Why do business in Spain?

Spanish is the second most commonly spoken language in the world. Establishing a presence in this nation can open a number of doors in Latin America and other untapped markets.

Countless companies already trade in Spain thanks to the stable economy and substantial population. In addition, Spanish companies are considered to be at the cutting edge of technology and advanced business techniques. With a GPD inside Europe’s Top 5, Spain is a great nation for conducting business.

Territory data

Local currency


Dialling code


Local time


Pay periods


World Bank Ease of Doing Business Ranking (1-190)


Tax rates 2020

Company tax


Social security


Wages tax




How to set up payroll in Spain

Setting up a legally compliant payroll in Spain takes time. You will need to register your business and open a local bank account. This can take up to 12 weeks in total. 

You will also need a representative with boots on the ground in Spain to achieve this. A Spanish bank will expect an in-person representative to attend an appointment, not to manage the process online or over the phone.

Most industries in Spain are governed by trade unions. When considering making hires and drawing up contracts, always consult with a union representative. This will prevent you from falling foul of Spain’s stringent worker’s rights laws. 

You must register a new hire with the department of social security before they start work. Within 10 days of the employee starting work, you must also register them with Spain’s employment service and provide a contract.

Income taxes in Spain vary depending on region – there is no national income tax rate. If we are to use the capital of Madrid as an example, though, income tax to withhold is:

  • Salary of €12,449 or below – 19%
  • Salary of €12,450 – €20,199 – 24%
  • Salary of €20,200 – €35,199 – 30%
  • Salary of €35,200 – €59,999 – 37%
  • Salary €60,000 or above – 45%

In addition, be aware that Spanish payroll is costlier than you may expect. You will need to pay an additional 29.9% of every employee’s salary as a social security contribution. These contributions are capped at €4,070.10 a month for the highest earners, but that’s still a lot to budget for. This is topped by the employee – you will withhold a further 6.4% of their salary as a social security tax. 

These payments contribute to parental leave, pension pots, the Spanish public healthcare system and various other social programs. You are welcome to offer more, but these expenses will already add up to around an additional 1.6 times an employee’s annual salary. 

Consider this when negotiating rates of pay, ensuring you can meet these financial demands. The good news is that, due to these generous social policies, the average salary of a Spanish national is lower than many other European countries.

Spanish employment law & HR considerations

Employees are well taken care of in Spain. All employees are protected by the Estatuto de los Trabajadores, which outlines the rights of workers in the country. It is very difficult to dismiss an employee that has completed their probationary period in Spain. If you feel that a working relationship is not working out, give serious consideration to terminating employment before completion of probation.

Spanish employees are entitled to a minimum of 30 calendar days of paid holiday, plus public holidays. There are 9 public holidays in Spain, and some provinces celebrate another 5. Sick leave is slightly less generous. The first 3 days of sick leave are unpaid under Spanish law. After this, the employee is entitled to apply for social security payments based on how much they have contributed to the system.

Maternity leave is typically for 16 weeks, 6 of which should be taken straight after the birth of a child. Paternity leave totals 12 weeks, with 4 of these in the immediate aftermath of birth. However, parents can apply for up to 3 years of unpaid parental leave. Adoption leave is also available by request, along with time off on compassionate grounds.

Employees do not receive their salary in this time. They receive funding from the Spanish social security administration from the taxes that you have been paying as an employer and they as an employee. 

Setting up a subsidiary entity in Spain

To do business in Spain, you will either need to open a branch of an existing foreign company or set up an independent subsidiary company. A limited liability company in Spain is known as a Sociedad de Responsabilidad Limitada, or SL.

You will need a minimum share capital of €3,000 to open an SL in Spain. Officially, you will not need to pay this if you open a branch, though it remains advisable. Naturally, an SL is only responsible for its own affairs. If a branch in Spain incurs financial losses, it cannot be wound up and the losses written off. These debts become the responsibility of the parent company.

An SL will need to pay a corporate tax rate of 25% on all local profits. At the time of writing, the same also applies to a branch of a business registered in the UK. The UK and Spain have a double tax treaty, so your company will not have to pay further tax against global profits. If the parent company is registered elsewhere, however, taxation may be levied twice.

Country nuances

Aside from substantial social security taxation, there are other nuances to consider before starting a business in Spain. Firstly, you must appoint a Spanish national as a representative of your business. They do not need to be a director of the business. Make this a staff member that you trust, though, as they will act as your liaison with the local banks and authorities when registering your business.

You will need to register your company name with the Central Mercantile Register, or RCM, in Spain. This should be the first thing you do. You should provide your preferred company name and three possible alternatives, as there are strict rules on naming a business in Spain. Some of the restrictions include:

  • You are not legally obligated to refer to the purpose of your business in your company name, but you cannot use a name that insinuates activities unrelated to your offering (for example, you cannot use words reasonably expected to relate to STEM for a catering business)
  • No company may use a business name that could create market confusion through similarity, regardless of industry. For example, an application to name a software business Levi Enterprises will likely be declined as it could be mistaken for the international denim business. Equally, changing the business name to L3V1 Enterprises will not pass muster
  • You cannot namecheck individuals in a company name, i.e. John Smith SRA, unless explicitly approved by the individual in question. This approval must be provided in writing, witnessed by a notary public

You will also need to consider employment law in Spain. A contract cannot be issued to an employee before they start work for your company. However, you must register said employee ahead of their first day.

Business transactions can be lengthy in Spain. You will enjoy more success if you take the time to forge a social bond with potential business partners. Attempting to cut out small talk and cut to the quick is often considered disrespectful. 

You may also notice that, in Spain, a verbal contract is considered more binding than other nations. Spanish industry leaders place less emphasis on putting things in writing than you may expect. Asking senior business figures to follow up with an email or letter may raise an eyebrow – their word and a handshake should be considered enough.

Setting up in Spain FAQs

How long does it take to set up a Spanish entity?

It will take roughly 12 weeks for an entity to be ready to start trading in Spain. You may be able to reduce this to 8-10 weeks, but that takes a great deal of good fortune and no complications.

What are the most common business structures in Spain?

There are many possible forms of business in Spain. The most common are:
Public Limited Company, or Corporation (Sociedad Anónima, aka SA) – a corporation that is traded on the stock exchange, and subject to regular audits

Limited Liability Company (Sociedad de Responsabilidad Limitada, aka SL) – a subsidiary business registered in Spain 

New Enterprise Limited Company (Sociedad Limitada Nueva Empresa) – a simplified version of the SL with differing laws and restrictions

Cooperative (Sociedad Cooperativa) – a for-profit business with a social responsibility that benefits the local community. Tax breaks can be made available for a Sociedad Comanditaria, but it’s a tough status to gain
If setting up a new business venture in Spain, an SL is by far the most popular choice.

What is the Foreign Non-Resident Employment Structure (FNRE) in Spain? 

The FNRE policy allows you to employee Spanish nationals, in Spain, without establishing a legal business entity in the country. It typically only takes around 5 weeks to set up and there is little administration involved. Your options for commercial activities will be seriously limited, though.
A FNRE company must abide by labour laws and pay social security taxes as standard. However, FNREs are not liable for corporate tax and do not need to file financial returns with the Spanish authorities. Status as an FNRE is only available to SMEs that hire a small number of employees – usually no more than 5.

Can you establish a branch of your company in Spain?

A large company can register a Spanish branch of their business. There is no mandatory share capital for opening a branch in Spain, though experts recommend matching the SL capital of €3,000. The branch much be registered by the Mercantile Registry and have a Spanish resident acting as a representative.

What is the Registro Mercantil Central (RMC)?

The RMC is the Spanish equivalent of Companies House. This is the central register that grants permission to companies to use a trading name in Spain and holds all relevant information pertaining to a business. You will need to provide four possible names for your business to RMC before permission to trade will be granted.

What is the minimum share capital required to establish an entity in Spain?

This depends on the type of business. If looking to set up a Limited Liability Company (SL), the minimum share capital is €3,000. For a corporation (SA), it’s €60.000.

Do you need to set up a local bank account in Spain?

Yes, you will need to set up a business account with a Spanish bank. You do not need to be a Spanish resident to do this, but many experts recommending setting up the account in person rather than remotely. If you are not based in Spain, assign this responsibility to a trusted employee.

What are the main options for setting up payroll in Spain?

As a foreign company, you could set up payroll in Spain as a Foreign Non-Resident Employment Structure (FNRE) and bring on a very small staff team. If you plan to engage in commercial activities in Spain, however, a full payroll set-up is advisable.

What is the Estatuto de los Trabajadores and Convenios Colectivos in Spain?

Estatuto de los Trabajadores (aka ET) translates as, “Status of Workers”. This is a document that lists out the rights and protections afforded to employees in Spain. Convenios Colectivos, meanwhile, means, “Collective Agreements.” This is the contract agreed between an employer and employee or trade union.

How much must employees and employers contribute to social security in Spain?

Expect to pay 29.9% of an employee’s salary as a social security contribution to the Spanish government. If your business undertakes any work that is considered high risk, including construction, this will be even higher. Employees, meanwhile, pay 6.4% of their own salary. This is withheld from wages by the employer.

What is a common probationary period for employees in Spain?

Under Spanish law, large companies (businesses with over 25 employees) can assign a two-month probationary period to employees. A business with less than 25 employees can assign a three-month probation. Staff with technical qualifications pertinent to their role undertake a six-month probation. During a probationary period, employment can be terminated at will by either party. 

What is the total cost of employment to hire an employee in Spain?

Expect to pay around 1.6 times an employee’s annual salary to get them onto your payroll in Spain. This is due to high social security taxes on employers. Always consider this tax when making an offer of employment to keep salaries affordable.

What is the standard working week in Spain?

The standard working week in Spain is 40 hours. The idea of an afternoon siesta is outdated. Very few Spanish businesses still offer this opportunity, and lunch breaks are typically just one hour. 
Spanish law dictates that a working day cannot exceed 9 hours, and employees must have 12-hour rest breaks between working shifts. Overtime must be capped at 80 hours per calendar year unless otherwise agreed with an employee or trade union.

What are common supplementary employee benefits in Spain?

With so many mandatory benefits available to Spanish employees, there are comparatively few supplementary benefits left to offer. Additional payments to a retirement plan beyond social security taxes and any death in service or disability benefits may entice applicants, though.

In Spain, can employment contracts be terminated at will by the employer?

No, Spanish employees outside their probationary period have very strict protections against termination under the Estatuto de los Trabajadores. Unless dismissed for gross misconduct, an employee is entitled to a minimum of 30 days of written notice of termination of employment, along with an explanation for your decision
Termination of a contract may very well end up being protested in court. With this in mind, it is worth consulting a legal representative before making moves to terminate an employee’s contract in Spain. The law typically favours employees, so you will need a strong case for dismissal.

What is the standard annual leave entitlement in Spain?

Spanish employees are entitled to a minimum of 30 calendar days of paid annual leave (22 working days according to a standard working pattern). In addition, Spain has 9 national public holidays. Some Spanish provinces celebrate a further 5 public holidays.

What are the different types of Work Permits and Visas in Spain?

Employees from an EU member nation will not need a work permit or Visa to work in Spain. Anybody else will need to apply for a short-term or long-term Working Visa. The Spanish embassy can help with this. 
Typically, Visas to work in Spain are awarded to highly skilled employees in industries that are considered to have a shortage occupation. This Visa can take up to 8 months to be approved. Proof that an equally qualified EU national is unavailable will be required.

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