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Spain: Market Profile

Picture: Spain factsheet
Picture: Spain factsheet

1. Overview

Continuing fiscal consolidation, banking sector restructuring and structural reforms, particularly in the labour market, have been broadly positive for the Spanish economy. In addition, lower borrowing costs, declining unemployment and improving export prospects alongside a competitive euro have given consumers and businesses more confidence when making consumption and investment decisions, which has contributed to a robust-looking near-term outlook for the Spanish economy. Nevertheless, base-broadening measures on corporate taxation, increases in excise duties on alcohol and tobacco, supply-side constraints and a wider base for social contributions may temper more expansionary fiscal policy orientation in the quarters ahead.

Sources: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

October 2017
Madrid imposed direct rule in Catalonia following a disputed referendum on proposed regional independence.

June 2018
Prime Minister Mariano Rajoy lost a vote of confidence. Opposition leader Pedro Sánchez took over as premier in a minority government.

October 2018
The Spanish government abolished a tax on the solar industry and agreed to a deal with unions to shut down most of the country's remaining coal mines by the end of the year in return for regional investment over the next decade.

The European Union (EU) reported that Spanish exports of food and drink had been particularly boosted during the previous 18 months, with significant new opportunities having opened for Spanish producers of olives, olive oil, wine, juices, spices, and frozen and canned vegetables.

November 2018
The Spanish government set out its plan to invest massively in wind and solar power in the next decade in order to switch the economy entirely to renewable electricity by 2050.

December 2018
Regional elections held in Andalusia, Spain's largest region, resulted both in a breakthrough by a populist Vox party and the end of overall control of the region by the PSOE (socialist party), which had held power there since 1982.

The Council of Ministers approved the largest increase (22%) in Spain's minimum wage since 1977, which entered into force in January 2019. The UGT union estimated that 15% of wage earners will benefit, more than half of them women.

February 2019
The rejection by parliament of the minority government's 2019 budget increased the likelihood of a general election.

April 2019
A snap general election (the country's third in four years) resulted in a win for the minority-governing Socialists, with Pedro Sánchez continuing to serve as Acting Prime Minister. But his party lacked a majority, with only 29% of the vote, and by early July 2019 a coalition government had not yet been formed. The deadlock means that EUR5 billion of promised extra funding cannot be released to Spain's devolved regions.

June 2019
The online streaming giant Netflix opened Casa Netflix outside Madrid, the company's first production centre in Europe.

City authorities in Barcelona and Cádiz began installing solar panels on public buildings in order to ensure that the cities run on renewable energy and become self-sufficient in energy production. In the southern province of Andalucía, where Cádiz is, about 40% of power comes from renewables.

Iberdrola's electricity distribution arm, i-DE, announced it will invest more than EUR600 million over the next 10 years to help to transition Spain's urban areas to smart cities, beginning with approximately 40 towns and cities in 2019.

July 2019
The European Council's announcement of the new leadership of the European Commission (EC) resulted in Spain's return to one of the top five posts for the first time in a decade, when Acting Foreign Minister Josep Borrell was nominated as the new EU High Representative for Foreign Affairs and Security Policy.

Spain-based Siemens Gamesa was awarded North America's largest repowering deal to date by Berkshire Hathaway's MidAmerican Energy, to supply and install nearly 200 machines at the Rolling Hills wind project in Iowa. Siemens Gamesa has installed more than 10,000 wind turbines in the United States. Globally, Siemens Gamesa is expected to be a dominant player in the offshore wind sector in the coming decade, though some Chinese companies could begin to offer a challenge.

Spanish company Repsol would develop two wind farms and a solar power plant in different areas of Spain with a combined capacity of nearly 800MW. The schemes are part of Repsol's strategy to generate 4.5GW of low-emission energy by 2025.

Acting Prime Minister Pedro Sánchez failed to secure a majority in the parliamentary investiture vote for his new government. Unless an alternative proposal is made and approved by late September, there will be another general election in November.

Sources: BBC country profile – Timeline, Reuters, The Independent, El País, Fitch Solutions

3. Major Economic Indicators

Graph: Spain real GDP and inflation
Graph: Spain real GDP and inflation
Graph: Spain GDP by sector (2018)
Graph: Spain GDP by sector (2018)
Graph: Spain unemployment rate
Graph: Spain unemployment rate
Graph: Spain current account balance
Graph: Spain current account balance

e = estimate, f = forecast
Sources: IMF, World Bank, Fitch Solutions
Date last reviewed: July 15, 2019

4. External Trade

4.1 Merchandise Trade

Graph: Spain merchandise trade
Graph: Spain merchandise trade

Sources: WTO, Fitch Solutions
Date last reviewed: July 15, 2019

Graph: Spain major export commodities (2018)
Graph: Spain major export commodities (2018)
Note: Unclassified products account for USD2.4 billion of exports
Graph: Spain major export markets (2018)
Graph: Spain major export markets (2018)

Graph: Spain major import commodities (2018)
Graph: Spain major import commodities (2018)
Note: Unclassified products account for approximately USD0.2 billion of imports
Graph: Spain major import markets (2018)
Graph: Spain major import markets (2018)

Sources: Trade Map, Fitch Solutions
Date last reviewed: July 15, 2019

4.2 Trade in Services

Graph: Spain trade in services
Graph: Spain trade in services

Source: WTO
Date last reviewed: July 15, 2019

5. Trade Policies

  • Spain has been a member of the World Trade Organization (WTO) since January 1, 1995 and a member of the General Agreement on Tariffs and Trade since August 29, 1963.

  • Spain is a member of the EU which has a common set of tariffs and customs levied on various imports and exports. As such, the trade policy is largely identical to that of the wider regional bloc. The EU updated its trade policy (and, by extension, its import tariffs, customs, duties, and procedures) in 2017 and 2018. The EU has an overall simple tariff of 5.1%. Once goods are cleared by customs authorities upon entry into any EU member state, these imported goods can move freely among EU member states without any additional customs procedures.

  • Trade bureaucracy and customs delays are a significant hindrance to foreign investors, particularly those outside the EU. Although there are increasing efforts to reduce trade bureaucracy, paper-based procedures remain cumbersome and costs and connectivity issues add to market barriers.

  • As a member state of the EU Spain incorporates EU regulatory norms. While developing new draft regulations, the Spanish government submits a copy to the WTO for review to ensure that the prospective legislation is not inconsistent with its WTO obligations.

  • As a eurozone member, Spain adopted the euro as its legal tender from January 1, 2002.

  • The EU has the largest web of preferential trade agreements in the world, being party to some 70 free trade agreements spanning five continents, and, consequently, access to other markets of the countries concerned is currently mediated through those agreements. The EU's scheme on generalised system of preferences (GSP) entered into effect on January 1, 2014. Under the scheme, tariff preferences have been removed for imports into the EU from countries where per capita income has exceeded USD4,000 for four years in a row. As a result, the number of countries that enjoy preferential access to EU markets was reduced from 176 to less than 80. While Mainland China remains a beneficiary, many of its exports – such as toys, electrical equipment, footwear, textiles, wooden articles, and watches and clocks – have already been graduated from the preferential treatment. Regarding Hong Kong, the territory has been fully excluded from the EU's GSP scheme since May 1, 1998.

  • Nine types of goods imported into the EU are subject to licensing. These goods are (broadly) textiles, various agricultural products, iron and steel products, ozone-depleting substances, rough diamonds, waste shipment, harvested timber, endangered species, and drug precursors. Currently, no quotas are imposed on textiles and clothing exports or non-textile product exports from Hong Kong and Mainland China.

  • In order to protect domestic industries, a number of products originating from Mainland China are subject to the EU's anti-dumping duties, including bicycles, bicycle parts, ceramic tiles, ceramic tableware and kitchenware, fasteners, ironing boards, and solar glass, which are of interest to Hong Kong exporters. For example, in November 2016, the EC imposed a provisional anti-dumping duty on imports of some primary and semi-processed metals from Mainland China. The rate of duty is between 43.5% and 81.1% of the net, free-at-union-frontier price before duty, depending on the company. By way of comparison, the rate of duty for similar goods from Belarus is 12.5% of the net, free-at-union-frontier price before duty. As of March 2019, the EU did not apply any anti-dumping measures on imports originating from Hong Kong.

  • In 2018, the EU modernised its trade defence instruments, with a view to shielding EU producers from damage caused by unfair competition. Anti-dumping and anti-subsidy regulations have been amended to better respond to unfair trade practices and to furnish Europe's trade defence instruments with more transparency, quicker procedures and more effective enforcement. In exceptional cases, such as in the presence of distortions in the cost of raw materials, the EU will be able to impose higher duties through the limited suspension of the lesser-duty rule.

  • The EC has introduced an import licensing regime for certain iron, steel and aluminium products exceeding 2.5 tonnes. The regulation will be active until May 15, 2020.

  • One of the beneficiaries of the agreed EU-MERCOSUR agreement should be Europe's struggling carmakers as a result of reduced duties on imports into a growing vehicle market.

  • To combat the spread of the Asian long-horned beetle, in July 1999 the EU introduced emergency controls on wooden packaging material originating in Mainland China. Wood covered by the measures must be stripped of its bark and free of insect bore holes greater than 3mm across, or must have been kiln-dried to below 20% moisture content.

  • For health reasons, the EU has adopted a directive on the control of the use of nickel in objects intended to be in contact with the skin, such as watches and jewellery. The EU also adopted a directive to ban the use of some phthalates in certain PVC toys and childcare articles on a permanent basis, which came into effect from January 16, 2007. In addition, the EU has adopted a directive to prohibit the trading of clothing, footwear and other textile and leather articles that contain azo-dyes, from which aromatic amines may be derived.

  • The EU has adopted a number of directives for environmental protection, which may have an impact on the sale of a wide range of consumer goods and consumer electronics. Notable examples include the directive on Waste Electrical and Electronic Equipment (WEEE) implemented in August 2005, and the directive on Restriction of Hazardous Substances (RoHS) implemented in July 2006. A recast WEEE directive entered into force in August 2012 as a result of which member states must adhere to higher collection/recycling targets (a 45% collection rate as of 2016 and 65% from 2019). The directive is also wider in scope, covering all electric and electronic equipment, while establishing producer responsibility as a means of encouraging greener product designs. The recast RoHS directive was published on July 1, 2011, and entered into force on January 2, 2013. The new directive continues to prohibit electrical and electronic equipment that contains the same six dangerous substances as listed in the original RoHS directive. From July 22, 2019, the new directive will widen the current scope of the previous directive by including any electrical and electronic equipment that will have fallen out of the old RoHS directive's scope, with only limited exceptions. Following those recast directives, the EU's new framework directive for setting eco-design requirements for energy-related products (ErP) is now in place. The ErP Directive is no longer limited to electrical and electronic equipment (as it was under its predecessor, the Energy-using Products Directive), but potentially covers any product that is related to the use of energy, including shower heads and other bathroom fittings, as well as insulation and construction materials.

  • REACH, an EU regulation which stands for Registration, Evaluation, Authorisation and Restriction of Chemicals, entered into force in June 2007. It requires EU manufacturers and importers of chemical substances to gather comprehensive information on the properties of these substances produced or imported in volumes of one tonne or more per year, and to register such substances prior to manufacturing in or importing into the EU.

  • With EU-United States talks on a Transatlantic Trade and Investment Partnership having been suspended at the end of 2016, in April 2019 the EU and United States' chemical industries proposed an enhanced aligned approach that could serve as a global blueprint for regulatory cooperation to reduce barriers and increase trade in the chemicals sector.

  • Spain's position has remained steady in the most recent IMD World Competitiveness Rankings, which rated the country as middling in all performance aspects, but the scored poorly in terms of business efficiency and government efficiency. The survey noted the need to develop a plan to reduce the number of rules and eliminate bureaucratic obstacles.

Sources: Trade Policy Review, European Commission, IMD World Competitiveness, Fitch Solutions

6. Trade Agreement

6.1 Trade Updates

As a member of the EU, Spain is party to the same trade agreements as its 27 peer states. The region negotiates and enters into trade agreements as a collective due to the single market nature of the union. In total, the EU has approximately 70 preferential trade agreements in place.

6.2 Multinational Trade Agreements

Active

  1. The EU Common Market: The transfer of capital, goods, services and labour between member nations enjoy free movement. The common market extends to the 28 member nations of the EU, namely: Austria, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden and the United Kingdom. As Spain's main trade partners are in the EU, the absence of customs charges with member countries greatly enhances its trade volumes.

  2. European Economic Area (EEA)-European Free Trade Association (EFTA) agreement: This economic integration agreement entered into force on January 1, 1994. The agreement unites the EU member states, the three non-EU member states of the EEA (Iceland, Liechtenstein, Norway) that are also members of EFTA and Switzerland, which is a member of EFTA but not of the EU or EEA, into an internal market governed by the same basic rules. These rules aim to enable goods, services, capital and persons to move freely about the signatory countries in an open and competitive environment, a concept referred to as the four freedoms. While the agreement enhances trade flows between the EFTA countries and the EU, only Switzerland is a fairly major trading partner.

  3. EU-Japan Economic Partnership Agreement (EPA): In July 2018, the EU and Japan signed a trade deal that promises to eliminate 99% of tariffs that cost businesses in the EU and Japan nearly EUR1 billion annually. According to the EC, the EU-Japan EPA will create a trade zone covering 600 million people and nearly a third of global GDP. The result of four years of negotiation, the EPA was finalised in late 2017 and came into force on February 1, 2019 after the EU Parliament ratified the agreement in December 2018. The total trade volume of goods and services between the EU and Japan is an estimated EUR86 billion. The key parts of the agreement will cut duties on a wide range of agricultural products and it seeks to open up services markets, particularly financial services, e-commerce, telecommunications and transport. Japan is the EU's second biggest trading partner in Asia after mainland China. EU exports to Japan are dominated by motor vehicles, machinery, pharmaceuticals, optical and medical instruments, and electrical machinery.

  4. EU-Turkey Customs Union: The EU and Turkey are linked by a Customs Union agreement, which came into force on December 31, 1995. Turkey has been a candidate country to join the EU since 1999 and is a member of the Euro-Mediterranean partnership. The Customs Union with the EU provides tariff-free access to the European market for Turkey, benefitting both exporters and importers. Turkey is the EU's fourth largest export market and fifth largest provider of imports. The EU is Turkey's largest import and export partner. Turkey's exports to the EU are mostly machinery and transport equipment, followed by manufactured goods. At present, the Customs Union covers all industrial goods, but does not address agriculture (except processed agricultural products), services or public procurement. Bilateral trade concessions apply to agricultural as well as coal and steel products. In December 2016, the EC proposed the modernisation of the Customs Union and to further extend the bilateral trade relations to other areas, such as services, public procurement and sustainable development.

  5. EU-Canada Comprehensive Economic and Trade Agreement (CETA): CETA is expected to strengthen trade ties between the two regions, been signed in October 2016 and entered force provisionally on September 21, 2017. Some 98% of trade between Canada and the EU is duty-free under CETA. The agreement is expected to boost trade between partners by more than 20%. CETA also opens up government procurement. Canadian companies will be able to bid on opportunities at all levels of the EU government procurement market and vice versa. CETA means that Canadian provinces, territories and municipalities are opening their procurement to foreign entities for the first time, albeit with some limitations regarding energy utilities and public transport.

  6. EU-Southern African Development Community (SADC) EPA: An agreement between the EU and a group of SADC countries (Botswana, eSwatini, Lesotho, Mozambique, Namibia, South Africa) was signed on June 10, 2016, with Angola having an option to join the agreement in the future. The agreement provisionally entered into force for most countries on October 10, 2016, but only became fully operational after Mozambique began applying the EPA in February 2018. Nine of the remaining members of SADC not included in the deal (Comoros, the Democratic Republic of the Congo, Madagascar, Malawi, Mauritius, the Seychelles, Tanzania, Zambia and Zimbabwe) have or are seeking economic partnership agreements with the EU as part of other regional trading blocs – such as with East, Central or Southern African communities.

Ratification Pending

  1. EU-Central America Association Agreement (Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, Panama, Belize and the Dominican Republic): An agreement between the parties was reached in 2012 and is awaiting ratification (29 of the 34 parties have ratified the agreement as of June 2019). The agreement has been provisionally applied since 2013.

  2. EU-MERCOSUR Trade Agreement: An agreement between the parties was reached on June 28, 2019. The agreement means the EU is the first major partner to make a trade pact with the MERCOSUR bloc, which comprises Argentina, Brazil, Paraguay and Uruguay. The agreement will cover a population of 780 million and gives EU-based companies easier entry into a market with an enormous economic potential, saving them EUR4 billion in duties annually. Currently, EU exports in goods and services are worth approximately EUR68 billion. The EU is the biggest foreign investor in MERCOSUR, with stock of EUR381 billion, while MERCOSUR's investment stock in the EU is worth EUR52 billion. The agreement contains specific commitments on labour rights and environmental protection, including the implementation of the Paris climate agreement and related enforcement rules. The EU will not fully open its market for imports of agri-food products, although beef, poultry and honey imports from the MERCOSUR countries will be permitted to increase over a five-year phasing in period.

  3. EU-Vietnam Free trade Agreement (FTA) and Investment Protection Agreement (IPA): In October 2018, the EU and Vietnam agreed on final texts for the EU-Vietnam FTA and the EU-Vietnam IPA. As of July 2019, the final text of the agreement has been finalised and is awaiting the consent of the European Parliament before being signed and concluded. Once in force, the agreements will provide opportunities to increase trade and support jobs and growth on both sides by eliminating 99% of all tariffs, reducing regulatory barriers and overlapping 'red tape', ensuring protection of geographical indications, opening up services and public procurement markets, and establishing the means to ensure the agreed rules are enforceable.

Under Negotiation

  1. EU-Australia: The EU, Australia's second largest trade partner, has launched negotiations for a comprehensive trade agreement with Australia. Bilateral trade in goods between the two partners has risen steadily in recent years, reaching almost EUR48 billion in 2017, and bilateral trade in services added an additional EUR27 billion. The negotiations aim to remove trade barriers, streamline standards and put European companies exporting to or doing business in Australia on equal footing with those from countries that have signed up to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) or other trade agreements with Australia. The Council of the EU authorised opening negotiations for a trade agreement between the EU and Australia on May 22, 2018.

  2. EU-United States (Trans-Atlantic Trade and Investment Partnership): This agreement was expected to increase trade and services, but it is unlikely to pass under the Trump administration in the United States against the backdrop of rising global trade tensions.

Sources: WTO Regional Trade Agreements database, European Commission, Bruegel, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Spain FDI stock
Graph: Spain FDI stock
Graph: Spain FDI flow
Graph: Spain FDI flow

Source: UNCTAD
Date last reviewed: August 13, 2019

7.2 Foreign Direct Investment Policy

  1. Spain is an open economy and is seeking to attract additional foreign investment, particularly to continue its recovery from the 2008-2009 economic crisis. Spain's excellent infrastructure, large domestic market, well-educated workforce and export possibilities have attracted foreign companies in large numbers over the past three decades. With the aim of promoting investment, employment, competitiveness and economic growth, the Spanish government and all other public authorities have been developing and consolidating an extensive and complete system of aid instruments and incentives especially targeted at boosting employment, regional investment and at research, development and technological innovation. Financing from the Official Credit Institute (Instituto de Crédito Oficial or ICO) is widely available to promote investment into the country's key industries such as aerospace, automotive, biotechnology, pharmacy and life sciences, environment, ICT and chemicals.

  2. Invest in Spain is the country’s investment promotion agency and falls under the Ministry of Industry Trade and Tourism. The organisation’s chief mandate is to attract foreign direct investment into the country by providing information, advice and support to both industrial and financial investors. Invest in Spain places an emphasis on new projects in the industrial, technological and services sectors. The organisation also plays a role in improving the business environment through proposals to enhance the existing regulatory framework.

  3. Spain – in common with a number of other EU states – also operates a residency-by-investment programme, launched in 2013 and popularly known as a 'golden visa'. The formal name of the legislation is the Law to Support Entrepreneurs and their Internationalization, and by the end of 2018 it is believed to have resulted in more than 10,000 visas having been granted, generating more than EUR976.0 million annually in foreign direct investment. Most applicants are nationals from Mainland China, followed by those from Russia and then the United States, investing in property.

  4. Registration requirements are straightforward and apply to foreign and domestic investments equally. They aim to verify the purpose of the investment and do not block any investment. On September 1, 2016 a new Resolution of the Directorate General for International Trade and Investments at the Ministry of Economy, Industry and Competitiveness came into force, under which new forms for the declaration of foreign investments before the Investment Registry were established, where the person obliged to declare is the investor or company with foreign participation.

  5. Spanish law protects property rights and those of intellectual property. The government has amended the Intellectual Property Act, the Civil Procedure Law and the Penal Code to strengthen online protection. Spain offers investment opportunities in sectors and activities with significant added value. There were no major changes in Spain's regulations for investment and foreign exchange under the Popular Party (PP) administration, which held office from December 2016 until June 2018. Spanish law permits 100% foreign ownership in investments (limits apply regarding audio-visual broadcast licences) and capital movements are completely liberalised.

  6. Spanish law has adapted its foreign investment rules to a system of general liberalisation, without distinguishing between EU residents and non-EU residents. Law 18/1992 of July 1, establishing rules on foreign investments in Spain, provides a specific regime for non-EU persons.

  7. For EU resident companies, the only sectors with a specific regime are the manufacture and trade of weapons or national defence-related activities. For non-EU companies, the Spanish government restricts individual ownership of audio-visual broadcasting licenses to 25%. Specifically, Spanish law permits non-EU companies to own a maximum of 25% of a company holding a digital terrestrial television broadcasting licence and for two or more non-EU companies to own a maximum of 50% in aggregate. In addition, under Spanish law a reciprocity principle applies (article 25.4 General Audio-visual Law). The home country of the (non-EU) foreign company must have foreign ownership laws that permit a Spanish company to make the same transaction.

  8. On August 1, 2014, the Spanish Council of Ministers approved three tax reform bills relating to personal income tax, corporate income tax and value added tax (VAT) that went into effect on January 1, 2015. Although the reforms generally reduced personal and corporate taxes in most categories, one of the new measures was an exit tax that applies to taxpayers who have had tax residency in Spain for at least 10 of the last 15 years and who own more than EUR4 million in relevant assets or more than 25% of a company worth more than EUR1 million. Although the measure seeks to combat offshore tax evasion, the provision has caused concern among Spanish entrepreneurs and foreign investors who believe that the reform will make it difficult for Spanish start-ups to relocate outside the EU, which can be essential for the growth of a new business.

  9. Spanish legislation has set up a series of safeguards to prevent the nationalisation or expropriation of foreign investment. Since the beginning of the economic crisis, Spain has altered its renewable energy policy numerous times, creating a high degree of regulatory uncertainty and resulting in losses to some foreign companies' earnings and investments. In December 2012 the government enacted a comprehensive energy sector reform plan in an effort to address a EUR30 billion energy tariff deficit caused by user rates that were insufficient to cover system costs.

  10. Spain has an extensive and comprehensive system of aid and incentives developed by the central government and other government bodies, with a special emphasis on promoting permanent employment, productive investments and research, development and technological innovation.

  11. Spain is the main gateway for Latin American companies into the European market. Latin American foreign direct investment in Spain is EUR39.5 billion, rising to EUR57 billion if investments in holding companies or entities holding foreign securities are included. Mexico is the leading Latin American investor in Spain.

  12. Spain is a member of the Organisation for Economic Co-operation and Development, the World Trade Organization, and the United Nations Conference on Trade and Development.

  13. Spain has 72 bilateral investment treaties in force, and 7 others are signed but not yet in force.

  14. Spain has treaties with investment provisions in force with 56 individual countries and economic blocs worldwide.

  15. According to the 2019 FDI Confidence Index compiled by A.T. Kearney, Spain gained four places to 11th out of 25, noting that national competitiveness has improved in recent years and the financial system is showing growing signs of recovery.

Sources: WTO – Trade Policy Review, the International Trade Administration (ITA), Invest in Spain, ICEX , Transparency International, A.T. Kearney

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
Main free zones: Ceuta and Melilla free zone, Cadiz, Vigo and Canary Island free zonesBoth the mainland and islands (and in most Spanish airports and seaports) have numerous free trade zones where manufacturing, processing, sorting, packaging, exhibiting, sampling and other commercial operations may be undertaken free of Spanish duties or taxes. The largest free trade zones are in Barcelona, Cadiz and Vigo, and the entire province of the Canary Islands is a Special Economic Zone. Others vary in size from a simple warehouse to several square kilometres. Spanish customs legislation allows companies to have their own free trade areas. Duties and taxes are payable only on those items imported for use in Spain. These companies have to abide by Spanish labour laws. The Zones offer benefits such as a reduced corporate tax rate (of 4%), reduced VAT (7%), as well as transfer tax and stamp duty exemptions.
Government bodies- Spain’s central government provides numerous financial incentives for foreign investment, generally designed to complement EU financing.

- Spain provides certain subsidies for job training and job creation, although they have been reduced in recent years due to budget constraints.

- Projects designated as Investment and Employment may be eligible for further subsidies from the Government Public Employment Service (formerly the National Employment Institute).

- A variety of labour law reforms in recent years have established aid schemes to incentivise the hiring of the young, long-term unemployed, disabled and victims of terrorism or domestic or gender-based violence.

- Among other measures taken to promote employment and permanent contracts is a new 'flat rate' for social security contributions, applicable to contracts signed after February 25, 2014.
Spain’s 17 regional governments, known as autonomous communities, provide additional incentives for investment in their region. Many are similar to the incentives offered by the central government and the EU, but they are not all compatible.The regional governments are responsible for the management of each type of investment. To ensure that any subsidy received is compatible with other aid, provided that the sum of all the aid obtained does not exceed the limit established by the legislation of demarcation and that EU rules do not preclude it.

There are many different incentives available: financial loans and subsidies; exemption from certain taxes; preferential access to official credit; the reduction of burdens; bonuses for the acquisition of certain material; a customs exemption for certain imported goods; real estate grants or favourable land grants; credit such as loans with low interest or long maturities and grace periods; guarantees of dividends; professional training and qualifications; and indirect aid by means of supplying infrastructure facilities.
MunicipalitiesMunicipal corporations are best placed to offer incentives to direct investment by facilitating infrastructure needs, granting licences and operating permits. Municipalities such as Madrid offer numerous support services for potential foreign investors. Local economic development agencies often provide free advice about the local business environment and relevant laws, administrative support and access to human capital in order to establish new businesses. Spain recently made it easier to start a business by eliminating the requirement to obtain a municipal licence before starting operations and by improving the efficiency of the commercial registry.
Research and Development (R&D)- Incentives from national, regional or municipal governments and the EU are granted to Spanish and foreign companies alike without discrimination. These incentives are those most likely to be aimed at fostering innovation, technological improvement and R&D projects. For example, in Spain in 2018 the European Investment Bank alone invested EUR4.8 billion in small- and medium-sized enterprises, EUR2.4 billion in innovation, EUR824.1 million in environmental projects and EUR410.7 million in infrastructure.

- Spain’s Ministry of Economy, Industry and Competitiveness produced the 'Spanish Strategy for Science and Technology and for Innovation', which was adopted in 2013 as the means to foster economic growth and competitiveness in the country. The document establishes a framework to develop R&D activities in Spain in alignment with the objectives of the European Union under Horizon 2020. The essential purpose of the strategy is to promote the scientific, technological and business leadership of the country and to increase the innovation capacities of Spanish companies and the Spanish economy. Aid can take the form of subsidies, loans, venture capital instruments and other instruments (tax guarantees and incentives).

Sources: Spanish government sources, Invest in Spain, European Investment Bank, Spanish Strategy for Science, European Commision, Fitch Solutions

8. Taxation – 2019

  • Value Added Tax: 21%
  • Corporate Income Tax: 25%

Source: Spanish Ministry of Finance

8.1 Important Updates to Taxation Information

In recent financial years the general state budgets have significantly amended Spanish law on the taxation of companies, with increases to the percentages and limits applicable to tax credits for investments in cinematographic productions, audio-visual series and live performances of performing and musical arts. A special tax regime is applicable in the three provinces of the Basque Country, whereby corporate income tax from January 1, 2019 will be 24% and 20% for companies with a net turnover of less than EUR10 million. In February 2019 the Spanish parliament rejected the budget, which resulted in fresh elections in April 2019 and a return to power, but again in a minority, by the party proposing the budget previously. As of July 2019 a government had not been formed and the budget had not passed but it had contained some significant amendments to taxation, including a Financial Transaction Tax and a Specific Digital Services Tax, that seem likely to be implemented in the near future. The investiture vote is due on July 23.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax- 25%
- 15% applies to newly formed companies and the first two years in which they obtain a taxable profit; This rate is not applicable to newly created companies that are part of a national or international group
- 30% applicable to banks
Capital Gains Tax25%
Transfer Tax
6% but can vary by region
VAT- 21% standard rate
- 4% reduced rate applies to basic necessities such as bread, milk and medicine
- 10% applies to dwellings, live cultural events and any food or agricultural products not reduced to 4%
Property TaxLevied annually on property owners by local authorities and varying by region
Stamp dutyGenerally 0.75–1.5%, varying by region and application
Withholding Tax19% each on dividend income, interest and royalties (24% on royalties if the corporation/individual is from a non-treaty country), which may be reduced if a double taxation agreement exists (For example, Hong Kong has a treaty limiting these rates to 10%, 5% and 5%)
Branch Remittance Tax19% for resident companies and 25% for non-resident unless otherwise specified by a tax agreement

Source: Spanish Ministry of Finance
Date last reviewed: July 15, 2019

9. Foreign Worker Requirements

9.1 Foreign Worker Permits

Non-EU member citizens require a work permit in order to work in the country; EU member citizens do not require a work permit, but their employer must inform the job office about their appointment. Citizens of the EEA (the EU member states plus Iceland, Norway, Lichtenstein) and Switzerland do not require a visa to enter, reside or work in Spain. No work permit is needed by foreigners from outside the EU if they have a permanent residence or family reunion permit, have been granted asylum, study in the country or have a Blue Card.

9.2 Blue Card

The Blue Card is intended for any stay associated with highly qualified employment. A foreigner holding a Blue Card may reside in Spain and work in the job for which the Blue Card was issued, or change that job under the conditions defined. High qualification means a duly completed university education or higher professional education which has lasted for at least three years. Alternatively, a minimum of five years' relevant professional experience relating to the activity for which the work permit is being granted. The Blue Card is issued with a term of validity three months longer than the term for which the employment contract has been concluded, but for a maximum period of two years. The Blue Card can be extended. One of the conditions for issuing the Blue Card is a wage criterion – the employment contract must stipulate a gross monthly or yearly wage that is at least 1.5 times more than the gross average annual wage.

9.3 Short-Term Work Visa

Short-term work visas can be granted by the embassy upon an application for a maximum period of 90 days, which can be used within 180 days.

9.4 Localisation Requirements

After arrival in Spain a foreign worker must apply within 30 days for a Foreigner's Identity Card number (NIE) through the local Oficina de Extranjeros (Foreigner's Office) or police station. The NIE is needed for all financial and administrative procedures. Everyone must also register with the Spanish Social Security authorities, although if you are an employee (instead of self-employed) your employer will do this.

9.5 Visa/Travel Restrictions

Spain is one of 26 countries in the Schengen Area, which means that there is one common visa and no border controls. Non-EU/EEA/Swiss nationals staying longer than three months must apply for a long-term national visa. There is a residence visa for family reunification or retirement, a student visa for the duration of a course, and a combined residence and work visa that allows you to live and work in Spain.

Sources: Ministry of the Interior of Spain, Visa on Demand, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
Baa1 (Stable)13/04/2018
Standard & Poor'sA- (Positive)
23/03/2018
Fitch Ratings
A- (Stable)21/06/2019

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201720182019
Ease of Doing Business Index
32/19028/19030/190
Ease of Paying Taxes Index
37/19034/19034/190
Logistics Performance Index
N/A17/160N/A
Corruption Perception Index
42/18041/180N/A
IMD World Competitiveness34/6336/6336/63

Sources: World Bank, IMD, Transparency International, Fitch Solutions

10.3 Fitch Solutions Risk Indices


World Ranking
201720182019
Economic Risk Index RankN/A53/20253/202
Short-Term Economic Risk Score
64.466.367.1
Long-Term Economic Risk Score62.364.464.9
Political Risk Index RankN/A44/20245/202
Short-Term Political Risk Score
65.064.664.6
Long-Term Political Risk Score76.974.974.9
Operational Risk Index RankN/A23/20125/201
Operational Risk Score72.672.171.3

Source: Fitch Solutions
Date last reviewed: July 15, 2019

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
Despite gradually slowing, real GDP growth will outpace most of the eurozone in the years ahead. Economic growth in Spain has been boosted in recent years, in part due to a process of internal devaluation and labour market liberalisation which helped to restore some of Spain's competitiveness, as well as low base effects stemming from the 2008-2009 financial crisis. The previous government implemented a number of labour market reforms, which significantly improved Spain's competitiveness profile, boosting profit margins and confidence levels across the corporate sector, leading to rising levels of capital expenditure and productivity. However, the current lack of a strong political consensus will delay the implementation of ongoing reforms.

OPERATIONAL RISK
Spain has very competitive average minimum wages (the eighth-lowest among developed states), a large and highly urbanised population, the 35th-highest concentration of tertiary educated workers comprising a high number of science and engineering graduates, and a good utilities profile and transport network which all encourage high value-added activity. This all bodes well for long-term investment in Spain.

Source: Fitch Solutions
Date last reviewed: July 15, 2019

10.5 Fitch Solutions Political and Economic Risk Indices

Graph: Spain short term political risk index
Graph: Spain short term political risk index
Graph: Spain long term political risk index
Graph: Spain long term political risk index
Graph: Spain short term economic risk index
Graph: Spain short term economic risk index
Graph: Spain long term economic risk index
Graph: Spain long term economic risk index

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: July 15, 2019

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Spain Score71.3
59.4
68.9
80.9
76.0
Developed States Average72.464.671.376.3
77.4
Developed States Position (out of 27)19
20
20
9
18
Global Average49.650.349.8
49.049.2
Global Position (out of 201)25
46
33
9
22

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Spain vs global and regional averages
Graph: Spain vs global and regional averages
Country
Operational Risk Index
Labour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Security Risk Index
Denmark80.4
74.8
76.2
88.382.3
Netherlands78.465.9
78.2
88.680.7
Sweden78.067.7
78.187.578.6
Switzerland77.775.077.675.183.2
New Zealand77.473.775.772.188.3
United States77.281.3
75.382.969.3
Canada77.074.375.476.781.6
United Kingdom76.871.479.078.578.2
Norway76.264.072.280.887.9
Finland74.255.874.183.483.7
Ireland73.966.878.072.079.0
Austria73.760.871.980.581.5
Luxembourg72.854.277.680.079.3
Germany72.365.569.081.273.6
Australia72.067.872.168.379.9
Japan71.872.465.577.971.5
France71.860.171.183.272.8
Iceland71.460.667.269.688.1
Belgium71.358.272.883.271.1
Spain71.359.469.880.976.0
Liechtenstein70.759.878.161.583.2
Portugal69.451.766.580.978.4
Israel67.471.464.671.162.7
Isle of Man65.869.162.449.382.4
Malta64.654.969.060.873.7
Italy
63.754.559.776.264.3
Greece58.054.249.268.959.6
Developed Markets Averages72.464.671.376.377.4
Emerging Markets Averages46.948.645.447.4
46.1
Global Markets Averages49.650.349.849.049.2

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: August 13, 2019

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Spain

Graph: Major export commodities to Spain (2018)
Graph: Major export commodities to Spain (2018)
Graph: Major import commodities from Spain (2018)
Graph: Major import commodities from Spain (2018)

Note: Graph shows the main Hong Kong exports to/imports from Spain (by consignment)
Date last reviewed: July 15, 2019

Graph: Merchandise exports to Spain
Graph: Merchandise exports to Spain
Graph: Merchandise imports from Spain
Graph: Merchandise imports from Spain

Note: Graph shows Hong Kong exports to/imports from Spain (by consignment)
Exchange Rate HK$/US$, average
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: July 15, 2019


2018
Growth rate (%)
Number of Spanish residents visiting Hong Kong66,518
6.0
 2017Growth rate (%)
Number of Spanish residing in Hong Kong4071.5

Sources: Hong Kong Tourism Board, United Nations Department of Economic and Social Affairs – Population Division, Fitch Solutions


2018
Growth rate (%)
Number of European residents visiting Hong Kong1,929,824
-0.2
 2017Growth rate (%)
Number of developed states citizens residing in Hong Kong65,6801.6

Sources: Hong Kong Tourism Board, United Nations Department of Economic and Social Affairs – Population Division, Fitch Solutions
Date last reviewed: July 15, 2019

11.2 Commercial Presence in Hong Kong


2018
Growth rate (%)
Number of Spanish companies in Hong KongN/A
N/A
- Regional headquarters
- Regional offices
- Local offices

Source: Hong Kong Census and Statistics Department

11.3 Treaties and agreements between Hong Kong and Spain

  • Hong Kong and Spain have a comprehensive double taxation agreement that has been effective from April 13, 2012.
  • Spain does not have a bilateral investment treaty (BIT) with Hong Kong but does have one with Mainland China that entered into force on July 1, 2008.
  • Spain has a tax treaty with Mainland China that has been applicable since January 1, 1993.

Source: Inland Revenue Department, UNCTAD, State Administration of Taxation of The People's Republic of China

11.4 Chamber of Commerce (or Related Organisations) in Hong Kong

Spanish Chamber of Commerce in Hong Kong
Address: Room 1302, 13/F, 168 Queens Road Central, Central, Hong Kong
Email: info@spanish-chamber.com.hk
Tel: (852) 2763 6236

Source: Spanish Chamber of Commerce in Hong Kong

Spanish Consulate General in Hong Kong
Address: Suite 5303, 53/F, Central Plaza, 18 Harbour Road, Wan Chai, Hong Kong
Email: espcghk@netvigator.com
Tel: (852) 2525 3041
Fax: (852) 2877 2407

Source: Consulate General of Spain in Hong Kong

11.5 Visa Requirements for Hong Kong Residents

HKSAR passport holders do not need a visa to the Schengen area for a stay of up to 90 days in any 180-day period.

Sources: Hong Kong Immigration Department, Fitch Solutions
Date last reviewed: July 15, 2019

Content provided by Picture: Fitch Solutions – BMI Research
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