2021: Doing Business in Spain

Doing Business in Spain

1. What is the current business climate in your jurisdiction including major political, economic and/or legal activities on the horizon in your country that could have a big impact on businesses?

Spain is the 14th-largest economy in the world and the 4th-largest economy in the EU: GDP worth near USD 1.4 trillion.

Spanish GDP contracted around 10% in 2020, in line with expectations. In contrast, following a start of the year marked by uncertainty, the recovery is expected to accelerate and the economy to grow by 5.5% this year and 7.0% the next. However, if limits on the spread of the virus continue and progress in line with government vaccination plans, these forecasts will bias upward.

The economy will improve, with high growth rates starting in the second quarter of the 2022, aided by an international environment with ambitious demand policies and the influx of European funds and advances in the vaccination process throughout Spain.

Despite this positive outlook, Spain’s employment rate (61.1%) remains lower than the Organization for Economic Cooperation and Development country average (66.6%). This was already on the rise before the pandemic and spiked when the country’s tourism and hospitality sectors were heavily impacted. Inequality is also more prevalent in Spain than in other OECD countries.

2. From what countries do you see the most inbound investment? What about outbound?

According to the 13th edition of the "Barometer of the business climate in Spain from the foreign investor's perspective", foreign companies in Spain forecast a "clear improvement" in their activity in 2021, in aspects such as investment, staffing, turnover, and exports, following the unfavorable outlook of 2020.

Inbound

In 2020, Switzerland was the leading investor in Spain, accounting for 16.3% of investment in Spain. The second-largest investor was the United States, with a 16.2% quota of the investment received, and the United Kingdom was third with 12.6%.

There has been notable progress in investment from Asian countries such as China and Japan, with growth rates of 481.8% and 275.7% respectively, coinciding with the worldwide trends forecast by UNCTAD.

Outbound

Spanish companies are very active as investors in the US, the EU and are the 2nd largest investors in Latin America.

In 2020, 97.7% of Spanish investment abroad was focused on 21 countries, excluding transactions by foreign stock-holding companies.

The country that received the largest Spanish investment in gross terms was Luxembourg (21.8% of the total volume), followed by the US (16.1%), the United Kingdom (8.4%), Mexico (8.4%), and China (7.9%).

3. In what industries/sectors are you seeing the most opportunity for foreign investment?

Investments in Spain are mainly oriented towards financial and insurance services, real estate, manufacturing, scientific, professional, technical, administrative support service activities, wholesale and retail trade, transportation and storage, and the energy sector.

The finance and insurance industry was the main recipient of foreign direct investment (FDI) in Spain in 2020, accounting for 23.2% of the total volume. IT and telecommunications was the second industry in importance, with a 22.8% quota. These two industries attracted over 45% of the total volume of FDI.

They were followed by the manufacturing industry (14.4%), construction and real estate (7.8%), and transportation and storage (7%).

4. What advantages and pitfalls should others know about doing business in your country?

Spain has many attractive aspects for investors, among others:

• The Spanish economy has steadily surpassed that of its European counterparts over the last five years, in pre-pandemic circumstances.
• Connectivity to LATAM and MENA: A highly developed and internationalized business sector favors partnerships and access to other markets.
• Privileged geographic situation: a unique logistics hub for commercial operations and passenger transfers.
• Spanish infrastructure is rated seventh in the world in the Global Competitiveness Report (World Economic Forum), particularly our highly efficient transport network and our development of renewable energies.
• Spain is one of the countries in the world with the least restrictive regulations for international investments (the OECD FDI Regulatory Restrictiveness Index ranks Spain as the 10th country in the world with the least restrictive regulations for international investments). Foreign investments in Spain do not require previous approval, as a general rule, with the exception of investments in activities that affect public security, public order, and public health.
• Spain has an extensive and comprehensive system of aid and incentives, with special emphasis on encouraging employment, regional investment, RDI, specific industrial sectors, and SMEs. Aid can also be obtained from the state, the regions and the EU, in addition to a wide range of public institutions that offer financing under favorable terms.
• Trained human capital. A large percentage of the Spanish population has a higher education. Companies can find specialized talent to cover their ICT vacancies more easily in Spain than in neighboring countries and at a more competitive cost than in other major European economies.
• Longer and better lives. The life expectancy of Spaniards is longer than in most of the world thanks to the Spanish cuisine and the enjoyment of leisure activities. Spain's universal healthcare leads the world in healthcare systems.

Few obstacles to investment in Spain exist:

• The need to improve certain aspects of the Regulatory Environment, such as the speed and efficiency of Commercial Courts and the burden of bureaucracy.
• Taxation and the availability of public subsidies were also given a low score, together with Social Security contributions and Corporation Tax.
• High levels of private and public debt, a very negative net external position, and a high level of structural unemployment.
• The cost of electricity.
• Different regulations in different regions.

5. What is one cultural fact or custom about your country that others should know when doing business there?

In Spain, saving face, family, proximity, and aversion to risk are major concepts in business. It is common that Spanish businessmen treat their counterparts as their friends.

Hierarchy tends to be vertical and rank matters, but third or fourth level down individuals may be in better standing or have more influence than higher-ups. Setting up meetings with counterparts who are in equivalent positions is recommended.

The development of a personal and informal relationship is often necessary for the smooth running of business.

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