Spain is a very attractive business destination for multi-nationals, opening the opportunity to highly qualified professional at competitive labor costs. The Spanish Government welcomes investment in the country, and there are many incentives for an array of sectors to encourage foreign investment.
It is not necessary to have a Legal Entity established in order to process payroll, as there are various alternatives:
- You can create a Spanish company. Once the company is registered for Social Security, you can set up the Payroll for the employees.
- If you have a well-established business outside Spain, but you don’t plan on having a physical office in Spain, then you should register your foreign business with the social security office.
First you will need to request a CIF “no residente sin Establecimiento permanente”, that is, a Tax ID for a non-resident company without permanent establishment. The next step is to register your company with the Social Security office.
Registering as Foreign Non-Resident Employment Structure (FNRE) – Employment without Legal Entity
The European Union authorities allow foreign companies to employ people without establishing a legal entity. This is governed by a unified European Union Directive.
This option is recommended for companies that do not plan to initiate a commercial activity in a country and do not plan a large headcount. This is an excellent option for new market entrants to establish their initial market presence while head counts are still small. The registration process takes around 4-5 weeks, a minimum set of documents is required and this is a very cost effective option.
As a FNRE employer, you can employ small employee populations (usually up to 5) and do not have to keep bookkeeping records and file accounting returns, which means that there is no ongoing cost to keep a FNRE open. If you decide to close the FNRE structure, this is very easily done and with minimal costs.
FNREs only have obligations in respecting local labor law and paying employee and employer contributions; you do not have to pay any corporate tax or file any other non-payroll related declarations.
Payroll in Spain
You can pay your employees from anywhere in the world, but if you do not have a local in-country back account, we will be happy to process payments to local authorities (tax, social security and other) on your behalf, using our funds management service.
Only after finalizing the registration process, it is recommended that you hire your first employee.
Labor regulations are ruled by general legislation (Estatuto de los Trabajadores) (Convenios colectivos). These agreements have a big impact not only on labor standards, but also on the structure of the Spanish payroll. Each job category is regulated by specific Collective Agreements, with a specific salary range per industry, monthly/weekly working hours, vacation days per year, etc.
The social security contributions are divided between the employer and employee. The employee contribution rate is 6,35-6,40% based on gross salary, whereas the employer contributions is around 31-33% of this gross salary. These contributions represent the public insurance system for employees in various contingencies such as illness, accident, maternity, retirement and unemployment.
Income Tax in Spain
Income tax in Spain consists of a system of progressive fees based on the annual remuneration. Companies are required to withhold and pay the tax office on behalf of their employees. These deductions are established on the same rates applicable to the annual tax settlement that the employee must perform. Within the Spanish payroll it is mandatory to deduct these withholding and to ensure the necessary adjustments (regularization of withholding rate) for the tax payable to fit the amount withheld.
As your Spanish Payroll & HR Administration provider we are able to offer customized payroll services to both, newcomers as well as established companies. Our Payroll & HR Administration services are fully compliant and up-to-date with the Spanish regulations.
We can handle all initial registrations on your behalf. We can prepare Employment Contracts for your employees according to Spanish law and specifics Collective Agreements; we can act as your labor advisor and help you comply with labor, taxes and Social Security regulations. We can even, act as your “in-country” HR administrator and Local Representative, as well as represent you with the Spanish authorities when required.
Our local Spanish Payroll & HR experts are highly skilled and up to date with the Labor Law changes, so that you can build a competitive business in Spain with us.
Spanish Payroll Terms:
Agencia Tributaria – The Tax Agency, public law organization attached to the former Ministry of Economy and Treasury through the former State Secretariat for Finance and Budget, it has its own legal regulation different from that of the General Administration of the State.
Certificado Renta – Income Tax Certificate provided by Tax Agency of Spain (Agencia Tributaria).
CIF – Tax ID certificate for companies (Certificado de Identificación Fiscal). The number is formed from a letter followed by 8 digits.
Cret@ – is the new Direct Settlement System, created to simplify compliance with social security obligations, making the settlement and calculation of social security contributions easier and faster. The new method will replace the current system of self-assessment and is similar to the drafts of income tax that AEAT sends to the tax payers.
NIF – Tax Identification Number for individuals (Número de Identificación Fiscal). This is the generic term for the tax ID number for all individuals. For Spaniards, it’s the DNI plus one letter; for foreigners, it is your NIE.
SEPE – stands for Spanish National Public Employment Service.
Sistema Delt@ – Electronic Filing System of Work Accidents.
Sistema RED – online Social Security transmission system for registering any relevant events with the Social Security, such as: Joiners Leavers, Working Time, Absences, Unpaid Leaves, Changes of categories etc. The system includes SILTRA, recent updated system for Social Security Contributions Settlement.
Sistema Red Directo – RED Direct is a the current transmission mode within the RED that is intended to help small and medium-sized companies meet their obligations with the Social Security over the Internet, using a real time, direct connection to the TGSS .
SMAC -Mediation, Arbitration and Reconciliation Service (Servicio de Mediación, Arbitraje y Conciliación)