of ongoing (multi-year), open (direct and indirect beneficiaries) and diverse (industrial, tertiary and service sectors) support. The 2010 call for applications was approved with funds of 120,000,000 as a consequence of a mandate included in the National Plan for Activating the Energy Savings and Efficiency Strategy that set forth the need to duplicate the budget of the Strategic Project Aid Program for the previous call. Three types of project are eligible for funding under this Program: Strategic Projects, i.e., actions aimed at significantly reducing specific energy consumption in the processes or installations of the applicants, by virtue of which the energy-based competitiveness of these enterprises is improved and, on the other, the environmental impact of such enterprises is, in general, reduced. Joint industry-wide projects, defined as those developed for companies in the same industry with the same technological and energy-related objectives, whose application as a group serves to guarantee these new technologies a higher level of implementation.
Both in the case of strategic projects and in that of joint industry-wide projects, the applicants investments must be made in at least three Autonomous Communities. Unique Innovative Projects, i.e., energy optimization projects carried out in the industrial sector which, due to the resulting volume of energy savings and to their degree of eco-innovation, have an exemplary impact on the sector. The following are eligible for this aid: (a) enterprises in the industrial sector (the manufacturing industry, except for oil refineries and electricity generation, transfer and distribution companies), (b) enterprises in the tertiary sector (trade, retail, hospitality, health, banking or transportation, inter alia) with installations or activity centers in at least three Autonomous Communities in which the investments are made, (c) energy services companies, and (d) companies financing the purchase of investment goods or vehicles. According to the information furnished by the IDAE, a new call for applications for aid under this Program is to be approved at the beginning of 2011. Third-party financing: with this type of financing, materialized in various types of contractual formulas, the IDAE participates in the definition of energy projects and finances investments in such projects in whole or in part. It is therefore not an IDAE loan to the industrial entrepreneur, since the equipment is owned by the IDAE until it recovers the investment. The investment, including the profit, is recovered through the energy saved or the energy generated. After the IDAE has recovered the investment, the facility becomes the property of the customer and, as from that time, the end user benefits from the total energy savings or from the energy generated by the facilities. MOVELE Project: under the 2008-2012 Action Plan of the 2008-2011 Energy Saving and Efficiency Strategy in Spain, the IDAE approved the start-up of a pilot project to demonstrate electrical mobility in the urban environment, known and the MOVELE Project, with a view to implementing at least 2,000 electric vehicles and at least 500 rechargers in various Spanish cities during the 2009-2010 period. The MOVELE project is the first step in the introduction and implementation of the electric vehicle in Spain, whose medium-term objectives are set forth in the 2010-2014 Spanish Strategy to Foster the Electric Vehicle and its 2010-2012 Action Plan made public on April 6, 2010. These objectives include placing 70,000 plug-in vehicles in circulation by 2012 and 250,000 vehicles by 2014. For the MOVELE project, the Secretariat of State for Energy issued a Decision on December 20, 2010 containing the second call for applications under the IDAE Aid Program for the acquisition and use of electric vehicles, under the Electric Mobility Pilot Project (MOVELE), as part of the 20082011 Plan to Activate Energy Savings and Efficiency and in line with the 2012-2014 Strategy to Foster the Electric Vehicle, the objective of which is to provide incentives for the acquisition and use of vehicles with traction technologies which make it possible for the main source of energy to be
the general electricity grid and which favor energy savings and the improvement of energy efficiency in the transportation industry. Eligible for aid are new vehicles in the following categories: motorcycles, heavy four-wheelers, cars of less than 6,500 kg of MAM (maximum authorized mass) and microbuses which can also be characterized technologically as electric vehicles, plug-in hybrid vehicles and Range Extender Electric Vehicles (REEV). In any case, eligible vehicles for support under this Program must appear in a catalog of vehicles (MOVELE Catalog) which, for such purpose, is to be keep up to date and published on the IDAE website. The types of actions eligible for the incentives are: Direct acquisition of eligible vehicles by the end user of the vehicles. Licensing of the vehicle by the enterprise that owns the vehicle for at least 36 months or until such vehicle has been driven a minimum distance of 60,000 km. In any case, the incentive granted must be used to reduce the rent payments made by the vehicles end user. Demonstrations given by vehicle manufacturers, distributors and importers in the process of leasing the vehicles they own, directly and without the intermediation of other agents, to the vehicles end users. Funding for this Program comes from the specific budget authorized by the IDAE, amounting to 5,000,000, which could be increased if funds become available as a result of the cancellation of other commitments or eventual surpluses. Biomcasa Program: This Program aims to bolster the configuration of an energy supply based on the use of biomass, a supply in line with the needs of potential users of hot water and air conditioning in buildings, founded on a secure fuel supply and on the realization of facilities with advanced operating features. With a view to financing projects submitted by public or private enterprises active in this industry, duly approved according to their capacity and technical-economic solvency, the IDAE has made available a specific budget of 5,000,000. Because the funds budgeted for this program have not yet been used up, the program continues to be in force and the IDAE is still accepting applications. GEOTCASA Program: This program is aimed at establishing a system of financing which serves to boost quality supplies in line with the needs of users of hot water and air conditioning/heating for buildings, through the use of geothermal energy. The IDAE has specifically budgeted 3,000,000 for the financing of projects submitted by qualified companies meeting the Programs requirements.
Because the funds budgeted for this program have not yet been used up, the program continues to be in force and the IDAE is still accepting applications. SOLCASA Program: Like the Geotcasa Program, this Program is aimed at establishing a financing system to boost quality supply in line with the needs of users of hot water and air conditioning/heating for buildings, but in this case through the use of solar thermal energy. The IDAE has specifically budgeted 3,000,000 for the financing of projects submitted by qualified companies meeting the requirements of the Program. Because the funds budgeted for this program have not yet been used up, the program continues to be in force and the IDAE is still accepting applications. Other financial participation of the IDAE in energy projects: normally this entails the IDAEs participation in various corporate forms or forms of association (joint ventures, economic interest groupings, for-profit entities, silent participation agreements and technological development agreements). Furthermore, in order for the objectives of the Plan for the Development of Renewable Energies to be fully achieved, certain R&D and TI actions will also have to be taken, which has led to the involvement of the energy industry in the various R&D and TI programs currently being implemented at EU and national level. Particularly to be noted is that, in the area of action known as Strategic Action, the National Plan for R&D and TI (2008-2011) includes an initiative focused on Energy and the Climatic Change. The general objectives of this strategic action are (i) bolstering innovation in the private sector, (ii) grouping and coordinating the various programs into a common strategy, (iii) improving the transfer of knowledge and scientific excellence, and (iv) improving coordination with European programs and with Autonomous Community programs. Having regard to the foregoing, it is important to note that, for 2011, the ICO has opened a new Line of Loans for 2011 aimed at financing the performance in Spain of projects in the energy, infrastructures and environment industries. These projects must have a minimum budget of 15 million, of which at least 10 million will be financed. The financing of these loans will be set up on the long-term and on market conditions.
3.3 Tourism industry

Against the backdrop of monetary union and economic and social convergence, and in a competitive environment characterized by the globalization of supply and demand and the internationalization of tourism companies, the Spanish tourism industry has to base its position of leadership on quality. In this context in 2008 the new Spanish Tourism Plan Horizon 2020 came into force and began to be applied under the Spanish Tourism Plan 2008-2012.
The objectives of the Spanish Tourism Plan Horizon 2020 are, inter alia, (i) to increase the social and economic benefits of tourism, (ii) to achieve a social/territorial rebalance boosting the tourist business at new destinations, and (iii) to improve the quality of the national and cultural environment by reducing the potential negative impact of the tourist business. Although until 2010 the lines of financing/mediation offered by the Official Credit Institute (Instituto de Crdito Oficial or ICO) were differentiated by industry (in the case of the tourism industry, the ICO-FUTURE 2010 and the ICO Tourism Public Tranche lines), in 2011 the ICO changed its way of looking at financing, redefining its mediation lines, which are no longer classed according to the eligible object but rather are now classed according to the nature and characteristics of the aid applicant (SMEs, enterprises, independent professionals, individuals and public entities). In other words, the new design of the ICO lines of financing promotes greater transversality in the application and grant of aid. In any case, more detailed information on these lines can be obtained on the following website: www.icodirecto.es.
3.4 Audiovisual industry

Cinema Law 55/2007 replaced the Law dated July 9, 2001, regulating the fostering and promotion of film-making and the audiovisual industry. The objectives of this new Cinema Law are, inter alia, to bolster the promotion and fostering of the production, distribution and showing of films and audiovisual works, to establish terms favoring their creation and dissemination and to adopt measures for the preservation of film-making and audiovisual heritage. Apart from the tax incentives applicable to the film-making industry, the following are some of the main incentives included in the aforesaid Cinema Law which were materialized in 2010 in Order CUL/2834/20009, setting forth the rules for the application of Cinema Royal Decree 2062/2008 (regulatory implementation of Law 55/2007), in connection with the acknowledgement of film costs and producers investments, the establishment of the terms of reference for the state aid and structure of the Administrative Register of Cinematographic and Audiovisual Enterprises. This Order was later amended by Order CUL/1767/2010. Aid for scriptwriting and project development The subject-matter of this aid is the preparation of full-length motion picture scripts in any of the official languages of Spain. The aid is to be granted to projects for original scripts of high quality, with proven cinematographic viability. Regard will also be had to the recognized experience of the scriptwriters submitting their scripts. Aid for the development of cinematographic full-length motion picture projects will have a maximum amount of 150,000, provided that this amount does not exceed 50% of the projects budget or the producers investment.
The catalog of eligible investments includes, inter alia, projects such as script improvement, the search for locations, the identification of casting, economic resources management, initial sale plans, counseling with third parties in connection with the projects technological aspects, acquisition of rights or research in archives, where necessary. As emphasized in the terms of reference, aid for scriptwriting cannot be applied for by those who received aid in the immediately preceding two calls for aid applications. Aid for cultural and non-regulated training projects This aid will be available to those submitting projects of the following types: Projects belonging to the theoretical field or the field of editing, inter alia, which are capable of enriching the Spanish audiovisual panorama from a cultural standpoint. Projects supporting specific non-regulated training programs: for professionals (including creative and technical personnel) or for the general public. The ceiling on this aid will be 50,000, provided that such amount does not exceed 50% of the projects budget. Aid for production This aid is offered to independent producers and private individuals who have held the rights to the works for at least three years, provided that the film has not been marketed on graphic video support more than three months prior to its commercial opening. The maximum budget permitted for this aid was set at 1 million, provided that such amount does not exceed 50% of the projects budget. This aid for production may, nonetheless, be broken down into two specific categories: a) Aid for the production of television film and documentary projects This subcategory is aimed at boosting the production of television film and documentary projects which are longer than 60 minutes and shorter than 200 minutes, and which are not to be shown in movie theaters. In particular, in the case of television films and documentaries, the following, inter alia, will be required: The initiative for the projects must come from independent producers and there must be a contract or statement of interest in the project from a radio or television service provider. The projects budget must be equal to or greater than 700,000. The amount of each grant will be calculated by applying the appropriate percentage, according to different tranches, to the amount of the budget, with a stipulated annual loan of
300,000, provided that such amount does not exceed the independent producers investment or 50% of the budget. b) Aid for the production of animation series The requirements for obtaining this aid are very similar to those explained in the analysis of the preceding case, with an annual loan equal to not more than 500,000 for budgets exceeding 2,500,000, and not more than 300,000 for lower budgets. In both cases, said amounts cannot exceed the investment of the independent producer or 60% of the budget. Aid for the amortization of full-length motion pictures Producers of full-length motion pictures will be able to receive aid for the amortization of the production cost of the films. This aid can take the form of general aid or supplementary aid. The ceiling on general aid for amortization will be 400,000, and the supplementary aid cannot exceed 1,200,000, at al times within the budget available for each year and provided that it does not exceed 50% of the films cost or 75% of the producers investment. Given the specific characteristics of this type of aid, the final percentage applicable must be in line with the number of spectators viewing the film during the first twelve months following its commercial opening in Spain. Aid for the production of short film projects and completed short films Short films will be fostered by granting independent producers project aid or aid for short films made, both of which are compatible. The ceiling on aid for short films made will be 75% of the producers investment. Aid for the distribution of films The Institute for Film-making and Audiovisual Arts (Instituto de la Cinematografa y de las Artes Audiovisuales or ICAA) may grant aid to independent distributors who meet the general eligibility requirements for this aid, for the preparation of promotion and distribution plans in Spain for fulllength and short European or Latin American films, with a view to boosting distribution, mainly in the original version, at movie theaters. This ceiling on this type of aid will be 150,000 per beneficiary film or group of short films. Distributors registered in the Film-makers Registry will be eligible for this aid, which has a provision of 3,000,000. Aid for preservation Producers or owners of cinematographic and audiovisual works may apply for this type of aid if they undertake not to export the original medium of the work for at least ten years and to make
such duplicates as are necessary to guarantee the preservation of the work according to the technical specifications indicated annually in the related call for aid applications. The annual loan for preservation will have a ceiling of 75,000, and such amount cannot exceed 50% of the cost of making such duplicates as are necessary to perform the aforesaid preservation function. Aid for the participation of Spanish films in festivals Production companies may obtain aid for the participation of films in festivals and award ceremonies of recognized prestige, provided that the film for which the aid is requested is a Spanish film and has previously been selected or received an invitation from the festival or holder of the award ceremony. According to the terms of reference regard must be had, when determining the festivals and awards mentioned above, to parameters such as significance, prestige and history of the festival or award, possible impact on the enhancement of the films national or international distribution, special relevance to the cultural relations of Spanish film-making abroad or prestige and potential repercussions in national and international media. Aid for the organization of festivals and competitions and for promotion abroad The ICAA may grant aid for the organization and holding in Spain of film festivals or competitions of recognized prestige and to those which place special attention on the programming and dissemination of European and Latin American films, animated films, documentaries and short films. Eligibility for this aid will be determined by status as individual or legal entity whose work as the organizer of festivals or competitions of recognized prestige in Spain has been proven. Special attention will also be given to the programming and dissemination of Spanish, European and Latin American films and audiovisuals. The grant of this aid will be based on an assessment of the history and scope of action of the festival or competition within the world of cinema and citizens, the international character of the programming of the festival or competition, placing special value on the attention given to European or Latin American filmmaking, the financial capabilities of the festival or competition to attend to said programming and the possibilities of the festival or competition having an impact on the film and audiovisual industry. Aid for the production of audiovisual works using new technologies The aid established for this sector includes most notably aid targeted at the production of audiovisual works which use new technologies in the audiovisual and cinematographic field and are distributed using any electronic means of transmission which allows for the broadcast and receipt of both image and sound other than as transmitted for movie theaters, television or domestic videos.
The ceiling on this aid will be 100,000, also bearing in mind that, considered individually, it cannot exceed 50% of the projects budget, the producers investment or 100,000. This aid will be granted on the basis of the assessment of originality and quality of the project or script, the budget of the project and solvency of the financing plan, the rigor, credibility and innovative nature of the plan for distributing the work, as well as the projects capacity to bring the audiovisual work to new audiences. Aid for financing The aid for financing includes most notably the authorization of the ICAA to set up cooperation agreements with banks and other credit institutions with a view to facilitating and extending the financing of production, distribution and projection activities, technical industries and the videomaking sector and for the development of infrastructures or the technological innovation of those sectors. This financing alternative may be broken down into various types of aid: Aid for reducing interest on loans granted for production. Aid for reducing interest on loans granted for distribution as film, video and via Internet. Aid for reducing interest on loans granted for film projection and technical industries. Without affecting the foregoing aid granted by the ICAA, mention should also be made of the lines of financing arising from various cooperation agreements, institutional or financial agreements executed by ICO with various bodies, including most notably the following ICO Film Production Financing Line is provided for under a cooperation agreement for film-making executed between ICO and the ICAA. This line may be used to finance production projects for fulllength motion pictures which have not been granted any aid under the ICAA project. The amount of the financing is 50% of the films budget with a ceiling of 1,200,000, and the maximum accumulated amount, per final beneficiary, is 4,000,000 of the lines funds for each year. The variable interest rate foreseen for the final beneficiary will be 6-month EURIBOR + a margin. There will also be financial aid from the ICAA consisting of a 2.25% reduction of the interest rate on the financial transaction (i) equal to 2.19%% in 5-year loans including a 3 year grace period, or (ii) equal to 1.87% in 5-year loans repayable upon maturity. Although the initial term of this Financing Line has expired, in principle and according to information from ICO, it is expected to be renewed in 2011. The ICO also has a Financing Agreement for audiovisual works with RTVE, FAPAE (Federation of Spanish Audiovisual producers) and PROA (Federated Audiovisual Producers) executed on February 3, 2009 to manage aid to FAPAE member producers.
This agreement is designed to promote the funding, through the granting of loans, of newly produced audiovisual works: full-length motion pictures and cinematographic shorts, TV movies, documentaries and animation series or newly-produced series of a particularly cultural nature, the public broadcast rights of which have been assigned to Sociedad Mercantil Estatal Televisin Espaola, S.A (SMETVE). The maximum amount of the funding provided for under this Agreement is 100% (VAT not included) of the price payable by SMETVE for the acquired rights relating to the eligible audiovisual works. The interest rate foreseen for the final recipient of this aid will be the ICO Reference variable rate + 1%. Regarding the repayment deadlines and grace periods of the loans, the Agreement provides that maturity will fall on the same date as that agreed for SMETVE payment under the agreement for the assignment of rights.
3.5 Cultural industries

According to the information provided by the Ministry of Culture, the 2011 Plan to Foster Cultural Industries is still being prepared and is therefore not expected to be published until the beginning of February. In principle, and also according to the information provided in this connection, the 2011 version of the Plan to Foster Cultural Industries is being implemented in a similar way as the 2010 Plan, although certain additional areas of action are being included and, accordingly, it will be necessary to wait for its publication in order to ascertain its exact and final contents. In any case, and because (as already mentioned) the 2011 Plan reproduces the basic structure of the previous Plan, it is advisable to recall the main parameters of the 2010 Plan. This industry-wide Plan objective is the systematic integration of all cultural industry sectors, incorporating the use of new financial programs to its management. The main objectives of the Plan will include (i) giving specific treatment to cultural industries, with a view to increasing their employment and productivity and improving their ability to compete, (ii) introducing greater reasonableness and a cross section view of the fostering of cultural industries, (iii) supporting the work of cultural creators and entrepreneurs, (iv) encouraging their creativity, (v) generating new domestic markets, (vi) rechanneling the Ministrys system of aid toward new financing instruments, (vii) supporting innovative SMEs, (viii) bolstering the internationalization of cultural industries, (ix) generating momentum for the legal offer of contents via Internet. In accordance with these objectives, the areas of action that constitutes this Plan basic structure are as follows: Encouraging creativity:
Crearte Awards: targeted at public educational centers and arranged to encourage creativity as an element that cuts across all aspects of education. Fostering the start-up of a cultural website designed specifically for children and adolescents, working together on its execution and technical production with the Subdirectorate-General of Publications, Information and Documentation. Supporting cultural creators and entrepreneurs Targeted at newly incorporated micro-enterprises or independent professionals belonging to the cultural industry, the purpose of which is to bear a part of the cost of the required backing. Growth, strengthening and internationalization of cultural enterprises Aid for the investment of capital to promote the modernization, innovation and technological adaptation of cultural industries. This aid is targeted at Spanish enterprises or professionals who engage in the production, distribution and/or marketing of cultural goods in the area of the cultural industry, with a view to promoting their modernization, innovation and technological adaptation. Repayable aid for business projects promoting the consolidation and development of Spanish cultural industries. Targeted at Spanish enterprises or professionals who engage in the production, distribution or marketing of cultural assets in the area of cultural industries, the objective of this aids is the promotion of new projects and strategies, as well as the internationalization of this type of industry (through agreements of an ongoing nature, access to new foreign markets, the incorporation of permanent establishments in foreign countries). The materialization of this aid will be subject, in all cases, to eventual cooperation agreements executed with ICO. Aid to promote and increase the legal offer of contents via Internet. It is also important to note that each year the Ministry of Culture has granted two new types of aid in the Cultural Industries, aimed fundamentally at cultural action and promotion and at investment in capital to promote the modernization, innovation and technological adaptation of cultural industries. Although the 2011 call for application for this type of aid has not yet been published, according to the information provided by the Secretariat-General for the Promotion of Cultural Industries, publication will not be delayed beyond the month of February.
3.6 Other specific industries

3.6.1 Agrofood and other related industries The National Strategic Plan for Rural Development (2007-2013), prepared by the Ministry of Agriculture, Fisheries and Food, was published in April 2007, in line with Council Regulation (EC)
1698/2005 of 20 September. This new plan contains the strategy and the objectives of Spain in matters of Common Agricultural Policy. According to the contents of this plan, the Autonomous Communities have been preparing regional programs which have been completed with specific measures in line with the specific regional situations. The set of themes and priorities foster equal opportunities for men and women. Please also note that agricultural professionals and priority operations will be given preference in the granting of aid for rural development. In the 2007-2013 period, the management of all rural development measures falls to the Autonomous Communities. In 2008 the National Strategy for Sustainable Operation Programs for the Fruit and Vegetable Sector, to apply from July 1, 2008 through December 31, 2011, was published. In connection with the actions eligible for subsidies under the operation programs included in this National Strategy, it is important to note that double financing is to be avoided and, accordingly, such actions will not receive aid from other vehicles under the common agricultural policy or, in particular, rural development aid. The National Strategy includes most notably the following actions: Measures to improve production planning. Measures to maintain or improve quality. Measures to improve marketing. Experimental research and production measures. Training measures. Crisis prevention and management measures. Eenvironmental measures. Other measures. For the purposes of this Guide, it is important to note the Cooperation Agreement executed between the ICO and the Ministry of the Environment and Rural and Marine Areas for the support of the farming, ranching and agrofood industries. This Agreement seeks to support these industries by reducing the interest rate on loans taken out by enterprises in the farming-ranching and food industry, under the following ICO lines of financing: 2010 INVESTMENT, 2010 ENTREPRENEURS, 2010 SUSTAINABLE ECONOMY, and 2010 INTERNATIONAL. In other words, under this Agreement supplementary aid may be obtained for all loan transactions executed under any one of the aforesaid lines, from the date on which they come into force.
Customers must be industries or enterprises belonging to the farming, ranching and food industries, pursuing activities included in any of the following sections of the National Economic Activities Code mentioned in the Agreement. The amount of the reduction will be 0.25% of the nominal interest rate, provided that the resulting interest rate in no case falls below 0%. After the reduction has been approved, it will be made effective by its application, as an early payment, to the loan. 3.6.1.1 Aid for investment in industrial infrastructures With a view to contributing to the improvement and modernization of agricultural structures and operations, a system of incentives has been established which is aimed at financing the implementation of plans to upgrade farms and at supporting initiatives to improve professional agricultural qualifications. In short, the objective is to assist young farmers who are setting up for the first time. In general, aid may take the form of capital subsidies, interest relief, and subsidies covering part of the annual repayments of the principal, or assistance in defraying the cost of guarantees, or a combination thereof. It falls to the Autonomous Communities, depending on the type of farming activity specific to each one, to start up the corresponding calls for applications regulating the aid aimed at improving and modernizing said farming activities, the statutory basis of which is found in EC Council Regulation 1698/205, of 20 September, on rural development aid under the European Agricultural Fund for Rural Development (EAFRD). In general, the recipients of this aid may be either individuals or legal entities meeting the general eligibility requirements determined by the Autonomous Communities. As an example, pursuant to the provisions of some of the Autonomous Community legislation regulating this type of aid (albeit details may differ from one Autonomous Community to another), please note the following requirements: (i) evidence of ownership or joint ownership of a farming operation, (ii) registration in the Farming Registers instrumented for such purpose, (iii) being up to date on the tax obligations imposed on farming income; or, as the case may be, (iv) having farming operations with a specific minimum area (the Autonomous Community of the Canary Islands, for example, stipulates special requirements in this connection). To date, for 2011, only the Autonomous Communities of La Rioja and the Basque Country (for the province of Vizcaya) have published calls for applications for subsidies aimed at improving and modernizing the production structures of farming operations, set forth in Decision 1466/2010 of the Council of Farming, Ranching and Rural Development, in the first case and in Regional Decree 118/2010, in the second.
3.6.1.2 Fostering of activities of rural interest The initiatives to foster the diversification of rural life consist of incentives for investments, employment and other related activities: The incentives to improve marketing on the domestic and international market in agrofood industries is funded by the Ministry of the Environment and Rural and Marine Areas through the Directorate-General of the Agrofood and Food Industry, and subsidizes Technical Assistance Plans in these industries. Recipients of these incentives are associations representing enterprises that process and market agrofood industry products and other analogous associated entities, or nonprofit foundations directly related to those industries, whose scope of action covers the entire national territory and whose corporate purpose includes the representation of the interests of said industries. Eligible actions include the following: (i) performing studies aimed at improving the knowledge of present or potential markets and facilitating the marketing of the products, (ii) helping to provide consumers or industries with suitable information on the production systems of agrofood products, or (iii) boosting the implementation of quality management systems and their certification. These incentives are to be instrumented in the form of subsidies, which may amount to up to 50% of the eligible investment. The Decision dated December 29, 2010 of the Secretariat of State for Rural and Marine Areas, contains the 2011 call for applications relating to the aid for information and promotion programs for agricultural products in third countries provided for under Council Regulation (EC) 2/2008 of 17 December 2007 on information provision and promotion measures for agricultural products on the internal market and in third countries. Recipients may be professional and inter-professional organizations representative of the agrofood industry in Spain, which carry out information and promotion programs in third countries. The employment aid takes the form of direct subsidies of up to 50% of the labor cost of the job created during the first year of activity (subject to the ceilings stipulated by the Autonomous Communities). These subsidies are approved and paid by the relevant Autonomous Community governments. Lastly, other types of aid are envisaged for related activities (business studies, business training and retraining, technical assistance for company management, etc.) up to a maximum of between 50% and 90% of the costs incurred in carrying out the activity (with maximum limits that vary depending on the type of activity subsidized). This aid is paid by the Autonomous Community Governments. The incentives described above are incompatible with any other aid provided by the Central Government, in which the beneficiaries, objectives or investments coincide.
Additionally, the incentives granted to foster economic activity and job creation in rural communities will be subject to the ceilings envisaged for incentives granted for regional investment projects. Lastly, and although they differ in nature, not being targeted directly at enterprises but rather at collective business associations of which enterprises may form part, it is important to note the subsidies granted by the Ministry of the Environment and Rural and Marine Areas to associations representative of the agricultural and food industry, for the pursuit of activities involving cooperation and representation before the National Government and the European Union, as well as for the pursuit of specific activities of special interest to the Spanish agrofood industry. Although the actions subsidized here do not have a direct impact on enterprises considered individually, they can, even indirectly, create notable benefits for enterprises that form part of the aforesaid associations, since at a strategic level they can obtain favorable conditions as a result of the negotiations held between the associations and the various national or Community authorities. 3.6.1.3 Measures for promoting and fostering new technologies With a view to fostering the use of new technologies in the agricultural area, an incentive is provided for the acquisition of new machines and equipment that involve technological innovation. The Ministry of the Environment and Rural and Marine Areas stipulated the specifications regulating the incentives aimed at promoting new technologies in machinery and farming equipment in Royal Decree 456/2010. The following are eligible for these incentives: Farming cooperatives and their groupings or unions, and farming partnerships. Other groupings of agricultural producers, with their own legal personality, coul be determined by the Autonomous Community having regard to their specific nature within their territorial scope. In the case of Groupings for Integrated Treatment in Agriculture and health protection groupings, these incentives can only be used for machinery and farming equipment which is to be used for their specific activities. Other agricultural groupings with their own legal personality and groupings without their own legal personality based on a contractual agreement recognized by the relevant Autonomous Community authority and executed by at least seven owners of farming operations. Exceptionally and in specific cases duly justified by the characteristics of the equipment to be subsidized, the number of owners may be reduced to three. The aid will take the form of a subsidy determined according to the investment made by the applicant and with reference to the following percentages: a) In the case of the groupings indicated under Article 2.1.a), up to 40% of the total investment, being able to total up to 50% where the operations are located in mountainous areas or other areas with difficulties.
b) In the case of the groupings indicated under Article 2.1.b), up to 20% of the total investment, being able to total up to 30% where the operations are located in mountainous areas or other areas with difficulties. 3.6.2 Mining In the area of mining, the Directorate-General for Energy and Mining traditionally grants incentives for prospecting, geological-mining research and non-energy mining activities. These incentives, consisting mainly of subsidies of a variable amount, according to whether or not the regions in which the projects are performed may avail themselves of the exceptions expressly contemplated in article 87.3 of the EC Treaty, are usually earmarked in for geological and mining research and prospecting projects and for environmental projects. On June 28, 2009 Order ITC/1231/2010, regulating the terms of reference for granting this type of aid, was published in the Official State Gazette. According to information furnished by the Ministry of Industry, Tourism and Trade, a new call for aid applications is foreseen for May 2011. The maximum amount of aid for a project subject to this Order can in no case exceed 500,000 or be less than 6,000. Beneficiaries of this aid may be public or private enterprises, business groupings and nonprofit institutions. In this connection, please note that said groupings and institutions must hold the title to the mining domain covered in the project. Additionally, certain aid deriving from the Mining Safety Plan is granted annually with a view to promoting mining safety and eradicating, insofar as possible, the accident rate of the mining activity in Spain. These subsidies are granted to publicly- or privately-owned companies (except for those engaging in coal extraction), groupings of said companies and nonprofit institutions. Aid is also available to finance projects aimed at reducing the industrys production capacity and initiatives aimed at promoting the alternative development of mining areas. The incentives to promote alternative development in mining areas generally consist of nonrefundable subsidies, although the Institute for the Reorganization of Coal Mining and Alternative Development of Mining Regions may propose other alternative aid within the framework of both regional reactivation and mining reorganization, which may consist of: (i) aid for the development of business infrastructures and projects, (ii) aid to the coal mining industry, (iii) aid for resignation encouraged by incentives and closures of production units, (iv) aid for the storage and transportation of coal, (v) aid for discontinuation, abandonment and rehabilitation work, and (vi) aid for early retirement. Table 10 details the application of the various programs managed by the Institute for the Reorganization of Coal Mining and Alternative Development of Mining Regions, according to the Autonomous Communities where it is intended to perform the qualifying action:
Table 10
APPLICATION OF PROGRAMS OF THE INSTITUTE FOR REORGANIZATION OF COAL MINING

Operation and reduction of activity Storage Transport Restructuring of technical costs Restructuring of labor costs Alternative development
Andaluca Aragn Castilla y Len Castilla-la Mancha Catalua Galicia Asturias
Yes Yes Yes Yes Yes No (2) Yes
No (1) Some areas Some areas No (1) Some areas No (2) No (1)
Yes Yes Yes Yes Yes Yes Yes
Yes Yes Yes Yes Yes Yes Yes
(1) Thermal power stations consume coal from their own basin. (2) Does not produce CECA coal.
In respect of the regions able to opt for subsidies granted by the Institute for the Reorganization of Coal Mining and Alternative Development of Mining Regions, Table 11 shows the areas in which municipalities may have access to subsidies:
Table 11
ACCESSIBLE SUBSIDIES, BY MUNICIPALITY

Infrastructures Employment creators Training
1. Mining municipalities very affected by the coal mining restructuring (Group 1). 2. Mining municipalities affected by the coal mining restructuring and bordering those included in Group 1.
3. All other municipalities somehow affected by the coal mining restructuring but not included in either of the foregoing groups.
In connection with Table 11, please note that all groups mentioned are subject to the maximum intensity limits stipulated on the map of regional aid for Spain for the 2007-2013 period. Lastly, in 2006 the Council of Ministers approved the National Strategic Coal Reserve Plan and new Model for Integral and Sustainable Development of Mining Communities 2006-2012, the priorities
of which include environmental protection, promotion of R&D and TI, improved quality of life and the creation of jobs for young people in mining communities. One of the most noteworthy aspects of the Plan is the creation of a new line of aid, with the collaboration of the unions that were signatories to the Plan, which envisages different aid possibilities for financing small-scale projects which, to date, were not eligible for the aid regime in force. Under the aforesaid Plan, Order ITC/3666/2007, establishing the terms regulating aid to the mining industry was published in the Official State Gazette on December 15, 2007. Recently the application of this Order was extended through December 31, 2011 under Order ITC/3298/2010. In this connection, the Decision dated December 29, 2010 of the Institute for the Restructuring of Coal Mining and the Alternative Development of Mining Districts contained the 2011 call for aid applications, the specifications of which are stipulated in Order ITC/3666/2007, regulating incentives for the coal mining industry for 2008, 2009 and 2010, relating to those stipulated under Article 5.3 of Council Regulation (EC) 1407/2002, of 23 July 2002, on State aid to the coal industry, which is applicable pursuant to the aforesaid Order ITC/3298/2010, extending its validity. This aid is to cover, in whole or in part, the losses of current native coal production used in the generation of electricity. Nonetheless, the fixed economic aid is subject to ceilings, according to the specific area for which it is requested. Beneficiaries of this aid may be coal mining companies which were beneficiaries in the preceding year and continue to operate production units, through underground mining or through open pit mining, in which power plant coal is produced, provided that they evidence the meeting of certain requirements to the Institute for the Restructuring of Coal Mining and the Alternative Development of Mining Districts. 3.6.3 Reindustrialization The process of adapting certain traditional industrial sectors to new forms of production, against a backdrop of processes to rationalize and modernize the business segment, has caused severe losses in the productive fabric and a significant elimination of jobs. In an effort to mitigate and, to the greatest extent possible, avoid such noxious effects on the industrial fabric as a whole and, in particular, on the areas most affected by the aforesaid adaptation process, the Ministry of Industry, Tourism and Trade has been launching support initiatives since 1997 with a view to promoting, regenerating or creating the industrial fabric. In this context, Order ITC/3098/2006 stipulated the terms regulating the grant of aid to reindustrialization initiatives during the 2007-2013 period. The purpose of this aid is to provide incentives for initiatives aimed at promoting, regenerating or creating the industrial fabric, and which, in turn, have a positive effect on the socio-economic variables of the geographical area affected in each case.
The reindustrialization initiatives must be located in depressed areas in which there is an industrial fabric significantly composed of sectors subjected to change or adaptation and in which there has been significant loss of production capacity and jobs and which, at the same time, are eligible for regional aid pursuant to letters a) or c) of Article 87.3 of the TCE, according to the regional aid map of Spain, approved by the European Commission for 2009-2013. Areas with low population density are also included. The aid will take the form of subsidies and loans able to be granted on a multi-year basis. Initiatives eligible for financing are divided into the following two topical areas: (i) Infrastructure In this area initiatives falling under either of the following two sub-areas will be eligible for financing: (i) basic infrastructure: investments in technical and industrial infrastructures of common or shared use, such as technological parks, industrial land, access to transportation and telecommunication networks, etc., (ii) services infrastructure: projects which provide the industrial sector with services of technological diagnosis and solutions for SME groups in connection with investment projects aimed at improving productivity. Please note that, in any case, the initiatives included in this area must be related to those considered in the area of industry. (ii)Industry In this area financing will be available for industrial initiatives which create jobs and which act as a catalyst for the development of the business production sector. In the case of aid relating to Infrastructure, subsidies may equal a maximum of 50% of the initiatives eligible budget. In turn, repayable loans without interest may be granted up to a maximum amount of 75% of the initiatives eligible budget. They will have an annual interest rate of 0% and a maximum term of 15 years, of which 10 will be for repayment and 5 will be a grace period. In connection with aid relating to Industry, subject to the aid intensity limits on the regional aid map, repayable loans may be granted up to a maximum amount of 50% of the initiatives eligible budget. They will have an annual interest rate of 0% and a maximum term of 15 years. In any case, the beneficiary must support the financing of at least 25% of the eligible investment. The Resolution dated November 16, 2010 of the Secretariat-General of Industry issued the general call for grant applications for reindustrialization initiatives for 2011. The deadline for submitting applications corresponding to this call has passed. In this sense, according to previous experience, must be mentioned that these calls use to be published during last months of the previous year in which these aids are submitted for.
4. Incentives for investment in certain regions
4. INCENTIVES FOR INVESTMENT IN CERTAIN REGIONS

4.1 Granted by the State
Regional incentives are financial subsidies granted by the State to productive investment to promote business activity in previously-determined areas, thus helping to alleviate territorial imbalances and to reinforce each regions endogenous potential for development. The State grants such aid in accordance with the demarcation of eligible areas and maximum aid intensities stipulated by the European Commission. The functions relating to regional incentives are attributed to the Directorate-General of Community Funds, under the Secretariat-General of Budgets and Expenses of the Office of the Secretary of State for Finance and Budgets of the Ministry of Economy and Finance. These incentives are aimed at promoting business activity and directing its location toward previously determined areas, and they consist of financial aid for the financing of investment projects to be executed in areas with the lowest level of development, or in those whose special circumstances so recommend. The main objective of this regional policy is to achieve economic equilibrium between the different Spanish regions (measured in terms of per capita GNP). In practice, this policy involves the promotion of start-ups, expansions or modernization of investment projects undertaken by enterprises located in the less developed geographical regions and in areas experiencing particular economic difficulties. The incentives available for grant are, in general, (i) non-returnable subsidies, (ii) subsidies for the interest on loans obtained by the beneficiary from financial institutions, (iii) subsidies for the repayment of those loans, (iv) a combination of the foregoing, (v) reductions in the employers social security contribution for common contingencies, etc. They are granted for investment projects that must be located in one of Spain's eligible areas. The geographic demarcation of the eligible areas and the specific definition of the maximum financing limits, and of the specific industry requirements, eligible investments and conditions, are regulated in the respective Royal Decrees demarcating economic development areas. The aforementioned Royal Decrees were prepared on the basis of the contents of the Guidelines on National Regional Aid for 2007-2013 approved by the European Commission. In turn, within the framework of the Guidelines, the European Commission establishes an aid map for each Member State, stipulating the maximum limit of financial aid or subsidies that can be received by each region under regional incentives during the reference period. In connection with the preparation of the aforesaid map, please note that as a result of (ii) the socalled statistical effect, due to the incorporation of new EU Member States and (ii) Spanish economic development in recent years, some regions which were deemed eligible for subsidies in the
2000-2006 period have either exceeded the income threshold established for qualifying regions, or seen a reduction in the total incentives that can be granted for projects investing in the region. In order to mitigate the adverse effects of this situation, in the Regional Aid Map for Spain (20072013), the European Commission provided for two three-year periods (2007-2010 and 2011-2013), with the first period being allocated higher aid limits than the second for statistical effect regions. Per the Map, the Spanish regions in which greater incentives are envisaged, up to 40% of the net eligible investment, are the Autonomous Communities of Extremadura and the Canary Islands. The initial percentage for Andaluca has been reduced from 40% to 30% of the eligible net investment in the period running from January 1, 2011 through January 31, 2013. The Autonomous Communities of Castilla-La Mancha and Galicia also deserve special mention, since aid of up to 30% of investment is permitted.
Map 1
MAXIMUN REGIONAL INCENTIVES, 2007-2013 (%)
2007-10 2011-13 40 40 30 30 30 30 27 40 30 30 30/20 20 15 15
2007-10 2011-13 25 25 15 10 10 15 10 15 10 (2007-2008)
Excluded areas
Source: European Comission
Having regard to the foregoing, in the context created by the Guidelines on National Regional Aid for 2007-2013 and by the Regulations dated July 6, 2007 implementing the Regional Incentives Law, the Royal Decrees regulating the Economic Development Areas (geographical areas of the State with a lower level of development) were modified during the last half of 2007 with a view to bringing them into line with the new limits set in Community legislation. Also, as foreseen in the legislation, the maximum percentage of aid in relation to the approved investment which can be granted in certain Economic Development Areas was modified as from January 1, 2011 (e.g., Principality of
Asturias, reduced from 30% to 20% through the relevant amendment to the Royal Decree of demarcation). The main characteristics of the aforesaid Royal Decrees of demarcation are set forth below. 4.1.1 Eligible economic sectors These are stipulated in each Royal Decree demarcating the respective geographical area. Traditionally, the main eligible sectors, notwithstanding what is established in the definition under each Royal Decree of demarcation, are as follows: Extractive and processing industries, particularly those which apply advanced technology or use renewable energies. Agrofood and aquaculture industries, and the processing and preservation of fish products. Industrial support services and those which significantly enhance trade networks. Specific tourist facilities with an impact on development in the area. 4.1.2 Types of eligible investments The types of investment eligible for incentives are new or first-time use tangible fixed assets, referring to the following investment items: Civil engineering. Capital equipment, excluding external transportation items. Prior viability studies. Other concepts, exceptionally. The Regulations implementing the Regional Incentives Law in line with the Regional Guidelines (2007-2013) eliminate the possibility of including lands as an eligible fixed asset. 4.1.3 Eligible projects Definition Projects for the creation of new establishments that give rise to the commencement of a business activity and also generate new jobs, which must be maintained for at least two years after the end of the term set in the Individual Resolution granting the aid. Project for the expansion of existing activities with an increase in production capacity or start-up of new activities in the same establishment which entails the creation of new jobs and the maintenance of existing jobs during the same period stipulated in the preceding paragraph. Project for the modernization of the business which meet the following requirements.
The investment must be an important part of the tangible fixed assets of the establishment being modernized and must entail the acquisition of technologically advanced machinery which produces a notable increase in productivity. The investment must give rise to the diversification of an establishments production in order to attend to new and additional product markets or must entail a fundamental transformation of the overall production process of an existing establishment. Existing jobs must be maintained during the aforesaid periods. Requirements The project must relate to an eligible sector and activity and be located in one of the designated areas. It must be technically, economically, and financially viable. Generally, at least 25% of the investment must be equity-financed. However, depending on the features of the project, a higher rate might be required in the Royal Decrees of demarcation. The application for regional incentives must be submitted before the investment in question begins to be made. In particular, the investment cannot be initiated before receiving written confirmation from the relevant body of the appropriate Autonomous Community that the project is at first glance capable of being deemed eligible. Investments in fixed assets must be made in new or first-use fixed assets. 4.1.4 Types of incentive The regional incentives available for grant consist of: a) Non-returnable subsidies for the approved investment. b) Subsidies for the interest on loans obtained by the beneficiary from financial institutions. c) Subsidies for the repayment of those loans. d) Any combination of the foregoing. e) Reductions in the employers social security contribution for common contingencies during a maximum number of years, to be determined by regulation, subject to the provisions of the legislation on incentives for hiring and for fostering employment. In the cases under letters b), c) and d) above, there is also a possibility of regional incentives being converted into a percentage of the subsidy on the approved investment.
4.1.5 Project assessment Projects must be evaluated using the methods stipulated in each Royal Decree of demarcation, which will thus determine the percentage of subsidy to be granted for each project. Notwithstanding the specific provisions of each Royal Decree, the main parameters to date considered by the relevant bodies are as follows: Total amount of the eligible investment. Number of jobs created. Contribution to the areas economic development and the use of its factors of production. Value added of the project (if a start-up) or increase in productivity in other cases. Use of advanced technology. Location. 4.1.6 Compatibility of different incentives No investment project can receive other financial aid if the amount of the aid granted exceeds the maximum limits on aid stipulated for each approved investment in the Royal Decrees defining the eligible areas. Therefore, the subsidy received is compatible with other aid, provided that the sum of all the aid obtained does not exceed the limit established by the Royal Decree of demarcation and EU rules do not preclude it (incompatibilities between Structural Funds). 4.1.7 Application procedure Documentation Standardized application form addressed to the Ministry of Economy and Finance. Documentary evidence of the applicants personal information or, in the case of an incorporated company, its registration data. If the company is in the process of being incorporated, the draft bylaws and information about any promoter acting in his name. Standardized investment project memorandum, together with documentation evidencing compliance with all environmental requirements. Formal declaration of other aid applied for or obtained by the applicant for the same project. Evidence, as of the date in question, of compliance by the company with its tax and social security obligations or, as the case may be, authorization from the Directorate-General of Community Funds for the obtainment of the certificates to be issued both by the State Tax Agency and by the Social Security General Treasury. In the case of a company being incorporated, the obligation will be deemed to refer to the developer.
Where to submit The competent body of the Autonomous Community was the project is intended to be carried out. Granting agency The Government Delegate Committee for Economic Affairs if the eligible investment exceeds 6,010,121. In all other cases the Ministry of Economy and Finance (in particular, through the Subdirectorate-General of Regional Incentives, under the Directorate-General of Community Funds). Time period for decision The maximum deadline for resolving on applications and serving notice thereof is 6 months from the date on which the application was received at the Registry of the Ministry of Economy and Finance (although this deadline may be extended). If the initial term and, as the case may be, any extended term ends without a resolution have been issued, the grant application may be deemed to have been rejected. Acceptance of the grant of aid Express notice of acceptance of the aid must be served by applicants on the relevant agency of the Autonomous Community , within the first 15 days after the date on which notice of the resolution granting the aid is received. If no notice is served by the end of such period, the grant of aid will be rendered null and void and the dossier will be shelved. Submission of resolutions at the Mercantile Registry If notice of acceptance is served, the beneficiary must file the resolution granting the aid with the Mercantile Registry within one month from the date of acceptance. All resolutions subsequent to the grant of incentives (extensions, amendments, etc.) must also be filed by the same deadline. In general, compliance with this requirement must be evidenced to the relevant Autonomous Community agency within four months after acceptance of the related resolution. If evidence is not submitted by the deadline, the Directorate-General of Community Funds will render the grant of aid null and void, deeming it not to have been filed with the Mercantile Registry. 4.1.8 Project implementation and subsequent modifications Investments may be initiated without having to wait for the final decision to be adopted, provided that applicants can prove that such investments were not initiated before the relevant Autonomous Community agency had confirmed in writing that the project was at first glance capable of being deemed eligible.
There is also a possibility for associated investment and subsidy calendars to be stipulated with the relevant agencies for applications in which the amount of the subsidy exceeds 5 million. In general, subsequent incidents in the project (i.e., alteration of the initial project, change in the locating of the project, etc.) will be resolved by the Directorate-General of Community Funds. Applications for alteration of the projects must be submitted to the relevant Autonomous Community agency and addressed to the Ministry of Economy and Finance. The deadline for resolving on applications and serving notice thereof will be six months following its receipt by the DirectorateGeneral of Community Funds. 4.1.9 Payment procedure Following issue of a report confirming the degree of compliance with the requirements imposed by the relevant agency on the project in question, the beneficiary must file a request for payment of the subsidy at the relevant Autonomous Community agency. 4.1.10 Methods of payment Payment of the subsidy may be made in any of the following ways: Final payment: after the end of the term, the beneficiary may only request total payment of the subsidy granted or to which he is entitled if there have been cases of breach. Payment in full: during the term, the beneficiary may only request a single payment of the total subsidy after the entire investment has been made and subject to the submission of the related bank guarantee. This payment may only be requested subsequent to the dates of compliance and verification of each and every one of the conditions imposed on the holder and prior to the end of the term. Payment in part: during within the term, the beneficiary may request partial payments of the subsidy as he justifies the partial making of the investment, provided that this is authorized in the individual decision in which the subsidy is granted.
4.2 Aid granted by Autonomous Community and Municipal governments and Local Councils
All the Spanish Autonomous Community governments provide similar incentives, on a smaller scale, for investments made in their regions. Only some of them are compatible with the EU and State regional incentives. Specifically, if State regional incentives have been applied for a given project, the limits established in each Royal Decree of demarcation must be taken into account. Additionally, some Autonomous Community governments grant investment incentives in areas not covered by state legislation but which are included in EU regional financial aid maps. Most Autonomous Community incentives are granted on an annual basis, and the general conditions of the incentives usually do not change from year to year.
In view of the impossibility of including here a detailed description of the aid available in each Autonomous Community, we summarize below their main and traditional features (which are generally very similar to those of the regional State incentives), notwithstanding the necessary adaptation to the new framework created following the approval of the Regional Aid Map for Spain (2007-2013). 4.2.1 Types of project Opening of new establishments, expansion of activities, modernization and technological innovation. The creation of new jobs is normally required. 4.2.2 Main sectors In general, agriculture and forestry, craftwork, fishing, industrial support services, processing industries, tourism, culture, industrial design, electronics and computing, renewable and environmental energies. 4.2.3 Project requirements Mainly the same as those which apply at the State level. 4.2.4 Types of incentive The main incentives are: Nonrefundable subsidies. Special loan and credit terms and conditions. Technical counseling and training courses. Tax incentives. Guarantees. Social security deductions. 4.2.5 Expenses and eligible investments Generally, the main expenses and eligible investments are: R&D and TI and training expenses, promotion of apprenticeship and trainee contracts. Capital equipment and other fixed assets. Planning, modernization, management enhancement, and design projects. Instrumentation, material, installations and equipment expenses. Advice and similar services. Acquisition of the real estate necessary to implement the projects.
4.2.6 Procedure The documentation required is very similar to that described for regional State incentives and normally has to be filed with the relevant Autonomous Community agency. Most Autonomous Communities have agencies that provide information and advice on requesting aid. Many of them also provide access to websites with updated databases of the subsidies available. 4.2.7 Cooperation agreements with the Spanish Central Government In addition to the aid offered by each Autonomous Community Government, in recent years there has been an increase in cooperation agreements between the Autonomous Community Government and the Central Government. The main objective of these programs is the joint implementation of projects in the following areas: Technological modernization and the promotion of innovation. Aid for independent trade and development of business cooperation. Development of SMEs in general. Singular actions: agreements with local councils.
4.3 Special reference to investments in the Canary Islands

The Canary Islands Autonomous Community has traditionally enjoyed a regime of commercial freedom involving less indirect tax pressure and exclusion from the sphere of certain State monopolies. These conditions have given rise to an economic and tax system which is different from that which exists in the rest of Spain. An attempt has been made to reconcile as far as possible these special circumstances with the requirements of Spanish membership of the European Union. In this regard, the Central Government has been very flexible in its application of the regulations in granting regional incentives and locating investments in the Canary Islands, and imposes only those limitations stipulated in EU legislation. Investments in the peripheral islands are given preferential treatment by means of requiring a minimum level of investment lower than that established for the rest of Spain. These efforts led the European Commission to authorize the creation of the Canary Islands Special Zone (Zona Especial Canaria or ZEC) in January 2000, which is aimed at attracting international capital and companies to the Canary Islands. Use of the benefits of the ZEC is currently in force through December 31, 2019, and may be extended when authorized by the European Commission (please also see Chapter 3 and www.zec.org). Lastly, incentives aimed at upgrading and modernizing the banana and tomato growing and fishingrelated industries are also available. Furthermore, under an EU initiative it is planned to make subsidies available to facilitate the restructuring of the fishing industry.
5. SME incentives
5. SME INCENTIVES
5.1 InnoEmpresa Program to Support Innovation at Small- and Medium-sized Enterprises (2007-2013)
In recent years the Spanish Government and the Autonomous Community Governments have shown special interest in promoting and developing SMEs, in view of their proven ability to create jobs and make a determined contribution to the growth of the economy. In this connection, the Directorate-General for SME Policy of the Office of the Secretary General of the Ministry for Industry, Tourism and Trade, promotes the granting of certain incentives and aid schemes designed especially for SMEs, which are grouped together under the Plan for the Consolidation and Competitiveness of the Small and Medium-Sized Enterprise for 2000-2006. As a replacement for the Plan, the Council of Ministers approved Royal Decree 1579/2006, establishing the rules on aid and the management system for the Program supporting innovation at Small- and Medium-sized Enterprises during the 2007-2013 period, known as InnoEmpresa, which continues in the same vein. This Program ensures compliance with the commitment assumed under the Business Promotion Plan approved by the Spanish Government on January 27, 2006. This Program which takes advantage of the experience acquired under the Plan 2000-2006, aims to incorporate significant improvements, the most noteworthy of which include the prioritization of aid lines directly related to improving the innovative capacity of businesses (in a broad sense, not purely technological innovation), the opening of all envisaged aid lines at the direct request of the SMEs, an increase in the maximum aid for investment in tangible or intangible assets, a specific focus on projects to be implemented by different companies and agencies under a collaboration or consortium arrangement, etc. With a budget of 500 million for the 2007-2013 period, the InnoEmpresa Program also receives cofunding from the ERDF of approximately 105 million, and further financing from the Autonomous Community Governments that so desire, within the framework of the SME Sectoral Conference. SMEs belonging to the following sectors: (i) industry, including agrofood, (ii) construction, (iii) tourism, (iv) business;,and (iv) services, are eligible for the aid granted under the InnoEmpresa Program. Also eligible for the aid are intermediary bodies pursuing activities which support SMEs in the foregoing sectors. The aid lines envisaged in the InnoEmpresa Program are classed in three groups: Organizational Innovation and Advanced Management. Technology and Quality Innovation. Innovation projects under collaboration arrangements.
Potential beneficiaries include: Small- and Medium-sized Enterprises that have one or more employees, with special emphasis on entities with growth potential and the capacity to create innovation. Intermediary bodies (i.e., public and private not-for-profit organizations which habitually provide services to support innovation at SMEs and which have sufficient human and material resources). If the beneficiaries are intermediary bodies, the following may be treated as eligible expenses: a) Tangible or intangible investments, excluding the acquisition and fitting out of real estate, investment expenses, means of transportation and office equipment (other than computerrelated items). Subsidies for the investment cannot, in this case, exceed 55,000 except in the case of Supraregional projects. b) Expenses of technical personnel directly related to the project. c) External services such as technical assistance, external advisory services, tutoring and projectrelated services. d) Inter-city travel and accommodations necessary for the performance of the project, for which acceptable maximum amounts must be set. e) VAT or equivalent tax borne by the beneficiary where it entails an actual cost. f) General expenses, which cannot exceed 10% of the eligible budget. If beneficiaries are SMEs, the expenses listed under paragraphs a) and c) above may be financed, as well as those listed under paragraph b) in the case of the projects indicated in section 2.2. of the Annex to Royal Decree 1579/2006: performance of applied technical development projects. Nonetheless, the maximum amount relating to the first section cannot exceed 18,000. Ineligible in this case are services provides to SMEs which constitute an ongoing or periodic activity and are related to the companys normal operating expenses. The maximum limits on the subsidy must be adjusted to the regional limits stipulated by the European Commission on the basis of the regional aid map approved for Spain and, in summary, set forth on the following table.
Table 12
THE MAXIMUN LIMITS ON THE SUBSIDY

Type of initiative or project Maximum aid intensity (gross) Art. 87.3 a) of the Treaty establishing the EC Art. 87.3 c) of the Treaty establishing the EC
Non-assisted regions
Investment in tangible and intangible assets, with the exceptions stipulated in Article 5.1.a) 1: Small Enterprises Medium-sized Enterprises Soft aid (study and counseling) 15.00% 7.50% Up to 50%
Maximum regional aid + 15 percentage points.
Maximum regional aid + 10 percentage points.
Up to 50%
Up to 50%
With respect to the management system, please note that it is the Autonomous Community Governments, working closely in conjunction with Central Government, which manage regional projects, while supraregional projects are managed directly by the Directorate-General for SME Policy of the Ministry for Industry, Tourism and Trade. Under this Program, Order ITC/540/2010 was published in the Official State Gazette on March 9, 2010 and contained the 2010 call for aid applications under the national program for innovation projects, of the instrumental line of action of R&D+TI projects, under the 2008-2011 National R&D + TI Plan, which contains the subprogram to support innovation in Small- and Medium-sized Enterprises (InnoEmpresa) for supraregional projects. Although the deadline for submitting applications has passed, a new call for aid applications is expected to be published for 2011. Throughout 2010 the Autonomous Communities published various calls for aid applications for SMEs under the InnoEmpresa Program (i.e., Principality of Asturias, Official Gazette of the Principality of Asturias dated February 19, 2010; Extremadura, Official Gazette of Extremadura dated January 7, 2010; etc.), which are expected to be reproduced in 2011 (i.e., Cantabria, Official Gazette of Cantabria dated December 21, 2010; Aragn, Official Gazette of Aragn dated November 15, 2010, etc.).
5.2 SME incentives granted by Autonomous Community Governments

Throughout 2010 the Autonomous Communities issued the terms regulating subsidies within their geographical area and held the related calls for grant applications for SME incentives. They are also responsible for controlling and monitoring the projects approved, without prejudice to the control to be exercised by the European Union and the relevant bodies of the Central Government with respect to the projects financed with EU funds.
5.3 Preferred financing for SMEs

In addition to the program outlined above, SMEs have access to another series of aid instruments developed by the public sector. Noteworthy in this connection are the main lines of financing offered by the Official Credit Institute (Instituto de Crdito Oficial or ICO) detailed below (www.ico.es) and the FONPYME (Fund for SME foreign investment operations) (www.codifes.es/2fonpyme.html ) managed by COFIDES (Compaa Espaola de Financiacin del Desarrollo), the official Spanish agency for development finance, which is explained in detail in section VI, Internationalization incentives. In particular, on December 20, 2010 ICO and financial entities renewed the cooperation agreement executed to finance the projects and liquidity needs of independent professionals and enterprises in 2011, thus upholding the cooperation agreement for the start-up of the 2010 Support Plan executed on December 21, 2009. The objectives of these new cooperation agreements are the fostering of sustainable investments and the backing of Spanish enterprises undertaking projects abroad in 2011. With the execution of this agreement, ICO started up the five main lines of financing for 2011: (i) Sustainable Investment, (ii) Internationalization, (iii) Investment, (iv) Liquidity and (v) Housing. The main new features of the lines of financing are: The possibility of financing VAT. The repayment deadline for loans used for investment is increased to 20 years. Second-hand assets are maintained as assets eligible for financing. The definition of customer under the different lines of financing is extended. The financing of vehicles is increased up to 30,000 plus VAT. The financing of the acquisition of enterprises is maintained. Under the agreement executed on December 21, 2009, the Sustainable Economy Fund was started up, initially provided with funds of 20,000 for the 2010-2011 period. The following are the most notable characteristics of the 2011 ICO Lines: The Lnea ICO-Inversin Sostenible 2011 (2011 ICO Sustainable Investment Line) targeted at independent professionals, enterprises and all manner of public entities, in force through December 19, 2011, unless the funds are used up before then. This line of financing aid is used to fund all production-related investments in sustainable investment industries and activities, i.e., investments which include new production processes, new products and/or services and/or new management or business systems which lead to an improvement in the efficient use of resources and/or a reduction in environmental impact.
Investments eligible for financing are: (i) the acquisition and renovation of fixed assets used in production, whether new or second hand, classed under the sustainable economy industries, (ii) the acquisition of enterprises, (iii) value added tax or the Canary Islands general indirect tax, and (iv) investments in second-hand assets entailing improvements in the efficient use of resources or reducing environmental impact. Financing of up to 100% of the investment project may be obtained, provided that the investment to be financed was made prior to the execution of the loan or leasing agreement and was not commenced prior to January 1, 2010. In any case, liability restructuring or refinancing, any other taxes connected with the investment and current liabilities are not financed. Maximum financing is up to 10 million per customer per year, of which the first 2 million will be eligible for relief. Entrepreneurs may choose their repayment period from the following options: a range of 3 years without a grace period for the repayment of the principal. 5 years with no grace period or a 1-year grace period for the repayment of the principal. 7 years with no grace period or a 2-year grace period for the repayment of the principal. 10 years with no grace period or a 2-year grace period for the repayment of the principal. 12 years, with no grace period or a 2-year grace period for the repayment of the principal. 15 years, with no grace period or a 3-year grace period for the repayment of the principal. 20 years, with no grace period or a 3-year grace period for the repayment of the principal. On the other hand, for the financing, the entrepreneur may opt for a fixed interest rate, according to the two-week listing reported by ICO, plus up to 1.15% in tranche I (up to 2 million) or 1.50% in tranche II (from 2 million up to a maximum of 8 million), or a variable interest rate: 6 month EURIBOR plus a margin, according to the two-week listing reported by ICO, plus up to 1.15% in tranche I or 1.50% in tranche II. Financing under this Line can be combined with other ICO products and with aid received from the Autonomous Communities or other institutions. In the latter case, it is important to note that the ceilings on the accumulation of public aid established by the European Union must be observed. The Lnea ICO-Inversin (ICO Investment Line), targeted at independent professionals and public and private entities (enterprises, foundations, NGOs, public authorities, municipal authorities, local agencies, etc.) in force through December 19, 2011. This line of aid is used to finance production-related investments in industries and activities which cannot be regarded as sustainable investments, as defined in the preceding section.
Investments eligible for financing are: (i) new or second-hand fixed assets used in production, (ii) cars (whose price does not exceed 30,000 plus VAT) and industrial vehicles which may be financed in full, (iii) the acquisition of enterprises, and (iv) value added tax or the Canary Islands general indirect tax. Investments made prior to the execution of the loan or leasing agreement may be financed, provided that they were not commenced prior to January 1, 2010. In any case, the project must be executed within not more than 12 months from the execution date of the financing. Financing of up to 100% of the investment project may be obtained, with maximum financing of 10 million per customer per year, in one or more transactions. Entrepreneurs may choose their repayment deadlines and grace periods from the following options: 3 years without a grace period for the repayment of the principal. 5 years, with no grace period or with a 1-year grace period for the repayment of the principal. 7 years, with no grace period or with a 2-year grace period for the repayment of the principal. 10 years, with no grace period or with a 2-year grace period for the repayment of the principal. 12 years, with no grace period or with a 2-year grace period for the repayment of the principal. 15 years, with no grace period or with a 3-year grace period on the repayment of the principal. 20 years, with no grace period or with a 3-year grace period on the repayment of the principal. For the financing, the entrepreneur may opt for a fixed interest rate, according to the two-week listing reported by ICO, plus up to 1.50%, or a variable interest rate: 6 month EURIBOR plus a margin, according to the two-week listing reported by ICO, plus up to 1.50%. Financing under this Line can be combined with aid received from the Autonomous Communities or other institutions, bearing in mind that the ceilings on the accumulation of public aid established by the European Union must be observed. The Lnea ICO-Internacionalizacin (ICO Internationalization Line), the main characteristics of which are explained in Section 6 of this Chapter. The Lnea ICO-Liquidez (ICO Liquidity Line): targeted at independent professionals and solvent and viable public and private entities (enterprises, foundations, NGOs, public authorities, municipal authorities, local agencies, etc.) which are faced with a temporary situation of credit restrictions, despite being up to date on payment to the lending institution, in force through December 19, 2011.
Under this line, liquidity can be obtained to meet current expenses (e.g., salaries, payments to suppliers, purchases of goods), without having to justify the use of the funds. The maximum amount of financing is 10 million, in one or more transactions. Entrepreneurs may choose their repayment deadlines and grace periods from the following options: 1 year with a 1-year grace period for the repayment of the principal. 3 years, with no grace period or with a 1-year grace period for the repayment of the principal. 5 years, with no grace period or with a 1-year grace period for the repayment of the principal. 7 years, with no grace period or with a 2-year grace period fro the repayment of the principal. Which of the various operations are possible vary depending on the form chosen by the credit institution: Form A: the interest rate applicable to financed transactions where the risk is shared between ICO and the credit institution is the average fixed rate of the following two rates: for funds contributed by ICO: fixed or variable rate plus a margin (2.50% or 3%) and for the funds contributed by the credit institution: fixed or variable rate set by the institution plus the margin of the credit institution (2.50% or 3%), this interest rate cannot exceed the rate on the ICO funds by 1.50%. The credit institution will analyze the risk of the transactions and will apply one of the two margins to each transaction having regard to the findings of the risk analysis. The mediation margin applied by ICO will be identical to that applied by the credit institution to its customers. Form B: where all of the financing is contributed by ICO and the full risk is borne by the credit institution, the fixed or variable interest rate (6 month EURIBOR) will be applied plus a margin of up to 2%. Financing under this Line can be combined with aid received from the Autonomous Communities or other institutions, bearing in mind that the ceilings on the accumulation of public aid established by the European Union must be observed. The Lnea ICO-Vivienda (ICO Housing Line): targeted at independent professionals, public and private entities (enterprises, foundations NOGs, public authorities, etc.) with registered office and tax-resident status in Spain which are the owners of real estate investments, as well as corporate vehicles, in force through December 19, 2011, unless the funds are used up before then. Eligible projects under this line are residences located in Spain which have been completed (i.e., which are certified as habitable) prior to December 31, 2011, and are to be rented as a habitual residence, including the related garages and storage rooms, also permitting rental with a purchase option.
The financing granted will be used to pay off all or part of the loan executed between the developer and the credit institution. The maximum amount to be financed is 80% of the developers loan or 80% of the appraisal value of the development to be rented, whichever is lower. The maximum amount of financing is 10 million, in one or more transactions. The projected term is 7 years, to be repaid all at once upon maturity. If the property is transferred or the purchase option exercised during the term of the transaction, the financing must be repaid. On September 10, 2010, the Council of Ministers approved the execution of a cooperation agreement between the Ministry of Industry, Tourism and Trade and the ICO to establish the financial management terms of the 2010 ICO-Domestic Trade line of financing, forming part of the strategy defined by the Government under the 2009-2012 Plan to Improve the Productivity and Competitiveness of Trade, the main characteristics of which are the following: The Lnea ICO-Comercio Interior 2010 (2010 ICO Domestic Trade Line), targeted at local entities, public law entities and/or the public enterprises depending on them, associations of small and medium-sized for-profit enterprises, official chambers of commerce and small and medium-sized enterprises in the trade industry. Projects eligible for financing under this line are: (i) actions aimed at funding open shopping centers and improving infrastructures with an impact on neighborhood businesses in urban shopping areas, (ii) the remodeling of municipal retail markets which does not entail a change in the original activity, the modernization of sales points or the installation of elements necessary for commercial activity, (iii) creating and/or fitting out multi-purpose municipal premises for commercial activity in rural areas, and (iv) fitting out areas for street trade (street markets) and the provision of services in those areas. Maximum financing is 80% of the value of the project, provided that it complies with and does not exceed the maximum and minimum limits established per customer per year, with maximum financing of 800,000 and minimum financing of 150,000 per customer per year, in one or more transactions. The financed investment cannot have been commenced prior to the date of the application and must be made within a maximum of four years after the grant of financing is formalized if the total amount exceeds 300,000, and two years if it is higher than this amount. The following repayment deadlines and grace periods are offered: 5 years, with no grace period or with a 1-year grace period for the repayment of the principal. 7 years, with no grace period or with a 1-year grace period for the repayment of the principal. 10 years, with no grace period or with a 3-year grace period for the repayment of the principal.
Also, SMEs which are more than one year old can access the following ICO lines of financing: Purchase of machinery or vehicles: the ICO grants loans for the acquisition of industrial vehicles, cars and machinery for pursuing business activities, for a maximum amount of 200,000, repayable in up to 7 years. The ICO also offers the possibility of applying for this loan with a suretyship from a mutual guarantee society for a maximum amount of 600,000, repayable in up to 7 years. Real Estate: for the acquisition and renovation of offices, warehouses and business premises the ICO foresees the grant of loans for a maximum amount of 200,000, repayable in up to 7 years. The ICO also offers the possibility of applying for this loan with a suretyship from a mutual guarantee society for a maximum amount of 600,000, repayable in up to 7 years. Going abroad: there are two financing instruments aimed at bolstering the internationalization of applicant SMEs: (i) first, the grant by the ICO, through its cooperating financial institutions, of loans for Spanish enterprises investing abroad, with the possibility of repaying the loan in up to 20 years at a reduced interest rate and (ii) secondly, the financing available through the Axis FESsme Fund (a fund managed by Axis, the Venture Capital Managing Company owned by ICO) in the form of participating loans or holdings in enterprises which are to meet the needs of growth abroad. Computers/web development: the ICO grants loans for the acquisition of computer, technological and telecommunications equipment for a maximum amount of 200,000, repayable in up to 7 years. The ICO also offers the possibility of applying for this loan with a suretyship from a mutual guarantee society for a maximum amount of 600,000, repayable in up to 7 years. Sustainable economy projects/R&D + I: to finance business investment projects aimed at improving productivity, the efficient use of resources and/or reducing environmental impact, the ICO, through its cooperating financial institutions, grants loans at reduced interest rates, repayable in up to 20 years. Liquidity: the ICO grants loans to meet one time needs for liquidity (such as, inter alia, the purchase of goods, the payment of salaries or the payments of suppliers), for a maximum amount of 200,000, repayable in up to 3 years. The ICO also offers the possibility of applying for this loan with a suretyship from a mutual guarantee society for a maximum amount of 600,000, repayable in up to 3 years. Corporate acquisition/capital increase: in order to finance the acquisition of companies or of shares in capital increases, under this specific line the ICO can grant loans for a maximum amount of 200,000, repayable in up to 7 years.
The ICO also offers the possibility of applying for this loan with a suretyship from a mutual guarantee society for a maximum amount of 600,000, repayable in up to 7 years. Lastly, 2010 saw the creation of the financial enabler whose main objective is to channel credit applications filed by independent professionals and SMEs with financing needs in connection with investments and/or working capital not exceeding 2 million and which were initially rejected by the financial institutions. The creation of the financial enabler is aimed at helping certain viable, profitable and solvent projects which have been affected by the difficulties currently undergone by the financial market to overcome the barriers keeping them from accessing financing. The following are the main functions of the financial enabler: To improve communication between the enterprise and the financial industry. To advise the enterprise on loan processing. To review loan applications which have been turned down. Financial enablers only work with credit institutions which have executed a cooperation agreement with ICO. The services of the financial enabler may be accessed either via Internet, on the official website of ICO (www.ico.es), or by telephone, using the free customer service number (900 567 777 including the prefix it calling from abroad), where the questions of applicants will be dealt with. ICO will also make available to SMEs and independent professionals a territorial network of financial advisors who will analyze loan applications, advise applicants and mediate between applicants and financial institutions with a view to having the latter review or re-channel each case. These advisors will be physically located at the facilities of authorized institutions throughout the country.
5.4 Other SME incentives

The National Innovation Enterprise (ENISA) provides financing to SMEs under various lines aimed at (i) forming enterprises, (ii) financing innovative enterprises, and (iii) fostering corporate growth. Nonetheless, the ENISA also has a number of special programs (e.g., a program to finance empresas de economa social (N.B. enterprises with an emphasis on social values). As an example, the main characteristics of some of the lines of financing currently granted by ENISA are set forth below. Line for young entrepreneurs, aimed at stimulating the formation of enterprises backed by young entrepreneurs, facilitating access to preferred financing with the sole guarantee of their business project, in force through March 2011, unless the funds are used up before then (the line is provided with funds of 25 million).
The following SMEs are eligible for the financing: those (i) which pursue their activity and make the investment in Spain, (ii) which were incorporated not more than 18 months prior to the submission of the application, (iii) whose business plan includes innovative aspects, (iv) whose backers sign in witness of their commitment and involvement in the business project, (v) which take a corporate form, and (vi) which are active in any area of activity other than real estate and finance. Investments eligible for financing are (i) the acquisition of fixed assets, and (ii) the working capital necessary to pursue the activity. The maximum investment eligible for financing is 50,000, with an applicable interest rate equal to EURIBOR increased by 1.5%, with a maximum repayment deadline of 5years and a 6-month grace period. SME Line, aimed at financing, through participating loans, business projects developed by SMEs which entail the modernization of their production and management structure, including nontechnological innovation. Eligible SMEs are those taking a corporate form and meeting the following requirements: (i) the ENISA financing must be linked to the financial and economic structure of the enterprise, as well as its solvency, (ii) to be active in any area of activity other than real estate and finance, (iii) to have professional management, and (iv) to have audited financial statements and/or financial statements filed with the Registry, if not a newly formed enterprise. The amount of the loans will range between 100,000 and 1,500,000, with a maximum repayment deadline of 9 years and a grace period of not more than 7 years. The applicable interest rate will be a minimum rate equal to one year EURIBOR plus 0.75% and a maximum rate, depending on the profitability of the enterprise, of up to 5 percentage points over the minimum interest rate. Technological Base Enterprises Line (TBE Line) targeted at SMEs which carry out projects resulting in a technological advance in the obtainment of new products, processes or services, or the substantial improvement of those already existing. The eligibility requirements for the financing, which will take the form of participating loans, are (i) to be an SME that takes a corporate form, (ii) for the financing to be linked to the financial and economic structure of the enterprise, as well as to its solvency, (iii) to be active in any area of activity other than real estate and finance, (iv) quality and viability of the business project, and (vi) to have audited financial statements and/or financial statements filed at the Registry, if not a newly formed enterprise. The amount of the loans will range between 100,000 and 1,500,000, with a maximum repayment deadline of 7 years and a grace period of not more than 5 years.
The applicable interest rate will be a minimum rate equal to one year EURIBOR plus 0.5% and a maximum rate, depending on the profitability of the enterprise, of up to 6 percentage points over the minimum interest rate. Line to provide financial support for SMEs going public on the Mercado Alternativo Burstil: targeted at enterprises with average capitalization to meet the expenses associated with preparing the companies for going public on the Mercado Alternativo Burstil (N.B. a sub-market of the Spanish Stock Markets and Exchanges). Eligibility requirements for this type of loan are (i) to be an SME that takes a corporate form, (ii) to be active in any area of activity other than real estate or finance, (iii) quality and viability of the business project, (iv) to have professional management, (v) to have a project that offers a return suited to the risk, (vi) to have audited financial statements and/or financial statements filed at the Registry, if not a newly formed enterprise, and (vii) to be targeted at markets with significant current growth. The amount of the loans will be a maximum of 1,500,000, with a repayment deadline of 2 years and an interest rate equal to 0%. Line of financing for the development and promotion of Spanish design, targeted at business projects promoted by SMEs which include the development and promotion of Spanish design, for the purposes of promoting innovation through design. The eligibility requirements for the financing, which will take the form of participating loans are (i) to be an SME that takes a corporate form, (ii) for the financing to be linked to the financial and economic structure of the enterprise, as well as to its solvency, (iii) to be active in any area of activity other than real estate and finance, (iv) quality and viability of the business project, (v) to have professional management, and (vi) to have audited financial statements and/or financial statements filed at the Registry, if not a newly formed enterprise. The amount of the loans will range between 100,000 and 1,500,000, with a maximum repayment deadline of 9 years and a grace period of not more than 7 years. The applicable interest rate on the loans will be a minimum equal to one year EURIBOR plus 0.75% and a maximum, depending on the profitability of the enterprise, of up to 5 percentage points over the minimum interest rate.
6. Internationalization incentives
6. INTERNATIONALIZATION INCENTIVES
Although it is not the aim of this publication to address incentives for Spanish investment abroad, this section is included in view of the obvious interest that Spanish investment abroad has sparked in foreign investors as a platform for international expansion. In this connection, it should be noted that the official financial instruments approved by the Spanish government to support the internationalization of business are: PROINVEX (major foreign investment program). FIEX (Foreign Investment Fund, managed by COFIDES). FONPYME (SME Foreign Investment Operations Fund, managed by COFIDES). FIEM (Enterprise Internationalization Fund, managed by the Ministry of Industry, Tourism and Trade through the Secretariat of State for Trade). FINTEC (Line of Financing for Investments in the Electronics and Information and Communication Technologies Industry, managed by COFIDES). FINER (Line of Financing for Investments in the Renewable Energies Industry, managed by COFIDES). FINCONCES (Line of Financing for Investments in the Infrastructure Concession Industry, managed by COFIDES). Country Lines (managed by COFIDES). Agreements for the conversion of debt into investment. The Internationalization Line of the ICO and of the Ministry of Economy and Finance. The most notable new feature is Law 11/2010, of 28 June, to reform the financial support system for the internationalization of the Spanish enterprise, recently amended by Royal Decree 1797/2010, of 30 December, aimed at undertaking the statutory deep reform of the referred financial support system by way of (i) creating the Enterprise Internationalization Fund (FIEM), as an official support instrument for the internationalization of Spanish enterprises and (ii) the adaptation of export credit insurance. The purpose of the FIEM is to promote Spanish exports and direct Spanish investments abroad. The FIEM will finance (i) transactions and projects of special interest to the strategy to internationalize the Spanish economy, (ii) the technical assistance required by such transactions and projects, and (iii) technical assistance and consultancy services of special interest to the internationalization strategy.
In this connection, a transaction or project, technical assistance or consultancy service is deemed to be of special interest to the internationalization strategy where (i) it promotes the internationalization of Spanish SMEs, (ii) it entails the direct investment or exportation of goods and services of Spanish source and manufacture in a sufficiently significant percentage of the financing or (iii) otherwise, where there are circumstances justifying the interest. In any case, the following will not be financed (i) exports of defense, paramilitary and police materials to be used by the armed forces, police forces or security forces or (ii) projects related to certain basic social services such as education, health and nutrition. Potential recipients of these incentives are foreign central governments and foreign public, regional, provincial and local authorities, as well as enterprises, groupings and consortiums of foreign public and private enterprises, not only from developed countries but also from developing countries. The financial instruments listed above include most notably FIEX and FONPYME, as well as the new lines of financing for investments in the electronics and information and communications industry, renewable energies industry and infrastructures concession industry and, lastly the Lnea ICOInternacionalizacin 2011 (2011 ICO-Internationalization Line). The purpose of FIEX is to foster the internationalization and business activities of Spanish companies and, in general, the Spanish economy, through short-term, minority interests in the equity of companies located outside Spain or through other financial investment vehicles. The Funds purpose is to complement the investments made by the corresponding Spanish company. COFIDES, as the Fund manager, may not take part in the operational management of the investee company. Only in exceptional circumstances may the Ministry of Industry, Tourism and Trade authorize the manager to acquire a majority holding or to take over the operational management of the foreign company. The initial fund provision, established in Law 66/1997, was 60 million. This provision was subsequently increased on successive occasions, reaching an accumulated provision of 722 million in 2010. The maximum amount of the transactions that can be approved by the Executive Committee of these funds was set at 25 million for 2011. FONPYME, in turn, is intended to foster, through short-term minority interests in companies located abroad or through other financial investment vehicles, the internationalization and foreign investments of Spanish SMEs and, in general, the Spanish economy. The Fund therefore makes the investment in the foreign company on a joint basis with the SME concerned. COFIDES cannot, except in exceptional cases, take part in the operational management of the foreign company in which the Fund has an ownership interest, or acquire a majority holding in it. Following the amendment by Royal Decree 862/2010, when the project being funded is located in a country in which COFIDES can operate, the Funds participation may be instrumented, if so
approved by the Companys Board of Directors and the Funds Executive Committee, through joint financing with COFIDES, using identical or differing financial instruments. Under the joint financing arrangement, different remuneration schemes can be established for each of the support instruments. The percentage of the COFIDES funding in transactions funded with FONPYME will be decided on a case by case basis by its Board of Directors. Where FONPYME, by decision of its Executive Committee, takes on a projects funding without the joint financing of COFIDES, the same procedures and guarantees normally required for the participation of COFIDES will apply. The initial fund provision was 3 million. For 2010, the provision of funds was 45 million, with the possibility of approving transactions of up to a maximum of 4 million in 2011. FINTEC aimed at funding, on the medium- and long-term, private and viable projects for investment abroad undertaken by enterprises in the electronics and information and communications industry in which there is a Spanish interest. The activities at which this line is targeted are those which require, due to enterprises international expansion, a permanent establishment to be set up in the country in which the investment is made, whether through new production or commercial facilities, the expansion of existing facilities or the acquisition of foreign enterprises in the same industry. The financial support will take the form of (i) holdings in capital, (ii) instruments similar to quasicapital, (iii) ordinary loans to the Spanish enterprise, (iv) ordinary loans to the project enterprise, and (v) multi-project loans. The maximum financing provided is 25 million and cannot exceed 50% of the long-term needs of the project, up to the limit of the contribution made by the backer, the minimum amount being 250,000. FINER aimed at funding, on the medium- and long-term, private and viable projects for investment abroad targeted at the generation, processing, transfer, distribution and marketing of energy produced from renewable sources, under public-private cooperation schemes and purely private schemes. This line is aimed at funding activities in the renewable energies industry whose pursuit gives rise to a need to make investments requiring the incorporation of medium- and long-term financial resources. The financial support is given in the same way as under the FINTEC line with identical financing ceilings. FINCONCES aimed at funding projects for investment abroad in concessions of infrastructures and public services owned mostly be Spanish enterprises, under concession or under a public-private scheme.
Eligible for this financing are projects under concession aimed at, inter alia, the design, construction, operation, maintenance, management and exploitation of a public good or service, the performance of which requires the incorporation of long-term financial resources. The financial support may be given in the form of holdings in capital or instruments similar to quasi-capital. The maximum financing is 25 million and cannot exceed 50% of the long-term needs of the project, up to the limit of the contribution made by the backer, the minimum limit being 1 million. The Lnea ICO-Internacionalizacin (ICO Internationalization Line), aimed at Spanish independent professionals and public and private entities (not only enterprises with registered office in Spain but also those in which, despite having their registered office abroad, the majority of the capital stock is Spanish, foundations, NGOs, public authorities, etc.) which carry out investment projects abroad, whose main objective is to support investments made by Spanish companies abroad, in force though December 19, 2011 or until the funds are used up, whichever comes first. This line contains two tranches of financing: Tranche I is up to 2 million per customer and year, regardless of the number of transactions, while the limit for Tranche II enterprises is up to 8 million, per customer and year, regardless of the number of transactions. The following investments are eligible for financing: (i) fixed assets used in production, whether new or second-hand, (ii) the acquisition of shares in companies resident abroad, (iv) VAT or an analogous tax levied in Spain depending on the assets acquired, and assessed as borne in Spain, (v) the incorporation of enterprises abroad, to financed with the working capital linked to the investment project, where such working capital does not exceed 20% of the projects total. As limitations on the financing, the investment (i) must not have been made prior to January 1, 2010 and (ii) must be made within not more than 12 months from the execution of the financing. In any case, the restructuring of liabilities or refinancing and/or investments aimed at transferring the Spanish enterprise out of Spain cannot be financed. The maximum financing is 10 million per customer per year, in one or more transactions, of which the first 2 million are subject to relief. Repayment periods range from 3 years, without a grace period for the repayment of principal, and between 5 and 20 years, with grace periods of from 0 to 3 years in connection with the principal. For the financing, the entrepreneur may opt for a fixed interest rate, according to the two-week listing reported by ICO, plus up to 1.15% in tranche I (up to 2 million) or 1.50% in tranche II (from 2 million up to a maximum of 8 million), or a variable interest rate: 6 month EURIBOR plus a margin, according to the two-week listing reported by ICO, plus up to 1.15% in tranche I or 1.50% in tranche II.
This type of financing may be combined with other aid granted by the Autonomous Communities and other public institutions, provided that the maximum limits on the accumulation of public aid stipulated by the European Union are complied with. Lastly, it would be appropriate to refer briefly to the new Line of financing for Investment Projects in the US, under the Country Lines managed by COFIDES, which also includes the following: India Line, EU Expansion Countries Line, Mexico Line, China Line, Brazil Line, Morocco Line, Sub-Sahara Africa Line: US Line, aimed at providing financial support to viable private projects with a Spanish interest performed in the US, independent of the activity with which they are connected, although priority will be given to the following industries: (i) infrastructures, (ii) renewable energies, (iii) environment, (iv) biotechnology, and (v) information technology. The financial support will be instrumented as holdings in capital, subordinate loans, participating loans or joint investment loans. Maximum financing is 25 million and cannot exceed 70% of the volume of the investment in the project, although for holdings in capital, the limit will be up to 49% of the enterprises capital stock. The minimum amount is 250,000.
7. EU aid and incentives
7. EU AID AND INCENTIVES

EU aid focuses on depressed regions, normally in underdeveloped rural areas with low levels of income and high unemployment rates, and on regions suffering processes of industrial delocalization. Most of the EU incentives (specifically loans and subsidies) supplement development plans financed by the Spanish Government. Such aid is routed through Spanish official institutions and finance entities, which act as intermediaries. Accordingly, the related applications for subsidies must be addressed to such entities. The broad range of instruments at the EUs disposal includes, most notably the following:
7.1 European Investment Bank (EIB)

Projects eligible for EIB support are basically those which promote the development of less favored regions and those of common interest to several Member States or benefiting the EU as a whole, such as environmental protection, improved use of energy resources, improved industrial competitiveness in the EU, the development of SMEs and improved European transport and telecommunications infrastructure. Additionally, projects aiming at extending and modernizing infrastructure in the health and education sectors may also qualify for EIB support. At the Lisbon European Council in March 2000, the European Union established the strategic objective of creating, prior to 2010, a competitive economy based on knowledge, capable of sustained economic growth with more and better jobs and greater social cohesion. With this aim, the EU program 2010 Innovation Initiative was created, under which the governing bodies of the EIB have approved a number of measures to facilitate the financing of projects in the following four strategic areas: Research, development and innovation. Human capital training. Dissemination of technologies and development of information and communication technology. Fostering of the business spirit. The EIB offers two types of loans: 7.1.1 Global loans Global loans are similar to credit lines granted to financial institutions, which lend the proceeds for small or medium-scale investment projects meeting the EIBs criteria. This is the main type of support offered to SMEs by the EIB. It is provided by granting loans to intermediary banks, which in turn, provide funding for small and medium-scale business initiatives.
The loans are granted by the EIB to banks in all the Member States, which act as intermediaries. These financial intermediaries conduct an analysis of the investment, and of the economic, technical and financial viability of each of the projects. They are responsible for granting the loans for small and medium-scale investments and for the administration of such loans. Specifically in Spain, global loans are routed mainly through Instituto de Crdito Oficial (ICO), Banco Bilbao-Vizcaya Argentaria, (BBVA), Banco Espaol de Crdito, Santander Central Hispano (SCH) and Banco Popular. There are many different types of loans and credits, with varying maturities, amounts and interest rates, but their general terms can be summarized as follows: Coverage of up to 50% of the overall investment costs. Grace period: up to three years. Repayment period: to be determined by the financial institution acting as intermediary and the EIB, although it tends to fluctuate between 5 and 12 years. Beneficiaries: local authorities or SMEs (for these purposes, SMEs are deemed to be companies that have less than 250 workers, annual revenues of under 50 million, and an annual total balance sheet of less than 43 million). The amount awarded under a global loan may not exceed 12.5 million. Free of fees and other charges, except for minor administrative expenses. They must be applied for through an intermediary financial institution. 7.1.2 Individual loans The European Investment Bank grants individual loans directly to investors or through financial intermediaries for projects of over 25 million. The main characteristics of these loans are as follows: Coverage of up to 50% of the total investment costs. Public or private-sector projects carried out mainly in infrastructure and the industrial sector for a minimum amount of 25 million. Long-term loans, with repayment periods of between 5 and 12 years for industrial projects, and between 15 and 20 years for infrastructure projects, although the repayment period may be extended in special cases. Grace period: depends on the nature of the project, usually up to five years. In granting these loans, the EIB requires first-class security. Applications must be filed directly with the EIB.
Once finance has been provided for the project, its progress is monitored regularly in order to ensure compliance with the aims of the EIBs financing decision. The EIB does not directly grant interest relief, although this may be financed by third-party institutions. EIB loans are compatible with aid from other EU agencies, up to a limit of 90% of the investment.
7.2 European Investment Fund (EIF)

The EIF is an EU body which specializes in providing guarantee and venture capital instruments to SMEs. It ensures the continuity required in the management of EU programs and has accumulated extensive experience in this area. The EIF was created for the dual purpose of fostering the development of trans-European networks in the transport, telecommunications and energy industries and of promoting the development of SMEs. The Fund operates by providing guarantees for loans of all kinds, and by temporarily acquiring and managing minority holdings in companies involved in deploying Trans-European networks. The EIF finances, among others, the following mechanisms: The SME Guarantee Mechanism, aiming at creating jobs through the granting of loans and financial support to innovative SMEs. The European Technology Mechanism aiming at fostering employment for the establishment and growth of innovative SMEs through short-term investments in venture capital funds operating in the EU. Program for business initiative and innovation. This program which, in turn, is a subprogram forming part of the Competitiveness and Innovation Framework Programme (2007-2013) groups together activities that were formerly included in the Multiannual program for enterprises and entrepreneurship, which expired on December 31, 2006. Its main priority is to support innovative companies by facilitating access to financing using a series of EU financial instruments, managed by the EIF, aimed at sharing the risks and benefits with private investors, and to provide counter or co-guarantees for national guarantee regimes.
7.3 Structural Funds

Structural Funds constitute the principal instrument of EU economic and social cohesion policy and are used to finance initiatives (either public or private) to achieve structural improvements in the Member States and thus narrow the gap between the most prosperous and the poorest regions in the current EU.
The expansion of the EU to twenty-five Member States represented an unprecedented challenge to its competitiveness and cohesion, since the proportion of the population with a GDP lower than 75% of the EU average has increased from 19% (in the EU-15) to 27% (EU-25). This program was also redefined by the recent incorporation of two new EU-Member States (Bulgaria and Romania). The European Commission therefore intends to reinforce EU economic, social and territorial cohesion policy for the 2007-2013 programming period. In this connection, and with the entry into force of the new Multiannual Financial Framework, the regulation and scope of the Structural Funds underwent a thorough transformation and, as from January 1, 2007, only two Funds are deemed to be Structural Funds: the European Regional Development Fund and the European Social Fund. The Structural Funds continue to support programs in the Member States of the enlarged EU but most of the programs focus on the regions which need the most aid. In order to increase the economic and social cohesion of the EU, the European Council has established three new priority objectives for the structural funds, which are funded by the ERDF, the ESF, the Cohesion Fund, the European Investment Bank, and other existing EU financial instruments (as appropriate in each case):
Table 13
PRIORITY OBJECTIVES
2000 - 2006 Objectives Funds Objectives 2007 - 2013 Funds and Financial Instruments
Objective 1
ERDF (URBAN) ESF EAGGF- Guarantee EAGGF- Guidance (LEADER) ERDF (URBAN -INTERREG) ESF
Convergence
ERDF ESF Cohesion Fund
Objective 2
Regional Competitiveness and Employment Regional Level
EAFRD
RDF ESF ERDF (EGCC)
Objective 3
ESF (EQUAL)
National Level: EES European Territorial Cooperation
The Convergence Objective (similar to the old Objective 1) covers the regions and Member States whose development is lagging behind and aims to accelerate convergence of these regions and Member States in order to improve growth and employment. This objective is considered essential, particularly in new Member States which face development disparities on a scale that is unprecedented in the EU. The Objective is funded by the ERDF, the ESF and the Cohesion Fund. The Spanish regions included under the Convergence Objective are: Galicia, Castilla-La Mancha, Extremadura and Andaluca, given that their degree of development continues to be lower than 75% of the Community average. Murcia, Asturias, Ceuta and Melilla (phasing-out regions) may also receive funding from the Structural Funds, albeit on a temporary and specific basis. Such regions are expected to be removed from the Convergence Objective in the near future, although the possibility of receiving funding under the Objective will be phased out gradually. The Regional Competitiveness and Employment Objective (similar to the old Objective 2) aims to boost the competitiveness, employment and attraction of regions other than the less-favored regions. This Objective was established for the purpose of preventing new imbalances from arising to the detriment of regions which would otherwise suffer the repercussions of adverse socioeconomic factors without the sufficient public aid. The European Commission finances this objective through the ERDF and the ESF. All regions not included in the Convergence Objective can benefit from funding under the Competitiveness Objective. Additionally, those regions included in the old Objective 1, which are no longer eligible as from 2007, receive specific and temporary aid under the Competitiveness Objective in order to consolidate their recovery (phasing-in), and such aid will be progressively reduced until 2013. In this respect, the Spanish regions that can receive financing under this Objective are: Castilla y Len, Valencia and the Canary Islands (phasing-in regions), as well as the Basque Country, Navarra, Catalua, Madrid, Aragn, the Balearic Islands, Cantabria and La Rioja.
Map 2
SPANISH REGIONS INCLUDED IN THE OBJECTIVES OF THE EU STRUCTURAL FUNDS
Phasing-in Regions Phasing-out Regions Convergence Regions Competitiveness and Employment Regions
The European Territorial Cooperation Objective (which is not comparable to the old Objective 3) aims to strengthen territorial cooperation at three levels: (a) cross-border cooperation through joint initiatives; (b) transnational cooperation; and (c) networks for exchanging experiences within the EU. This Objective is funded by the ERDF. In terms of cross-border cooperation, the following Spanish regions and areas can receive ERDF funding under the European Territorial Cooperation Objective: Ourense, Pontevedra, Guipzcoa, Navarra, Huesca, Salamanca, Zamora, Badajoz, Cceres, Girona, Lleida, Cdiz, Huelva and Ceuta. With respect to transnational cooperation, the Spanish regions and areas that can receive ERDF funding are: Galicia, Asturias, Cantabria, Basque Country, Navarra, La Rioja, Aragn, Madrid, Castilla y Len, Castilla-La Mancha, Extremadura, Catalua, Valencia, the Balearic Islands, Andaluca, Murcia, Ceuta and Melilla. The available resources for the funds for the 2007-2013 period are approximately 347,041,000 million, which represent 35.7% of the EU budget, the breakdown by objective being as follows: Convergence Objective: 81.54% (282,977,231.4). Regional Competitiveness and Employment Objective: 15.95% (55,353,039.5). European Territorial Cooperation Objective: 2.52% (8,745,433.2). Funds cannot be transferred from one objective to another in the 2007-2013 period.
CHART 1
COHESION POLICY 2007-13 BREAKDOWN BY OBJECTIVES (347 BILLION EUR)
8.72 54.96
283
Source: European Comision (http://ec.europa.eu/regional_policy/policy/ fonds/index_es.htm)
European territorial cooperation
4%
Convergence (70% to cohesion fund) Regional competitiveness and employment
The Community Initiatives selected for promotion during the period 2000-2006 (EQUAL, URBAN, LEADER+, etc.) were eliminated in the 2007-2013 period and were integrated horizontally into the corresponding Operational Programs. The contribution of the European Funds to projects located in Spain are subject to the following limits: Convergence Objective Up to 75% of the public expenses co-financed by the ERDF or the ESF. This limit may be increased to 80% for regions located in a Member State covered by the Cohesion Fund, and to 85% for the outermost regions. Up to 85% of the public expenses co-financed by the Cohesion Fund. Up to 50% of the public expenses co-financed in the outermost regions (new extra ERDF allocation to offset the additional cost). Regional Competitiveness and Employment Objective: Up to 50% of the public expenses, and may be increased up to 85% for the outermost regions. European Territorial Cooperation Objective: Up to 75% of the public expenses. In the 2007-2013 period, detailed management of programs co-financed by the Structural Funds remains the responsibility of each Member State. Member States designate a management authority for each program (at national, regional or other level) which, among other functions, is in charge of informing possible beneficiaries, selecting projects, and monitoring correct execution of the projects. In this connection, on May 7, 2007 the European Commission approved the National Strategic Reference Framework for Spain for the 2007-2013 period. This document contains the development
strategy in Spain and the related allocation of community funds by region and according to the strategic guidelines of the European Union (more information under www.dgfc.sgpg.meh.es). The EU Structural Funds for the 2007-2013 period, for which practically all of Spain qualifies, are the following: 7.3.1 European Social Fund (ESF) The ESF aims to strengthen social and economic cohesion by supporting national policies geared towards achieving full employment, improving quality and productivity at work, promoting social inclusion and reducing regional disparities with respect to employment. The European Commission expects the ESF to focus on three main areas: (i) to foster the ability in enterprises and amongst workers to adapt, (ii) to facilitate the obtainment of employment and participation in the job market, as well as promote social integration, and (iii) encourage the creation of associations for employment reform. Such actions fall within the framework of the objectives of Convergence and Regional Competitiveness and Employment. In general, ESF funding concentrates on: (i) innovation, (ii) cooperation between regions and across borders, (iii) equality between men and women, and (iv) consolidation of the social integration and employment of immigrants and minorities. Although decisions regarding eligibility must be adopted at national level, in the 2007-2013 period, the following expenditures are not deemed to qualify for ESF funding: Recoverable direct taxes. Personal income taxes. Interest owed. Interest, surcharges and administrative and criminal penalties. Purchases of new or second-hand furniture, equipment, vehicles, infrastructures, real estate and land. Expenses incurred on court proceedings. Notwithstanding national legislation, the following expenditure is eligible: Allowances or salaries paid by a third party whenever these constitute national public matching funds. Indirect costs incurred by an activity, at a fixed maximum rate of 20% of the declared direct costs. The ESF helps to defray eligible expenses, whether in the form of individual or block grants, loans, interest rate subsidies, micro loans, guarantee funds or the purchase of goods and services.
The ESF finances up to 75% of public spending in areas covered by the "Convergence" objective and 50% in those covered by "Regional competitiveness and employment. Notwithstanding, aid granted by the ESF cannot exceed the financial aid granted to the same project by the public authorities of the Member State, whether at State, regional or local level. The ESF supports policies of Member States focused on growth and employment, in line with the General Guidelines on Economic Policy, the European Strategy for Employment and the guidelines on employment. The ESF does not provide credit directly to companies, but rather funds official agencies and not for profit entities that draw up plans in accordance with their objectives. Applications must be made to the relevant agencies of the Autonomous Communities or to the Ministry of Labor and Social Affairs (specifically to the European Social Fund Administrative Unit). 7.3.2 European Regional Development Fund (ERDF) In the 2007-2013 period, the ERDF has the objective of funding aid geared towards strengthening economic and social cohesion through the correction of the principal regional imbalances by (i) supporting the development and structural adjustment of regional economies, (ii) regenerating industrial regions in decline and regions lagging behind, and (iii) encouraging cross-border, transnational and interregional cooperation. The measures co-financed by the ERDF must fall within the three new EU regional policy objectives, namely, Convergence, Regional Competitiveness and Employment and European Territorial Cooperation. Specifically, the ERDF funds: Productive investment to create and safeguard sustainable jobs, mainly through direct investment aid, particularly at small-and medium-sized enterprises (SMEs). Investment in infrastructure. Development of the endogenous potential by measures which support local and regional development. Such measures include aid to enterprises, especially SMEs, and provision of services to them, the creation and development of financing instruments, such as venture capital, loan and guarantee funds, local development funds, interest rate subsidies, networking, cooperation and exchange of experience between regions, cities and the pertinent social, economic and environmental players. Technical assistance, namely, the preparation, monitoring, administrative assistance, management, follow-up, assessment, audit and inspection measures necessary to apply and use the Funds through the corresponding instruments and programs. Notwithstanding the provisions of national legislation, the following expenditure does not qualify for ERDF funding:
Interest owed. Land purchases accounting for more than 10% of total eligible expenditure of the transaction in question. In exceptional cases, a higher percentage may be permitted for transactions related to environmental protection. Decommissioning of nuclear power stations. Recoverable VAT. As regards rural areas and areas dependent on the fishing industry, the ERDF aims to ensure projects complement and are consistent with the work of the two new Funds, European Agricultural Fund for Rural Development (EAFRD) and the European Fisheries Fund (EFF). For geographically disadvantaged areas, the ERDF helps finance investment promoting accessibility, economic activities linked to local culture, the sustainable use of resources and the tourism sector. Lastly, the ERDF also helps finance the extra costs of the outermost regions, subsidizing the transport of goods and start-up assistance for transport services and providing financial support to offset the additional costs generated by storage constraints, the maintenance of production tools and the lack of human capital on the local labor market.
7.4 Cohesion Fund

Since its establishment, one of the main objectives of the European Union has been the promotion of the economic and social cohesion of its citizens, bolstering socio-economic progress and gradually eliminating the differences between the various standards of living of its regions. The Cohesion Fund, created to help boost social and economic cohesion in the EU with a view to encouraging sustainable development, finances projects relating to the environment and TransEuropean transport networks, in particular, priority projects of European interest, in Member States whose per capita Gross National Income (GNI) is below 90% of the EU average, namely Bulgaria, the Czech Republic, Estonia, Slovakia, Slovenia, Cyprus, Latvia, Lithuania, Hungary, Malta, Poland, Romania, Greece, Portugal and, on a transitional basis, Spain. In fact, during the 2007-2013 period, Spain can continue to receive temporary and specific funding from the Cohesion Fund since it is one of the Member States that would have been able to continue receiving Cohesion Fund aid if the threshold had remained at 90% of the average GNI of the EU-15, but are now no longer eligible as their nominal per capita GNI exceeds 90% of the average GNI of the EU-25. Some of the essential characteristics of the previous Cohesion Fund regulations are also maintained (such as Member State beneficiary requirements, 85% limit on aid, etc.), although its management has been modified by integrating its work into operational program.
Furthermore, the funding not only covers major transport and environmental protection infrastructures, but also projects in the fields of energy efficiency, renewable energy and intermodal, urban or collective transport. In this period, the Fund contributes alongside the ERDF to operating programs, rather than being subject to individual project approval by the Commission. For the 2007-2013 period, the total funding assigned to the Cohesion Fund is approximately 63 billion, of which Spain would receive approximately 3.25 billion, on the terms set forth above. In any event, the grant of the amounts allocated to each eligible Member State, and the financing of new projects with such amounts, are subject to the fulfillment by said Member State of certain requisites regarding the containment of public spending. The EU Regulation governing the Cohesion Fund for the period 2007-2013 includes the possibility of the Commission informing the Council if a Member State does not meet the obligations relating to budget deficit arising from the program for stability and convergence.
7.5 Financing of the Common Agricultural Policy

For the 2007-2013 period, the Commission created two new Funds under the general EU budget: the Agricultural Guarantee Fund (EAGF) and the European Agricultural Fund for Rural Development (EAFRD), which replace the Guidance and Guarantee sections, respectively, of the EAGGF, in force in the 2000-2006 programming period. Both Funds have a similar operating system but specific individual characteristics. 7.5.1 Agricultural Guarantee Fund (EAGF) As regards expenditure managed jointly by the Member States and the Commission, in general the EAGF finances the following: Refunds for exporting farm produce to non-EU countries. Intervention measures to regulate agricultural markets. Direct payments to farmers under the CAP. Certain informational and promotional measures for farm produce implemented by Member States both on the internal EU market and outside. Expenses incurred on measures to restructure the sugar industry. As regards expenditure managed centrally by the Commission, EAGF financing covers the following: The EUs financial contribution for specific veterinary measures, veterinary inspections and inspections of foodstuffs and animal feed. Animal disease eradication and control programs and plant health measures.
Promotion of farm produce, either directly by the Commission or via international organizations. Measures required by Community legislation to conserve, characterize, collect and use genetic resources in farming. Setting up and running farm accounting information systems and farm survey systems. Expenses relating to fishing markets. The monies to cover expenditure financed by the EAGF are paid by the Commission to the Member States in the form of monthly reimbursements. 7.5.2 European Agricultural Fund for Rural Development (EAFRD) The EAFRD constitutes a single instrument for the financing European rural development policy. The Fund contributes to the four priority headings aimed at encouraging rural development: Improving the competitiveness of agriculture and forestry by means of support for restructuring. In this area, inter alia, the EAFRD grants aid for measures relating to (i) information and vocational training schemes for workers in the agriculture, food and forestry industries, (ii) the establishment of young farmers, (iii) the modernization of agricultural holdings, (iv) the increased added value of agricultural and forestry products, (v) support for farmers participating in food quality programs, etc. Improving the environment and the countryside by means of support for land management. In this area, support may also be given to mountain regions with natural handicaps and other disadvantaged areas (defined by the Member States on the basis of common objective criteria) and for agri-environmental payments, which should however only cover commitments that go beyond the corresponding obligatory standards. Assistance also covers support for investments without commercial return needed to comply with environmental commitments. Improving the quality of life in rural areas and encouraging diversification of economic activity. This area includes aid for vocational training of economic operators, the renovation and development of villages, the preservation and optimization of rural heritage, support for the establishment and development of micro-businesses and the diversification into non-agricultural activities. The LEADER approach. The LEADER approach consists, in general, of the implementation of cooperation projects between regions and networking by local partnerships. Taking into account the political priorities set at EU level, the Council establishes strategic guidelines for rural development to implement the above-mentioned priority headings. Each Member State
then produces a national strategic plan that includes, among other items, its own priorities for action and those of the Fund, and sets out the specific objectives and the corresponding level of support from the Fund and, where applicable, other financial resources. In the case of Spain, the Ministry of Agriculture, Fisheries and Food approved its National Strategic Plan for Rural Development (2007-2010) on April 2, 2007. The implementation of this type of plan is carried out, in general, through rural development programs containing a package of measures grouped according to the above headings. EAFRD funding of rural development expenditure is specifically determined for each project. It should also be noted that projects financed under a rural development program cannot receive any other funding under the EU budget. There is a limit on the total aid granted by the EAFRD. In this way, a maximum eligible amount is set for each type of aid.
7.6 New European Fisheries Fund (EFF)

Through the new European Fisheries Fund, which replaces the Financial Instrument for Fisheries Guidance (FIFG), the European Commission provides co-financing for support measures aimed, among other objectives, at: (i) ensuring the long-term future of fishing activities and the sustainable exploitation of fishery resources, (ii) reducing pressure on stocks by matching Community fleet capacity to available fishery resources, (iii) fostering the protection of the environment and fishery resources, (iv) boosting the development of economically viable enterprises in the fisheries sector, and (v) making operating structures more competitive. The Fund has a fund provision of 3.849 billion, of which Spain is to receive 1.113 billion, 29% of the total provision. In general terms, of the 3.849 billion, around 2.908 billion is allocated to regions included under the Convergence objective, that is, regions whose income falls below 75% of EU GDP, while 941 million is allocated to regions whose income exceeds such threshold. As with the EAFRD, the grant of the aid provided for under the EFF requires each Member State to produce a national strategic plan and an operating program, establishing its priorities, objectives, the necessary public funding, and the expected schedule for application of the Plan. In the case of Spain, the Secretary-General of Deep Sea Fishing approved its National Strategic Plan under the European Fisheries Fund in Jun 2007. Eligible investments are grouped into the following five priority headings, according to the objective pursed: Measures to adjust the Community's fishing fleet. Under this heading, the EFF provides assistance to fishermen or organizations affected by measures adopted to combat overfishing, aid for the temporary laying up of fishing vessels, etc.
Aquaculture, inland fishing, processing and marketing of fisheries and aquaculture products. Projects eligible under this heading include, among others, those aimed at improving aquaculture production, encouraging aquaculture production methods which help protect and improve the environment and preserve nature, the eradication of aquaculture disease, etc. Collective measures. Investments qualifying for EFF funding under this heading are, among others, those relating to collective actions, projects aimed at protecting and developing aquatic fauna and flora, and the conservation and modernization of fishing ports, landing sites and shelters, etc. Sustainable development of coastal areas dedicated to fishing. This heading includes the funding of measures aimed at strengthening the competitiveness of fisheries areas, restructuring and redirecting economic activities, particularly by promoting ecotourism, diversifying activities through the promotion of multiple employment, etc. Technical assistance. Lastly, subject to a ceiling of 0.8% of its annual allocation, the EFF may finance the preparatory, monitoring, administrative and technical support, evaluation and audit measures necessary for implementing this Regulation. The maximum amount of EFF aid that can be granted is limited according to the type of initiative under which it is used, as well as the European region in which the eligible project is to be developed. The maximum aid ceilings are granted to regions included under the Convergence Objective and the outermost regions (Guadalupe, Guiana, Martinique, Reunin, as well as the Azores, Madeira and the Canary Islands).
7.7 Research and Development Programs

The European Union has been establishing multi-year programs which contain the lines of action of the Community policy on research and development and assigning considerable resources to their execution. The program in force and operating since January 1, 2007, is the Seventh Framework Programme for Research and Technological Development (FP7), the purpose of which is to encourage all research activities deemed necessary, with particular emphasis on enterprise (including SMEs), research centers and universities in their technological development and research activities. This Program constitutes the European Unions chief instrument for funding research in Europe over the 2007-2013 period. FP7 is made up of 4 main blocks of activities forming 4 specific program plus a fifth specific program on nuclear research: Cooperation Program (budget: 32.413 billion).
This program is to support all types of research activities carried out by different research bodies in transnational cooperation projects which help to gain or consolidate knowledge and technological advances in ten thematic areas corresponding to ten scientific and research fields. The different areas are as follows:
Table 14
THEMATIC PRIORITIES COOPERATION

Themes Cooperation Budget ( billion) Themes Cooperation Budget ( billion)
Health Food, Agriculture and Fisheries, Biotechnology Information and Communication Technologies Nanosciences, nanotechnologies, materials & new production technologies Energy
6.1 1.935 9.05
Environment (including Climate Change) Transport (including aeronautics) Socio-economic Sciences and the Humanities Space Security
1.89 4.16 0.623 1.43 1.4
3.475 2.35
The objectives of the Cooperation Program in the above ten areas are pursued through collaboration instruments such as, for example, Technological Platforms, Joint Technology Initiatives and due coordination and cooperation between EU Member State R&D programs. Ideas Program (budget: 7.541 billion). This Program covers all activities to be implemented by the European Research Council (ERC), and attempts to boost competitiveness in Europe by attracting and retaining the most talented scientists, supporting innovative and ground-breaking research, and promoting world-class scientific research in new and emerging fields. People Program (budget: 4.75 billion). Building on the positive experiences of the Marie Curie Actions, this Program aims to quantitatively and qualitatively boost human potential in research and technology in Europe by (i) encouraging people to choose a career in research, (ii) encouraging European researchers to stay in Europe, and (iii) attracting researchers from all over the world to Europe. Capacities Program (budget: 4,097 million). This program aims to increase research and innovation capacities in Europe by ensuring optimum use , operating in seven areas:
Table 15
THEMATIC PRIORITIES CAPACITIES

Theme capacities Budget ( billion) Theme capacities Budget ( billion)
Research for the benefit of SMEs Research infrastructure Research potential of Convergence Regions Regions of knowledge
1.336 1.715 0.340 0.126
Science in society Specific international cooperation activities Coherent development of research policies
0.330
0.180
0.700
EURATOM Program (budget: 2.751 billion). The European Atomic Energy Community (EURATOM) adopts a separate Framework Programme for nuclear resource management and research activities. Although initially intended to run over a five-year period, it may be extended to seven years. The principal research areas are: Fusion energy research. Nuclear fission and radiation protection. Participation in the Seventh Framework Programme must be through the calls for proposals published by the European Commission, with the following terms: General terms: Undertakings, universities, research centers and any other legal entities established in a Member State, associated country or third country can participate. At least three legal entities must take part, each of the three being established in different a Member State or associated country. The three legal entities must be independent among themselves. Both legal and natural persons can take part. In the case of natural persons, the habitual place of residence will be taken into account. Specific terms: For coordination and support actions, and actions in favor of training and career development of researchers, at least one legal entity must participate. For basic/fundamental research projects, at least one legal entity established in a Member State or associated country must participate.
The total budget for the Seventh Framework Programme is over 50.5 billion. The following maximum limits are established, according to the type of action: Technological and research activities: 50% of eligible costs, except for: Public non-profit entities: 75% Secondary and higher education establishments: 75%. Research organizations: 75%. SMEs: 75%. Demonstration activities: 50% of eligible costs. Management and other activities (e.g., coordination, network creation and dissemination): 100% of eligible costs. Coordination and support actions: 100% of eligible costs. Researcher training and career development activities: 100% of eligible costs.
7.8 EU initiatives to favor business financing

The European Commission Directorate-General for Enterprise & Industry coordinates the Gate2Growth initiative, a one-stop shop for innovative entrepreneurs seeking financing. It also offers investors, intermediaries and innovation service-providers, a community for sharing knowledge and good practice. The initiative incorporates all knowledge acquired through the implementation of previous pilot programs, some of the most noteworthy of which are the I-TEC project, the LIFT project and the FIT project. One of the most notable characteristics of this initiative is that it acts as a meeting point for innovative entrepreneurs, innovation professionals and potential investors, and it offers the following tools and services, among others: For innovative entrepreneurs: Business plan preparation tool package. Business plan diagnostic. Discussion forums. News and events. Investor identification and matching tool. Seminars and workshops.
Entrepreneur clubs. Access to a network of local intermediaries. For innovation professionals and potential investors: Exchange of good practices. Career development opportunities. A library of good practices. Half-yearly workshops on various issues. Professional development through exchange of personnel, access to experts, training days, etc. It is remarkable that, various exchange and collaboration networks have been created within the framework of the Gate2Growth initiative, aimed at improving compliance with the initiatives objectives. Some of the most noteworthy networks are: I-TecNet (for venture capital investors), the G2G Incubator Forum (for technological development), the G2G Finance Academia (for academics studying innovation, and entrepreneurship trainers), etc. On the other hand, together with the initiatives as the one analyzed, in the European community level, exist, also, initiatives for enterprise finance depending on the different activity sectors. For example, in relation to the European audiovisual sector, in the Official Gazette of the European Union dated September 25, 2010, the European Commission published a new call for aid applications under the 2007 MEDIA Program supporting the European audiovisual industry, under which it plans to take a number of measures to support the transnational distribution of European audiovisual works. In order to do so, it calls for aid applications under the 2011 SELECTIVE Plan, the main objectives of which include (i) stimulating and supporting the international distribution of recent non-national European films, especially encouraging distributors to invest in adequate promotion and distribution of non-national European films, and (ii) fostering the development of links between production and distribution, improving the competitive position of non-national European audiovisual works. Under the Plan of reference, for example, support is to be granted to the distribution of, inter alia, printed forms and advertising relating to non-national European audiovisual works with a maximum production budget of 15 million, to groups of (i) at least 5 distributors, in the case of audiovisual works whose budget is less than 3 million , or (ii) at least 7 distributors, in the case of audiovisual works whose budget falls between 3 and 15 million. A total of 12,250,000 is available under this call for aid applications. The economic contribution will take the form of a subsidy and cannot exceed 50% of the total eligible costs, and the ceiling on the aid will be 150,000 per audiovisual work per country. This aid may be applied for by European enterprises with their registered office in one of the 27 EUMember States, the countries of the EEA and Switzerland and Croatia. The deadlines for submitting applications are December 1, 2010, April 1, 2011 and July 1, 2011.
8. Compatibility
8. COMPATIBILITY
As a general rule, the compatibility of these different incentives depends on the specific regulations governing each of them, some of which identify certain incompatibilities (either absolute or up to certain limits), whereas others make no reference to this point and, therefore, it is assumed that theoretically there is no incompatibility. In general and without limitation, notwithstanding the legislation applicable in each specific case, the general situation in relation to compatibility is as follows:
8.1 General State incentives

8.1.1 Training In principle, there are no incompatibilities with other types of aid. 8.1.2 Employment In principle, there are no incompatibilities with other types of aid. However, taken in conjunction with other incentives, they cannot exceed 60% of the social security cost of each contract created under these programs.
8.2 State incentives for specific industries

These incentives are compatible with the other types of aid, but they cannot exceed (in terms of net subsidy) the limits set by the EU for incentives in certain areas.
8.3 Incentives for investments in certain regions

8.3.1 Granted by the State (ZPE-ZED) In principle, no investment project will be able to receive additional financial or industry subsidies (of any nature or from any granting agency) if the maximum percentages stated in each Royal Decree of demarcation are exceeded, since both types of aid are combined with the regional aid received for the project when computing the related ceilings. If these internal limits are exceeded under an EU regulation, the related EU ceilings established thereunder must be respected at all times. 8.3.2 Granted by the Autonomous Community and Municipal Governments and Local Councils The general limit applicable to regional and industry financial aid also covers these incentives.
8.4 EU aid and incentives

These are, in principle, compatible with other types of aid, with the specific limitations described above. In fact, EU funds habitually finance many of the incentives (industrial and regional) described in previous sections.
Table 16
SUMMARY TABLE: GRANTS AND INCENTIVES TO INVESTMENT

Level of grant Where to apply When to apply How to apply On-line information
EU EIB EIF EIB, Spanish intermediary entities. EIB, Spanish intermediary entities. No specific rules. No specific rules. Ask intermediaries. Ask intermediaries. http://www.eib.org/ http://europa.eu/legislation_summar ies/institutional_affairs/institutions_b odies_and_agencies/o10007_es.htm http://europa.eu/legislation_summa ries/agriculture/general_framework/ g24234_es.htm
ERDF 20072013
Autonomous Community Governments. Ministry of Economy and Treasury General Directorate of Regional Incentives. Other granting agencies. Provincial Offices of the Ministry of Labor. Government of the Autonomous Community in which investment will be located. Government of the Autonomous Community in which investment will be located.
Depends on national Rules.
Depends on national Rules.
ESF 20072013
Depends on each program.
See Regulation 1081/2006.
http://europa.eu/legislation_summa ries/agriculture/general_framework/ g24232_es.htm http://www.mtas.es/uafse/es
EAGF and EAFRD (financing the Common Agricultural Policy) EFF
Depends on each program.
http://europa.eu/legislation_summa ries/agriculture/general_framework/l 11096_es.htm http://europa.eu/legislation_summa ries/agriculture/general_framework/l 60032_es.htm
Autonomous Depends on Communities national Rules. Governments Ministry of the Environment and Rural and Marine Areas.
http://europa.eu/pol/fish/index_es. htm http://europa.eu/legislation_summa ries/maritime_affairs_and_fisheries/ fisheries_sector_organisation_and_fi nancing/l66004_es.htm
R&D and TI PROGRAMS
European Commission General Directorate of Science, Research and Development.
See regulations for each program.
See regulations for each program.
http://cordis.europa.eu/fp7/home_e s.htm
Table 16 (Cont.)

STATE REGIONAL Autonomous Communities Governments (Managing Office). National Employment Service. General Directorate of Labor. Tripartite Foundation for Ongoing Training. No specific rules. Application+ memorandum + supporting documentation. Depends on type of aid. http://www.pap.meh.es/
LABOR INCENTIVES
No specific rules.
https://www.redtrabaja.es http://www.mtas.es
RURAL Autonomous DEVELOPMENT Communities AND Governments. AGRICULTURE SMEs AID on PROGRAM
No specific rules.
Depends on specific rules.
http://www.marm.es
Autonomous No specific Communities rules. Governments. Instituto de Crdito Oficial (ICO). Compaa Espaola Para la Financiacin del Desarrollo (COFIDES). Ministry of Industry, Tourism and Trade.
http://www.ipyme.org http://www.ico.es http://www.cofides.es/
MINING
No specific rules. Depends on specific rules. No specific rules. Depends on specific rules.
http://www.mityc.es
REINDUSTRIALI Ministry of Industry, ZATION Tourism and Trade Institute for the restructuring of coal mining and the development of alternative mining counties. ENERGY
http://www.mityc.es http://www.irmc.es
Institute for Energy Depends on Diversification and Saving calls. (IDAE). ICO Ministry of Science and Innovation.
Depends on calls.
http://www.idae.es http://www.ico.es http://www.micinn.es
Table 16 (Cont.)

STATE R&D Ministry of Science and Innovation. Ministry of Industry, Tourism and Trade/CTDI/ICO. ICAA / ICO. General Directorates of the different Ministries. Depends on calls. Depends on calls. http://www.ico.es http://www.cdti.es http://www.micinn.es http://www.ingenio2010.es http://www.mcu.es http://www.ico.es http://www.mpr.es/index.html
AUDIOVISUAL INDUSTRY OTHER
Depends on calls. Normally, no specific rules.
Depends on calls. Depends on type of aid
AUTONOMOUS COMMUNITY AND, MUNICIPAL GOVERNMENTS AND LOCAL COUNCILS REGIONAL, INDUSTRY AND LABOR Departments of the Autonomous Community Governments Departments of Local Councils. Depends on specific rules. Depends on specific rules; however, very similar to State incentives: application + memorandum + supporting documentation.
More information from
http://www.mpr.es/index.html
Main types of aid
Maximum limits for subsidies and loans
Effective amounts granted
On-line information
Loans with low interest and long maturities and grace periods. Guarantees, venture capital.
Up to 50% of the project Varies greatly cost (75% for Transdepending on European networks). project. Available as cofinancing with national funds. See comments in the corresponding paragraphs. See comments in the corresponding paragraphs.
Bank of Local Credit. EIB.
http://www.eib.org/
EIB.
http://www.eib.org/
Table 16 (Cont.)

Main types of aid Maximum limits for subsidies and loans Effective amounts granted More information from On-line information
Subsidies, preferential access to official credit, tax benefits. Subsidies.
Up to 80% of the project Between 15% cost. Available as and 30% of cofinancing with project cost. national funds. Up to 80% of the project 50% of project cost. Available as cost. cofinancing with national funds. Up to 50% of the project Between 25% cost. Available as and 50% of cofinancing with project cost. national funds.
Ministry of Economy. EU http://www.meh.es/ Commission, DG XVI. http://europa.eu
Ministry of Labor and Immigration.
http://www.mtas.es/
Subsidies.
Ministry of the Environment and of Rural and Marine Areas. General Directorate of Agriculture of EU Commission. Ministry of the Environment and of Rural and Marine Areas. General Directorate of Agriculture of EU. General Directorate of Science, Research and Development of the EU Commission. Centre for the Development of Industrial Technology (CDTI). Autonomous Community Governments. Ministry of Economy. General Subdirectorate of Regional Incentives.
http://www.marm.es http://europa.eu/
Subsidies, See comments in the preferential corresponding access to official paragraphs. credit.
Depends on national rules.
http://www.marm.es http://europa.eu/
Subsidies.
Up to 100% of the project cost. Available as cofinancing with national funds.
50% of project cost.
http://www.cdti.es/ http://europa.eu.int
Subsidies.
Up to 40% of the cost of the project.
Normally between 30% and 40% of the maximum limit.
http://www.mpr.es/index.html http://www.meh.es/
Table 16 (Cont.)

Main types of aid Maximum limits for subsidies and Effective amounts granted loans More information from On-line information
AUTONOMOUS COMMUNITY AND, MUNICIPAL GOVERNMENTS AND LOCAL COUNCILS Reduction of social security costs, assistance to and training of employees. Low interest loans. Depend on type of subsidy. The maximum amount. State Employment Service/Consejeras (Departments) of the Autonomous Community Governments General Directorate of Labor. Banco de Crdito Agrcola. Ministry of the Environment and of Rural and Marine Areas, General-Secretariat of Rural Development and Conservation of Nature. Directorate-General of SME Policy. https://www.redtrabaja.es http://www.mpr.es/index.html http://www.mtas.es/
Up to 90% of the project cost.
Between 30% and 50%.
http://www.marm.es
Subsidies and low- interest loans.

Subsidies.
Depends on type.
Depends on type.
http://www.ipyme.org
Office of Secretary of http://www.meh.es/ State for Economy, Energy and SMEs. Institute for Energy Diversification and Saving (IDAE). Ministry of Science and Innovation. http://www.idae.es/
Subsidies.
210 and 300 per m2 of installed collection area. In the case of refundable advances, it may not exceed 75% of the project cost.
Depends on type of facility.
Refundable loans, subsidies or a combination of the two. Subsidies and loans.
Depends on type.
http://www.micinn.es
Depends on type.
Depends on type.
ICAA.
http://www.mcu.es
Table 16 (Cont.)

Main types of aid Maximum limits for subsidies and Effective amounts granted loans More information from On-line information
AUTONOMOUS COMMUNITY AND, MUNICIPAL GOVERNMENTS AND LOCAL COUNCILS Subsidies and low- interest loans. Subsidies, special conditions for loans and credits and technical counseling and training courses. Depends on type. Depends on type. General Directorates of the different Ministries. Autonomous Community and, Municipal Governments and Local Councils. http://www.mpr.es/index.html
http://www.mpr.es/index.html
Sociedad Estatal para la Promocin y Atraccin de las Inversiones Exteriores, S.A.U. RM: Tomo 21818, libro 0, folio 15, seccin 8, hoja M-388683, Inscripcin 1. NIF: A-84479013. Depsito legal: M-3674-2007. Published 2011 This guide was researched and written by Garrigues on behalf of INVEST IN SPAIN. This guide is correct to the best of our knowledge and belief at the time indicated below. It is, however, written as a general guide so it is necesary that specific professional advice be sought before any action is taken. Madrid, January 2011
Prepared by:
Labor and Social Security regulations
The Spanish labor market has been characterized in the last years by the approval of different regulations in order to adopt measures according to the special economic circumstances. In this scenario, Law 35/2010, of September 2010, on Urgent Measures to Reform the Labor Market has been approved. The Reform is aimed for establishing measures for the contributions to the reduction of unemployment and the increase of the productivity of the Spanish economy, focusing on the following guidelines: Reducing the duality of the labor market, promoting the creation of stable and qualified employment. Reinforcing the instruments of internal flexibility in the development of labor relationships, and in particular, the measures of temporary reductions of working hours, as a mechanism that allows the maintenance of the employment during economic crisis, against measures of destruction of employment. Helping unemployed workers, particularly youths, reorganizing Social Security benefits and promoting formative contracts, improving labor intermediation mechanisms.
Labor and Social Security regulations
5
3 5 6 14 18 19 21 23 24 25 30 35
*
Guide to business in Spain Labor and Social Security regulations 2
1. Introduction 2. General rules 3. Contracts 4. Termination of employment contracts 5. Senior executive contracts 6. Contracts with temporary employment agencies 7. Employee representation 8. Acquisition of a Spanish business 9. Relocation of workers under a cross-border working arrangement 10. Visas and work and residence authorizations 11. Social security system 12. Prevention of occupational risks
1.Introduction
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1. INTRODUCTION
The basic law in the field of labor law is the Workers Statute (Legislative Royal Decree 1/1995), which defines the respective rights of employees and employers, general terms of labor employment contracts, procedures for dismissal and collective bargaining rules, among other aspects. In addition, there are specific regulations for different industries and certain groups of employees such as commercial representatives and senior management personnel. Another important source of labor law is collective labor agreements, which may be negotiated at the company level (or more reduced scope) or by industries at the state level (or more reduced territorial scope). Individual employment contracts also contain numerous mandatory provisions which govern labor relationships. There are also detailed regulations affecting working hours and occupational health and safety in specific industries. In the past years, different regulations have been approved in order to adopt measures according to the special economic circumstances, ending with the approval of Law 35/2010, of September 2010, on Urgent Measures to Reform the Labor Market. The Reform is aimed for establishing measures for the contribution to the reduction of unemployment and the increase of the productivity of the Spanish economy, focusing on the following guidelines: Reduction the duality of the labor market, promoting the creation of stable and qualified employment.
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FRANCE
Asturias
Cantabria
Bilbao
Galicia
Pas Vasco
Vitoria Logroo
Navarra
La Rioja
Soria
Castilla y Len
Catalua
Tarragona
Gerona
Aragn
Barcelona
vila
Comunidad de Madrid
Toledo
PORTUGAL
Badajoz
Cuenca
Palma De Mallorca
Extremadura
Mrida
Cceres
Baleares
Murcia
Murcia
Andaluca
Granada
Cdiz
Almera
Ceuta
Melilla
MORROCO
Canarias
Reinforcing the instruments of internal flexibility in the development of labor relationships, and in particular, the measures of temporary reductions of working hours, as a mechanism that allows the maintenance of the employment during economic crisis, against measures of destruction of employment. Helping unemployed workers, particularly youths, reorganizing Social Security benefits and promoting formative contracts, improving labor intermediation mechanisms. Although not strictly related to employment, brief mention should be made of Law 20/2007, of July 11, 2007, on the Self-Employed Work Statute (implemented by Royal Decree 197/2009, February 23), which introduces the new legal concept of the Economically Dependent SelfEmployed Worker. This concept defines self-employed workers who engage in an economic or professional activity for gain habitually, personally, directly and predominantly for one individual or legal entity known as the client, on which they are economically dependent since they receive from that client at least 75% of their income from economic or professional activities. It also establishes certain requirements that must simultaneously be met in order for such workers to be deemed economically dependent self-employed workers. The Law establishes specific regulations governing the provision of services by such workers to their clients.
2.General rules
2. GENERAL RULES
The main general rules of Spanish labor law are summarized below:
2.1 Non-discrimination
The Spanish Workers Statute generally prohibits discrimination in hiring or in the workplace based on sex, marital status, age, race, social status, religion or political ideology, joining a labor union or otherwise or on the basis of the different official languages in Spain. This protection is also expressly extended to foreigners (i.e., those other than Spanish or EU nationals) under Organic Law 4/2000. It also prohibits discrimination because of physical or mental handicap if the candidate is otherwise suitable for the job in question. Organic Law 3/2007, of March 22, 2007, for Effective Equality between Women and Men transposed into Spanish Law two EU Directives concerning equal treatment: Directive 2002/73/EC of the European Parliament and of the Council of September 23, 2002, amending Council Directive 76/207/EEC on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions; and Council Directive 2004/113/EC of December 13, 2004 implementing the principle of equal treatment between men and women in the access to and supply of goods and services. The purpose of the Organic Law is to enforce the principle of equal treatment and opportunities for men and women, particularly through the elimination of discrimination against women. With this in mind, having defined the principle of equal treatment and what constitutes direct and indirect discrimination, the Law establishes a series of policies aimed at achieving equality between men and women in various areas, including labor and employment. Finally, Royal Decree 1615/2009, of October 26, regulates the concession and utilization of the distinctive of Equality in the Company that develops the denomination of the distinctive of equality, the procedure and conditions for its granting and the rights and faculties derived from it. It is a brand of excellence in equality and it promotes companies compromised with the equality that stand out regarding politics in equality of treatment and opportunities of employment conditions, in the organization and in advertising products and services.
2.2 Minimum age

Persons under the age of 16 cannot work. There are also certain protective measures for persons under the age of 18, such as the prohibition against such persons working overtime or at night, or in certain hazardous or unhealthy activities or jobs.
3.Contracts
2.3 Form of contract

In general the contract may be made verbally or in writing. However, in certain cases the contract should necessarily be made in writing (for example, part-time and temporary contracts and training contracts with a duration of more than four weeks). If this requirement is not met, the contract is understood to be permanent and full time, unless otherwise evidenced.
3. CONTRACTS1
3.1 Types of contract
According to the duration of employment, employment contracts may be made for an indefinite term or for a specific duration. In general, contracts are made for an indefinite term and their unfair termination entitles the worker to receive the severance established by law. Temporary contracts are therefore generally "circumstance-driven"; i.e., except in certain specific cases, there must be circumstances justifying such temporary hiring. If the type of temporary contract does not conform to a cause established by law the contract is deemed to be permanent. Outlined below are the main types of contracts and their principal features. Contracts for a specific duration should be differentiated from training contracts. 3.1.1 Contracts for a specific duration The first group, according to the cause established by law, includes contracts for a specific project or service, casual contracts due to production overload or backlog and contracts to substitute employees entitled to return to their job. All these contracts should be made in writing and the cause for their temporary nature should be placed on record. Otherwise, the contract will be deemed to be made for an indefinite term, unless evidence of its temporary nature is provided. If the employment contract is made for a term of more than one year, the party intending to terminate the contract should serve notice at least fifteen days in advance or, as the case may be, give the advance notice established in the applicable Collective Labor Agreement. On the extinguishment of the temporary contracts, because of the expiration of the duration of the contract (with exception of the training contracts and contracts to substitute employees) the employee has the right to receive a severance payment pursuant to the following transitory regime established by Law 35/2010, of September 17:
1 www.sepe.es www.mtin.es
Table 1
TYPES OF TEMPORARY CONTRACTS

Type Cause Term Observations
Contract for a specific project or service
Performance of a specific independent and self-contained service or project within the companys business.
In principle uncertain. It will depend on the time of performance of the specific service or project with a maximum of 3 years, which may be extended for a further twelve months by a nationwide sectoral collective agreement or, in the absence thereof, by a sectoral collective agreement of a more limited scope.
It should mention the work and project clearly and precisely. Currently, its termination entitles the employee to receive severance equal to 8 days salary per year worked. Employees who are hired for more than 24 months on a temporary basis within a 30 month-period, with or without interruption, with two or more temporary contracts, directly or through temporary employment agencies, in the same or different position of the same Company or group of companies, should be hired for an indefinite term. When the maximum periods of duration of the agreement or the aggregated agreements have elapsed, the workers will acquire the status of indefinite-term employees of the company. The employer must furnish to the worker in writing, within ten days from the expiration of the period, a document ascertaining the new status as an indefinite-term employee of the company. The worker may request, in writing, from the Public Employment Service, a certificate listing the fixed-term or temporary contracts executed, in order to be able to evidence the status as a permanent employee of the company. The Public Employment Service will issue this document and will serve notice thereof on the company at which the worker is working.
Table 1 (Cont.)
TYPES OF TEMPORARY CONTRACTS

Type Cause Term Observations
Casual contract due to production overload or backlog
To meet market needs, production overload or backlog.
Maximum of 6 months within a period of 12 months (may be extended by an industry-wide collective labor agreement for 18 months but it may never exceed 3/4 of that period, or the maximum term of 12 months).
It should mention the work and project clearly and precisely. Currently, is termination entitles the employee to receive severance equal to 8 days salary per year worked. Employees who are hired for more than 24 months on a temporary basis within a 30 month-period, with or without interruption, with two or more temporary contracts, directly or through temporary employment agencies, in the same or different position of the same Company or group of companies, should be hired for an indefinite term. When the maximum periods have elapsed, the workers will acquire the status of indefinite-term employees of the company. The employer must furnish to the worker in writing, within ten days from the expiration of the period, a document ascertaining the new status as an indefinite-term employee of the company. The worker may request, in writing, from the Public Employment Service, a certificate listing the fixed-term or temporary contracts executed, in order to be able to evidence the status as a permanent employee of the company. The Public Employment Service will issue this document and will serve notice thereof on the company at which the worker is working.
Contract to substitute employees entitled to return to their job
To substitute workers entitled to return to their job by provision of law, of a collective labor agreement or of an individual contract.
From the beginning of One of the formalities is that it should contemplate the name of the replaced the period until the worker and the cause for his substitution. return of the replaced worker or expiry of the term established for the substitution.
3.1.2 Training contracts Also set forth below are the main features of training contracts.
Table 2
TRAINING CONTRACTS
Contract Purpose Duration To be noted
Work experience contract
Hiring of university graduates, Master, Doctors Degree or workers with higher or advanced vocational training qualifications or workers who are in possession of a certificate of professionalism.
Minimum of 6 months and maximum of 2 years. It may be extended twice, but always subject to the two-year limit. Sick leave, leave due to risk during pregnancy; leave for childbirth, adoption or fostering, leave due to risk during breastfeeding and paternity leave all toll the period for which the training contract runs. Minimum of 6 months and maximum of 2 years (it may be extended up to 3 years under a collective labor agreement or 4 in case of employees with disabilities). Sick leave, leave due to risk during pregnancy; leave for childbirth, adoption or fostering, leave due to risk during breastfeeding and paternity leave all toll the period for which the training contract runs.
Within 5 years of graduating or completing studies, or within 7 years if the contract is formalized with people with disabilities. The minimum salary is 60% during the first year and 75% during the second year of the fixed salary for a worker with an equivalent function.
Trainee contract
To acquire the necessary theoretical and practical training necessary for a certain post of work.
Even if there are special cases, as a general rule, this contract can be formalized with workers between 16 and 21 years old who do not have a qualification or certificate of professionalism to enter into a work experience contract. The age limit does not apply if it is formalized with people with disabilities. The employer undertakes to provide theoretical training that will never be less than 15% of the maximum working hours. The contract will be deemed ordinary if the theoretical training obligations are breached.
3.1.3 Contract to promote hiring for an indefinite period In relation to permanent employment, there is a type of contract to promote hiring for an indefinite period. It applies to the following groups:
Table 3
Severance payment (days of salary/years of services)
Agreements dated
Eight Nine Ten Eleven Twelve
Before 12-31-2011 From 1-1-2012 onwards From 1-1-2013 onwards From de 1-1-2014 onwards From 1-1-2015 onwards
a) Unemployed workers from any of the following groups, registered at the employment office: Young people aged 16 through 30. Unemployed women, when hired to render services in activities with a lower index of women employment; women within two years immediately following childbirth or adoption or fostering of minors, unemployed women rejoining the labor market after an absence of five years, and unemployed women who are the victims of gender-based violence and human trafficking. People over 45. People with disabilities. Unemployed people who have been registered for at least one month as jobseekers. Unemployed persons who during the two years before the signature of the contract, have been employed only under temporary contracts, including training contracts. b) Unemployed persons who, during the two years before the signature of the contract, have had an indefinite-term contract terminated at a different company. Conversion on indefinite term employments of employees hired by the same employer through fixed term or temporary contracts, including training contracts formalized as from June 18, 2010. Such contracts should be transformed into permanent contracts before December 31, 2011, conditioned to the fact that its
duration has not exceeded six months (such maximum duration does not apply to training contracts). If a contract of this type is terminated on objective grounds and its termination is then adjudged or recognized by the employer to be unjustified, the worker will be entitled to severance equal to 33 days pay per year worked, with periods of less than one year being prorated by month, and up to a maximum of 24 months pay. Additionally, reductions in employer social security contributions to companies that employ on a permanent basis unemployed workers from among any of the groups contemplated therein. The groups at which these incentives and reductions are aimed are as follows: Indefinite-term recruitment of unemployed persons aged between 16 and 30 years, with special problems to obtain employment (registered in the Employment Office for at least twelve months within the former eighteen months and who have not completed compulsory schooling or have no occupational qualification) and are hired before December, 31, 2011. Indefinite-term recruitment of unemployed persons over the age of 45 years, registered in the Employment Office for at least twelve months within the former eighteen months, and are hired before December, 31, 2011. Conversion into indefinite-term contracts of training, relief or substitution contracts due to the bringing forward of the retirement age signed on any date, and are converted before December, 31, 2011. It has to be born in mind that the new recruitment or conversions, unless related to relief contracts, involve an increase in the level of permanent employment at the company. (For further information, see section 2 on State Incentives for Training and Employment in Chapter 4). 3.1.4 Part-time contracts Employment contracts may be made full-time or part-time. Part-time contract is defined as a contract in which a number of hours of work has been agreed with the worker per week, month or year, less than the working hours of a comparable full-time worker (this term means a full-time worker of the same company and workplace who performs identical or similar work). Part-time workers have the same rights as full-time workers considering the existence of rights recognized proportionally, according to the time worked.
3.2 Trial period

Employers can verify a workers abilities through the possibility of agreeing on a trial period during which the employer or the worker can freely terminate the contract without having to allege or prove any cause, without prior notice and with no right to any indemnity in favor of the worker or the employer.
In any event, where a trial period is agreed (provided that the worker has not performed the same functions before at the company under any type of employment contract, in which case the trial period would be null and void), it must be put in writing. Collective labor agreements may establish time limits for trial periods, which, as a general rule and in the absence of any provision in the collective labor agreement, cannot exceed: Six months for graduate specialists. Two months for other employees. At companies with fewer than twenty-five employees, the trial period for non-graduate specialists cannot exceed three months. Training contracts and special employment contracts (domestic workers, senior executives, among others) have their own specific trial periods.
3.3 Working hours

Working hours are as specified in collective labor agreements or individual employment contracts. The maximum statutory working week is 40 hours of time actually worked, calculated on an annualized average basis. The irregular distribution of the working hours throughout the year may be agreed on by collective labor agreement, or by agreement between the company and the workers representatives. Overtime refers to hours worked above the maximum duration of an ordinary working hours. Other than in exceptional cases, overtime (i.e., hours worked in excess of the maximum statutory or agreed working hours) is voluntary and, if paid, cannot exceed 80 hours per year. Overtime can be compensated as time off within four months from the date on which the overtime was worked. If payment for overtime is agreed upon in the collective labor agreement or individual contract, the hourly overtime rate cannot be less than the normal hourly rate. Overtime compensated with time off does not count towards the 80-hour annual ceiling. A minimum one and a half days off per week is mandatory (usually Saturday afternoon and all day Sunday, or all day Sunday and Monday morning) which may be accumulated for periods of up to fourteen days. Workers under 18 are entitled to two uninterrupted days off per week. Central Government, autonomous community authorities and the respective municipal authorities cannot designate more than 14 public holidays a year. The Government can move national holidays falling on a weekday to the following Monday and all public holidays that fall on a Sunday will be moved to the following Monday. An annual paid vacation which may not under any circumstances be less than 30 calendar days is obligatory. The worker should know the corresponding dates at least two months in advance. Employees are entitled to paid leave of absence in certain circumstances such as marriage (15 days), union duties, unavoidable public and personal duties, breastfeeding, childbirth, moving
home, serious illness, hospitalization or death of relatives to the second degree of consanguinity, and so on. Directive 2003/88/EC of the European Parliament and the Council, of November 4, 2003, relating to certain aspects of working time, establishes safeguard provisions on working hours, particularly shiftwork and working at night (this Directive came into force on August 2, 2004). All the articles of the directive are governed by the general principle of conformance of the work to the worker. This Directive establishes, as a new feature, the obligation of the Member States to adopt the measures necessary for employers who regularly use night workers to report this to the competent authorities. Finally, it has to be born in mind that there are special circumstances that enable employees to reduce their working hours: i.e. employees with children under 8 years old, family members that cannot manage themselves on their own, and, recently introduced by Law 39/2010, of December 22, for the caring during hospitalization and long treatment, of the minor that has cancer or another severe disease that implies long hospitalization and the need of direct and permanent care, until the minor turns the age of 18.
3.4 Wages and salaries

The official minimum wage is established by the Government each year, and is 641.40 per month or 8,979.60 per year for persons over 18 years of age (including 12 monthly and 2 extra payroll payments) for 2011. However, the minimum wages for each job category are usually regulated in collective labor agreements. Salaries cannot be paid at intervals of more than one month. At least two extra payroll payments must be paid each year: one at Christmas and the other on the date stipulated in the relevant collective labor agreement (generally before the summer vacation period). Thus, an employees gross annual salary is usually apportioned in 14 payroll payments; however, payment in 12 monthly installments can be agreed on in a collective agreement.
4.Termination of employment contracts
4. TERMINATION OF EMPLOYMENT CONTRACTS2

4.1 Dismissals
An employment contract may be terminated for certain reasons which normally do not give rise to a dispute, such as mutual agreement, expiration of the contract term, death or retirement of the employee or of the employer, and so on. In addition, the law regulates three principal grounds for dismissal of an employee: Collective layoff. Objective causes. Disciplinary action. The following table shows the causes and main features of the various types of dismissal:
Table 4
CAUSES OF DISMISSAL
Dismissal Legal causes Observations
Collective Economic, technical, organization or production The termination is performed through an layoff causes, whenever these affect, in a 90-day administrative procedure. Dismissals will only be period, at least: possible if the Labor Authorities approve them by an administrative ruling. The entire payroll, if the number of workers affected is more than 5 and the business of The procedure includes the obligation of granting a the company ceases entirely. period of consultations with the workers representatives not superior than 30 days and, if none, At least 10 workers in companies with less a commission must be designated. than 100 employees. The consultations are intended to reach an agreement 10% of the employees in companies with for the termination of the contracts. Nevertheless, the from 100 to 300 workers. Labor Authorities may approve the dismissals even if no agreement is reached. More than 30 workers, in companies with 300 or more employees. The statutory severance consists of 20 days salary per year worked, up to a maximum of 12 months salary or more if so agreed.
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Table 4 (Cont.)
CAUSES OF DISMISSAL
Dismissal Legal causes Observations
Objective causes
Ineptitude of the worker supervened or known after being hired by the company. Inability of the worker to adapt to the changes in his job. Objectively evidenced need to cancel posts of work due to economic, technical, organization or production reasons. Justified by intermittent absences from work, reaching certain percentages of working days. In indefinite-term contracts arranged directly by public authorities or by not-for-profit entities to implement certain public plans and programs for want of the appropriate allocation to enable them to continue.
The employer should serve at least 15 days advance notice in writing. The advance notice may be replaced by payment of the salaries for said period. The severance (20 days salary per year worked, up to a maximum of 12 months salary) should be made available to the worker simultaneously with the written notice of dismissal. It may be appealed as if it were a disciplinary dismissal.
Disciplinary Action
Serious and willful breach of contract by the worker: Repeated and unjustified absenteeism. Insubordination or disobedience. Physical or verbal abuse towards the employer. Breach of contractual good faith or abuse of trust. Willful diminution in the ordinary job productivity. Habitual drug or alcohol abuse which adversely affects job performance. Harassment by reason of race or ethnic origin, religion or beliefs, disability, age or sexual orientation, and sexual or gender harassment towards the employer or the persons working at the enterprise.
The employee must be given written notice of dismissal, stating the causes and effective date of dismissal. If a workers representative or labor union delegate is dismissed, an adversary procedure should be instituted. If the worker is a labor union member, the union delegates should be granted a hearing. These safeguards may be increased by Collective Agreement. If these formalities are not met, a further dismissal may be performed in a term of twenty days by paying the employee the salaries that accrue in the meanwhile, with effects as of the date of the new notice.
It must be highlighted, that according to Law 35/2010, of September 17 Wage Guarantee Fund will reimburse 8 days salary per year of service as part of the severance payment for the indefinite-term contracts (ordinary contract as well as contracts to promote the indefinite hiring) that have been entered into after June 18, 2010, when they are terminated on objective grounds, collective dismissals,
or procedures of the Insolvency Law, provided that the contract must have had a duration exceeding one year.
4.2 Classification of the dismissal

A worker dismissed for any objective cause or disciplinary action may appeal the decision made by the employer before the Labor Courts, although a conciliation hearing must first be held between the worker and the employer to attempt to reach an agreement. This conciliation hearing is held before
Table 5
CATEGORIES OF DISMISSAL
Classification Events Effects
Justified
Conforming to law.
Disciplinary dismissal. Validation of the dismissal, the worker is not entitled to severance pay. Objective dismissal: Payment of 20 days salary per year worked, up to a limit of 12 months salary.
Unjustified
No legal cause exists for the dismissal or the procedure adopted is incorrect.
The employer may either: reinstate the worker, or terminate his contract, paying severance of 45 days salary per year worked, up to a maximum of 42 months salary. If the dismissed worker is a workers representative, the choice will rest with him.
Null
Its cause is a form of discrimination. It implies a violation of fundamental rights. It affects pregnant workers, during the period of suspension of the contract due to maternity or paternity, risk during pregnancy, adoption or fostering, reduction of working hours to care for children or handicapped persons or reduction for breastfeeding, and in certain circumstances female workers who have been the victims of gender violence. It also affects workers that have resumed their work once the period of suspension of the contract due to maternity, adoption or fostering, or paternity has ended, provided that no more than nine months have elapsed since the date of birth, adoption or fostering of the child.
Immediate reinstatement of the worker. Payment of the unpaid salaries.
an administrative body of conciliation and arbitration. The dismissal will be classified in one of the three categories set forth below: Where a dismissal is declared to be unjustified, the employer must choose between reinstating the employee or paying him or her statutory severance. In any event, the employer must pay the salaries that accrue during the proceeding, which consist of the salaries that the employee ceases to receive from the date of dismissal until (i) notification of the judgment, (ii) until the worker finds other employment before a judgment is handed down, or (iii) until the date of deposit of the statutory severance (and salaries during the proceeding) at the relevant Labor Court if the dismissal is acknowledged to be unjustified and provided that the dismissed worker is informed of the deposit of both the severance pay and the salaries accrued during the proceeding. However if the unjustified nature is recognized and the deposit is made at Court within 48 hours after the dismissal, no salaries will accrue during the proceeding.
5. Senior executive contracts
5. SENIOR EXECUTIVE CONTRACTS3

As mentioned earlier, special rules apply to certain categories of employee, including most notably senior executives and their special labor relationships, which are governed by Royal Decree 1382/1985, of August 1, 1985. A senior executive is an employee who has broad management authority in relation to the companys general objectives and exercises that authority independently and with full responsibility, reporting only to the companys supreme governing and managing body. The terms of employment for such executives are subject to fewer constraints than those for ordinary employees. As a general rule, the parties (employer and senior executive) have a wide margin of maneuver in defining their relationship by contract. Senior executives contracts can be terminated without cause (i.e., contractual withdrawal by employer), serving notice at least 3 months in advance, in which case they are entitled to severance pay of seven days pay per year worked, up to a maximum of six months pay, or such other severance as may have been agreed on. The senior executive may freely cancel his contract by serving at least three months advance notice. In addition, the Law establishes certain grounds on which the senior executive can terminate his or her contract and receive the agreed-upon severance pay and, in the absence thereof, the severance pay established for cases where the employer withdraws from the contract. Alternatively, a senior executive can be dismissed on any of the grounds stipulated in general labor legislation (objective causes, disciplinary reasons). If the dismissal is adjudged to be unjustified, the senior executive is entitled to 20 days pay per year worked, up to a maximum of 12 months pay, unless different terms of severance have been agreed on. It should be noted that the statutory severance for senior executives is lower than that for ordinary employees. However, in practice senior executive contracts usually provide for severance payments that are higher than the statutory minimum.
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6. Contracts with temporary employment agencies
6. CONTRACTS WITH TEMPORARY EMPLOYMENT AGENCIES4

In line with the general guidelines established by the European Union, Law 14/1994 regulated for the first time in Spain the activities of temporary employment agencies, which involve supplying manpower to their client companies to cover their temporary needs. This special situation of the client company with respect to the worker employed by the temporary employment agency is also regulated in Law 31/1995, of November 8, 1995, on the Prevention of Occupational Risks, which defines the liability of the client company with respect to workplace conditions. Law 35/2010 has specified that placed workers has to be warranted the application of essential conditions of employment as if they were hired directly by the client company. These conditions refer, among others, to remuneration, working hours, overtime, resting time, work during the night, vacation and holidays. Disclosure obligations to employee representatives are also extended. It has to be highlighted that remuneration of the placed employees comprises every economic compensation (fix and variable) linked to the post of work according to the applicable collective bargaining agreement. A manpower supply contract (statutorily defined as a contract between a temporary employment agency and a client company under which workers are supplied to provide services at the latter) can be concluded in the same circumstances, subject to the same conditions and requirements, and for the same term as those relating to a temporary contract entered into by the client company pursuant to the Workers Statute. Temporary employment agency can enter into an employment contract with a worker to cover successive manpower supply contracts with different client companies so long as the manpower supply contracts are fully stipulated when the employment contract is signed and, in all cases, they address one of the situations justifying the hiring of casual labor under Article 15.1.b) of the Workers Statute (i.e., market circumstances, the accumulation of tasks or excess orders), with each supply of manpower having to be formalized in the employment contract. The Temporary Employment Agency Law establishes various events in which companies are unable to enter into manpower supply contracts: To replace workers on strike at the user company. To perform activities and work subject to regulations because of their particular hazard to health or safety (such as jobs which involve exposure to ionizing radiation, agents of a cancerogenic, mutagenic or toxic nature for reproduction, or to biological agents). When the company has cancelled the job positions that it intends to fill by unjustified dismissal or for the causes contemplated for termination of the contract unilaterally by the worker, collective dismissal or dismissal for economic causes in the twelve months immediately preceding the date of the manpower supply contract.
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To lend workers to other temporary employment agencies. Since the entry into force of Royal Decree-Law 5/2006, workers who have been hired for longer than 24 months within a 30-month period, on a continuous or interrupted basis, for the same or different position at the same company or Group by means of two or more temporary contracts, whether hired directly or assigned through a temporary employment agency, under the same or different forms of contract for a specific duration, will become permanent employees. According to Law 35/2010, the client company will be subsidiary liable for the severance payment to which the placed employee could be entitled to once his contract is extinguished, apart from the salary and Social Security obligations (such liability will turn into joint and severally if the requirements for the manpower supply contracts are not met).
7. Employee representation
7. EMPLOYEE REPRESENTATION5
Labor unions collectively represent workers interests territorially (nationwide and so on) and by industry. Various employers associations also exist whether nationally or otherwise. At company level, personnel are represented by personnel delegates or works committees (depending on the number of employees at the company or the workplace) that may, or may not, belong to a labor union. At companies with more than ten workers, there is an automatic right to choose such representatives (although it is not obligatory for there to be representatives). The right to elect personnel delegates at companies that have between six and ten employees can be exercised if all the employees unanimously choose to be represented. Furthermore, employees of Community-scale enterprises or Community-scale groups of enterprises are entitled, following a prior request, to establish a European works committee or a procedure to inform and consult workers. This right is recognized under Law 10/1997 (amended in some respects by Law 44/1999), on the Rights to Inform or Consult Workers at Community-scale Enterprises and Community-scale Groups of Enterprises. Recent Directive 2009/38, OJEU of May 16, 2009) modifies EU legislation regarding European work council constitution and procedures of information and consultation in the companies.
7.1 Functions of works committees and personnel delegates

The functions of works committees and personnel delegates are the same and include, following the latest amendment by Law 38/2007, the following: To receive information, among others, on the performance of the economic sector to which the enterprise belongs; on the economic situation of the enterprise, the recent and likely evolution of its activities, and on compliance with equality obligations and other matters that may affect employment. To issue a report on certain labor issues, such as redundancy procedures and professional training plans at the company, before the employer implements its decision in this connection. To issue reports on mergers, absorptions or changes in the legal form of the company, if they affect a certain number of jobs. To monitor compliance with labor regulations. There are also certain statutory safeguards established regarding the dismissal of, or imposition of penalties on, employee representatives.
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7.2 Collective labor agreements

Collective labor agreements may be defined as agreements executed between the workers representatives and the employers representatives in order to regulate the terms of employment and working conditions and, as such, are mandatorily binding on the parties. Collective labor agreements may have a Company scope (or a smaller scope, such as a specific work place), or a Sectoral scope (governing a certain industry), which may in turn apply at State, autonomous community or provincial level. Collective bargaining has become a decisive factor in the reform of Spanish labor legislation. Such agreements are generally entered into for one or two years, although they can be extended for longer periods.
8. Acquisition of a Spanish business
8. ACQUISITION OF A SPANISH BUSINESS

Certain labor law provisions are particularly relevant when acquiring or selling a going concern in Spain. For example, if a business is transferred, both the seller and the buyer are jointly and severally liable for a period of three years after the transfer, for any labor claims which arose prior to the transfer. When a business is transferred, the new employer subrogates to the former employers labor and social security rights and obligations, including pension commitments, as provided in the legislation specific thereto and, in general, to as many employee welfare and supplementary obligations as the former employer may have entered into. The seller and buyer must previously inform their respective employees of certain aspects of the future transfer. Specifically, the information must comprise at least the following: Proposed date of transfer. Reasons for the transfer. Legal, economic and social consequences of the transfer for the employees. Measures envisaged for the employees. If there are no elected representatives at the affected companies, the information must be supplied directly to the employees affected by the transfer. There is also an obligation (applicable to both the seller and the buyer) to arrange for a period of consultations with elected employee representatives where, as a result of the transfer, labor measures are adopted for the personnel affected. The consultation period will address the measures envisaged and their consequences for the employees and must be arranged sufficiently in advance of the date on which such measures are to be taken. If the change in ownership results in significant changes in business activities, philosophy or management, senior management personnel may be entitled to terminate their employment within three months following the occurrence of these changes and to receive severance equal to seven days pay per year worked, up to a maximum of six months pay, or such severance as may have been agreed on.
9. Relocation of workers under a cross-border working arrangement
9. RELOCATION OF WORKERS UNDER A CROSS-BORDER WORKING ARRANGEMENT

Law 45/1999, of November 29, 1999 introduced several measures to monitor and provide protection for relocations of workers under cross-border working arrangements. There are a number of minimum terms of employment that employers in the European Union, and in the European Economic Area (the EU plus Norway, Switzerland, Iceland and Liechtenstein) must guarantee to their employees relocated temporarily to Spain, except for merchant navy firms in respect of their sailing personnel, irrespective of the law applicable to their employment contracts. Nevertheless, Additional Provision No. 4 of Law 45/1999 provides for the possibility of extending its scope to third countries by virtue of international agreements. This Law applies to relocations for a limited time period in the following cases: Within the same company or within a group of companies. Under international services contracts. When the workers of a temporary employment agency are posted to a client company in another EU Member State. The only exceptions to the above are in the case of employee relocations during training periods and those relocations that last less than eight days, unless they involve workers employed by temporary employment agencies. The minimum terms of employment to be guaranteed by employers in the above countries in accordance with Spanish labor legislation are: (i) working time, (ii) pay (which must be at least that provided for the same post under the relevant legal provision, regulation or collective labor agreement), (iii) equality of treatment, (iv) the rules on underage work, (v) prevention of occupational risks, (vi) nondiscrimination against temporary and part-time workers, (vii) respect for privacy, for dignity rights, and the freedom to join a union and (viii) rights of strike and assembly. However, if employees relocated to Spain enjoy more favorable terms in their country of origin, those terms apply. The employers in such cases are also required to perform certain obligations and disclose certain information to the competent labor authorities for monitoring and coordination purposes. Specifically, they should report the relocation to the Spanish Labor Authorities before the worker starts to work and regardless of the duration of the relocation. The legislation on labor infringements and penalties classifies a series of events in this respect. Formal defects in the reporting of worker relocations to Spain constitute a minor infringement, while the reporting of the relocation after it has taken place is a serious infringement. Failure to report the relocation and misrepresentation or concealment of the data contained in the report are considered to be gross infringements. Failures to meet the minimum working conditions mentioned above, which are classified according to the penalties applicable to Spanish employers, are considered to be administrative infringements.
10. Visas and work and residence authorizations
10. VISAS AND WORK AND RESIDENCE AUTHORIZATIONS6 7

Organic Law 8/2000 (of December 22, 2000) on the Rights and Freedoms of Foreigners in Spain and their Social Integration, together with the Organic Law 14/2003, on the same matter, clarified and even amended certain of the provisions introduced by the previous Organic Law 4/2000 (of January 11, 2000), in an attempt to provide greater guarantees for a policy to ensure the integration of nationals from third countries who reside legally on Spanish soil, and encouraging nondiscrimination of this group in Spanish economic, social and cultural life. This Organic Law is currently implemented by Royal Decree 2393/2004 (modified by Royal Decree 1162/2009, July 10). Organic Laws 8/2000 and 14/2003, introduced the following main new features: (i) they clarify the definition of foreigner (non-Spanish national or non-Community national), (ii) they extend to foreign nationals the constitutional safeguards in Article 13 of the Spanish Constitution on civil liberties, (iii) they introduce enforcement measures to combat illegal immigration, as well as measures to combat human trafficking, and enable certain activities linked to this traffic to be monitored. The Organic Law 4/2000 was amended by the Organic Law 2/2009, of 11 December, and that introduced important amendments in the regulation, including: New regulation of the rights of foreigners reunion, manifestation, association, unionism, strike, education and free legal assistance, in order to adapt it to the constitutional doctrine.
6 www.mtin.es www.mir.es www.mae.es 7 The procedures to be followed to obtain a taxpayer identification number (NIF) for directors not resident in Spain are as follows: (a) if the director is a legal entity, the procedure, which is free of charge, consists of filing a specific form along with certain documentation with the competent authorities, which will allocate a provisional number automatically. Once the company has been registered at the Mercantile Registry, a definitive taxpayer identification number should be obtained within a maximum of six months from obtainment of the provisional number; or (b) if the director is an individual, he/she must apply for an alien identification number (NIE), which will also be his/her taxpayer identification number, in one of the following two ways: - In Spain. At the Directorate-General of Police. A special or general power of attorney will be required for each of the directors and must be duly notarized, certified by apostille or legalized, as appropriate, if they cannot appear in person. - Abroad. A NIE can be applied for at Spanish Diplomatic Missions or Consular Offices. In order to obtain a taxpayer identification number for the companys shareholder(s) beforehand, the specific form must be filed with the competent authorities (where the shareholder is a legal entity) or an application made for an alien identification number (where the shareholder is an individual). Throughout the process, the represented shareholder(s) and/or directors must grant sufficient powers of attorney in order to take the above steps. (For further information, see section 3 on Tax Identification Number (NIF) and Foreigners Identity Number (NIE)).
Extension of the right to family reunification of not married couples. Creating a record to control entrance and departures of foreigners. Protection of foreign women victims of gender violence. New regulation of the national employment situation in the catalogue difficult covering occupations, limiting the initial authorizations to a concrete occupation and territory. Amendments of the sanctioning regime. Regulation of a special regime of researchers and highly qualified professionals. Introduction to the Spanish legislation of the European Union blue card (regulated by Directive 2009/50, of OJEU June 18, 2009). It also establishes the new possibility of taking into account periods of prior and continuous residence in other EU countries as holder of the card blue in order to obtain a long-term residence authorization. Foreigners included in the Community system may reside and work (as self-employed or employed workers) in Spain with no need to obtain work authorization. Foreigners to whom the Community system does not apply require administrative approval to be able to work and reside in Spain. Employers who intend to hire a foreigner who is not authorized to work in Spain (to whom the Community system does not apply) should previously obtain an authorization from the Ministry of Labor and Social Affairs. Nevertheless, lack of a work permit will not render the employment contract void with regard to the rights of the foreign worker and will not prevent him from obtaining the benefits to which he may be entitled (however, the foreigner who does not have a residence and work authorization will not be entitled to receiving unemployment).
10.1 Nationals from non-EU countries

Under Spanish labor legislation, non-EU nationals intending to work in Spain must obtain a special work visa and a work and residence authorization. The Spanish labor authorities grant different types of work authorization depending on the type of work and its duration. The duration of initial authorizations for employed work and residence will be of one year and will be restricted to a certain geographical area and type of work (except for when otherwise established in the Law and International Agreements signed by Spain). After the one-year period, initial authorizations can be renewed for a two-year period. Once renewed, an authorization will allow its holder to engage in any type of work anywhere in Spain. Work authorizations are granted taking into account the employment situation in Spain (that is, the need for labor and the level of unemployment for the jobs offered). Every quarter the Spanish National Employment Institute publishes a catalog of jobs that are difficult to fill which provides a breakdown by province of the occupations for which foreigners can be hired.
However, there are certain preferential situations, such as foreigners who have ties with Spain, rejoined relatives, highly qualified professionals, employees in the staff of a company or group of companies in another Country who intend to render services for the same company or group of companies in Spain, workers who assemble or repair imported machinery, or senior employees or managers. In these cases, the domestic employment situation does not have to be certified. Authorizations for self-employed work and residence are granted for an initial one-year period and can be renewed on expiry for further two-year periods. When a worker has resided legally and continuously in Spain for five years and has renewed his or her work and residence permits (whether for self-employed or employed work), he or she may obtain a long duration residence permit, which will be renewed every five years. Other types of work authorization are as follows:
Table 6
TYPES OF WORK AUTHORIZATION

Authorization type Scenario Duration
Frontier workers
Employed or self-employed work authorization for workers residing in the frontier area of a neighboring State to which they return each day. Its validity is restricted to this territorial area. Permitted types of work: Seasonal work for 9 months at most within a period of 12 consecutive months. Project work or services (assembly of industrial plants, infrastructure, etc.). Senior management, professional sportsmen and women, artistes in public performances, and such other groups as may be determined by legislation. Training and trainee work.
Five years at most, renewable on expiry.
Temporary work
The term of the contract, subject to a one-year limit (except in the case of seasonal authorizations), and not renewable, except for the renewals provided for in labor legislation.
Cross-border work
Granted to foreigners who work for a company established in a country that does not belong to the EU or the European Economic Area, and who are assigned temporarily to Spain in the following cases: Execution of an agreement between the foreign company and the company established in Spain that will receive the services. Temporary assignment of workers between companies of a Group (including training). Temporary assignment of highly qualified workers to supervise or advise on construction work or services that Spanish companies perform abroad.
One year at the most, renewable for another year at the most. In practice, it could be renewed until the maximun period of time established for the assignment in the applicable Bilateral Agreement on Social Security.
Table 6 (Cont.)
TYPES OF WORK AUTHORIZATION

Authorization type Scenario Duration
Special regime for researchers
It will be granted for foreigner researchers whose stay is exclusively for research projects purposes, in the frame of reception agreement signed with a research organism.
One year duration, renewable annually whenever the holder still meats the requirements established for the initial authorization. Pending implementation.
Residence and work of highly qualified professionals
It is granted to whom certifies higher education qualifications, or exceptionally, have a minimum of five year professional experience that could be considered comparable. Holder of EU blue card that has reside at least eighteen months in another EU country will be entitled to apply for this card.
It is important to bear in mind the creation of the Unit of Large Enterprises (Unidad de Grandes Empresas) under the Ruling of the Secretary of State for Immigration and Emigration dated February 28, 2007, ordering publication of the Spanish Cabinet Decision of February 16, 2007, approving the rules determining the procedure for authorizing foreigners to enter, reside, and work in Spain where their work is for employment-related, economic or social reasons, or reasons related to research and development, or teaching, projects which require a high level of qualification, or for artistic performances of special cultural interest. Specific, more flexible mechanisms have been established for the processing of work and residence permits (for both ordinary and cross-border employees) for qualified workers and for any family members who simultaneously process their permits. In order to access this new Unit, enterprises must meet some requirements regarding number of employees and volume of investment in Spain (the draft of a new runing not yet in force establishes the possibility of extending the application of this procedure to other sectors considered estrategic).
10.2 Nationals from EU Member States

Nationals from other Member States of the European Union, the European Economic Area and Switzerland do not need to obtain a work authorization as an employee or as a self-employed worker, because EU legislation on the free movement of workers applies fully. They are therefore entitled to perform any activity both as employees and as self-employed workers, in the same terms as Spanish citizens. Since Royal Decree 240/2007, of February 16, 2007 came into force, citizens of the European Union that intend to remain in Spain for more than three months must apply in person for registration on the Central Register of Foreigners within three months of their arrival in Spain. Accordingly, EU citizens must not apply for a resident alien identification card.
However, family members of EU citizens that are not themselves EU citizens must apply for the resident alien identification card. Lastly, pursuant to Royal Decree 1161/2009, July 10, those foreigner relative of European citizens whose visa is required for the entrance will not be required to apply for such visa whenever they have European residence card valid issued by another Country part of the EEE Agreement or Switzerland.
11. Social security system
11. SOCIAL SECURITY SYSTEM8

As a general rule, all employers, their employees, self-employed workers, members of manufacturing cooperatives, domestic personnel, military personnel, civil servants who reside and/or perform their duties in Spain are required to be registered with, and pay contributions to, the Spanish Social Security System. Even unemployed persons (subject to certain conditions) must pay contributions to the Social Security System. There are certain Bilateral Agreements on Social Security between Spain and other countries, which regulate the effects on Spanish public benefits of periods of contribution to the Social Security Systems of other States. The Agreements also determine the State in which Social Security contributions are to be paid in cases of relocations and temporary or permanent assignments abroad.
Table 7
BILATERAL AGREEMENTS ON SOCIAL SECURITY

Bilateral agreements with Spain Personal application
Andorra Argentina Australia Brazil Canada Chile Colombia Dominican Rep. Ecuador Japan Morocco Mexico Paraguay Peru Philippines Russia Tunisia Ukraine Uruguay USA Venezuela
Whichever nationality Whichever nationality Whichever nationality Whichever nationality Whichever nationality Spaniards and Chilean Spaniards and Colombians Spaniards and Dominicans Spaniards and Ecuadorians Whichever nationality Spaniards and Moroccans Spaniards and Mexicans Whichever nationality Whichever nationality Spaniards and Philippines Spaniards and Russians Spaniards and Tunisians Spaniards Ukrainians Whichever nationality Whichever nationality Spaniards and Venezuelans
Since January 1, 1986, the date of Spains accession to the EU, EU Social Security legislation applies to Spain. Two EU Regulations (Regulation Nos. 1408/71 and 574/72, as amended by Regulation No. 1249/92) ensure that the workers to whom they are applicable are not adversely affected from a Social Security standpoint by moving from one Member State to another (Switzerland is included for
8 www.seg-social.es www.mtin.es
these purposes). October 30, 2009, EU Regulation 987/2009, of the Parliament and Council of September 16, has been published in the Official European Union Journal, according to which implements application rules of EU Regulation 883/2004, on the coordination of social security systems. Therefore, both Regulations applicable since May 1, 2010, substituting previous Regulations 1408/1971 and 574/1972. The following basic rules apply in such cases: Workers are subject only to the Social Security legislation of one Member State. As a general rule, the applicable Social Security legislation will be that of the country in which the worker carries on his activity. There are some exceptions to this general rule. If a worker of one EU Member State is temporarily relocated to another Member State to work for his company in that other Member State, the worker will remain subject to the Social Security legislation of the first Member State, provided that the foreseeable duration of the work to be done does not exceed 12 months and he or she is not sent to replace another employee who has completed the period of time for which he or she was relocated (new regulations envisage an initial period of 24 months). This 12-month period can be extended for an additional period of the same duration. After that it may be extended again if the competent authorities of both States so agree. If certain requirements are met, the time during which a worker of one Member State contributes to the Social Security System of another Member State will count as a period of contribution to his or her own countrys Social Security System for the purpose of determining if the grace periods required for his or her future benefits under his or her own national Social Security System are met. Since January, 1, 2011, EU Regulations 883/2004 and 987/2009 will be applied for nationals of third countries that due only to their nationality are not covered by the Regulations, as well as their family members, whenever they have resided legally in the territory of a Member State and whenever the situation is not linked to only one Member State (UE Regulation n 1231/2010, of the European Parliament and the Council, of November 24). There are different contribution programs under the Spanish Social Security System: a) General Social Security program. b) There are other situations within the general Social Security program qualifying for special treatment, namely: Artists. Railroad workers. Sales representatives. Bullfighting professionals. Professional soccer players.
c) Special social security programs for: Agricultural workers (self-employed agricultural workers are included under the regime for selfemployed workers following the entry in force of Law 18/2007 of July 4, 2007). Seamen. Self-employed workers. Civil servants and military personnel. Domestic personnel. Coal miners. Students. Classification under these programs depends on the nature, conditions and characteristics of the activities carried on in Spain. Unless one of the special programs applies, the general Social Security program. Under this program, Social Security contributions are paid partly by the employer and partly by the employee. Personnel are classified under a number of professional and job categories for the purpose of determining their Social Security contribution. Each category has maximum and minimum contribution bases, which are generally reviewed from year to year. Employees whose total compensation exceeds the maximum base, or does not reach the minimum base, must bring their contributions into line with the contribution base for their respective category. For 2011, the maximum contribution base is 3,230.10 per month for all professional categories and groups. The minimum bases have been increased according to the professional categories and contribution groups, from January 1, 2011 vis--vis those in 2010, by the same percentage as the increase in the official minimum wage. Therefore the situation for the general Social Security program in 2011 is as follows9:
Table 8
CONTRIBUTION PROGRAMS
Category Minimum Base (Euros/month) Maximum Base (Euros/month)
Engineers and graduates Technical engineers and assistants Clerical and workshop supervisors Unqualified assistants Clerical officers Messengers Clerical assistants
9 According
1,045.20 867.00 754.20 748.20 748.20 748.20 748.20
3,230.10 3,230.10 3,230.10 3,230.10 3,230.10 3,230.10 3,230.10
to Orden TIN/41/2011, January 18, that approves rulings for the contributions to Social Security for 2011.
Table 8 (Cont.)
CONTRIBUTION PROGRAMS
Category Minimum Base (Euros/month) Maximum Base (Euros/month)
Foremen classes 1 and 2 Foremen class 3 and craftsmen Laborers Workers under 18 years of age
24.94 24.94 24.94 24.94
107.67 107.67 107.67 107.67
The contribution rates applicable to employers and employees in the General Social Security Program in 2010 would be as follows:
Table 9
CONTRIBUTION RATES EMPLOYERS/EMPLOYEES

Employer (%) Employee (%) Total (%)
General contingencies Unemployment General rule (10) Full-time fixed-term contracts Part-time fixed-term contracts Professional training Wage Guarantee Fund Total general rule Total full-time fixed-term contracts Total part-time fixed-term contracts
23.6 5.50 6.7 7.7 0.6 0.2 29.9 31.1 32.1
4.7 1.55 1.6 1.6 0.1 6.35 6.4 6.4
28.3 7.05 8.3 9.3 0.7 0.2 36.25 37.5 38.5
The total employer contribution rate is increased by higher percentages for the occupational accident and occupational disease contingencies provided for in the State Budget Law which will depend, as a general rule, on the activity of the company, although a common percentage will be applied across the board in the case of some occupations (e.g. office work) or situations (e.g. temporary disability). With respect to self-employed workers, the maximum contribution base for 2011 in the Special Social Security program for self-employed workers is, like that of the General program, 3,230.10 per month. The minimum contribution base for 2011 is 850.20 per month.
It includes: indefinite-term contracts (including part-time indefiniteterm contracts and indefinite-term contracts for seasonal work), and fixed-term contracts (in the form of training contracts, hand-over and substitute contracts, except for contracts under which reductions are received pursuant to Royal Decree-Law 11/1998), and any type of contract made with disabled workers who have been recognized as having a degree of disability of not less than 33% percent of their physical or mental capacity.
10
For their part, executive directors who receive compensation and who do not have actual control of the company should be included under the General Social Security program for employees as workers treated as employees (i.e., without entitlement to unemployment benefit or the Wage Guarantee Fund). Additionally, it has to be highlighted that there has been a recent approval of Law 32/2010, of August 5, that creates a specific system of protection of inactivity for self-employed when their activity has ended against their will. Contributions for protection form extinguishment of activity for selfemployed are calculated applying the rate of 2.2%. Lastly, it is worth mentioning the most recent reform of the social security system pursuant to Law 40/2007, of December 4, 2007. This new Law provides adequate regulatory support to part of the commitments included in the Agreement on Social Security Measures, executed on July 13, 2006 by the Spanish government, UGT, CCOO, CEOE and the CEPYME, which fundamentally affect benefits for temporary disability, permanent disability, retirement and survivorship. Furthermore, it is also worth mentioning the recent publication of Royal Decree 295/2009, March 6, on social security regulations of maternity, paternity, risk during pregnancy and breast feeding benefits.
12. Prevention of occupational risks
12. PREVENTION OF OCCUPATIONAL RISKS11

Under Law 31/1995, amended by Law 54/2003, on the Prevention of Occupational Risks and its implementing legislation, employers must ensure the health and safety of their employees, which does not only mean complying with the legislation and remedying situations of risk, but also planning preventive action from the outset of their business activities and planning ongoing action to perfect the existing protection levels. This includes the obligation to perform risk assessments, adopt measures in emergency cases, provide protective equipment and to ensure the health of employees, which includes ensuring that pregnant or breastfeeding women do not perform tasks which may put them or their unborn children/babies at risk. All employers must have a prevention service to provide advice and assistance in prevention tasks, for which the employer should nominate one or more workers. In companies with fewer than six workers, this service may be provided directly by the employer, provided that it customarily conducts its business at the workplace and has the necessary capacity to do so. It is also possible for a prevention service to be organized externally or outsourced. Prevention services are fully governed by Royal Decree 392/1997, amended by Royal Decree 604/2006, of May 19, 2006, which implements Law 31/1995. The Prevention Delegates, as employee representatives with specific risk prevention duties, supervise, monitor and advise on any measure in this area. Furthermore, at companies with more than 50 employees, a Health and Safety Committee must be established and employers must consult this Committee regularly on employee health and safety procedures. A failure to comply with these obligations may give rise to liability at administrative, labor, criminal and civil law. The Ministry of Labor and Social Affairs may impose substantial fines in the case of very serious infringements. Apart from Law 54/2003, which amends Law 31/1995 and the Labor Infringements and Penalties Law and reforms the legislative framework for the prevention of occupational risks, bringing Spanish law into line with EU regulations on health and safety at work, the entry into force of Royal Decree 171/2004 in April 2004 should also be highlighted. The Royal Decree implements Article 24 of Law 31/1995 on the Prevention of Occupational Risks with regard to the coordination of business activities and also Royal Decree 2177/2004, which amends Royal Decree 1215/1997 establishing the minimum health and safety requirements for the use of work equipment by workers in temporary work at a height. Recently, Royal Decree 337/2010 has introduced to the Prevention Service Regulations, among others, modifications that make straight forward the preventive documentations and regarding construction companies establishes, among others, minimum health and safety regulations. Increasingly stringent regulations on the prevention of occupational risks are being implemented in Spain and the EU to afford greater protection to workers.
11
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Prepared by:
Intellectual property law
Spanish Intellectual Property legislation is consistent with the Intellectual Property laws of other EU Member States. Spain has ratified the most relevant international treaties in this subject, which entails non-Spanish nationals may obtain protection of their IP rights in Spain, and that Spanish nationals may obtain such protection in virtually every other country in the world. This chapter describes the different ways of protecting trade marks, patents, utility models, plant varieties, industrial designs, topographies of semiconductor products and computer software in Spain, also focusing on the legal remedies available against Intellectual Property infringements.
Intellectual property law
6
3 5 10 12 13 15 16 17 18
1. Introduction 2. Trade marks 3. Protection of inventions in Spain 4. Plant varieties 5. Industrial designs 6. Topographies of semiconductor products 7. Copyright 8. Unfair competition 9. Action against infringement of intellectual property rights
Guide to business in Spain Intellectual property law 2
1.Introduction
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1. INTRODUCTION
Intellectual property is one of a companys main assets. It is therefore vital to ensure that it is properly protected before investing in a new market. In Spain, with rare exceptions, the registration principle prevails, which means that there can be no right to an invention or trade mark unless it has been previously registered. Spain, unlike the United States for example, follows the first-to-file system. The first person to apply for registration will have priority rights. Therefore use will give no rights against third parties except in the case of well-known marks. The principle of territoriality also prevails in the registration system, which entails protection only in countries where the trade mark or patent is registered. In other countries, the mark or patent could in principle, be freely used by third parties. Because the registration of a trade mark or a patent in its country of origin does not confer automatic protection in other countries, protection must consequently be sought by registration in each relevant country. Intellectual property rights are assets, and, like tangible goods, may be assigned, encumbered or transferred by any means provided by law. Third parties may obtain licenses to use registered rights in exchange for payment. Spain has ratified the main International Conventions in this area, which with rare exceptions, allow non-Spanish nationals to protect their rights in Spain.
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FRANCE
Asturias
Cantabria
Bilbao
Galicia
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Navarra
La Rioja
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Castilla y Len
Catalua
Tarragona
Gerona
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Barcelona
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Toledo
PORTUGAL
Badajoz
Cuenca
Palma De Mallorca
Extremadura
Mrida
Cceres
Baleares
Murcia
Murcia
Andaluca
Granada
Cdiz
Almera
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Melilla
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Spains membership of the European Union has also forced Spanish legislation to implement the guidelines laid down by the Community Directives on Intellectual Property, and Spain is therefore in line with Europe. The EU Resolution on the Protection of Intellectual Property has been enacted under the Spanish Presidency of the EU (January-June 2010) in order to strengthen the fight against piracy at EU level. The resolution invites and encourages Member States to promote the tasks of the European Anti-Piracy Observatory and fosters the protection of the IP rights of SMEs. The Resolution also emphasizes the need to implement a common methodology for collecting reliable and comparable data on piracy in the EU. Finally, the Resolution addresses the need to increase public awareness about the importance of protecting intellectual property and to implement further measures for its safeguard in the digital environment. A list of the main conventions is provided in the Exhibit at the end of this Chapter. The main Intellectual Property Conventions ratified by Spain include the following: Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement). Paris Convention. Patent Cooperation Treaty (PCT). European Patent Convention. Madrid Agreement. Madrid Protocol.
2.Trade marks
2. TRADE MARKS
A trade mark is any sign the main function of which is to distinguish the goods and services of one undertaking from those of other undertakings. It also plays an important role in advertising and goodwill consolidation. Rules on distinctive signs and on trade marks in particular, are effective and necessary instruments in the fields of business policy and consumer protection. When introducing a good or service on the Spanish market, steps must be taken to ensure that the trade mark: 1. May be freely used. 2. May be registered. 3. Has no negative connotations, i.e. it is commercially suitable. Before marketing goods or services, a search should be conducted to determine whether an identical or similar mark has been registered previously for identical or similar goods or services, thereby possibly preventing the sign from being used in the relevant territory. After confirming that no prior third-party rights are being infringed, one of the various procedures for obtaining registration should be chosen in order to secure exclusive rights and prevent the mark from being used by other companies. Obtaining registration also involves assessing that the mark is not generic, deceptive, descriptive or contrary to public policy or accepted principles of morality. Since April 1996, the procedures through which a registration having effect in Spain can be obtained are as follows: National system. International system: Madrid Agreement Madrid Protocol. Community Trade Mark.
2.1 National trade marks

National trade marks are registered by the Spanish Patent and Trade Mark Office (SPTO). These marks may consist of a large number of signs capable of being represented graphically, using words, names or surnames, signatures, numbers and number combinations, slogans, drawings, sounds, colours and three-dimensional shapes, including their packaging. Since the Trade Marks Law (Law 17/2001, of December 7) came into force, on July 31, 2002, the Spanish Office only conducts an ex officio examination as regards absolute grounds for refusal (mainly, that the mark is not generic, misleading, descriptive or contrary to public policy). The Spanish Office no longer examines relative grounds for refusal (the existence of identical or similar
earlier marks registered for identical or similar products, likely to be confused with the new trade mark) unless an opposition is filed by the owners of earlier signs with effects in Spain. The Spanish Patent and Trade Mark Office will not refuse trade marks ex officio based on relative grounds but shall perform a computer search to notify the holders of previous identical or similar signs, for informative purposes only, of the application, in case they are interested in filing notice of opposition. In recent years significant progress in the implementation of criteria consistent with the predominant systems in other European countries (e.g. a higher level of protection conferred to well-known trade marks) has been made, also recently allowing on-line trade mark filing, as contemplated in the eighth Additional Disposition of the Trade Marks Law. In addition, we refer to Spains ratification of the Singapore Treaty on the Law of Trademarks in 2009, essentially aimed at creating a modern international framework for the harmonization of administrative trademark registration procedures. Considering the Singapore Treaty explicitly recognises that non-traditional or non-conventional marks (such as holograms, smell, taste or tactile marks) benefit from protection, we may anticipate significant changes both from a legal and practical standpoint in the protection of non-traditional marks in Spain. Trade mark registration is valid for ten years and can be renewed indefinitely for further ten-year periods; however the registration may lapse or be revoked if the trade mark is not renewed, if it is not effectively used during an uninterrupted five-year period, or if it becomes generic or deceptive in connection with the goods and/or services it covers. With the recent creation of the Spanish Offices electronic platform (https://sede.oepm.gob.es) by Resolution of the Ministry of Industry of March 9, 2010, the SPTO is in step with the inter-ministerial initiative to shift the public service into the digital environment, simplifying and streamlining the administrative procedures concerning intellectual property rights.
2.2 International system

The International System comprises the Madrid Agreement of 1891 and the Protocol to the Madrid Agreement of 1989 administered by the World Intellectual Property Organization (WIPO) with headquarters in Geneva. It is important to point out that although known as the International System, it is not strictly speaking an international registration but rather a system in which various national registrations may be obtained through a unified administrative procedure. The applicant must designate the countries where he wishes to obtain protection. WIPO then proceeds to notify the national Offices of the designated countries and if no oppositions are filed pursuant to the national laws of each of the countries concerned within one year (pursuant to the Agreement) or 18 months (pursuant to the Protocol), the trade mark will be registered.
This however is not an open system because it can only be used by natural or legal persons who are domiciled or who have a real and effective establishment in a country signatory to one or both of the above conventions and may, on the basis of a registration or application at the Trade Marks Office of such State, obtain an international registration effective in all or some of the countries of the Madrid Union. The possibility of filing international trade mark applications in the Spanish language as of April 1, 2004 heralds a significant breakthrough for international trade mark protection. The adoption of Spanish as the third working language of the Madrid Protocol (together with English and French), will surely promote commercial relations due to the internationalisation of Spanish companies abroad and to the attraction of international entrepreneurial activities to Spanish markets. Said initiative will also be an added incentive for Spanish-speaking countries to join the Madrid System for the international registration of trade marks, offering their nationals the possibility of filing applications in their native tongue and an affordable and efficient way of obtaining and maintaining their trade marks. The most relevant additions to the Madrid System are the United States of America, where the Protocol became effective on November 2, 2003, and the European Union, which ratified the Madrid Protocol on October 1, 2004. The European Unions accession to the Madrid Protocol is the first time the EU as a regional body, adheres to a WIPO treaty. The extraordinary importance of said accession lies in the encouragement and development of economic activities and competition, and the improvement of the degree of integration and operation of the internal market.
2.3 Community Trade Marks

The main feature of the Community trade mark (CTM) is its unitary character. A single procedure and a single registration provide the owner of a trade mark with registered protection in the whole European Union, which since January 1, 2007 has included two new Member States: Bulgaria and Romania, making a total of 27 Member States. The Community trade mark covers a market of circa 500 million consumers with a single registration. It is important to point out that the Community trade mark does not replace trade mark rights in each Member State. The national, international and Community trade mark systems coexist and in some cases complement each other. The Community trade mark system provides a single registration which confers direct protection in all the Member countries of the European Union through a single application and a unitary procedure. Thus, rather than filing applications in each of the Member States where the relevant goods or services are to be offered, any undertaking may obtain exclusive rights over its trade mark throughout the European Union with a single Community trade mark registration.
This system is open to virtually all companies the world over, since any company domiciled or with an establishment in the European Union or in a country which is a party to the Paris Convention, or domiciled in a member state of the World Trade Organization, can obtain a CTM registration. The Community trade mark is administered by the Office for Harmonization of the Internal Market (OHIM) which is based in Alicante, Spain. The application may be submitted in any of the 20 official languages of the European Union, although the applicant is required to designate a second language (English, French, Spanish, Italian or German) which may be used as the language of opposition, revocation or invalidity proceedings. The OHIM only examines marks on absolute grounds (i.e. it will assess whether the mark is not descriptive, generic, deceptive or contrary to public policy or accepted principles of morality in any of the European Union countries). It does not examine applications on relative grounds (i.e. it will not refuse registration ex-officio on account of the existence of any earlier trade mark applications or registrations in the European Union). It is up to the owners of these registrations to file an opposition which will be decided upon by the OHIM. Considering there are over 5 million trade marks in the European Union, finding one which can be freely used and registered as a Community trade mark is not always an easy task. The main legal consequence of the Community Trade Mark system enlargement due to the adherence of the aforementioned new Member States is the automatic extension of all Community Trade Marks filed before the date of said adherence (whether they have already been registered or not) to the territories of the new Member States, without any administrative intervention nor the payment of additional fees. Extended CTMs may not be challenged based on absolute grounds for refusal (e.g. because the CTM is descriptive in Bulgarian), however, the owners of earlier national rights in the new Member States may prevent the use of the extended CTMs in the territory covered by the right, provided that such rights were acquired in good faith before the date of accession and provided further that it is possible pursuant to the applicable national legislation. As mentioned in the previous section, the adherence of the European Union to the Madrid Protocol connects the registration procedure of a CTM to the International trade mark registration System, enabling any citizen based in an EU State to protect its trade marks as a Community trade mark and also as an international registration in the Member States of the Madrid Protocol. Another important advantage of the Community trade mark is that no evidence of use is required to obtain registration, and use of a mark in any Member State is sufficient to maintain its validity. Once registered, a Community trade mark is valid for 10 years. This period can be renewed for further 10year terms subject to payment of the appropriate fees. Moreover, the dramatic reduction in May 2009 of the official fees relating to the registration of Community trade marks constitutes a great incentive to choosing this registration system.
The Community trade mark confers its proprietor the right to prevent unauthorised third parties throughout the entire European Union from using signs that because of their identity with or similarity to the mark and the identity or similarity of the goods or services they cover could generate a likelihood of confusion. It is relevant to mention regarding infringement actions that measures against the violation of trade mark rights may be enforced in any Member State of the European Union. Community trade mark infringement actions are brought before Community trade mark courts, which are national courts designated by each of the Member States. In this regard, we must mention Law 8/2003, of July 9, the Bankruptcy Reform Law (which modifies Law 6/1985 on the Judiciary), which designates the Mercantile Courts of Alicante and the Alicante Provincial Court as first and second instance Community Trade Mark courts in Spain, respectively, making their jurisdiction extensive to these effects to the entire national territory.
3. Protection of inventions in Spain
3. PROTECTION OF INVENTIONS IN SPAIN

Inventions are fully protected under Spanish law through patents, utility models, and designs, which guarantee the exclusive exploitation by their proprietors or by authorised third parties.
3.1 Patents
Patents seek to boost investments in R&D and to develop a countrys technology. The State grants exclusive rights to the invention for a specific term (generally 20 years) on the understanding that once this period has expired, the invention will become public domain to the benefit of society. The patent owner may exploit the invention and prevent third parties from exploiting it, marketing it or putting it into the course of trade without consent. During the duration of the patent, third parties may only exploit the invention where the necessary license has been granted. In order for an invention to be patentable, it must be new, involve inventive step and be capable of industrial application. Consequently, the three main requirements to obtain a patent are as follows: a. Novelty. b. Inventive step. c. Industrial application. Scientific discoveries or theories, mathematical methods, literary, scientific, artistic works and any other aesthetic creations, ways of performing a mental act, playing a game or doing business are not considered patentable. It is not possible to obtain a patent for an invention if it is a new animal or plant variety; a method of medical treatment or diagnosis. The amendment of the Patents Law implementing the European Directive for the legal protection of bio-technological inventions constitutes a significant step in this field. It should be noted that although it is expressly admitted that inventions of this kind are patentable, clear restrictions are established, particularly emphasizing the defence of ethics and public policy by excluding patents the exploitation of which might be contrary to these principles. In Spain both inventions and procedures may be patentable. Pharmaceutical products have been patentable since 1992. In connection with patents relating to medicinal products, we must refer to the inclusion of the Bolar clause or Bolar exemption in the Spanish Patent Law. According to this exemption, which is in accordance with the contents of Spanish Law 29/2006 on the Safety and Rational Use of Drugs and Sanitary Products, performing the necessary studies, tests and trials on a patented product before the patent has expired, will not amount to patent infringement where said tests and trials are conducted in order to obtain regulatory approval of generic drugs.
Patents are granted for a period of 20 years from the date on which the application is filed. A maintenance fee, which is subject to a gradual annual increase, is due yearly. Once the 20-year period has lapsed, anyone may make, use, offer for sale, or sell or import the invention without permission of the patentee, provided that matter covered by other unexpired patents is not used. The Complementary Protection Certificate for pharmaceutical and phytosanitary products, which has been in force since 1998, extends the patent by up to a maximum of 5 years for the time it took to obtain the relevant administrative authorization required to market the products. In addition to the national patent application system, regional registration systems are also available. Such systems allow the applicant to obtain protection for the invention in one or more countries; however each country determines whether or not to protect the patent in its territory pursuant to the applicable legislation. Since Spains ratification of the Munich European Patent Convention (EPC) in 1973, Spain may be designated in a European patent application. European patents are administered by the European Patent Office, based in Munich. The EPC system allows the registration of a bundle of national patents enforceable in the countries designated by the applicant. Finally, the amendment of the Patent Act operated by Law 17/2009, of November 23, eliminates the requirement of submitting a public deed for the register of patent assignments and licenses. The Patent Acts Implementing Regulation has been recently modified to include the new formal requirements for the recordation of assignments, licenses, rights in rem, changes of name and other modifications of rights, significantly reducing the formalities relating thereto.
3.2 PCT - Patent Cooperation Treaty

Spain has also ratified the PCT, which simplifies and reduces the cost of obtaining international patent protection through a unified procedure for its application and obtaining search reports, which are necessary to determine the novelty of the invention and the inventive step. By filing one international patent application under the PCT you can simultaneously seek protection for an invention in over one hundred countries throughout the world. However as opposed to the European patent, registration is granted by each of the relevant national Offices.
3.3 Utility models

This form of protection is intended for new inventions involving an inventive step whereby an object is given a configuration, structure, or constitution that results in an advantage, appreciable in practice, for its use or manufacture. A lesser degree of invention is required for utility models than for patents and, unlike patents, utility models require only national and not absolute novelty. They are granted for a non-extendable period of 10 years. This system of protection is particularly suitable for protecting tools, objects and devices of practical use.
4. Plant varieties
4. PLANT VARIETIES
Plant varieties constitute a category of intellectual property the legal status of which relates in many ways to that of patents. A plant variety may be considered distinct if it is clearly distinguishable from any other variety whose existence is a matter of common knowledge on the date of application; uniform if it is sufficiently uniform in the expression of its characteristics; and stable if it remains unchanged after repeated propagation. At present, the protection of plant varieties is regulated in Spain by Law 3/2000, of January 7, on the Legal System of Plant Variety Protection, and in the EU by (EC) Council Regulation No. 2100/94, of July 27, on Community Plant Variety Rights. The aforementioned Law 3/2000 has been modified by Law 3/2002, of March 12, in order to recognise Spanish Autonomous Communities as competent authorities in registration-related procedures of plant variety rights. As of October 1, 2004, the Spanish Criminal Code expressly includes the counterfeiting of plant varieties, the unauthorised reproduction or multiplication thereof, and the unauthorised use of the name of said varieties as criminal offences, which are penalised with fines, special disqualification and even prison.
5.Industrial designs
5. INDUSTRIAL DESIGNS
Unlike patents and utility models, designs protect the aesthetic appearance of goods rather than their functional novelty. Industrial designs are objects that may serve as prototypes for the manufacture of a product and that can be described in terms of their structure, configuration, ornamentation or representation. At present there are three procedures through which designs may be protected: National system. Community Designs. International system.
5.1 National System

The 20/2003 Industrial Design Law is the result of the efforts to modernise intellectual property legislation, particularly with regard to industrial models, which, until recently was regulated by a law dating from 1929. Amongst the most relevant features of said Law is the so-called twelve-month grace period which allows the holder or authorised third party to disclose the design without destroying its novelty. This allows a proprietor the opportunity to determine whether seeking protection for a design is likely to be worth the time and costs the registration before the Spanish Patent and Trademark Office entails. Registration is granted for a period of five years from the date on which the application was filed, renewable for further five-year periods up to a maximum of 25 years. It is also important to emphasize that the owner of a design shall have the right to use the design and to obtain relief should any third party use it without consent after its registration is published. In short, the current Industrial Design Law endeavours to put an end to deliberate copying, counterfeiting and piracy, and to foster creativity and innovation.
5.2 Community System

Community designs are protected in the European Union by Council Regulation 6/2002, which creates a uniform and unified legal framework within the EU in areas as significant as the automobile, textile, and shoe industries. The essential feature of the Community design system is the recognition of both registered and unregistered designs, provided these meet the requirements of novelty and individual character. A Registered Community Design (RCD) is filed before the OHIM and confers its owner the exclusive right to use and prevent the use by unauthorised third parties of said design. Designs are protected
for a period of five years that can be renewed for further five-year periods up to a maximum of 25 years. The Unregistered Community Design (UCD) protects a design for a period of three years form the date on which the design was first made available to the public within the Community and gives the right to prevent the commercial use of the design only if the use results from copying. The UCD is particularly advantageous for those commercial sectors, such as the fashion industry, which produce short-lived designs. Since the duration of registration is of lesser importance, a threeyear protection period is reasonable. The current design legislation encourages innovation and development of new products, providing mainly individual and medium-sized designers with a simple, cost-efficient, unitary system with effect in all 27 EU-Member States similar to that of Community trade marks.
5.3 International System. The Hague Agreement

The Hague Agreement Concerning the International Deposit of Industrial Designs (a WIPOadministered treaty) gives the owner of an industrial design the possibility to protect his design in several countries by simply filing one application. A national of any contracting party may protect its designs in any of the Member States, filing a single international application with WIPO. Such application, however, shall be subject to the applicable national legislation of each of the designated Member States. In this regard, we must highlight the European Union's membership of the Geneva Act of the Hague Agreement for the international registration of industrial designs, which became operational on 1 January 2008. By joining the Community design and the Hague System, the applicants of an international design may designate the 27 Member States of the EU with a single application and also base the application for an international design on a Community design. Such process is aimed at simplifying registration procedures, reduce the costs deriving from the international protection of designs and simplify the management of such rights. Lastly, we should refer to the recent inclusion of Spanish as a working language in The Hague System. The addition of Spanish to the current language regime, effective April 1st 2010, will entail a significant advantage for Spanish companies seeking the protection of their designs abroad, further acting as an incentive to attract more Spanish-speaking Member States.
6. Topographies of semiconductor products
6. TOPOGRAPHIES OF SEMICONDUCTOR PRODUCTS

Spanish legislation grants a period of protection of 10 years for topographies of semiconductor products, which are integrated semi-conductor circuits known as chips. The subject-matter of protection is not the integrated circuit itself but the way in which it is physically mounted and the physical arrangement of all its elements. For a semiconductor product to qualify for protection, the topography must be the result of the creators own intellectual efforts and must not be commonplace among manufacturers of semiconductor products. The law requires originality and creativity. The governing provisions are to be found in Law 11/1988, the result of the transposition to Spanish law of Community Directive 87/54/EEC of December 16, 1986.
7. Copyright
7. COPYRIGHT
In Spain, copyright is governed by Legislative Royal Decree 1/1996 of April 12, 1996. In addition, as far as copyright issues are concerned, it should be borne in mind that Spain is party to the Bern Convention for the Protection of Literary and Artistic Works. All literary, artistic or scientific works which are original are protected by copyright, in particular, books, music compositions, audiovisual works, projects, plans, graphics, computer programs and databases. In Spain, copyright protection is automatic, since it exists from the very moment the work is created. However, works that qualify for copyright protection may be registered on the Copyright Register, in order to serve as stronger evidence. Copyright protection is granted for 70 years from the death of the author, where the author is a natural person. In those cases in which the author is a legal person, the term of protection is 70 years from January 1 of the year following that in which the work was lawfully published, or following the year of its creation, if the work was not published. Copyright generates various economic and moral rights. Moral rights cannot be waived or assigned and they entitle the author to decide, inter alia, whether his work is to be published and to demand the acknowledgement as author of the work. Economic or exploitation rights can traded and transferred to third parties. In Spain, the author of the work is assumed to be the owner of the rights unless the work was created within a labour relationship, it is a collective work or the rights are assigned to a third party. As mentioned, computer programs and their accompanying documentation are protected by copyright and, with certain exceptions, are treated in the same way as literary works. Apart from copyright, the Spanish Copyright Law also grants neighboring rights to performers, phonogram producers, producers of audiovisual recordings and broadcasting organizations.
8. Unfair competition
8. UNFAIR COMPETITION
Intellectual property rights are also protected by unfair competition legislation. In Spain, the Unfair Competition Act of 1991 has been amended by Law 29/2009 of 30 December in order to bring domestic legislation on unfair competition into line with Directive 2005/29 of 11 May, concerning unfair business-to-consumer commercial practices in the internal market, and Directive 2006/114 of 12 December, concerning misleading and comparative advertising. The concept of unfair competition is very broad as any conduct objectively contrary to good faith is deemed to be unfair. The modifications established by Law 29/2009 significantly extends the scope of consumer protection, establishing two requirements for considering the conduct of traders unfair. Such conduct should be (i) contrary to professional diligence and (ii) capable of significantly distorting the economic behavior of the average consumer. Amongst others, the following conducts are deemed to be unfair: acts of confusion, misleading acts and omissions, aggressive acts, acts of denigration, comparison, imitation, exploitation of a third partys reputation, violation of trade secrets, incitement to breach of contract, infringement of laws relating to discrimination and dumping. The 2009 reform also considers the breach of professional self-regulatory codes to constitute an act of unfair competition. Unfair competition rules also relate to the protection of know-how by deeming the disclosure or exploitation, without the consent of their proprietor, of industrial or business secrets obtained lawfully in the understanding that they would be kept confidential, unfair. In connection with trademark infringement, we should bear in mind that if an action is fairly based on trademark law, it should not also be actionable as unfair competition, to the extent the relief provided by such laws overlaps. As the Spanish Supreme Court has clarified, the Unfair Competition Law neither substitutes nor displaces the Trademarks Law. In other words, the unfair competition legislation should not be invoked to resolve pure trademark-related conflicts.
9. Action against infringement of intellectual property rights
9. ACTION AGAINST INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS

The owner of intellectual property rights may enforce its rights in Spain by bringing the appropriate civil and criminal actions against infringers.
9.1 Civil actions

The procedure for bringing action before the Civil Courts is governed by the Civil Procedure Law, which establishes the ordinary trial as the procedural means for the trade mark owner to defend his rights against third parties infringements. The IP owner whose rights have been infringed can claim: An order for the cessation of the infringing acts. Damages. Seizure of the infringing goods. To be awarded the seized objects or their means of production. All necessary steps to prevent the continuation of the infringement; and/or: Publication of the judgment against the infringer. The owner of the rights may also seek injunctive relief to ensure the effectiveness of the available actions.
9.2 Criminal action

Following the amendment of the Spanish Criminal Code, counterfeiting of plant varieties and parallel import activities are expressly recognised as criminal offences as of October 1, 2004. Said offences are punished with terms of imprisonment and fines ranging from twelve to twenty four months. Said amendments of the Spanish Criminal Code establish sterner penalties where the offence is aggravated by certain circumstances. In such cases, imprisonment ranges from one to four years, fines from twelve to twenty-four months, and a two to five-year special disqualification from practicing the profession related to the offence committed. Please note the day-fine system consists of an economic penalty from a minimum of 1.20 to a maximum of 300.51, established according to the nature of the infringement and the economic situation of the convicted party. We must also mention Law 28/2002, of October 24, for the partial reform of the Criminal Procedure Law, also known as the Fast Lawsuits Law, and the basic Law supplementary thereto. This Law enables criminal offences against intellectual property rights to be pursued faster and more effectively. Failure to report the infringement does not prevent the preliminary investigation for the prevention of criminal offences involving intellectual property rights and the enforcement thereof.
Law 19/2006 of June 5 for the extension of protection of intellectual property rights and the adoption of procedural rules to ensure the enforcement of the relevant Community Regulations must also be mentioned. The aforesaid Law transposed into Spanish legislation Directive 2004/48/EC of the European Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property rights, the objective of which was to ensure that intellectual property rights benefit from a high, equivalent and homogeneous level of protection in the internal market. In order to achieve said objective, it is relevant to mention that substantive laws, such as the Revised Intellectual Property Law, the Patent Law, the Trade Mark Law and the Industrial Design Law, as well as procedural laws, such as the Civil Procedure Law, were duly modified. Among the most relevant measures established by the above-mentioned Law we may mention the possibility of requesting information on the origin and distribution networks of the goods or services in which the infringement is materialized, as well as access to the banking, financial and commercial documents of the infringing party. Likewise, the forms of injunctive relief aimed at preventing infringements which appear to be imminent were extended and the method for calculating the damages payable for the infringement of intellectual property rights were accordingly modified. To conclude, we refer to the recent amendment to the Criminal Code operated by Organic Law 5/2010 of 22 June. This reform addresses the counterfeit peddlers phenomenon (i.e. street vendors of counterfeit products) significantly reducing penalties for small-scale IP infringements. Illegal distribution and small-scale sale of pirate copies will be fined or punished with community service. The increased penalties adopted by Organic Law 15/2003 of November 25 had proved ineffective and lacked deterrent effects in practice, given the profile of offenders which, as noted by the Laws Explanatory Memorandum, are usually poverty-stricken individuals forced by criminal organizations to engage in such illegal activities.
Appendix Intellectual property conventions

APPENDIX
INTELLECTUAL PROPERTY CONVENTIONS

IP Country Paris Convention WTO1 (Trips)2 Madrid Agreement Madrid Protocol CTM3 PCT4 EPC5 Hague Agreement Berne Convention Trade Marks Patents Designs Copyright
Afghanistan African Intellectual Property Organisation (OAPI) Albania Algeria Andorra Angola Antigua and Barbuda Argentina Armenia Australia Austria Azerbaijan Bahamas Bahrain Bangladesh Barbados Belarus Belgium Belize Benin Bhutan Bolivia Bosnia and Herzegovina Botswana Brazil Brunei
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WTO: World Trade Organization TRIPS: Trade-Related aspects of Intellectual Property Rights CTM: Community Trade Mark PCT: Patent Cooperation Treaty EPC: European Patent Convention E: States recognizing European Patents O: Observer Governments. With the exception of the Holy See, observers should commence negotiations for adhesion in the term of 5 years after becoming observers.
APPENDIX (Cont.)

Bulgaria Burkina Faso Burundi Cambodia Cameroon Canada Cape Verde Central African Republic Chad Chile China Colombia Comoros Congo Costa Rica Cte dIvoire Croatia Cuba Cyprus Czech Republic Democratic Peoples Republic of Korea Democratic Republic of the Congo Denmark Djibouti Dominica Dominican Republic
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Ecuador Equatorial Guinea Egypt El Salvador Estonia Ethiopia European Communities Fiji Finland France Gabon Gambia Georgia Germany Ghana Greece Grenada Guatemala Guinea Guinea-Bissau Guyana Haiti Honduras Hong Kong Hungary Holy See Iceland
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APPENDIX (Cont.)

India Indonesia Iran, (Islamic Republic of) Iraq Ireland Israel Italy Jamaica Japan Jordan Kazakhstan Kenya Kuwait Kyrgyzstan Laos Latvia Lebanon Lesotho Liberia Libya Liechtenstein Lithuania Luxembourg Macao Madagascar Malawi Malaysia
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APPENDIX (Cont.)

Maldives Mali Malta Mauritania Mauritius Mexico Micronesia Monaco Mongolia Montenegro Morocco Mozambique Myanmar Namibia Nepal New Zealand Nicaragua Niger Nigeria Norway Oman Pakistan Panama Papua New Guinea Paraguay
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APPENDIX (Cont.)

Penghu, Kinmen and Matsu (Customs Territory other than Taiwan) Peru Philippines Poland Portugal Qatar Republic of Korea Republic of Macedonia (the former Yugoslav Republic of Macedonia) Republic of Moldova Romania Russian Federation Rwanda Saint Kitts and Nevis Saint Vincent and the Grenadines Saint Lucia Samoa San Marino Sao Tome and Prince Saudi Arabia Senegal Serbia
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APPENDIX (Cont.)

Seychelles Sierra Leone Singapore Solomon Islands Slovakia Slovenia South Africa Spain Sri Lanka Sudan Suriname Swaziland Sweden Switzerland Syria Tajikistan Thailand The Netherlands Togo Tonga Trinidad and Tobago Tunisia Turkey Turkmenistan Uganda Ukraine
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APPENDIX (Cont.)

United Arab Emirates United Kingdom United States of America Uruguay Uzbekistan Vanuatu Venezuela Vietnam Yemen Zambia Zimbabwe
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United Republic of Tanzania x
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Prepared by:
Legal framework and tax implications

of E-commerce in Spain
The main legal and tax issues to be taken into account in Spain with respect to e-commerce are discussed in this chapter. In Spain, as in neighboring countries, e-commerce-related activities are now being regulated specifically. Therefore, in transactions involving e-commerce, regard should be had to the legislation on distance sales, advertising, standard contract terms, electronic signatures, data protection, intellectual and industrial property, and e-commerce and information society services. Apart from these specific laws, it is also necessary to examine the general legislation on civil and commercial contracts. E-commerce raises tax issues that can be addressed with difficulty from a purely Spanish perspective. For this reason, the Spanish tax authorities have preferred to wait until a consensus is reached on the measures to be adopted regionally and even worldwide. Fair progress has been made in reaching a consensus on the VAT treatment of on-line e-commerce. As for the direct taxation issues, it is foreseeable that any consensus will take the form of a coordinated, uniform interpretation of the various criteria determining the tax treatment of e-commerce, rather than a legislative change. A good example of this is the amendments made to the commentaries on the OECD Model Convention.
Legal framework and tax implications

of E-commerce in Spain
7
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Guide to business in Spain Legal framework and tax implications of e-commerce in Spain 2
1. Introduction
2. Defining regulatory principles 3. Tax implications of e-commerce in Spain
1.Introduction
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1. INTRODUCTION
E-commerce-related activities are regulated by diverse rules contained in Spanish legislation. Therefore, in commercial transactions performed by telematic means, regard should be had to legislation on distance sales, advertising, standard contract terms, electronic signatures, data protection, intellectual and industrial property, and e-commerce and information society services. Apart from these specific laws, it is also necessary to look to the general legislation on civil and commercial contracts. Moreover, should the activity performed through electronic means be subject to sectorial regulations (e.g. banking, insurance, travel agencies, etc.), such legislation may be taken into consideration. In any event, the Spanish legislature is currently making resolute headway in regulating transactions of this nature. Examples of its aim to legislate on matters relating to new information technologies include the E-Commerce and Information Society Services Law, and, more recently, Electronic Signature Law 59/2003. A fundamental point to bear in mind when undertaking any initiative in the area of electronic transactions is that the applicable legislation varies depending on the potential recipient of the related offer. Consequently, there is greater leeway for the parties to agree if the transaction takes place between companies (business to business, B2B) than if the commercial dealings are between a company and a private consumer as the final recipient (business to consumer, B2C), since, among others, consumer protection legislation will apply in the latter case.
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In the tax sphere, e-commerce raises issues that are difficult to address from a purely Spanish perspective. Perhaps for that reason, the Spanish tax authorities have not seen fit to adopt unilateral measures, preferring to wait until a consensus is reached on the measures to be adopted regionally and even worldwide. As will be explained below, the process of reaching a consensus on the VAT treatment of online e-commerce is fairly advanced, as was shown by the approval of the EU Directive on e-commerce and its consequent transposition into Spanish law since July 1, 2003 onwards. As for the direct taxation issues (the existence of permanent establishments, the legal characterization of income, the transfer pricing problem and the application of the place-ofeffective-management rule), it is foreseeable that consensus will take the form of a coordinated, more uniform interpretation of the various criteria determining the tax treatment of e-commerce, rather than a legislative change. As will be explained later, an example of this greater coordination is the amendment made to the commentaries on the OECD Model Convention.
2. Defining regulatory principles
2. DEFINING REGULATORY PRINCIPLES

2.1 Civil and Commercial Legislation
2.1.1 Civil and Commercial Codes Electronic contracts are fully subject to the rules established by the Spanish Civil Code on obligations and contracts and by the Commercial Code. Electronic contracts are also subject to EC Regulation 593/2008, of June 17, 2008, on the law applicable to contractual obligations (Rome I) which, supplements the legislation existing in this area and which was already reflected in EC Regulation 864/2007, of July 11, 2007, on the law applicable to non-contractual obligations (Rome II). EC Regulation 593/2008 will apply to contractual obligations in the civil and commercial matters in situations involving a conflict of laws. Both the Civil Code and the Commercial Code were amended by Law 34/2002 on E-Commerce and Information Society Services in order to specifically establish that in contracts concluded by automatic means, there is consent from the moment acceptance is expressed. 2.1.2 Distance sales Equally applicable to electronic sales is Retail Trade Law 7/1996 in its Chapter on distance sales. This Law defines distance sales as sales concluded without the simultaneous physical presence of the buyer and the seller, where the sellers offer and the buyers acceptance are conveyed exclusively by a means of distance communication of any nature and within a distance contract system organized by the seller. Therefore, sales made by telematic means would be treated as distance sales, although the specific legislation on information society services and e-commerce would preferentially apply. This Law establishes that distance sale offers must contain at least the following: The sellers identity. The special features of the product, the price, and the shipping expenses and, if applicable, the cost of using the distance communication technique if it is calculated on a basis other than the basic rate basis. The payment method, and delivery or types of fulfillment of orders. The period for which the offer remains valid and, if applicable, the minimum term of the contract. The existence of a right to withdraw or terminate the contract and, if applicable, the circumstances and conditions in which the seller could supply a product of equivalent price and quality. The out-of-court dispute resolution procedure, if applicable, in which the seller participates. In sales of this type, consumers are also afforded a number of rights, such as:
The need for their express consent to the distance transaction, so that the failure to reply cannot be construed as acceptance of the offer. Prohibition on unsolicited shipments, where such shipments include a request for payment. The right to withdraw (with exceptions in cases such as the sale of assets subject to financial market rate fluctuations that the seller cannot control) within seven days from the receipt of the product, the exercise of which is not subject to any formality or penalty. However, please note that distance sales in which a consumer takes part are regulated by Legislative Royal Decree 1/2007, of November 16, 2007, approving the Revised General Consumer and User Protection Law and other supplementary laws. 2.1.3 Consumer protection Whenever e-commerce activities are targeted at consumers, it is also necessary to comply with consumer protection legislation, regulated in Legislative Royal Decree 1/2007, of November 16, 2007, approving the Revised General Consumer and User Protection Law and other supplementary laws. This Law, which, since December 2007, constitutes the main regulation to be considered in the relation with consumers and users, revises and repeals the following laws: General Consumer and User Protection Law 26/1984. The Package Travel Law. The Law on contracts concluded outside commercial outlets. The Law on liability for damage caused by defective products. The Law on safeguards in the sale of consumer goods. In this regard, the referred Legislative Royal Decree regulates the clauses which are deemed unfair in dealings with consumers. It should also be noted that Law 22/2007, of July 11, 2007, on the distance marketing of consumer financial services shall also been taken into consideration when dealing with consumers in the financial sector. The purpose of this Law is to implement Directive 2002/65/EC of the European Parliament and of the Council of September 23, 2002. The Law extends the protection granted by the general Law to the users of remote financial services by establishing, among others, the generic requirement to provide the consumer with precise and exhaustive information on the financial contract prior to its signature and by granting the consumer the right to withdraw from the distance contract previously concluded. Also, if in making the contract there is an intention to incorporate predisposed clauses into a plurality of contracts, regard must be had to Standard Contract Terms Law 7/1998, the former Article 5.3 of which (now Article 5.4) is implemented by Royal Decree 1906/1999 on telephone or electronic contracts with standard terms.
The referred Royal Decree establishes the requirements that must be met by distance contracts concluded by telephone, or by electronic or telematic means and which contain standard contract terms. Standard contract terms means pre-formulated terms the inclusion of which in a contract has been imposed by one of the parties (regardless of who actually drafted them, or their external appearance, scope, or other circumstances) and which have been drafted for inclusion in numerous contracts. Royal Decree 1906/1999 does not apply expressly to certain types of contract such as, for example, government contracts, employment contracts, contracts for the incorporation of companies, contracts for regulating family relations, contracts relating to financial services that are regulated by their own specific legislation, and so on. Conversely, the rules imposed by this Royal Decree apply to those contracts which contain standard contract terms that have been adhered or consented to in Spain, whatever the law applicable to them. To such effect, Royal Decree 1906/1999 imposes the following obligations when contracting by telephone or by electronic or telematic means with standard contract terms: To provide the consumer with prior information on all the terms of the contract at least 3 days before the conclusion of the contract, and to send the consumer the full wording of the standard terms by any suitable means. To send to the adhering party a receipt and information on all the terms of the contract concluded. This information must be sent immediately or when the good is delivered or when the contract is concluded, and it must be in writing or on another durable medium proposed by the adhering party and that is fit for the communication effected. The adhering party can exercise the right to withdraw from the contract, without incurring any penalty or expense, within seven business days, according to the official calendar of the adhering partys place of habitual residence. Time in the seven-day period will start running upon receipt of the merchandise when the purpose of the contract is the delivery of goods or from the conclusion of the contract when the contract is for the provision of services. If the information on the standard terms or the documentary confirmation is provided after the delivery of the merchandise or the conclusion of the contract, time in the seven-day period will start running from the performance of this obligation. The pre-formulating party also has the burden of proving that it has performed the duties imposed by the Royal Decree. Such duties include that of ensuring the existence and content of prior information on the terms, the delivery of the standard terms of, and documentary support for, the contract and, if applicable, the express waiver of the adhering party to the right of withdrawal. In this same framework of consumer protection, as a result of Directive 1999/44/EC, Law 23/2003 on Consumer Goods Sale Warranties was enacted. This Law, which was revised in the
aforementioned Legislative Royal Decree 1/2007, contains a raft of measures aimed at ensuring a minimum uniform standard of consumer protection. The main innovative feature of this Law was the establishment of a free 2-year warranty for consumers on all consumer goods, a safeguard which has been included in the aforementioned Royal Decree. The Law aims to offer consumers a range of possible remedies when the goods acquired are not in keeping with the terms of the contract, enabling consumers to demand their repair or substitution. 2.1.4 Other applicable regulations Due to its particular importance in electronic commerce it is worth underscoring the Payment Services Law 16/2009, of November 13, 2009 which has been developed by Royal Decree 712/2010, of May 28, on the legal regime of the payment services and payment institution which aims to adapt Spanish legislation to Community legislation in order to create a common legal framework that helps the operation of the single market in payment services. The Payment Services Law mainly affects the payment transactions that are most commonly used in an electronic commerce environment: transfers, direct debiting and cards, establishing as a general rule that the payer and the payee of the transaction must each bear the charges levied by their respective payment services providers and allowing merchants to charge a supplement or make a discount according to the payment instrument used, a practice which until now prevented agreements between card issuers and stores. This Law establishes the rules of access to the market by payment providers, creating a new category of payment services providers known as payment institutions, which will benefit competition in the market and the security of consumers. Similarly, the Payment Services Law regulates, among other aspects, the authorization regime (consent and withdrawal of consent) of payment transactions, the execution (receipt, refusal, revocability) of payment orders, requests for refunds, the liability of payment services providers, out-of-court complaint and redress procedures for the settlement of disputes and the rules on penalties applicable to payment services providers. Lastly, worthy of note is Law 29/2009, of December 30, 2009, modifying the legal regime governing unfair competition and advertising in order to enhance consumer and user protection. Special mention should be made of the unfair practice status to be granted to the making of unwanted and reiterated proposals by telephone, fax, e-mail and other means of long-distance communication, unless such proposals are legally justified for the purpose of complying with a contractual obligation. Moreover, when issuing such communications, traders and professionals must use systems that enable consumers to place on record their opposition to continuing to receive commercial proposals from such traders or professionals. Thus, when making such proposals by telephone, calls must be made from an identifiable number.
2.2 Telematic billing

The Value Added Tax Law 37/1992 states in Article 88.2 the possibility of issuing invoices or analogous documents through telematic means with the same effects as it has been accomplished
with paper based invoices. In this respect, Royal Decree Law 1496/2003 states that the obligation to issue invoices or analogous documents could be performed through any resource and, particularly, through electronic means, provided that the addressee has given its express consent and that the used electronic resources guarantee the authenticity of its origin and the integrity of its contents. For these purposes, transmission and storage of invoices by electronic means shall mean transmission or making available to the recipient and storage using electronic equipment for processing (including digital compression) and storage of data, and employing wires, radio transmission, optical technologies or other electromagnetic means. Moreover, the recent Order EHA/962/20071 issued by the Ministry of Economy and Finance, establishes and further develops particular obligations referred to telematic billing. Thus, such Order clarifies that any Advanced Electronic Signature based in a certain certificate and generated through safe signing procedures will be valid in order to guarantee the authenticity and origin of the bill. The Order also clarifies the legal requirements that electronic invoices issued abroad must meet in order to be validly accepted in Spain. This Order has been implemented by various pieces of legislation, including Order PRE/2971/2007, on the issue of invoices electronically where the addressee of the invoice is Central Government or public agencies related or attached to it, and on the submission to Central Government or to its related or attached public agencies of invoices issued between private individuals. This Order contains the requirements that need to be met by companies that bill the government electronically.
2.3 Electronic signature

In order to ensure the technical security and legal certainty of business activities that are carried on electronically, Electronic Signature Law 59/2003 was enacted. This new Law aims to promote more widespread use of the electronic signatures as an instrument that generates trust and security in telematic communications, thereby contributing to the development of e-commerce and of the e-government. Electronic signature is defined by the Law as a set of data, in electronic form, attached to or associated with other electronic data, which can be used as a method for identifying the signatory. A separate class of electronic signature is the advanced electronic signature, which is recognized as a signature which permits the signatory to be identified and the integrity of the data signed to be verified, since it is linked exclusively to the signatory and to the data to which it relates and since it has been created by means that the signatory can keep under his sole control. The Law includes the concept of recognized electronic signature, defining it as an advanced electronic signature based on a certificate recognized and generated through a secure-signature-creation device. Also defined are the concepts of electronic date and statement of certification practices.
1 Order EHA/92/2007, of April 10, 2007, implementing certain provisions concerning telematic billing and electronic invoice storage, contained in Royal Decree 1496/2003, of November 28, 2003, approving the regulations governing billing obligations.
Under the referred Law, both individuals and legal entities can act as signatories. In this way, the Law aims to encourage the placing of orders and issuing of invoices by telematic means, while at the same time safeguarding legal certainty for the entity holding the electronic signature and for the third parties who have dealings with it. However, electronic certificates of legal entities will not alter civil and commercial legislation as regards the provisions governing the concept of the hierarchical or voluntary representative. Furthermore, the Electronic Signature Law regulates the activity of certification service providers issuing certificates that link signature verification data to a certain signatory. The Government also has a service to publicize information on the certification service providers operating in the market. Given that it is not necessary to obtain prior authorization in order to provide certification services, the Ministry of Industry, Tourism and Trade2 is empowered to use independent and technically qualified entities to monitor and inspect certification service providers. Furthermore, in order to be able to offer their services, certification service providers must arrange liability insurance of at least 3 million to cover any risk of liability for damage or loss, although the Law makes this requirement flexible by permitting providers to combine various insurance instruments in order to be able cover such amount. Lastly, Electronic Signatures Law 59/2003 contains provisions regulating the electronic national identity card, which is defined as a recognized electronic certificate intended to popularize the use of secure electronic instruments capable of conferring the same integrity and authenticity as currently surround communications through physical means.
2.4 Electronic money

The Spanish legislation on electronic means of payment is somewhat scarce. Despite this, Law 44/2002 on Measures for the Reform of the Financial System regulates e-money in the Chapter on technological innovation. This Law transposes Directive 2000/46/EC on the taking up, pursuit of and prudential supervision of the business of electronic money institutions. Electronic money is defined by the Law as the monetary value as represented by a claim on the issuer which is stored on an electronic device, issued on receipt of funds of an amount not less in value than the monetary value issued and accepted as a means of payment by enterprises other than the issuer. A number of specific management and control procedures ensuring the sound operation and stability of the financial system are required in order to issue electronic money. Accordingly, the Ministry of Economy and Finance (following a report by Bank of Spain3) will be responsible for approving the creation of Electronic Money Institutions, and the Bank of Spain will be responsible for
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www.mityc.es www.bde.es
monitoring and inspecting these institutions and for ensuring they are recorded on the register created for that purpose. Law 44/2002 on Measures to Reform the Financial System has been implemented by Royal Decree 322/2008, of February 29, 2008, on the legal regime for electronic money institutions. It should be noted in this regard that only one of the three waivers contained in Directive 2000/46/EC of the European Parliament and of the Council of September 18, 2000, on the taking up, pursuit of and prudential supervision of the business of electronic money institutions, has been transposed into Spanish legislation. Thus, only the waiver established in Article 8(b) of that Directive has been transposed into Spanish law and, consequently, certain articles of Royal Decree 322/2008 will not apply where the electronic money issued by the institution is accepted as a means of payment only by any subsidiaries of the institution which perform operational or other ancillary functions related to electronic money issued or distributed by the institution, any parent undertaking of the institution or any other subsidiaries of that parent undertaking. Finally, please note that the Minister Cabinet of January 7, 2001 has approved the submission to the Spanish Parliament (Cortes Generales) of a Bill of Electronic Money whose main objectives are the following: Increase the accuracy of the legislation on the issuing of electronic money, clarifying the definitions and the application of the legislation. Removal of certain requirements to the electronic money institutions which have been revealed as inappropriate in relation to the risks derived from the activity of the electronic money institutions. Guarantee the consistency between the new legislation on payment entities and the legislation applicable to Electronic Money institutions.
2.5 Personal data protection

Another aspect that may have e-commerce implications is the possible processing of any personal data under transactions of this nature. Personal Data Protection Organic Law 15/1999 regulates the processing of an individuals personal data obtained by public and private entities in the course of their duties. Under the Law, personal data cannot be used indiscriminately and there are penalties in the event of a breach of the statutory obligations. The Organic Law applies to personal data, meaning any information concerning identified or unidentified individuals. Accordingly, it does not apply to data concerning legal entities; in addition, it does not apply to data concerning individual entrepreneurs or individuals being the contact person of a legal entity where the personal data is used exclusively in a B2B framework and where such data is limited to the following: name and surname(s), functions or jobs performed, as well as the postal or e-mail address and professional telephone and fax numbers. Personal data protection legislation revolves around the following principles:
The data subject must give prior consent to the processing of his or her personal data, except for the exceptions envisaged by the Law. The processing of specially protected data (i.e., data referring to ideology, labor union membership, religion, beliefs, ethnicity, health, and sex life) require the data subjects express consent (in writing in the first four cases). The data subject must be informed of a number of matters in relation to the envisaged processing of his or her personal data. Personal data may only be processed where they are adequate, relevant and not excessive in relation to the purpose for which they have been obtained. Personal data may only be communicated to a third party if the data subject has given his or her prior consent for such purpose, unless such communication is permitted by the Law. When the communication is addressed to a third party classified by the Law as a data processor, which provides a service entailing access to such data, prior consent by the data subject is not required, but the relationship must be regulated in a contract for services that includes a number of provisions established by the Law. For example, in the context of outsourcing agreements, the companies in charge of providing said services are usually considered as data processors with respect to the data of the contracting company and in the framework of the rendering of the outsourcing services. Data subjects are afforded the rights of access, rectification, cancellation, and opposition to and of the processing of their personal data. The creation of personal data filing systems must be previously notified to the Spanish Data Protection Agency4, the agency in charge of enforcing this legislation. The establishment of minor, serious or very serious infringements as a result of breaches of the obligations imposed by this Law, with penalties of up to 601,012.10. It should also be noted that communications of data involving the international movement of personal data require the prior authorization of the Director of the Spanish Data Protection Agency, when such data is to be sent to countries without a level of protection comparable to that of Spain, except in a number of specific cases such as, for example, when the data subject gives his or her unambiguous consent to the transfer of his or her data. In this connection, it is assumed that States that are part of the European Economic Area ensure an adequate level of protection. In other cases, a declaration in this connection is required from the EU Commission5 or a ruling from the Spanish Data Protection Agency that the data protection offered by the country in question is appropriate.
www.agpd.es Up to now, according to different Decisions the European Commission consider that the following countries provide an adequate level of protection: Switzerland, Hungary, Canada, Argentina, Guernsey, Isle of Man, Jersey, Faeroe Islands and Andorra, and, also, Uruguay and Israel are pending to be considered as countries that provide an adequate level of protection.
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Also of special note are the Regulations implementing Personal Data Protection Organic Law 15/1999, approved by Royal Decree 1720/2007, of December 21. These Regulations include many of the standards and recommendations that the Spanish Data Protection Agency has been issuing in recent years on the practical application of, and ways to execute, the various principles that govern personal data protection. In this respect, the Regulations govern matters such as ways of obtaining consent, in particular where data is processed for marketing purposes, the outsourcing of personal data processing or the way in which data subjects can exercise their rights of access, cancellation, rectification and opposition. The Regulations also include a chapter on the security measures that must be taken by data controllers, regardless of whether the data is processed by automatic or manual means. However, please note that the Judgement from the Supreme Court of July 15, 2010 has declared as null and void certain articles of the Regulations approving the Personal Data Protection Law and, also, has submitted a preliminary question to the European Court of Justice to seek clarification on the compatibility of the referred Regulations with the European Data Protection Directive.
2.6 Intellectual and industrial property and domain names

2.6.1 Intellectual property The legal protection of intellectual property is hugely important when engaging in e-commerce in the information society. For this reason, it is essential to determine as clearly as possible the ownership of the rights which can flow from content and information based on new technologies, the main hallmark of which is to facilitate the transmission and broad dissemination of such content and information. The key Spanish legislation in this area is Legislative Royal Decree 1/1996, approving the Revised Intellectual Property Law. Article 10 of the Revised Law establishes that all original literary, artistic or scientific creations expressed by any means or on any medium, whether tangible or intangible, currently known or invented in the future, are intellectual property. Accordingly, any creations meeting the originality requirement are capable of being protected, including graphic designs and source codes of, and information contained on, websites. Website content will be afforded such protection as pertains to the specific category of the content (graphics, music, literary works, audiovisual, databases, etc.) and, therefore, the person in charge of the website must hold the related rights, either as the original owner (of the collective work under his management or developed by employees) or as a licensee. Intellectual property has two clearly differentiated facets: on the one hand, the authors moral right to the work in question, which is nonwaivable and inalienable, that is to say, the right to the paternity of the work, to demand that its integrity be respected, and to modify the work or withdraw it from the market; and on the other hand, the authors economic right to the work, which is waivable and alienable even after death, and is composed of the rights of reproduction, distribution, transformation, and public communication.
In protecting intellectual property, the owner may seek both civil and criminal remedies. The Revised Law affords the holder of the rights of exploitation the possibility of applying for the cessation of unlawful activities (e.g., a website unlawfully disseminating a protected work could be closed down) and of seeking damages. From a criminal law standpoint, the protection of intellectual property on the Internet is based on Article 270 of the Criminal Code, which defines crimes against intellectual property as the reproduction, plagiarism, distribution or public communication of a literary, artistic or scientific work, in whole or in part, or the transformation, interpretation or performance thereof affixed on any type of medium or communicated by any means, without the permission of the holders or assigns of the relevant intellectual property rights. It should be noted that Law 23/2006 has recently been enacted to implement Directive 2001/29/EC on the harmonization of certain aspects of copyright and related rights in the information society, which amends the Revised Intellectual Property Law. The Law harmonizes the economic rights of reproduction, distribution and public communication, and regulates the new forms of interactive ondemand services, adapting the rules governing these rights to the new operating procedures existing in the Information Society. One of the points most debated in preparing the Law was the regulation of the right to remuneration for private copies matching the interests of the holders of intellectual property rights with the interests of entities subject to the payment of remuneration for private copies. Also enacted was Law 19/2006, of June 5, 2006, which expands the means available for protecting intellectual property rights and establishes procedural rules to facilitate the application of various EU regulations. 2.6.2 Industrial property When engaging in e-commerce, regard should also be had to industrial property matters. Inventions can be patented and, with respect to e-commerce, patents on encryption and compression algorithms may be established. However, Article 4.c of Patents and Utility Models Law 11/1986 provides that plans, rules, and methods for conducting a business, as well as software, cannot be patented. 2.6.3 Domain names Another essential issue for Internet operators to take into account is the registration and use of domain names. In this respect, regard must be had to Order ITC/1542/2005 approving the National Plan for Internet Domain Names under the country code for Spain (.es), which repeals the previous Order CTE/662/2003. Under this order, Red.es, a public for-profit entity, continues to perform the function of the public authority assigning domain names under the .es code. The previous order sought to reduce the restrictions on the assignation of domain names under the .es code by reducing the existing registration prohibitions, especially those which affected geographical or generic terms, and increasing the legitimacy and type of domain names that could be requested under the .es code.
Notwithstanding the above, evidence or linkage between the domain name applied for and the individual interested in registering it was still required. The new rules change the requirements necessary to obtain a .es domain name, considerably reducing the a priori monitoring of applications for such domain names and allowing them to be transferred to third parties. In line with the international trend, Order ITC/1542/2005 simplifies the system for assigning .es domain names, which can be requested directly from the granting authority or through an agent. Thus, second-level domain names under the code .es will be assigned on a first come, first serve basis. This assignment can be requested by individuals or legal entities and entities without legal personality that have interests in or ties with Spain. However, those which coincide with a first-level domain name or with generally known names of Internet terms will not be assigned. It is also established that domain names under the codes .com.es, .nom.es, .org.es, .gob.es and .edu.es may be assigned in the third level. Third-level domain names will also be assigned on a first come, first serve basis. The persons or entities that can apply for the domain names will vary according to the codes. Thus, for example, the Spanish Public Authorities and the public law entities attached to them can request domain names under the .gov.es code. In general, the domain name must fulfill the rules of syntax, that is, the only valid characters are letters of the Spanish alphabet, numbers (0-9) and the hyphen, provided that the lastmentioned is not the first or the last character, and the name must be a minimum of three and a maximum of sixty-three characters long, etc. Furthermore, the National Plan establishes that the right to use a domain name under the .es code is transferable provided that the acquiror meets the requirements necessary to own the domain name and that the transfer is notified to the assigning authority. Also, one of the main features of Order ITC/1542/2005 is the establishment of an extrajudicial body of mediation and arbitration for the resolution of disputes concerning the assignment of .es domain names.
2.7 Law 34/2002 on E-Commerce and Information Society Services

Law 34/2002 on E-Commerce and Information Society Services (ECISSA), in force since October 12, 2002, transposes Directive 2000/31/EC of the European Parliament and of the Council, relating to certain legal aspects of the services of the information society, particularly e-commerce on the domestic market. The ECISSA defines as information society services any service provided for a valuable consideration, long-distance, through electronic channels and upon individual request by the recipient, including also those not paid by the recipient, to the extent that they constitute an economic activity for the provider. Specifically, the following are deemed to be information society services: The contracting for goods and services through electronic means.
The organization and management of auctions using electronic means or of virtual shopping centers or markets. The management of purchases on the network by groups of persons. The sending of commercial communications. The supply of information through telematic channels. Video upon demand, as a service that the user may select through the network and, in general, the distribution of contents upon individual request. The ECISSA applies to information society service providers established in Spain. In this respect, the provider is considered to be established in Spain when its place of residence or registered office is located in Spanish territory, provided that it coincides with the place where its administrative management and business administration are actually centralized. Otherwise, the place where such management or direction is performed will be considered. Likewise, the ECISSA will apply to services rendered by providers who are resident or have a registered office in any other State when the services are offered through a permanent establishment located in Spain. Therefore, the use of technological means located in Spain to provide or access the service will not alone determine that the provider has an establishment in Spain. The above notwithstanding, the requirements of the ECISSA will apply to service providers established in another State of the European Union or the European Economic Area when the recipient of the services is located in Spain and the services affect: Intellectual or industrial property rights. Advertising issued by collective investment institutions. Direct insurance activities. Obligations arising from contracts with consumers. The lawfulness of non-requested commercial communications by e-mail. In any case, the organization, transfer, amendment and extinguishment of rights in rem on real properties located in Spain will be subject to the formal requirements of validity and effectiveness established by the laws of Spain. The ECISSA establishes the basic legal regime for information society service providers and e-mail activities, including: The principle of freedom to provide services not subject to prior authorization is established to provide information society services, except as regards public policy, public health protection, public security or consumer protection. In the case of service providers established in States that
do not belong to the European Economic Area, this principle will be applied in accordance with the applicable international agreements. The following obligations are imposed on information society service providers: To put in place the means to permit the recipients of the services and the responsible bodies to access easily, directly and free of charge, to the information on the provider (corporate name, registered office, registration particulars, tax identification number, etc.), on the price of the product (stating if it includes applicable expenses and shipping expenses) and on the codes of conduct to which it has adhered. For providers of intermediation services, to cooperate with the responsible authorities in interrupting the provision of information society services or in withdrawing contents. Please note that depending on the concrete provision of services that these intermediation service provider carry out (access to the internet, e-mail services), they are obliged to provide certain information such as, for example, the security measures in place, the filters for certain persons to access the site or the responsibility of the users. A specific system of liabilities is established for information society service providers, without prejudice to the provisions of civil, criminal and administrative legislation. Network operators and access suppliers will not be liable for the information transmitted unless they have originated the transmission, changed the data or selected these or their recipients. Service providers that make a temporary copy of the data requested by users are not liable for the stored information unless they change it, permit access by recipients who fail to comply with the conditions established for the purpose, fail to observe the generally accepted standards for the update of the information, interfere in the lawful use of the technology, fail to withdraw the stored information or do not render their access impossible when they become aware that a court or responsible administrative authority has ordered that it be withdrawn or that access to it be impeded. Data storage or hosting service providers will not be liable for stored information if they are unaware that such information is unlawful or, if they are so aware, they act diligently to withdraw or render access to the data impossible. The providers of services providing links or search instruments or contents will not be liable if they are unaware of the unlawful nature of the activity or the information to which they refer or recommend or, if they are so aware, if they act diligently to omit or render useless the respective link. With regards to the last two paragraphs, it should be borne in mind that Spanish legislation considers to be effective knowledge where a competent body has declared the data unlawful, ordered the withdrawal thereof or disabled the access thereto, or has declared the existence of harm and the provider is aware of the corresponding decision, notwithstanding procedures to
detect and withdraw contents that providers apply pursuant to voluntary agreements and other means of effective knowledge that may be established. This criterion is slightly different from that adopted in other European legislations. A specific system is established for commercial communications through electronic channels, without prejudice to the legislation in force on commercial, publicity and personal data protection matters. Thus, commercial communications through electronic channels must be clearly identifiable, stating the individual or corporation for whom they are performed, including at the beginning of the message the word publi (advertisement) and stating clearly the conditions for access and participation, in the case of discounts, prizes, gifts, competitions or promotional games. Additionally, advertising or promotional communications sent by e-mail or similar form of communication that have not been previously requested or expressly authorized by the recipients are prohibited. However, Law 32/2003 introduced an exception to the previous prohibition of obtaining express consent from the recipient of commercial communications. Thus, express consent will not be necessary when there is a pre-existing contractual relationship, provided that the supplier had lawfully obtained the recipients contact data and that the commercial communications refer to goods or services of the providers own company which are similar to those for which the recipient initially made a contract. Contracts through electronic channels are regulated, recognizing the effectiveness of the agreements made through electronic channels when consent has been granted and other requirements necessary for their validity are met. Additionally the following provisions are established for contracts made through electronic channels: The requirement that a document should be placed on record in writing is considered to be met when it is contained on electronic support. Documents on electronic support are admitted as documentary evidence in lawsuits. Determination of the legislation applicable to the contract made through electronic channels will be governed by the provisions of international private law. A series of obligations is established prior to the commencement of the contracting procedures relating to the information that should be furnished on the formalities for the making of the contract, the validity of offers or proposals of contracts and the availability, if any, of general contracting conditions. The offeror is obliged to confirm receipt of the acceptance within 24 hours after its receipt by an acknowledgement sent by e-mail or equivalent means to that used in the contracting procedure, permitting the recipient to file such confirmation. Agreements made through electronic channels in which the consumer participates will be assumed to have been made in the place where the consumer has his customary place of residence. When these contracts are made between entrepreneurs or professionals, they will
be assumed to have been made, in the absence of a provision on the matter, in the place where the service provider is established. When dealing with agreements entered into with customers, the Revised General Consumer and User Protection Law should be taken into account, in particular in connection with distance sales. The recognition is made of a cause of action for cessation against conduct contravening the ECISSA that is detrimental to collective or general consumers interests and the promotion of the out-of-court settlement of dispute. Minor, serious and gross infringements are established due to failure to comply with the obligations imposed in the ECISSA, with penalties of up to 600,000. Lastly, Final Provision Eight of the ECISSA has been implemented through the approval of Royal Decree 292/2004, of February 20, creating the public label of trust in Information Society Services and E-Commerce and regulating its requirements and the procedure whereby it is granted. This Royal Decree seeks to encourage the use of codes of conduct, especially those which are drawn up with the participation of consumer and user associations that use the consumers arbitration system or other extrajudicial systems for resolving disputes with consumers. The Royal Decree also creates a public label of trust which is intended to aid consumers and users in distinguishing which seals and codes provide a suitable level of protection. However, it is worth noting that Law 56/2007, of December 28, 2007, on Measures to Promote Information Society Services, modified, inter alia, the ECISSA and the Law on Electronic Signatures, and included measures aimed at avoiding the excessive obligations existing in the provision of ecommerce and information society services. Moreover, this Law seeks convergence with Europe and between autonomous communities and autonomous cities in matters relating to e-commerce and information society services. Among other provisions, we can highlight the establishment of the duty to cooperate for the intermediary service providers, the inclusion of nuances in the liability exemption regime for services providers that include links to other web pages and clarification of the duty of information to be given to the public. In addition, Article 2 of the Law establishes that enterprises in certain sectors with a special impact on economic activity (such as suppliers of electricity, water and gas, telecommunications companies, financial institutions, insurers, hypermarkets, transportation companies, travel agencies), as long as they are of a certain size, must provide an electronic communication channel to service users who have recognized electronic signature certificates. Another important law in this regard is Law 25/2007, of October 18, 2007, on the keeping of data relating to electronic communications and to public communications networks, which establishes that operators that provide electronic communication services to the public or operate public communications networks must (i) keep the data generated or processed within the context of the service for a period of 12 months -a period which may be reduced or extended between 6 months and 2 years for certain categories of data- and (ii) disclose such data to authorized agents whenever so required by a judicial authorization for the purposes of detecting, investigating and prosecuting serious offenses contemplated in the Criminal Code and in the special criminal laws.
3. Tax implications of e-commerce in Spain
3. TAX IMPLICATIONS OF E-COMMERCE IN SPAIN

3.1 Problems, general principles and initiatives taken in relation to taxation
Except for Spains commitments to the European Union on value added tax (VAT), at present there is no tax regime in Spain which specifically regulates the trading of goods and services on the Internet. Therefore, the same taxes and the same rules as those for other forms of commerce apply. This approach is in tune with the principles enunciated by the Spanish Tax Agency in the Report of the Commission analyzing the impact of e-commerce on the Spanish tax system prepared by the Office of the Secretary of State for Finance. With respect to VAT and formal VAT obligations, the basic bodies of legislation emanating from the European Union are as follows: Council Directive 2006/112/EC of November 28, 2006 on the common system of value added tax, which entered into force on January 1, 2007 and has been amended several times since then. This Directive recasts in a single legal text the main rules governing VAT and, in particular, those contained in the Sixth Directive (77/388/EEC), in Directive 2002/38/EC as regards the value added tax arrangements applicable to radio and television broadcasting services and certain electronically supplied services, and in Directive 2001/115/EC with a view to simplifying, modernizing and harmonizing the conditions laid down for invoicing in respect of value added tax, all of which are consequently repealed. Council Regulation (EC) no. 1798/2003 of October 7, 2003 on administrative cooperation in the field of value added tax and repealing Regulation (EEC) no. 218/92 on administrative cooperation in the field of indirect taxation (VAT) as regards additional measures regarding electronic commerce. This Regulation has recently been amended by Council Regulation no. 143/2008 of February 12, 2008 and by Council Regulation no. 37/2009 of December 16, 2008, which applies starting January 1, 2010. The amendments mainly affect the rules and procedures for the exchange by electronic means of value added tax information, in light of the changes introduced in the place-of-supply rules. It should be noted that the value added tax arrangements applicable to radio and television broadcasting services and certain electronically supplied services were in force temporarily until December 31, 2006. Council Directive 2006/138/EC of December 19, 2006 amends Directive 2006/112/EC on the common system of value added tax as regards the period of validity of the value added tax arrangements applicable to these services, extending such period of validity until December 31, 2008. In turn, Council Directive 2008/8/EC of February 12, 2008 amends, effective January 1, 2009, Directive 2006/112/EC, extending the above-mentioned period of validity to December 31, 2009. In addition, although Directive 2008/8/EC would be transposed in several phases, the first of which entered into force on January 1, 2010, it should be noted that that Directive amends Directive 2006/112/EEC as regards the place of supply of services. Among the changes introduced by the Directive, of note is the replacement of the former general rule for the place of
supply of services (suppliers place of business) with the rule that the place of supply of services to a taxable person acting as such (i.e. a trader or professional) shall be the place where that person has established his business (recipients place of business). The general rule for services supplied to nontaxable persons remains unchanged (i.e. the place where the supplier has established his business). The additional changes introduced with effect from January 1, 2015, with respect to electronically supplied services are discussed in the section on the indirect taxation of e-commerce. The provisions of these Directives and their transposition into Spanish law are examined in the section on the indirect taxation of e-commerce.
3.2 Direct taxation

Despite there being no differences in the tax treatment of income obtained electronically, there are a number of issues that have been addressed by both the OECD and by the Spanish tax authorities themselves: a) The permanent establishment issue. b) Legal characterization of income generated by the sale of goods and services on the Internet. c) Determination of taxable income and the transfer pricing problem. d) Application of the place of effective management rule to determine the tax residence of taxpayers engaging in e-commerce. The most relevant considerations and the progress made in analyzing those issues are summarized below: 3.2.1 The permanent establishment issue The issue specifically addressed is whether one or more of the following elements can be regarded as permanent establishments in the country where a company selling a good or supplying a service on the Internet is located: Server. Website on server. ISP (Internet Service Provider). In January 2003, the OECD published commentaries on the Articles of the Model Tax Convention. Specifically, a commentary on Article 5 (in relation to the definition of permanent establishment) was introduced so as to take account of the elements which define new forms of commerce. This was not modified by the commentaries on the Model Tax Convention published by the OECD in July 2008, nor by the recent commentaries on the Model Tax Convention published by the OECD in July 2010. The main conclusions drawn from the commentary are as follows:
A distinction must be made between a computer or server (which can constitute a permanent establishment) and the software used by that computer (which cannot constitute a permanent establishment). This distinction is important because the entity that operates the server hosting the website is normally different from the entity that carries on business over the Internet (hosting agreements). A website does not in itself constitute tangible property and, therefore, cannot be deemed a place of business if this is defined as facilities, equipment, or machinery capable of constituting a permanent establishment. In order for a server to constitute a fixed place of business it must be permanent, in that it must be located in a certain place for a sufficient length of time. What counts is whether, in fact, it is moved from one place to another rather than whether or not it can be moved. In this regard, a server used for e-commerce can be a permanent establishment regardless of whether or not there are personnel to operate that server, where no personnel are required for the operation assigned to the server. When determining whether or not the server installed by a given company in a country constitutes a permanent establishment of that company, it is particularly important to analyze whether the company engages in business activities specific to its corporate purpose through that server or whether, on the contrary, it only engages in activities of a preparatory or auxiliary character (such as advertising, market research, data gathering, providing a communications link between suppliers and customers, and making backup copies). ISPs do not generally constitute permanent establishments of companies that engage in ecommerce on websites since ISPs are not normally agents of a dependent status for those nonresident companies. 3.2.2 Legal characterization of income The second relevant issue in this area concerns the characterization of income and, in particular, the possibility that certain goods delivered on line may, merely by virtue of the fact that they are protected by intellectual or industrial property laws (such as music, books and, in particular, software), be characterized as generators of royalties and, therefore, be subject to taxation in the country of source. The commentaries on the OECD Model Convention characterize as business profits (instead of royalties) almost all payments made for all intangible goods delivered electronically, on the ground that the subject-matter of those transactions are copies of images, sounds or text rather than the right to exploit them commercially. However, Spain, by way of an observation on the commentaries on the Model Convention, holds the view that payments relating to the acquisition of rights in software may constitute a royalty. Specifically, in its observation in the 2003 version of the Model Convention, Spain considered that payments relating to software are royalties where less than full rights to the software are transferred either if the
payments are in consideration for the right to use a copyright on software for commercial exploitation or if they relate to software acquired for the business use of the purchaser where in this last case the software is not absolutely standard but rather adapted to the customers needs. The Directorate-General of Taxes expressed this view in its binding ruling of January 31, 2006, among others. However, the commentaries on the OECD Model Convention published in July 2008 take the novel view that payments made under arrangements between a software copyright holder and a distribution intermediary do not constitute a royalty if the rights acquired by the distributor are limited to those necessary for the commercial intermediary to distribute copies of the software. Thus, since distributors are paying only for the acquisition of the software copies and not to exploit any right in the software copyrights (without the right to reproduce the software), payments in these types of arrangements would be dealt with as business profits. The commentaries on the OECD Model Tax Convention published in July 2010 maintain this position. In light of this change in the commentaries on the Model Convention, Spain introduced a nuance in the observations on the commentaries published in July 2008 (which was maintained in the new commentaries on the OECD Model Convention published in July 2010), indicating that payments in consideration for the right to use a copyright on software for commercial exploitation constitute a royalty, except for payments for the right to distribute standardized software copies, not comprising the right neither to customize nor to reproduce them. Therefore, and as acknowledged by the Directorate-General of Taxes in its binding ruling of November 10, 2008, Spain considers that payments made for the right to distribute standardized software copies constitute business profits, although it continues to treat as royalties any payments made for the right to distribute software where the software has been adapted. In any case, as was recently clarified in a binding ruling of November 23, 2010, the transfer, together with the distribution right, of rights other than the license to adapt the software being distributed will entail the payments being treated as royalties. It should also be noted that under Article 13 of the Revised Text of the Non-resident Income Tax Law, approved by Legislative Royal Decree 5/2004, of March 5, amounts such as those paid for the use or the granting of use of rights in software are characterized as royalties. Also, in some tax treaties signed by Spain, income derived from the grant of the right to use software is expressly characterized as a royalty. In those cases where no mention is made, such as the SpainUS tax treaty, for the purpose of characterizing the applicable tax rate, the tax authorities have interpreted that the transfer of software cannot be characterized as a scientific or literary work and, therefore, cannot benefit from the rates specially envisaged for such work. However, in a judgment dated March 25, 2010, the Supreme Court characterized a software license as the licensing of the rights to exploit a literary work, although such characterization was made prior to the entry into force of the Spanish legislation containing a specific list of the items which are deemed royalties (which include the amounts paid for the use of, or the right to use, rights on computer programs).
3.2.3 Determination of taxable income and the transfer pricing problem The extensive use of intranets among different companies belonging to multinational groups and the enormous mobility of transactions over computer networks create highly complex problems when applying the traditional arms-length principle to valuing intercompany transactions. This is because: E-commerce encourages the detachment of activities from their location since it hugely multiplies transactions between companies within the same group. The special characteristics of online trade in content and services on the Internet make it very difficult to ascertain the market value of commercial transactions, above all bearing in mind that, sometimes, electronic content can be downloaded and services can be received free of charge. Due to the above, tax authorities in OECD countries (including Spain) are advocating the development of bilateral or multilateral systems for advance pricing agreements, applying the OECD transfer pricing guidelines to e-commerce. Noteworthy in this regard is the creation of an EU Joint Transfer Pricing Forum in which, among other matters, nonlegislative measures are being proposed to enable a uniform application of the OECD guidelines in the European Union. 3.2.4 Application of the place of effective management rule The special characteristics of e-commerce (which include easy detachability from location, relative anonymity, and the mobility of the parties involved) make the traditional rules on determining which country has the jurisdiction to tax the worldwide income obtained by one enterprise (based on the principle of residence by reference to the place of formation, the place of the registered office, or the place of effective management) more difficult to apply to taxpayers engaging in e-commerce. Indeed, the parameters established in the tax treaties for the purpose of apportioning tax powers among States in case of conflict (most of them based on the place-of-effective-management principle) are overridden in an area such as e-commerce, where the various managing bodies of the same enterprise can be located in different jurisdictions and be totally mobile during the year. In this regard, it can be extremely difficult to determine which place is the enterprises place of effective management, and this can lead to double taxation or no taxation at all. Although the international organizations that have examined this issue and the Spanish tax authorities themselves are aware of this problem, they have yet to arrive at clear conclusions on how to resolve it. Accordingly, a close watch must be kept on progress in the work being done in this area.
3.3 Indirect taxation

It is in the area of VAT where the most relevant coordinated legislative measures have been adopted. The indirect taxation implications for e-commerce mainly concern online e-commerce, a term that refers to products supplied on the Internet in digitized form (books, software, photographs, movies, music, and so on) and downloaded by a customer in real time onto his or her computer, having clicked on to the suppliers website and paid for the products in question (in contrast to offline
supplies where products sold on the Internet are subsequently delivered by using conventional means of transportation). Offline e-commerce poses fewer technical difficulties in relation to the VAT treatment of transactions because it still involves the physical supply of a tangible good. Accordingly, the traditional VAT concepts apply: domestic transactions, intra-Community acquisitions, and schemes for distance sales or imports. The main VAT issues arising in relation to e- commerce (especially online e-commerce) are in essence the following: The definition of taxable event as a supply of goods or services in online e- commerce transactions and the application of the relevant rules for determining the place of supply in order to determine its VAT treatment. The determination of the VAT rates applicable to the different types of e-commerce. The adaptation of the formal obligations and management of VAT to the realities of e-commerce and, particularly, the obligations regarding invoices. Each of these issues is briefly outlined below: 3.3.1 Definition of taxable event as a supply of goods or services for the purpose of determining the place of supply Law 53/2003 of December 30, on Tax, Administrative, Labor and Social Security Measures introduced certain changes to the current VAT Law with a view to redressing the damaging economic distortions now suffered by EU-based operators, and to bring the VAT Law into line with the changes introduced by the Directive 2002/38/EC. This Directive is based on the premise that all EU Member States will uniformly treat transactions performed electronically as supplies of services: The services affected by the changes are electronically supplied services including transactions for computer software, data processing, and other similar services relating to the use of computers and the supply of information, provided that they are supplied for consideration, when their transmission is sent initially and received at destination by electronic data processing equipment. The fact that the supplier and recipient of a service communicate by e-mail does not of itself mean that the service is an electronically supplied service. The services are deemed to have been supplied in the territory where Spanish VAT applies if: The recipient is a trader or professional and his place of business is in Spain. The supplier is established in Spain and the recipient is a nontrader residing in the EU or having an unidentifiable domicile. The services are supplied from outside the EU and the recipient is a nontrader domiciled in Spain.
The recipient is a trader or professional, the services are actually consumed in Spain, and the services have not been deemed supplied pursuant to the above rules in the EU, Canary Islands, Ceuta or Melilla. However, as has been noted, Directive 2008/8/EC establishes new place-of-supply rules for services that also affect services supplied electronically. In any case, the amendments that entered into force on January 1, 2010, did not make substantial changes to the place of supply of electronic services. Indeed, as far as Business to Business (B2B) transactions are concerned, the general rule applies whereby the services are deemed supplied at the recipients place of business, whereas in Business to Consumer (B2C) transactions, the services are also deemed supplied at the recipients place of business, except in cases where the trader or professional supplying the service is established in the EU and supplies the services to final consumers that are also established in the EU. Thus, the only new feature is that the reference to cases where the customers address is not known has been eliminated. In addition, as noted above, Directive 2008/8/EC introduces specific changes applicable to electronic services starting January 1, 2015. Specifically, from that date onwards, the place of supply of services supplied electronically by an EU-established trader to non-taxable persons who are established in an EU Member State, or who have their permanent address or usually reside in an EU Member State, will be the place where the non-taxable person is established, or where he has his permanent address or usually resides. In other words, the changes that will take effect on January 1, 2015 will mean that all electronically supplied services will be deemed supplied where the recipient has his permanent address or usually resides. In this connection, the place of supply for electronically supplied services can be summarized in accordance with the following table:
Table 1
PLACE OF SUPPLY DETERMINATION

Supplier Recipient Place of Supply
EU / Non-EU EU / Non-EU Spain EU Non-EU
Trader established in Spain Non-EU trader and actual consumption in Spain Nontrader resident in the EU Nontrader resident in Spain Nontrader resident or domiciled in Spain
Spain Spain Spain* Country of origin* Spain (Application of special scheme)
* As noted, in accordance with the amendments to be introduced from 2015 onwards, these services would be deemed supplied where the recipient has his permanent address or usually resides.
As regards determining who is the taxable person, it has been decided to fully apply the current legislation (Article 84 of the VAT Law) which establishes that: In general, the supplier of services is the taxable person, regardless of where he is established. In special circumstances, the recipient of the services (rather than the supplier) is the taxable person and is obligated to reverse charge the VAT under the reversal of VAT liability mechanism (this applies only where the supplier is a trader not established for VAT purposes in Spain and the customer receiving the services is a trader or professional established in Spain). Furthermore, in cases where the supplier of the services is not established in the EU and the customer is a final consumer (in Business to Consumer, or B2C, transactions), the supplier of the services is the taxable person. However, with a view to simplifying their obligations, suppliers only have to register (electronically) for VAT in one Member State, although they will have to charge the VAT relating to each of the jurisdictions where their customers are located and pay it over (also by telematic means) to the tax authorities of the Member State in which they are registered. Subsequently, that Member State will reapportion the VAT collected among the other countries. Non-established traders or professionals that apply this special regime in Spain will be entitled to a refund of input VAT in accordance with the refund procedure for non-established traders, without being subject to the generally applicable reciprocal treatment requirement established in the legislation. In addition, as noted above, Council Directive 2008/8/EC introduces specific changes that will apply to electronic services from January 1, 2015. Specifically, as from that date, the place of supply of services supplied electronically by an EU-established trader to non-taxable persons who are established in a Member State, or who have their permanent address or usually reside in a Member State, will be the place where the non-taxable person is established, or where he has his permanent address or usually resides. Likewise, a system similar to the existing one will be established for supplies of services by non-EU traders so as to permit the payment of VAT in the Member State where the supplier of the service resides. 3.3.2 Determination of the VAT rates applicable to the various types of e-commerce In line with the view held by the Spanish tax authorities, the standard VAT rate of 18% will apply in all cases, since it is a type of service for which the VAT Law makes no special provision. This general rate was raised from 16% to 18% starting July 1, 2010, as was established in the State Budget Law for 2010.
3.3.3 Formal obligations and management of taxes As regards formal obligations and the management of taxes, both the EU and the Spanish tax authorities ascribe to the principle that this form of commerce should not be hindered by the imposition of formal obligations that reduce the speed with which transactions should be performed. Of particular relevance in this regard are the rules contained in the Council Regulation (EEC) No. 1798/2003 on administrative cooperation in the field of indirect taxation, which, among other matters, provides that individuals and legal entities involved in intra-Community transactions can access the databases kept by the tax authorities of each Member State. This possibility of identifying reliably the status under which the recipient is acting (trader, professional or final consumer) is absolutely decisive for the proper tax treatment of each transaction. Lastly, it should be noted that the criteria contained in Council Directive 2006/112/EEC of November 28, 2006 concerning VAT billing have been transposed into Spanish Law by Royal Decree 1496/2003, of November 28, regulating billing obligations, with effect from January 1, 2004. The Royal Decree on billing establishes the legal rules applicable to the sending of invoices electronically, establishing that they may be sent electronically. Invoices can also be kept in an electronic format provided that it ensures the legibility of the invoices in the original format, in which they have been received, as well as the data and mechanisms that guarantee the authenticity of their origin and the integrity of their contents. Electronic invoices will be accepted for the purposes of charging and deducting VAT and for supporting expenses or credits taken for the purposes of other taxes. The contents of invoices issued electronically must be the same as those of invoices issued conventionally. Order EHA/962/2007, of April 10, 2007, implemented certain provisions on the telematic billing and the electronic storage of invoices in accordance with the provisions of the Billing Royal Decree and the references which such Royal Decree made to a subsequent implementation of these concepts. Under the Order, invoices can be sent electronically provided that the authenticity of their origin and the integrity of the documents sent are ensured, and provided that the recipient has given his express consent. For these purposes, authenticity can be ensured by using an advanced electronic signature, an electronic data exchange system, or other electronic billing systems proposed by the taxpayer. In the case of this last kind of system, the Order regulates the procedure to be followed to validate it. Specifically, the procedure is commenced by submitting a prior application for authorization to the State Tax Agency. The application must be addressed to the Director of the Financial and Tax Inspection Department. In addition, the Order implements the requirements that both the issuer and the recipient must meet when storing invoices issued electronically. The Order establishes that the party receiving the invoice must store the invoices, as a general rule, in the format and on the media (electronic or on paper) in and on which they were issued.
However, the Order allows for the possibility of converting the invoice received into another format provided that the requirements contained in the Order are met. Accordingly, if a document is received in electronic format, signed through an acknowledged or officially approved signature system, such document can be printed and stored on paper if the requirements of the Order are satisfied (i.e. use of software that enables printing on paper together with certain graphic marks of authentication). On the other hand, original documents on paper can be replaced with files containing graphic images and, consequently, the paper can be destroyed, provided that the requirements contained in the Order (i.e. use of certified digitalization software) are fulfilled.
Prepared by:
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This chapter contains the contact details of the most important entities in Spain and Spanish commercial service offices currently located abroad.
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Guide to business in Spain Useful addresses 2
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1. Relevant institutions 2. Other institutions 3. Stock exchanges and National Securities Market Commission 4. Official banks 5. Autonomous Community and Autonomous City investment promotion agencies 6. Spanish economic and commercial offices abroad
1.Relevant institutions
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1.RELEVANT INSTITUTIONS
INVEST IN SPAIN C/ Orense, 58. 3 planta 28020 Madrid Tel.: 00 (34) 91 503 58 00 web: www.investinspain.org SECRETARA DE ESTADO DE COMERCIO EXTERIOR Paseo de la Castellana, 160-162 28046 Madrid Tel.: 00 34 (902) 44 60 06 web: www.comercio.mityc.es INSTITUTO ESPAOL DE COMERCIO EXTERIOR (ICEX) Paseo de la Castellana, 14-16 28046 Madrid Tel.: 00 34 (902) 34 90 00 web: www.icex.es DIRECCIN GENERAL DE COMERCIO E INVERSIONES Paseo de la Castellana, 162 28046 Madrid Tel.: 00 34 (902) 44 60 06 web: www.mityc.es
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LAGUTROP
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FRANCE
Asturias
Cantabria
Bilbao
Galicia
Pas Vasco
Vitoria Logroo
Navarra
La Rioja
Soria
Castilla y Len
Catalua
Tarragona
Gerona
Aragn
Barcelona
vila
Comunidad de Madrid
Toledo
PORTUGAL
Badajoz
Cuenca
Palma De Mallorca
Extremadura
Mrida
Cceres
Baleares
Murcia
Murcia
Andaluca
Granada
Cdiz
Almera
Ceuta
Melilla
MORROCO
Canarias
SUBDIRECCIN GENERAL DE INCENTIVOS REGIONALES Paseo de la Castellana, 162 28046 Madrid Tel.: 00 34 (91) 583 49 65 web: www.pap.meh.es DIRECCIN GENERAL DE TRIBUTOS C/ Alcal, 5 28014 Madrid Tel.: 00 34 (91) 595 80 00 web: www.meh.es DIRECCIN GENERAL DEL TESORO Paseo del Prado, 6 28014 Madrid Tel.: 00 34 (91) 209 95 00 web: www.tesoro.es CENTRO DE DESARROLLO TECNOLGICO INDUSTRIAL (CDTI) C/ Cid, 4 28001 Madrid Tel.: 00 34 (91) 581 55 00 / 209 55 00 web: www.cdti.es DIRECCIN GENERAL DE POLTICA DE LA PEQUEA Y MEDIANA EMPRESA Paseo de la Castellana, 160. planta 11-12 28046 Madrid Tel.: 00 34 (900) 19 00 92 web: www.ipyme.org
DIRECCIN GENERAL DE TRABAJO C/ Po Baroja, 6 28009 Madrid Tel.: 00 34 (91) 363 18 01 / 02 Fax: 00 34 (91) 363 20 38 web: www.mtas.es SECRETARA DE ESTADO DE INMIGRACIN Y EMIGRACIN C/ Jos Abascal, 39. 1 planta 28003 Madrid Tel.: 00 34 (91) 363 70 00 web: www.mtas.es DIRECCIN GENERAL DE ASUNTOS Y ASISTENCIA CONSULARES C/ Juan de Mena, 4 28014 Madrid Tel.: 00 34 (91) 379 17 00 web: www.mae.es AGENCIA ESTATAL DE ADMINISTRACIN TRIBUTARIA (AEAT): DPTO. DE ADUANAS E IMPUESTOS ESPECIALES Avda. Llano Castellano, 17 28071 Madrid Tel.: 00 34 (91) 728 94 50 web: www.aeat.es
MINISTERIO DE MEDIO AMBIENTE Y MEDIO RURAL Y MARINO Paseo de la Infanta Isabel, 1 28071 Madrid Tel.: 00 34 (91) 347 53 68 / 347 57 24 web: www.marm.es INSTITUTO NACIONAL DE EMPLEO (INEM) C/ Condesa de Venadito, 9 28027 Madrid Tel.: 00 34 (91) 585 98 88 web: www.inem.es COMPAA ESPAOLA DE FINANCIACIN DEL DESARROLLO (COFIDES) C/ Prncipe de Vergara, 132. 9 planta 28002 Madrid Tel.: 00 34 (91) 745 44 80 / 562 60 08 web: www.cofides.es CONSEJO SUPERIOR DE INVESTIGACIONES CIENTFICAS (CSIC) C/ Serrano, 117 28006 Madrid Tel.: 00 34 (91) 568 14 00 web: www.csic.es
2. Other institutions
2.OTHER INSTITUTIONS
CONSEJO SUPERIOR DE CMARAS DE COMERCIO INDUSTRIA Y NAVEGACIN DE ESPAA (CSC) C/ Ribera del Loira, 12 28042 Madrid Tel.: 00 34 (91) 590 69 00 c.e.: info@cscamaras.es web: www.camaras.org CONFEDERACION ESPAOLA DE ORGANIZACIONES EMPRESARIALES (CEOE) C/ Diego de Len, 50 28006 Madrid Tel.: 00 34 (91) 566 34 00 c.e.: ceoe@ceoe.es web: www.ceoe.es CONFEDERACIN ESPAOLA DE LA PEQUEA Y MEDIANA EMPRESA (CEPYME) C/ Diego de Len, 50 28006 Madrid Tel.: 00 34 (91) 411 61 61 c.e.: cepyme@cepyme.es web: www.cepyme.es AGENCIA ESPAOLA DE COOPERACION INTERNACIONAL (AECI) Avda. Reyes Catlicos, 4 28040 Madrid Tel.: 00 34 (91) 583 81 00 web: www.aeci.es INSTITUTO DE CONTABILIDAD Y AUDITORA DE CUENTAS C/ Huertas, 26 28014 Madrid Tel: 00 34 (91) 389 56 00 web: www.icac.meh.es ASOCIACIN ESPAOLA DE CONTABILIDAD Y ADMINISTRACIN DE EMPRESAS C/ Rafael Bergamin, 16 B 28043 Madrid Tel.: 00 34 (91) 547 37 56 c.e.: info@aeca.es web: www.aeca.es
3.Stock exchanges and National Securities Market Commission
3.STOCK EXCHANGES AND NATIONAL SECURITIES MARKET COMMISSION

COMISIN NACIONAL DEL MERCADO DE VALORES (CNMV) C/ Miguel ngel, 11 28010 Madrid Tel.: 00 34 (91) 585 15 00 / (902) 14 92 00 Fax: 00 34 (91) 585 17 01 web: www.cnmv.es BOLSA DE MADRID Plaza de la Lealtad, 1 28014 Madrid Tel.: 00 34 (91) 589 11 84 Fax: 00 34 (91) 589 12 52 c.e.: infobolsamadrid@grupobme.es web: www.bolsamadrid.es BOLSA DE BARCELONA Paseo de Gracia, 19 08007 Barcelona Tel.: 00 34 (93) 401 35 55 Fax: 00 34 (93) 401 36 50 c.e.: informacion@borsabcn.es web: www.borsabcn.es BOLSA DE BILBAO C/ Jos Mara Olbarri, 1 48001 Bilbao Tel.: 00 34 (94) 403 44 00 Fax: 00 34 (94) 403 44 30 c.e.: bolsabilbao@bolsabilbao.es web: www.bolsabilbao.es BOLSA DE VALENCIA C/ Libreros, 2-4 46002 Valencia Tel.: 00 34 (96) 387 01 00 Fax: 00 34 (96) 387 01 33 / 60 c.e.: webmaster@bolsavalencia.es web: www.bolsavalencia.es
4.Official banks
4.OFFICIAL BANKS
BANCO DE ESPAA C/ Alcal, 48 28014 Madrid Tel.: 00 34 (91) 338 50 00 Fax: 00 34 (91) 338 54 87 c.e.: infoweb@bde.es web: www.bde.es INSTITUTO DE CRDITO OFICIAL (ICO) Paseo del Prado, 4 28014 Madrid Tel.: 00 34 (91) 592 16 00 / (900) 12 11 21 Fax: 00 34 (91) 592 17 00 c.e.: ico@ico.es web: www.ico.es
5.Autonomous Community and Autonomous City investment promotion agencies

5.AUTONOMOUS COMMUNITY AND AUTONOMOUS CITY INVESTMENT PROMOTION AGENCIES
ANDALUCA AGENCIA DE INNVOACIN Y DESARROLLO DE ANDALUCA C/ Torneo, 26 41002 Sevilla Tel.: 00 34 (95) 503 07 00 Fax: 00 34 (95) 503 07 98 c.e.: informacion@agenciaidea.es web: www.agenciaidea.es ARAGN ARAGON EXTERIOR S.A. (AREX) C/ Alfonso I, n17. 5 Planta 50003 Zaragoza Tel.: 00 34 (976) 22 15 71 Fax: 00 34 (976) 39 71 61 c.e.: info@aragonexterior.es web: www.aragonexterior.es ASTURIAS INSTITUTO DE DESARROLLO ECONMICO DEL PRINCIPADO DE ASTURIAS (IDEPA) Parque Tecnolgico de Asturias 33428 Llanera (Asturias) Tel.: 00 34 (985) 98 00 20 Fax: 00 34 (985) 26 44 55 c.e.: idepa@idepa.es web: www.idepa.es BALEARES INSTITUTO DE INNOVACIN EMPRESARIAL Cam de son Rapinya, s/n 07013 Palma de Mallorca Tel.: 00 34 (971) 17 60 55 Fax: 00 34 (971) 78 48 65 c.e.: info@idi.caib.es web: www.idi.es CANARIAS PROEXCA (SOCIEDAD CANARIA DE FOMENTO ECONMICO, S.A.) C/ Nicols Estvanez, 30-B. 2 Planta 35007 Las Palmas de Gran Canaria Tel: 00 34 (928) 30 74 50 Fax: 00 34 (928) 30 74 67 E-Mail: promocion@sofesa.canarias.org / info@proexca.canarias.org web: www.proexca.es CANTABRIA SODERCAN, S.A., (SOCIEDAD PARA EL DESARROLLO REGIONAL DE CANTABRIA) C/ Isabel Torres, 1 39011 Santander Tel..: 00 34 (942) 29 00 03 Fax: 00 34 (942) 76 69 84 c.e.: informacin@sodercan.com web: www.sodercan.com CASTILLA LA MANCHA INSTITUTO DE PROMOCIN EXTERIOR DE CASTILLA-LA MANCHA (IPEX) P.I. Santa Mara de Benquerencia C/ Ro Cabriel, s/n 45071 Toledo Tel.: 00 34 (925) 25 91 00 Fax: 00 34 (925) 25 91 37 C.e.: consultasipex@jccm.es web: www.ipex.es CASTILLA LEN EXCAL C/ Jacinto Benavente, 2 Arroyo de la Encomienda. 47195 Valladolid Tel.: 00 34 (983) 29 39 66 Fax: 00 34 (983) 20 98 03 c.e.: excal@excal.es web: www.excal.es CATALUA ACC1 Paseo de Gracia, 129 08008 Barcelona Tel.: 00 34 (93) 476 72 00 Fax: 00 34 (93) 476 73 03 c.e.: catalonia@cidem.gencat.net web: www.acc10.cat CEUTA PROCESA (SOCIEDAD DE PROMOCIN Y DESARROLLO DE CEUTA) C/ Padilla, s/n Edificio Ceuta Center, 1 Planta. 51000 Ceuta Tel.: 00 34 (95) 652 82 72 / 74 Fax: 00 34 (95) 652 82 73 c.e.: procesa@procesa.es
EXTREMADURA SOFIEX (SOCIEDAD DE FOMENTO INDUSTRIAL) Avda. Jos Fernndez Lpez, 4 06800 Mrida (Badajoz) Tel.: 00 34 (924) 31 91 59 / 79 Fax: 00 34 (924) 31 92 12 c.e.: informacion@sofiex.es web: www.sofiex.es GALICIA INSTITUTO GALLEGO DE PROMOCIN ECONMICA (IGAPE) Complejo Administrativo San Lzaro, s/n 15703 Santiago de Compostela (La Corua) Tel.: 00 34 (981) 54 11 47 / (902) 30 09 03 Fax: 00 34 (981) 55 88 44 c.e.: informa@igape.es web: www.igape.es LA RIOJA CONSEJERA DE HACIENDA Y PROMOCIN ECONMICA. AGENCIA DE DESARROLLO ECONMICO DE LA RIOJA C/ Muro de la Mata, 13-14 26071 Logroo Tel.: 00 34 (941) 29 15 00 Fax: 00 34 (941) 29 15 43 c.e.: ader@ader.es web: www.ader.es MADRID PROMOMADRID DESARROLLO INTERNACIONAL DE MADRID, S.A. C/ Suero de Quiones, 34. 4 planta 28002 Madrid Tel.: 00 34 (91) 745 01 27 Fax: 00 34 (91) 411 09 13 c.e.: informacion@promomadrid.com web: www.promomadrid.com MELILLA MELILLA PROMOCION C/La Dalia, 26 Polgono Industrial de SEPES. 52006 Melilla Tel.: 00 34 (95) 267 98 04 / (902) 02 14 97 Fax: 00 34 (95) 267 98 10 c.e..: info@promesa.net web: www.promesa.net
MURCIA INSTITUTO DE FOMENTO DE LA REGIN DE MURCIA Avda. de la Fama, 3 30003 Murcia Tel.: 00 34 (968) 36 28 00 / 28 21 c.e.: portalinfo@info.carm.es web: www.ifrm-murcia.es NAVARRA SODENA, SOCIEDAD DE DESARROLLO DE NAVARRA Avda. Carlos III el Noble, 36. 1 Dcha. 31003 Pamplona Tel.: 00 34 (848) 42 19 42 Fax: 00 34 (848) 42 19 43 c.e.: info@sodena.com web: www.sodena.com PAS VASCO SPRI (SOCIEDAD PARA LA PROMOCIN Y RECONVERSIN INDUSTRIAL, S.A.) Alameda de Urquijo, 36. 4 planta. Edificio Plaza Bizkaia 48011 Bilbao Tel.: 00 34 (94) 403 70 00 (centralita) Fax: 00 34 (94) 403 70 22 c.e..: info@spri.es web: www.spri.es VALENCIA INSTITUTO VALENCIANO DE EXPORTACION Plaza Amrica 2,7 Planta 46004 Valencia Tel.: 00 34 (96) 197 15 00 Fax: 00 34 (96) 197 15 40 c.e.: infoinvex@gva.es web: www.gva.es ZEC Tenerife Avenida Martima, 3. 5 Edificio Mapfre 38003 Santa Cruz de Tenerife Tel.: 00 34 (922) 29 80 10 c.e.: zec@zec.org web: www.zec.org
6.Spanish economic and commercial offices abroad (www.oficinascomerciales.es)

6.SPANISH ECONOMIC AND COMMERCIAL OFFICES ABROAD (WWW.OFICINASCOMERCIALES.ES)
BANGKOK (Tailandia, Laos, Camboya y Myanmar) 26th Floor Serm Mit Tower 159 Sukhumvit 21 Road. 501 Wattana 10110 Bangkok (Tailandia) Tels.: 00 (66-2) 258.90.20/258.90.21 Fax: 00 (66-2) 258.99.90 c.e.: bangkok@mcx.es BEIRUT (Lbano) Tabaris, Gebran Tueini Square Ashada Bldg. 4 Planta Beirut (Lbano) Tels.: 00 (961-1) 32.75.00/56.33/56.22 Fax: 00 (961-1) 33.32.03 c.e.: beirut@mcx.es BELGRADO (Serbia, Montenegro y Repblica Federal Yugoslava) Vojvode Suplijikca, 40 11118 Belgrado Tel.: 00 (38-111) 380.68.32 Fax: 00 (38-111) 380.74.67 c.e.: belgrado@mcx.es BERLN (Alemania) Lichtensteinallee, 1 D-10787 Berln (Alemania) Tels.: 00 (49-30) 229.21.34 Fax: 00 (49-30) 229.30.95 c.e.: berlin@mcx.es BERNA (Suiza) Guttenbergstrasse, 14 CH 3011 Berna Tels.: 00 (41-31) 381.21.71 Fax: 00 (41-31) 382.18.45 c.e.: berna@mcx.es BOGOT (Colombia) Carrera 9, n 99-07, oficina 901 Torre La Equidad. Edificio Cien Street Bogot (Colombia) Tels.: 00 (57-1) 655.54.00 / 655.55.05 Fax: 00 (57-1) 250.00.07 c.e.: bogota@mcx.es BRASILIA (Brasil) Av. das Naoes, lote 44, quadra 811 70429-900 Brasilia Tels.: 00 (55-61) 242.93.94 Fax: 00 (55-61) 242.08.99 c.e.: brasilia@mcx.es
ALMATY (Kazakstn) Kazybek Bi, 20A, 4Planta Almaty 050010, Kazakhstan Tels.: 00 (732.72) 93.02.40/66/67 Fax: 00 (732 .72) 93.02.59 c.e.: almaty@mcx.es AMMN (Jordania) Shmeisani. Abed Al Hamid Sharaf St Strand Bldg, 61. 1st Floor P.O. BOX 927148 Ammn - 11110 (Jordan) Tels.: 00 (962-6) 560.12.81 Fax: 00 (962-6) 560.31.61 c.e.: amman@mcx.es ANKARA (Turqua) And Sokak, 8/14 - 1S 06680 Cankaya Ankara Tels.: 00 (90-312) 468.70.47 / 48 Fax: 00 (90-312) 468.69.75 c.e.: ankara@mcx.es ARGEL (Argelia) 5, Rue Csare. Hydra Argel 16035 Argel (Argelia) Tels.: 00 (213-21) 60.11.34 / 28 / 40 Fax: 00 (213-21) 60.11.61 c.e.: argel@mcx.es ASUNCIN (Paraguay) Quesada 5864. Esquina Blgica Asuncin (Paraguay). Barrio Villa Morra Tels.: 00 (595-21) 66.47.76 / 66.28.65 / 66.28.53 Fax: 00 (595-21) 66.46.70 c.e.: asuncion@mcx.es ATENAS (Grecia) Vasileos Konstantinou, 44. 3 Planta Atenas 116-35 (Grecia) Tels.: 00 (30-1) 210.74.89.84 / 71.95 / 73.90 Fax: 00 (30-1) 210 729.17.36 c.e.: atenas@mcx.es
BRATISLAVA (Repblica Eslovaca) Prepstska, 10 81101 Bratislava Tel.: (00-4212) 5441.57.30 Fax: (00-4212) 5441.58.30 c.e.: bratislava@mcx.es BRUSELAS (Blgica y Luxemburgo) Rue Montoyer, 10, 1 B-1000 Bruselas (Blgica) Tel.: 00 (32-2) 551.10.40 Fax: 00 (32-2) 551.10.69 c.e.: bruselas@mcx.es REPRESENTACIN PERMANENTE DE ESPAA ANTE LA UE Boulevard du Rgente, 52 B-1000 Bruselas (Blgica) Tel.: 00 (32-2) 509.86.11 Fax: 00 (32-2) 511.73.00 c.e.: buzon.oficial@reper.mae.es Web: www.es-ue.org BUCAREST (Rumana, Moldavia) Str. Dionisie Lupu, 64-66 III Planta. Sector 1 010458 Bucarest (Rumania) Tels.: 00 (4021) 312.80.50/60 Fax: 00 (4021) 312.90.80 c.e.: bucarest@mcx.es BUDAPEST (Hungra) Ndor Utca. n 23. II 2 1051 Budapest (Hungra) Tel.: 00 (36-1) 302.00.74 Fax: 00 (36-1) 302.00.70 c.e.: budapest@mcx.es BUENOS AIRES (Argentina) Avda. Figueroa Alcorta, 3102. 2 Piso C1425CKX Buenos Aires (Argentina) Tels.: 00 (54-11) 48.09.49.60 Fax: 00 (54-11) 48.09.45.78 c.e.: buenosaires@mcx.es CARACAS (Venezuela, Antillas Holandesas, Barbados, Antigua, Bahamas, Surinam, Bermudas, Dominica, Granada, San Cristbal y Nieves, San Vicente y Las Granadinas, Santa Luca, Guayana y Trinidad y Tobago, Aruba) Avda. Francisco de Miranda. Edificio Parque Cristal Los Palos Grandes. 1060 Caracas (Venezuela) Apartado de Correos (1060-A) Tels.: 00 (58-212) 284.92.77 285.58.48 / 29.13 Fax: 00 (58-212) 284.99.64 c.e.: caracas@mcx.es
CASABLANCA (Marruecos) 33, BD. Moulay Youssef Casablanca (Marruecos) 20000 Tels.: 00 (2125) 22.31.31.18 Fax: 00 (2125) 22.31.32.70 c.e.:casablanca@mcx.es CHICAGO (EE.UU.) (Illinois, Indiana, Iowa, Minnesota, Missouri, Nebraska, Dakota del Norte, Dakota del Sur, Ohio, Wisconsin, Kentucky, Kansas y Michigan) 500 North Michigan Av. Planta 15 (Suite 1500) Chicago - Illinois 60611 (EE.UU.) Tels.: 00 (1-312) 644.11.54 Fax: 00 (1-312) 527.55.31 c.e.: chicago@mcx.es COPENHAGUE (Dinamarca y Lituania) Vesterbrogade, 10 - 3 DK - 1620 Copenhague V (Dinamarca) Tels.: 00 (45-33) 31.22.10 Fax: 00 (45-33) 21.33.90 c.e.: copenhague@mcx.es DAKAR (Senegal, Mauritania, Gambia, Mali, Guinea Bissau, Cabo Verde, Liberia, Sierra Leona, Guinea Conakry, Niger y Burkina Faso) 3-5 Avenue Carde, 2 eme tage droit B.P. 4146, Dakar (Senegal) Tels.: 00 (221) 338.21.03.68 Fax: 00 (221) 338.21.49.66 c.e.: dakar@mcx.es DAMASCO (Siria y Chipre) Malki - Orwc Iba al-Ward St. 8 Al-Kawthar Bdng. 3rd Floor. Damasco (Siria) Apartado de Correos 2738 Tels.: 00 (963-11) 333.00.15 Fax: 00 (963-11) 333.73.68 c.e.: damasco@mcx.es DUBAI (Emiratos rabes Unidos y Qatar) Emirates Towers Offices (Planta 26 of. 3) Cdigo postal 504929 Dubai (EAU) Tel.: 00 (971-4) 330.01.10 Fax: 00 (971-4) 330.01.12 c.e.: dubai@mcx.es DUBLN (Irlanda) 35, Molesworth St. Dubln - 2 (Irlanda) Tel.: 00 (353-1) 661.63.13 Fax: 00 (353-1) 661.01.11 c.e.: dublin@mcx.es
DSSELDORF (Alemania) Jgerhofstrasse, 32 40479 Dsseldorf (Alemania) Tel.: 00 (49-211) 49.36.60 Fax: 00 (49-211) 49.97.11 c.e.: dusseldorf@mcx.es EL CAIRO (Egipto, Sudn, Etiopa y Djibouti) 19, Boulos Hanna Street Midan Finney / Dokki CP. 12311. El Cairo (Egipto) Tels.: 00 (20-2) 336.15.88/53.74 Fax: 00 (20-2) 336.15.77 c.e.: elcairo@mcx.es ESTAMBUL (Turqua) Cumhuryet Cad., 42 K, 5 Drtler Apt. Elmadag CP. 06680 Ankara. Estambul (Turqua) Tels.: 00 (90-312) 468.70.47 Fax: 00 (90-312) 468.69.75 c.e.: estambul@mcx.es ESTOCOLMO (Suecia y Letonia) Spanska Ambassadens Haudelsaudehing, Sergeldorg 12, 130 SE-111-57 Estocolmo Tel.: 00 (46-8) 24.66.10 Fax: 00 (46-8) 20.88.92 c.e.: estocolmo@mcx.es GUATEMALA (Guatemala, Honduras, Nicaragua y Belice) Edificio Gminis, 10 - Torre Sur - Oficina 1701 12 Calle 1 25, Zona 10 01010 Guatemala C.A. (Guatemala) Tels.: 00 (502-3) 35.30.11/12/13/14 Fax: 00 (502-3) 35.30.16 c.e.: guatemala@mcx.es HELSINKI (Finlandia y Estonia) Pohjoisesplanadi, 27C 00100 Helsinki (Finlandia) Tel.: 00 (358-9) 685.05.30 Fax: 00 (358-9) 685.05.35 c.e.: helsinki@mcx.es HO CHI MINH CITY (Vietnam) Pham Ngoc Thach Guest House 21, Phung Khac Khoan. 5 planta District 1 Ho Chi Minh City (Vietnam) Tel.: 00 (848) 38.25.01.73 Fax: 00 (848) 38.25.01.74 c.e.: hochiminhcity@mcx.es
HONG KONG (Macao y Hong Kong) 2004, Tower One, Lippo Centre 89 Queensway Admiralty Hong Kong (China) Tels.: 00 (852) 25.21.74.33 / 25.22.75.12 Fax: 00 (852) 28.45.34.48 c.e.: hongkong@mcx.es ISLAMABAD (Pakistn) (Afganistn) Street 6, Ramna 5 - Diplomatic Enclave, 1 Islamabad (Pakistn) Cdigo postal 1144 Tel.: 00 (9251) 208.87.53 / 63 Fax: 00 (9251) 208.87.74 c.e.: islamabad@mcx.es JOHANNESBURGO (Repblica Sudafricana, Mozambique, Lesotho, Swazilandia, Botswana y Zimbabwe) Fredman Towers, Planta 8 13 Fredman Drive Sandton 2146 (Johannesburgo) Cdigo postal 781050 Tels.: 00 (27-11) 883.21.02 Fax: 00 (27-11) 883.26.24 c.e.:johannesburgo@mcx.es KIEV (Ucrania) Illinska, 22. 4 planta 04070 Kiev (Ucrania) Tels.: 00 (38044) 494.29.40 / 41 Fax: 00 (38044) 494.29.42 c.e.: kiev@mcx.es KUALA LUMPUR (Malasia y Brunei) Menara Boustead, Piso 20 69, Jalan Raja Chulan 50200 Kuala Lumpur (Malasia) Cdigo postal 11856 50760 Kuala Lumpur Tel.: 00 (60-3) 21.48.73.00 Fax: 00 (60-3) 21.41.50.06 c.e.:kualalumpur@mcx.es LA HABANA (Cuba) Calle 22, n 516, entre 5 y 7 Miramar 11300 La Habana (Cuba) Tels.: 00 (53-7) 204.81.00 / 98 Fax: 00 (53-7) 204.80.17 c.e.: lahabana@mcx.es
LA HAYA (Pases Bajos) Embajada de Espaa Burg. Patijnlaan, 67 2585 B.J. La Haya (Pases Bajos) Tels.: 00 (31-70) 364.31.66 Fax: 00 (31-70) 360.82.74 c.e.: lahaya@es LA PAZ (Bolivia) Avda. 20 Octubre, esq. Calle Campos Edif. Torre azul piso 15 Casilla de correo 1577 - La Paz Tel.: 00 (591-2) 214.10.16 Fax: 00 (591-2) 243.42.57 c.e.: lapaz@mcx.es LAGOS (Nigeria, Ghana, Benin, Togo, Chad, Camern, Gabn, Guinea Ecuatorial y Repblica Centroafricana) Plot 933 Idejo St. Cdigo postal 50495 Ikoyi Victoria Island-Lagos (Nigeria) Tels.: 00 (234-1) 761.20.09 / 462.78.82 Fax: 00 (234-8) 033.33.29 / 78 c.e.: lagos@mcx.es LIMA (Per) Avda. Jorge Basadre, 405 Apartado de Correos 270067 San Isidro - Lima 27 (Per) Tels.: 00 (51-1) 442.17.88 / 17.89 Fax: 00 (51-1) 442.17.90 c.e.: lima@mcx.es LISBOA (Portugal) Campo Grande, 28 2A/B/E) 1700 093 Lisboa (Portugal) Tel.: 00 (351-21) 781.76.40 Fax: 00 (351-21) 796.69.95 c.e.: lisboa@mcx.es LONDRES (Reino Unido) 66, Chiltern Street. 2 planta Londres W1U 4LS (R.U.) Tel.: 00 (44-20) 7467.23.30 Fax: 00 (44-20) 7224.64.09 c.e.: londres@mcx.es LOS NGELES (California, Alaska, Arizona, Hawai, Idaho, Montana, Nevada, Nuevo Mxico, Washington, Wyoming, Colorado, Oregn y Utah) 1900 Avenue of the Stars Suite 2430 Los Angeles, CA 90067 (EE.UU.) Tels.: 00 (1-310) 277.51.25 Fax: 00 (1-310) 277.51.26 c.e.: losangeles@mcx.es
LUANDA (Angola, Repblica del Congo, Repblica Democrtica del Congo, Santo Tom y Prncipe, Zambia y Namibia) Rua Jaime Corteso, 16 Luanda (Angola) Tel.: 00 (244 2) 22.350.227 / 351.938 / 350.121 Fax: 00 (244 2) 22.350.142 c.e.: luanda@mcx.es MANILA (Filipinas) Yuchengco Tower RCBC Plaza, Piso 27 Sen. Gil Puyat J. Puyat Avenue Makati City, Metro Manila (Filipinas) Tels.: 00 (63-2) 843.37.74/37.75/37.83 Fax: 00 (63-2) 843.37.90 c.e.: manila@mcx.es MXICO D.F. (Mxico) Avda. Presidente Masarik, 473, Esq. Moliere Colonia Los Morales - Polanco 11510 Mxico D.F. (Mxico) Tel.: 00 (52-559) 138.60.40 Fax: 00 (52-559) 138.60.50 c.e.: mexico@mcx.es MIAMI (Florida, Alabama, Arkansas, Georgia, Louisiana, Mississippi, Oklahoma, Tennessee y Texas) 2655 Le Jeune Road (Suite 1114) Coral Gables Miami, FI 33134 (EE.UU.) Tel.: 00 (1-305) 446.43.87 Fax: 00 (1-305) 446.26.02 c.e.: miami@mcx.es MILN (Italia) Via del Vecchio/Politecnico, 3 (16) Miln 20121 (Italia) Tel.: 00 (39-02) 78.14.00 Fax: 00 (39-02) 78.14.14 c.e.: milan@mcx.es MONTERREY (Mxico) Av. De la industria n 555-B, 4 piso Col. Campestre. San Pedro Garza Garca C.P. 66265 Nuevo Len, Mxico Tel.: 00 (5281) 8335 9992 Fax: 00 (5281) 8335 9994 c.e.: monterrey@mcx.es MONTEVIDEO (Uruguay) Plaza Cagancha, 1335 (Piso 10 - Oficina 1001) 11100 Montevideo (Uruguay) Tels.: 00 (598-2) 900.03.37 Fax: 00 (598-2) 902.16.00 c.e.: montevideo@mcx.es
MOSC (Rusia, Armenia, Bielorrusia, Georgia, Kazajstn, Kirguistn, Turkmenistn, Tayikistn, Uzbekistn y Azerbaiyn) Business Center Mojovaya UI Vozdvizhenka, 4/7 (Entrada por UI Mojovaya, 7 stro, 2,3) 125009 Mosc (Federacin Rusa) Tels.: 00(7-495) 783.92.81/8283 Fax: 00 (7-495) 783.92.91 c.e.: moscu@mcx.es NAIROBI (Kenia, Uganda, Tanzania, Mauricio y Seychelles) CBA Building 3 Rd. Floor, MARA & RAGATI ROADS UPPERHILL P.O. BOX 20961 00202 Nairobi Tels.: 00 254.202.71.14.34 / 41.11 / 733.51.44.62 Fax: 00 254.220.271.14.32 c.e.: nairobi@mcx.es NUEVA DELHI (India, Nepal, Sri Lanka, Bangladesh y Maldivas) 2 Palam Marg. Vasant Vihar 110057 Nueva Delhi (India) Tels.: 00 (91-11) 2614.64.77/51.96/52.05 Fax: 00 (91-11) 2614.59.56 c.e.: nuevadelhi@mcx.es NUEVA YORK (Nueva York, Connecticut, Maine, Massachussetts, New Hampshire, New Jersey, Pennsylvania, Rhode Island y Vermont) 405 Lexington Av. Planta 44 10174-0331 Nueva York Tels.: 00 (1-212) 661.49.59/49.60 Fax: 00 (1-212) 972.24.94 c.e.: nuevayork@mcx.es OSLO (Noruega e Islandia) Karl Johansgate, 18C 0159 Oslo (Noruega) Tel.: 00 (47) 23.31.06.80 Fax: 00 (47) 23.31.06.86 c.e.: oslo@mcx.es OTTAWA (Canad) 151 Slater St. (Suite 801) Ottawa - Ontario K1P 5H3 (Canad) Tels.: 00 (1-613) 236.04 / 04.09 Fax: 00 (1-613) 563.28.49 c.e.: ottawa@mcx.es PANAM (Panam y Costa Rica) Edificio Bco. de Atlntico, calles 50 y 53, Obarrio Apartado 8023-05444. Panam. CP 0823 Ciudad de Panam Tels.: 00 (507) 269.40.18 Fax: 00 (507) 264.34.58 c.e.: panama@mcx.es
PARS (Francia, Martinica, Guadalupe, La Reunin, Polinesia Francesa, Guayana Francesa, Nueva Caledonia, Monaco, Andorra) 11, Avenue DLena. 75016 Pars (Francia) Tel.: 00 (33-1) 53.57.95.50 Fax: 00 (33-1) 47.20.97.22 c.e.: paris@mcx.es PARS (Representacin Permanente de Espaa ante la OCDE) 22, Avenue Marceau 75008 Pars (Francia) Tel.: 00 (33-1) 44.43.30.31 Fax: 00 (33-1) 40.70.06.54 c.e.: paris.ocde@mcx.es PEKN (Mongolia, China y Corea del Norte) Spain Building, 5Th and 6Th Floor - Gongtinanlu A1-B, CHAOYANG DISTRICT 100020 Beijing (China) Tel.: 00 (8610) 58.79.97.33 Fax: 00 (8610) 58.79.97.34 c.e.: pekin@mcx.es PRAGA (Repblica Checa) Stepnsk, 10 12000 Praga-2 (Repblica Checa) Tels. 00 (420) 224.94.12.55 / 56 Fax: 00 (420) 224.94.11.15 c.e.: praga@mcx.es QUITO (Ecuador) Edificio Frum 300, piso 10 Avda. Repblica 396 y Diego de Almagro Edificio Forum 300, 10 Quito (Ecuador) Tels.: 00 (593-2) 254.47.16/61.74/ 255.75.04 Fax: 00 (593-2) 256.41.74 c.e.: quito@mcx.es RABAT (Marruecos) 78, Avenue du Chellah, 10000 Rabat-Hassan Rabat (Marruecos) Tels.: 00 (212) 53.77.61.707 Fax: 00 (212) 53.77.68.182 c.e.: rabat@mcx.es RIAD (Arabia Saud, Omn, Yemen, Bahrein y Kuwait) Avd. King Fahad-Distrito Olaya Area C Edificio Al faisaliah ToweR, Planta 11 Cdigo postal 94.327 11693 Al Riyadh (Arabia Saud) Tels.: 00 (966-1) 273.47.07 Fax: 00 (966-1) 273.47.05 c.e.: riad@mcx.es
ROMA (Italia, Albania, San Marino y Malta) Viale delle Milizie, 12 00192 Roma (Italia) Tels.: 00 (39-06) 372.82.06/81.27/82.23 Fax: 00 (39-06) 372.83.65 c.e.: roma@mcx.es SAN JUAN DE PUERTO RICO (Puerto Rico e Islas Vrgenes Norteamericanas) Edificio Capital Center Sur Suite 705 239 Avda. Arterial Hostos, ste. 705 Puerto Rico 00918-1476 Tel.: 00 (1787) 758.63.45 Fax: 00 (1787) 758.69.48 c.e.: sanjuan@mcx.es SAN SALVADOR (El Salvador) C/ La Mascota. Edf. 533. Local Mezanine Colonia San Benito San Salvador (El Salvador) Tel.: 00 (503) 2275.78.21/22 Fax: 00 (503) 2275.78.23 c.e.:sansalvador@mcx.es SANTIAGO DE CHILE (Chile) Avda. 11 de Septiembre 1901, Piso 8 6640582 Santiago de Chile (Chile) Tel.: 00 (56-2) 204.97.86 Fax: 00 (56-2) 204.58.14 c.e.: santiagochile@mcx.es SANTO DOMINGO (Repblica Dominicana, Jamaica y Hait) Avda. W. Churchill, Esquina Luis F. Thomn Edificio Torre BHD (4 Planta) Sector Evaristo Morales Apartado Correos 1822 Santo Domingo (Repblica Dominicana) Tel.: 00 (1809) 567.56.82 Fax: 00 (1809) 542.60.26 c.e.: santodomingo@mcx.es SAO PAULO (Brasil) Praa General Gentil Falcao, 108. 8 Andar Cj. 82 Brooklin Novo- CEP 04571-010 So Paulo S.P.(Brasil) Tel.: 00 (5511) 51.05.43.78 Fax: 00 (5511) 51.05.43.82 c.e.: saopaulo@mcx.es SEL (Corea del Sur) 17th Fl. Cheonggye 11 Bldg. 149, Seorin-dong, Chongro-gu Sel 110-726 (Corea del Sur) Tels.: 00 (82-2) 736.84.54 / 55 Fax: 00 (82-2) 736.84.56 c.e.: seul@mcx.es
SHANGHAI (China) 25Th Floor, Westgate Mall, 1038 Nanjing XI Road 200041 Shanghai (China) Tels.: 00 (86-21) 62.17.26.20 Fax: 00 (86-21) 62.67.77.50 c.e.: shanghai@mcx.es SIDNEY (AUSTRALIA, NUEVA ZELANDA, PAPA NUEVA GUINEA, FIYI, ISLAS SALOMN, TONGA) Edgecliff Centre, Suite 408 203 New South Head Road Edgecliff NSW 2027 Sidney (Australia) Tels.: 00 (61-2) 93.62.42.12/42.13/42.14 Fax: 00 (61-2) 93.62.40.57 c.e.: sidney@mcx.es SINGAPUR (Singapur) 7 Temasek Boulevard, 19-03 Suntec Tower one Singapore 038987 Tels.: 00 (65) 6732.97.88/97.89 Fax: 00 (65) 6732.97.80 c.e.: singapur@mcx.es SOFA (Bulgaria, Macedonia) Dragan Tzankov, 36 World Trade Center Interpred. 2 Ofc 204 1057 Sofa Tels.: 00 (3592) 807.96.62 Fax: 00 (3592) 971.20.63 c.e.: sofia@mcx.es TEGUCIGALPA (Honduras) Avda. Costa Rica s/n. Col. Las Lomas del Mayab. Centro de Negocio Las Lomas 4 Tegucigalpa (Honduras) Tel.: 00 (504) 235.30.02 Fax: 00 (504) 235.30.04 c.e.: tegucigalpa@mcx.es TEHERN (Irn y Afganistn) 29 Gol Gasht St. Africa Ave. 19158 Tehern (Irn) Tel.: 00 (98-21) 201.61.18/ 2201 59 10/ 2204 15 28 Fax: 00 (98-21) 204.90.23 c.e.: teheran@mcx.es TEL-AVIV (Israel) 2, Ibn Gvirol St., Planta 4 64077 Tel-Aviv (Israel) Tels.: 00 (972-3) 695.56.91 Fax: 00 (972-3) 695.29.94 c.e.: telaviv@mcx.es
TOKIO (Japn) 3FI, 1-3-29, Roppongi, MINATO-KU Tokio 106-0032 Tel.: 00 (81-3) 55.75.04.31 Fax: 00 (81-3) 55.75.64.31 c.e.: tokio@mcx.es TORONTO (Canad) 2, Bloor St. East (Suite 1506) M4W 1A8 Toronto - Ontario (Canad) Tels.: 00 (1-416) 967.04.88 Fax: 00 (1-416) 968.95.47 c.e.: toronto@mcx.es TRPOLI (Libia) Wesait El-Ebdery- Zona fashlum Cdigo postal 3572 Trpoli, LIBIA Tels.: 00 (218-21) 340.23.63 Fax: 00 (218-21) 340.23.59 c.e.: tripoli@mcx.es TNEZ (Tnez) 130, Av. Jugurtha 1082 Tnez (Tnez) Tels.: 00 (21671) 78.81.03 Fax: 00 (21671) 78.76.02 c.e.: tunez@mcx.es VARSOVIA (Polonia) Genewska, 16 03-963 Varsovia (Polonia) Cdigo postal 111 Tels.: 00 (48-22) 617.94.08 Fax: 00 (48-22) 617.29.11 c.e.: varsovia@mcx.es VIENA (Austria y Eslovenia) Stubenring, 16- 2 Stock A-1011 Viena (Austria) Tels.: 00 (43-1) 513.39.33 Fax: 00 (43-1) 513.81.47 c.e.: viena@mcx.es VILNIUS (Lituania) Victoria Building Jasinsicio 16 B- LT 01112 VILNIUS Tels: 00 (370-5) 254.68.00/ 02 Fax: 00 (370-5) 254.68.01 E-Mail: vilnius@mcx.es
WASHINGTON (Carolina del Norte, Carolina del Sur, Delaware, Maryland, Virginia, West Virginia y Distrito de Columbia) 2375 Pennsilvanya Av. N.W. Washington, DC (EE.UU.) 20037-1736 Tel.: 00 (1-202) 728.23.68 Fax: 00 (1-202) 466.73.85 c.e.: washington@mcx.es YAKARTA (Indonesia) JI. H. Agus Salim, 61 Cdigo postal 41 Kosgoro Yakarta 10350 (Indonesia) Tels.: 00 (62-21) 310.74.90/391.75.43/44 Fax: 00 (62-21) 319.30.164 c.e.: yakarta@mcx.es ZAGREB (Croacia, Bosnia y Herzegovina) Savska 41/1 (Edif. Zagrepcanka) 1000 Zagreb (Croacia) Tels.: 00 (385-1) 617.69.01/663 Fax: 00 (385-1) 617.66.69 c.e.: zagreb@mcx.es
Prepared by:
Appendix I
Company and commercial law
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This Exibit explains the basic legislative aspects that govern the various vehicles, corporate or otherwise, that can be used by foreign investors in order to operate in Spain. Specifically, the legal requirements that must be observed for both formation (minimum capital and the time at which it must be paid, minimum number of members, requirement to be met by the bylaws, etc.), and the subsequent pursuit of its business (rules governing the adoption of usiness resolutions, powers of the managing body, the rules on liability of partners and shareholders, etc.).
Appendix I
Company and commercial law
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Guide to business in Spain Appendix I. Company and commercial law 2
1. Applicable legislation 2. Forms of business enterprise 3. Liability of shareholders, members and enterprises 4. Basic legislation governing an S.A. 5. Basic characteristics of an S.A. 6. Governing bodies of an S.A. 7. European public limited-liability company (S.E.) 8. Basic characteristics of limited liability companies 9. Professional services firm (S.P.) 10. Sole shareholder companies 11. Branches 12. Representative office
1.Applicable legislation
FRANCE
Asturias
Cantabria
Bilbao
Galicia
Pas Vasco
Vitoria Logroo
Navarra
La Rioja
Soria
Castilla y Len
Catalua
Tarragona
Gerona
Aragn
Barcelona
vila
Comunidad de Madrid
Toledo
PORTUGAL
Badajoz
Cuenca
Palma De Mallorca
Extremadura
Mrida
Cceres
Baleares
Murcia
Murcia
Andaluca
Granada
Cdiz
Almera
Ceuta
Melilla
MORROCO
Canarias
1. APPLICABLE LEGISLATION
The recent enactment of Legislative Royal Decree 1/2010, of July 2, 2010, approving the Revised Capital Companies Law (hereinafter, the Capital Companies Law), published in Official State Gazette of July 3, 2010, has entailed an exercise of recasting the collection of myriad provisions in force to date in Spain relating to capital companies. This recast text regularizes, clarifies and harmonizes in a single legislative text the contents of the Revised Corporations Law approved by Royal Decree 1564/1989, of December 22, 1989; Limited Liability Companies Law 2/1995, of March 23, 1995; Title X of Securities Market Law 24/1988 of July 28, 1988, and the provisions included in the Commercial Code (Royal Decree of August 22, 1885) concerning partnerships limited by shares, with these pieces or provisions of legislation being repealed. Therefore, the Capital Companies Law constitutes the basic legal text that regulates the various legal capital companies forms envisaged in Spanish law, that is, the corporation (S.A.), the limited liability company (S.L.), the partnership limited by shares, the new limited liability company (S.L.N.E.) and the European company (S.E.), as well as the special features of listed corporations. In addition, the Capital Companies Law is supplemented by Royal Decree 1784/1996, of July 19, 1996, approving the Commercial Registry Regulations. The Commercial Code, the Capital Companies Law and the Commercial Registry Regulations are the basic sources of the Spanish law in this field.
As regards the European company, the implementation of the European legislation on this regard into national law was completed in the Capital Companies Law (on 8 October 2001, the European Council adopted Regulation (EC) no. 2157/2001, together with Council Directive 2001/86/EC, which completes the Statute for the European Company with regard to the involvement of employees). Law 19/2005, of November 14, on the European Company domiciled in Spain, affords to companies operating in various Member States the option of being established as a single company under certain aspects of EU law and being capable to operate throughout the EU with a mixed regulation in which national and EU rules coexist, and unified management and incorporation and operation system. For companies acting in different EU Member States, the European Company offers the possibility of reducing their administrative costs with a legal structure adapted to the EU Regulation. This new Regulation permits the restructuring of large companies currently operating in various Member States. In addition, it is worth mentioning that on March 15, 2007, marked the approval of Law 2/2007 on Professional Services Firms, which regulates the formation of commercial undertakings by members of professional associations, with the special feature that such firms will be formed in accordance with any of the forms provided for in the Capital Companies Law albeit subject to the specific requirements established for firms of this kind. Lastly, Law 3/2009, of April 3, on structural modifications to commercial companies entered into force in July 2009, reflecting the desire of Spanish lawmakers to adequately respond to the growing trend in internationalization of economic operators, in line with the latest legislation made at European level (including Directive 2005/56/EC on cross-border mergers and Directive 2007/63/EC, amending Council Directives 78/855/EEC and 82/891/EEC), and to readjust certain business restructuring processes to ensure that they are adapted to current commercial law practices, including changes in mergers, spin-offs or transfers en bloc of assets and liabilities, and international transfers of registered office.
2.Forms of business enterprise
2. FORMS OF BUSINESS ENTERPRISE

Spanish law envisages various different kinds of mercantile entities, all of which can be used by foreign investors. The most significant are: Corporation (Sociedad Annima, abbreviated as S.A.). European Public Limited-Liability Company (Sociedad Annima Europea, abbreviated as S.E.) Limited Liability Company (Sociedad de Responsabilidad Limitada, abbreviated as S.L. or S.R.L.). New Limited Liability Company (Sociedad Limitada Nueva Empresa abbreviated as S.L.N.E.). General Partnership (Sociedad Regular Colectiva, abbreviated as S.R.C. or S.C.). Limited Partnership (Sociedad en Comandita, abbreviated as S. en Com. Or S. Com.) or Limited Partnership by Shares (Sociedad en Comandita por Acciones, abbreviated as S. Com. p. A.). Professional Services Firm (Sociedad Profesional, abbreviated as S.P.)1. Traditionally, the corporation (S.A.) has been by far the most commonly used form, whereas the limited partnership has been rarely used. However, the limited liability company (S.L.) has gained popularity because, among other reasons, its minimum capital requirement is lower than that for S.A.s. As variations on the above corporate forms of S.A. and S.L., we find (i) the European public limitedliability company (S.E.) as the possibility offered by EU legislation to companies that operate in various Member States to create a single company capable of operating in the EU in accordance with a single set of rules and a unified management system, (ii) the new limited liability company (S.L.N.E.) as a variation on the S.L. specially intended for Small and Medium-sized Enterprises that simplifies the requirements of the general regime (see section 4.1 Chapter 2) for its formation, and (iii) lastly, the professional services firm (S.P.) the purpose of which is the common pursuit of a professional association activity, which may be formed in accordance with any of the corporate forms legally established under their specific legal provisions. Some of the salient features of each of the above corporate forms are summarized below. It should be noted that in many instances the Law provides only minimum standards or general rules. The founders of a company have a great deal of flexibility in tailoring the structure of the company to their specific needs through inclusion of certain clauses in the bylaws, for which purpose they should seek proper legal advice.
The corporate name of this kind of company should include, together with the corporate form in question, the expression "Professional" or the abbreviation "P", (for example, "Sociedad Annima Profesional" [Professional corporation] or "S.A.P.").
1
3.Liability of shareholders, members and enterprises
3. LIABILITY OF SHAREHOLDERS, MEMBERS AND ENTERPRISES

Both the S.A. and the S.L. are companies with capital in which the liability of the shareholders or members is generally limited to the amount of capital contributed by each. Technically, the capital of an S.A. is divided into shares, whereas the capital of an S.L. is divided into participation units. The general rule is clearly one of limited liability; however, under very exceptional circumstances, the corporate veil can be pierced to protect the interest of third parties. In these exceptional cases, the courts have followed the criteria of the piercing of the corporate veil (levantamiento del velo) as a reaction against the misuse of the companys legal status by the shareholders or members for fraudulent purposes; the courts may look behind it and not differentiate between the companys assets and those of each of the shareholders or members when establishing liabilities. Liability is not limited in a general partnership (S.R.C.). General partners are personally jointly and severally liable with the whole of their net worth for the debts of the partnership. A limited partnership (S. Com.) is a partnership in which there is at least one general partner and one or more limited partners. General partners are personally jointly and severally liable with the whole of their net worth for the debts of the partnership. Limited partners are only liable for the amount of capital they contribute or promise to contribute to the partnership. The capital of limited partnerships may be divided into participation units or shares. Lastly, as regards the professional services firm (S.P.), without prejudice to the liability of the members in accordance with the rules of the corporate form adopted, the professional members will be jointly and severally liable with the firm for its professional acts, and they will be subject to such general rules on contractual and noncontractual liability as may apply. Notwithstanding the above, the Organic Law 5/2010, of June 22, 2010, amending Organic Law 10/1995, of November 23, 1995, on the Criminal Code, introduced into the Spanish legal system the criminal liability of legal entities in certain activities and cases (among others, for example, trafficking in human beings, discovery and disclosure of secrets, fraud, punishable insolvencies, damage to others property, offenses against intellectual, industry property, market and consumers, concealment of criminal property and money laundering, money laundering against the tax and social security authorities, foreign citizens rights, offenses against zoning and urban planning, offense against natural resources and the environment, bribery, influence peddling or corruption in commercial transactions).
4.Basic legislation governing an S.A.
4. BASIC LEGISLATION GOVERNING AN S.A.

This section and the two following ones summarize some of the most significant substantive aspects that commonly interest foreign investors with respect to the most widely used form of business entity in Spain, the S.A. For the most part, the issues discussed below are applicable to the S.L. as well, although some of the most significant rules and exceptions applicable to the S.L. are dealt with in Section 8 below.
4.1 Minimum capital

The minimum amount of capital stock required for an S.A. pursuant to the Capital Companies Law is 60,000. The capital must be fully subscribed and at least 25% of the par value of the shares must be paid in. When the capital stock is not fully paid up, the bylaws must state the manner and time period for the payment of the remaining portion of subscribed capital. No maximum time period for payment of calls on capital by contributions in cash is stated in the Law but five years is the maximum term for full payment of contributions in kind.
4.2 Shareholders
No minimum number of shareholders is required by Spanish law to incorporate an S.A., although sole shareholder companies are subject to a special system of publicity discussed in further detail in Section 9 below. Shareholders can be individuals or companies of any nationality and residence.
4.3 Formalities of incorporation

The shareholders or their representatives must appear before a notary public in order to execute the public deed of incorporation. Subsequently, the public deed of incorporation has to be registered in the Commercial Register. Upon registration, the company acquires legal status and capacity. There is an alternative procedure for incorporation called successive formation. Essentially, this procedure involves an offering to the public at large by the promoters to subscribe shares before the execution of the public deed of incorporation. To this end, means may be used such as publicity or financial brokers. This system is rarely used in practice and much less so in the case of foreign investors.
4.4 Contracts made in the corporations name prior to registration

The incorporation of an S.A. is a two-step process involving, as noted, execution of the public deed before a notary public and registration in the Commercial Register. It is only upon registration of the public deed of incorporation that the corporation acquires legal capacity and becomes a legal entity.
Persons who enter into contracts in the name and on behalf of the corporation prior to its registration are jointly and severally liable for their performance, unless such performance was made conditional on the corporations registration and, if applicable its later assumption of liability. Contracts made in the corporations name and on its behalf prior to its registration in the Commercial Register may generally be accepted by the corporation within three months from registration. However, a corporation in the process of formation and its shareholders, up to the limit of the amount they have undertaken to contribute (but not directors or representatives), are liable for the following types of contract prior to registration: Contracts that are indispensable for registration. Contracts entered into by the directors within the scope of the powers granted to them for the preregistration stage. Contracts entered into by virtue of a specific mandate granted by all the shareholders. Upon registration, the corporation becomes bound by the foregoing acts and contracts. In these cases, and if the corporation accepts acts performed prior to its registration within three months from the date of registration, the joint and several liability of shareholders, directors or representatives lapses. Moreover, it should be noted that directors will be deemed to have authority to fully pursue the corporate purpose and to perform and make all kinds of acts and contracts if the date of commencement of the companys operations coincides with the date of execution of the deed of incorporation.
4.5 Acquisitions performed after registration

During the two years following incorporation, the corporations shareholders meeting must grant its prior approval for acquisitions of assets for a consideration involving amounts in excess of 10% of the capital stock, unless such acquisitions are within the ordinary scope of business of the corporation or the purchase is made on a stock exchange or by public auction. In the cases in which prior shareholders meeting approval is required, the requirements are basically as follows: Issuance of a report prepared by the directors. An independent valuation by the expert appointed by the Commercial Register.
5. Basic characteristics of an S.A.
5. BASIC CHARACTERISTICS OF AN S.A.

5.1 Bylaws
An S.A. is basically governed by the Capital Companies Law and by its bylaws. The bylaws of an S.A. should therefore be drafted in accordance with Corporations Law requirements and must at least include reference to: Name of the company. Business purpose. This should be stated in a concrete and precise manner, since: It serves to establish the general frame-work for the activities of the company. The completion of the stated business purpose automatically leads to dissolution of the company, unless the bylaws provide for an indefinite duration. If the business purpose is modified in such a way as to be replaced, the dissenting shareholders and non-voting shareholders, if any, can withdraw from the company and are entitled to be reimbursed for their shares. Duration of the company. The bylaws will ordinarily stipulate that the duration is indefinite in order to avoid triggering automatic dissolution. The date on which activities commence, which normally cannot be earlier than the date of execution of the public deed of incorporation. The location of the companys registered office, which must be in Spain, and the body competent to establish, transfer or close branches. Capital stock and shares. Managing body. The bylaws must determine whether the administration is entrusted to a Board of Directors or to some other body or person. In the case of collective management bodies, the manner of debate and of adopting resolutions must be specified, as also the system for directors remuneration. Restrictions, if any, on the free transferability of shares. Ancillary obligations, if any. If ancillary obligations are created, the bylaws must state the content of such obligations, whether or not they are remunerated, and the penalties, if any, for breach thereof. Ancillary obligations are explained in further detail below. The accounting year-end. If not stated expressly, the company will be deemed to end its accounting year on December 31. The business year cannot exceed twelve months. Special rights reserved to founders or promoters, if any.
Additionally, the public deed of incorporation, which includes the bylaws, may contain whatever agreements and covenants the founders deem fit, provided that they do not contravene any law or the fundamental principles that govern S.A.s.
5.2 Capital stock requirements

The minimum subscribed capital for an S.A. is 60,000; at least 25% of the par value of all the shares must be paid in upon incorporation. For comparison purposes, the minimum capital requirements for other types of business enterprises are as follows: Limited Liability Company: 3,000, which must be fully paid in. Limited Partnership by Shares: 60,000. General Partnership: no minimum capital requirement. In addition, specific regulations may provide that the capital stock of corporations engaged in certain fields of business (e.g. banking, insurance, etc.) must, at the time of incorporation, exceed the minimum amount required by the Capital Companies Law. There are currently no mandatory minimum debt-equity ratios under Spanish mercantile law for any type of business enterprise, (however, there is a debt-equity ratio for tax purposes: see Chapter 3, section 2). Lastly, it should be noted that there are special rules which could require an increase and/or reduction in capital stock. These rules provide that there must be a certain balance between the capital stock and the net worth of a corporation, whereby if losses are incurred reducing such net worth to less than one-half of capital stock, the corporation will be under a mandatory cause for dissolution (article 363.1 of the Capital Companies Law), unless capital stock is sufficiently increased (or reduced) and, as from September 1, 2004, provided that it is not necessary to request for insolvency pursuant to Insolvency Law 22/2003, of July 9. On the other hand, it will be obligatory to reduce the capital when losses have reduced the net worth of the corporation to less than two thirds of its capital stock and one fiscal year has elapsed without its net worth having recovered (article 327 of the Capital Companies Law). This capital reduction is not obligatory for limited liability companies.
5.3 Shares
The following categories may be differentiated: 5.3.1 Registered vs. bearer shares The shares of an S.A. can be registered or bearer shares. However, the shares must be registered in the following cases: If they are not fully paid in.
If their transferability is subject to restrictions. If they are subject to ancillary obligations (see below). When so required by special regulations (e.g. shares of banks and insurance companies). 5.3.2 Common vs. preferred stock Preferred stock may be created as a separate class or classes pursuant to the same procedural formalities applicable to amendment of the bylaws (i.e. quorum and voting requirements and method of calling the shareholders meeting), and may include shares entitled to a preferential dividend. In any case, issues of shares will not be valid in the following cases: Shares remunerated in the form of interest. Shares which directly or indirectly alter the proportionality between their par value and voting rights or the existing shareholders preferential right to subscribe new shares in capital increases. With regard to the particular regulations on the issuance of preferred stock, there exist differences resulting from whether the company is listed or non-listed on the stock exchange. In the case of listed companies, the following obligations are established: It is provided that where the privilege consists of the right to obtain a preferential dividend, when distributable profits exist the company is obliged to distribute such preferential dividend. The corporate bylaws should establish the consequences of failure to pay part or the entire preferential dividend, whether this is or is not accumulative as regards the unpaid dividend, and the possible rights of holders of privileged shares in connection with dividend to which the ordinary shares may be entitled. Higher ranking is provided for the shareholder owning privileged shares, since collection of dividend by ordinary shares against the profits of one fiscal year is imperatively prohibited until the preferential dividend for the same fiscal year has been paid. In the case of non-listed companies, a more flexible system is maintained, since there are no rules of imperative law making specific regulations in the bylaws obligatory. Nevertheless, the company is obliged to declare a dividend wherever distributable profits exist, unless otherwise provided in its corporate bylaws. 5.3.3 Shares issued with a premium Shares may be issued with a premium payable to the company above their par value. In such cases the premium must be fully paid in upon subscription of the shares.
5.3.4 Non-voting stock Non-voting stock may be issued for a total par value that does not exceed one-half of the total paidin capital. The special rights attached to non-voting stock are as follows: Minimum annual dividend: The minimum annual dividend shall be set by the bylaws in any percentage in relation to the amount of paid-in capital corresponding to each non-voting share. The minimum annual dividend and ordinary dividends are cumulative for a period of five years in the case of non-listed companies. In the case of listed companies this period will be indefinite. In other words, nonvoting shares also participate proportionately with common shares if a dividend is distributed on the common shares. Preferential rights in liquidation: In the event of liquidation of the company, non-voting shareholders rank above common shareholders with respect to their right to obtain reimbursement of the paid-in portion of their shares. Capital reduction: If capital is reduced to offset losses, the reduction must first be applied against all other classes of stock before it can affect non-voting stock. Shareholder rights: Non-voting stock has the same basic rights as common stock except for the right to vote at shareholders meetings (see description of basic shareholder rights below). However, under certain exceptional circumstances, holders of non-voting shares may acquire a transitory right to vote at shareholders meetings. Two examples follow: Non-voting shareholders acquire the right to vote if the minimum annual dividend is not distributed. If, due to a capital reduction, all common shares are amortized, then non- voting stock becomes voting stock until such time as equilibrium is restored between voting and non-voting stock (i.e. new common shares are issued in sufficient number so that the total par value of non-voting stock does not exceed one-half of total paid-in capital). If equilibrium is not restored within two years, the company is subject to mandatory dissolution.
5.3.5 Redeemable shares Redeemable shares as a form of privileged shares have been very recently introduced in Spanish corporate legislation. However the possibility of issuing this type of shares is only open to listed companies, subject to certain conditions. Redeemable shares are those whose redemption of full or partial purchase by the issuer or by third parties is fixed in time or released at the choice of the shareholder, according to the conditions of the issue; or those whose redemption or full or partial purchase by the issuer or by third parties is undertaken in any other manner, excluding that contemplated above. 5.3.6 Shares with ancillary obligations An ancillary obligation is an obligation to perform certain acts or to refrain from performing certain acts. Ancillary obligations do not form part of the capital stock of the company. The shares of an S.A. can only be paid for with money or property, not with labor or services. The ancillary obligation is a device whereby the labor or services or other obligations of particular shareholders can be tied to the corporation. 5.3.7 Basic shareholder rights The basic rights of shareholders are as follows: Right to share in corporate earnings and in the assets upon liquidation. Preferential right to subscribe new shares or convertible bond issues. Right to attend and vote at shareholders meetings (except non-voting stock) and to challenge corporate resolutions. Right to obtain information about the companys affairs. 5.3.8 Share certificates In general, shares may be either issued physically as certificates or recorded by a book-entry system. The conditions for recording shares under a book-entry system and the regulations of this system are contained in the Securities Market Law (Law 24/1988), as amended by Law 37/1998 (partially amended by Law 44/2002, of November 22, Law 35/2003, of November 4, and Royal Decree-Law 5/2005, of March 11) and by Law 26/2003.
6. Governing bodies of a S.A.
6. GOVERNING BODIES OF AN S.A.

The governing bodies of an S.A. are the shareholders meeting and the directors (who may or may not be organized as a Board of Directors, as explained below).
6.1 Shareholders meeting

The shareholders meeting is the S.A.s supreme governing body. The law distinguishes two types of meeting: ordinary and extraordinary. Additionally, both ordinary and extraordinary meetings may be held as universal meetings, as discussed below. If the ordinary or extraordinary shareholders meeting is not held on a universal basis, the directors must attend the shareholders meeting. 6.1.1 Ordinary shareholders meeting An ordinary shareholders meeting may be held as and when stipulated by the bylaws, but an ordinary meeting must be held within the first six months of the financial year to review managements conduct of the business and to approve, if appropriate, the financial statements of the prior year and the proposed distribution of the prior years earnings. If the ordinary shareholders meeting is not held within the legal term, it may be called by a court, upon petition by the shareholders and subject to prior hearing of the directors. 6.1.2 Extraordinary shareholders meeting Any meeting of the shareholders other than as described above is an extraordinary shareholders meeting. An extraordinary shareholders meeting can be called: By the companys directors if and when they consider it in the companys interests to do so. By the companys directors when requested to do so by shareholders representing at least 5% of capital stock. In this case, the directors must call the meeting so requested to be held within thirty days following the date of the notarial notification to them to call it. By a court if the directors disregard the notification referred to above. 6.1.3 Venue and method of calling a meeting Both ordinary and extraordinary shareholders meetings must be held in the municipality where the company has its registered offices. A Spanish S.A. must be domiciled in Spain. Nevertheless, a universal shareholders meeting (see below) may be held anywhere. The formal requirements for calling a meeting, which relate to publicity and advance notice, are the same for ordinary and extraordinary meetings. Meetings must generally be called by a notice published in the Official Gazette of the Commercial Register at least 15 days in advance of the meeting and in a high-circulation newspaper of the province in which the company has its registered offices.
6.1.4 Universal shareholders meetings Regardless of the type of shareholders meeting (ordinary or extraordinary), the formal call requirements need not be followed if shareholders representing one hundred percent of the capital stock are present and agree unanimously to hold a shareholders meeting. Such meetings are called universal shareholders meetings. 6.1.5 Quorum and voting rules Shareholders meetings may generally adopt resolutions by simple majority provided the quorum requirements described below are met. In general, the quorum for a shareholders meeting, on first call, exists when the shareholders present or represented at the meeting own at least twenty five percent (25%) of the voting capital stock. If a second call has to be made (because there was no quorum on first call), the meeting is deemed to be legally convened regardless of the percentage of capital stock present or represented at the meeting. A companys bylaws may set special call and quorum requirements for shareholders meetings; however, the special quorum requirements cannot be lower than the legal requirements outlined above. Special quorums are required by law for the adoption of resolutions on certain matters, e.g. debenture issuance, capital increase or reduction, any alteration of legal form, merger or spin-off of the company and, in general, for the adoption of resolutions amending the bylaws. In such cases, the quorum required on first call exists when the shareholders present or represented at the meeting own at least fifty percent (50%) of the subscribed voting capital stock. On second call, a quorum will exist if at least twenty-five percent (25%) of the voting capital stock is present or represented at the meeting. However, if a meeting subject to a special quorum requirement is held on second call with less than fifty percent (50%) of the voting capital stock present or represented, then a special voting rule stipulates that resolutions may only be validly adopted by the aye votes of shareholders owning at least two-thirds of the capital stock present or represented at the meeting. 6.1.6 Proxies A shareholder may be represented at a shareholders meeting by any person, who need not be a shareholder unless the bylaws provide otherwise. The proxy must be in writing or using certain means of long distance communication, and specific for each meeting. A shareholder may cast his vote by mail, e-mail or using any other means of long distance communication as provided for in the bylaws and will then be considered to be present for the purpose of establishing the quorum for the meeting. Special rules regulate the public solicitation of proxies. Proxies are deemed to have been solicited publicly if one person represents more than three shareholders.
6.2 Directors
An S.A.s executive governing body is its director or directors, who need not be Spanish citizens. The actual form of administration, i.e. Board of Directors, sole director, joint and severally liable directors or joint directors, must be stipulated in the bylaws, but can be changed at any time by the shareholders meeting. If a Board of Directors is created, it must have a minimum of three members. Furthermore, no maximum legal limit exists. A director is normally not required to be a shareholder unless the bylaws provide otherwise. The Board of Directors may validly adopt resolutions in writing without holding a meeting, provided certain requirements are met. An S.A.s directors are appointed by the shareholders meeting. Minority shareholders that meet certain thresholds of ownership are entitled to proportional representation on the Board. Appointment as a director becomes legally effective when accepted by the appointee, and must be registered in the Commercial Register within a stipulated period of time. The term of office of directors is set by the bylaws and cannot exceed six years, and shall be equal for all Directors. Directors may be re-elected for one or several further six-year periods. The shareholders meeting can freely dismiss the directors at any time. The following paragraphs refer to some special features of a Board of Directors: 6.2.1 Powers of the Board of Directors The Board of Directors is the management body of the corporation. With respect to third parties, the Board of Directors represents the company in all acts within the scope of its corporate purpose. The company is bound even with respect to acts outside the scope of its corporate purpose as registered in the Commercial Register if a third party acted in good faith and without gross negligence. Any limitation on the representative powers of the Board, even if registered in the Commercial Register, is not binding on third parties. An S.A.s Board may delegate its functions to one or more managing directors or to an executive committee of Board members (however, the Board cannot delegate its accountability, or its obligation to submit annual financial statements to the shareholders meeting, or the powers delegated to it by the shareholders meeting without specific authorization from the latter to do so).
6.2.2 Adoption of resolutions by the Board The quorum for a Board meeting is the presence, either personally or by proxy, of one-half plus one of the Board members. 6.2.3 Majority for adoption of resolutions Board resolutions are adopted: Generally, by an absolute majority of the directors attending (in person or by proxy). Exceptionally, for permanent delegation of Board powers, by the affirmative vote of two-thirds of the Boards members; such delegation is not legally valid until it has been registered in the Commercial Register. 6.2.4 Liability of directors Directors are held to a standard of faithful defence of the corporate interests, loyalty and secrecy. Directors are liable to the company, its shareholders and its creditors for damages caused by acts that are illegal, contrary to the bylaws or done in breach of the duties pertaining to their office. In such cases all the directors are jointly and severally liable. A director can only be exonerated from liability if he proves that he did not participate in the adoption or execution of the resolution and that he was unaware of the existence of the harmful act or, if he was aware of it, did everything reasonably possible to mitigate it or at least expressly opposed the resolution giving rise to the harm. 6.2.5 Powers of attorney In addition to the powers vested in the Board of Directors, general powers of attorney may be conferred upon any person, whether or not a director, in which case they must be documented in a public deed of powers of attorney registered in the Commercial Register.
6.3 Requirements for the adoption of resolutions at the shareholders and board meetings
The legal or bylaw requirements for the adoption of resolutions at the shareholders and board meetings of S.A.s and S.L.s are as follows:
Table 1
ADOPTION OF RESOLUTIONS AT THE SHAREHOLDRES AND BOARD MEETINGS

Spanish Corporations Law Minimum stake required Capital Companies Law Limited Liability Companies Law Minimum stake required
Article
Minority Shareholders Rights in a Spanish S.A. and S.L.
Article
Art. 203
1%
Right to request the presence of a notary public at the Shareholders Meeting. Right to request the calling of a Shareholders Meeting at any time. Right to oppose an extrajudicial settlement of an action for liability filed by the Company against directors. Right to file an action for liability of directors if such claim has not been filed by the company itself. Right to contest any resolution adopted by the Board of Directors. Right to request the Commercial Register to appoint an auditor.
5%
Art. 203
Art. 168
5%
5%
Art. 168
Art. 238.2
5%
5%
Art. 238.2
Art. 239
5%
5%
Art. 239
Art. 251
5%
5%
Art. 251
Art. 265.2
5%
5%
Art. 265.2
Art. 381
5%
Right to request the Court to appoint a receiver to monitor Not Regulated the liquidation process should the company be dissolved for any reason. Right to request the Court to revoke the appointment of an auditor. Right to request any kind of information regarding the Company to be disclosed at a Shareholders Meeting. Right to request an additional complement on the notice convening the Shareholders Meeting in order to include one or more matters on the agenda. 5% Art. 266
Art. 266
5%
Art. 197
>0%
25%
Art. 196
Art. 172
5%
Not Regulated
Table 1
ADOPTION OF RESOLUTIONS AT THE SHAREHOLDRES AND BOARD MEETINGS

The quorums of attendance and majorities required to adopt resolutions at Shareholders and Board Meetings of S.A. Corporations are the following:
Spanish Corporations Law Minimum stake required
Article
Minority Shareholders Rights in a Spanish S.A.
Art. 193.1 Art. 194.1
25% 50%
Quorum on first call for Shareholders Meetings. No quorum is required on second call. In any case, a simple majority is required for the adoption of resolutions. Quorum on first call for meetings where special resolutions, such as issuance of debentures, increase or reduction of capital, re-registration, merger, spin-off or any other amendment of the bylaws, are adopted. Quorum on second call for meetings where special resolutions, such as issuance of debentures, increase or reduction of capital, re-registration, merger, spin-off or any other amendment of the bylaws, are adopted. If at such meetings shareholders representing less than 50% of the subscribed voting capital are present, a 2/3 majority of the capital present or represented is required for the adoption of resolutions. Required majority of votes cast by members present or represented for the adoption of resolutions by the Board of Directors. Required majority of votes cast by members of the board of directors present or represented for the permanent delegation of authority to the Executive Committee or in the managing director.
Art. 194.2
25%
Art. 248
50%
Art. 249.3
66%
The quorums and majority of votes required for the adoption of resolutions at Members and Board Meetings of S.L. limited liability companies are the following: Art. 198 33% QQuorum for meetings the agenda of which includes resolutions not listed in Article 199.a) or 199.b). In any case, a simple majority of the votes cast is required, provided that it represents least one-third of the votes attaching to the participation units into which the capital is divided. Required majority of votes for resolutions to increase or reduce capital or to amend the bylaws in any way. Required majority of votes for resolutions such as re-registration, merger, spin-off, disapplication of the preemptive right in capital increases, removal of members, etc. Majority of votes required in the bylaws. 66% Required majority of votes cast by members of the Board of Directors present or represented for the delegation of authority to the Executive Committee or the managing director.
Art. 199.a)
50%
Art. 199 b)
66%
Art. 245.1 Art. 249.3
7. European public limited-liability company (S.E.)
7. EUROPEAN PUBLIC LIMITED-LIABILITY COMPANY (S.E.)

Regulation (EC) no. 2157/2001, of October 8, which passes the Statute for a European Company (S.E.), regulates the legal framework currently in force within the EU for this new type of European corporate entity. Following its provisions, Law 19/2005, of November 14, which regulates the SE domiciled in Spain, enacted the necessary measures to guarantee the effectiveness of those directly applicable rules included in the Regulation, amending the repealed Corporations Law and including a new chapter. Moreover, this Regulation has been complemented in Spain by Law 31/2006, of October 18, regulating the intervention of employees in the Corporations and cooperative companies, which implemented the Council Directive 2001/86/EC, of October 8, 2001. S.E. offers to companies carrying on business in various Member States the possibility of establishing as a sole company under EU regulations and of operating in the EU under a sole legislation and under a unified administrative and declaration system. For companies acting in different Member Estates, S.E. offer the possibility of reducing administrative costs with a legal frame adapted to EU regulations. Among the main features of this type of companies the following can be mentioned: An S.E. is to be always considered as a derivative company since its foundation can only be carried out by other pre-existing companies. That is to say, individuals are not allowed to create this type of company. Need for the existence of a European multinational nature on the process of association that would give rise to the foundation of an S.E. In this sense, although different procedures are regulated to incorporate an S.E., there are two common and unavoidable requirements aiming to keep this European multinationality: (i) only companies incorporated under the laws of a Member State are allowed to create an S.E., being also required that their corporate address and the effective management have to be found within the EU, and (ii) at least two of the companies intervening must be regulated by the law of two different Member States. The subscribed capital shall not be less than 120,000, although the minimum required capital can be higher in specific cases contemplated under Spanish legislation for companies that carry out certain activities (i.e. lending institutions). Spanish regulations for corporations shall also apply to shares subscription, payment, ownership and transfer. S.E. can only be incorporated as follows: Merger: Merged companies shall be governed by the law of different Member States. Incorporation of a holding S.E.: Provided that at least two of the companies are governed by the law of a different Member State, or for at least two years have had a subsidiary company governed by the law of another Member State or a branch situated in another Member State. Incorporation of a subsidiary S.E.: Provided that at least two of the companies are governed by the law of a different Member State, or for at least two years have had a subsidiary company 1 www.inem.es governed by the law of another Member State or a branch situated in another Member State.
Re-registration of an existing S.A.: Provided that for at least two years it has had a subsidiary company governed by the law of another Member State. S.E. must be registered with the Commercial Register of its corporate address. The governing bodies are: (i) General Meeting of Shareholders, and (ii) either a Supervisory Organ and a Management Organ (two-tier system) or an Administrative Organ (one-tier system), depending on the form adopted in the statutes. Shareholders liability is, in principle, limited to the subscribed capital. The name of an S.E. shall be preceded or followed by the abbreviation S.E. From a labor point of view, Law 31/2006 establishes several rights of information, consultation and participation of the workers in the corporate bodies of an S.E. for those cases where such involvement already existed within the founding companies at the time of the incorporation of the S.E. (as it currently occurs in Germany, Austria and the Nordic countries).This is to guarantee the participation of the workers in the S.E. for the purposes of allowing them to have an influence on the decisions to be adopted within the company which directly affect them. In general terms, the S.E. is an effective investment vehicle for those companies that already have a business presence in the EU and wish to invest in Spain. The S.E. has on the one hand the disadvantage of being a new type of company which, in certain cases, may allow a greater participation of the employees in the management decisions of the company, on the other had, it certainly has the advantage that its legal framework is known in all EU countries.
8. Basic characteristics of limited liability companies
8. BASIC CHARACTERISTICS OF LIMITED LIABILITY COMPANIES

8.1 Basic characteristics
Limited liability companies (S.L.) can sometimes be used as an alternative to the S.A. in order to achieve greater flexibility. The provisions of the Capital Companies Law on limited liability companies give the participation unit holders (members) a wide margin in setting up, in the bylaws, the rules concerning the internal governance of an S.L. An S.L. is intended to be a more closely held entity as evidenced by the fact that: Participation units are generally not freely transferable unless acquired by other participation unit holders, ascendants, descendants or companies within the same group. In fact, unless otherwise provided in the bylaws, the Law establishes a pre-emptive acquisition right in favor of the other members or the company itself in the event of transfer of the participation units to persons different than those aforementioned. Debenture issues cannot be used as a means of raising funds because an S.L. is unable to issue debentures. The scope for representation at the Members Meeting is limited. Some salient features of the Capital Companies Law are described below. An S.L. cannot have a capital stock of less than 3,000, which must be fully paid up at its organization. Capital stock must be divided into participation units, but these need not all be the same (and, consequently, they may carry different voting weight). Non-voting participation units may be created, up to the limit of half the capital of the company. The genuineness of monetary contributions made at the time of incorporation or in connection with any capital increases must be attested to before a notary public. No independent appraisers report on non-monetary contributions is required, in contrast to the obligatory nature of this report in the case of non-monetary contributions to corporations, although the founders and shareholders are jointly and severally liable for the genuineness of the non-monetary contributions made. Similarly, in capital increases the directors of the company are liable for the difference between the value of the non-monetary contributions stated in their report and the real value of the contributions. Furthermore, it is worth mentioning that the recent enactment of Royal Decree-Law 13/2010, of December 3, on tax, labor and deregulatory steps to boost investment and create jobs, has established certain measures to expedite the creation of limited liability companies by electronic means, the main features of which are detailed in section 4.1.2 of Chapter 2.
8.2 New Limited Liability Company

In addition, since 2003, a new special type of limited liability company has been available, which is the New Limited Liability Company (S.L.N.E.). The legislatures intention is to encourage the creation of small and medium-sized companies, simplifying the requirements for their incorporation and for the development of their activity, as it can be inferred from the main features that distinguish the S.L.N.E. from the limited liability company, specified bellow: The S.L.N.E. can be registered, by means of the public deed of incorporation and an electronic document, in just 48 hours from the execution of said deed. In the incorporation of the company, the corporate name shall include the name and two surnames of one of the members followed by an alphanumeric code, and also the mention Sociedad Limitada Nueva Empresa or the abbreviation S.L.N.E.. The corporate name shall be modified if said individual ceases to be a member. The capital stock shall not be lower than 3,012 or superior to 120,202, and it will only be paid up through contributions in cash. If the capital stock increases over 120,202, the company must alter its legal form. Only individuals can be members of a New Limited Liability Company. In the moment of its incorporation, the S.L.N.E. shall not have more than 5 members, although this number can be increased later. A member may only be a sole member in just one S.L.N.E. The members of the Administration Body must be members of the company. This Body will never adopt the form of a Board of Directors. The corporate purpose of the company shall be one or all the activities established in Law 7/2003, although any particular and different activity might be included. The S.L.N.E. has the possibility of fulfilling accountant and fiscal duties by means of a single register. Law 7/2003 indicates that the S.L.N.E. will be able to postpone the payment of some taxes and/or withholdings and prepayments between one and two years without having to grant any security but paying interests for delayed payment.
8.3 Main differences between S.A. and S.L.

The main differences between S.A. and S.L. are as follows:
Table 2
MAIN DIFFERENCES BETWEEN S.A. AND S.L.

Corporation Limited liability company
Minimum capital stock Paying in upon incorporation Shares/ participation units
60,000 At least 25%, and the share premium, as the case may be. They are securities. Debentures and other securities can be issued. Depends on their representation (share certificates, book entries, etc.) and on their nature (nominative or bearer shares). The directors or, as the case may be, the shareholders making the proposal shall prepare a written report to justify the amendment. A report from and independent expert is required. Announcement published in the Official Gazette of the Commercial Register and in one of the daily newspapers with widest circulation in the province where it has its corporate address.
3,000 Fully paid in.
They are not securities. Debentures and other securities can not be issued. Shall be effectuated by a public document..
Transfer of shares / participation units
Amendments to the bylaws
No report is required.
Contributions in kind
No report is required.
Call for Shareholders / Members Meetings
As indicated in the by-laws (call for by written communication is valid). If not, announcement published in the Official Gazette of the Commercial Register and in one of the daily newspapers with widest circulation in the municipality where it has its corporate address.
Place of Shareholders / Members Meetings
Where indicated in the by-laws (in any event, provided that it is held in Spain). If not, in the municipality where the company has its corporate address.
Attendance at and majorities in Shareholders / Members Meetings
Different attendance requirements and majorities are established for first and second call and depending on the content of the decisions. These can be increased by the by-laws. There might be restrictions (minimum number of shares, etc.).
Different majorities are established depending on the content of the decisions. These can be increased by the by-laws.
Attendance at and voting rights in Shareholders / Members Meetings
These rights can not be restricted.
Table 2
MAIN DIFFERENCES BETWEEN S.A. AND S.L.

Corporation Limited liability company
Managing body
The by-laws must indicate a specific managing body (Board of Directors, Sole Director, etc.).
The by-laws may set forth different types of managing bodies among those legally provided for and the Members Meeting will select one of them. Minimum: 3. A maximum of 12 members. Might be indefinite.
Number of members of the Minimum: 3. Board of Directorss There is no maximum number. Term of the office of Director Maximum 6 years, They may be re-elected for periods of the same maximum duration.
9. Professional services firm (S.P.)
9. PROFESSIONAL SERVICES FIRM (S.P.)

Law 2/2007, of March 15, 2007, on professional services firms (partially amended by Law 25/2009, of December 22, 2009, amending various laws to bring them into line with the Law on free access to service activities and their practice) brought into force the legislation governing a new kind of firm known as the Professional Services Firm (S.P.) The objective of Law 2/2007 is to establish a regulatory framework under which various members can pursue a professional activity in common under a specific corporate form. In this way, professional services firms are characterized by three specific general features: Their corporate purpose can only be the pursuit in common by various members of a professional activity (meaning an activity the pursuit of which requires an official university or professional qualification and registration with a professional association). This feature also implies that all of the firms that have such purpose must mandatorily be formed as professional services firms. The professional members must have a stake in the company's capital ("professional members" meaning individuals or other professional services firms that meet the requirements necessary to engage in the professional activity). Professional services firms may be formed in accordance with any of the forms provided for in the law, provided that they contemplate the specific requirements included in the Professional Services Firms Law. In this respect, the Professional Services Firms Law establishes, among others, the following specific requirements: The composition of the professional services firm requires that three-fourths of the capital and of the voting rights, or three-fourths of the capital and of the number of members in entities owned and managed by the same persons, must belong to the professional members. Likewise, three-fourths of the members of the managing body must be professional members, and if the managing body has only one person, such duties must necessarily be performed by a professional member. The professional activity will be pursued in accordance with the code of ethics and disciplinary rules specific to the professional activity in question, with the grounds of incompatibility or disqualification of the members affecting the company itself. The professional services firm may also be fined on the terms established in the disciplinary rules that apply under its professional code. Broadly speaking, to transfer the status of professional member, it is necessary to have the consent of all of the professional members, unless the firm's bylaws permit transfers by an agreement of the majority of the members.
In addition to the necessity of their registration at the Commercial Registry, professional services firms must also be registered at the Professional Services Firms Registry of the Professional Association in question. The distribution of income or allocation of loss may be based or modulated according to the contribution made by each member to the sound running of the firm. Professional services firms must arrange for an insurance policy that covers the liability they may incur in the course of the activity or activities that make up their corporate purpose.
10. Sole shareholder companies
10. SOLE SHAREHOLDER COMPANIES

Under the Law, which applies in this respect to both S.A.s and S.L.s, either form of business entity can be set up as, or can subsequently become, a company having a sole shareholder (S.A.) or sole participation unit holder (S.L.), i.e. a wholly-owned subsidiary. Such companies are subject to a specific regime involving special reporting requirements and registration requirements. For example, the fact that a company has a single owner has to be registered at the appropriate Commercial Registry and acknowledged on all company correspondence and commercial documentation. Likewise, contracts between the company and its sole owner need to be recorded in a special company register (the book of contracts with the sole shareholder). On the whole, such requirements can be deemed mere administrative and reporting requirements, but adherence to the specific rules is of paramount importance, because otherwise, under certain circumstances, the company can loose its limited liability status.
11. Branches
11. BRANCHES
11.1 Creation of a branch In addition to the forms of business enterprise created under Spanish law that constitute separate legal entities a foreign investor may operate in Spain through a branch. The formation of a branch requires the execution of a public deed that must be registered at the Commercial Register. From the foreign investment legislation viewpoint, the branch must have an assigned capital, which is not subject to any minimum amount requirement. The branch must have a legal representative who is empowered by the home office to administer the affairs of the branch. Apart from this requirement, there are no formal administration or management bodies. Except for the obvious differences in terms of internal structure and organization, a branch operates much like a corporation in its dealings with third parties. The choice between forming a branch or a legal entity in Spain may be affected by commercial reasons; for example, a company may be deemed to provide a more solid presence than a branch. There are also other differences which are addressed in different chapters of this publication.
11.2 Branch vs. subsidiary (whether S.A. o S.L.)

From a legal standpoint, the main differences between a branch and a subsidiary are as follow:
Table 3
THE MAIN DIFFERENCES BETWEEN A BRANCH AND A SUBSIDIARY

Corporation Limited liability company Branch
Concept
Company of a commercial nature devoted to the development of an economic activity, with a capital stock divided into shares or participation units and consisting of the contributions of the members, who, as a general rule, will be personally liable for company debts only up to the limit of the made or promised contribution.
Secondary establishment with a permanent representation and certain managing independence, by means of which the activities of the head office are totally or partially developed, and with no legal personality independent of that of the head office.
Table 3

Corporation Limited liabitily company Branch
Capital stock
Minimum capital requirement Minimum capital requirement of 60,000, divided into 3,000, fully paid up. shares, with at least 25% of the par value of each share paid up.
No capital is required for the establishment of a branch, although for practical reasons it is advisable to provide capital.
Contributions in Cash contributions shall be in national currency, and contributions in kind, in the case of cash and in kind corporations, will require a report of an independent expert appointed by the Commercial Register. Registration The company will be incorporated by means of a public deed that shall be filed with the Commercial Register, becoming a legal entity upon registration. Together with the public deed creating the branch the documents attesting the existence of the head office, its by-laws in force, its Directors and its decision of opening the branch, duly legalized, shall be filed with the Commercial registry for registration. N/A
Calls for Shareholders / Members Meetings
The Shareholders Meeting shall be called by mean of an announcement published in the Official Gazette of the Commercial Register and in one of the daily newspapers with widest circulation in the province, at least one month before the date set for the meeting, and the announcement shall specify the date on which the meeting will be held on first call as well as all the business to be transacted.
The process is the same than for corporations, although the meeting can be conveyed only 15 days in advance and the daily newspaper shall be one with widest circulation in the municipality where the company has its corporate address. The bylaws might establish that the call shall be published in a particular daily newspaper in the municipality of the companys corporate address or by means of any other method which ensures receipt by all members except those which reside in a foreign county and have not designated a place within Spanish territory for receipt of notices.
Table 3

Corporation Limited liabitily company Branch
Directors
The by-laws shall provide for the structure of the managing body, which might be a Sole Director, various joint and several Directors, two joint Directors or a Board of Directors. The position of Director shall be not remunerated, unless the by-laws provide otherwise and determine the method of remuneration. The transfer is free unless otherwise indicated in the by-laws.
The by-laws may set forth different types of managing bodies, delegating to the Members Meeting the faculty of selecting alternatively any of them , without modifying the bylaws. The position of Director shall be not remunerated, unless the by-laws provide otherwise and determine the method of remuneration.
The managing body of the head office shall appoint a branch Director. He will act as an attorney in fact of the head office in the branch. This Director (as a general rule and subject to the limitations provided for in the powers of attorney) might exercise all the activities of the branch registered with the Commercial Register. N/A
Transfer of shares / participation units
The transfer shall be effectuated by a public document executed before Spanish notary public. Bylaws provisions which would allow almost free transfer of participation units are prohibited.
Annual accounts and distributions of dividends
The Directors of the company shall, within the maximum term of three months after the closing of the financial year, prepare the annual accounts, the management report and the proposal for the allocation of the profits and losses which shall be approved by the Shareholders / Members Meeting within six months after the closing of the financial year. Should the profit of the financial year be distributed as dividends, said distribution shall be made to the shareholders in proportion to the capital they have paid. Payment of interim dividends is also possible.
Having the consideration of permanent establishments for tax purposes, branches shall have their own accounting referred to the transactions they make and the assets assigned to them. Additionally, the branch shall deposit with the Commercial Register the head office annual accounts, a certification of their deposit in its Commercial Register or, in certain cases, the accounts corresponding to the branch activity.
12. Representative office
12. REPRESENTATIVE OFFICE

In addition to mercantile entities and branches, foreign investor might establish a business presence by means of a representative office. Among its main features, the following can be stressed: The representative office has no legal personality independent of that of its head office. No mercantile formalities are required to open a representative office, although for tax, labor and social security reasons it might be necessary to execute a public deed (or document executed before a foreign notary public, duly legalized with apostille or any other applicable legalization system), which will indicate the opening of the representative office, the funds allocated to the office, the identity of their tax representative, which will be a legal entity or individual resident in Spain, and his faculties. The opening of the representative office will not be filed with the Commercial Register. There are no formal managing bodies, all actions are carried out by the representative by virtue of the faculties granted to him. In principle, the activities of a representative office are limited, being mainly of coordination, collaboration, etc. The non-resident company is liable for any and all debts of the representative office.
Appendix II
The spanish financial system
II
Spain has a modern diversified financial system which is competitive and fully integrated with the international financial markets. With respect to the Spanish loan and credit market, the deregulation of capital movements in the EU has made it much easier for Spanish companies to obtain financing from abroad. It has also driven the process of asset securitization, in which Spain stays in one of the first places of the European ranking. In turn, the Spanish securities market enjoyed steady growth until 2007, due essentially to its harmonization with the markets of neighboring countries and to the fact that the technical, operating and organizational systems on which it is currently based permitted greater volumes of investment to be channeled. These factors gave the Spanish markets greater transparency, liquidity and efficacy. Since 2007, the economic and financial slowdown had a great impact on Spanish stock markets. However, in 2009 they returned to growth trends and finished the year with similar returns to the ones obtained in 2007. Currently, there are constant ups and downs in trading on the stock markets, associated to an incipient but weak growth in advanced economies. As for the money market, this has become increasingly important as a result of the deregulation and greater flexibility of the Spanish financial system as a whole in the past few years, with a substantial volume of trading in money market instruments. Lastly, more general and stronger protection for financial services customers has been provided. A stronger protection of the financial systems has also been provided through the regulation of obligations and procedures to prevent the use of said systems for money laundering and terrorist financing. All these and other aspects of interest, such as the tax regime applicable to the main financial products available on the Spanish market are discussed in this chapter.
Appendix II
The spanish financial system
II
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Guide to business in Spain Appendix II. The Spanish financial system 2
1. Introduction 2. Financial institutions 3. Market 4. Safeguards to protect financial services customers 5. Taxation of financial products
1.Introduction
FRANCE
Asturias
Cantabria
Bilbao
Galicia
Pas Vasco
Vitoria Logroo
Navarra
La Rioja
Soria
Castilla y Len
Catalua
Tarragona
Gerona
Aragn
Barcelona
vila
Comunidad de Madrid
Toledo
PORTUGAL
Badajoz
Cuenca
Palma De Mallorca
Extremadura
Mrida
Cceres
Baleares
Murcia
Murcia
Andaluca
Granada
Cdiz
Almera
Ceuta
Melilla
MORROCO
Canarias
1. INTRODUCTION
From the standpoint of its institutions, a financial system can be defined as the group of entities which generate, gather, administer and manage savings and investment in a political and economic system. Spain has a diversified, modern, and competitive financial system, which is fully integrated within international financial markets. The system comprises credit, stock and money markets, and specific markets for derivatives (options and futures based on different assets, e.g. a share index called IBEX-35).
2. Financial institutions
2. FINANCIAL INSTITUTIONS
The operators in the Spanish financial system can be classified as follows: The central bank: The Bank of Spain. Traditional credit institutions: Spanish and foreign banks. Savings banks. Credit cooperatives - Rural savings banks. Other credit institutions: Credit Financial Establishments (introduced by Law 3/94, implementing the Second EC Directive on Banking Coordination). These are credit institutions specialized in certain asset products e.g., leasing, financing, mortgage loans, etc. which cannot take public deposits. Electronic Money Entities (introduced by Law 44/2002 on Measures for the Reform of the Financial System or Financial Law, and governed by Royal Decree 322/2008 of February 29). These are credit institutions specialized in issuing electronic money, meaning the monetary value of credit that may be claimed from its issuer: a) stored on an electronic medium, b) issued upon the receipt of funds that cannot be worth less than the issued monetary value, and c) accepted as a means of payment by companies other than the issuer. The Spanish Confederation of Savings Banks (Confederacin Espaola de Cajas de Ahorro CECA): This association groups together some of the Spanish Savings Banks and is also a credit institution in its own right. Instituto de Crdito Oficial, ICO (acts as the States finance agency and investment bank). Payment Entities (introduced by Law 16/2009 of Payment Services, 13 November). It shall be considered as Payment Entities those Legal Entities, different from credit institutions and electronic money institutions, which has obtained authorization to lend and execute payment services, that is to say, services that allow the effective deposit in a payment account, those ones allowing the withdrawal of cash, the execution of payment operations, the issuance and acquisition of payments means and sending of money. The payment entities shall not be authorized neither to attract deposits or other reimbursable funds from public nor issue electronic money. It is worth mentioning in this regard, the approval of the Order EHA 1608/2010, of 14 June, about the transparency of conditions and reporting requirements applicable to payment services, and Royal Decree 712/2010, of 28 May, about the legal framework for payment services and payment institutions, which complement the above mentioned Law 16/2009.
Investment institutions: Collective investment institutions: Investment companies: Open-end investment companies (SICAV). Real estate investment companies (SII). Quoted Public Limited Companies of Investment in the Real Estate Market (SOCIMI). Mutual funds: Securities mutual funds (FI). Real estate investment trusts (FII). Money market assets: Mortgage securities. Pension plans and funds. Other. Venture Capital companies and funds. Investment Services Companies: Brokers (Agencias de Valores) and Broker-Dealers (Sociedades de Valores). Portfolio Management Companies. Financial advisory firms. Other management companies: Collective Investment Institution Management Companies. Securitization Fund Management Companies. Pension Fund Management Companies. Venture Capital Entities Management Companies. Insurance and reinsurance companies and insurance brokers. Other financial entities: Mutual Guarantee Societies. Supporting-Guarantee Companies.
Institutional Protection System, (introduced by Royal Decree Law 6/2010, of 9 April, about measures to boost economic recovery). Several credit entities through a contractual agreement may proceed to integrate an Institutional Protection System (IPS) -considered as a consolidable group of credit entities- as long as it meets the following requirements: (i) The existence of a central entity laying down binding policies and business strategies of said entities, and the levels and measures of internal control and risk management. This central entity shall be responsible for the IPS meeting the regulatory requirements on a consolidated basis. (ii) The central entity being one of the credit institutions within the IPS or another credit entity owned by all the IPs entities and also forming part of the IPS. (iii) The contractual agreement which constitutes the IPS shall contain a mutual commitment of solvency and liquidity among entities within the system, which shall be at least 40% of the shareholders equity of each IPS entity, regarding solvency support. The commitment of mutual support shall include the necessary provisions for the support among their members to be conducted through immediately available funds. (iv) The entities within the IPS pooling a significant portion of their results, at least 40% of them, to be assigned in proportion to the participation of each entity in the IPS. (v) The contractual agreement providing that the entities shall remain in the IPS for a minimum of 10 years. Afterwards, a previous notice of at least two years communicating the abandonment of the SIP shall be required. Additionally, the agreement must include a penalties regime for the abandonment of the IPS which strengthen the permanence and stability of the entities in the IPS. (vi) That, according to the Bank of Spain, the requirements of the legislation in force about the equity of financial institutions are met in order to assign a 0% risk weighting of the exposures existing among the members of the IPS.
2.1 The main credit institutions

The main credit institutions, i.e. banks, savings banks and credit cooperatives, play a particularly important role in the financial industry in Spain, because of the volume of their business and because they are active in all segments of the economy. Credit institutions are authorized to engage in what is referred to as universal banking, i.e. not to confine themselves to traditional banking activities consisting merely of attracting funds and financing by granting loans and credit facilities, but also to provide para-banking, securities market services, private banking and investment banking services. The functions of the Bank of Spain have been redefined since the European System of Central Banks (ESCB) and the European Central Bank were set up. It now takes part in the following basic functions attributed to the ESCB:
Defining and implementing the monetary policy in the euro zone monetary policy, with the aim of maintaining price stability. Conducting foreign currency exchange transactions and holding and managing the Spanish States official foreign exchange reserves. Promoting the sound working of payment systems in the euro zone. Issuing legal tender banknotes. Also, pursuant to its Law of Autonomy, the Bank of Spain has the following functions: Supervising the solvency and behavior of credit institutions and financial markets. Promoting the sound working and stability of the financial system and of Spains payment systems. Preparing and publishing statistics relating to its functions. Providing treasury services and acting as a financial agent for government debt. Advising the Government and preparing the appropriate reports and studies. In the past Spanish credit institutions were subject to an excessively high level of interventionism which affected the performance of their activities, through restrictions on their investment and limitations on the fees and interest rates they could fix, which forced them to compete through constant improvement of their efficiency and the quality of services provided to customers. This circumstance has enabled Spanish credit institutions not only to weather free competition among European credit institutions since Spains entry to what was then the European Economic Community but also to compete on equal terms and even to expand. As of January 18, 2011, there are officially registered at the Bank of Spain 68 banks, 36 savings banks, 82 credit cooperatives, 82 branches of EU credit institutions, 506 EU credit institutions operating without an establishment, 8 branches of non EU credit institutions and 54 representative offices in Spain of foreign credit institutions, together with many subsidiaries, branches, representative offices and correspondents abroad1. Savings banks are credit institutions with the same freedoms as and full operational equality with the other members of the Spanish financial system. They have the legal form of private foundations and a community-welfare purpose and operate in the open market, although they reinvest a considerable portion of the earnings obtained by them in community welfare work. These long-standing institutions with deep roots in Spain attract a substantial portion of private savings and their lending business characteristically focuses on the private sector (through mortgage
Bank of Spain
loans, etc.). They are also very active in financing major public works and private-sector projects by subscribing and purchasing fixed-income securities. Up until 1988, savings banks could only operate in their autonomous community. Following that year they began to expand throughout Spain and by 1998 Savings Banks had a more extensive network than banks. The network of offices in the banking sector experienced very moderate, constant growth up to 1999. After that date, however, banks began to reduce their numbers of branches and increase the personnel at each office in order to offer a more personalized service, and to increase their offering of financial services of high added value; this process has involved a redistribution of personnel from head offices to the retail network. The Spanish savings banks are members of the Spanish Confederation of Savings Banks (CECA), a credit institution formed in 1928 to act as the national association and financial institution of the Spanish savings banks and which today is formed by 36 confederated savings banks. In recent years, savings banks and certain other banks have been involved in a major process aimed at optimizing their position vis--vis the EU single market for banking services. As part of this, an integration process took place in 1999 involving the largest Spanish banks and the creation of two banking groups (SCH and BBVA) on a European scale and with a major presence in Latin America. Also, Banco Zaragozano was merged into Barclays, effective January 1, 2004, creating the sixth largest banking group in Spain in terms of profits, and, on November 12, 2004, the UK bank Abbey National Plc. was acquired by SCH. And the Spanish banking system has experienced hitherto unknown international expansion, as evidenced in the purchases in 2008 and 2009, by Banco Santander of the UK Alliance & Leicester, US Sovereign Bancorp and ABN Amro entity in Brasil. Following in Banco Santanders footsteps is its main rival BBVA, which in 2007 finalized the purchase of the US Compass Bancshares institution. Moreover, in 2009 acquired the bank in Texas (US) Guaranty Financial Group and increased its participation in the Chinese Bank Citic Bank up to 15%. Other notable operation to be considered in 2009 was the increase by La Caixa of its participation up to 9% in the Austrian Bank Erste. However the current world financial crisis has caused serious difficulties to entities like the Saving Entities provoking situations like the intervention of Caja Castilla la Mancha by Banco de Espaa. To that extent, it was issued Royal Decree Law 4/2009, of March 29, which authorized the Spanish General Administration to grant securities in order to guarantee to Banco de Espaa the economic obligations coming from the extra financing required by Caja Castilla la Mancha to get over liquidity difficulties. Recently, in order to manage the restructuring processes of credit entities and help to strengthen the equity of the Saving Entities, Royal Decree Law 6/2010 has established the Fund for Restructuring and Organizarion of Banks (Fondo de Reestrucruracin y Ordenacin Bancaria, FROB). This Royal Decree, as mentioned in paragraph 2 above relating to financial institutions, regulates the Institutional
Protection Systems (IPS). This figure, known as cold merger too, has been used by several savings entities in order to stabilize its financial situation. The following mergers of savings entities are noteworthy: IPS among Caja Madrid, Bancaja, La Caja Insular de Ahorros de Canarias, Caixa Laietana, Caja vila, Caja Segovia y Caja Rioja. IPS among Caja de Ahorros del Mediterrneo (CAM), Cajastur, Caja Extremadura and Caja Cantabria, resulting in the creation of Banco Base. IPS among Caja Granada, Caja Murcia, Sa Nostra and Caixa Peneds. IPS among Caja Navarra, Caja de Burgos, Caja Canarias and Cajasol, resulting in the creation of the group Banca Cvica. IPS among CAI, Caja Badajoz and Caja Crculo. Creation of Unnim from Caixa Sabadell, Caixa Terrasa and Caixa Manresa. BBK awarded to CajaSur by Banco de Espaa. Merger between Unicaja and Caja Jan. Merger between Cajasol and Caja Guadalajara. Merger between Caja Duero and Caja Espaa. All these measures are aimed to try to get over the financial difficulties these entities, in comparison with the two biggest banks in Spain, are involved in, being obliged to carry out these processes. A noteworthy development in the area of legislation was Law 26/2003 amending the Securities Market Law and the Corporations Law with a view to reinforcing the transparency of quoted corporations. Under this Law, every year savings banks that issue securities admitted to trading on official securities markets must publish a corporate governance report, which must be filed with the Spanish National Securities Market Commission (CNMV) and must address, among other issues: The entitys management structure with exhaustive information on the compensation of the managing bodies. Transactions with members of the board and oversight committee of the savings bank and with political groups. Compensation received by directors and executives for services to the savings bank. Structure of the business and of the relationships within its economic group. Risk control systems.
2.2 Credit financial establishments

The regulations governing these establishments are contained in Royal Decree 692/1996 of April 26, in which they are classed as credit institutions, which allows them access to inter-bank financing among other things. As of January 18, 2011, a total 69 financial institutions were registered at the Bank of Spain. They engage in banking and para-banking activities, i.e.: Loans and credit facilities, including consumer lending, mortgage loans, and financing for commercial transactions. Factoring with or without recourse and related transactions. Leasing transactions. The provision of guarantees and sureties. Leasings are commercial transactions of a financial nature involving the acquisition of a good previously chosen by the customer, whereby the customer is leased the equipment for use in exchange for the payment of regular installments (usually on a monthly basis). At the end of the term of the agreement, the customer may exercise a call option in respect of the equipment, by paying its remaining value. Factoring consists of the assignment by a company of trade receivables from its customers to a credit institution, in exchange for payment. There are two types of factoring: Factoring with recourse: the factoring entity does not assume liability for the assigned receivables; therefore, in the event of non-payment by the debtor, it may compel the customer company to assume the bad debt. Factoring without recourse: the factoring entity assumes the risk associated with the receivables assigned by the customer. Since the Financial Law (Law 44/2002 of November 22 on the Reform of the Financial System), there have been provisions on the use of factoring to massively assign receivables from public authorities, the aim being to improve the financing conditions of small and medium-sized companies.
2.3 Collective investment institutions

There have been major changes in saving patterns in Spain. According to INVERCO (the Spanish Association of Collective Investment Institutions and Pension Funds), financial saving by Spanish households increased from slightly over 211,000 million euros in 1985 to over 1.9 billion euros in 2007 and fell to 1.69 billion in 2008. At the end of the first quarter of 2010 the figure raised up to 1,73 billion euros.
Moreover, in terms of collective investment, and again based on data provided by INVERCO, in 1985 the majority of financial saving (64.9%) took the form of cash and deposits at credit institutions, whereas collective investment accounted for only 0.4%.At the end of 2009 the respective percentages were 47.4% and 8.4%. This change was followed by decisive legislation, starting with the 1984 Law regulating Collective Investment Institutions, which was followed by the major reform of 1998, and, lastly, the current Law 35/2003 of November 4 on Collective Investments Institutions and its corresponding Regulations, approved in November 2005 by virtue of Royal Decree 1309/2005 of November 4, partially amended by Royal Decree 362/2007, of March 16, to provide a more flexible framework for hedge funds (Instituciones de Inversin Colectiva de inversin libre). The mentioned Regulations have been recently amended by Royal Decree 749/2010, of June 7. The main objective of this Royal Decree is double: 1. To solve some problems posed by the impact of financial crisis on the assets of for collective investment. "Side pockets" are introduced as an alternative to the definitive winding up of an undertaking for collective investment due to the special situation of part of its assets and to the requirements established by legislation regarding subscriptions and refunds. 2. To introduce improvements allowing greater flexibility to collective investment, without infringing investor protection: Operation with "Exchange-traded funds" (ETF), as investment companies with variable capital, is allowed. The regime of investment by undertakings for collective investment in real estate is less strict. Certain limits on investments that have to meet the investment funds with profitability objectives guaranteed are relaxed. New regime about rebates is developed. The favorable tax regime in Spain for collective investment institutions has led to a notable increase in both the number of these institutions (see Table 1) and the volume of their investments. The soundness of the markets in Spain and of the participating entities is evidenced by the fact that in 2006 the funds of families invested in collective investment institutions amounted to 214,117 million euros, although in the first quarter of 2008 this figure fell to 188,770 million euros, as a result of the credit crunch that started in mid 20072. The current recovery of the collective investment is being produced gradually. In Spain, during the last months of 2009, the figure raised up to 225,342 million euros. There are two types of Spanish collective investment institutions: Financial: Their primary activity is to invest in or manage securities.
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www.inverco.es
They include securities investment companies and funds. Non-financial: Real estate investment companies and funds. It is important to point out the Circular 1/2009, of February 4, of the National Securities Market Commission (CNMV), which defines the different classification categories of the Funds and of the Colective Investment Companies taking into account their legal type, risk profile and the assets they invest in. The objective of said Circular is to reduce the number of investment vocations existing and grant to the investor a clear and brief information of the investment policy of the Colective Investment Undertakings. From the standpoint of the legislation, the Law and Regulations currently in force are giving a further boost to the Spanish collective investment institutions industry, due, among other reasons, to the adoption of some of the most common concepts in the international arena, such as umbrella funds, and the inclusion of an exceptionally flexible regime for alternative investment vehicles or hedge funds. The main new features introduced by the new legal regime governing collective investment in Spain are as follows: The possibility, just mentioned, to create umbrella funds. The possibility to create unit classes and share series, which achieves an effect equivalent to the master-feeder structure but in a single institution. In order to implement Directive 2001/108, the law has broadened the range of eligible assets for investment by Spanish collective investment institutions to include deposits with credit institutions and money market instruments. In addition, the regulations included new eligible assets such as credit derivatives and volatility derivatives. Also eligible, although for the investment of up to 10% of the assets of Spanish collective investment institutions, are certain collective investment institutions not harmonized under Directive 85/611, hedge funds, subject to certain requirements, and shares in venture capital entities. Collective investment institution management companies will be able to broaden their activities to include the discretionary management of other kinds of portfolios, and the marketing of both national and foreign collective investment institutions. The use of omnibus accounts is permitted for the marketing abroad of Spanish collective investment institutions. The regulations brought in provisions on exchange-traded funds (ETFs) for the first time. They allowed the entry of alternative investment through the creation of hedge funds and collective investment institutions specialized in hedge funds. In this respect, hedge funds are
conceived in the regulations as institutions reserved for institutional investors, subject to few restrictions as regards investment in financial assets and with an ample leverage limit of up to five times the value of their assets. More specifically, the rules on these financial instruments are to be found in Royal Decree 362/2007, of March 16, amending Royal Decree 1309/2005. The basic aim of this reform is to bring more flexibility to the rules on these IICs, particularly in relation to redemptions, to enable them to be implemented fully in Spain. Thus, these IICs are allowed to establish a maximum limit on the sum that may be redeemed which as a result is distributed equally among all applications. They can also establish minimum holding period requirements for their shareholders or investors and more flexible rules on prior notice for subscriptions and redemptions with respect to the general rules. Furthermore, they are allowed not to provide redemptions on all of their redemption value computation dates. This flexibility in the way they operate is offset by greater disclosure requirements in their prospectuses (folletos). In addition, hedge funds cannot carry out such marketing activities targeted at customers who are not qualified investors; they cannot target their advertising at retail investors, although it does not bar these investors from acquiring shares in hedge funds. Moreover, it stipulates, in relation to the funds of hedge funds, that in order for the IIC to use these more flexible options, the planned investments must require the use of such options and regard must also be had to the fund of hedge funds marketing policy. Funds of hedge funds are aimed at the general public and must be sufficiently diversified. Both the law and the regulations eliminated the obligation which up until then required open-end investment companies (SICAVs) to be quoted on a Stock Exchange. As a result, Bolsas y Mercados Espaoles (BME)3 promoted the creation of an Organized Trading System (SON), i.e. a non-official trading market known as the Alternative Securities Market (MAB), to provide open-end investment companies (SICAVs) with a counterparty system, guaranteeing their liquidity without their having to meet the obligations incumbent upon quoted companies, especially in relation to corporate governance. The MAB was approved by the Spanish Board of Ministers on December 30, 2005. By July 31, 2006 there were 293 open-end investment companies (SICAVs) listed on the MAB; the MAB segment for venture capital companies was launched on June 27, 2007. Within the group of Investment Companies, it is new the creation of the Quoted Public Limited Companies of Colective Investment in the Real Estate Market (SOCIMI), through the Act 11/2009, of October 26. The main activity of these Companies is the acquisition and promotion of urban real estate for being rented. They are also allowed to participate in the equity of other SOCIMI, or of other non-residential entities that have the same object as the SOCIMI, and to possess shares and particpations of Real Estate Collective Investment entities or funds.
3 BME is the company that integrates Spanish securities registration, clearing and settlement systems and secondary markets.
SOCIMI are required to invest at least 80% of their assets in real estate to be rented. SOCIMI real estate must remain rented for at least three years. In case of real estate promoted by the company, the term is extended to seven years. The shares of the SOCIMI shall quote in a Spanish, or any other European Union State, regulated market and must have a minimum capital equity of 15 millions euros. They shall distribute at least 90% of their profits not coming from the transmission of real estate and shares or participations, and at least 50% of the profits resulting from the transmission of real estate or participations, while the other 50% shall, within three years as from the date of transmission, be reinvested in other real estate or participations aimed to the fulfillment of the said object. Recently it is worth to mention, the approval of Circular 6/2010, of December 21, of the CNMV, on derivative operations of undertakings for collective investment, whose contents are in line with Directive 2010/43/EU on organizational requirements, conflicts of interest, rules of conduct, risk management and content of the manager- depository agreement, and with the development of Level 3 on risk measurement and calculation of global exposure and counterparty risk to the UCITS (CESR/10-788).
2.4 Investment Services Companies

Investment Services Companies are enterprises specialized in the provision of services relating to the securities market. The Securities Market Law (LMV) (Law 24/1988 of July 28, 1988) was amended in December 2007 for the purpose of incorporating into Spanish Legislation the following European Directives: Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments; Commission Directive 2006/73/EC of 10 August 2006 implementing Directive 2004/39/EC of the European Parliament and of the Council as regards organizational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive; and Directive 2006/49/EC of the European Parliament and of the Council of 14 June 2006 on the capital adequacy of investment firms and credit institutions. This latter Directive is partially transposed in the Securities Market Law in respect of investment services firms and credit institutions which provide investment services. There is continued recognition of the possibility of investment services being provided by credit institutions, and under Law 35/2003 of November 4 on Collective Investments Institutions, certain investment and ancillary services may also be provided by collective investment institution management companies. Both credit institutions and collective investment institution management companies are subject to the provisions of the Securities Market Law when providing investment services. Although the December 2007 amendment had brought into the Securities Market Law a limited portion of the provisions of Directive 2006/73/EC it was necessary to transpose the whole Directive. As a result, the basic aim of Royal Decree 217/2008, of February 15, 2008, on the legal regime for investment services companies and other institutions providing investment services was to finish off
the transposition of that Directive and complete the implementing regulations on the regime for institutions providing investment services following the changes introduced in the Securities Market Law, all under the principles that had already inspired the amendment of that Law. Those principles are as follows: to modernize the financial markets to cater for new needs (investment services were extended and a new type of investment services company was created: financial advisory firms), the measures designed to protect investors were strengthened (Royal Decree 217/2008 brought in a long list of rules to be observed by anyone who provides investment services); and, lastly, the organizational requirements laid down for institutions providing investment services were adapted to ensure that, generally speaking, their organization is in line with the complex range of services they provide. The amendment of the Securities Market Law at the end of 2007 extended the list of investments services to cover the following: a) The reception and transmission of client orders in relation to one or more financial instruments. b) The execution of such orders on behalf of clients. c) Dealing on own account. d) The discretionary and individualized management of investment portfolios in accordance with client mandates. e) The placing of financial instruments either on or not on a firm commitment basis. f) The underwriting of an issue or of a placement of financial instruments. g) The provision of investment advice. h) The management of multilateral trading systems. The latter two services were the most significant changes. Firstly, we have the provision of investment advice, which is understood to refer to the making of personalized recommendations to a client regarding financial instruments, i.e. recommendations which take into consideration the particular circumstances of the recipient (investment objectives, experience, financial capacity). Secondly, there is the management of multi-lateral trading systems, which may be managed either by investment services firms or by the governing bodies of official secondary markets or by entities set up for this purpose by one or more governing bodies. Another important change was the appearance of a new investment service among those services reserved by the Securities Market Law for investment services firms: systematic internalization. In reality, this is the acceptance of a third alternative form of trading of financial instruments by investment services firms which already existed in practice, i.e. execution on their own account, internally and in an organized and systematic manner, of client orders in respect of financial instruments listed for trading on official secondary markets. This practice is viewed as positive insofar
as it increases competition in financial markets; at the same time, however, it is clear that it needs to be made subject to certain rules. To avoid the unfair treatment of clients, certain information and transparency obligations were established in respect of the order execution possibilities offered by the service, provisions were introduced which guaranteed a non-discriminatory treatment of clients in accessing this investment service, and rules are laid down in relation to the order execution procedure. On the other hand, since the amendment of the Securities Market Law, ancillary services have been deemed to include the following: a) Safekeeping and administration of financial instruments for the account of clients. b) Granting credits or loans to investors to allow them to carry out a transaction in one or more financial instruments, where the firm granting the credit or loan is involved in the transaction. c) Advice to companies on capital structure, industrial strategy and related matters and advice and services relating to mergers and the purchase of undertakings. d) Services related to operations for the underwriting of issues or placing of financial instruments. e) The preparation of investment reports and financial analyses or other forms of general recommendation relating to transactions in financial instruments. f) Foreign exchange services where these are connected to the provision of investment services. g) Investment services as well as ancillary services related to the non-financial underlying of certain financial derivatives when these are connected to the provision of investment services or to ancillary services. In terms of the various categories of investment services firm, apart from the traditional types - i.e. broker-dealers (sociedades de valores), brokers (agencias de valores) and portfolio management companies-, the Securities Market Law established a new type of investment services firm authorized to engage exclusively in the provision of investment advice: these are the financial advisory firms. This service can be provided by natural persons or by legal entities in accordance with the authorization and operational regime established in the same Law. The fact that Directive 2204/39/EC, and hence the Securities Market Law, reserve the provision of investment advisory services for investment services firms was an important change. Broker-dealer companies are investment services firms able to operate professionally on behalf of a third party or on their own account and which can perform the full range of investment services and ancillary services. Broker companies can provide the above investment and ancillary services, except for trading on their own account, the underwriting of an issue or of a placement of financial instruments, and the granting of credit facilities or loans to investors.
Portfolio Management Companies are those investment services firms which can only provide discretionary portfolio management services and investment advisory services and the ancillary services described under c) and e) above. Financial advisory firms can provide the same services as Portfolio Management Companies apart from the discretionary portfolio management services. It should be mentioned that the Securities Market Law and Royal Decree 217/2008 are most thorough in relation to the internal organization requirements to be met by investment services firms. Given that Directive 2004/39/EC grants a Community passport to all Community investment services firms, an adequate level of harmonization is required to ensure that all such firms are able to operate in equal competitive competitions. It must be pointed out that through Act 5/2009, of June 29, the concept of significant share has changed for the investment companies, insurance entities, managing entities of Collective Investment Undertakings and Credit Entities. Said Act transponed Directive 2007/44 CE of European Parliament and the Counsel of 5 September 2007 (Directive of significant share) partially to the Spanish law. Thus, the regime of significant share for these entities, impose the duty of notification of the acquisitions exceeding 10% of the capital equity or of the voting rights and when a significant share is increased over 20%, 30% and 50% of capital equity or the voting rights or the entity may be controlled, to the relevant authorities for their assessment. Finally, it must be mentioned the recent approval of the Circular 1/2010, of 28 July, of the CNMV, on classified information of the entities providing investment services. This Circular regulates the content of the periodic information that certain entities must submit annually to the CNMV in relation to the provision of investment services.
2.5 Venture capital entities

Venture Capital is defined as a financial activity which consists of routing investments to unquoted non-financial, non-real-estate companies, assuming the risk arising from their activity through the acquisition of a temporary holdings in their capital stock. Venture capital is not a reserved activity, i.e. no authorization is required to engage in this activity. There is nevertheless a specific legal regime for venture capital entities which are subject to the supervision of the CNMV. Major changes were made to this regime in 2005 through the approval of Law 25/2005 of November 24 for the regulation of venture capital entities. As mentioned, the special regime under the new Law is not obligatory, but companies subject to the law benefit from a favorable tax regime for the treatment of capital gains generated by the investments characteristic of their activity, which are 99% exempt. Venture capital entities (ECR) can take the legal form of a corporation or a fund and, in addition to their main corporate purpose, can grant participating loans and provide advisory services.
Venture Capital Entities which take the form of a fund are required to have minimum assets of 1,650,000 euros and entrust their management and administration, necessarily, to a venture capital entity management company or collective investment institution management company. Venture capital companies are required to have a minimum capital stock of 1,200,000 euros and may entrust the management of their portfolio to an entity authorized to provide discretionary portfolio management services. Both the current law and the previous law establish certain investments ratios which must be met by these entities in order to maintain their status as venture capital entities and, therefore, to be entitled to the privileged tax regime. The most important changes introduced by the current law are the following: The law introduced a simplified form of venture capital entity intended for institutional investors and characterized primarily by the fact that administrative formalities with the CNMV are simpler and faster. It also allows the creation of classes of shares or participations that can only be subscribed by promoters and founders of simplified venture capital entities that will allow to vehicle the carried interest. It allows the formation of venture capital entities specialized in investing in other venture capital entities. It kept the investment ratio of 60% of the assets of the venture capital entities but the range of eligible assets was broadened, and accordingly they can invest in (i) unquoted shares in nonfinancial and non-real-estate companies, (ii) participating loans to the companies to which their activity relates, (iii) companies whose shares are traded on second markets, (iv) up to 20% of assets in other venture capital entities domiciled in OECD countries and which do not, in turn, invest more than 10% of their assets in other venture capital entities, (v) quoted companies, provided they are excluded from listing for a period of one year. The other assets of a venture capital entity can be invested in (i) fixed-income securities admitted to trading, (ii) investments in companies unrelated to the characteristic corporate purpose of the venture capital entity, (iii) collective investment institutions, (iv) other venture capital entities, (v) cash, (vi) participating loans, (vii) financing, (viii) in the case of venture-capital companies, in fixed assets. In the view of their type of activity, which makes it difficult to meet the ratios indicated, the law allowed a period of three years for them to meet some of the ratios. It was recently approved the Circular 3/2010, of October 14, of the CNMV, on administrative procedures for the authorization of private equity firms and their management companies, the approval of amendments to its regulations and bylaws and the communication of change of directors, aimed at simplifying said procedures.
2.6 Mutual guarantee societies

These companies were first introduced in 1978 and since then have operated in the area of mediumand long-term financing of small and medium-sized enterprises, to which they provide guarantees. As of January 19, 2011, there were registered at the Bank of Spain a total 24 mutual guarantee societies. Accordingly, in line with Law 1/1994 of March 11, on the legal regime for mutual guarantee societies their corporate purpose is as follows: To provide their members with access to credit and to credit-related services. To improve the financial conditions of their members. To provide personal guarantees in any lawful form, other than in the form of a surety bond. To provide assistance and financial advice to their members. To take holdings in companies and associations whose sole purpose is to engage in activities for small and medium-sized companies. To this end, they must have the required reserves and obligatory provisions. The following members of mutual guarantee societies should be distinguished: Participating members: Also known as mutual members. They are the individuals or legal entities eligible to obtain guarantees from the society. Therefore, they are required to belong to the industry specified in their bylaws, and their establishment must be located within the area defined in their bylaws. Protector members: These cannot request guarantees from the society and therefore are not subject to limitations on the industry to which they belong. The protector members are usually public authorities, public-law entities and the companies majority owned by them. Working together with these societies are sociedades de reafianzamiento (supporting-guarantee companies), which are financial institutions, for the purposes of Law 1/1994, and adopt the legal form of an SA company (Sociedad Annima), and have an ownership interest held by the State. Their purpose is to provide sufficient coverage and assurance for the risk assumed by the mutual guarantee societies and, in addition, furnish the cost of the guarantee for the members.
2.7 Pension plans and insurance companies

In 1987, the Pension Plans and Funds Law introduced a form of saving in Spain that has created a sound instrument for long-term financing. This legislation envisaged the existence of pension plans promoted by employers, certain associations and financial entities. The successive modifications and legal updates taking place since then led to the approval, in 2002, by means of Legislative Royal Decree 1/2002, of the Consolidated Text of the Pension Plans and Funds Law. This was followed by the approval of the Pensions Plans and Funds Regulations (Royal Decree 304/2004 of February 20), the intention of which was to update, systematize and supplement the adaptation of regulations in
this area in accordance with European Union provisions. These Regulations were subsequently amended by Royal Decree 439/2007 of March 30, 2007 and, primarily, by Royal Decree 1684/2007 of December 14, 2007 which introduced changes in various areas of the legislation on pension plans: actuarial issues in connection with pension plans, disclosure obligations to pension plan holders and beneficiaries, the system for investments by pension funds, internal control rules for pension fund managers, rules of conduct and regarding the separation of depositaries, and rules on administrative registers related, in particular, to cross-border activities. Moreover, as a result of the creation in Law 35/2006 of November 28, 2006 of Company Benefits Plans (Planes de Previsin Social Empresarial) which is a new instrument for transferring companys pension obligations to be managed externally, a series of changes were made to adapt both the legislation on pension plans and the legislation on the instruments for pension obligations in order to regulate certain components of this new additional instrument for companies benefit obligations. In addition, Royal Decree 1299/2009, of July 31, is the last modification of the Pensions Plans and Funds Regulations, dealing with features like the consolidated rights in case of long term unemployment, and the ability of the Economy Deparment to issue special laws about the authorization and modification procedures of the pension funds and the obligation of communication.Pension plans are collective investment products which invest a principal sum with a view to obtaining periodic income or capital gains in the future in order to provide for retirement, death or disability. In no circumstances, however, should they be regarded as taking the place of the pensions granted under applicable social security regimes. Pension funds are asset pools set up for the sole purpose of implementing pension plans. A pension fund may include one or more pension plans. The aim, as indicated in the 2004 Regulations, is to create a specific supplemental welfare provision instrument, within the framework of private purpose-saving systems. The various characteristics of pension plans include, most notably, their favorable tax treatment and the restrictions on being able to draw out any of the accumulated savings prior to the occurrence of the event for which they were intended, except in cases of long-term unemployment or serious illness. The trend shown by pension plans and funds over recent years has been one of sustained growth. Since 1987, the date of publication of the law referred to above, investments in pension funds in Spain have increased year by year, to such a point that they accounted for 14% of the total savings of Spanish households in 2008, which is still below the European average (32%). In this connection, the Private Insurance Law (Law 30/1995) required all Spanish companies (except financial institutions) to instrument before November 15, 2002, their pension commitments to employees through an external arrangement (pension plan or insurance policy); this had a significant impact in terms of increasing the funds managed by these entities. At the end of 2009 the number of pension plans appearing in the Official Register of the DirectorateGeneral of Insurance and Pension Funds totaled 3,071 against the 3,019 of the past year, that represents an increase of 1,7 per cent. The cumulative investors figure reported by pension plans as of December 31, totaled 10,647,291, which was up by 107,865 investors or 1% percent on the previous years figure.
The chart below shows the changes in the figure for pension plan investors according to data from the Official Register of the Directorate-General of Insurance and Pension Funds.
Table 1
PARTICIPANTS OF THE PENSION PLANS AT DECEMBER 31, 2008

PENSION PLANS PROMOTED BY FINANTIAL ENTITIES 31/12/1989 31/12/1990 31/12/1991 31/12/1992 31/12/1993 31/12/1994 31/12/1995 31/12/1996 31/12/1997 31/12/1998 31/12/1999 31/12/2000 31/12/2001 31/12/2002 31/12/2003 31/12/2004 31/12/2005 31/12/2006 31/12/2007 31/12/2008 31/12/2009 31/03/2010 30/06/2010 30/09/2010 EMPLOYERS ASSOCIATIONS FINANTIAL ENTITIES TRIM/YEAR VARIATION EMPLOYERS TRIM/YEAR ASSOCIATIONS TRIM/YEAR VARIATION TRIM/YEAR TOTAL TOTAL
317.777 530,551 710,677 875,041 1,066,872 1,301,712 1,490,255 1,838,804 2,352,239 2,953,750 3,623,507 4,402,708 5,168,114 5,829,358 6,612,317 7,244,482 7,696,560 8,164,485 8,529,191 8,647,159 8,527,783 8,421,670 8,458,459 8,387,416 -1.65% -2.12%
-81,420 110,315 166,592 212,668 222,249 234,674 267,174 292,090 316,545 371,648 463,519 566.885 614,996 696,640 1,282,598 1,543,715 1,624,059 1,737,768 1,879,346 1,925,934 2,103,636 2,116,988 2,142,766 11.26% 12.06%
-15,987 21,309 26,358 62,791 67,759 71,155 72,669 76,459 76,497 76,448 72,601 92,941 88,712 88,702 83,217 86,132 90,056 89,041 86,285 82,745 82,593 81,018 79,210 -4.27% -4.41%
-212,774 180,126 164,364 356,195 234,840 188,543 348,549 513,435 601,511 669,757 779,201 765,406 661,244 764,463 632,165 452,078 467,925 364,706 117,968 -119,376 -106,113 36,789 -71,043 -140,367 -181,838
--28,895 56,277 102,353 9,581 12,425 32,500 24,916 24,455 55,103 91,871 103,366 48,111 79,184 585,958 261,117 80,344 113,709 141,578 46,588 177,702 13,352 25,778 216,832 230,646
--5,322 5,049 41,482 4,968 3,396 1,514 3,790 38 -49 -3,847 20,340 -4,229 521 -5,485 2,915 3,924 -1,015 -2,756 -3,540 -152 -1,575 -1,808 -3,535 -3,654
-310,181 214,343 225,690 500,030 249,389 204,364 382,563 542,141 626,004 724,811 867,225 889,112 705,126 844,168 1,212,638 716,110 552,193 477,400 256,790 -76,328 71,437 48,566 -47,073 72,930 45,154
317,777 627,958 842,301 1,067,991 1,342,331 1,591,720 1,796,084 2,178,647 2,720,788 3,346,792 4,071,603 4,938,828 5,827,940 6,533,066 7,397,659 8,610,297 9,326,407 9,878,600 10,356,000 10,612,790 10,536,462 10,607,899 10,656,465 10,609,392 0.69% 0.43%
Variation year 2010 (%) Variat.12months (%)
Source: Inverco
All types of pension plans must be included in a pension fund. All of the economic contributions of the sponsors and investors in the plan must be included immediately in the plans position account (cuenta de posicin) in the pension fund, to which all charges are made to comply with the benefits under the plan. As of December 31, 2009, the number of registered pension funds increased to 1,420, compared to 917 in 2002.
The table below shows the changes in pension funds in Spain by number of registered pension funds and managed assets.
Table 2
VARIATION IN NUMBERS OF PENSION FUNDS

Year Registered funds Assets ( million)
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
94 160 296 338 349 371 386 425 445 506 558 622 711 802 917 1,054 1,163 1,255 1,340 1,353 1,374 1,420
153.26 516.87 3,214.21 4,898.25 6,384.95 8,792.74 10,517.48 13,200.44 17,530.61 22,136.26 27,487.25 32,260.64 38,979.45 44,605.62 49,609.91 56,997.34 63,786.80 74,686.70 82,660.50 88,022.50 79,753.20 86,319.91
Source: DGS, Ministry of Economic
As for the investments made by these funds, current regulations are aimed at lending greater legal certainty to the investment process, by promoting the transparency of investments and the provision of information to participants. Financial investments currently form the bulk of the assets of pension funds. The return on pension plans as of December 31, 2008, according to INVERCO data, is highly satisfactory: average weighted returns for the last fifteen, ten, five, and three years and twelve months were 4.21%, 1.04%, 1.4%, -0.97% and -8.05% respectively, and these figures were badly hit recently by the turmoil in the financial industry worldwide, as evidenced by the fact that shorter term returns are the ones that have suffered the most. However, in 2009, in contrast with the tendency of the prior year, the annual return on pension plans has been 6.74%, a higher amount than previous year due to the recuperation of stock markets from the minimums obtained in March 2009.
The number of management companies registered as of December 31, 2007 in the Administrative Register of the Directorate-General of Insurance and Pension Funds totaled 113; of the 94 companies that carry out actual management of pension funds, 12 are responsible for managing only one pension fund, this accounts for 12.8 percent of the institutions with activity. At the other end of the scale, 38 companies manage more than 10 funds each. All of this information is provided in the following table from the Directorate-General of Insurance and Pension Funds.
Table 3
PENSION FUNDS MANAGED BY ACTIVE MANAGEMENT COMPANIES.

Management companies Number of funds 2003 2004 2005 2006 2007
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 to 20 More than 20 TOTAL
22 15 10 8 6 6 4 5 4 2 4 5 1 2 9 9 112
18 9 13 6 7 6 1 5 6 2 1 1 3 5 11 10 104
15 11 10 7 5 6 3 3 6 1 3 1 1 2 5 21 100
16 9 7 7 5 6 1 3 4 2 6 1 1 3 10 16 97
12 8 7 7 5 7 2 1 6 1 7 2 2 2 8 17 94
In 2008 the number of management entities were 106, and in 2009 there were 105 entities. In the insurance industry, since the Revised Text of the Law on the Regulation and Supervision of Private Insurance, approved by Legislative Royal Decree 6/2004 of October 24, 2004, insurance companies have been allowed to adopt the form of an SA company (Sociedad Annima), mutual insurance company (mutua), cooperative (cooperativa) or welfare mutual insurance company (mutualidad de prevision social), and specialized reinsurance companies are also in a class of their own, determined by their corporate purpose. The following table shows the changes in operating Spanish insurance companies. The figures are broken down into direct insurance companies and companies engaged exclusively in reinsurance activities and in the former category, according to the various legal forms they take. There are currently no insurance cooperatives registered in the Register.
Table 4
EVOLUTION OF SPANISH INSURANCE COMPANIES

2003 2004 2005 2006 2007 2008 2009
DIRECT INSURANCE COMPANIES - S.A. companies - Mutual insurance companies - Welfare mutual insurance companies TOTAL DIRECT INSURANCE COMPANIES SPECIALIZED REINSURANCE COMPANIES TOTAL INSURANCE COMPANIES
240 45 63 348 2 350
225 44 59 328 2 330
215 40 55 310 2 312
207 38 51 296 2 298
206 37 52 295 2 297
206 35 56 297 2 299
205 34 56 295 2 297
The Spanish insurance industry continues to be characterized by the co-existence of a certain degree of concentration of the volume of business in highly-competitive lines and types of insurance (life, car, multi-risk) which require considerable size in terms of assets and administration, with the distribution of a minimum part of such volume of business among a large number of entities operating in other types of insurance which do not require companies such a size. Indeed, this characteristic of its structure has become more accentuated over recent years due to the greater level of competition between companies in the domestic market and the internationalization of such market. In 2007 (according to provisional figures) the premiums collected for direct insurance and reinsurance accepted from insurance companies supervised by the Directorate-General of Insurance and Pension Funds, excluding welfare mutual insurance companies, totaled 55,078 million, up 3.42 percent on 2006, which was a slightly lower percentage than in previous years. In non-life insurance growth was higher than in life insurance in 2007 as the drop in consumer spending took a greater toll on life insurance. The opposite happened in the previous year when life insurance grew by 1.29 percent (compared to 11.31 percent in 2006) whereas non life insurance grew by 5.04 percent (6.96 percent in 2006). Following completion of the process of transferring pension commitments to external management in 2002, from 2003 the investment in life and non-life insurance remained stable in the industry. After accounting for 85.5% of the total insurance and financial income figure in 2006, earnings from the non-life business fell to 59.53% in 2007. A significant volume of the earnings of the non-life insurance line in 2007 (more than two-thirds) was obtained from mass automobile insurance, liability insurance, health insurance and comprehensive home insurance, in similar proportions to the previous year. In recent years work has been under way on a modification of the regulations governing the insurance industry, aimed at adapting the current legal framework to the changes which have taken place in the insurance industry and in the financial industry in general, with the emergence of new
investment alternatives for the coverage of technical reserves, new insurance products or new trends in terms of internal control requirements. A new Law on private insurance and reinsurance brokerage (Law 26/2006 of July 17, 2006) was approved in 2006, and 2007 saw the amendment, by means of Law 13/2007 of July 2, 2007, of the Revised Text of the Law on the Regulation and Supervision of Private Insurance in relation to the supervision of reinsurance. As the latest development with regard to the update of the mechanisms for obtaining information on insurances, it must be mentioned the Resolution, of 13 January 2010, of the Directorate General of Registries and Notaries, related to the requirements for computer processing of applications for insurance contracts for death cover.
3. Market
3. MARKET
3.1 Securities market
The Spanish securities market has seen major growth over recent years. This has been primarily due, on the one hand, to homologation with the markets of neighboring countries through the adoption of common European rules, and the introduction of new rules designed to streamline requirements and procedures in relation to public offerings and the subscription of securities and their admission to trading on organized secondary markets. On the other hand, it is explained by the fact that the technical, operative and organizational systems which currently support the securities market allow for greater volumes of investment to be routed. These factors have resulted in greater transparency, liquidity and efficiency in Spanish markets. Currently, the global financial crisis has caused constant ups and downs in trading on the stock markets, both at national and international level, associated to a incipient but weak growth in advanced economies. The provisions governing the Spanish securities market are based on the Anglo-Saxon model, aimed at protecting both small investors and the market itself. This was the aim behind the creation of the National Securities Market Commission (CNMV)4 . This organization is responsible for the supervision and inspection of the Spanish securities markets and the activities of all who operate in them, overseeing the transparency of the markets, protecting investors, and proper price formation. The CNMV was created under the Securities Market Law (24/1988), which brought about major reforms in this segment of the Spanish financial system. Laws 37/1998, 44/2002 and the subsequent Royal Decree Law 5/2005 on Urgent Reforms to Boost Productivity and to Improve Public Procurement, updated the applicable legal regime, by establishing a regulatory framework adapted to European Union requirements, appropriate for the development of Spanish securities markets within the European context, adding new safeguards for the protection of investors. In exercising its powers, the CNMV receives a large amount of information, both from and about the market players, and a large part of this information is recorded in its official registers and is publicly accessible. The operations of the CNMV are aimed primarily at companies issuing securities, those making public offerings of securities, the secondary markets, companies providing investment services, and collective investment institutions. The CNMV, through the National Agency for the Codification of Securities, also assigns internationally-valid ISIN and CFI codes to all issues of securities made in Spain. In relation to the drive for modernization described above, mention should be made of the following new features brought in by the Securities Market Law and Royal Decree Law 5/2005, with respect to
4
www.cnmv.es
the regime for the issue of securities and admission to trading on organized secondary markets, all of which are aimed at speeding up the formalities required for public offerings and admission to trading: According to the Securities Market Law, the following are not regarded as public offerings and, accordingly, do not have to meet the requirements of current regulations: (i) offerings aimed exclusively at qualified investors, (ii) offerings aimed at fewer than 100 individuals or legal entities in Spain, without taking qualified investors into account, (iii) offerings in which the minimum investment required is at least 50,000 euros, (iv) offerings in which the unit price of the securities is at least 50,000 euros, and, (v) offerings for a total sum of less than 2,500,000 euros. The list of cases in which it is not necessary to register a prospectus with the CNMV in the event of an offering or admission to trading is increased to include the following, among others: (i) shares issued to replace existing shares where the issue does not imply a capital increase, (ii) securities offered as payment in relation to a tender offer, (iii) securities which are to be allocated in relation to a merger transaction, (iv) the allocation for no consideration of shares to current shareholders and dividends paid in the form of shares pertaining to the same class as those in respect of which such dividends are paid, (v) the allocation of securities to current or former directors or employers by an issuer whose securities have already been admitted to trading, etc. A prospectus approved by the CNMV is valid for offerings/admissions to trading in any of the regulated markets of receiving EU member states provided that the CNMV notifies the relevant recipient member state accordingly. Similarly, prospectuses approved by the competent authority of a Member State of origin are valid for the purposes of offerings/admissions to trading in Spain. Prospectuses approved by the CNMV for offerings or admissions to trading in Spain are to be drawn up (at the election of the issuer/ applicant for admission) in Spanish or a language habitually used in international finance, or in any other language which is accepted by the CNMV. Fewer formal requirements for certain fixed-income issues made by quoted companies, among others. It is no longer necessary to execute a public deed and have it registered at the mercantile registry in order to issue bonds and debentures etc. Official secondary markets operate in accordance with established rules on conditions of access, admission to trading, operational procedures, information and publicity. These rules provide assurance for the investor and compliance is overseen by the governing company of each market (which lays down the rules) and by the CNMV. These rules are aimed at guaranteeing the transparency and integrity of the markets, focusing on aspects such as the adequate dissemination of significant information (transactions performed, events which may affect the price of a security), the correct formation of prices, and the monitoring of irregular conduct by participants, such as the use of privileged information. The Spanish secondary markets are mainly the equity markets (stock exchanges), the fixed-income markets (public and private) and futures and options markets.
The issuers whose securities (equity and fixed-income) are quoted in Spanish secondary markets are primarily ordinary corporations and Spanish credit institutions, as well as the foreign subsidiaries of Spanish companies. There are also foreign companies (European, mainly) whose shares are traded on Spanish stock exchanges. In relation to the functioning of regulated markets, 2002 saw the formation of Bolsas y Mercados Espaoles, Sociedad Holding de Mercados y Sistemas Financieros, S.A. (BME)5. This was the response of Spanish markets to a new international financial environment in which investors, intermediaries and companies were demanding a growing range of services and products within a secure framework characterized by transparency, flexibility and competitiveness. BME includes the various enterprises responsible for directing and managing securities markets and financial systems in Spain. It groups together, within a single unit in terms of action, decision-making and coordination, the following members, among others: The Madrid, Barcelona, Valencia and Bilbao Stock Exchanges6. Sociedad de Bolsas, which is the company entrusted with the management and functioning of the Stock Exchange Interconnection System (SIBE), the technical trading platform used by the Spanish securities market7. The AIAF Fixed-Income Market, which is the financial debt (or fixed income) market in which assets issued by industrial-type companies, financial entities and regional public bodies to attract funds to finance their activity, are quoted and traded.8 MEFF, Sociedad Rectora de Productos Financieros Derivados de Renta Variable, S.A. and MEFF, Sociedad Rectora de Productos Financieros Derivados de Renta Fija, S.A, the companies responsible for the official Spanish market for futures and options in respect of fixed-income securities and equities.9 SENAF, the Electronic System for the Trading of Financial Assets, which is an electronic platform for the trading of Spanish Public Debt Debentures, Bills and Bonds,10 and Sociedad de Gestin de los Sistemas de Registro, Compensacin y Liquidacin de Valores (IBERCLEAR), which is the Spanish Central Securities Depository, responsible for recording in the accounts and for the clearing and settlement of securities admitted to trading on Spanish Stock Exchanges, the Market for Public Debt represented by book entries, the AIAF Fixed Income Market, and Latibex (the Latin American Securities Market denominated in Euros). IBERCLEAR uses two technical platforms: the Securities Clearance and Settlement System (SCLV) and the Bank of Spains Public Debt Book Entry Office (CADE)11.
www.bolsasymercados.es www.bolsamadrid.es; www.borsabcn.es; www.bolsavalencia.es; www.bolsabilbao.es 7 www.sbolsas.com 8 www.aiaf.es 9 www.meff.com 10 www.senaf.net 11 www.iberclear.es
5 6
In 2007 the approval of Law 47/2007 of December 19, 2007 brought about a major reform of the current wording of the Securities Market Law. Changes are to be found in Title I General provisions, Title IV Official secondary securities markets, Title V Investment services firms, Title VII Rules of conduct and Title VIII Supervision, inspection and penalty system. A new Title XI was also added, entitled Other trading systems; multilateral trading systems and systematic internalization. There are four key principles underlying this reform of the Securities Market Law. These principles which were also fundamental to the new EU rules transposed in Law 47/2007 are: (i) modernization of Spanish securities markets to adapt them to current needs, (ii) reinforcement of measures aimed at protecting investors, (iii) adaptation of the organizational requirements applicable to firms which provide investment services, and (iv) improvement of the supervisory powers of the Spanish National Securities Market Commission (CNMV), by reinforcing instruments and mechanisms designed to foster national and international cooperation between supervisors. In 2010, Legislative Royal Decree 1/2010, of July 2, has introduced some amendments to the Securities Market Law, particularly, to the regulation on information instruments (electronic shareholders forum and shareholders associations) and the Auditory Committee for listed companies. This Royal Decree unifies in a single piece of regulation the capital companies, i.e., public limited companies, limited liability companies, and general and limited partnerships by shares. It is worth mentioning the recent adoption of Circular 5/2010, of 18 November, of the CNMV, about information that the potencial acquirer must submit in the notification referred to in Article 69.4 of Law 24/1988 of 28 July, of Securities Market and Article 45.3 of Law 35/2003 of 4 November, of Collective Investment Institutions, for the preventative assessment of acquisitions of significant stakes and the increase of shareholdings in investment entities and management companies of collective investment institutions. According to this Circular, any natural or legal person who, acting alone or in concert with others, has decided the following: (i) acquire, directly or indirectly, a significant participation in a Spanish investment firm or management company of a collective investment institutions, or (ii) to, directly or indirectly, increase the participation in said entity so that either the percentage of voting rights or capital held is equal to or greater than 20, 30 or 50%, or that, by virtue of the acquisition could control the investment firm or the management company of collective investment institutions, is obliged to prior notificate to the CNMV, indicating the amount of the expected participation, and to include in such notice all the information required by regulations.
3.1.1 Fixed Income 3.1.1.1 The Public Debt Market The purpose of the Book-Entry Public Debt Market is the trading of fixed-income securities represented by book entries issued by both national and supra-national public bodies. The Bank of Spain is responsible for supervision and management of the Book-Entry Public Debt Market through its Central Public Debt Book Entry Office. Along with the traditional system of trading over the phone, in 2001 and 2002 the Spanish Council of Ministers authorized the creation of the Electronic System for the Trading of Financial Assets (SENAF), and in 2002 the Organized System for the Trading of Fixed-income Securities MTS ESPAA SON, managed by Market for Treasury Securities Spain, S.A. (MTS ESPAA). Both are Organized Trading Systems (SON) and are subject to the supervision of both the CNMV and the Bank of Spain. The Book-Entry Public Debt Market is particularly important in Spain, and attracts both resident and non-resident investors. The favorable tax treatment for investments by non-residents in these securities make it particularly attractive. Mention should also be made of the centralization of money market operations through a book-entry system and the creation of the options and futures markets, linked to the book-entry system through which public debt securities are traded. Since the merger of the Bank of Spains Public Debt Book Entry Office (CADE) and the Securities Clearance and Settlement System (SCLV), the resulting company, Iberclear, has been responsible for the recording and settlement of transactions involving securities accepted for trading in the BookEntry Public Debt Market. Iberclear has links with the central securities depositaries of Germany, France, Italy and Holland, meaning that Spanish Public Debt securities can be traded in these countries. There was tremendous pressure on interest rates and the bond markets in 2008 caused by a combination of factors related to the worsening of the worldwide financial crisis, a period of inflationary pressure followed by deflationary pressure, and a general decline in economic activity throughout the world. Trading on the book-entry public debt market in spot transactions totaled more than two billion (2,000,000,000,000) euros from January to November 2009, keeping the same levels asin the previous year. In a breakdown by instrument, this year trading in treasury bills doubled with respect to the previous year, whereas medium- and long-term bonds and debentures fell back considerably in this period showing the hard times that hit the medium- and long-term fixed-income markets in 2008. The table below shows the volume (in millions of euros) traded on the book-entry public debt market.
Table 5
TRADING ON THE GOVERNMENT DEBT MARKETS (MILLIONS OF EUROS)

Treasury Bills Non-Strippable Bonds and Debentures Coupons and Principals of Stripped Debt Total
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009*
Source: Bank of Spain *January-November 2009
187,868 100,545 79,839 79,820 58,116 40,096 89,751 114,951 116,087 92,831 57,363 114,611 178,781
1,534,640 1,617,689 1,752,353 1,543,234 1,968,268 2,255,219 2,144,615 2,012,445 2,213,934 2,795,271 3,102,825 2,063,699 2,020,296
22,412 16,719 15,374 15,629 12,516 9,302 8,187 14,415 17,197 23,819 19,685
1,722,508 1,718,234 1,854,604 1,639,773 2,041,758 2,310,944 2,246,882 2,136,698 2,338,208 2,902,517 3,177,385 2,202,129 2,218,762
Mention should be made of the sharp increase in debt held by non-residents since the introduction of the single currency. Their debt portfolio is mainly composed of 10 or 15-year products, which may be strips and have high liquidity. The main countries of origin of these investors are: France, Germany and the United Kingdom, and as far as non-European countries are concerned, the growing presence of Japanese investors is particularly noteworthy. The reasons for the major growth in public debt held by non-residents are indicated below: Spains inclusion in Economic and Monetary Union (EMU), with the consequent elimination of the exchange risk. This made Spanish public debt more attractive. The major role played by non-resident market makers. They first entered the Spanish public debt market back in 1999, were reformed in 2003, and have moved significant volumes of debt, contributing to the drive for a more dynamic market. Meffclear began to operate in 2004. This is a counterparty clearing house for Book-Entry Public Debt securities managed by MEFF Sociedad Rectora de Productos Financieros de Renta Fija, S.A. 3.1.1.2 AIAF Fixed Income Market This is the market used for trading all kinds of fixed-income securities of companies and private institutions, except for those instruments which are convertible into shares (which are only traded on stock exchanges) and public debt, which is traded through the book-entry public debt market. It is an organized secondary market specialized in trading in large volumes, meaning that it is geared towards wholesale investors (i.e. it caters primarily for qualified investors).
The AIAF market has grown rapidly in recent years owing to the expansion of fixed-income securities in Spain. It was formed in 1987 through an initiative of the Bank of Spain, to put new mechanisms in place to encourage business innovations which could be carried out by attracting funds through fixed-income assets. The regulatory and supervisory authorities have provided it with the features required to be able to compete in its environment. Its increase in size over recent years makes it comparable with the fixed-income markets of other countries in our environment. Its special feature is that it is one of the very few Official Organized Markets in Europe dedicated exclusively to financial assets of this type. Issuers, in accordance with their fund procurement strategies, place at the disposal of investors through the AIAF, a variety of assets and products comprising the full range of maturity periods and financial structures. The AIAF Market, under the supervision of the CNMV, guarantees the transparency of operations and promotes the liquidity of assets admitted to trading. At the beginning of 2009 the AIAF Fixed Income Market had eighty-four members, including the leading banks, savings banks and stockbroker companies and agencies in the Spanish financial system. The clearing and settlement of transactions is done through Iberclear. AIAF recorded a total trading volume amounting to 1,108,233 million euros in 2008 and 2,400,887 million euros in 2008 and 3,372,889 million euros the period between January 2009 and November 2009, up 40.48% on the figure for the previous year in only eleven months. 3.1.2 Non-Fixed Income 3.1.2.1 Stock Exchanges The Stock Exchanges in Spain (Madrid, Bilbao, Barcelona and Valencia) are the official secondary markets engaged in the exclusive trading of stocks and securities which are convertible or which carry rights of acquisition or subscription. In practice, equity issuers also use the stock exchanges as a primary market from which to make offers of sale of shares or capital increases. The manner in which each Stock Exchange functions and is organized depends on the related stock exchange governing company. There are currently two systems for trading in equities : 1. The floor market (i.e. the traditional system). Each of the four Stock exchanges has its own floor market. Under this system, the players who are members of the Stock exchange in question actually assemble in the trading room and trading takes place in person. This is currently a residual market, which accounts for between 1% and 2% of total trading, although it brings together a large number of companies with low liquidity. 2. The electronic Stock Exchange Interconnection System (Sistema de Interconexin Bursatil, (SIBE)). This is a trading platform managed by Sociedad de Bolsas which connects up the four Spanish Stock
exchanges. It is a market which responds to orders, offering real-time information on fluctuations in the price of each security and permitting the issue of orders through computer terminals to a central computer. In this way, a single Market Order Book is managed for each security. Practically all stock exchange trading of shares in Spain takes place through SIBE. All securities admitted to trading in at least two Stock exchanges can, at the request of the issuer company and subject to a favorable report by the Sociedad de Bolsas and agreement of the CNMV, be traded through this system. The activity of the Spanish securities market can be measured in terms of actual trading volume through SIBE, which reached a figure of around 1,243,168 million euros at the 2008 year-end, and 897,187 million euros in 2009 and was down by 27.83% in a year. However, the downturn of 2009 has been overtaken between January and November 2010 with an increase of 7.09% over the previous year, reaching a total of 965,714 million euros. The accumulated volume of capitalization or market value of equities as of November 2009 amounted to 1,058,599 million euros, up 34.86% on the figure at the same date in the previous (784,942 million euros). Foreign investment has also made a significant contribution to the growth of Spanish securities markets. A total of 38.5% of the value of listed Spanish companies is held by foreign investors, which is the highest figure since 1992, the year in which these statistics began to be calculated, which makes non-residents the principal owners of shares in Spanish listed companies. The proportion of investments by non-residents on the Spanish stock exchange was extraordinarily high in 2009 despite exceptional market conditions. The proportion that purchases by non-residents bear to the total trading volume on the Spanish market is still rising with respect to previous years, and totaled 60% in the first half of 2009, which means that more than half of the total trading volume on the market has a non-resident trader behind it. There was a bearish trend on the Spanish stock exchange in 2007 and 2008. The shareholder return figure relative to the IBEX index stood at minus 41.31% which marked a sharp downturn from the clearly bullish trend prevailing in the market since 2003, with an average growth rate of around 25% until 2006. However, in 2009, after a negative beginning of the year, as from February, the Stock Market has experienced a recovery that is reflected in the significant increases in the IBEX and in the world main indicators. In terms of profitability, at the end of November 2009 it raised a positive result of 25%, returning to the upward tendency consolidated until 2007. In early 2010 the Exchange Market recorded a loss of 8.95%. This uncertainty persisted in the second quarter with a 22% decrease, while in the third quarter of 2010 the situation started getting better. The following two tables show the impact of investments in shares in quoted companies, by groups of investors, the capitalization of the Spanish stock exchange (in millions of euros) by sectors.
Table 6
INVESTMENTS IN SHARES IN QUOTED COMPANIES BY GROUPS OF INVESTORS

1999 2000 2001 2002 2003 2004 2005 2006 2007
Banks and savings banks Insurance companies Collective investment Public authorities Non financial firms Households Non-residents
Source: BME
12.8 3 5.8 0.3 10.1 33.6 34.3
7.3 2.3 4.8 0.2 20.3 30.5 34.7
7.9 2.3 4.9 0.2 21.7 28 35
7.1 2.2 5.2 0.4 22 28.3 34.8
7.7 2.3 5.6 0.3 23 26 35.1
8.7 2.3 6.3 0.3 23.1 24.1 35.2
8.6 2.4 6.2 0.3 24.7 23.6 34.2
9.3 2.5 7.2 0.3 24.4 23.8 32.6
9.4 2.2 6 0.2 25.4 20.1 36.8
Table 7
CAPITALIZATION OF THE SPANISH STOCK EXCHANGE (IN MILLIONS OF EURO) BY SECTORS

Basic Industry Oil and Energy and Construction Materials Consumer Goods Consumer Services Financial and Technology and Real Estate Telecommunications Services Foreign Securities
Total
MAB
2005 2006 2007 2008 2009
868,760.33 1,134,137.08 1,384,779.83 784,942 1,058,599.06
114,951.63 57,222.45 40,500.00 47,968.47 187,880.96 153,580.31 96,203.65 55,069.93 55,567.10 281,242.51 212,529.71 89,381.52 61,126.07 48,385.47 264,044.97 148,809 44,471 33,549 23,628 150,095 121,733.58 53,482.68 25,706.57 204,729.2 93,1667.7
103,852.95 316,383.85 83,854.38 23,705.48 384,913.72 110,416.89 31,496.64 567,398.56 77,728 24,648 281,955 26,122.42 492,783.2 105,859.9
Source: BME Includes: The continuous market, the floor markets of the four Spanish stock exchanges, MAB and Latibex
Stock market activity is measured in terms of performance indexes, based on share prices as the best indicator of the market price level. Thus the index shows changes in prices and the market trend at different points in time. The IBEX-35 is the Spanish continuous market index. It is prepared in real time and shows the capitalization of the 35 best companies on the electronic stock market. It is an extremely efficient information instrument for anyone performing measurement activities, as it is an indicator of the shares with the greatest liquidity. It is not manipulated in any way. The securities that should be included are reviewed twice a year. To be included in the index, certain guidelines must be observed, such as: The company must be traded on the continuous market for at least six months (control period).
Companies with a market capitalization of less than 0.3% of the average capitalization of the IBEX35 may not be included. The security must have been traded in at least one third of the sessions in the six-month control period. If this is not the case, this security could still be chosen if it were within the first fifteen securities by capitalization. Rules on the weighing of companies according to their free float must be observed. The Chart below shows the performance of this index over the last few years:
Chart 1
PERFORMANCE OF IBEX-35, 2006-2010
15,945 14,120 12,294 10,468 8,643 6,817

F M A N F M A N F
Last (17/01/2011): 10,280.0 Year 2011: +4.27%
Source: Madrid Stock Exchange.
3.1.2.2 The New Market The New Market (Nuevo Mercado), a special trading segment in Spanish stock exchanges, was created in 2000. It is used to trade securities of companies in leading edge technology sectors in terms of final product, production processes or the performance of activities with high growth potential. The creation of the New Market was essentially due to the presence on the Spanish stock market of companies associated with new communications technologies, particularly with the Internet, and was based on experiences of a similar kind in the markets of other countries. To protect investors, Sociedad de Bolsas laid down specific rules for trading, in view of the higher volatility and risk of these securities. Thus, for the specific case of New Market securities, the maximum percentage of price variation for each session was increased to 25% (it is 15% for traditional securities), and this percentage may be further increased if advisable in view of the circumstances of the market or of the security. However, the protection of the investor in relation to these securities was based on disclosure obligations which extend beyond the traditional requirements (significant events, quarterly, six-
monthly and yearly), since at least once a year these companies had to publish explanatory information on the evolution of, and outlook for, their businesses. The New Market currently has 8 quoted companies. The IBEX NM index was created to help monitor the New Market. The calculation of this technological index stopped in December 2007, since there were no financial products associated with this index, coupled with reasons relating to the low number of securities listed and the economic changes that had taken place. In November 2007 the New Market had accumulated a decline of 7.4% and despite a bullish trend since the end of 2002 it never regained the highest figures obtained at the beginning of its existence. Furthermore, this indicator has typically gone against the trend in the other selective indexes and in the Spanish market as a whole, and it usually had the opposite plus or minus sign to the figure for Ibex 35 or the General Index for the Spanish stock exchange. 3.1.2.3 The Latibex Market The Market for Latin American Securities in Euros ("Latibex) came into operation towards the end of 1999. The good behaviour of the Latin American economies in 2009 and the expectations of growth for 2010 has been reflected in the evolution of the price of the shares of the main Quoted Latin American companies as there has been an increase in the assignment of resources by the main intenational investors. This market was formed to provide Latin American quoted companies with a reference for the formation of prices, in European business hours, supported by the leading role played by the Spanish economy in Latin America. This market uses the SIBE as its trading platform, and to increase its liquidity and improve arbitrage operations, the role of Specialist was introduced in 2001. Latibex is not classed as an official secondary market, although it operates in a very similar way to a stock exchange. It is a multilateral market, in which crossed transactions on the market are cleared by Iberclear in three days. Since it began to operate, 39 securities have been included in Latibex, all of which are quoted on a Latin American stock exchange.
Table 8
MAIN CHARACTERISTICS
Market authorized by the Spanish government. Platform for trading and settlement in Europe in relation to the main Latin American companies. Currency: Euros. Trading: Through the Stock Exchange Interconnection System (SIBE). Settlement: In D+3 by book entries. Connected to the market of origin by Iberclear agreements with the Latin American central depositaries through a liaison institution. Intermediaries: All of the members of the Spanish stock Exchange currently operate. Operators from the Latin American market have also joined recently. Specialists: Intermediaries who undertake to offer buying and selling prices at all times. Indexes: i) FTSE Latibex All Share, which includes all of the companies listed on Latibex. ii) FTSE Latibex Top, which brings together the 15 securities with the highest liquidity in the region listed on Latibex. iii) FTSE Latibex Brazil, which brings together the securities with the highest liquidity in Brazil listed on Latibex. * The three indexes are produced in conjunction with FTSE, a firm in the Financial Times Group that designs and prepares indexes. Transparency of information: the listed companies provide the market with the same information they supply to the regulators of the markets where they trade their securities.
Source: BME
The chart below shows the changes in volumes of trading on Latibex between when it started and 2008.
Chart 2
900,000,000 800,000,000 700,000,000 600,000,000 500,000,000 400,000,000 300,000,000 200,000,000 100,000,000
ACTUAL TRADING VOLUME ON LATIBEX (2001 - 2008) (euros)
Source: BME.
0
2001 2002 2003 2004 2005 2006 2007 2008
3.1.3 The Options and Futures Market The Options and Futures Markets are derivatives markets, and their role is to allow the risks arising from adverse fluctuations and in relation to a particular positioning of an economic agent to be hedged. The Spanish futures and options market is called MEFF (Mercado Espaol de Futuros Financieros The Spanish Financial Futures Market). MEFF is the official secondary market for financial futures and options, where contracts of this type in respect of fixed-income and equity are traded. It commenced operations in November 1989 and its main activity is the trading, clearing and settlement of futures and options contracts on government bonds and the IBEX-35, S&P Europe 350 indexes and futures and options in respect of shares. It is fully regulated, controlled and supervised by the relevant authorities (the CNMV and the Ministry of Economy and Finance), and performs trading functions as well as those relating to a clearing and settlement house, which are perfectly integrated within the electronic market developed for this purpose. MEFF has been recognized internationally by the regulatory authorities of the United Kingdom and Switzerland as a trading market for entities based in their respective jurisdictions. Similarly, the marketing in the US of Futures and Options related to indexes and debt instruments traded on MEFF has been authorized by the CFTC, which has also granted a Part 30 exemption" to all the markets members. Due to the development of derivatives markets, Royal Decree 1282/2010, of 15 October, on the futures, options and other derivative instruments official markets has recently been approved. Royal Decree 1282/2010 regulates in particular the creation, organization and operation of secondary markets for futures and options at national level, i.e. the necessary authorization of these markets, the registration of derivative instruments contracts, contracts for derivative instruments (general conditions, trading suspension, exclusion of contracts), governing entities and members of the markets and guarantees and non-compliance schemes. Any individual or legal entity, whether Spanish or foreign, can be a client and trade on the MEFF Market, buying and/or selling futures and options. In 2008 the trading volumes of options and futures on shares and equity indexes on the Spanish market reached record highs, as shown in the table below:
Chart 3
90 80 70 60 50 40 30 20 10
CONTRACTS TRADED ON THE SPANISH OPTIONS AND FUTURES MARKETS (MEFF) (2000- 2008) (figures in millions )
Source: BME.
0
2000 2001 2002 2003 2004 2005 2006 2007 2008
At 86.3 million, the number of contracts traded in 2009 was up 3.8% on the same period in 2008. In 2009 historical maximums have been reached in the trade of MEFF, among others, it is important to point out the amounts obtained in June, where it was reached the historical monthly maximum trading for all products, with 13.5 million of contracts, and the historical maximum of futures over shares with 8.3 million contracts.The positive figures obtained this year in the derivatives market were the result of continuing with the strategy followed throughout recent years: growth in the number of members, especially non-residents; new technological improvements and facilities; and a greater degree of standardization in procedures. Thus in the first eleven months of 2008 the number of nonresident members increased up to 68 out of a total of 122 MEFF members. To bolster the strength and liquidity of the market, and the competitiveness and flexibility of its members, the ranges of some products were extended, and new monthly maturity dates were available. 3.1.3.1 Olive Oil Futures Market Trading in the Olive Oil Futures Market (MFAO)9 commenced in January 2004, managed by its governing company, the MFAO, Sociedad Rectora del Mercado de Futuros del Aceite de Oliva, S.A., which encompasses the Regional Government of Andalusia, various financial institutions and companies from the olive-growing industry. It is currently the only market established in Spain for the trading of derivatives on non-financial assets (olive oil), following the closure of the market for futures and options on citrus fruits. Olive oil futures contracts have been traded on MFAO since February 6, 2004, the date of its inauguration. It is the only Futures Market in the World where olive oil is traded. 3.1.4 Spanish Registry of CO2 Emission Allowances The National Registry of Greenhouse Gas Emission Allowances ("Renade"), which is the Spanish component of the European Union system for the registration of such allowances, came into
9
www.mfao.es
operation in June 2005. It pertains to the Ministry for the Environment and its management was entrusted to Iberclear in November 2004. Following the implementation of EU law in Spanish legislation (Law 1/2005 of March 9 and Royal Decree 1264 of October 21), based on Commission Regulation (EC) no. 2216/2004 of December 21, the registration began of emission rights, which have been classed as transferable assets. 3.1.5 Multilateral Trading Systems and Systematic Internalizers Law 47/2007 of December 19, 2007 added to the Securities Market Law a new Title XI with provisions on multilateral trading systems and systematic internalizers. These, together with the official secondary markets, are the various systems for the trading of financial instruments recognized by the Law. This addition serves to implement one of the main changes introduced by Directive 2004/39/EC, which was to foster competition between the different alternatives for performing transactions with financial instruments, and this competition shall contribute to the completion of the single market for investment services, making these services cheaper for end clients. This means that investment services firms and credit institutions providing investment services could compete with the stock exchanges and other official secondary markets in the trading of financial instruments. Multilateral trading systems mean any system operated by an investment services firm or by the governing body of an official secondary market which bring together, within the system and in accordance with its non-discretional rules, the buyers and sellers of financial instruments to give rise to contracts, in accordance with the provisions of the Securities Market Law. The forerunners of these systems in Spain were the unofficial organized trading systems or markets recognized by the former Securities Market Law. Law 47/2007 recognizes their existence in the European context and establishes certain organizational and transparency requirements for the stages both prior and subsequent to the trading of shares similar to those applicable in official secondary markets. Systematic internalization is defined in the aforementioned Law as being another of the investment services which are reserved for investment services firms. In fact, this implies the acceptance of a third, alternative, form of trading in financial instruments by investment services firms which already existed in practice, i.e. the carrying out on their own account, internally and in an organized and systematic manner, of orders by clients in relation to financial instruments admitted for trading on official secondary markets. This is seen as a positive practice insofar as it increases competition in financial markets, although it clearly needs to be made subject to certain rules. Thus, to avoid the unfair treatment of clients, certain disclosure and transparency obligations were established in relation to the options for carrying out orders that are offered by the service, provisions were introduced to guarantee a nondiscriminatory treatment of clients in gaining access to this investment service, and rules were laid down in relation to the procedure for carrying out orders.
3.1.6 Tender offers For the purpose of improving the protection of small investors, the regulatory framework for tender offers was modified in 2003 in Royal Decree 432/2003, of April 11. This involved the following changes, among others: It became compulsory to make a tender offer in the following cases: a) A tender offer for 10% of the capital of the target company, even where it is sought to reach a percentage lower than 25% of its capital stock, whenever the acquirer intends to reach a holding of 5% or more in the capital stock of the target company or a holding of a lower percentage which would enable the acquirer to appoint a number of directors (together with any the acquirer has already appointed) representing more than one third and less than one half plus one of the members of the governing body of the target company, and the acquirer intends to make such appointments. b) Tender offer for 100% of the capital stock of the target company, even when the intention is to reach a percentage lower than 50% of its capital stock, whenever the acquirer intends to reach a holding of 5% or more in the capital of the target company or, a holding of a lower percentage which would enable the acquirer to appoint a number of directors (together with any the acquirer has already appointed) representing more than half the members of Board of Directors of the target company, and the acquirer intends to make such appointments. The reformed regulations expressly permitted conditional tender offers, whereby the effectiveness of the tender offer is subject to conditions whose fulfillment must be approved by the decisionmaking bodies of the target company. Lastly, the reform improved the rules on competing tender offers: a) It eliminated the requirement for the price to be bettered by at least 5% in competing bids. b) The period for the submission of competing offers was reduced to 10 calendar days and a single maximum period of 30 calendar days, from commencement of the period of acceptance of the initial offer, was established for the submission of any competing bid. c) Once the period for accepting the last of the authorized competing tender offers has commenced, an auction period starts. The previous offerors may thus modify the terms of their offers by bettering the price or widening the scope of their offers to a greater number of securities. The improved terms must be submitted in a sealed envelope to the CNMV within five days of the commencement of the period for accepting the last of the authorized competing offers. Two major changes to the legislation on this subject were approved in 2007. On the one hand, Law 6/2007 of April 12, 2007 on the reform of Securities Market Law 24/1988, for modification of the regime on tender offers and the transparency of issuers, and, on the other hand, Royal Decree 1066/2007 of July 27, 2007 on tender offers.
The aim of Law 6/2007 of April 12 is twofold: (i) to amend the Securities Market Law, to partially implement two European Directives in Spanish law: Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids (the Takeover Bids Directive) and Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004 on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market and amending Directive 2001/34/EC (the Transparency Directive). (ii) to amend those areas of the regulations to guarantee that tender offers are performed within a full legal framework and with total legal certainty. Royal Decree 1066/2007 completed the amendments introduced by Law 6/2007. This Royal Decree (subject to the exceptions it specifies) requires that any party that gains control of a listed company must make a tender offer for all the securities and address that offer to all the holders of securities, for an equitable price. Similarly, when a company resolves to exclude its shares from trading on Spanish official secondary markets, a tender offer must be made, unless, subject to any of the requirements envisaged in this Royal Decree, the exclusion offer is not necessary. Lastly, when the capital of a Spanish listed company is reduced as a result of the company purchasing treasury stock for redemption, without prejudice to the minimum requirements in Article 170 of the Spanish Corporations Law, a tender offer is required to be submitted in accordance with the terms of this Royal Decree. 3.1.7 Securities loans A securities loan is defined as a legal transaction whereby one party, the lender, transfers the ownership of certain securities to the other party, the borrower, who assumes an obligation to pay the stipulated return in exchange for the loaned securities and to settle the transaction at maturity by delivering other securities of the same kind and rating, regardless of the fact that the value of such securities will differ from their value at the time of the transfer. In addition to the securities loan to secure the delivery of securities traded on a secondary market at their settlement date, regulated by Royal Decree 116/1992 on book entries (amended by Royal Decree 363/2007 of March 16, 2007), Law 62/2003 on Tax, Administrative, Labor and Social Security Measures establishes the tax regime applicable to certain securities loans, the most noteworthy aspects of which are as follows: Treatment for the lender The composition of its assets is not altered, nor does any gain or loss arise on delivery of the loaned securities or on the return of other securities of the same type upon maturity of the loan.
Both the interest on the loan and the amounts paid in respect of the dividends on the loaned securities will be treated, as a general rule, as a yield obtained from the transfer of own capital to third parties. For purposes of applying the regime on tax credits or exemptions established for legal entities, the percentage of ownership and the length of time during which the securities have been held in the portfolio are not deemed to be affected by securities loans. If any, the impairment loss related to the account replacing the loaned securities will be deductible on the same terms as the impairment loss related to the securities in question. Treatment for the borrower Dividends, profit sharing and any other income from the loaned securities will be included in the borrowers income. The entire amount received from the distribution of additional paid-in capital or from a capital reduction with a return of contributions affecting the loaned securities or their market value, if in kind, will be treated as income from movable capital derived from an interest in the equity of any kind of entity. Likewise, in the case of capital increases, the borrower must include in its personal tax returns the market value of the rights of subscription or free allotment that have been awarded to it. The amount payable to the lender for the dividends on the loaned securities will be treated as a financial expense. In its personal tax returns, the borrower will be entitled to apply such exemptions or take such tax credits as are provided for with respect to the income derived from the loaned securities. In addition, the Ministerial Order of March 25, 1991 regulates the securities loan linked to a transaction for the sale of such securities on a stock exchange. This is a financial transaction reserved for Broker-Dealer companies and credit institutions. Finally, the same Ministerial Order establishes the required minimum content of the so-called "loan to lender", or contract whereby the holder of shares allows the depositary to assign them under a loan agreement for the purpose of increasing the return on its portfolio.
3.2 Lending market

As noted earlier, the Spanish lending market is structured around banks, savings banks and credit cooperatives, which attract most savings and use their funds to provide financing for the private sector. Credit institutions also operate as investors and subscribers in the stock market, and adjust their liquidity by inter-bank and money market transactions.
The parallel growth in deposits from, and lending to, the private sector shows the lack of any serious problems in obtaining business financing. The liberalization of capital movements in the EU has also made it easier for Spanish companies to obtain financing from abroad. As a result of the events that have had an impact on the international financial economy since August 2007, Europe is in financial turmoil. With the aim to coordinate the acts of the various Member States and secure the stability of the financial system, the Economic and Financial Affairs Council of the European Union welcomed the European Commissions intention to bring forward urgently an appropriate proposal to promote convergence of deposit guarantee schemes and agreed to raise the minimum coverage level to 50,000 euros. This decision was implemented in Spain in Royal Decree 1642/2008, of October 10, in which it was decided to strengthen the Spanish system for guaranteeing deposits and investments by raising the protection of existing deposits to one hundred thousand euros (100,000) per holder and institution, for situations that could arise in the future. The intention behind this measure is to maintain and increase the confidence of deposit holders and investors at Spanish credit institutions and Investment Services Companies. Other measures carried out in 2009 were established in the Royal Decree 97/2009, of February 6, related to in mora payment of the mortgage loans. This Royal Decree modifies the ancient Royal Decree 1975/2008, of November 28, about urgent measures to adopt in economical, tax, employment and home obtainig issues. This Royal Decree is important as it describes the in mora of the mortgage loans for unemployees, self-employed persons that stopped their activity and pensioners. It is a necessary measure to guarantee the payment of the long term loans. The tendency to promote the protection of the integrity of financial systems has led to the adoption of Law 10/2010, of 28 April, on the prevention of money laundering and terrorist financing. The purpose of said Law is to regulate the obligations and procedures to prevent the use of the financial system and economic systems for money laundering. This law includes certain developments relating to (i) persons subject to the Law (increasing the number of persons covered, establishing common rules for all types of individuals), (ii) reporting obligations (communication in case of signs, increase of the obligation of record filing from 6 to 10 years), internal control of the fulfillment of obligations (external expert exam of all legal persons, more employees training obligations), or (iv) introduction of the concept real owner and the need for his identification. Currently, the first signs of the end of the crisis are arising, however there are not solid and continuing signs of recovery which guarantee sustainability of the economy. Therefore, it seems that FED in United States and ECB in Europe shall not decide to increase the interest rate for the moment as it could put the current economy situation in danger. The regulation of non-mortgage securitization procedures should also be mentioned. These contribute to furthering the generation of additional resources by credit institutions, enabling them to grant new credit facilities.
3.2.1 Asset securitization Securitization consists basically on the conversion of groups of credit rights into standardized fixedincome securities for subsequent trading in organized markets, where they can be purchased by investors. Two types of securitization can be distinguished: Mortgage-backed securitization: This is performed through mortgage securitization funds, which are separate asset pools lacking legal personality whose assets are the mortgage loans pooled by them (issued by credit institutions and backed by mortgage loans from the portfolio of the assigner) and whose liabilities are the securities issued, such that their net asset value is zero. Asset-backed securitization: Asset securitization funds are separate asset pools lacking legal personality whose assets are their financial assets and other collection rights, both present and future, fixed-income securities issued, loans granted by credit institutions and any contributions from institutional investors. The securitization market in Spain has changed spectacularly over recent years, since the publication of Royal Decree 929/1998 of May 14 on asset securitization funds and securitization fund management companies, which established the legal framework for asset securitization funds. Indeed, securitization has recently become one of the most commonly used forms of financing in the Spanish financial industry. The securitization market in Spain recorded the highest growth in Europe in recent years which made Spain one of the large competitors worldwide in bonds of this type and it came under the scrutiny of international pundits. Law 62/2003 of December 30 on tax, administrative, labor and social security measures gave legal recognition to what is known as "synthetic securitization", in which the risk associated with receivables is transferred from certain assets to a securitization fund by trading in credit derivatives with third parties, without the related rights to payment being assigned. The publication in November 2005 of Order EHA/3536/2005 determining future rights to payment eligible to be included into in securitization funds broadened the range of possible rights to payment for securitization, since although Royal Decree 926/1998 already recognized the possibility of future rights to payment being assigned to a securitization fund, the prior publication of a Ministerial Order authorizing such assignment was required (except for motorway toll collection rights relating to concession holders since these had already been expressly acknowledged in the Royal Decree as being eligible for securitization). The Order therefore recognized expressly the possible assignment of various categories of future rights to payment, provided that certain requirements are met.
3.3 Money market

The money market in Spain is based fundamentally on the issuance of short-term securities by the Bank of Spain, which are taken up by banks, finance entities and money market operators which subsequently place a portion of them with individuals and businesses.
In a broader sense, the money market is also deemed to encompass inter-bank deposits (the interest rates for which are used as a reference index for other transactions) and trading in company promissory notes. The money market has become increasingly important as a result of the liberalization and move towards greater flexibility of the Spanish financial system as a whole over recent years, given that interest rates are ordinarily higher than the rate of inflation and given the substantial volume of trading in money market securities.
4. Safeguards to project financial services customers
4. SAFEGUARDS TO PROTECT FINANCIAL SERVICES CUSTOMERS

The Financial Law generalized and increased the protection afforded to financial services customers by instituting the following safeguards: The creation of Commissions for the Defense of Customers of Financial Services: bodies reporting to the Bank of Spain, the CNMV and the Directorate-General of Insurance and Pension Funds set up expressly to protect the rights of users of financial services, implemented under Royal Decree 303/2004 of February 20, 2004. The responsibilities of these Commissions include: Dealing with complaints and claims directly relating to legally-recognized interests and rights arising from contracts and from the legislation on transparency and customer protection, as well as from good financial practices and customs. Checking the information required to verify and confirm the importance of the complaints or claims lodged and collecting the necessary information from supervisory bodies and entities, for their resolution. They are also responsible for referring to such bodies any cases which they consider constitute a breach of the rules on transparency and customer protection, and for disclosing the grounds on which the cases are resolved. Advising users of financial services on their rights and informing them of the legal procedures for exercising such rights. Preparing an annual report. Proposing such amendments to the law as they see fit to the competent authority, informing on implementing regulations being processed, and informing on the operating rules of customer care or customer ombudsman departments or services. Acting as a liaison and channel for communication with Spanish and foreign institutions and bodies, working with financial institutions to publicize activities explaining the functions of the commissions, and promoting initiatives to raise the users awareness of the legislation on transparency and customer protection, and also of good financial practices and customs. The obligation incumbent upon credit institutions, firms providing investment services and insurers to deal with and resolve their customers complaints and claims relating to their interests and rights. For these purposes, such entities must have a customer care department consisting of an independent entity or expert, whose decisions must be binding. The purpose of the customer care department or service is to handle and resolve complaints and claims submitted by customers. This department or service must be separate from the organizations other operating services and must act in accordance with the principles of speed,
security, effectiveness and coordination. It should must also have the human, material, technical and organizational resources that ensure adequate knowledge of the legislation on transparency and the protection of financial services customers. The customer ombudsman is an optional body which may be external to the organization of financial institutions. Its purpose is to handle and resolve the claims which are submitted to it for a decision and to promote compliance with the legislation on transparency and customer protection, and with good financial practices and customs. The customer ombudsman must act as an independent body and with full autonomy with respect to the criteria and guidelines that are to be applied in the performance of its duties. Both bodies were implemented by Ministerial Order ECO/734/2004 of March 11, which regulates the creation of customer care departments and services and the customer ombudsman for financial institutions. Financial institutions must prepare and approve a set of Customer Protection Rules to regulate the work done by the customer care department or service and by the customer ombudsman, where appropriate, and the relationship between both. Lastly, the customer care department or service and the customer ombudsman, where appropriate, must issue an annual report or summary which must be included in the financial entitys Annual Report. Law 22/2007 of July 11, 2007, on the distance marketing of consumer financial services was published in the Official State Gazette on July 12, 2007, thereby completing the implementation in Spanish legislation of Directive 2002/65/EC of the European Parliament and of the Council of 23 September 2002 concerning the distance marketing of consumer financial services. The purpose of Law 22/2007 is to establish a specific regime for the protection of users of financial services which is applicable to contracts offered, negotiated and concluded at a distance. This Law applies to both contracts and the offers related to them provided that they generate obligations on the part of the consumer, and their subject matter must be the provision to consumers of all kinds of financial services, within the framework of a system of sale or provision of services at a distance organized by the supplier, when such system employs exclusively distance communication techniques, even in the actual conclusion of the contract. The most noteworthy aspects of Law 22/2007 are the following: It establishes the obligation for the financial service provider to notify the terms and conditions of the contracts and provide prior information to the consumer. Any breach by the provider of the disclosure obligations imposed by Law 22/2007 may result in the contract being rendered null and void. It recognizes a right of withdrawal: this is the consumers right to withdraw from a validly concluded contract without being required to state the reasons and without incurring any penalty. This is a kind of right to repent. The period for exercising this right is generally 14 calendar days, although in the case of contracts relating to life insurance it is 30 calendar days.
It provides further guarantees in addition to the two basic consumer protection mechanisms described above (transparency and withdrawal). These guarantees serve two purposes: They protect the consumer from fraudulent or incorrect charges when the financial services have been paid for by card: the cardholder may request the immediate cancellation of the charge. They protect the consumer from harassment by suppliers in relation to unsolicited services and communications.
5. Taxation of financial products
5. TAXATION OF FINANCIAL PRODUCTS

This section addresses the taxation of the main financial products in the Spanish market, with special reference to those discussed in this Chapter. To these effects, the income taxation derived from these products, and the gains or losses generated on their transfer or reimbursement is here considered.
Table 9
TAXATION OF FINANCIAL PRODUCTS

NonResidents without Permanent Establishment (***)
Resident individuals
Resident Corporate entities
Bank deposits
Interest: Income from movable capital Tax rate: EU: Exempt Tax treaty: Reduced rate or exempt (per tax treaty in question) Other countries: 19% Withholding at the corresponding rate (except EU which is exempt) NonResident Bank accounts: Exempt
Interest: Income from movable capital Savings taxable base Withholding: 19% Tax rate: 19% up to 6,000 euros and 21% the rest (However, interest corresponding to the excess of the amounts lent to a related entity over the result of multiplying by 3 the equity of said related entity, in the part corresponding to the holding of the taxpayer, are taxed according to the general scale) (*)
Interest:
Yield Withholding: 19% Tax rate: 30% (standard)
Explicit-yield financial assets
Interest:
Interest:
Interest:
Yield Privileged issues: not subject to withholding Withholding: 19% Tax rate: 30%
Income from movable Income from movable capital capital Rates: Savings taxable base EU: Exempt Withholding: 19% Tax treaty: Reduced rate Tax rate: 19% up to 6,000 or exempt (per tax euros and 21% the rest treaty in question) (except related parties). See Other countries: 19% above(*) Public Debt is exempt Withholding at the corresponding rate (except EU which is exempt)
Table 9 (Cont.)

Explicit-yield financial assets
Income obtained from transfer: Income from movable capital Rates: EU: Exempt Tax treaty: Reduced rate or exempt Other countries: 19% Public Debt is exempt (as well as debt issuance following DA 2 of Law 13/1985) Withholding: At the corresponding rate (except EU which is exempt) Privileged issues: not subject Dividends: Income from movable capital First Euro 1,500 exempt if the recipient is an individual and resides in the EU or in a country with which Spain has an effective exchange of information EU: 19% save application of parent-subsidiary Directive Tax treaty: Reduced rate or exempt (per tax treaty in question) Other countries: 19% Withholding at the corresponding rate (except EU which is exempt)
Income obtained from transfer: Income from movable capital Savings taxable base Withholding: Privileged issues: not subject Other issues: 19% See above (*)
Income obtained from transfer or redemption: Yield Withholding: Privileged issues subsequent to 1/1/99*: Not subject to withholding Other issues: 19% Tax rate: 30% (standard)
Spanish shares (except collective investment institutions)
Dividends: Income from movable capital First Euro 1,500 exempt Withholding: 19% Savings taxable base, Tax rate: 19% up to 6,000 euros and 21% the rest.
Dividends: Yield Tax credit: Standard: 50% In certain cases: 100% Tax rate: 30% (standard)
Table 9 (Cont.)

Spanish shares (except collective investment institutions)
Capital gain/loss on transfer: Capital gain or loss Listed companies EU: exempt except for significant and real estate participations Tax treaty: Generally exempt Tax haven: 19% Other countries: 19% Reduction coefficients under certain conditions (for more information see chapter 3) No withholding Unlisted companies EU: Exempt except for significant and real estate participations Tax treaty: Generally exempt (per tax treaty in question) Tax havens: 19% Other countries: 19% Reduction coefficients under certain conditions (for more information see chapter 3) No withholding
Capital gain/loss on transfer: Capital gain or loss Savings taxable base Reduction coefficients under certain conditions (for more information see chapter 3) Tax rate: 19% up to 6,000 euros and 21% the rest. No withholding
Capital gain/loss on transfer: Income: Possibility of tax credit (reserves) and tax credit for reinvestment of extraordinary income No withholding Tax rate: 30% (Standard)
Table 9 (Cont.)

Corporate entities
Implicit-yield financial assets (Except Treasury bills)
Income obtained from transfer or redemption: Income form movable capital EU: Exempt Tax treaty: Reduced rate or exempt (per tax treaty in question) Other countries: 19% Public Debt is exempt Withholding at the corresponding rate (except EU which is exempt) Privileged issues: Not subject Income from movable capital Not subject to taxation
Income obtained from transfer or redemption: Income from movable capital Withholding: 19% Savings taxable base Tax rate: 19% up to 6,000 euros and 21% the rest. See above (*)
Income obtained from transfer or redemption: Yield Withholding Privileged issues subsequent to 1/1/99*: Not subject to withholding Other issues: 19% Tax rate: 30% (standard)
Treasury bills
Income from movable capital Not subject to withholding Savings taxable income Tax rate: 19%up to 6,000 euros and 21% the rest
Yield Not subject to withholding Tax rate: 30% (standard)
Table 9 (Cont.)

Corporate entities
Dividends: Shares and units of Income form movable collective investment capitals institutions (Spanish or EU: 19% from the EU governed by Tax treaty: Reduced rate EU Directive 85/611/CEE or exempt (per tax treaty and registered at the in question) Spanish National Other countries: 19% Securities Market) (**) Withholding at the corresponding rate Capital gain/loss on transfer: Capital gain or loss EU: Exempt except for significant and real estate participations Tax treaty: Generally exempt (per tax treaty in question) Other countries: 19% Reduction coefficients under certain conditions (for more information see chapter 3) Withholding at the corresponding rate (except EU which is exempt)
Dividends: Income from movable capital Savings taxable base Withholding: 19% Tax rate: 19% up to 6,000 euros and 21% the rest.
Dividends: Yield No Tax credit Withholding: 19% Tax rate: 30% (standard)
Capital gain/loss on transfer: Capital gain or loss Savings taxable base Reduction coefficients under certain conditions (for more information see chapter 3) Withholding: 19% Tax rate: 19% up to 6,000 euros and 21% the rest Possibility of differing the taxation upon reinvestment under certain conditions (in such case no withholding)
Capital gain/loss on transfer: Income Withholding: 19% Tax rate: 30% (standard)
(*) It will be deemed that income from movable capital paid by the entities listed in Article 1.2 of Legislative Royal Decree 1298/1986, of June 28, 1986, adapting the law in force on credit institutions to the law of the European Communities, does not originate from entities related to the taxpayer where it does not differ from that which would have been offered to other groups with characteristics similar to those of persons who are considered to be related to the payor. (**) Nonresidents without a permanent establishment will only be taxed in accordance with the rules described in this section with respect to shares and units in Spanish collective investment institutions. In all other cases, the income is not taxable in Spain. (***) For the Tax Treaties provisions to be applied, non-residents must certify its residence for tax purposes by the corresponding certificate of residence (in force) issued by the Tax Authorities of the country at hand.
Prepared by:
Appendix III
Accounting and audit issues
III
This chapter contains details of the main accounting, commercial bookkeeping and audit obligations to be observed by Spanish enterprises. According to Spanish legislation, all enterprises are required to keep orderly accounts, in keeping with their business, including a book of inventories and balance sheets book and a journal. Companies must also keep one or more minutes books in which all the resolutions adopted by the annual and special shareholders meeting and other collective bodies of the company must be recorded. The new Spanish National Chart of Accounts approved by Royal Decree 1514/2007, of November 16, 2007, has established, in accordance with the European Union's accounting convergence process, the accounting principles that aim to ensure that financial statements, prepared clearly, present fairly a companys equity, financial position and results of operations, incorporating the accounting criteria contained in the International Accounting Standards.
Appendix III
Accounting and audit issues
III
3 6 7 9 17 18 19 22 24
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Guide to business in Spain Appendix III. Accounting and audit issues 2
1. Legal framework 2. Accounting records 3. Financial statements 4. Conceptual accounting framework and recognition and measurement bases 5. Distributable profit 6. Consolidation 7. Requirements concerning disclosures in the notes to the financial statements 8. Auditing requirements 9. Financial statement publication requirements
1.Legal framework
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1. LEGAL FRAMEWORK
In order to bring Spanish corporate legislation into line with EU Directives, Law 19/1989, of July 25, partially reforming and adapting Spanish corporate law to the directives of the European Economic Community relating to companies was adopted. Thus, Law 19/1989 transposed into Spanish legislation the current Community Directives on corporate and commercial issues, except for the Eighth Directive (on auditing), which had already been transposed into Spanish legislation through the other law, i.e. Spanish Audit Law 19/1988, of July 12. The Spanish Audit Law has been recently amended (by Law 12/2010, of June 30, amending Spanish Audit Law 19/1988, of July 12, Spanish Securities Market Law 24/1988, of July 28, and the revised Spanish Corporations Law1 approved by Legislative Royal Decree 1564/1989, of December 22) to adapt it to Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC (see section 8, Auditing Requirements). In this regard, the aforementioned Community legislation had been approved as a result of the need for international accounting harmonization, in order to, inter alia, (i) ensure the transparency and comparability of financial statements, (ii) achieve efficient operation of EU capital markets, (iii) close
The legislation on Spanish corporations is contained in the Revised Corporate Enterprises Law, approved by Legislative Royal Decree 1/2010, of July 2, repealing both the Revised Spanish Corporations Law and the Limited Liability Companies Law, to combine both laws into a single piece of legislation also including the part of the Securities Market Law governing the more purely corporate matters of corporations with shares listed on an official secondary market and the articles in the Spanish Commercial Code on partnerships limited by shares.
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FRANCE
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Castilla y Len
Catalua
Tarragona
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the legal vacuums in the somewhat scant regulations for the accounting Directives and their similarly low level of implementation and (iv) clarify the diversity of legislation. Subsequently, Law 44/2002, of November 22, on Financial System Reform Measures, which is currently in force, reformed certain aspects of (i) the aforementioned Audit Law 19/1988, of July 12, (ii) corporate legislation (Revised Spanish Corporations Law, Limited Liability Companies Law, then in force, and Employee-Owned Companies Law), as well as (iii) other provisions in force prior to its publication. This Law formed part of an intensive legislative process in various fields aimed at instilling confidence in the markets and promoting the design of codes of good corporate governance with a view to fostering transparency. The approval of regulation (CE) no. 1606/2002 of the European Parliament and of the European Council, of July 19, 2002, in relation to the application of International Accounting Standards (IASs) in the European Union, and the report on the current situation of accounting in Spain and the basic lines to undertake its reform, also known as the White Paper on Accounting Reform in Spain, published by the Spanish Accounting and Audit Institute (ICAC) on June 25, 2002, marked the starting point for the direction that was to be taken in the accounting reform process as a whole in Spain. In this regard, in Spain it was established that the general approach to be adopted should not be to introduce IASs or IFRSs (International Financial Reporting Standards) in their most recent version, but rather to adapt Spanish GAAP thereto, solely introducing the accounting treatments that the aforementioned standards establish on an obligatory basis, and where IFRSs establish different accounting treatment options, taking the option that the legislature considered to be the most prudent and in keeping with the tradition in Spanish accounting practice. Also, a hierarchy of sources was established to distinguish between fundamental legislation, i.e. the Commercial Code and the Revised Spanish Corporations Law, which must contain basic, stable and lasting principles, and implementing regulations, i.e. the Spanish National Chart of Accounts, its industry adaptations (as described below) and the resolutions of the ICAC, which would contain more detailed rules, the contents of which could be modified with greater ease. Also, on January 8, 2003, the Special Commission for the Promotion of Transparency in Markets and Listed Companies published a report detailing certain measures, proposals and recommendations for companies aimed at promoting transparency in financial markets. In this regard, Law 26/2003, of July 17, 2003, amending Securities Market Law 24/1988 and the Revised Spanish Corporations Law, introduced the first legislative provisions based on fostering transparency in the conduct of business at listed corporations. This point marked the start of a process of reform in Spain, firstly, with the approval of Law 62/2003, of December 30, 2003, on Tax, Administrative, Labor and Social Security Measures which introduced, among others, the following amendments: The criteria for the configuration of groups of companies for corporate law purposes contained in Articles 42 et seq. of the Spanish Commercial Code, subsequently amended by Law 16/2007, of July 4, reforming and adapting Spanish corporate accounting legislation for its international harmonization based on European legislation.
Spanish Limited Liability Companies Law 2/1995, of December 23, 1995, then in force, introducing the simplified accounting regime was amended. The Revised Spanish Corporations Law, then in force, adapting financial statements to IASs was amended. This process reached its maximum expression in 2007 when important legal provisions were passed, wrapping up the main areas in the process of adapting Spanish accounting legislation to international accounting legislation: Law 16/2007, of July 4, 2007, reforming and adapting Spanish corporate accounting legislation for its international harmonization based on European legislation, which made significant amendments to the Commercial Code, and to the then in force Revised Spanish Corporations Law, Limited Liability Companies Law and other industry-based accounting standards and, lastly, adapted for the first time the Corporation Tax Law to the new accounting legislation. Royal Decree 1514/2007, of November 16, 2007 approving the Spanish National Chart of Accounts (new Spanish National Chart of Accounts). Royal Decree 1515/2007, of November 16, 2007 approving the Spanish National Chart of Accounts for small and medium enterprises (SMEs) and the specific accounting rules for very small enterprises (VSEs). Subsequently, while there is still further industry-based accounting legislation to be adopted, the following industry adaptations to the new Spanish National Chart of Accounts were approved: Royal Decree 1317/2008, of July 4, approving the Spanish National Chart of Accounts for insurance companies. Order EHA/3360/2010, of December 21, approving accounting standards for cooperative companies. Order EHA/3362/2010, of December 23, 2010, approving the rules adapting the Spanish National Chart of Accounts to concession holders for public infrastructure. Order EHA/733/2010, of March 25, 2010, approving accounting standards for public companies operating in certain circumstances. The existing new legislation is supplemented and construed with the ICACs resolutions and responses to requests. Particularly in relation to the interpretation of accounting legislation, it must be borne in mind that the ICAC stated in Ruling 1 of its Official Gazette 74/JUNE, 2008, that where the legislation does not provide for a given matter or there are doubts as to its interpretation, the directors must use their professional judgment while respecting the framework of the new Spanish National Chart of Accounts and generally accepted accounting principles in Spain. Also, the ICAC states that, although IFRSs may serve as an interpretative criterion, their mandatory application on a supplementary basis to separate financial statements is not envisaged. Notwithstanding this, IFRSs will apply directly to the consolidated financial statements of listed entities.
2. Accounting records
2. ACCOUNTING RECORDS
The rules governing the accounting records that have to be kept by companies are contained in the Commercial Code, which requires all traders to keep orderly books of account that are suitable for their business and to keep a book of inventories and balance sheets and another journal, without prejudice to the records required under laws or special provisions. Companies are also required to keep a book or books of minutes containing, at least, all the resolutions adopted by the shareholders at the Annual General or Special General Meetings and by the companies other collective bodies. As regards the formal requirements applicable to the accounting records, the Commercial Code provides that companies must present their mandatory books of account to the Mercantile Registry of the place in which they have their registered office in order that they be officially certified and stamped before they start to be used. Entries and notes may be made by any suitable procedure on separate sheets that must subsequently be bound sequentially to form part of the mandatory books of account, which must be legalized within four months from the end of the related reporting period. These formal requirements also apply to the share registers of corporations, partnerships limited by shares and limited liability companies, which may be kept on electronic files.
3. Financial statements
3. FINANCIAL STATEMENTS
Both the Commercial Code and the Revised Spanish Corporate Enterprises Law state that a set of financial statements comprises a balance sheet, an income statement, a statement reflecting the changes in equity during the period, a cash flow statement and notes to the financial statements, with these documents constituting a set of information for these purposes (a directors report is also required, although it is not considered to be a constituent part of the financial statements). However, the cash flow statement is not obligatory where so established by a legal provision (e.g. for companies that are permitted to prepare a balance sheet and statement of changes in equity in abridged format, as explained below). Both the Spanish Commercial Code and Revised Spanish Corporate Enterprises Law provide for accounting principles and measurement bases. Also, the Revised Spanish Corporate Enterprises Law specifies the disclosures to be included in the notes to the financial statements. The new Spanish Chart of Accounts states that its application by all companies is mandatory, regardless of whether their legal form is that of a sole proprietorship or a company, without prejudice to such companies as are in a position to apply the Spanish National Chart of Accounts for small and medium enterprises (SMEs) or the relevant industry adaptations, and constitutes the implementation for accounting purposes of Spanish corporate and commercial legislation. The content of the new Spanish National Chart of Accounts is as follows: Part one: conceptual accounting framework. Part two: recognition and measurement bases. Part three: financial statements. Part four: chart of accounts. Part five: accounting definitions and relationships. The former Spanish National Chart of Accounts had been adapted for companies in certain industries through the related industry adaptations which, prior to the reform, referred to the following types of company: Construction companies. Real estate companies. Sports federations. Healthcare companies. Sports corporations. Private not-for-profit entities.
Toll motorway concession operators. Water catchment and abstraction, treatment and distribution utilities. Electric utilities. Companies in the grape growing and wine producing industry. Insurance companies. The new Spanish National Chart of Accounts acknowledges the need to revise these industry adaptations, although it states that until they are adapted the old adaptations will remain in force except for such provisions as might expressly contravene the new accounting standards. As discussed earlier, a new Spanish National Chart of Accounts for insurance companies has been reviewed and drawn up (approved by Royal Decree 1317/2008), in addition to an adaptation to the Spanish National Chart of Accounts for cooperative companies and concession holders for public infrastructure (approved by Order EHA/3360/2010, of December 21, and Order EHA/3362/2010, of December 23, respectively). Another order to be passed was Order EHA/733/2010, of March 25, approving accounting standards for public companies operating in certain circumstances. The previous industry adaptations continue to be in force for other industries, provided they do not contravene the new legislation, in accordance with Transitional Provision Five of Royal Decree 1514/2007, of November 16, approving the Spanish National Chart of Accounts. Spanish accounting rules coexist with the international accounting rules (constantly being developed) which have been approved by various EU Regulations. Initially, Regulation (EC) no. 1606/2002, of July 19, 2002, of the European Parliament and of the Council which established the obligation to apply the IASs approved by the IASB (International Accounting Standards Board) for reporting periods beginning on or after January 1, 2005, with respect to the consolidated financial statements of companies whose securities, at their balance sheet date, are admitted to trading on a regulated market of any Member State. Also, the Regulation provided the option for Member States to permit or require the application of the aforementioned Standards to the individual financial statements of publicly-traded companies, to the consolidated financial statements of non publiclytraded companies and to the individual financial statements of non publicly-traded companies.
4. Conceptual accounting framework and recognition and measurement bases
4. CONCEPTUAL ACCOUNTING FRAMEWORK AND RECOGNITION AND MEASUREMENT BASES

In relation to the practical application of the Spanish National Chart of Accounts, after a first part which sets out the conceptual accounting framework, part two establishes recognition and measurement bases for the various asset, liability and income statement items. Following is a brief summary of the main features contained in the conceptual framework and in the most significant recognition and measurement bases introduced by the Spanish National Chart of Accounts currently in force.
Table 1
FEATURES OF THE NEW VALUATION RULES

Area Spanish National Chart of Accounts (SNCA)
Components of financial statements Statement of changes in equity and cash flow statement
The financial statements comprise a balance sheet, an income statement, a statement of changes in equity a cash flow statement and notes. These are added as new documents to be included in the financial statements along with the balance sheet, income statement and notes. The cash flow statement is to be prepared using the indirect method. The statement of changes in equity has two parts: the statement of recognized income and expense and the statement of total changes in equity.
Requirements concerning The information included in the financial statements must be relevant and reliable. A quality deriving from reliability is completeness. Also, the financial information must be comparable and clear. information to be included in the financial statements Accounting principles
The obligatory accounting principles are: going concern, accrual, consistency, prudence, no offset and materiality. Except when a standard expressly provides otherwise, the no offset principle shall be applied. The SNCA defines the conditions for being able to present a financial asset and a financial liability and tax assets and tax liabilities for their net amount. The following items are defined: assets, liabilities, equity, income and expenses, which shall be recognized when the probability criteria regarding the inflow or outflow of resources embodying economic benefits are met and their value can be determined reliably. The SNCA defines the concepts of historical cost or cost, fair value, net realizable value, value in use and present value, costs to sell, amortized cost, transaction costs, carrying amount and residual value.
Offsetting
Items included in the financial statements
Table 1 (cont.)

CONCEPTUAL ACCOUNTING FRAMEWORK Preparation of financial statements Comparative information The balance sheet, income statement, statement of changes in equity and cash flow statement must
disclose the figures for the preceding period. The quantitative information in the notes must also refer to the preceding period.
Income statement format Classification of expenses in the income statement
The SNCA provides a model using a defined and obligatory vertical format. Companies that do not have a given volume of assets, amount of revenue and number of employees may opt for an abridged model. Classified on the basis of their nature.
Obligatory distinction in the balance sheet between current and non-current items. Current/Non-current distinction in the balance sheet
Presentation, functional and foreign currencies Exchange differences Non-monetary items at fair value Exchange differences Monetary items Hyperinflationary economies
Presentation, functional and foreign currencies are defined in a similar way to EU-IFRSs.
Exchange differences are recognized in equity or in profit or loss depending on where the changes in value of the item concerned are recognized.
Exchange gains and losses are recognized in profit or loss for the year in which they arise.
The SNCA lists circumstances that are indicative of high levels of inflation. It refers entities to the Rules for the Preparation of Consolidated Financial Statements, which implement the Commercial Code, for the applicable accounting treatment.
RECOGNITION AND MEASUREMENT BASES INTANGIBLE ASSETS, PROPERTY, PLANT AND EQUIPMENT AND INVESTMENT PROPERTY Property, plant and equipment Intangible assets Investment property Costs of dismantling, removing or restoring assets
Tangible items held for use on a lasting basis in the production or supply of goods or services or for administrative purposes. Identifiable non-monetary asset without physical substance. Non-current property held to earn rentals or for capital appreciation or both. The initial estimate of the present value of the obligations to dismantle, remove or restore an asset shall be included in its cost.
Table 1 (cont.)

Capitalization of borrowing costs Asset swaps
Certain borrowing costs must be capitalized in the case of non-current assets that will take more than one year to be ready for their intended use. As a general rule, interest can only be capitalized before the asset has been brought into use. Swaps with a commercial substance. The asset received is recognized at the fair value of the asset given up plus the monetary amounts delivered as consideration, unless there is clearer evidence of the fair value of the asset received and up to the limit of the latter value. In swaps without commercial substance or in those in which fair value cannot be reliably measured, the asset received is measured at the carrying amount of the asset given up plus the monetary amounts delivered as consideration, up to the limit, if available, of the fair value of the asset received if this value is lower. The assets received are measured at their fair value at the date of contribution, unless it may be treated as a swap without commercial substance. For the contributor, the rules relating to financial instruments shall apply. Impairment losses arise when the carrying amount of an asset exceeds its recoverable amount. Impairment losses are recognized and reversed through profit or loss.
Non-monetary capital contributions Impairment losses
Major repairs to property, The effect of costs of major repairs is taken into account when determining the carrying amount of property, plant and equipment. These costs are amortized over the period remaining until the repair is plant and equipment
made. When the repair is made, its cost is recognized as a replacement if the related recognition criteria are met. Research expenditure. Period expense, although it may be capitalized in certain circumstances. Research and development expenditure Development expenditure. Capitalized when the conditions established for the capitalization of research expenditure are met.
Start-up costs
Period expense
INVENTORIES AND NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE Inventories Definition Trade and financial discounts
Borrowing costs
Refers expressly to inventories in the rendering of services. Trade discounts, rebates and other similar directly attributable items are deducted in determining the costs of purchase.
Borrowing costs are included in the acquisition or production cost of inventories that necessarily take more then one year to get ready for their sale.
Table 1 (cont.)

Non-current assets (disposal groups) classified as held for sale

A non-current asset is classified as held for sale if its carrying amount will be recovered largely through Non-current assets classified as held for sale a sale transaction rather than through continuing use.
Income tax Consideration of temporary differences

These are differences arising from the different values for accounting and tax purposes attributed to assets, liabilities and certain equity instruments, to the extent that they have a bearing on the tax charge. Temporary differences include, but are not limited to, timing differences. Based on the balance sheet liability method.
Long term employee benefits and provisions Classification of pension Draws a distinction between long-term defined contribution plans and long-term defined benefit plans for the purposes of plans. their accounting treatment Provisions Measurement
Present value of the best possible estimate of the expenditures required to settle or transfer the obligation, recognizing the adjustments arising from their discounting as a finance cost as incurred. In the case of provisions maturing at one year or less, no discounting is required, provided that the effect of the time value of money is not material.
Financial instruments Loans and receivables Loans and receivables are initially recognized at fair value plus directly attributable transaction costs. They are subsequently measured at amortized cost using the effective interest method. Initial recognition and subsequent measurement Marketable securities (other than investments in Group companies and jointly controlled entities)
These items are initially recognized at the fair value of the consideration paid plus, in the case of heldto-maturity investments and available-for-sale financial assets, the directly attributable transaction costs. They are subsequently measured at fair value, except for held-to-maturity investments, which are measured at amortized cost using the effective interest method. Investments whose fair values cannot be determined reliably are measured at cost minus valuation adjustments. Changes in the fair value are recognized in profit or loss, except in the case of available-for-sale financial assets, changes in the fair value of which are recognized in equity until the asset is disposed of or it is determined that it has become impaired. Initially recognized at cost and subsequently measured at cost less any accumulated impairment losses. Valuation adjustments are made for the difference between the carrying amount and the recoverable amount (i.e. the higher of fair value less costs to sell and the present value of the cash flows). Unless there is better evidence of the recoverable amount, when estimating the impairment an entity shall take into account the equity of the investee adjusted by the unrealized gains existing at the balance sheet date that relate to identifiable items in the balance sheet of the investee.
Investments in Group companies, jointly controlled entities and associates
Table 1 (cont.)

Difference between the carrying amount and the present value of the discounted cash flows or market Held-to-maturity investments - Impairment value of the instrument.
Available-for-sale financial assets Impairment
Difference between cost or amortized cost minus valuation adjustments recognized previously in profit or loss and the fair value at the measurement date. In the case of investments in equity instruments measured at cost because their fair value cannot be determined reliably, the provisions concerning the impairment of investments in Group companies, jointly controlled entities and associates shall apply.
Financial liabilities held Initial recognition: fair value. Subsequent measurement: fair value without deducting costs to sell. Changes in fair value are recognized in profit or loss. for trading and other financial liabilities at fair value through profit or loss Transactions involving equity instruments Gains and losses on transactions involving equity instruments Compound financial instruments Derivatives Preference shares Participating loans Business combinations General consideration of business combinations
Mergers or spin-offs or business combinations arising from the acquisition of all the assets and liabilities of a company or of a part of a company that constitutes one or more businesses are accounted for using the purchase method. Acquisitions of shares, including those received through non-monetary contributions in the formation of a company, or other transactions resulting in the acquisition of control without any investment being made are governed by the rules for measuring financial instruments. In mergers between group companies in which the parent and a directly- or indirectly-owned subsidiary participate, the businesses acquired are measured at the amount attributed to them, after the transaction, in the consolidated financial statements of the group or subgroup. In the case of mergers between other group companies, where there is no parent/subsidiary relationship between them, the assets and liabilities of the business are measured at the amounts at which they had been carried prior to the transaction in the individual financial statements, and any difference that may be disclosed must be recognized in a reserves account. In spin-offs involving companies in the same group, criteria similar to those applied to mergers must be followed. Recognized in equity as a change therein, and in no case may they be recognized as financial assets.
No gain or loss may be recognized in the income statement.
Their components are recognized, measured and presented separately.
Initial recognition: fair value. Subsequent measurement: fair value without deducting costs to sell. Changes in fair value are recognized in profit or loss. Not expressly addressed. Does not address participating loans.
Business combinations between Group companies
Table 1 (cont.)

Negative difference arising on business combinations Goodwill arising on business combinations
If, exceptionally, the value of the identifiable net assets acquired exceeds the cost of the business combination, such excess shall be recognized as income in the income statement, with some exceptions. Initially measured as the difference between the cost of the business combination and the value of the identifiable assets acquired less the amount of the liabilities assumed, including contingent liabilities. Goodwill is not amortized and instead must be tested for impairment annually, or more frequently if there are indications that it might be impaired. The rules in the standards for the preparation of consolidated financial statements must be applied. The acquirer must identify separate transactions not forming part of the business combination and recognize them under the required recognition or measurement rule.
Reverse acquisitions Separate transactions Joint ventures Concepts and classification of joint ventures Concept of joint control
A joint venture is an economic activity controlled jointly by two or more natural or legal persons. The SNCA distinguishes between jointly controlled operations, jointly controlled assets and jointly controlled entities. A by-law established or contractual agreement whereby two or more parties agree to share the power to govern the financial and operating policies of an economic activity so as to obtain economic benefits. The venturer shall recognize the proportional part of the jointly controlled assets and jointly incurred liabilities and shall recognize in its income statement the assets attributed to the jointly controlled operation controlled by it and the liabilities incurred as a result of the joint venture. Also, it shall recognize its share of the income earned and the expenses incurred by the joint venture, together with the expenses incurred in relation to its interest in the joint venture.
Jointly controlled operations and assets
Jointly controlled entities The venturer recognizes its interest in accordance with the rules governing investments in Group
companies, jointly controlled entities and associates.
Sales of goods and rendering of services Trade and financial discounts Interest included in the face value of receivables
Revenue is measured at the fair value of the consideration received or receivable, net of discounts and price reductions. Deducted from the price agreed on, except in the case of trade receivables maturing within no more than one year for which no contractual interest rate has been established, provided that the effect of the time value of money is not material. In swaps of goods or services of a similar nature and value in the ordinary course of business no revenue is recognized.
Swaps of goods and services
Table 1 (cont.)

Grants, donations and legacies received Presentation

Repayable grants are recognized as liabilities. In general, non-repayable grants are initially recognized directly in equity and are allocated to profit or loss in proportion to the related expenses.
Allocation to profit or loss Property, plant and equipment, intangible assets and investment property recognized as income over the periods and in the proportions in which depreciation on those assets is charged or, where of grants related to applicable, when the assets are sold, written down for impairment or derecognized. assets
Inventories and financial assets. the year of the sale, valuation adjustment or derecognition.
Measurement of nonmonetary grants Grants provided by shareholders or owners
Measured at the fair value of the asset received at the date of recognition.
Must be recognized directly in shareholders equity, regardless of the type of grant involved, except for grants received by public-sector companies from the parent public entity for the performance of activities in the public or general interest, which are allocated to profit or loss on the basis of their purpose.
Share-based payment Concept

Transactions which, in exchange for receiving goods or services, including services provided by employees, are settled using equity instruments of the entity or an amount based on the price of the entitys equity instruments. The goods or services received are recognized immediately as an asset or as an expense on the basis of their nature. Also, an increase in equity is recognized. When it is necessary to complete a specified period of service, the items will be recognized as the services are rendered over that period. Measured at the fair value of the goods or services received. If that fair value cannot be estimated reliably, they are measured at the fair value of the equity instruments granted with reference to the date on which the company receives the goods or the other party renders the services. Transactions with employees are measured at the fair value of the equity instruments granted at the date on which the resolution to grant them is adopted. Measured at the fair value of the liability, referring to the date on which the requirements for recognition are met. Until the liability is settled, the entity shall remeasure its fair value at each reporting date, with any changes in fair value recognized in profit or loss.
Recognition of equitysettled share-based payment transactions Measurement of equitysettled share-based payment transactions
Measurement of cashsettled share-based payment transactions Discontinued operations Concept
This is a component of an entity that either has been disposed of, or is classified as held for sale and represents a separate major line of business or geographical area of operations, is part of a plan to dispose of a separate major line of business or geographical area of operations or is a subsidiary acquired exclusively with a view to resale.
Table 1 (cont.)

Intragroup transactions General rule

The items in an intragroup transaction must be recognized at their fair value. These special rules are only applicable when the items in the transaction are a business: 1. Contributions in kind: measurement in consolidated financial statements. 2. Mergers and spin-off : measurement: If there is a parent/subsidiary relationship between them the value in the consolidated financial statements is used. If that parent/subsidiary relationship does not exist the value in the consolidated financial statements is used also. The effective date for accounting purposes will be the date of the commencement of the fiscal year in which the merger is approved provided it falls after the date on which the companies became part of the group. 3. Capital reduction, distribution of dividends and dissolution of companies.
Special rules
In this connection it should be noted that the new Spanish National Chart of Accounts came into force on January 1, 2008, and was applied for the first time in the first reporting period that commenced on or after that date2.
As regards such first-time application, Royal Decree 1514/2007, of November 16, approving the Spanish National Chart of Accounts, establishes a transitional regime so that companies may adapt thereto by preparing a corresponding opening balance sheet (Transitional Provisions One to Six). The regime also has implications in the aforementioned measurement bases in this connection.
5. Distributable profit
5. DISTRIBUTABLE PROFIT
In the context of the accounting legislation reform process described above, the rules for distributing company profit contained in Article 273 of the Revised Corporate Enterprises Law have been amended, and, in general terms, currently provide that: The profit taken to equity may not be distributed either directly or indirectly. Any distribution of profit is prohibited unless the amount of unrestricted reserves is at least equal to the amount of research and development expenditure that appears on the asset side of the balance sheet. The Article establishes that a restricted reserve equal to the goodwill recognized on the asset side of the balance sheet must be set up, earmarking for this purpose a percentage of profit that represents at least 5% per year of the aforementioned goodwill and, in the absence of profit or any insufficiency thereof, it provides that unrestricted reserves must be used.
6. Consolidation
6. CONSOLIDATION
As part of the process of adapting Spanish accounting legislation to EU law, the approval recently took place of Royal Decree 1159/2010, of September 17, approving the Standards for the Preparation of Consolidated Financial Statements. The most important changes introduced by that Royal Decree in this sphere are as follows: It widens the definition of control meaning the power to steer the financial and operating policies of an entity with the aim to obtain profits from its activities. Companies are exempted from the obligation to consolidate where the parent only has investments in subsidiaries that do not have a significant interest, individually or as a whole, to present fairly the equity, financial position and results of the group companies. It sets out the rules for recognizing eliminations of investments and net equity in cases of (i) inclusion of companies that constitute a business, (ii) consolidation of a company that does not constitute a business, and (iii) consolidation among companies that were already part of the group. It lays down new rules for the conversion of financial statements in foreign currency. It contains more detailed rules on income tax expense. It amends the new Spanish National Chart of Accounts and the Spanish National Chart of Accounts for Small and Medium-Sized Enterprises, in relation to the recognition of business combinations, financial instruments and income taxes. This Royal Decree applies to separate and consolidated financial statements for financial years beginning on or after January 1, 2010.
7. Requirements concerning disclosures in the notes to the financial statements

7. REQUIREMENTS CONCERNING DISCLOSURES IN THE NOTES TO THE FINANCIAL STATEMENTS
The Spanish Commercial Code states that the notes to the financial statements must complete, expand upon and discuss the contents of the other documents that make up the financial statements. The minimum disclosure requirements are specified in the very wording of the Revised Spanish Corporate Enterprises Law and the Spanish National Chart of Accounts, both of which indicate that the notes to the financial statements form an integral part of the financial statements. As a result of the relative importance that, in principle, fair presentation acquires under the new Spanish National Chart of Accounts, the disclosures to be included in the notes to the financial statements have increased considerably. Among other disclosures, the notes to the financial statements must at least contain, in addition to the disclosures specifically provided for in the Commercial Code, the Companies Law and the related implementing legislation, the following information3: The measurement bases applied to the various items in the financial statements and the methods used for calculating valuation adjustments. The name, registered office and legal form of the companies of which the company is a general partner or in which it holds, directly or indirectly, an ownership interest of not less 20%, or in which, even if this percentage is lower, it exercises significant influence. The percentage of ownership of the share capital and the percentage of voting power held must be indicated, together with the amount of the equity in the investees last business year. Where there are several classes of shares, the number and par value of each class. The existence of rights bonds, convertible debentures and similar securities or rights, indicating the number of each and the scope of the rights that they confer.
Also, Transitional Provision Four of the new Spanish National Chart of Accounts establishes a specific transitional regime relating to the information to be included in the financial statements for the first year commencing on or after January 1, 2008. Under this regime, a company may opt to either (i) consider the financial statements for the first year commencing from January 1, 2008, onwards as initial financial statements, without including comparative figures, (ii) or present comparative information adapted to the new Spanish National Chart of Accounts (for which an opening balance sheet for the previous year prepared in accordance with the rules set out in Section 6 above is required). In either case, there are additional obligations with respect to disclosures in the preparation of these initial financial statements in relation to (i) the financial assets at fair value through profit or loss, and (ii) impairment losses on assets.
The amount of the companys borrowings with a residual life of more than five years, and the amount of all the liabilities for which there is a security interest, indicating their form and nature. These disclosures must be shown separately for each liability item. The overall amount of the guarantee commitments to third parties, without prejudice to their recognition on the liability side of the balance sheet when it is probable that they will give rise to the effective settlement of an obligation. The pension obligations and those relating to group companies must be disclosed with due clarity and separation. The nature and business substance of the companys agreements that are not included in the balance sheet and the financial impact thereof, provided that this information is relevant and necessary for determining the companys financial position. The companys significant transactions with related third parties, indicating the nature of the relatedness, the amount of the transactions and any other information concerning the transactions that might be required in order to determine the companys financial position. The distribution of the companys revenue by line of business and geographical market, to the extent that, from the standpoint of the organization of the sale of goods and of the rendering of services or other revenue of the company, these categories and markets differ significantly from each other. These disclosures may be omitted by companies that can prepare abridged income statements. The average number of employees in the reporting period, broken down by category, and the period staff costs, distinguishing between wages and salaries and employee benefits, with separate disclosure of those covering pensions, when such amounts are not broken down in the income statement. The amount of the salaries, attendance fees and remuneration of all kinds earned during the year in all connections by senior executives and the members of the managing body, and the amount of the pension or life insurance premium payment obligations to the former and current members of the managing body and senior executives. Where the members of the managing body are legal persons, the aforementioned requirements refer to the natural persons representing them. These disclosures can be made on an overall basis by type of remuneration. The amount of the advances and loans to senior executives and members of the governing bodies, indicating the applicable interest rate, their essential features and such amounts as might have been repaid, together with the guarantee obligations assumed on their behalf. Where the members of the managing body are legal persons, the aforementioned requirements refer to the natural persons representing them. Companies which have issued securities that are publicly traded on a regulated market of any EU Member State and which, pursuant to current legislation, only publish individual financial
statements, are obliged to disclose in the notes to the financial statements the main changes in equity and profit or loss that would have arisen had EU-IFRSs been applied, indicating the measurement bases used. A breakdown of the fees for financial audit and other services provided by the auditors, together with those paid to persons or entities related to the auditors, in accordance with Spanish Audit Law 19/1988, of July 12, 1988. The group, if any, to which the company belongs and the Mercantile Registry at which the consolidated financial statements have been filed or, where applicable, the circumstances relieving the group from the obligation of presenting consolidated financial statements. When the company has the largest volume of assets from among the group of companies domiciled in Spain forming part of the same decision-making unit, because they are controlled in any way by one or several natural or legal persons not obliged to consolidate acting jointly, or because they are under single management due to agreements or clauses in the bylaws, a description of the companies must be given, indicating the reasons why they form part of the same decision-making unit, and the aggregate amount of the assets, liabilities, equity, revenue and profit or loss of those companies must be disclosed. The company with the largest volume of assets is considered to be that which at the date of its inclusion in the decision-making unit has the largest figure under the total assets heading in the balance sheet model. According to the Ruling of the Accounting and Audit Institute, of December 29, 2010, the notes to the financial statements must contain information on deferred payments to suppliers in commercial transactions.
8. Auditing requirements
8. AUDITING REQUIREMENTS
8.1 Spanish Audit Law
Spanish Audit Law 19/1988, of July 12 (the Spanish Audit Law) transposed in the Spanish Legal System Council Directive 84/253/EEC, of 10 April 1984, on the approval of persons responsible for carrying out the statutory audits of accounting documents, and regulated the audit of financial statements for the first time in Spain. As a result of the changes that have taken place in the economic and financial environment, however, and with the aim to achieve a greater degree of harmonization of the principles to govern the public supervision system and of the requirements laid down for performing audits in the European Union, besides in the field of accounting, another reform process, in the field of auditing, is being carried out, which resulted in the approval and publication of Directive 2006/43/EC of the European Parliament and of the Council of 17 May 2006 on statutory audits of annual accounts and consolidated accounts, amending Council Directives 78/660/EEC and 83/349/EEC and repealing Council Directive 84/253/EEC. A law aimed at adapting Spanish law to that Directive 2006/43/CEE has been approved: Law 12/2010, of June 30, amending Spanish Audit Law 19/1988, of July 12, Spanish Securities Market Law 24/1988, of July 28, and the revised Spanish Corporations Law approved by Legislative Royal Decree 1564/1989, of December 22, to adapt them to Community legislation. The main amendments are the following: It adapts the Spanish Audit Law to the changes that have taken place in Spanish corporate/commercial and accounting law in recent years. It amends the liability system for auditors, who must assume full liability in relation to consolidated financial statements or accounting documents, meaning that their liability cannot be restricted to the group companies that had been audited by them. It specifies the system of legal sources that must be used in performing the audit, which will be (i) audit standards, (ii) ethics rules, and (iii) the rules governing the internal quality assurance system of auditors and audit firms. With respect to audit standards, it introduces the international audit standards that will be adopted by the European Commission, and keeps the Spanish audit standards in force until those international standards are adopted. It reduces the public disclosure period for audit standards before they are published by the Accounting and Audit Institute from six to two months. It amends the regulations on the Official Auditors Register, on which anyone who is authorized to perform audits must be registered. Audits can be performed by persons authorized in another EU Member State and by auditors from other countries who are registered. It describes the public information that the Register must contain on the auditors and audit firms, and envisages electronic access to the Register. It makes registration in the Official Auditors Register compulsory for auditors and audit firms who issue auditors reports in relation to the financial statements of
certain companies domiciled outside the European Union, whose shares are admitted for trading in Spain. It reinforces the duties of independence and secrecy that must be observed by auditors in performing audits. The duty of secrecy extends to anyone taking part in the performance of audits. It amends the infringement and penalty rules in the Law, defines new infringements, amends the definition of certain acts constituting an infringement, and makes the resulting corrections to the penalty system. It sets up the organization of an effective system of public supervision conferred exclusively on the Spanish Audit and Accounting Institute in which (i) the set of parties on which the Spanish Audit and Accounting Institute can obtain information and carry out inspection and investigation activities is extended; and (ii) paves the way for effective Community-wide cooperation among the supervision activities of the Member States with the aim of securing high and uniform quality in audits in the European Union. It provides for a mechanism to shift administrative liability, to secure the enforcement of administrative liability that has been or could be held to exist in relation to scenarios where changes are made to companies with the aim to extinguish that liability. Currently, in relation to the entities that must be audited, Additional Provision One of the Spanish Audit Law makes it obligatory for the financial statements of all companies and entities, regardless of their legal form, in any of the circumstances listed below to be audited. Entities publicly traded on a Spanish Stock Market. Entities issuing debentures for sale to the public. Entities engaging habitually in financial intermediation activities, including those acting as stock brokers and commission agents (even when they operate as natural persons), and all financing companies and entities obliged to register themselves in the related Ministry of Economy and Finance and Bank of Spain registers. Entities whose company object includes any of the activities regulated by the Spanish Private Insurance Law, within the limits provided for in the relevant implementing regulations. Entities that receive government grants from the state or public agencies or that perform work, render services or supply goods thereto, within the limits provided for in the relevant implementing regulations. Companies, including cooperatives and other entities that exceed certain limits defined by the government. The limits referred to in the preceding paragraph relate to those established for the purposes of preparing an abridged balance sheet (see the following section).
Royal Decree 1636/1990, of December 20, approving the Regulations implementing the Audit Law establishes the same limits for insurance companies and cooperatives as those stipulated in the Revised Spanish Corporations Law. However, all life insurance and personal liability insurance companies must have their financial statements audited.
8.2 Spanish Corporations

The Revised Spanish Corporate Enterprises Law, states that all Spanish corporations, except for those authorized to present abridged financial statements, must have their financial statements audited. Pursuant to the aforementioned Law 16/2007, of July 4, on the reform and adaptation of accounting legislation to achieve international harmonization based on European Union legislation from January 1, 2008, onwards, corporations below at least two of the following thresholds for two consecutive years prior to the balance sheet date may present an abridged balance sheet: Total assets of EUR 2,850,000 or less. Annual revenue of EUR 5,700,000 or less. Average number of employees during the year of 50 or fewer.
9. Financial statement publication requirements
9. FINANCIAL STATEMENT PUBLICATION REQUIREMENTS

The Revised Spanish Corporate Enterprises Law provides that companies must file their financial statements at the Mercantile Registry corresponding to the place in which they have their registered office, within one month from their approval, together with a certificate of the resolutions adopted by the shareholders at the Annual General Meeting at which they were approved and the proposed distribution of profit, copies of the financial statements, directors report and auditors report (if the company is obliged to have its financial statements audited or if its financial statements were audited at the request of the minority shareholders). The Mercantile Registry is public and the corporate documentation filed thereat is publicized through certificates of the entries made by the registrars or through an uncertified extract, or through the issuance of copies of the entries made and of the documents filed at the Registry, all in accordance with the Spanish Commercial Code. Also, publicly-traded companies must (pursuant to Securities Market Law 24/1988) present copies of their financial statements and of the related auditors report to the Spanish National Securities Market Commission. The official registers and other documentation in the possession of the Mercantile Registry and the Spanish National Securities Market Commission are available to the public for their perusal.
Appendix I Model balance sheets (december 31, 20XX and 20YY)

Appendix I
STANDARD FORMS FOR FINANCIAL STATEMENTS BALANCE SHEET AT YEAR-END 20XX
ACCOUNT NOS.
ASSETS
NOTES
200X
200X-1
A) NON-CURRENT ASSETS
201, (2801), (2901) 202, (2802), (2902) 203, (2803), (2903) 204 206, (2806), (2906) 200, (2800), (2900), FS preparation rule 6.4 205, 209, (2805), (2905) 210, 211, (2811), (2910), (2911) 212, 213, 214, 215, 216, 217, 218, 219, (2812), (2813), (2814), (2815), (2816), (2817), (2818), (2819), (2912), (2913), (2914), (2915), (2916), (2917), (2918), (2919) 23 220, (2920) 221, (282) (2921) 2403, 2404, (2493), (2494), (293) 2423, 2424, (2953), (2954) 2413, 2414, (2943), (2944)
I. Intangible assets 1. Research and development 2. Concessions 3. Patents, licenses, trademarks and similar assets 4. Goodwill 5. Computer software 6. Research 7. Other intangible assets II. Property, plant and equipment 1. Land and buildings 2. Plant and other tangible fixed assets
FS preparation rule 6.6 2405, (2495), 250, (259) 2425, 252, 253, 254, (2955), (298) 2415, 251, (2945) (297) 255 258, 26 257, FS preparation rule 6.6 474 FS preparation rule 6.8
3. Fixed assets under construction and advances III. Investments in fixed assets 1. Land 2. Buildings IV. Long-term investments in group companies and associates 1. Equity instruments 2. Loans to companies 3. Debt securities 4. Derivatives 5. Other financial assets 6. Other investments V. Investments 1. Equity instruments 2. Loans to third parties 3. Debt securities 4. Derivatives 5. Other financial assets 6. Other investments VI. Deferred tax assets VII. Non-current trade accounts receivable
Appendix I
ACCOUNT NOS.
ASSETS
NOTES
200X
200X-1
B) CURRENT ASSETS
580,581, 582, 583, 584, (599) 30, (390) 31, 32, (391), (392) 33, 34, (393), (394) FS preparation rule 6.7 FS preparation rule 6.7 35, (395) FS preparation rule 6.7 FS preparation rule 6.7 36, (396) 407 430, 431, 432, 435, 436, (437), (490), (4935) FS preparation rule 6.8 FS preparation rule 6.8 433, 434, (4933), (4934) 44, 5531, 5533 460, 544 4709 4700, 4708, 471, 472 5580 5303, 5304, (5393), (5394), (593) 5323, 5324, 5343, 5344, (5953), (5954) 5313, 5314, 5333, 5334, (5943), (5944) 5353, 5354, 5523, 5524 FS preparation rule 6.6
I. Non-current assets held for sale II. Inventories 1. Merchandise 2. Raw materials and other supplies 3. Work in process a)Long production cycle b)Short production cycle 4. Finished goods a)Long production cycle b)Short production cycle 5. Secondary products, by-products and recovered materials 6. Advances to suppliers III. Trade and other accounts receivables 1. Trade accounts receivable a)Long-term trade accounts receivable b)Short-term trade accounts receivable 2. Receivable from customers, group companies and associates 3. Sundry receivables 4. Loans and advances to employees 5. Tax receivable 6. Other tax receivable 7. Called-up share capital (participation units) IV. Short-term investments in group companies and associates 1. Equity instruments 2. Loans to companies 3. Debt securities
5305, 540, (5395), (549) 5325, 5345, 542, 543, 547, (5955), (598) 5315, 5335, 541, 546, (5945), (597) 3. Debt securities 5590, 5593 4. Derivatives 5355, 545, 548, 551, 5525, 565, 566 5. Other financial assets FS preparation rule 6.6 6. Other investments 480, 567 VI. Current prepayments and accrued income VII. Cash and cash equivalents 570, 571, 572, 573, 574, 575 1. Cash 576 2. Cash equivalents TOTAL ASSETS (A+B)
4. Derivatives 5. Other financial assets 6. Other investments V. Short-term investments 1. Equity instruments 2. Loans to companies
Appendix I
ACCOUNT NOS.
EQUITY AND LIABILITIES
NOTES
200X
200X-1
A) EQUITY
100,101,102 (1030), (1040) 110 112,1141 113, 1140, 1142, 1143, 1144, 115, 119 (108), (109) 120 (121) 118 129 (557) 111 133 1340, 1341 136; (FS preparation rule 6.13) 135; (FS preparation rule 6.13) 137 130, 131, 132
A-1) Capital and Reserves I. Capital 1. Registered capital 2. (Uncalled capital) II. Additional paid-in capital III. Reserves 1. Legal and statutory reserves 2. Other reserves IV. (Own shares and participation units held) V. Retained earnings (accumulated losses) 1. Retained earnings 2. (Accumulated losses) VI. Other capital contributions VII. Profit (loss) for the year VIII. (Interim dividend) IX. Other equity instruments A-2) Revaluation adjustments I. Available-for-sale financial assets II. Hedging transactions III. Non-current assets and related liabilities, held for sale IV. Translation gain/loss V. Other A-3) Subsidies, donations and legacies received
B) NON-CURRENT LIABILITIES
I. 140 145 146 141, 142, 143, 147 177, 178, 179 1605, 170 1625, 174 176 1615, 1635, 171, 172, 173, 175, 180, 185, 189 1603, 1604, 1613, 1614, 1623, 1624, 1633, 1634 479 181 FS preparation rule 6.16 15; FS preparation rule 6.17
Long-term provisions 1. Long-term post-employment obligations 2. Environmental measures 3. Provisions for restructuring 4. Other provisions II. Long-term debts 1. Debt securities and other marketable securities 2. Liabilities to credit institutions 3. Finance lease liabilities 4. Derivatives 5. Other financial liabilities III. Long-term debts to group companies and associates IV. V. VI. VII. Deferred tax liabilities Non-current accrued expenses and deferred income Non-current trade accounts payable Long-term debt with special characteristics
Appendix I
ACCOUNT NOS.
EQUITY AND LIABILITIES
NOTES
200X
200X-1
C) CURRENT LIABILITIES
585, 586, 587, 588, 589 499, 529 500, 501, 505, 506 5105, 520, 527 5125, 524 5595, 5598 (1034) (1044) (190), (192), 194, 509, 5115, 5135, 5145, 521, 522, 523, 525, 526, 528, 551, 5525, 5530, 5532, 555, 5565, 5566, 560, 561, 569 5103, 5104, 5113, 5114, 5123, 6124, 5133, 5134, 5143, 5144, 5523, 5524, 5563, 5564
I. Liabilities related to non-current assets held for sale II. Current provisions III. Current liabilities 1. Debt securities and other marketable securities 2. Liabilities to credit institutions 3. Finance lease liabilities 4. Derivatives 5. Other financial liabilities
IV. Current liabilities to group companies and associates
V. 400, 401, 405, (406) FS preparation rule 6.16 FS preparation rule 6.16 403, 404 4141 465, 466 4752 4750, 4751, 4758, 476, 477 438 485, 568 502, 507; FS preparation rule 6.17
Trade and other payables 1. Trade accounts payable a) Long-term trade accounts payable b) Short-term trade accounts payable 2. Payable to suppliers, group companies and associates 3. Sundry creditors 4. Payable to employees (accrued wages and salaries) 5. Current tax liabilities 6. Other tax payable 7. Advances from customers VI. Current prepayments and accrued income VII. Short-term debt with special characteristics TOTAL LIABILITIES AND EQUITY (A + B +C)
Appendix II Model income statements for the year ended __ 20XX

Appendix II
INCOME STATEMENT FOR THE YEAR ENDED __20XX

(Debit) Credit 200X 200X
ACCOUNT NOS.
Note
700, 701, 702, 703, 704, (706), (708), (709) 705 (6930), 71*, 7930 73 (600), 6060, 6080, 6090, 610* (601), (602), 6061, 6062, 6081, 6082, 6091, 6092, 611*, 612* (607) (6931), (6932), (6933), 7931, 7932, 7933 75 740, 747
A) CONTINUING OPERATIONS 1. Net turnover a) From sales b) From services 2. Increase (decrease) in finished goods and work-inprocess inventory 3. Own work capitalized 4. Supplies a) Consumption of merchandise b) Consumption of raw materials and other consumables c) Work done by other companies d) Impairment of merchandise, raw materials and other supplies 5. Other operating income a) Ancillary and other current operating income b) Operating grants transferred to income for the year 6. Staff costs a) Wages, salaries and similar expenses b) Social security and other costs c) Provisions 7. Other operating expenses a) Outside services b) Taxes other than income tax c) Losses, impairment and increase (decrease) in operating provisions d) Other current operating expenses 8. Depreciation and amortization of fixed assets 9. Government and other grants related to tangible fixed assets 10. Excess provisions 11. Impairment and gain (loss) on disposal of fixed assets a) Asset impairment and losses b) Gain (loss) on disposals and other 12. Negative difference from business combinations 13. Other gains (losses)
(640), (641), (6450) (642), (643), (649) (644), (6457), 7950, 7957 (62) (631), (634), 636, 639 (650), (694), (695), 794, 7954 (651), (659) (68) 746 7951, 7952, 7955, 7956 (690), (691), (692), 790, 791, 792 (670), (671), (672), 770, 771, 772 774; (FS preparation rule 7.6) (678), 778, (FS preparation rule 7.9)
* May be positive or negative.
Appendix II
INCOME STATEMENT FOR THE YEAR ENDED __20XX

(Debit) Credit 200X 200X
ACCOUNT NOS.
Note
7600,7601 7602, 7603 7610, 7611, 76200, 76201, 76210, 76211 7612, 7613, 76202, 76203, 76212, 76213, 767, 769 746; (FS preparation rule 7.4) (6610), (6611), (6615), (6620), (6621), (6640), (6641), (6650), (6651), (6654), (6655) (6612), (6613), (6617), (6618), (6622), (6623), (6624), (6642), (6643), (6652), (6653), (6656), (6657), (669) (660) (6630), (6631), (6633), 7630, 7631, 7633 (6632), 7632 (668), 768
A.1) OPERATING PROFIT (1+2+3+4+5+6+7+8+9+10+11) 14. Financial income a) From equity investments a1) In group companies and associates a2) In other companies b) From marketable securities and other financial instruments b1) Of group companies and associates b2) Of other companies c) Subsidies, donations and legacies of a financial nature 15. Financial expenses a) For debts to group companies and associates b) For debts to other companies
c) For updating of provisions 16. Change in fair value of financial instruments a) Financial assets held for trading and others b) Credited (charged) to profit (loss) for the year for available-for-sale financial assets 17. Exchange differences 18. Impairment and gain (loss) on disposal of financial instruments a) Impairments and losses b) Gain (loss) on disposals and others 19. Other financial revenues and expenses a) Inclusion of borrowing costs in assets b) Financial revenues from arrangements with creditors c) Other financial revenues and expenses A.2) Net financial income (expense) (14+15+16+17+18+19) A.3) PROFIT (LOSS) BEFORE TAXES (A.1+A.2) 20. Income tax A.4) PROFIT (LOSS) FOR THE PERIOD FROM CONTINUING OPERATIONS (A.3+20) B) DISCONTINUED OPERATIONS 21. Profit (loss) for the year from discontinued operations, net of taxes A.5) PROFIT (LOSS) FOR THE YEAR (A.4+21)
(696), (697), (698), (699), 796, 797, 798, 799 (666), (667), (673), (675),766, 773, 775
(6300)*, 6301*, (633), 638
Appendix III Model statement of changes in equity for the year ended __ 20XX
Appendix III
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED __20XX A. STATEMENT OF RECOGNISED INCOME AND EXPENSE FOR THE YEAR ENDED __20XX
ACCOUNT NOS. Notes
A) Result of the income statement Income and expenses recognised directly in equity I. From valuation of financial instruments 1. Available-for-sale financial assets 2. Other income/expenses II. From cash flow hedges III. Subsidies, donations and legacies received IV. For actuarial gains or losses and other adjustments V. For non-current assets and related liabilities, held for sale VI. Translation gain/loss VII. Tax effect
(800), (89), 900, 991, 992 (810), 910 94 (85), 95 (860),900; (FS preparation rule 8.1.2) (820),920; (FS preparation rule 8.1.3) (8300)*, 8301*, (833), 834, 835, 838
B) Total revenue and expenses recognised directly in equity (I+II+III+IV+V+VI+VII) Transferred to profit or loss VIII. For valuation of financial instruments 1. Available-for-sale financial assets 2. Other income/expenses IX. For cash flow hedges X. Subsidies, donations and legacies received XI. For non-current assets and related liabilities, held for sale XII. Translation gain/loss XIII. Tax effect C) Total transferred to profit or loss (VI+VII+VIII+IX+X+XII+XIII) TOTAL RECOGNISED INCOME AND EXPENSE (A + B + C)
(802), 902, 993, 994
(812), 912 (84) (862),902; (FS preparation rule 8.1.2) (821),921; (FS preparation rule 8.1.3) 8301*, (836), (837)
Appendix III
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED __20XX B. TOTAL STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED __20XX
Su b s and idies, do lega n cies ations rece ived TOTA L (Ow n part shares ic unit ipation and s he ld) Reta ined (acc umu earning lated s losse Othe s) cont r capita ribu l tion s Prof it year (loss) fo r the (Inte rim divid end) Othe instr r equity ume nts Valu menation ad justts
acco Regis tered Unca lled unt
Capit al
A. CLOSING BALANCE 200X-2 I. Adjustments for changes of accounting policy 200X-2 and previous years II. Adjustments for errors 200X-2 and previous years B. ADJUSTED OPENING BALANCE, 200X-1 I. Total recognised income and expense II. Transactions with unitholders or shareholders 1. Capital increases 2. ( - ) Capital reductions 3. Conversion of financial liabilities to equity (bond conversions, debt forgiveness) 4. ( - ) Dividend distribution 5. Transactions with own shares or participation units (net) 6. Increase (decrease) in equity resulting from business combination 7. Other transactions with unitholders or shareholders III.Other changes in equity C. CLOSING BALANCE, 200X-1 Adjustments for changes of accounting policy 200x-1 Adjustments for errors 200x-1 D. ADJUSTED OPENING BALANCE, 200X I. Total recognised income and expense II. Transactions with unitholders or shareholders 1. Capital increases 2. ( - ) Capital reductions 3. Conversion of financial liabilities into equity (bond conversions, debt forgiveness) 4. ( - ) Dividend distribution 5. Transactions with own shares or participation units (net) 6. Increase (decrease) in equity resulting from business combination 7. Other transactions with unitholders or shareholders III.Other changes in equity E. CLOSING BALANCE, 200X
Share
Rese rves
prem ium
Appendix IV Model cash flow statements for the year ended ___ 20XX
Appendix IV
CASH FLOW STATEMENT FOR THE YEAR ENDED __20XX
NOTES
200X
200X-1
A) CASH FLOWS FROM OPERATING ACTIVITIES
1. PROFIT (LOSS) FOR THE YEAR BEFORE TAXES 2. Adjustments to profit or loss a. Depreciation and amortization of fixed assets (+) b. Valuation allowances for impairment (+/-) c. Valuation of provisions (+/-) d. Government and other grants (-) e. Cash flows from retirements and disposals of fixed assets (+/-) f. Cash flows from retirements and disposals of financial instruments (+/-) g. Financial income (-) h. Financial expenses (+) i. Exchange differences (+/-) j. Change in fair value of financial instruments (+/-) k. Other income and expenses (+/-) 3. Changes in working capital a. Inventories (+/-) b. Trade and other receivables (+/-) c. Other current assets (+/-) d. Trade and other payables (+/-) e. Other current liabilities (+/-) f. Other non-current assets and liabilities (+/-) 4. Other cash flows from operating activities a. Interest paid (-) b. Dividends received (+) c. Interest received (+) d. Corporate income tax received (paid) (+/-) e. Other amounts received (paid) (+/-) 5. Cash flows from operating activities (1+2+3+4)
B) CASH FLOWS FROM INVESTING ACTIVITIES
6. Payments for investments (-) a. Group companies and associates b. Intangible fixed assets c. Property, plant and equipment d. Investment property e. Other financial assets f. Non-current assets held for sale g. Business unit h. Other assets 7. Received from divestments (+) a. Group companies and associates b. Intangible assets c. Property, plant and equipment d. Investment property e. Other financial assets f. Non-current assets held for sale
Appendix IV
CASH FLOW STATEMENT FOR THE YEAR ENDED __20XX
NOTES
200X
200X-1
g. Business unit h. Other assets 8. Other cash flows from investing activities (7+6)
C) CASH FLOWS FROM FINANCING ACTIVITIES
9. Receipts and payments for equity instruments a. Issuance of equity instruments (+) b. Amortization of equity instruments (-) c. Purchase of own equity instruments (-) d. Disposal of own equity instruments (+) e. Subsidies, donations and legacies received (+) 10. Receipts and payments for financial liabilities a. Issuance 1. Debt securities and other marketable securities (+) 2. Debts to credit institutions (+) 3. Debts to group companies and associates (+) 4. Debts with special characteristics (+) 5. Other debts (+) b. Repayment and amortization of 1. Debt securities and other marketable securities (-) 2. Debts to credit institutions (-) 3. Debts to group companies and associates (-) 4. Debts with special characteristics (+) 5. Other debts (-) 11. Payments for dividends and remuneration of other equity instruments a. Dividends (-) b. Remuneration of other equity instruments (-) 12. Cash flows from financing activities (9+10 +11)
D) EFFECT OF CHANGES IN EXCHANGE RATES NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (5+8+12+D)
Cash or cash equivalents at beginning of year Cash and cash equivalents at end of year
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Guide to business in Spain

MINISTERIO DE ECONOMA Y COMPETITIVIDAD

Guide to business in Spain Gua de negocios en Espaa

MINISTERIO DE ECONOMA Y COMPETITIVIDAD

Guide to business in Spain Gua de negocios en Espaa

Spain profile Perfil de Espaa

Establishing a business in Spain Establecerse en Espaa

Tax system Sistema fiscal

Investment aid and incentives in Spain Ayudas e incentivos a la inversin en Espaa

Labor and Social Security regulations Legislacin laboral y de Seguridad Social

Intellectual property law Propiedad industrial e intelectual

Useful addresses Direcciones tiles

Prepared by: Elaborado por:

MINISTERIO DE ECONOMA Y COMPETITIVIDAD

Guide to business in Spain

Guide to business in Spain

FDI stock, World Investment Report 2010 (2009 figures)

Guide to business in Spain Spain profile 3

2. The country, its people and quality of life

2. THE COUNTRY, ITS PEOPLE AND QUALITY OF LIFE

Guide to business in Spain Spain profile 4

airanaC narG ed samlaP saL

efireneT ed zurC atnaS

San Sebastin Pamplona

Castelln de la Plana Valencia

Alicante Crdoba Sevilla Huelva Mlaga Jan

Santa Cruz de Tenerife

Las Palmas de Gran Canaria

2.2 Population and human resources

THE BIGGEST CITIES IN SPAIN*

Guide to business in Spain Spain profile 5

FOREIGNERS RESIDENT IN SPAIN BY CONTINENT OF ORIGIN

Europe America Asia Africa Oceania Unknown TOTAL

1,917,069 1,354,158 270,210 922,635 1,839 7,588 4,473,499

2,007,633 1,479,014 299,743 944,696 1,903 8,243 4,791,232

2,126,991 1,338,274 300,091 986,382 1,750 1,014 4,754,502

LABOR FORCE STRUCTURE BY ECONOMIC SECTOR IN 2010

EVOLUTION OF LABOR FORCE STRUCTURE BY ECONOMIC SECTOR (Percentage)

Agriculture Industry Construction Services

4.0 15.3 11.0 69.7

4.2 14.4 9.7 71.7

4.4 14.3 8.5 72.8

Source: National Statistic Institute. Labor Force Survey, 2010.

Guide to business in Spain Spain profile 6

Guide to business in Spain Spain profile 7

2.3 Political institutions

www.casareal.es www.poderjudicial.es 5 www.congreso.es 6 www.la-moncloa.es

Guide to business in Spain Spain profile 8

3.Spain and the European Union

3. SPAIN AND THE EUROPEAN UNION

Guide to business in Spain Spain profile 9

Informe Espaa hoy 2010 (Prime Ministers Office)

Guide to business in Spain Spain profile 10

Guide to business in Spain Spain profile 11

Guide to business in Spain Spain profile 12

Guide to business in Spain Spain profile 13

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