A range of investment incentives exist in Spain, and they vary according to the authorities granting incentives and the type and purpose of the incentives. The national government provides financial aid and tax benefits for activities pursued in certain industries that are considered priority industries (e.g., mining, technological development, research and development, etc.), given these industries’ potential effect on the nation’s overall economy. Regional governments also provide similar incentives for most of these industries. Financial aid includes both nonrefundable subsidies and interest relief on loans obtained by beneficiaries—or combinations of the two.
Incentives from national, regional, or municipal governments and the European Union are granted to Spanish and foreign companies alike without discrimination.
The European Union
Since Spain is a European Union (EU) Member State, potential investors are able to access European aid programs, which provide further incentives for investing in Spain.
The EU provides incentives primarily to projects that focus on economically depressed regions or that benefit the EU as a whole.
The European Investment Bank (EIB) provides guarantees, microfinance, equity investment, and global loans for small and medium enterprises (SMEs) as well as individual loans focused on innovation and skills, energy, and strategic infrastructure. Projects aiming to extend and modernize infrastructure in the health and education sectors may also qualify for EIB support.
The European Investment Fund (EIF) provides venture capital to small and medium-sized enterprises, particularly new firms and technology-oriented businesses, via financial intermediaries. It also provides guarantees to financial institutions (such as banks) to cover their loans to SMEs. The EIF does not grant loans or subsidies to businesses, nor does it invest directly in any firms. Instead, it works through banks and other financial intermediaries. It uses either its own funds or those entrusted to it by the EIB or the EU.
There are various structural and investment funds designed to fund initiatives that reduce the wealth disparity between Member States. Most autonomous regions of Spain qualify for structural funds under the EU’s 2014-2020 budget (EUR 454 billion). Investments under the European Regional Development Fund (ERDF) are concentrated in four key priority areas: innovation and research, the digital agenda, support for small and medium-sized enterprises (SMEs) and the low-carbon economy, depending on the category of region. The European Social Fund (ESF)’s Cohesion Fund provides funding for programs aiming to reduce economic and social disparities and to promote sustainable development.
EU financial incentives are routed through major Spanish financial institutions, such as the Instituto de Credito Oficial (ICO) and Banco Bilbao-Vizcaya Argentaria (BBVA); EU financial incentives must also be applied for through the financial intermediary.
The Central Government
Spain’s central government provides numerous financial incentives for foreign investment, which are designed to complement European Union financing. The Ministry of Economy and Competitiveness (MINECO) assists businesses seeking investment opportunities through the Directorate General for International Trade and Investments and the Directorate General for Innovation and Competitiveness. These Directorates provide support to foreign investors in both the pre- and post-investment phases. Most grants seek to promote the development of select economic sectors; however, while these sectoral subsidies are often preferential, they are not exclusive.
A comprehensive list of incentive programs is available at the website: www.investinspain.org.
Using this tool, companies can access up-to-date information regarding grants available for investment projects. Users can also sign up for the automatic alert system, which provides customized updates as suitable grants or subsidies are published. Applications for these incentives should be made directly with the relevant government agency.
Spain provides certain subsidies for job training and job creation, although funding is constrained by Spain’s fiscal obligation to the EU to continue reducing its budget deficit. Projects designated as Investment and Employment may be eligible for further subsidies from the Government Public Employment Service (formerly the National Employment Institute). Labor law reforms adopted in June 2012 increased hiring bonuses for youth and long-term unemployed. In February 2014, the Council of Ministers approved a royal decree-law to promote employment and permanent contracts with a new “flat rate” for Social Security contributions. The measure applies to contracts signed after February 25, 2014. For the benefit to apply, the hiring must create net employment, although the benefit also can also be applied for temporary contracts that are converted into permanent ones. In March 2015, the government approved an extraordinary credit of €850 million to fund the Activation Program for Employment, which is geared toward long-term unemployed with family responsibilities. In December 2017, Spain adopted a new Activation Strategy for Employment for 2017-2020 with the goal of promoting the creation of more and better quality jobs—particularly for youth—and addressing technological and demographic changes. The Strategy will be implemented through Annual Employment Policy Plans, which are drafted jointly each year by national and regional employment services.
Despite these measures, many SME owners report that hiring/firing laws and social security costs still pose a challenge to hiring more full-time employees. While Spain’s unemployment rate has dropped by nearly ten percentage points since its peak of 26.9 percent in 2013, much of the job creation has been in temporary contracts rather than permanent positions and also in labor-intensive but low value-added sectors such as tourism.
Spain provides some support to SMEs through a national program designed to strengthen innovative business groups and networks and boost their competitiveness. In 2013, Spain passed the “Law of Entrepreneurs,” which established an entrepreneur visa for investors and entrepreneurs. Entrepreneurs may apply for the visa with a business plan that has been approved by the Spanish Commercial Office. Entrepreneurs must also demonstrate the intent to develop the project in Spain for at least one year. Investors who purchase at least EUR 2 million in Spanish bonds or acquire at least EUR 1 million in shares of Spanish companies or Spanish banks deposits may also apply. Foreigners who acquire real estate with an investment value of at least EUR 500,000 are also eligible.
In 2015, changes to the Personal Income Tax Law, Article 95 bis, affected the transfer of investments of SMEs outside of Spain by creating a tax on unrealized gains from investment. Spanish tax residents who have resided in Spain for at least 10 out of the previous 15 years are subject to a tax of 19-23 percent if they relocate their holdings or investments outside of Spain—if the market value of the shares held exceeds EUR 4 million or if the individual holds shares of 25 percent or more in a venture whose market value exceeds EUR 1 million.
The central government provides financial aid and tax benefits for certain industries that it considers priority sectors given their potential growth resultant effect on the nation’s overall economy. Such activities include, for example: new industrial plants, increases in production capacity, relocations that industries undertake to boost competitiveness, new infrastructure projects, and the extension of projects which are already mature. Preferred sectors are transportation, energy and environment, and social infrastructure and services. Furthermore, priority activities also include those involving Research &Development (R&D) and innovation—including the acquisition, upgrade and maintenance of scientific-technological equipment for R&D activities, private technology centers, and private centers of innovation support. Regional governments also offer similar incentives for most of these industries. Financial aid includes both nonrefundable subsidies and interest relief on loans obtained by the beneficiaries—or combinations of the two. Companies are classified according to size, which can be a limiting factor in accessing certain types of public aid. According to the current usage, the term “micro” company refers to those employing fewer than 10 employees, with a turnover of less than EUR 2 million, and with a EUR 2 million limit for total assets. A “small” company has fewer than 50 employees, a turnover below EUR 10 million, and total assets also below EUR 10 million. “Medium” enterprises have less than 250 employees, annual turnover not exceeding EUR 50 million, and total assets less than EUR 43 million.
The state-owned financial institution (Instituto de Credito Oficial, ICO), which is attached to the Ministry of Economy and Competitiveness, has the status of State Financial Agency. Its mission is to promote economic activities that contribute to economic growth and development as well as the improved distribution of wealth within Spain. As part of this mission, the ICO seeks to foster the growth of small- and medium-sized companies, to encourage technological innovation and renewable energy projects, and to provide financial relief to those affected by natural disasters. The ICO’s direct financing programs are aimed at financing large-scale investment projects in strategic sectors in Spain, backing large-scale investments by Spanish companies abroad, and supporting projects which are economically, financially, technologically and commercially sound and involve a Spanish interest.
Other official bodies that grant aid and incentives:
- MINHAP – Ministry of Finance and Public Administration;
- MINETAD- Ministry of Energy, Tourism, and Digital Agenda;
- ENISA – National Innovation Company S.A. (under MINECO);
- AXIS ICO Group (under MINECO);
- INVEST IN SPAIN (under MINECO);
- RED.ES (under MINETDA);
- IDAE – Institute for Energy Diversification and Saving (under MINETDA);
- CERSA – Spanish Guarantee Company S.A. (under MINETDA);
- CDTI – Center for Industrial Technological Development (under MINECO);
- Tripartite Foundation for training in employment (under Ministry of Employment and Social Security);
- CESGAR – Spanish Confederation of Mutual Guarantee Companies.
The Regional Governments
Spain’s 17 regional governments, known as autonomous communities, provide additional incentives for investments in their region. Many are similar to the incentives offered by the central government and the EU, but they are not all compatible. 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. Royal Decree 899/2007, of July 6 2007, sets out the different types of areas that are entitled to receive aid, along with their ceilings. Each area’s specific aspects and requirements (economic sectors, investments which can be subsidized, and conditions) are set out in the Royal Decrees determining the different areas. Most are granted on an annual basis.
Generally, the regional governments are responsible for the management of each type of investment. This provides a benefit to investors as each autonomous community has a specific interest in attracting investment that enhances its economy. 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 legislation 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 legislation of demarcation and EU rules do not preclude the provision of funding (i.e., due to incompatibilities between Structural Funds).
Types of incentives available:
- Financial loans and subsidies;
- Exemption from certain taxes;
- Preferential access to official credit;
- Reduction of burdens, with social security discounts to companies;
- Bonuses for acquisition of certain material;
- Customs exemption for certain imported goods;
- Real estate grants, and gratuitous or favorable land grants;
- Guarantees granted in credit operations;
- Loans with low interest, long maturities, and grace periods;
- Guarantee of dividends;
- Professional training and qualification;
- Indirect aid by means of supplying infrastructure facilities (access, services, communications, etc.).
Municipal corporations offer incentives for direct investment by facilitating infrastructure needs, granting licenses, and allowing for the operation and transaction of permits, although these have been reduced significantly due to budget constraints. Municipalities such as Madrid also offer varied support services for potential foreign investors. Local economic development agencies often provide free advice on the local business environment and relevant laws, administrative support, and connections to human capital in order to facilitate the establishment of new businesses. Spain recently made starting a business easier by eliminating the requirement to obtain a municipal license before starting operations and by improving the efficiency of the commercial registry.
Research and Development
The most notable incentives include those aimed at fostering innovation, technological improvement (TI), and research and development (R&D) projects, which have been priorities of the Spanish government in recent years. The Science, Technology and Innovation Law 14/2011, of June 1, 2011, establishes the legal framework for promoting scientific and technical research, experimental development, and innovation in Spain. On February 2013 the Council of Ministers approved, in a combined document, “the Spanish Strategy for Science and Technology and for Innovation” for the 2013-2020 period, the essential purpose of which is to promote the scientific, technological, and business leadership of the country as a whole and to increase the innovation capacities of the Spanish company and the Spanish economy. The beneficiaries may be: individuals, public research agencies, public and private universities, other public R&D centers, public and private health entities and institutions related to or assisted by the National Health System, certified health research institutes, public and private non-profit entities (foundations and associations) engaging in R&D activities, enterprises (including SMEs), state technological centers, state technological and innovation support centers, business groupings or associations (joint ventures, economic interest groupings, industry-wide business associations), innovative business groupings and technological platforms, and organizations supporting technological transfer and technological and scientific dissemination and disclosure.
The aid can take the form of subsidies, loans, venture capital instruments, and other instruments (tax guarantees and incentives).
Participation may be in the form of:
- R&D and TI programs and projects used to foster the creation of knowledge, its application and innovation in all its dimensions;
- Contracting and aid targeted at R&D and TI human resources for the training and incorporation of doctors, researches, technologists, technicians and managers;
- Scientific and technical infrastructures and the acquisition of equipment required for the pursuit of R&D and TI activities;
- Supplementary actions associated with R&D and TI projects and programs;
- Revitalization actions for the execution of strategic and priority actions;
- And, joint programming initiatives carried out as transnational cooperation with a view to facing major scientific challenges.
In 2013, the European Commission implemented Horizon 2020, the largest-ever EU research and innovation program with nearly EUR 80 billion of funding available from 2014 – 2020. The goal of the program is to attract additional private investment to promote breakthroughs and discoveries and take new ideas from the laboratory to the market. Horizon 2020 is open to all EU Member States and seeks to promote public and private collaboration in delivering innovation. EU Members States are eligible for funding on international collaborations; however, Horizon 2020 expressly prohibits funding on international collaboration with advanced economies outside of the EU.
Foreign Trade Zones/Free Ports/Trade Facilitation
Both the mainland and islands (and 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 any Spanish duties or taxes. Spain’s seven free zone ports are located in Vigo, Cadiz, Barcelona, Santander, Seville, Tenerife, and the Canary islands—all of which fall under the EU Customs Union, permitting the free circulation of goods within the EU. The entire province of the Canary Islands is a Special Economic Zone (SEZ), offering fiscal benefits that include a reduced corporate tax rate, a reduced VAT rate, and exemptions for transfer taxes and stamp duties. The Spanish territories of Ceuta and Melilla also offer unique tax incentives; they do not impose a VAT but instead tax imports, production, and services at a reduced rate. Spanish customs legislation also 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 must abide by Spanish labor laws.
Performance and Data Localization Requirements
Performance requirements are not used to determine the eligibility or level of incentives granted to investors.
The Spanish Data Protection Agency and the Spanish Police request data from companies, although the companies may refuse unless required by court order.