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Spain: An attractive country for investment
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Setting up a business in Spain
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Tax System
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Investment aid and incentives in Spain
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Labor and social security regulations
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Intellectual property law
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Legal framework and tax implications of e-commerce in Spain
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Downloads
- AI
Company and Commercial Law
- AII
The Spanish financial system
- AIII
Accounting and audit issues
- Introduction
- State incentives for training and employment
- State incentives for specific industries
- Incentives for investments in certain regions
- Aid for innovative SMEs
- Preferred financing of the Official Credit Institute (Instituto de Crédito Oficial or ICO)
- Internationalization incentives
- EU aid and incentives
4Incentives for investments in certain regions
4.1 Granted by the State
Regional incentives are financial subsidies granted by the Spanish State to productive investment projects carried out in previously-determined regions of Spain to promote and consolidate the pursuit of business activity in those areas and to boost the creation and maintenance of jobs in these areas. The aim is to help alleviate existing territorial imbalances and to reinforce the endogenous potential for development of regions with a lower level of growth. The State administration grants such aid in accordance with the demarcation of eligible areas and maximum aid intensities stipulated by the European Commission for regional state aid. The functions relating to regional incentives are attributed to the Directorate-General of European Funds, under the General Secretariat of European Funds, a new body created with the rank of sub-secretariat within the Secretariat of State of Budgets and Expenses of the Ministry of Finance and Public Service.
As indicated, these incentives consist of financial aid to be used to finance investment projects that create jobs, to be executed in areas with the lowest level of development or less favored areas whose special circumstances so recommend, provided that they entail (i) the startup of a new industrial establishment; (ii) the expansion of an already established activity or the start of a new one or (iii) the modernization of facilities (provided that it is not a mere replacement investment).
Although the general regulations for this type of aid are found in Law 50/1985, of December 27, 1985, on regional incentives for the correction of territorial imbalances, and in its implementing Regulations approved by Royal Decree 899/2007, of July 6, 2007, the geographic demarcation of the eligible areas and the specific definition of the maximum financing limits, as well as of the specific industry requirements regarding economic sectors, eligible investments and conditions, are regulated in the respective Royal Decrees demarcating each one of the economic development areas.
The above-mentioned Royal Decrees were amended on July 26, 2022, to bring their provisions into line with the new “Guidelines on regional State aid for 2022-2027 (2021/C 153/01)", which had been published on April 29, 2021 in the Official Journal of the European Union, as well as with the new “Regional Aid Map for Spain (2022-2027)” approved by the European Commission on March 17, 2022.
That said, according to the new aid map for the Kingdom of Spain, the Spanish region for which the greatest incentives are envisaged continues to be the Autonomous Community of the Canary Islands, with a maximum aid intensity percentage per investment project of up to 50%26 of the net eligible investment27.
The autonomous communities of Castilla-La Mancha28, Extremadura, Andalucía, and the Autonomous City of Melilla are other Spanish regions eligible for regional incentives with a maximum aid percentage of up to 30%, since their GDPs were found to have fallen to below 75% of the average for the European Union.
Although the Murcia region is no longer considered an “a” area in light of its favorable economic development, and has come to be considered a predefined region in accordance with the exception set out in article 107(3)(c) of the TFEU (i.e. a “c” area), investment projects undertaken in its territory can opt for aid intensities of between 15% and 20% with the highest aid intensity applicable in the first half of the period (i.e. from January 1, 2022 to December 31, 2024).
Similarly, the provinces of Soria and Teruel are also considered predefined “c” areas, given that they are sparsely populated, with fewer than 12.5 inhabitants per kilometer. Accordingly, the maximum aid intensity available to investment projects undertaken in these areas will be 20%.
To address these regional disparities, Spain proposed that the following be considered non-predefined “c” areas: the Galicia Autonomous Community, the Principality of Asturias, Cantabria, La Rioja, the Valencia Autonomous Community, the Balearic Islands, Huesca and part of Castilla-León. In this areas, the maximum aid intensity for investment projects undertaken by large enterprises may be up to 15%. The Commission has also approved an increase in maximum aid intensity for investment projects that are undertaken in two provinces of Castilla-León, thereby raising the aid intensity from 15% to 25% in Salamanca, and from 15% to 20% in Zamora, due to its relatively high loss of population in recent years.
In all these areas, the maximum aid intensities can by increased by an additional ten percentage points in the case of investments undertaken by medium-sized enterprises and up to an additional twenty percentage points if they are small enterprises, provided that they are initial investment projects with eligible costs of up to €50 million.
However, the cities of Zaragoza and Madrid, as well as the autonomous communities of Cataluña, Navarra and the Basque Country do not qualify for the regional incentive system.
Having regard to the foregoing, the following is an explanation of the main current characteristics of the regional incentives analyzed:
4.1.1 Eligible economic sector29
These are stipulated in each Royal Decree demarcating the respective geographical area. The main eligible sectors, however, are, in general, as follows:
- Processing industries and production support services30, particularly those which apply advanced technology, pay attention to environmental enhancement and enhance the quality or innovation of the process or the product.
- Industries favoring the introduction of new technologies and the provision of services in the information technologies and communication subsectors.
- Specific tourist establishments and ancillary leisure facilities with an impact on development in the area which are innovative, especially in terms of environmental improvement, and contribute significantly to the area’s endogenous potential.
4.1.2 Types of eligible investments
The types of investment eligible for incentives are new or first-time use fixed assets, referring to the following investment items:
- Civil engineering.
- Capital equipment, excluding external transportation items.
- In the case of SMEs, up to 50% of the costs incurred on the project’s preliminary studies, which could include: planning, project engineering and project management of the projects.
- Intangible assets, provided that they do not exceed 30% of the total eligible investment, are used exclusively at the center where the project is carried out, are able to be inventoried and amortized and are acquired at arm’s length from third parties not related to the purchaser.
- Other material investments, on an exceptional basis.
In accordance with the regional financing Guidelines for the period (2007-2013), the Regulations implementing the Regional Incentives Law already eliminated, at the time, the possibility of including lands as an eligible fixed asset. This exclusion has been maintained under the subsequent Guidelines on regional aid.
4.1.3 Eligible projects
- 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 stipulated in the individual Resolution granting the aid). Projects must have a budget not less than that set as a minimum in the respective Royal Decrees of demarcation (generally, a minimum of €900,000).
- Project for the expansion of existing activities where they entail a significant increase in production capacity or the commencement of new activities in the same establishment, provided that they entail 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 requirements31:
- 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 establishment’s 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.
Replacement investments consisting of (i) the technological updating of a machine outfit which has already been depreciated, implying no fundamental change to the product or production process; (ii) the remodeling or adaptation of buildings as a result of the aforesaid investments, in compliance with safety or environmental provisions or by statutory imperative; and (iii) the incorporation of cutting-edge technology without fundamental changes to the process or to the product, are excluded.
- 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 self-financed. However, depending on the features of the project, a higher rate may be required in the Royal Decrees of demarcation.
- The company developing the project must have a minimum level of equity, which will be stipulated in the individual Resolution granting the incentive and must be maintained through the last day on which the subsidy is in force.
- The application for regional incentives must be submitted before the investment in question begins to be made. In this connection, the investment will be begun to be made either (i) upon the commencement of the construction works entailed in the investment; or (ii) upon the first firm commitment for the order of equipment or (iii) any other commitment making the investment irreversible, whichever comes first. The purchase of lands and preparatory work (such as the obtainment of permits and the performance of preliminary viability studies) are not regarded as the commencement of work.
The applicant must prove to the Autonomous Community, using the standardized form known as the solemn declaration of "non-initiation of investments”, that the investments had not been initiated prior to the filing of the application for regional incentives. The Autonomous Community may also request a notarial certificate as evidence of the foregoing (acta notarial de presencia) or perform an on-site inspection of the land, with a view to ensuring that this requirement has been met.
- The aid should serve as an “incentive”—i.e., evidence is given that the applicant undertaking the project would not have done so without the aid or would have done so in a limited or different way or in another place. Accordingly, an explanation must be given of the impact that would be produced on the decision to invest or on the decision to locate the investment in the region in question should the regional incentives not be received (for large companies the explanation also requires the submission of documentary evidence).
- The aid applicant must report accordingly, if it has discontinued the same activity or another similar activity in the European Economic Area within the two years preceding the application date, or if it plans to discontinue said activity within two years after completion of the investment for which the aid is requested. In such case, the potential grant of aid will require prior analysis, and prior notice must be served on the European Commission, so that it can decide whether to authorize or to reject its grant.
4.1.4 Types of incentive
The regional incentives available for grant consist of:
- Non-returnable subsidies for the approved investment.
- Subsidies for the interest on loans obtained by the beneficiary from financial institutions.
- Subsidies for the repayment of those loans.
- Any combination of the foregoing.
- Reductions in the employer’s 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.
However, the most common type of regional incentive takes the form of an outright subsidy.
4.1.5 Project assessment
Projects must be evaluated using the methods stipulated in each Royal Decree of demarcation, which will also 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 follows32:
- Total amount of the eligible investment considered eligible.
- Number of jobs created.
- Revitalizing nature or contribution to the area’s economic development and use of its production factors.
- Added value of the project (if newly created) or increase in productivity in other cases.
- Inclusion the project of advanced technology, quality systems, environmental measures, R&D&I expenses, etc.
- Location in an area considered a “priority” (defined as such in the demarcation Royal Decree).
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 which have been stipulated for each approved investment in the Royal Decrees of demarcation of eligible areas.
Therefore, the subsidy received is compatible with other regional aid originating from other public authorities, 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 Finance and Public Service, although it must be submitted to the competent body of the corresponding Autonomous Community, which will be in charge of processing it. Submission of the application does not require the approval of a prior call, and interested parties will have an open-ended period to submit their applications on an ongoing basis.
- Documentary evidence of the applicant’s personal circumstances or, in the case of an incorporated company, its registry data. If the company is in the process of being incorporated, the draft bylaws and the data of the promoter acting in its name.
- Standardized explanatory investment project memorandum, together with documentation evidencing compliance with all environmental requirements.
- Formal declaration, on a standardized form, of other aid applied for or obtained by the applicant for the same project.
- Evidence of the company’s compliance, as of the date in question, with its tax and social security obligations or, as the case may be, authorization from the Directorate-General of European Funds to obtain the certificates to be issued 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 appropriate body of the Autonomous Community where the project is to be carried out.
- Agency granting the aid:
The Government Delegate Committee for Economic Affairs if the eligible investment exceeds €6,010,121.
In all other cases the head of the Ministry of Finance (in particular, through the Sub-directorate General of Regional Incentives, under the Directorate-General of European Funds).
- Decision deadline:
The maximum deadline for deciding on applications and serving notice thereof is 6 months from the date on which the application is registered with the Ministry of Finance (although this deadline may be extended).
If the initial term and, as the case may be, any extended term ends without an express decision have been issued, the regional aid 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 not more than 15 business days after the date on which notice of the individual decision to grant 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 by the Directorate-General of European Funds and the dossier will be shelved.
- Submission of decisions at the Mercantile Registry:
After its acceptance, the beneficiary must file the Decision granting the aid with the Mercantile Registry within one month from the date of acceptance, so that the terms on which the aid was granted can be registered.
All decisions 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 decision (six months, in the case of a company being incorporated). If evidence is not submitted by the deadline, the Directorate-General of European Funds will render null and void the grant of the regional aid.
- Priority processing:
Law 31/2022, of December 23, 2022, on the General State Budget for 2023 has added a new subarticle to article 5 of Regional Incentives Law 50/1985, which establishes that when a project, by reason of its amount or strategic importance, must be authorized by the European Commission pursuant to article 108(3) of the Treaty on the Functioning of the European Union, it may be processed on a priority and urgent basis upon a request from the autonomous community in question, which must have acknowledged the priority and urgent basis of the project in its respective area of competence.
This provision, which took effect on December 24, 2022, also applies to projects that were being processed at such time.
4.1.8 Execution of the project and alterations subsequent to grant
Investments may be initiated without having to wait for the final decision to be adopted, provided that applicants have suitably proven, as stipulated above, that such investments had not been initiated before the application was filed. This possibility does not, however, prejudge the decision finally adopted.
In general, subsequent incidents in the project (i.e., alteration of the initial project, changes to periods and/or timelines for fulfilling completion requirements, change in the location of the project within the same economic delimitation area, etc.) will be resolved by the Directorate-General of European Funds. Nonetheless, if the alteration of the project entails changes in the activity or a variation in the amount of the incentives granted, the amount of the investment approved or the jobs to be created, in excess of the limits set in article 31.1 of the Regulations of the Incentives Law, they will have to be resolved by the same body that granted the aid.
Applications for alteration of the projects must be submitted to the relevant Autonomous Community agency and addressed to the Ministry of Finance, and must specify the conditions which have been altered since the filing of the initial application33.
The deadline for deciding on applications and serving notice thereof will be six months following their receipt by the Directorate-General of European Funds. As a general rule, if the administration fails to respond, this can be construed as an affirmative decision. However, when the alteration entails a change in activity, variation in the incentives, in the amount of the incentive approved, or in the job positions to be created, and it exceeds the thresholds established in the aforementioned article 31.1 of the Regulations for the Incentives Law, the absence of a response within the stipulated time must be construed as a rejection of the alteration application.
4.1.9 Payment procedure
Once the relevant agency issues 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 (on a standardized form) together with the other required documentation (evidence of performance of tax obligations and obligations to social security, etc.) with the relevant Autonomous Community agency from which it will be referred to the Directorate-General of European Funds.
4.1.10 Payment system
Subsidies may be paid using the following methods:
- Final payment: After the end of the term, the beneficiary may only request payment in full of the subsidy granted or of the part to which he is entitled if there has been any 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, once each and every one of the conditions imposed on the holder have been verified and prior to the end of the term.
- Payment in part: During the term, the beneficiary may request payments of the subsidy as he justifies the partial making of the investment, provided that this is authorized in the individual decision to grant the subsidy.
For more information, please consult the website of the Ministry of Finance.
26The maximum aid intensity percentages – unless expressly indicated otherwise – refer to investment projects undertaken by large enterprises.
27In addition, Royal Decree-Law 20/2021, of October 5, 2021, adopting urgent support measures to repair damage caused by volcano eruptions and for economic and social reconstruction on the island of La Palma, establishes an additional bonus of 5 percentage points over the score obtained from the classification of the business project intended to be undertaken on the island of La Palma, subject at all times to the ceiling set by the European Commission for this autonomous community.
28Within the territory of the autonomous community, Cuenca is classified as a sparsely populated area, since it has fewer than 12.5 inhabitants per km2. In sparsely populated areas, the Member States may use operating aid schemes to avoid or reduce depopulation.
29The following are expressly excluded from the possibility of opting for regional aid: enterprises in difficulty, the steel sector, the lignite and the coal sectors, the fishery and aquaculture sector, the production, processing and marketing of agricultural products listed in Annex I to the TFEU, unless the resulting product is not an agricultural product; the transport sector, the deployment of broad band, the activities of processing materials and products for construction and the energy sector.
30In general, if the investment projects are undertaken by large enterprises in “c” areas, only those entailing initial investments that create a new economic activity within the scope of point 14 of the Regional Aid Guidelines will be considered eligible. Outside these cases, and where the aid granted to large enterprises is aimed at making a fundamental change in the production process, additional requirements must be met, namely, the eligible costs must exceed the depreciation of the assets linked to the activity to be modernized over the preceding three fiscal years.
31In general, if the investment projects are undertaken by large enterprises in “c” areas, only those entailing initial investments that create a new economic activity within the scope of point 14 of the Regional Aid Guidelines will be considered eligible. Outside these cases, and where the aid granted to large enterprises is aimed at making a fundamental change in the production process, additional requirements must be met, namely, the eligible costs must exceed the depreciation of the assets linked to the activity to be modernized over the preceding three fiscal years.
32The Resolution of the Governing Board of Regional Incentives for the 2022-2027 period clarifies that applicable criteria for assessing eligible projects will vary slightly depending on whether it is an industrial sector or tourism sector project.
33If what is requested is a change to the project completion periods, the application must be submitted at least 2 months before such periods expire.