- 1Spain: An attractive country for investment
- 2Setting up a business in Spain
- 3 Tax System
- 4 Investment aid and incentives in Spain
- 5 Labor and social security regulations
- 6 Intellectual property law
- 7Legal framework and tax implications of e-commerce in Spain
- AI Annex I Company and Commercial Law
- AIIAnnex II The Spanish financial system
- AIIIAnnex IIIAccounting and audit issues
- 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.
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.
To date, the Royal Decrees demarcating economic development areas currently in force are still in line with the “Guidelines on regional State aid for 2014-2020” published on July 23, 2013 in the Official Journal of the European Union, as well as with the “Regional Aid Map for Spain (2014-2020)” approved by the European Commission on May 21, 2014. Suffice it to recall that in the context of the health crisis caused by COVID-19, the validity of these provisions was extended to December 31, 2021 by means of the prolongation and amendment of the Guidelines on Regional State Aid for 2014-2020 (2020/C 224/02) published in the Official Journal of the European Union of July 8, 2020, as well as by the Decision of the European Commission of September 4, 2020 authorizing the extension of the Regional Aid Map for Spain, State SA.57997 (2020/N), respectively.
However, following the conclusion of this extension period, the European Commission has approved the Guidelines on regional State aid for 2022-2027 (2021/C 153/01), which were published in the Official Journal of the European Union on April 29, 2021.
These Guidelines ask the respective Member States to notify the Commission of their new regional aid maps which will apply from January 1, 2022 to December 31, 2027 so that they can be approved by the Commission. The Guidelines also establish the possibility of including changes in the aid maps that were approved for the 2014-2021 period.
For these purposes, suffice it to recall that within the framework of the respective Guidelines on regional State aid in force in each period, the European Commission is responsible for approving the aid map applicable in each Member State, stipulating the maximum limit of financial aid or subsidies that can be received by investment projects in each regional area or zone under “regional incentives” during the reference period.
By Order HFP/1479/2021, of December 22, 2021, the Spanish government has published the Decision of the Government Committee for Economic Affairs, extending the period of validity of the Royal Decrees demarcating Economic Development Areas for the purposes of applying for regional incentive aid (Official State Gazette no. 313, of December 30, 2021). This extension will remain in force “until the new Royal Decrees demarcating the different areas are approved or those currently in force are amended”.
As the approval of the new Royal Decrees depends on the prior approval of the regional aid maps by the Commission, it is not possible to foresee when the new legislative framework updated to this type of State aid will be available.
Nonetheless, it must be stressed that Order HFP/1479/2021 establishes that any aid that is granted on or after January 1, 2022 will be governed by the legislation that results from the adaptation to the new Community Guidelines.
In particular, according to the aid map amended in 2016, which remains transitionally in force, for the Kingdom of Spain, the Spanish region for which the greatest incentives are envisaged during this last stretch of the period of validity continues to be the Autonomous Community of the Canary Islands, with a maximum aid intensity percentage per investment project of up to 35% of the net eligible investment. In this respect, it is worth noting that 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, has established additional relief that may be claimed by business projects that are carried out on the island of La Palma, at all times within the maximum limit set by the European Commission for this autonomous community.
The autonomous communities of Castilla-La Mancha, Extremadura, Andalucía, the Murcia Region, and the Autonomous City of Melilla are other Spanish regions eligible for regional incentives with a maximum aid percentage of up to 25%, since their GDPs were found, in the review conducted by the Commission in 2016, to have fallen to below 75% of the average for the European Union over the period examined.
Similarly, the provinces of Soria and Teruel continue to feature prominently, with the grant of aid to these regions of up to a maximum intensity of 15% of the net eligible investment being permitted throughout the entire.
Finally, the maximum aid intensity percentage for the Autonomous Community of Galicia was reduced to 15% of the eligible investment for 2017, and was set at 10% for the sub-period 2018-2020 (and, therefore, up to the present). The maximum intensity of the aid for the Autonomous City of Ceuta, on the other hand, has been reduced to 15%.
In any case, during extended period the Autonomous Community of Madrid, the Basque Country, Navarra and Cataluña, as well as the municipality of the provincial capital of Valencia, the municipality of Zaragoza and certain municipalities of the Autonomous Community of La Rioja and of the Islands of Mallorca continue to be regarded as regions ineligible for subsidies, pursuant to the state legislation on regional incentives and the Royal Decrees demarcating economic development areas.
As stated, the aforementioned amendments to the regional aid map were incorporated into Spanish legislation through the appropriate amendments to the respective Royal Decrees of demarcation of each of the economic development areas, approved on December 30, 2016 (in force until the new Royal Decrees demarcating the areas are approved or the existing ones are amended).
The Royal Decrees stipulate the maximum intensity of permitted aid (calculated as a percentage of the eligible investment), distinguishing among beneficiaries, according to whether they are large, medium-size and small enterprises, as shown on the following table:
ECONOMIC DEVELOPMENT AREAS
PREVIOUS ROYAL DECREES
NEW ROYAL DECREES 2014-2020
|Castilla-La Mancha, Andalucía, Murcia1|
|Soria and Teruel / Ceuta|
15% / 20%
|Other Areas + previous category from 2018|
From 10% to 20%
As already noted, these aid intensities must be reviewed in accordance with the new Guidelines on regional State aid for 2022-2027.
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 sectors
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 services, 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.
- Services which significantly enhance trade structures.
- 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 requirements:
- The investment must be an important part of the tangible fixed assets of the establishment being modernized and must entail the acquisition of technologically advanced machinery which produces a notable increase in productivity.
- The investment must give rise to the diversification of an 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.
- 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 (i) upon the commencement of the construction works entailed in the investment; (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 follows:
- 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
- Standardized application form addressed to the Ministry of Finance, 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 projected registry data and the data of the developer 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 €15,000,000.
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 the first 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.
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, change in the locating of the project, 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 application.
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
Following issue of a report confirming the degree of compliance with the requirements imposed by the relevant agency on the project in question, the beneficiary must file a request for payment of the subsidy (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.