Guidance

Overseas Business Risk - Spain

Updated 25 April 2017

The UK and Spain are major business partners. In 2015, bilateral trade amounted to almost £40bn. For the UK, Spain is the 8th largest export market for goods and the 9th largest for services. The UK is the 3rd largest investor in Spain – representing over 11% of the total stock in 2014. The latest Business Barometer report from the British Chamber of Commerce (Nov 16) estimates that British companies are responsible for 161,353 direct and indirect jobs in Spain. Spain is our 6th biggest investor into the UK, with stock at £45.7bn in 2014. Key Spanish companies such as Ferrovial, Iberdrola, FCC, Inditex and Santander all have significant operations in the UK.

1. Political Overview

Spain is a member of the EU, WTO, OECD, G20, OSCE and Council of Europe. The Constitution of 1978 established Spain as a constitutional monarchy with a multi-party parliamentary democracy. Executive power resides with the government (elected every four years) presided over by the President (PM – equivalent; currently Mariano Rajoy from the centre-right Popular Party), while legislative power sits with the bi-cameral Parliament, made up of the Chamber of Deputies and the Senate.

The three-tier political system (comprising central, regional and local government) makes Spain one of the most de-centralised states in Europe. While the centre sets the broad parameters, regions are responsible for the provision of basic public services including health, education and social services, and have significant influence over the regulatory environment for business. Over the last thirty years there has been an increase in the number of services provided by regional and local governments, although that central-regional balance has come under pressure as revenues have tightened. The municipal tier of government also plays a key role. The 50 county councils, and 8,000 plus town halls account for c.13% of all spending and are responsible for delivering a wide range of public services (e.g. waste collection).

The last general elections were held in June 2016, following inconclusive elections in December 2015. The centre-right Popular Party (PP) again won the most votes, but fell short of the 176 needed for an absolute majority with 137 of the 350 seats. The PP now governs as a minority government, thanks to an investiture deal with two of the centre-right parties and the abstention of their traditional rivals, socialists PSOE. The PSOE are currently governed by a caretaker committee following the former Secretary General, Pedro Sanchez’s, resignation in October 2016 due to internal divisions about how to respond to the political impasse. A (new) Secretary General is expected to be elected in May.

Since local and regional elections in May 2015, the distribution of power across Spain’s autonomous regions has splintered. The PP lost 2.5 million votes and had to resort to pacting with new centrist party Ciudadanos in order to retain control in many provinces. The main winners were the left-wing movements that came together under the umbrella of new party Podemos who took over some of Spain’s largest and most influential cities including Madrid, Barcelona, Zaragoza, La Coruña and Cádiz, and have provided the necessary support for the Socialist Party (PSOE) to increase the number of provincial capitals under its control from 9 to 17.

2. Economic Overview

Spain is the fifth largest economy in the EU and one of the fastest growing in the euro area. Job creation is strong, while Spanish imports and exports are on the up. The economy is boosted by UK tourists (18 million visits a year from the UK) and UK residents (1 million permanent or part-time residents from the UK), especially in coastal areas. The financial system has been recapitalised and is now supporting the real economy with an increasing number of new loans to businesses. Public finances are still strained as a legacy of the crisis, but the budget deficit has been cut in half and continues to fall, while public debt has steadied at around 100% of GDP.

Over their last term, the Government carried out an ambitious programme of structural reforms designed to boost competitiveness and efficiency while reducing public spending. The Government also considered reforming the quasi-federal structure including the financing arrangements for the regions. This was parked at the time, but has risen up the agenda again for this new term, in part in response to the situation in Catalonia, which remains complex, and has sparked a new central government offensive for engagement with the regions. The separatist political parties, who have control over the Catalan parliament (but only 48 percent of the popular vote) continue to push ahead with plans for unilateral secession despite successive Constitutional Court rulings and warnings from the central government. Catalan regional President Carles Puigdemont has promised a referendum on independence in September 2017 with or without the central government’s consent. However, recent polls suggest that a majority of Catalans want a negotiated solution.

Otherwise, the government’s plans for this second term may be limited by their minority status. Early signals have indicated that the economy will continue to be a priority, as will other areas in which there is some agreement between the main parties such as education reform. Finalising a budget that the parties can agree on remains a major obstacle, though Spain will meet Brussels’ deficit targets for 2017.

The previous administration undertook deep structural reforms in various areas, including some measures that have been particularly welcomed by British companies. For instance, legislation now requires public administrations to pay bills within 30 days and private companies to pay bills within 60 days (both as yet only partly successful). There have also been moves to facilitate outsourcing of delivery of public services.

One of the most important reforms has been the introduction of the Single Internal Market Law, now up and running, which aims to iron out market inconsistencies between regions and make it easier to set up and trade in Spain. Companies that encounter internal market barriers within Spain now have online access to a central government-led resolution mechanism that ensures regulation at regional government level (which can differ between regions) does not interfere with the domestic single market.

The reform of the public and local administration has included the removal of administrative duplications (eg regional ombudsmen or weather prediction services), elimination of bureaucratic procedures (eg simplified “express” licences for small businesses), centralised services, and pooling of resources and services among smaller local authorities. This has been complemented by legislation to inject liquidity into the most cash-strapped regions and an unwavering commitment to bring down regional deficits and debt levels via legal instruments such as the Budgetary Stability Law, which set legally binding spending, debt and deficit ceilings. The finances of regional governments have improved tremendously since the recession, although most still run a small budget deficit.

In recent years there have been cuts in the headline rate of corporation tax for large firms from 30pc to 25pc and a new recapitalisation tax break. The government was elected in 2016 on the promise of no tax increases, even though the revenue/GDP ratio is well below the European average and Spain is in an ongoing process of fiscal consolidation.

The fact that the current administration is a minority government, in a fragmented parliament, makes further ambitious reform more difficult to achieve.

In terms of areas for improvement, UK companies in Spain have cited the need for improvements to the judicial system (in terms of speed and predictability of decisions), regulatory burden, and R&D incentives. Political uncertainty at a national and regional level is also cited as an area of concern.

3. Human Rights

Spain is signed up to the European Convention on Human Rights and the UN Universal Declaration of Human Rights.

Spain is a strong supporter of gender equality and same sex marriage has been legal in Spain since 2005. The Spanish MFA states that their overseas priorities in the area of human rights are “the fight against the death penalty; non-discrimination on the basis of gender or sexual orientation; rights of persons with disabilities; the human right to safe drinking water and sanitation; and business and human rights. Moreover, in a cross-cutting manner, special attention is paid to human rights defenders, for whom there is a temporary shelter programme.” The Government has committed to reform Spain´s justice system to improve the efficiency of the courts. The reform programme includes over 20 separate pieces of legislation covering all aspects of the justice system: procedural reforms to improve efficiency of investigations and take cases out of the courts; ambitious changes to the responsibilities, structure and organisation of the courts; institutional changes to key judicial bodies; and the introduction of fees and changes to the legal aid system. The government aims to pass the key elements of its reform programme this legislature.

4. Bribery and Corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or as Scottish partnership to bribe anywhere in the world. In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case, it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere

For more information see Transparency Index’s Corruption Perception Index

5. Terrorism Threat

For the latest terrorism update see our Travel Advice.

6. Protective Security Advice

The travel advice also contains the latest protective security advice

7. Intellectual Property

IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, then you should consider registering your IP rights in your export markets. For information on registering your Trademark in Spain, you should contact: Office for Harmonisation in the Internal Market: Avenida de Europa, 4 03008 Alicante Spain T: +34 96 513 9100 F: +34 96 513 1344 Email: informacion@oami.europa.eu Website: www.oami.europa.eu

For information on obtaining a patent in Spain, you should contact the Spanish Patent Office: Oficina Española de Patentes y Marcas Refer also to the website of the World Intellectual Property Organisation (WIPO), and the Madrid Protocol for the international registration of marks. Read the information provided on our Intellectual Property page.

8. Organised Crime

As in many other major European countries, international organised criminal activity takes place in parts of Spain, in particular linked to drugs and people trafficking. There has been government action to tackle these issues and the UK and Spain work closely together in this area.

There have been complaints about scams, often related to lottery prizes and inheritances, in which a person receives what appears to be an official notification from a Spanish government department or lawyer and are required to make advanced payments or deposit sums in a bank account. Read the information provided on our Organised crime page.

The “Exporting to Spain” guide contains further information for exporters. Please contact the UKTI team in Spain for more information and advice on opportunities for doing business in Spain”