Investing in Spain: A Legal Guide for Indian Investors

Spain is increasingly viewed among the international community as an entry point into the EU market and with an increase in the India and Spain bilateral trade, there are diverse investment opportunities across sectors such as renewable energy, real estate, technology and hospitality for Indian investors.

The diversified economy in Spain coupled with its position within the European Union and a stable legal system, promotes strong investor confidence and sentiments internationally.

As an Indian investor, it is crucial to understand the Spanish legal, regulatory and tax framework governing the available investment structures to mitigate potential legal risks. This Article provides a broad overview of the principal considerations from a legal standpoint for Indian individuals and businesses seeking to Invest in Spain.

Choosing the Right Investment Vehicle

It is crucial for an investor to select the appropriate means of investment, given that the same would establish and determine the degree of governing regulations, tax reporting, and other regulatory compliances that become binding. Depending on the long term commercial objectives, nature and scale of business activity and investment type, the investor must identify the appropriate entity suitable in the case. The primary and common option is to incorporate a Spanish Limited Liability Company (S.L), with others such as acquiring shares in an existing Spanish Company, establishing a branch office, entering into Joint Ventures and investing in real estate. Each of these structures have distinct legal and regulatory implications, thereby making it important to understand the underlying compliances and framework governing the particular mode of investment.

Incorporating a Spanish Limited Liability Company (S.L.)

An S.L., much akin to the Private Limited Company under Indian law, constitutes as a distinct legal entity, separate from its shareholders, directors or employees, and is capable of suing or being sued. The liability of the investors, in their personal capacity remains to the extent of their investment in the shareholding pattern.

A locally incorporated entity lends much greater credence in terms of customer confidence, public authorities and therefore is one of the preferred means of carrying on business in Spain by foreign investors.

From a corporate governance perspective, A Spanish Limited Liability Company may also be incorporated with a sole individual, and with annual accounts to be filed before the Mercantile Registry.

The foremost requirement for any foreign national is to acquire the Foreigner Identification Number – Número de Identidad de Extranjero (NIE), which serves as an exclusive and personal identification number and must be obtained before commencing any economic or business activity in Spain.

Additionally, a foreign investor may also be required to obtain a Spanish Tax Identification Number – Número de Identificación Fiscal (NIF). The NIF, much akin to the PAN in India, serves as the tax identification number, thereby permitting activities such as opening a bank account, incorporation of Company, and compliance with tax obligations.

Documentation required for incorporation of a Limited Liability Company includes obtaining a Spanish Bank account in the name of the proposed company and deposit of the share capital under such account. This must be followed by the drafting of the Articles of Association (Estatutos Sociales) containing the share distribution, corporate purpose of the Company and the bylaws.

A formal Deed of Incorporation (Escritura de Constitucion) must be prepared and signed before a Notary in Spain and be filed before the Commercial Registry (Registro Mercantil) These steps may also be undertaken by executing a valid Power of Attorney in favour of a representative in Spain.

Establishing a Branch Office

In the alternate, if an Indian Company is desirous of expanding its existing business in Spain, it may operate through establishing a branch office in Spain. It is crucial to identify the distinction between a subsidiary, which has its own legal personality, whereas with a Branch Office, the Parent Company retains all legal responsibilities for obligations arising from the acts or omissions of the Branch in Spain. This may be a suitable structure for Indian Companies desirous of developing business activities in Spain, while retaining a direct control through the parent entity.

A branch office must be registered with the Commercial Registry (Registro Mercantil) by submitting the necessary documentation including the relevant incorporation documents and Corporate Resolutions of the Indian Company. It is crucial to state here that all the necessary documents emanating from outside Spain must be legalized and apostilled before being submitted.

Foreign Investment Regulations and Approvals

The Spanish foreign direct investment (FDI) regime is primarily governed by Law 19/2003 on Capital Movements and Foreign Economic Transactions and the Royal Decree 571/2023 on Foreign Investment. Indian investors must assess the applicability of the stated regulations during the early stages of the transaction, as certain activities and investments require prior authorization from the Spanish authorities before commencement of any work. The authorization requirements vary and depend upon the concerned sector or industry, the nature of activity undertaken and the degree of control intended to be acquired by the investor.

Energy, Defense, Health and infrastructure are a few sectors where prior authorization before investments have been made mandatory.

In addition to the foregoing, investors should also consider the regulatory requirements applicable to the specific business activity proposed to be undertaken. Depending on the nature of the investment, certain commercial activities may require municipal licences, sector-specific permits or environmental authorisations before operations can commence. For instance, businesses operating in the hospitality, food and beverage, retail, healthcare or manufacturing sectors are often subject to licensing requirements imposed by the relevant local authorities (Ayuntamientos) and Autonomous Communities. Investors should therefore undertake a preliminary regulatory assessment to ascertain whether any operational permits or registrations are required prior to commencing business activities in Spain.

Indian Regulatory Considerations

In addition to complying with Spanish corporate and regulatory requirements, Indian investors must also ensure compliance with India’s overseas investment framework. Cross-border investments by Indian residents and companies are principally governed by the Foreign Exchange Management Act, 1999 (FEMA), together with the Foreign Exchange Management (Overseas Investment) Rules, 2022, the Overseas Investment Regulations, 2022 and the directions issued by the Reserve Bank of India (RBI) from time to time.

The applicable regulatory requirements vary depending upon whether the investment is being made by an Indian company, a resident individual or another eligible entity. Among other considerations, investors should assess the applicable investment route, funding mechanism, reporting obligations, valuation requirements and restrictions governing overseas investments before remitting funds outside India.

For Indian companies, overseas direct investments generally require compliance with the prescribed reporting requirements before the authorised dealer (AD) bank and the Reserve Bank of India. Resident individuals proposing to invest in Spain should likewise consider the applicability of the Liberalised Remittance Scheme (LRS), including the prescribed monetary limits and permissible purposes for overseas remittances. The Liberalised Remittance Scheme is otherwise inapplicable to companies, partnership firms, trusts and Non-resident Indians.

Accordingly, a successful investment into Spain requires a coordinated assessment of both Spanish and Indian legal frameworks. Early consideration of the regulatory requirements in both jurisdictions assists in avoiding delays in fund remittances, obtaining regulatory approvals and ensuring post-investment compliance.

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