Business in Spain

Business environment in Spain

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If you are planning to expand or set up a business in Spain, there are several factors to consider before you take the plunge, reports Daura Carballo.

Setting up a business amid an economic downturn is always more risky and there are several facts to consider before you decide to set up a company in Spain.

To set up a business in Spain, it is essential to understand the business climate of the country as compared to other European countries. Even as all European countries but Spain climbed out of recession, setting a company in Europe’s fifth largest economy still has quite some unexpected benefits.

According to the Global Competitiveness Report for 2008 and 2009 by the World Economic Forum, Spain ranks 29 out of 134 countries for the second consecutive year.

Competitive factors in Spain despite the economic crisis are globalisation of markets, well-developed infrastructures, and good business strategies. However the report also points out that Spain lacks in research and development investment and flexibility in the job markets.

Another report – Global Technology Report for 2008 and 2009 – ranks Spain at 34th position, three positions down from the previous year. This study emphasises Spain has not been as competitive in the information technology market as other countries. This report highlights Spain would profit by paying more attention to innovations in the fields of energy, mobility, health and environment.

President of the Spanish Confederation of Business Organisations (CEOE), Gerardo Diaz Ferran (R) shakes hands with the President of the General Confederation of Moroccan Businesses, Mohamed Horani (L) during the Eu-Morocco Business summit on 6 March 2010 in Granada

Income tax in Spain

At the moment, income tax favours both foreign and local companies. Special beneficial tax rates apply to companies entering the market.

According to current legislation (Real Decreto Legislativo 4/2004, de 5 de marzo, Ley del Impuesto sobre Sociedades), new businesses and SMEs who have a total of EUR 8 million revenue can apply for a 25 percent taxation rate up to EUR 120, 000 instead of the standard 30 percent.

As of 2009, a new incentive to prevent workers from being laid off was established for companies of all sizes. Companies who do not reduce staff in the subsequent 24 months will be allowed to apply for 25 percent taxation on their business profits instead of the usual 30 percent.

Spain's market size

Market size is best described as the total amount of potential sales of all companies within a given market.

Spain with its 46 million people, where 12 percent are migrants, has had a stable market size for the last decade. However, the recent economic recession had an impact on local economy. There has been no mass exodus of foreigners as in other European countries, but it is common knowledge that market for commodities has reduced over the last 18 months since the start of recession.

However, not all companies have been hit hard by the economic crisis. Spanish newspaper ABC reports digital media has increased by 12 percent during 2008 compared to the previous year. PPV (pay per view) and VoD (Video on demand) and e-books have also increased substantially as did gaming industry and social networks. On the other hand, movie, music and television industry have decreased in sales.

Spanish workforce availability

According to INE (Instituto Nacional de Estadística – National Statistics Institute), Spain accounts for over four million unemployed. Unemployment has increased in all economic sectors and has affected female and male workers of all ages.

From the company’s perspective it is the best time to engage in economic activities and start hiring. There is a massive availability of very skilled workers who are likely to take on jobs even though the pay is not too high. As opposed to previous years, companies would be able to hire locals who have 10 years of expertise with the same pay offered to a fresh graduate. Most Spanish companies believe that new graduates are an asset because they can be moulded to fit the company philosophy. Thus, experienced workers that become unemployed cannot ask for more than graduates.

INE has created numerous plans to encourage companies to hire. As a company entering the Spanish market, it is useful to know these measures. Measures apply to permanent or temporary workers and benefit companies’ revenue and taxes directly.

Cost of living in Spain

According to Expansión, one of the major Spanish newspapers in the fields of economics and politics, the cost of living has increased by two percent over the year 2009.

Goods are more expensive, petrol prices are up 30 percent in less than 12 months and all these in addition to higher taxes. According to their study, price of water, bus and taxi fares have increased over 6 percent. Electricity prices are up by almost four percent and shopping basket by almost 10 percent.

However, salaries have not varied accordingly. Spain has maintained public service workers’ salaries, and most private companies have made arrangements to either cut back on number of workers or reduce salaries.

Photo credit jenny downing

Spain's quality of life

Spain ranks high as a preferred location for expats largely because of the good weather. When talking about quality of life in Spain, opinions differ greatly. Retired expats would complain about the rise in prices of their daily consumption items and household maintenance costs but praise the speed and quality of healthcare system. On the other hand, newly-arrived workers would grumble about the traffic congestion and housing availability but praise the variety of leisure activities and freedom.

That aside, Mercer's annual study of quality of life in cities around the world assesses 215 cities in terms of political and social environment, economic and socio-cultural environment and schools and education. Mercer reports Madrid is the lowest ranking European city in Europe's top 50 as it scores poorly in terms of political and social environment, security issues, natural disasters and infrastructure.

Another study, Quality of Live Index for 2009 by magazine International living gives Spain an overall score of 68 over 100. Spain ranks among the highest in terms of freedom, leisure and culture, risk and safety, health and climate but lacks in sounding economic policies and infrastructure.

FromL) Spanish Prime Minister Jose luis Rodriguez Zapatero, Economy and Finance Minister Elena Salgado, Minister for Regional Cooperation Manuel Chaves and Justice Minister Francisco Caamano pose before a parliamentary debate on economic woes on February 17, 2010 at the Parliament in Madrid

Spanish real estate costs and availability

According to the Spanish ministry of housing, real estate costs in Madrid have increased over 200 percent from 1995 to 2007 and have since fallen by 10 percent, reports, one of the most relevant real estate agents in Spanish markets today.

This means companies who want to set up their offices in Spain would now have access to a wide range of rental and purchase properties for their premises. New companies arriving in Spain will have more bargaining power and more office spaces to choose from.

Currently, newly-constructed offices in the outskirts of the cities are being offered at low prices due to their distance from the city centres. Established companies are also vacating their premises in the centres for cheaper neighbourhoods.


Daura Carballo / Expatica

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Photo credit: jenny downing



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1 Comment To This Article

  • VAlicante posted:

    on 2nd March 2011, 14:02:57 - Reply

    I found this article very interesting, I am often asked to act as a business mediator for non Spanish speaking companies and I have set up the administration departments for numerous companies here in Spain for foreign businessmen,the companies are now established and doing relatively well in consideration. I think the main problem with Spain is it has to forget the past and seek new ventures by looking at other countries to see what works and does not. We all have to learn and progress.