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Испания
Spain — Purchase of a business unit and tax liability
16.10.2018
- Корпоративный
- СЛИЯНИЯ И ПОГЛОЩЕНИЯ
The object of this post is the analysis of the new obligations that RDL 6/2019 establishes, in terms of Gender Equality, for all types of companies (regardless the number of workers they have) and, specifically, for those companies that have 50 or more workers.
The main novelty we find in this respect lies in the obligation, for companies with 50 or more workers, to implement an Equality in Business Plan (EBP), in accordance with the provisions of articles 45 and related of the LOIEMH.
Regarding the content and the conditions of implementation of the EBP, we find the following novelties:
- The subjects and minimum content that all EBP must have are listed exhaustively.
- An analysis of the female underrepresentation in the Company is introduced, as a matter that the EBP must contain.
- The diagnosis that the Company must make prior to the preparation of the EBP must be negotiated with the legal representative of the workers.
- A Register of EBP for companies is created, in which all the EBP implemented in the Companies must be registered, regardless of the number of workers they have.
On the other hand, RDL 6/2019 gives a new wording to Article 28 of the Workers’ Statute (WS), which includes the obligation of the Company to comply with the requirement of equal pay for men and women, establishing a series of measures and obligations in charge of the Companies, in order to ensure the effective fulfillment of the salary equality between genders.
In particular, these new measures adopted in article 28 of the WS are:
- What is to be considered as «work of equal value» is specified, in order to facilitate a single concept and eliminate any doubt in this regard.
- Companies have the obligation to keep a Salary Register, with the average values of salaries, salary supplements and extra-salary perceptions of their workforce, differentiated by sex and distributed by professional groups, professional categories or equal work positions value.
- The Salary Registry must be accessible to the legal representatives of the workers.
- In companies with 50 or more workers in which the average remuneration of workers of one sex is higher than the other by 25% or more, a justification for said difference must be included in the Salary Register, and must be certified that it is due to reasons unrelated to the sex of the workers.
The breach, by the Companies, of the obligations in matters of Gender Equality and, in particular, those related to the EBP and equal payment between men and women, may entail the imposition of important sanctions by the Labor Inspector and the “Tesorería General de la Seguridad Social”.
The Spanish Law of the Agency Contract and the European Directive provide for the agent -except in certain cases-, goodwill compensation (clientele) when the relationship is terminated, based on the remuneration received by the Agent during the life of the contract. It is, then, a burden that in general every Principal will have pending when the contract ends.
The temptation is to try to get rid of that payment and for this clients consult us frequently about strategies or tactics. I will try to summarize some of them indicating the chances of success (or not) that may have, both in the negotiation / drafting phase of the contract, and in the resolution phase.
- Change the name of the contract
The first idea is to make a contract «similar» to the agency or call it in a different way (services, intermediation, representation contracts…). However, the change of name does not have any incidence since the contracts «are what they are» and not what the parties call them. So if there is a continued mediation in exchange for remuneration, there is a good chance that a judge will consider it an agency contract, whatever we call it, and with all its consequences.
- Limitation of compensation in the contract
Another temptation in the drafting phase of the contract is to agree compensation less than the maximum legally envisaged, provide for payment in advance for the duration of the contract, or directly eliminate it.
None of these solutions would be valid if they try to reduce the possibility of the Agent to receive the legal maximum, or for reasons not foreseen in the Law or the Directive. The law is imperative.
- Linking different agency contracts
Given that the compensation is calculated according to the remunerations of the last five years and the clientele created, the temptation is to link several shorter contracts to consider only the clients of the last period.
This will not necessarily be a good idea if most of the customers were created last year for instance, but it may also be useless because the Spanish law and the Directive provide that the fixed-term contract that continues to be executed becomes indefinite. The judge may consider all linked contracts as one.
For this strategy to have the possibility of being useful, it would be necessary to liquidate each substituted contract, declare that «nothing has to be claimed by the parties» and that the successive contracts are sufficiently separated and have different entities, drafting, extension, etc. If the procedure is well thought out, it could be a way to get rid of a greater indemnity by clientele: a well-written pact whereby the agent declares the compensation received, and the following contract does not mimic the content and immediately to the previous one.
- Submitting the agreement to a foreign law
In international contracts the temptation is to submit the contract to a right that is not Spanish, particularly when the Principal has that citizenship.
The idea can be good or bad according to the chosen law and as long as it has some relation with the business. As is known, in the EU the Directive establishes minimum conditions that national laws must respect. But nothing prevents these laws from providing more advantageous conditions for agents. This means that, for example, choosing French law would be, in general, a bad idea for the Principal because compensation in that country is usually higher.
In some cases, the choice of a law outside the European Union that does not provide compensation for clientele when the agent is European has been rejected because that the minimum right recognized in the Directive has not been respected.
- Submit the contract to non-national rules and judges
Another less frequent possibility is to submit the contract to rules not from a country, but to general commercial norms (Lex Mercatoria) and to agree on a lower compensation.
This is very uncommon and may not be very useful depending on who is to interpret the contract and where the agent resides. If, for example, the agent resides in Spain and who is going to interpret the contract is a Spanish judge, he will most likely interpret the contract according to his/her own rules without being bound by what the contract envisages. This clause would have been useless.
- Submit the contract to arbitration
The question will be different if the contract is subject to arbitration. In this case, arbitrators are not necessarily subject to interpreting a contract according to their own national regulations if the contract is subject to different one. In this case, it would be possible that they felt freer to consider the contract exclusively, especially when the agent was not of their nationality, did not know what the law of the agent’s country and was not bound by the guarantees provided for his protection.
- Mediation in the agency contract
Mediation is an alternative dispute resolution system that can also be used in agency contracts. In mediation, the parties resolve the dispute by themselves with the help of a mediator.
In this case, given that the mediator is not deciding, it is possible for the parties to freely reach an agreement whereby the agent agrees to a minor indemnification if, for example, other advantages are conferred upon him, if he comes to the conviction of having less right, difficulty of proof, if he prefers to save other costs, time, energy for your new business, etc.
Mediators ensure the balance of the parties, but nothing prevents them to agree a compensation lower than the legal maximum (after the conclusion of the contract it is possible to negotiate a lower than the legal maximum). To foresee the possibility of mediation in the agency contract is, therefore, a good idea: this will permit the parties to better address and negotiate this compensation. In addition, providing for mediation does not limit the rights of any of the parties to withdraw and continue through the courts demanding the legal maximum.
- Imputing to the agent a previous breach
When the contract ends, this is undoubtedly the cause that is most often attempted: when the contract is to be resolved, the Principal tries to argue that the Agent has previously failed to comply and that this is why the contract is being resolved.
The law and the Directive exempt the payment of goodwill compensation when the agent has breach his obligations. But in that case, the Principal must be able to prove it when the agent discusses it. And it will not always be easy. The Principal must provide clear evidence and for this it will be convenient to collect information and documentation on the breach sufficiently and in advance and of sufficient importance (minor breaches are not usually accepted). Therefore, if the Principal wishes to follow this path it is advisable to prepare the arguments and evidences time before the agreement ends. It is strongly recommend contacting an expert advisor as soon as possible: he will help you to minimize the risks.
The procedure to incorporate a foreign owned company in Spain is, in principle, easy and straight forward, however it is necessary to take into account certain new requirements derived from the tax and the anti-money laundering regulations, which could cause long delays in the incorporation process, even to EU and US companies, if they are not well advised and managed from the beginning of the procedure.
The first step consist in collecting information about the foreign shareholder, in order to be able to prove its legal existence and activities: the foreign shareholder(s) will have to grant before a Notary Public in its country of residence a power of attorney authorising somebody in Spain to obtain its tax identification number (“NIE”), and also represent it before the Spanish notary when signing the deed of incorporation. In case the foreign shareholder is an individual person, the NIE should be applied for before the Spanish police or the Spanish Consulate at the country where the investor lives.
If the shareholder is a corporation, apart from the Power of Attorney, it will have to obtain a certificate from its Companies’ Registry or Chamber of Commerce, stating its legal existence and main characteristics. This document is called “good standing certificate” (in the UK and US), “K-bis” (in France), “KvK” (in the Netherlands) or “visura” (in Italy). These two documents, the Power of Attorney mentioned in the above paragraph and the certificate from the Companies’ Registry, will have to be Apostilled or legalized by the correspondent Ministry, and Sworn translated into Spanish. Please note that we use to draft bilingual powers of attorney in order to avoid its sworn translation.
The foreign shareholder will have to prove that its income is obtained from legal activities in order to be able to open a bank account in the name of the new company. The main document to prove this could be the Corporate or the Personal Income Tax return filed in its country of residence, but there could be other means, especially in case of individual persons.
In case of a corporate shareholder, it will be necessary as well to declare, in principle through a public deed granted in Spain, who are the individual persons who, directly or through other companies, will hold more than a 25% interest in the new company to be incorporated. In case nobody holds more than a 25% (i.e. because there are 5 individual shareholders, holding each of them a 20%), it is declared that the effective control of the new company corresponds to its director.
At this stage, it is also necessary to mention that the person(s) who will be the director(s) of the new company, in case they are foreigners, will also need to obtain their personal “NIE”. The NIE should be applied for before the Spanish police (this could be done by a proxy duly authorised though a Power of Attorney granted by the foreign director) or before the Spanish Consulate nearest to the city where the investor lives. In order to be a director of a Spanish company it is not necessary to be a shareholder, nor to have residence and work permit in Spain (provided the foreign director does not live in Spain).
Meanwhile the necessary documents (Powers of Attorney, Companies’ Registry certificate, etc.) are being prepared by the foreign shareholder, the lawyer in Spain will apply for the new company’s name. It is advisable to point out that generic or usual names are not available quite often, therefore it is necessary to think in original names. Three different names could be applied for simultaneously.
The drafting of the company’s Articles of Association or By Laws could be very quick, except if the company is going to have several shareholders and they wish specific clauses. In this case, it is also advisable to draft a Shareholders Agreement. The Shareholders’ Agreement could just contain some basic rules on dedication, compensation, non-competition, etc. and some more sophisticated rules on the sale of shares (tag along and drag along rights). As regards the By-Laws, they should mention the company’s name, its activity or activities, address in Spain –which cannot be just a P.O. Box-, share capital, number of shares and its face value, and starting date for the fiscal year, among other standard clauses.
The management of the company could be organized through a sole director, two directors who could act jointly or separately, and in case there are more than three directors, they should organize themselves through a Board of Directors, being usual in this case to appoint a C.E.O. In order to be a director it is not necessary to be a shareholder. Under Spanish laws, the director(s) could be held liable for some company’s debts under certain circumstances which are legally defined. For this reason, it is necessary that the directors formally accept their appointment (personally appearing before the Notary or through a Power of Attorney).
Before the incorporation, it will be necessary that either the new company’s director (the person to be appointed) or the representative of the corporate shareholder appears personally before the bank where the company will have its first bank account and signs the correspondent documents (KYC regulation). Once the bank account is opened, the shareholder will have to send a bank transfer for the new company’s share capital. In Spain, the minimum share capital for a limited company (S.L.) is Euros 3.000, while for a “Sociedad Anónima” (S.A.) it is Euros 60.000, but only 25% should be paid off at the incorporation moment. It is interesting to note that contributions to the share capital could be made in cash – which is the most common operation, especially at the incorporation – or in kind, with any type of assets: real estate, machinery, goods, trademarks, etc. The money for the share capital should be sent to the new company’s bank account from an account owned by the shareholder (or from each account owned by each shareholder, should they be several ones), not by any other different person. Once the Spanish bank receives the transfer, it will issue a certificate, which is necessary in order to incorporate the company.
Once all the documents are ready, it is possible within very few days (almost immediately) to make the appointment with the Notary and sign the public deed of incorporation. This can be done at any notary in Spain, not being necessary that the notary practises at the same city where the company will have its corporate address. In order to summarize, the list of the necessary documents is:
- Power(s) of Attorney granted by the foreign shareholder(s), apostilled and sworn translated.
- Certificate regarding the legal existence of the foreign shareholder (only if it is a corporation), apostilled and sworn translated.
- Statement on who are the last individual shareholders holding more than 25% interest in the new company, directly or indirectly (only in case of corporate shareholders).
- NIE of the foreign shareholder(s).
- NIE of the new company’s director(s), should they be a foreigners.
- Certificate for the new company’s name.
- Articles of Association.
- Bank certificate regarding the contribution to the new company’s share capital.
The deed of incorporation is signed by the proxy (or the individual shareholder(s), should they prefer to personally appear before the notary) before the chosen public notary, being also necessary to sign an official form to report the foreign investment to a public registry depending on the Spanish Ministry of Finance.
Once the deed of incorporation is signed, the next steps consist in applying before the tax authorities to obtain the new company’s tax number (NIF / CIF) and filing the deed of incorporation before the Companies’ Registry. Some banks do allow new companies to operate once they have the NIF (which could be 2-3 days after the incorporation), while others request to wait until the deed of incorporation is filed at the Companies’ Registry (2-3 weeks).
An estimation of the necessary time to complete all the procedure is 30-45 days, but of course the main delay is related to speed of the foreign investor in obtaining the necessary documents.
Please note that if you wish to incorporate a foreign owned company in Spain it is always necessary to seek specific professional advice, as each case is different and regulations and the application of such regulations vary from time to time. The above article just explains the main steps and requirements for the incorporation of a company.
Arbitration is a well-known system for dispute resolutions, and works as an alternative to judicial procedures. Parties are free to choose this system and to submit their conflicts to specific arbitrators or institutions.
It is usually considered that arbitration is a good way to solve conflicts but preferable to those arisen between big corporations or involving important amounts of money. Although this assumption is generally accepted, there is an alternative for distribution disputes suitable for smaller companies and cases with lower amounts claimed.
And here is the essential question: why a manufacturer/franchisor or a distributor/agent/franchisee should choose a specialized arbitration for their agreements instead of a more general one or, even, a judicial procedure? The answer seems clear: an arbitrator with knowledge not only in procedural questions but in substantive matters will be able to better understand the conflict between the parties and, therefore, to grant a better award. Take into account that, for instance in my Country, Spain, a Judge of First instance can deal in the same day with a distribution contract, a construction case, a conflict between heirs, and a discussion in a community of owners. All of this requires the analysis of different facts and completely different legislations and it is true that specific commercial problems do not usually have judges experts in international trading. But, how to choose a good specialized arbitrator? And, how to choose the arbitral procedure and the institution in terms of organization, neutrality, costs and time?
The IDArb was created in 2016 by the International Distribution Institute (www.idiproject.com) in collaboration with the Chambre de Commerce d’Industries et de Services de Genève (CCIG www.ccig.ch) and the Swiss Chambers’ Arbitration Institution (SCAI www.swissarbitration.org) and offers to the distribution sector (distribution, agency, franchising, selective distribution) a specialized, expedited and affordable arbitration procedure, not only for big international corporations but also for smaller cases. In fact, the expedited procedure is particularly foreseen for amounts below one million CHF (approx. 880.000 €).
The objectives and main characteristics of IDArb which make it suitable for all the distribution disputes are:
- A list of specialized arbitrators experts in this particular field is available for ad hoc or institutional arbitration and IDArb is able to assist the parties to choose one of them.
Specialized arbitrators from different countries and legal cultures have been appointed by a Selecting Committee reviewing their experience in one or more fields of distribution law. Therefore, parties can trust that the arbitrator will have concrete skills in the business with an in-depth understanding of the disputed issues. This is not a general knowledge on commercial law, but a concrete one on distribution, expressly verified by the Committee. Parties can even examine some examples of cases in which every arbitrator has been involved in.
- In order to maintain its high quality, the IDArb organizes training seminars for its appointed arbitrators. In these seminars, they are able to discuss about the general management of the arbitration, the procedural aspects and how to solve possible incidents in collaboration with the Institutions and their Rules. This will make all the proceedings more manageable and the possible difficulties more easily solved. Last seminar took place in Geneva in November 8, 2018 and participants have discussed, amongst other subjects, on evidences, witnesses and document production.
- The expedited arbitration procedure permits the parties to have a tailored procedure managed by SCAI under the Swiss Rules of International Arbitration, specially adapted for small disputes in the field of distribution.
- Time is also an essential element: the award in the expedited procedure will be issued in a maximum term of six months (only exceptional circumstances permit the Court to extend such time-limit), and, if parties agree, it can be decided only on documentary evidence.
- Costs are reasonable and known in advance.
- And, as final but important remark, IDArb has also adopted some recommendations where, upon request of the parties, mediation is favoured, the arbitrator my consider giving a preliminary non-binding and provisional assessment of the dispute and should have a pro-active position in order to facilitate an amicable settlement.
Spanish Law on Entrepreneurship (Law 14/2013) has approved new cases where foreigners from non-European Union countries can obtain the residence permit in Spain through the execution of investments:
- Investments in real estate for an amount equal or higher than € 500.000 (Five Hundred Thousand Euros). The investment can be made in one or more properties, but at least € 500.000 should be free of encumbrances (mortgage, i.e.). If the price is higher than € 500.000, the rest of the amount could be paid through mortgage.
- Financial investments for a value equal or higher than 1 million Euros. This type of investment includes listed and non-listed shares, in case of non-listed shares they could be from already operating companies or newly incorporated ones, investment funds, and deposits in Spanish banks.
- Investment in Spanish sovereign debt for an amount equal or higher than 2 million Euros.
- To carry on a business project in Spain that was considered as being of public interest. To this purpose, one of these conditions should be met: creation of jobs, execution of an investment that has a positive impact in the region where it is located, or a relevant contribution to scientific or technological innovation.
The visa granted through the execution of these investments is valid during at least one year, and in order to obtain the residence permit some other requirements should be met:
- to not stay previously in Spain in an illegal situation,
- to have more than 18 years,
- to not have criminal records,
- to have a health insurance (hired from a company operating in Spain)
- to have financial means for the stay in Spain (i.e. a bank deposit, or income from leases or dividends. Payroll does not qualify for this purpose).
If the above requirements are met, a two years residence and work permit could be granted. After this term, the residence permit can be extended for successive five years periods. The investments should be kept during all these periods. This permit does not request the foreigner to live in Spain for more than six months; therefore it will not be cancelled if the foreigner lives in another country.
The residence and work permit is granted to the individual who executes the investment. If he/she is married and/or has children or ancestors who depend on the investor, it is possible to apply for their visa at the same time or later on. It is possible to execute the investment through a company owned by the investor, provided it is not a company domiciled in a tax heaven country.
The Spanish visa allows free movements within the EU countries (Schengen space). The valid travelling document is the passport.
Foreigners who wish to carry on a self-employment project in Spain could obtain the work and residence permit, but through a different procedure than the above mentioned, and these cases the minimum investment amount is lower.
Investment in real estate
The investment in real estate could be in residential, commercial or industrial properties. The property could be leased to third parties before or after the acquisition, or used by the investor. For ambitious investors, there are several possibilities to structure the investment in buildings and apartments and to a higher return of the investment.
There are some costs related to the acquisition of real estate: the acquisition itself is taxed by Transfer Tax at rates ranging from 6 to 10% on the acquisition price, depending on each Spanish region where the property is located, to be paid by the buyer. Besides, the buyer should pay the Notary Public and Property Registrar’s fees, which approximately amount 3% of the acquisition price (the addition of both of them). These amounts are paid once, when the property is acquired.
The annual costs related to the ownership of real estate in Spain are the following ones:
- IBI or local property tax, whose amount is calculated based on the value and location of the property.
- “Community expenses”, that is those expenses related to the maintenance of the common areas of the building where the property is located: cleaning, lighting, etc.
- In some cases, also a small tax for garbage should be paid to the Town Council.
- Owners should file the Spanish Personal Income Tax Return, and pay a percentage between 1,1% and 2% of the property’s “cadastral value” (official value), in case the property is not leased to a third party. If the property is leased, the owner should also file the Personal Income Tax Return based on the amounts obtained from the lease.
Besides, owners should also pay the expenses related to their property: ordinary maintenance expenses, insurance, electricity and water, etc.
In Spain, the property right is considered as a full right, which implies that the owner can use the property by himself, can lease it to third parties, can mortgage or encumber it, can sell or gift it to any third party and can pass it to his heirs through a will.
The only limits to the use of the property by its owner or the persons appointed by him are those established by the civic rules regarding noises, pets, exterior image of the property, etc.
Regarding the lease of the property, in principle it is free, and the rights and obligations of landlord and tenant are those provided by the private lease agreement entered between both parties and the Spanish Urban Leases Law (Ley de Arrendamientos Urbanos). However, nowadays many Spanish cities (and specially Barcelona) have approved strong limits to the so called touristic leases, which are the short term (days or weeks) leases, and request a special license.
It is important to point out that foreigners who become residents in Spain can grant their will according to Spanish inheritance laws (according to EU Regulation 650/2012), which slightly vary depending on each Spanish region. In Catalonia, for example, the testator can freely appoint who will be his heirs.
Financial investment
Financial investments can be executed through different types of targets, being always the minimum amount 1 million Euros:
- Shares of companies listed in the Spanish Stock Market.
- Shares of non-listed companies, which could be already operating companies or newly incorporated ones. In both cases, there are no limits as regards the percentage of shares that can be owned by foreigners, and the activity sectors restricted to non EU foreign investment are very few (gambling, defense, aviation, TV and radio). Foreigners can be appointed Directors of Spanish companies with the only requirement of having previously obtained the so called “N.I.E.”, which is the Spanish identification number for foreigners.
In case of a newly incorporated company, the € 1 million requested as investment would constitute the company’s share capital, and can be used for the startup of the company’s activities: for example, acquisition of goods, payment of salaries and rentals, payment of purveyors and subcontractors, etc.
Spanish companies have access to all European markets and have a privileged position for trading with Latin American countries.
- Investment funds: Spanish financial entities offer a very wide range of investment funds, from very conservative to high risk.
Deposit in a bank
The main advantage of a real estate investment compared to a financial investment is that the requested amount is only € 500.000 for real estate, while for a financial investment is twice this amount. During the past years since the Law on Entrepreneurship became in force, investment in real estate has been the most popular way for obtaining the residence permit in Spain, probably because at that time (2013-2016) real estate market prices were quite low due to the crash in 2008.
However, the process to acquire a property in Spain is not so easy compared to the acquisition of a share in an investment fund or making a bank deposit: the investor has to choose the property, which normally requires one or two visits to Spain, the price and sale conditions have to negotiated and drafted, the purchase deed has to be signed before a Notary Public (by the investor or his proxy), there are taxes and expenses related to the acquisition, and once the property is acquired, it is necessary to pay ongoing expenses and taxes, and maintain the property in good condition.
Compared to this, the investment in funds or making a bank deposit only requires one visit to the bank by the investor, in order to sign the correspondent documents. There are not related taxes or expenses, and the liquidity of the investment is full (that is, the investment can be sold at any moment, quite probably at the same or at a higher price, but this is not guaranteed for real estate investments).
How to open and operate a bank account in Spain
In Spain, banks apply the regulations regarding anti-money laundering, which include the KYC (Know Your Client) rules and the obligation to prove the legal origin of the funds. The KYC rules imply the need for the investor to appear personally before the bank at least once, previously to operating the bank account. The legal origin of the funds can be proved through different means:
- In case of employees, through the payroll splits, or a certificate issued by the employer, or the investor’s personal income tax return.
- In case of self-employed individuals, through their personal income tax return, or another type of documents proving their professional activity.
- In case of company owners, through the company’s financial statements.
- If the investor has obtained the funds necessary for the investment through personal loans, the loan agreements should be provided, plus the documents proving the legal origin of the funds provided by the lenders.
- Other documents, for example, regarding dividends or income from the lease of properties owned by the investor could be provided.
All documents should be legalized by a Notary Public or the Spanish Consulate, and sworn translated into Spanish.
Please note that this article is aimed to provide a general overview on Spanish rules regarding the above matters, but it does not constitute any kind of comprehensive information on them, and in any case specific legal advice should be sought prior to taking any decision.
In all M&A operations one of the issues that deserves special attention as regards its analysis, ascertainment and negotiation is the tax liabilities. Even though the parties could agree on the amount of such contingencies, to negotiate the possible guarantees that the seller should grant in order to protect the buyer from a possible claim by the tax authorities, the term during which the guarantees should be in force, and to agree on the communication mechanisms between the parties (buyer and seller) and the legal defense strategies if such claim from the tax authorities arises, requires substantial negotiation efforts.
When the acquisition operation is formalized not through the purchase of shares, but through the purchase of the assets that form a business unit, the Spanish General Tax Law (“Ley General Tributaria” or “LGT”) provides a mechanism which implies an exception to the general principle provided by article 42 of the same law. Article 42 of LGT establishes the joint liability of the purchaser of a business unit for the tax liabilities of the selling company (“tax liability derived from company’s succession”). That is, in principle, according to article 42 of the LGT “the persons or entities that continue by any mean in the ownership or exercise of economic activities (the buyers) will be jointly liable with the previous owner for the tax liabilities derived from the exercise of such economic activities incurred by such previous owner”.
However, the joint tax liability of the buyer could be limited through the application before the tax authorities of the tax certificate regulated by article 175.2 of the LGT. This certificate should be applied for by the prospective buyer, with the authorization of the present owner (the seller), and, once issued, the tax liability of the buyer becomes limited to the debts, penalties and liabilities mentioned in the certificate. If the certificate is issued without mentioning any amount, or if the tax authorities do not issue it within a three months term from the application’s date, the applicant (the buyer) will be released from any tax liability derived from company’s succession.
The tax certificate for succession purposes includes the main taxes, as Value Added Tax and Corporate Income Tax, and can include as well debts derived from the withholding taxes on employees’ payroll, which in case of companies with a big number of employees could be of an outstanding amount. However, the buyer’s joint liability for salaries, related payroll amounts and social security contributions cannot be limited by such certificate, and such liability will always be joint with the business unit seller’s liability.
The application for the tax certificate should be filed before the acquisition of the business unit is completed, even if the issuance of the certificate takes place later tan the closing date (but of course, it is wiser to not close the acquisition before having the certificate). The certificate’s validity lasts for one year, as regards periodical tax obligations (for example, Value Added Tax, Corporate Income Tax and withholding taxes on salaries) and for three months as regards non periodical tax obligations.
It is very important to apply for the right tax certificate (“certificate for succession purposes according to article 175.2 of LGT”), and to not make a mistake and apply, for example, for the certificate regarding having fulfilled all tax obligations (“certificado de estar al corriente de las obligaciones fiscales”). Case law is plenty of judgments where a buyer applied for the wrong certificate, which showed no liabilities, and later on such buyer has been sentenced to pay the tax liabilities incurred by the previous owner of the business unit.
The remuneration of directors is an intricate issue and one that deserves adequate treatment. Recently there has been a turn that deserves special attention.
In its judgment of February 26, 2018, the Supreme Court modified the interpretation given by most experts and authorities and by the Directorate-General of Registries and the Notarial Profession in its decision dated June 17, 2016, ratified by the Barcelona Provincial Appellate Court in its decision 295/2017 of June 30, 2017, on the regulation of executive directors’ compensation.
In its judgment, the Supreme Court held that the compensation of directors “in their capacity as such” includes the compensation of both deliberative and executive functions and that, accordingly, approval of the compensation of directors who discharge executive functions is subject not only to article 249 of the Corporate Enterprises Law (i.e., the requirement for there to be a contract approved by a two-thirds majority of the board) but also to article 217. Consequently:
- the bylaws must stipulate the compensation scheme for executive functions (although no reference is made to amount); and
- the amount payable for the discharge of executive functions must be included in the maximum annual amount stipulated by the shareholders’ meeting.
The judgment was handed down in connection with a limited liability company and, furthermore, some of its considerations refer specifically to unlisted companies, although it does not clearly and indubitably exclude listed companies (which are, however, subject to specific rules under the compensation policy).
The publication of this Supreme Court judgment gives rise to the need for an individualized analysis of each specific case, so that the appropriate measures can be taken to enable companies to bring their policies into line with its conclusions.
The author of this post is Pablo Vinageras.
Once convinced of the utility of mediation as a method of resolving conflicts between franchisor and franchisee and taken the decision to include a clause in the contracts that provides for it, the last step would be what elements should be taken into account when drafting it.
- The previous negotiation. It seems advisable that both parties grant themselves the possibility of trying to solve the problem with a previous formal negotiation. Mediation does not exclude the previous attempt made by the interested parties or their lawyers; however, it seems advisable to contractually provide a suitable end according to the circumstances. Experience shows that lengthening this phase too long may result in the conflict becoming more complicated and even more difficult to approach mediation.
- The clause may also provide for the place where the mediation will take place. Again at this point the parties are free. It is convenient that this is accurate indicating the concrete city.
- The language in which the mediation will be developed is the a faculty of the parties. There will be no difficulty in mediations in which both parties use the same language, but it is very convenient in contracts with parties that have different languages, or that belong to regions or countries with different co-official languages. The drafting or signing of the contract in a specific language does not presuppose that this must be the language of the mediation. It is an element to be taken into account also when requesting a mediator who can use that language in the chosen mediation institution.
- The procedure can also be decided by the parties. In particular, the number of sessions, the maximum expected duration, the participation of advisors, etc. Keep in mind that the greater or lesser regulation will allow to avoid future conflicts in this respect, although it will also imply a greater limit to the freedom of the parties that, nevertheless, will remain free to modify the agreement by mutual consent.
- The term of the mediation can also be contemplated. This would allow, for example, to prevent mediation from being extended only for purely procedural strategic purposes or to gather information from the other party before starting a procedure, etc. The professional mediators, however, are able to identify these manoeuvres, also having the power to put an end to mediation in those cases.
- Choosing the mediator or the mediation institution is an important choice. The parties can agree on who will be their mediator, indicate in the contract the elements to choose it, or submit directly to a Mediation Institution so that it is the one who designates it according to its own rules. These decisions can be alternatives (that is, that the parties agree on the mediator and, in case of lack of agreement, submit to an institution that names it), or they can be unique. The designation of an Institution requires that it has a sufficient guarantee of stability (avoid designating short-term institutions or without much future guarantee), with a sufficient panel of mediators depending on the characteristics of the mediation (language, competence, experience) and that allows the necessary flexibility for its operation.
- Finally, it is convenient that the clause includes an alternative way in case the mediation does not succeed either because the parties do not reach an agreement, or because they withdraw from the mediation. It is important to recall that mediation does not close the doors to the conflict be resolved by recourse to ordinary jurisdiction or arbitration. And in terms of specialized arbitration in distribution contracts, the IDArb (https://www.idiproject.com/content/idarb-idi-arbitration-project) is an excellent option.
On the topic of the importance of Mediation in Distribution Agreements, you can check out the recording our webinar “Mediation in International Conflicts”
Ceo fraud in Portugal: how to react fast, recover funds and strengthen payment security
- Судебная практика
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Португалия
Spain | Franchising, Theory Of Risk and Guarantees By Franchisee
- Распространение
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Испания
Вьетнам 
Brazil’s New Digital Child Protection Law: Practical Implications for Foreign Tech Companies
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Бразилия
France | Pre-contractual disclosure in distribution and franchise agreements
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Франция
International distribution agreements | Key Clauses and Lessons learned from the history of Nike
- Контракты
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Италия
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Corporate Sustainability in Practice – How Contracts Shape Responsibility
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Finland
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Испания
Spain — Man in the Middle fraud and EU Regulation 2024/886: a paradigm shift
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Испания
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Испания
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Spain — Change to the legal treatment of Executive Directors’ compensation
07.06.2018
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Испания
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The object of this post is the analysis of the new obligations that RDL 6/2019 establishes, in terms of Gender Equality, for all types of companies (regardless the number of workers they have) and, specifically, for those companies that have 50 or more workers.
The main novelty we find in this respect lies in the obligation, for companies with 50 or more workers, to implement an Equality in Business Plan (EBP), in accordance with the provisions of articles 45 and related of the LOIEMH.
Regarding the content and the conditions of implementation of the EBP, we find the following novelties:
- The subjects and minimum content that all EBP must have are listed exhaustively.
- An analysis of the female underrepresentation in the Company is introduced, as a matter that the EBP must contain.
- The diagnosis that the Company must make prior to the preparation of the EBP must be negotiated with the legal representative of the workers.
- A Register of EBP for companies is created, in which all the EBP implemented in the Companies must be registered, regardless of the number of workers they have.
On the other hand, RDL 6/2019 gives a new wording to Article 28 of the Workers’ Statute (WS), which includes the obligation of the Company to comply with the requirement of equal pay for men and women, establishing a series of measures and obligations in charge of the Companies, in order to ensure the effective fulfillment of the salary equality between genders.
In particular, these new measures adopted in article 28 of the WS are:
- What is to be considered as «work of equal value» is specified, in order to facilitate a single concept and eliminate any doubt in this regard.
- Companies have the obligation to keep a Salary Register, with the average values of salaries, salary supplements and extra-salary perceptions of their workforce, differentiated by sex and distributed by professional groups, professional categories or equal work positions value.
- The Salary Registry must be accessible to the legal representatives of the workers.
- In companies with 50 or more workers in which the average remuneration of workers of one sex is higher than the other by 25% or more, a justification for said difference must be included in the Salary Register, and must be certified that it is due to reasons unrelated to the sex of the workers.
The breach, by the Companies, of the obligations in matters of Gender Equality and, in particular, those related to the EBP and equal payment between men and women, may entail the imposition of important sanctions by the Labor Inspector and the “Tesorería General de la Seguridad Social”.
The Spanish Law of the Agency Contract and the European Directive provide for the agent -except in certain cases-, goodwill compensation (clientele) when the relationship is terminated, based on the remuneration received by the Agent during the life of the contract. It is, then, a burden that in general every Principal will have pending when the contract ends.
The temptation is to try to get rid of that payment and for this clients consult us frequently about strategies or tactics. I will try to summarize some of them indicating the chances of success (or not) that may have, both in the negotiation / drafting phase of the contract, and in the resolution phase.
- Change the name of the contract
The first idea is to make a contract «similar» to the agency or call it in a different way (services, intermediation, representation contracts…). However, the change of name does not have any incidence since the contracts «are what they are» and not what the parties call them. So if there is a continued mediation in exchange for remuneration, there is a good chance that a judge will consider it an agency contract, whatever we call it, and with all its consequences.
- Limitation of compensation in the contract
Another temptation in the drafting phase of the contract is to agree compensation less than the maximum legally envisaged, provide for payment in advance for the duration of the contract, or directly eliminate it.
None of these solutions would be valid if they try to reduce the possibility of the Agent to receive the legal maximum, or for reasons not foreseen in the Law or the Directive. The law is imperative.
- Linking different agency contracts
Given that the compensation is calculated according to the remunerations of the last five years and the clientele created, the temptation is to link several shorter contracts to consider only the clients of the last period.
This will not necessarily be a good idea if most of the customers were created last year for instance, but it may also be useless because the Spanish law and the Directive provide that the fixed-term contract that continues to be executed becomes indefinite. The judge may consider all linked contracts as one.
For this strategy to have the possibility of being useful, it would be necessary to liquidate each substituted contract, declare that «nothing has to be claimed by the parties» and that the successive contracts are sufficiently separated and have different entities, drafting, extension, etc. If the procedure is well thought out, it could be a way to get rid of a greater indemnity by clientele: a well-written pact whereby the agent declares the compensation received, and the following contract does not mimic the content and immediately to the previous one.
- Submitting the agreement to a foreign law
In international contracts the temptation is to submit the contract to a right that is not Spanish, particularly when the Principal has that citizenship.
The idea can be good or bad according to the chosen law and as long as it has some relation with the business. As is known, in the EU the Directive establishes minimum conditions that national laws must respect. But nothing prevents these laws from providing more advantageous conditions for agents. This means that, for example, choosing French law would be, in general, a bad idea for the Principal because compensation in that country is usually higher.
In some cases, the choice of a law outside the European Union that does not provide compensation for clientele when the agent is European has been rejected because that the minimum right recognized in the Directive has not been respected.
- Submit the contract to non-national rules and judges
Another less frequent possibility is to submit the contract to rules not from a country, but to general commercial norms (Lex Mercatoria) and to agree on a lower compensation.
This is very uncommon and may not be very useful depending on who is to interpret the contract and where the agent resides. If, for example, the agent resides in Spain and who is going to interpret the contract is a Spanish judge, he will most likely interpret the contract according to his/her own rules without being bound by what the contract envisages. This clause would have been useless.
- Submit the contract to arbitration
The question will be different if the contract is subject to arbitration. In this case, arbitrators are not necessarily subject to interpreting a contract according to their own national regulations if the contract is subject to different one. In this case, it would be possible that they felt freer to consider the contract exclusively, especially when the agent was not of their nationality, did not know what the law of the agent’s country and was not bound by the guarantees provided for his protection.
- Mediation in the agency contract
Mediation is an alternative dispute resolution system that can also be used in agency contracts. In mediation, the parties resolve the dispute by themselves with the help of a mediator.
In this case, given that the mediator is not deciding, it is possible for the parties to freely reach an agreement whereby the agent agrees to a minor indemnification if, for example, other advantages are conferred upon him, if he comes to the conviction of having less right, difficulty of proof, if he prefers to save other costs, time, energy for your new business, etc.
Mediators ensure the balance of the parties, but nothing prevents them to agree a compensation lower than the legal maximum (after the conclusion of the contract it is possible to negotiate a lower than the legal maximum). To foresee the possibility of mediation in the agency contract is, therefore, a good idea: this will permit the parties to better address and negotiate this compensation. In addition, providing for mediation does not limit the rights of any of the parties to withdraw and continue through the courts demanding the legal maximum.
- Imputing to the agent a previous breach
When the contract ends, this is undoubtedly the cause that is most often attempted: when the contract is to be resolved, the Principal tries to argue that the Agent has previously failed to comply and that this is why the contract is being resolved.
The law and the Directive exempt the payment of goodwill compensation when the agent has breach his obligations. But in that case, the Principal must be able to prove it when the agent discusses it. And it will not always be easy. The Principal must provide clear evidence and for this it will be convenient to collect information and documentation on the breach sufficiently and in advance and of sufficient importance (minor breaches are not usually accepted). Therefore, if the Principal wishes to follow this path it is advisable to prepare the arguments and evidences time before the agreement ends. It is strongly recommend contacting an expert advisor as soon as possible: he will help you to minimize the risks.
The procedure to incorporate a foreign owned company in Spain is, in principle, easy and straight forward, however it is necessary to take into account certain new requirements derived from the tax and the anti-money laundering regulations, which could cause long delays in the incorporation process, even to EU and US companies, if they are not well advised and managed from the beginning of the procedure.
The first step consist in collecting information about the foreign shareholder, in order to be able to prove its legal existence and activities: the foreign shareholder(s) will have to grant before a Notary Public in its country of residence a power of attorney authorising somebody in Spain to obtain its tax identification number (“NIE”), and also represent it before the Spanish notary when signing the deed of incorporation. In case the foreign shareholder is an individual person, the NIE should be applied for before the Spanish police or the Spanish Consulate at the country where the investor lives.
If the shareholder is a corporation, apart from the Power of Attorney, it will have to obtain a certificate from its Companies’ Registry or Chamber of Commerce, stating its legal existence and main characteristics. This document is called “good standing certificate” (in the UK and US), “K-bis” (in France), “KvK” (in the Netherlands) or “visura” (in Italy). These two documents, the Power of Attorney mentioned in the above paragraph and the certificate from the Companies’ Registry, will have to be Apostilled or legalized by the correspondent Ministry, and Sworn translated into Spanish. Please note that we use to draft bilingual powers of attorney in order to avoid its sworn translation.
The foreign shareholder will have to prove that its income is obtained from legal activities in order to be able to open a bank account in the name of the new company. The main document to prove this could be the Corporate or the Personal Income Tax return filed in its country of residence, but there could be other means, especially in case of individual persons.
In case of a corporate shareholder, it will be necessary as well to declare, in principle through a public deed granted in Spain, who are the individual persons who, directly or through other companies, will hold more than a 25% interest in the new company to be incorporated. In case nobody holds more than a 25% (i.e. because there are 5 individual shareholders, holding each of them a 20%), it is declared that the effective control of the new company corresponds to its director.
At this stage, it is also necessary to mention that the person(s) who will be the director(s) of the new company, in case they are foreigners, will also need to obtain their personal “NIE”. The NIE should be applied for before the Spanish police (this could be done by a proxy duly authorised though a Power of Attorney granted by the foreign director) or before the Spanish Consulate nearest to the city where the investor lives. In order to be a director of a Spanish company it is not necessary to be a shareholder, nor to have residence and work permit in Spain (provided the foreign director does not live in Spain).
Meanwhile the necessary documents (Powers of Attorney, Companies’ Registry certificate, etc.) are being prepared by the foreign shareholder, the lawyer in Spain will apply for the new company’s name. It is advisable to point out that generic or usual names are not available quite often, therefore it is necessary to think in original names. Three different names could be applied for simultaneously.
The drafting of the company’s Articles of Association or By Laws could be very quick, except if the company is going to have several shareholders and they wish specific clauses. In this case, it is also advisable to draft a Shareholders Agreement. The Shareholders’ Agreement could just contain some basic rules on dedication, compensation, non-competition, etc. and some more sophisticated rules on the sale of shares (tag along and drag along rights). As regards the By-Laws, they should mention the company’s name, its activity or activities, address in Spain –which cannot be just a P.O. Box-, share capital, number of shares and its face value, and starting date for the fiscal year, among other standard clauses.
The management of the company could be organized through a sole director, two directors who could act jointly or separately, and in case there are more than three directors, they should organize themselves through a Board of Directors, being usual in this case to appoint a C.E.O. In order to be a director it is not necessary to be a shareholder. Under Spanish laws, the director(s) could be held liable for some company’s debts under certain circumstances which are legally defined. For this reason, it is necessary that the directors formally accept their appointment (personally appearing before the Notary or through a Power of Attorney).
Before the incorporation, it will be necessary that either the new company’s director (the person to be appointed) or the representative of the corporate shareholder appears personally before the bank where the company will have its first bank account and signs the correspondent documents (KYC regulation). Once the bank account is opened, the shareholder will have to send a bank transfer for the new company’s share capital. In Spain, the minimum share capital for a limited company (S.L.) is Euros 3.000, while for a “Sociedad Anónima” (S.A.) it is Euros 60.000, but only 25% should be paid off at the incorporation moment. It is interesting to note that contributions to the share capital could be made in cash – which is the most common operation, especially at the incorporation – or in kind, with any type of assets: real estate, machinery, goods, trademarks, etc. The money for the share capital should be sent to the new company’s bank account from an account owned by the shareholder (or from each account owned by each shareholder, should they be several ones), not by any other different person. Once the Spanish bank receives the transfer, it will issue a certificate, which is necessary in order to incorporate the company.
Once all the documents are ready, it is possible within very few days (almost immediately) to make the appointment with the Notary and sign the public deed of incorporation. This can be done at any notary in Spain, not being necessary that the notary practises at the same city where the company will have its corporate address. In order to summarize, the list of the necessary documents is:
- Power(s) of Attorney granted by the foreign shareholder(s), apostilled and sworn translated.
- Certificate regarding the legal existence of the foreign shareholder (only if it is a corporation), apostilled and sworn translated.
- Statement on who are the last individual shareholders holding more than 25% interest in the new company, directly or indirectly (only in case of corporate shareholders).
- NIE of the foreign shareholder(s).
- NIE of the new company’s director(s), should they be a foreigners.
- Certificate for the new company’s name.
- Articles of Association.
- Bank certificate regarding the contribution to the new company’s share capital.
The deed of incorporation is signed by the proxy (or the individual shareholder(s), should they prefer to personally appear before the notary) before the chosen public notary, being also necessary to sign an official form to report the foreign investment to a public registry depending on the Spanish Ministry of Finance.
Once the deed of incorporation is signed, the next steps consist in applying before the tax authorities to obtain the new company’s tax number (NIF / CIF) and filing the deed of incorporation before the Companies’ Registry. Some banks do allow new companies to operate once they have the NIF (which could be 2-3 days after the incorporation), while others request to wait until the deed of incorporation is filed at the Companies’ Registry (2-3 weeks).
An estimation of the necessary time to complete all the procedure is 30-45 days, but of course the main delay is related to speed of the foreign investor in obtaining the necessary documents.
Please note that if you wish to incorporate a foreign owned company in Spain it is always necessary to seek specific professional advice, as each case is different and regulations and the application of such regulations vary from time to time. The above article just explains the main steps and requirements for the incorporation of a company.
Arbitration is a well-known system for dispute resolutions, and works as an alternative to judicial procedures. Parties are free to choose this system and to submit their conflicts to specific arbitrators or institutions.
It is usually considered that arbitration is a good way to solve conflicts but preferable to those arisen between big corporations or involving important amounts of money. Although this assumption is generally accepted, there is an alternative for distribution disputes suitable for smaller companies and cases with lower amounts claimed.
And here is the essential question: why a manufacturer/franchisor or a distributor/agent/franchisee should choose a specialized arbitration for their agreements instead of a more general one or, even, a judicial procedure? The answer seems clear: an arbitrator with knowledge not only in procedural questions but in substantive matters will be able to better understand the conflict between the parties and, therefore, to grant a better award. Take into account that, for instance in my Country, Spain, a Judge of First instance can deal in the same day with a distribution contract, a construction case, a conflict between heirs, and a discussion in a community of owners. All of this requires the analysis of different facts and completely different legislations and it is true that specific commercial problems do not usually have judges experts in international trading. But, how to choose a good specialized arbitrator? And, how to choose the arbitral procedure and the institution in terms of organization, neutrality, costs and time?
The IDArb was created in 2016 by the International Distribution Institute (www.idiproject.com) in collaboration with the Chambre de Commerce d’Industries et de Services de Genève (CCIG www.ccig.ch) and the Swiss Chambers’ Arbitration Institution (SCAI www.swissarbitration.org) and offers to the distribution sector (distribution, agency, franchising, selective distribution) a specialized, expedited and affordable arbitration procedure, not only for big international corporations but also for smaller cases. In fact, the expedited procedure is particularly foreseen for amounts below one million CHF (approx. 880.000 €).
The objectives and main characteristics of IDArb which make it suitable for all the distribution disputes are:
- A list of specialized arbitrators experts in this particular field is available for ad hoc or institutional arbitration and IDArb is able to assist the parties to choose one of them.
Specialized arbitrators from different countries and legal cultures have been appointed by a Selecting Committee reviewing their experience in one or more fields of distribution law. Therefore, parties can trust that the arbitrator will have concrete skills in the business with an in-depth understanding of the disputed issues. This is not a general knowledge on commercial law, but a concrete one on distribution, expressly verified by the Committee. Parties can even examine some examples of cases in which every arbitrator has been involved in.
- In order to maintain its high quality, the IDArb organizes training seminars for its appointed arbitrators. In these seminars, they are able to discuss about the general management of the arbitration, the procedural aspects and how to solve possible incidents in collaboration with the Institutions and their Rules. This will make all the proceedings more manageable and the possible difficulties more easily solved. Last seminar took place in Geneva in November 8, 2018 and participants have discussed, amongst other subjects, on evidences, witnesses and document production.
- The expedited arbitration procedure permits the parties to have a tailored procedure managed by SCAI under the Swiss Rules of International Arbitration, specially adapted for small disputes in the field of distribution.
- Time is also an essential element: the award in the expedited procedure will be issued in a maximum term of six months (only exceptional circumstances permit the Court to extend such time-limit), and, if parties agree, it can be decided only on documentary evidence.
- Costs are reasonable and known in advance.
- And, as final but important remark, IDArb has also adopted some recommendations where, upon request of the parties, mediation is favoured, the arbitrator my consider giving a preliminary non-binding and provisional assessment of the dispute and should have a pro-active position in order to facilitate an amicable settlement.
Spanish Law on Entrepreneurship (Law 14/2013) has approved new cases where foreigners from non-European Union countries can obtain the residence permit in Spain through the execution of investments:
- Investments in real estate for an amount equal or higher than € 500.000 (Five Hundred Thousand Euros). The investment can be made in one or more properties, but at least € 500.000 should be free of encumbrances (mortgage, i.e.). If the price is higher than € 500.000, the rest of the amount could be paid through mortgage.
- Financial investments for a value equal or higher than 1 million Euros. This type of investment includes listed and non-listed shares, in case of non-listed shares they could be from already operating companies or newly incorporated ones, investment funds, and deposits in Spanish banks.
- Investment in Spanish sovereign debt for an amount equal or higher than 2 million Euros.
- To carry on a business project in Spain that was considered as being of public interest. To this purpose, one of these conditions should be met: creation of jobs, execution of an investment that has a positive impact in the region where it is located, or a relevant contribution to scientific or technological innovation.
The visa granted through the execution of these investments is valid during at least one year, and in order to obtain the residence permit some other requirements should be met:
- to not stay previously in Spain in an illegal situation,
- to have more than 18 years,
- to not have criminal records,
- to have a health insurance (hired from a company operating in Spain)
- to have financial means for the stay in Spain (i.e. a bank deposit, or income from leases or dividends. Payroll does not qualify for this purpose).
If the above requirements are met, a two years residence and work permit could be granted. After this term, the residence permit can be extended for successive five years periods. The investments should be kept during all these periods. This permit does not request the foreigner to live in Spain for more than six months; therefore it will not be cancelled if the foreigner lives in another country.
The residence and work permit is granted to the individual who executes the investment. If he/she is married and/or has children or ancestors who depend on the investor, it is possible to apply for their visa at the same time or later on. It is possible to execute the investment through a company owned by the investor, provided it is not a company domiciled in a tax heaven country.
The Spanish visa allows free movements within the EU countries (Schengen space). The valid travelling document is the passport.
Foreigners who wish to carry on a self-employment project in Spain could obtain the work and residence permit, but through a different procedure than the above mentioned, and these cases the minimum investment amount is lower.
Investment in real estate
The investment in real estate could be in residential, commercial or industrial properties. The property could be leased to third parties before or after the acquisition, or used by the investor. For ambitious investors, there are several possibilities to structure the investment in buildings and apartments and to a higher return of the investment.
There are some costs related to the acquisition of real estate: the acquisition itself is taxed by Transfer Tax at rates ranging from 6 to 10% on the acquisition price, depending on each Spanish region where the property is located, to be paid by the buyer. Besides, the buyer should pay the Notary Public and Property Registrar’s fees, which approximately amount 3% of the acquisition price (the addition of both of them). These amounts are paid once, when the property is acquired.
The annual costs related to the ownership of real estate in Spain are the following ones:
- IBI or local property tax, whose amount is calculated based on the value and location of the property.
- “Community expenses”, that is those expenses related to the maintenance of the common areas of the building where the property is located: cleaning, lighting, etc.
- In some cases, also a small tax for garbage should be paid to the Town Council.
- Owners should file the Spanish Personal Income Tax Return, and pay a percentage between 1,1% and 2% of the property’s “cadastral value” (official value), in case the property is not leased to a third party. If the property is leased, the owner should also file the Personal Income Tax Return based on the amounts obtained from the lease.
Besides, owners should also pay the expenses related to their property: ordinary maintenance expenses, insurance, electricity and water, etc.
In Spain, the property right is considered as a full right, which implies that the owner can use the property by himself, can lease it to third parties, can mortgage or encumber it, can sell or gift it to any third party and can pass it to his heirs through a will.
The only limits to the use of the property by its owner or the persons appointed by him are those established by the civic rules regarding noises, pets, exterior image of the property, etc.
Regarding the lease of the property, in principle it is free, and the rights and obligations of landlord and tenant are those provided by the private lease agreement entered between both parties and the Spanish Urban Leases Law (Ley de Arrendamientos Urbanos). However, nowadays many Spanish cities (and specially Barcelona) have approved strong limits to the so called touristic leases, which are the short term (days or weeks) leases, and request a special license.
It is important to point out that foreigners who become residents in Spain can grant their will according to Spanish inheritance laws (according to EU Regulation 650/2012), which slightly vary depending on each Spanish region. In Catalonia, for example, the testator can freely appoint who will be his heirs.
Financial investment
Financial investments can be executed through different types of targets, being always the minimum amount 1 million Euros:
- Shares of companies listed in the Spanish Stock Market.
- Shares of non-listed companies, which could be already operating companies or newly incorporated ones. In both cases, there are no limits as regards the percentage of shares that can be owned by foreigners, and the activity sectors restricted to non EU foreign investment are very few (gambling, defense, aviation, TV and radio). Foreigners can be appointed Directors of Spanish companies with the only requirement of having previously obtained the so called “N.I.E.”, which is the Spanish identification number for foreigners.
In case of a newly incorporated company, the € 1 million requested as investment would constitute the company’s share capital, and can be used for the startup of the company’s activities: for example, acquisition of goods, payment of salaries and rentals, payment of purveyors and subcontractors, etc.
Spanish companies have access to all European markets and have a privileged position for trading with Latin American countries.
- Investment funds: Spanish financial entities offer a very wide range of investment funds, from very conservative to high risk.
Deposit in a bank
The main advantage of a real estate investment compared to a financial investment is that the requested amount is only € 500.000 for real estate, while for a financial investment is twice this amount. During the past years since the Law on Entrepreneurship became in force, investment in real estate has been the most popular way for obtaining the residence permit in Spain, probably because at that time (2013-2016) real estate market prices were quite low due to the crash in 2008.
However, the process to acquire a property in Spain is not so easy compared to the acquisition of a share in an investment fund or making a bank deposit: the investor has to choose the property, which normally requires one or two visits to Spain, the price and sale conditions have to negotiated and drafted, the purchase deed has to be signed before a Notary Public (by the investor or his proxy), there are taxes and expenses related to the acquisition, and once the property is acquired, it is necessary to pay ongoing expenses and taxes, and maintain the property in good condition.
Compared to this, the investment in funds or making a bank deposit only requires one visit to the bank by the investor, in order to sign the correspondent documents. There are not related taxes or expenses, and the liquidity of the investment is full (that is, the investment can be sold at any moment, quite probably at the same or at a higher price, but this is not guaranteed for real estate investments).
How to open and operate a bank account in Spain
In Spain, banks apply the regulations regarding anti-money laundering, which include the KYC (Know Your Client) rules and the obligation to prove the legal origin of the funds. The KYC rules imply the need for the investor to appear personally before the bank at least once, previously to operating the bank account. The legal origin of the funds can be proved through different means:
- In case of employees, through the payroll splits, or a certificate issued by the employer, or the investor’s personal income tax return.
- In case of self-employed individuals, through their personal income tax return, or another type of documents proving their professional activity.
- In case of company owners, through the company’s financial statements.
- If the investor has obtained the funds necessary for the investment through personal loans, the loan agreements should be provided, plus the documents proving the legal origin of the funds provided by the lenders.
- Other documents, for example, regarding dividends or income from the lease of properties owned by the investor could be provided.
All documents should be legalized by a Notary Public or the Spanish Consulate, and sworn translated into Spanish.
Please note that this article is aimed to provide a general overview on Spanish rules regarding the above matters, but it does not constitute any kind of comprehensive information on them, and in any case specific legal advice should be sought prior to taking any decision.
In all M&A operations one of the issues that deserves special attention as regards its analysis, ascertainment and negotiation is the tax liabilities. Even though the parties could agree on the amount of such contingencies, to negotiate the possible guarantees that the seller should grant in order to protect the buyer from a possible claim by the tax authorities, the term during which the guarantees should be in force, and to agree on the communication mechanisms between the parties (buyer and seller) and the legal defense strategies if such claim from the tax authorities arises, requires substantial negotiation efforts.
When the acquisition operation is formalized not through the purchase of shares, but through the purchase of the assets that form a business unit, the Spanish General Tax Law (“Ley General Tributaria” or “LGT”) provides a mechanism which implies an exception to the general principle provided by article 42 of the same law. Article 42 of LGT establishes the joint liability of the purchaser of a business unit for the tax liabilities of the selling company (“tax liability derived from company’s succession”). That is, in principle, according to article 42 of the LGT “the persons or entities that continue by any mean in the ownership or exercise of economic activities (the buyers) will be jointly liable with the previous owner for the tax liabilities derived from the exercise of such economic activities incurred by such previous owner”.
However, the joint tax liability of the buyer could be limited through the application before the tax authorities of the tax certificate regulated by article 175.2 of the LGT. This certificate should be applied for by the prospective buyer, with the authorization of the present owner (the seller), and, once issued, the tax liability of the buyer becomes limited to the debts, penalties and liabilities mentioned in the certificate. If the certificate is issued without mentioning any amount, or if the tax authorities do not issue it within a three months term from the application’s date, the applicant (the buyer) will be released from any tax liability derived from company’s succession.
The tax certificate for succession purposes includes the main taxes, as Value Added Tax and Corporate Income Tax, and can include as well debts derived from the withholding taxes on employees’ payroll, which in case of companies with a big number of employees could be of an outstanding amount. However, the buyer’s joint liability for salaries, related payroll amounts and social security contributions cannot be limited by such certificate, and such liability will always be joint with the business unit seller’s liability.
The application for the tax certificate should be filed before the acquisition of the business unit is completed, even if the issuance of the certificate takes place later tan the closing date (but of course, it is wiser to not close the acquisition before having the certificate). The certificate’s validity lasts for one year, as regards periodical tax obligations (for example, Value Added Tax, Corporate Income Tax and withholding taxes on salaries) and for three months as regards non periodical tax obligations.
It is very important to apply for the right tax certificate (“certificate for succession purposes according to article 175.2 of LGT”), and to not make a mistake and apply, for example, for the certificate regarding having fulfilled all tax obligations (“certificado de estar al corriente de las obligaciones fiscales”). Case law is plenty of judgments where a buyer applied for the wrong certificate, which showed no liabilities, and later on such buyer has been sentenced to pay the tax liabilities incurred by the previous owner of the business unit.
The remuneration of directors is an intricate issue and one that deserves adequate treatment. Recently there has been a turn that deserves special attention.
In its judgment of February 26, 2018, the Supreme Court modified the interpretation given by most experts and authorities and by the Directorate-General of Registries and the Notarial Profession in its decision dated June 17, 2016, ratified by the Barcelona Provincial Appellate Court in its decision 295/2017 of June 30, 2017, on the regulation of executive directors’ compensation.
In its judgment, the Supreme Court held that the compensation of directors “in their capacity as such” includes the compensation of both deliberative and executive functions and that, accordingly, approval of the compensation of directors who discharge executive functions is subject not only to article 249 of the Corporate Enterprises Law (i.e., the requirement for there to be a contract approved by a two-thirds majority of the board) but also to article 217. Consequently:
- the bylaws must stipulate the compensation scheme for executive functions (although no reference is made to amount); and
- the amount payable for the discharge of executive functions must be included in the maximum annual amount stipulated by the shareholders’ meeting.
The judgment was handed down in connection with a limited liability company and, furthermore, some of its considerations refer specifically to unlisted companies, although it does not clearly and indubitably exclude listed companies (which are, however, subject to specific rules under the compensation policy).
The publication of this Supreme Court judgment gives rise to the need for an individualized analysis of each specific case, so that the appropriate measures can be taken to enable companies to bring their policies into line with its conclusions.
The author of this post is Pablo Vinageras.
Once convinced of the utility of mediation as a method of resolving conflicts between franchisor and franchisee and taken the decision to include a clause in the contracts that provides for it, the last step would be what elements should be taken into account when drafting it.
- The previous negotiation. It seems advisable that both parties grant themselves the possibility of trying to solve the problem with a previous formal negotiation. Mediation does not exclude the previous attempt made by the interested parties or their lawyers; however, it seems advisable to contractually provide a suitable end according to the circumstances. Experience shows that lengthening this phase too long may result in the conflict becoming more complicated and even more difficult to approach mediation.
- The clause may also provide for the place where the mediation will take place. Again at this point the parties are free. It is convenient that this is accurate indicating the concrete city.
- The language in which the mediation will be developed is the a faculty of the parties. There will be no difficulty in mediations in which both parties use the same language, but it is very convenient in contracts with parties that have different languages, or that belong to regions or countries with different co-official languages. The drafting or signing of the contract in a specific language does not presuppose that this must be the language of the mediation. It is an element to be taken into account also when requesting a mediator who can use that language in the chosen mediation institution.
- The procedure can also be decided by the parties. In particular, the number of sessions, the maximum expected duration, the participation of advisors, etc. Keep in mind that the greater or lesser regulation will allow to avoid future conflicts in this respect, although it will also imply a greater limit to the freedom of the parties that, nevertheless, will remain free to modify the agreement by mutual consent.
- The term of the mediation can also be contemplated. This would allow, for example, to prevent mediation from being extended only for purely procedural strategic purposes or to gather information from the other party before starting a procedure, etc. The professional mediators, however, are able to identify these manoeuvres, also having the power to put an end to mediation in those cases.
- Choosing the mediator or the mediation institution is an important choice. The parties can agree on who will be their mediator, indicate in the contract the elements to choose it, or submit directly to a Mediation Institution so that it is the one who designates it according to its own rules. These decisions can be alternatives (that is, that the parties agree on the mediator and, in case of lack of agreement, submit to an institution that names it), or they can be unique. The designation of an Institution requires that it has a sufficient guarantee of stability (avoid designating short-term institutions or without much future guarantee), with a sufficient panel of mediators depending on the characteristics of the mediation (language, competence, experience) and that allows the necessary flexibility for its operation.
- Finally, it is convenient that the clause includes an alternative way in case the mediation does not succeed either because the parties do not reach an agreement, or because they withdraw from the mediation. It is important to recall that mediation does not close the doors to the conflict be resolved by recourse to ordinary jurisdiction or arbitration. And in terms of specialized arbitration in distribution contracts, the IDArb (https://www.idiproject.com/content/idarb-idi-arbitration-project) is an excellent option.
On the topic of the importance of Mediation in Distribution Agreements, you can check out the recording our webinar “Mediation in International Conflicts”
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The object of this post is the analysis of the new obligations that RDL 6/2019 establishes, in terms of Gender Equality, for all types of companies (regardless the number of workers they have) and, specifically, for those companies that have 50 or more workers.
The main novelty we find in this respect lies in the obligation, for companies with 50 or more workers, to implement an Equality in Business Plan (EBP), in accordance with the provisions of articles 45 and related of the LOIEMH.
Regarding the content and the conditions of implementation of the EBP, we find the following novelties:
- The subjects and minimum content that all EBP must have are listed exhaustively.
- An analysis of the female underrepresentation in the Company is introduced, as a matter that the EBP must contain.
- The diagnosis that the Company must make prior to the preparation of the EBP must be negotiated with the legal representative of the workers.
- A Register of EBP for companies is created, in which all the EBP implemented in the Companies must be registered, regardless of the number of workers they have.
On the other hand, RDL 6/2019 gives a new wording to Article 28 of the Workers’ Statute (WS), which includes the obligation of the Company to comply with the requirement of equal pay for men and women, establishing a series of measures and obligations in charge of the Companies, in order to ensure the effective fulfillment of the salary equality between genders.
In particular, these new measures adopted in article 28 of the WS are:
- What is to be considered as «work of equal value» is specified, in order to facilitate a single concept and eliminate any doubt in this regard.
- Companies have the obligation to keep a Salary Register, with the average values of salaries, salary supplements and extra-salary perceptions of their workforce, differentiated by sex and distributed by professional groups, professional categories or equal work positions value.
- The Salary Registry must be accessible to the legal representatives of the workers.
- In companies with 50 or more workers in which the average remuneration of workers of one sex is higher than the other by 25% or more, a justification for said difference must be included in the Salary Register, and must be certified that it is due to reasons unrelated to the sex of the workers.
The breach, by the Companies, of the obligations in matters of Gender Equality and, in particular, those related to the EBP and equal payment between men and women, may entail the imposition of important sanctions by the Labor Inspector and the “Tesorería General de la Seguridad Social”.
The Spanish Law of the Agency Contract and the European Directive provide for the agent -except in certain cases-, goodwill compensation (clientele) when the relationship is terminated, based on the remuneration received by the Agent during the life of the contract. It is, then, a burden that in general every Principal will have pending when the contract ends.
The temptation is to try to get rid of that payment and for this clients consult us frequently about strategies or tactics. I will try to summarize some of them indicating the chances of success (or not) that may have, both in the negotiation / drafting phase of the contract, and in the resolution phase.
- Change the name of the contract
The first idea is to make a contract «similar» to the agency or call it in a different way (services, intermediation, representation contracts…). However, the change of name does not have any incidence since the contracts «are what they are» and not what the parties call them. So if there is a continued mediation in exchange for remuneration, there is a good chance that a judge will consider it an agency contract, whatever we call it, and with all its consequences.
- Limitation of compensation in the contract
Another temptation in the drafting phase of the contract is to agree compensation less than the maximum legally envisaged, provide for payment in advance for the duration of the contract, or directly eliminate it.
None of these solutions would be valid if they try to reduce the possibility of the Agent to receive the legal maximum, or for reasons not foreseen in the Law or the Directive. The law is imperative.
- Linking different agency contracts
Given that the compensation is calculated according to the remunerations of the last five years and the clientele created, the temptation is to link several shorter contracts to consider only the clients of the last period.
This will not necessarily be a good idea if most of the customers were created last year for instance, but it may also be useless because the Spanish law and the Directive provide that the fixed-term contract that continues to be executed becomes indefinite. The judge may consider all linked contracts as one.
For this strategy to have the possibility of being useful, it would be necessary to liquidate each substituted contract, declare that «nothing has to be claimed by the parties» and that the successive contracts are sufficiently separated and have different entities, drafting, extension, etc. If the procedure is well thought out, it could be a way to get rid of a greater indemnity by clientele: a well-written pact whereby the agent declares the compensation received, and the following contract does not mimic the content and immediately to the previous one.
- Submitting the agreement to a foreign law
In international contracts the temptation is to submit the contract to a right that is not Spanish, particularly when the Principal has that citizenship.
The idea can be good or bad according to the chosen law and as long as it has some relation with the business. As is known, in the EU the Directive establishes minimum conditions that national laws must respect. But nothing prevents these laws from providing more advantageous conditions for agents. This means that, for example, choosing French law would be, in general, a bad idea for the Principal because compensation in that country is usually higher.
In some cases, the choice of a law outside the European Union that does not provide compensation for clientele when the agent is European has been rejected because that the minimum right recognized in the Directive has not been respected.
- Submit the contract to non-national rules and judges
Another less frequent possibility is to submit the contract to rules not from a country, but to general commercial norms (Lex Mercatoria) and to agree on a lower compensation.
This is very uncommon and may not be very useful depending on who is to interpret the contract and where the agent resides. If, for example, the agent resides in Spain and who is going to interpret the contract is a Spanish judge, he will most likely interpret the contract according to his/her own rules without being bound by what the contract envisages. This clause would have been useless.
- Submit the contract to arbitration
The question will be different if the contract is subject to arbitration. In this case, arbitrators are not necessarily subject to interpreting a contract according to their own national regulations if the contract is subject to different one. In this case, it would be possible that they felt freer to consider the contract exclusively, especially when the agent was not of their nationality, did not know what the law of the agent’s country and was not bound by the guarantees provided for his protection.
- Mediation in the agency contract
Mediation is an alternative dispute resolution system that can also be used in agency contracts. In mediation, the parties resolve the dispute by themselves with the help of a mediator.
In this case, given that the mediator is not deciding, it is possible for the parties to freely reach an agreement whereby the agent agrees to a minor indemnification if, for example, other advantages are conferred upon him, if he comes to the conviction of having less right, difficulty of proof, if he prefers to save other costs, time, energy for your new business, etc.
Mediators ensure the balance of the parties, but nothing prevents them to agree a compensation lower than the legal maximum (after the conclusion of the contract it is possible to negotiate a lower than the legal maximum). To foresee the possibility of mediation in the agency contract is, therefore, a good idea: this will permit the parties to better address and negotiate this compensation. In addition, providing for mediation does not limit the rights of any of the parties to withdraw and continue through the courts demanding the legal maximum.
- Imputing to the agent a previous breach
When the contract ends, this is undoubtedly the cause that is most often attempted: when the contract is to be resolved, the Principal tries to argue that the Agent has previously failed to comply and that this is why the contract is being resolved.
The law and the Directive exempt the payment of goodwill compensation when the agent has breach his obligations. But in that case, the Principal must be able to prove it when the agent discusses it. And it will not always be easy. The Principal must provide clear evidence and for this it will be convenient to collect information and documentation on the breach sufficiently and in advance and of sufficient importance (minor breaches are not usually accepted). Therefore, if the Principal wishes to follow this path it is advisable to prepare the arguments and evidences time before the agreement ends. It is strongly recommend contacting an expert advisor as soon as possible: he will help you to minimize the risks.
The procedure to incorporate a foreign owned company in Spain is, in principle, easy and straight forward, however it is necessary to take into account certain new requirements derived from the tax and the anti-money laundering regulations, which could cause long delays in the incorporation process, even to EU and US companies, if they are not well advised and managed from the beginning of the procedure.
The first step consist in collecting information about the foreign shareholder, in order to be able to prove its legal existence and activities: the foreign shareholder(s) will have to grant before a Notary Public in its country of residence a power of attorney authorising somebody in Spain to obtain its tax identification number (“NIE”), and also represent it before the Spanish notary when signing the deed of incorporation. In case the foreign shareholder is an individual person, the NIE should be applied for before the Spanish police or the Spanish Consulate at the country where the investor lives.
If the shareholder is a corporation, apart from the Power of Attorney, it will have to obtain a certificate from its Companies’ Registry or Chamber of Commerce, stating its legal existence and main characteristics. This document is called “good standing certificate” (in the UK and US), “K-bis” (in France), “KvK” (in the Netherlands) or “visura” (in Italy). These two documents, the Power of Attorney mentioned in the above paragraph and the certificate from the Companies’ Registry, will have to be Apostilled or legalized by the correspondent Ministry, and Sworn translated into Spanish. Please note that we use to draft bilingual powers of attorney in order to avoid its sworn translation.
The foreign shareholder will have to prove that its income is obtained from legal activities in order to be able to open a bank account in the name of the new company. The main document to prove this could be the Corporate or the Personal Income Tax return filed in its country of residence, but there could be other means, especially in case of individual persons.
In case of a corporate shareholder, it will be necessary as well to declare, in principle through a public deed granted in Spain, who are the individual persons who, directly or through other companies, will hold more than a 25% interest in the new company to be incorporated. In case nobody holds more than a 25% (i.e. because there are 5 individual shareholders, holding each of them a 20%), it is declared that the effective control of the new company corresponds to its director.
At this stage, it is also necessary to mention that the person(s) who will be the director(s) of the new company, in case they are foreigners, will also need to obtain their personal “NIE”. The NIE should be applied for before the Spanish police (this could be done by a proxy duly authorised though a Power of Attorney granted by the foreign director) or before the Spanish Consulate nearest to the city where the investor lives. In order to be a director of a Spanish company it is not necessary to be a shareholder, nor to have residence and work permit in Spain (provided the foreign director does not live in Spain).
Meanwhile the necessary documents (Powers of Attorney, Companies’ Registry certificate, etc.) are being prepared by the foreign shareholder, the lawyer in Spain will apply for the new company’s name. It is advisable to point out that generic or usual names are not available quite often, therefore it is necessary to think in original names. Three different names could be applied for simultaneously.
The drafting of the company’s Articles of Association or By Laws could be very quick, except if the company is going to have several shareholders and they wish specific clauses. In this case, it is also advisable to draft a Shareholders Agreement. The Shareholders’ Agreement could just contain some basic rules on dedication, compensation, non-competition, etc. and some more sophisticated rules on the sale of shares (tag along and drag along rights). As regards the By-Laws, they should mention the company’s name, its activity or activities, address in Spain –which cannot be just a P.O. Box-, share capital, number of shares and its face value, and starting date for the fiscal year, among other standard clauses.
The management of the company could be organized through a sole director, two directors who could act jointly or separately, and in case there are more than three directors, they should organize themselves through a Board of Directors, being usual in this case to appoint a C.E.O. In order to be a director it is not necessary to be a shareholder. Under Spanish laws, the director(s) could be held liable for some company’s debts under certain circumstances which are legally defined. For this reason, it is necessary that the directors formally accept their appointment (personally appearing before the Notary or through a Power of Attorney).
Before the incorporation, it will be necessary that either the new company’s director (the person to be appointed) or the representative of the corporate shareholder appears personally before the bank where the company will have its first bank account and signs the correspondent documents (KYC regulation). Once the bank account is opened, the shareholder will have to send a bank transfer for the new company’s share capital. In Spain, the minimum share capital for a limited company (S.L.) is Euros 3.000, while for a “Sociedad Anónima” (S.A.) it is Euros 60.000, but only 25% should be paid off at the incorporation moment. It is interesting to note that contributions to the share capital could be made in cash – which is the most common operation, especially at the incorporation – or in kind, with any type of assets: real estate, machinery, goods, trademarks, etc. The money for the share capital should be sent to the new company’s bank account from an account owned by the shareholder (or from each account owned by each shareholder, should they be several ones), not by any other different person. Once the Spanish bank receives the transfer, it will issue a certificate, which is necessary in order to incorporate the company.
Once all the documents are ready, it is possible within very few days (almost immediately) to make the appointment with the Notary and sign the public deed of incorporation. This can be done at any notary in Spain, not being necessary that the notary practises at the same city where the company will have its corporate address. In order to summarize, the list of the necessary documents is:
- Power(s) of Attorney granted by the foreign shareholder(s), apostilled and sworn translated.
- Certificate regarding the legal existence of the foreign shareholder (only if it is a corporation), apostilled and sworn translated.
- Statement on who are the last individual shareholders holding more than 25% interest in the new company, directly or indirectly (only in case of corporate shareholders).
- NIE of the foreign shareholder(s).
- NIE of the new company’s director(s), should they be a foreigners.
- Certificate for the new company’s name.
- Articles of Association.
- Bank certificate regarding the contribution to the new company’s share capital.
The deed of incorporation is signed by the proxy (or the individual shareholder(s), should they prefer to personally appear before the notary) before the chosen public notary, being also necessary to sign an official form to report the foreign investment to a public registry depending on the Spanish Ministry of Finance.
Once the deed of incorporation is signed, the next steps consist in applying before the tax authorities to obtain the new company’s tax number (NIF / CIF) and filing the deed of incorporation before the Companies’ Registry. Some banks do allow new companies to operate once they have the NIF (which could be 2-3 days after the incorporation), while others request to wait until the deed of incorporation is filed at the Companies’ Registry (2-3 weeks).
An estimation of the necessary time to complete all the procedure is 30-45 days, but of course the main delay is related to speed of the foreign investor in obtaining the necessary documents.
Please note that if you wish to incorporate a foreign owned company in Spain it is always necessary to seek specific professional advice, as each case is different and regulations and the application of such regulations vary from time to time. The above article just explains the main steps and requirements for the incorporation of a company.
Arbitration is a well-known system for dispute resolutions, and works as an alternative to judicial procedures. Parties are free to choose this system and to submit their conflicts to specific arbitrators or institutions.
It is usually considered that arbitration is a good way to solve conflicts but preferable to those arisen between big corporations or involving important amounts of money. Although this assumption is generally accepted, there is an alternative for distribution disputes suitable for smaller companies and cases with lower amounts claimed.
And here is the essential question: why a manufacturer/franchisor or a distributor/agent/franchisee should choose a specialized arbitration for their agreements instead of a more general one or, even, a judicial procedure? The answer seems clear: an arbitrator with knowledge not only in procedural questions but in substantive matters will be able to better understand the conflict between the parties and, therefore, to grant a better award. Take into account that, for instance in my Country, Spain, a Judge of First instance can deal in the same day with a distribution contract, a construction case, a conflict between heirs, and a discussion in a community of owners. All of this requires the analysis of different facts and completely different legislations and it is true that specific commercial problems do not usually have judges experts in international trading. But, how to choose a good specialized arbitrator? And, how to choose the arbitral procedure and the institution in terms of organization, neutrality, costs and time?
The IDArb was created in 2016 by the International Distribution Institute (www.idiproject.com) in collaboration with the Chambre de Commerce d’Industries et de Services de Genève (CCIG www.ccig.ch) and the Swiss Chambers’ Arbitration Institution (SCAI www.swissarbitration.org) and offers to the distribution sector (distribution, agency, franchising, selective distribution) a specialized, expedited and affordable arbitration procedure, not only for big international corporations but also for smaller cases. In fact, the expedited procedure is particularly foreseen for amounts below one million CHF (approx. 880.000 €).
The objectives and main characteristics of IDArb which make it suitable for all the distribution disputes are:
- A list of specialized arbitrators experts in this particular field is available for ad hoc or institutional arbitration and IDArb is able to assist the parties to choose one of them.
Specialized arbitrators from different countries and legal cultures have been appointed by a Selecting Committee reviewing their experience in one or more fields of distribution law. Therefore, parties can trust that the arbitrator will have concrete skills in the business with an in-depth understanding of the disputed issues. This is not a general knowledge on commercial law, but a concrete one on distribution, expressly verified by the Committee. Parties can even examine some examples of cases in which every arbitrator has been involved in.
- In order to maintain its high quality, the IDArb organizes training seminars for its appointed arbitrators. In these seminars, they are able to discuss about the general management of the arbitration, the procedural aspects and how to solve possible incidents in collaboration with the Institutions and their Rules. This will make all the proceedings more manageable and the possible difficulties more easily solved. Last seminar took place in Geneva in November 8, 2018 and participants have discussed, amongst other subjects, on evidences, witnesses and document production.
- The expedited arbitration procedure permits the parties to have a tailored procedure managed by SCAI under the Swiss Rules of International Arbitration, specially adapted for small disputes in the field of distribution.
- Time is also an essential element: the award in the expedited procedure will be issued in a maximum term of six months (only exceptional circumstances permit the Court to extend such time-limit), and, if parties agree, it can be decided only on documentary evidence.
- Costs are reasonable and known in advance.
- And, as final but important remark, IDArb has also adopted some recommendations where, upon request of the parties, mediation is favoured, the arbitrator my consider giving a preliminary non-binding and provisional assessment of the dispute and should have a pro-active position in order to facilitate an amicable settlement.
Spanish Law on Entrepreneurship (Law 14/2013) has approved new cases where foreigners from non-European Union countries can obtain the residence permit in Spain through the execution of investments:
- Investments in real estate for an amount equal or higher than € 500.000 (Five Hundred Thousand Euros). The investment can be made in one or more properties, but at least € 500.000 should be free of encumbrances (mortgage, i.e.). If the price is higher than € 500.000, the rest of the amount could be paid through mortgage.
- Financial investments for a value equal or higher than 1 million Euros. This type of investment includes listed and non-listed shares, in case of non-listed shares they could be from already operating companies or newly incorporated ones, investment funds, and deposits in Spanish banks.
- Investment in Spanish sovereign debt for an amount equal or higher than 2 million Euros.
- To carry on a business project in Spain that was considered as being of public interest. To this purpose, one of these conditions should be met: creation of jobs, execution of an investment that has a positive impact in the region where it is located, or a relevant contribution to scientific or technological innovation.
The visa granted through the execution of these investments is valid during at least one year, and in order to obtain the residence permit some other requirements should be met:
- to not stay previously in Spain in an illegal situation,
- to have more than 18 years,
- to not have criminal records,
- to have a health insurance (hired from a company operating in Spain)
- to have financial means for the stay in Spain (i.e. a bank deposit, or income from leases or dividends. Payroll does not qualify for this purpose).
If the above requirements are met, a two years residence and work permit could be granted. After this term, the residence permit can be extended for successive five years periods. The investments should be kept during all these periods. This permit does not request the foreigner to live in Spain for more than six months; therefore it will not be cancelled if the foreigner lives in another country.
The residence and work permit is granted to the individual who executes the investment. If he/she is married and/or has children or ancestors who depend on the investor, it is possible to apply for their visa at the same time or later on. It is possible to execute the investment through a company owned by the investor, provided it is not a company domiciled in a tax heaven country.
The Spanish visa allows free movements within the EU countries (Schengen space). The valid travelling document is the passport.
Foreigners who wish to carry on a self-employment project in Spain could obtain the work and residence permit, but through a different procedure than the above mentioned, and these cases the minimum investment amount is lower.
Investment in real estate
The investment in real estate could be in residential, commercial or industrial properties. The property could be leased to third parties before or after the acquisition, or used by the investor. For ambitious investors, there are several possibilities to structure the investment in buildings and apartments and to a higher return of the investment.
There are some costs related to the acquisition of real estate: the acquisition itself is taxed by Transfer Tax at rates ranging from 6 to 10% on the acquisition price, depending on each Spanish region where the property is located, to be paid by the buyer. Besides, the buyer should pay the Notary Public and Property Registrar’s fees, which approximately amount 3% of the acquisition price (the addition of both of them). These amounts are paid once, when the property is acquired.
The annual costs related to the ownership of real estate in Spain are the following ones:
- IBI or local property tax, whose amount is calculated based on the value and location of the property.
- “Community expenses”, that is those expenses related to the maintenance of the common areas of the building where the property is located: cleaning, lighting, etc.
- In some cases, also a small tax for garbage should be paid to the Town Council.
- Owners should file the Spanish Personal Income Tax Return, and pay a percentage between 1,1% and 2% of the property’s “cadastral value” (official value), in case the property is not leased to a third party. If the property is leased, the owner should also file the Personal Income Tax Return based on the amounts obtained from the lease.
Besides, owners should also pay the expenses related to their property: ordinary maintenance expenses, insurance, electricity and water, etc.
In Spain, the property right is considered as a full right, which implies that the owner can use the property by himself, can lease it to third parties, can mortgage or encumber it, can sell or gift it to any third party and can pass it to his heirs through a will.
The only limits to the use of the property by its owner or the persons appointed by him are those established by the civic rules regarding noises, pets, exterior image of the property, etc.
Regarding the lease of the property, in principle it is free, and the rights and obligations of landlord and tenant are those provided by the private lease agreement entered between both parties and the Spanish Urban Leases Law (Ley de Arrendamientos Urbanos). However, nowadays many Spanish cities (and specially Barcelona) have approved strong limits to the so called touristic leases, which are the short term (days or weeks) leases, and request a special license.
It is important to point out that foreigners who become residents in Spain can grant their will according to Spanish inheritance laws (according to EU Regulation 650/2012), which slightly vary depending on each Spanish region. In Catalonia, for example, the testator can freely appoint who will be his heirs.
Financial investment
Financial investments can be executed through different types of targets, being always the minimum amount 1 million Euros:
- Shares of companies listed in the Spanish Stock Market.
- Shares of non-listed companies, which could be already operating companies or newly incorporated ones. In both cases, there are no limits as regards the percentage of shares that can be owned by foreigners, and the activity sectors restricted to non EU foreign investment are very few (gambling, defense, aviation, TV and radio). Foreigners can be appointed Directors of Spanish companies with the only requirement of having previously obtained the so called “N.I.E.”, which is the Spanish identification number for foreigners.
In case of a newly incorporated company, the € 1 million requested as investment would constitute the company’s share capital, and can be used for the startup of the company’s activities: for example, acquisition of goods, payment of salaries and rentals, payment of purveyors and subcontractors, etc.
Spanish companies have access to all European markets and have a privileged position for trading with Latin American countries.
- Investment funds: Spanish financial entities offer a very wide range of investment funds, from very conservative to high risk.
Deposit in a bank
The main advantage of a real estate investment compared to a financial investment is that the requested amount is only € 500.000 for real estate, while for a financial investment is twice this amount. During the past years since the Law on Entrepreneurship became in force, investment in real estate has been the most popular way for obtaining the residence permit in Spain, probably because at that time (2013-2016) real estate market prices were quite low due to the crash in 2008.
However, the process to acquire a property in Spain is not so easy compared to the acquisition of a share in an investment fund or making a bank deposit: the investor has to choose the property, which normally requires one or two visits to Spain, the price and sale conditions have to negotiated and drafted, the purchase deed has to be signed before a Notary Public (by the investor or his proxy), there are taxes and expenses related to the acquisition, and once the property is acquired, it is necessary to pay ongoing expenses and taxes, and maintain the property in good condition.
Compared to this, the investment in funds or making a bank deposit only requires one visit to the bank by the investor, in order to sign the correspondent documents. There are not related taxes or expenses, and the liquidity of the investment is full (that is, the investment can be sold at any moment, quite probably at the same or at a higher price, but this is not guaranteed for real estate investments).
How to open and operate a bank account in Spain
In Spain, banks apply the regulations regarding anti-money laundering, which include the KYC (Know Your Client) rules and the obligation to prove the legal origin of the funds. The KYC rules imply the need for the investor to appear personally before the bank at least once, previously to operating the bank account. The legal origin of the funds can be proved through different means:
- In case of employees, through the payroll splits, or a certificate issued by the employer, or the investor’s personal income tax return.
- In case of self-employed individuals, through their personal income tax return, or another type of documents proving their professional activity.
- In case of company owners, through the company’s financial statements.
- If the investor has obtained the funds necessary for the investment through personal loans, the loan agreements should be provided, plus the documents proving the legal origin of the funds provided by the lenders.
- Other documents, for example, regarding dividends or income from the lease of properties owned by the investor could be provided.
All documents should be legalized by a Notary Public or the Spanish Consulate, and sworn translated into Spanish.
Please note that this article is aimed to provide a general overview on Spanish rules regarding the above matters, but it does not constitute any kind of comprehensive information on them, and in any case specific legal advice should be sought prior to taking any decision.
In all M&A operations one of the issues that deserves special attention as regards its analysis, ascertainment and negotiation is the tax liabilities. Even though the parties could agree on the amount of such contingencies, to negotiate the possible guarantees that the seller should grant in order to protect the buyer from a possible claim by the tax authorities, the term during which the guarantees should be in force, and to agree on the communication mechanisms between the parties (buyer and seller) and the legal defense strategies if such claim from the tax authorities arises, requires substantial negotiation efforts.
When the acquisition operation is formalized not through the purchase of shares, but through the purchase of the assets that form a business unit, the Spanish General Tax Law (“Ley General Tributaria” or “LGT”) provides a mechanism which implies an exception to the general principle provided by article 42 of the same law. Article 42 of LGT establishes the joint liability of the purchaser of a business unit for the tax liabilities of the selling company (“tax liability derived from company’s succession”). That is, in principle, according to article 42 of the LGT “the persons or entities that continue by any mean in the ownership or exercise of economic activities (the buyers) will be jointly liable with the previous owner for the tax liabilities derived from the exercise of such economic activities incurred by such previous owner”.
However, the joint tax liability of the buyer could be limited through the application before the tax authorities of the tax certificate regulated by article 175.2 of the LGT. This certificate should be applied for by the prospective buyer, with the authorization of the present owner (the seller), and, once issued, the tax liability of the buyer becomes limited to the debts, penalties and liabilities mentioned in the certificate. If the certificate is issued without mentioning any amount, or if the tax authorities do not issue it within a three months term from the application’s date, the applicant (the buyer) will be released from any tax liability derived from company’s succession.
The tax certificate for succession purposes includes the main taxes, as Value Added Tax and Corporate Income Tax, and can include as well debts derived from the withholding taxes on employees’ payroll, which in case of companies with a big number of employees could be of an outstanding amount. However, the buyer’s joint liability for salaries, related payroll amounts and social security contributions cannot be limited by such certificate, and such liability will always be joint with the business unit seller’s liability.
The application for the tax certificate should be filed before the acquisition of the business unit is completed, even if the issuance of the certificate takes place later tan the closing date (but of course, it is wiser to not close the acquisition before having the certificate). The certificate’s validity lasts for one year, as regards periodical tax obligations (for example, Value Added Tax, Corporate Income Tax and withholding taxes on salaries) and for three months as regards non periodical tax obligations.
It is very important to apply for the right tax certificate (“certificate for succession purposes according to article 175.2 of LGT”), and to not make a mistake and apply, for example, for the certificate regarding having fulfilled all tax obligations (“certificado de estar al corriente de las obligaciones fiscales”). Case law is plenty of judgments where a buyer applied for the wrong certificate, which showed no liabilities, and later on such buyer has been sentenced to pay the tax liabilities incurred by the previous owner of the business unit.
The remuneration of directors is an intricate issue and one that deserves adequate treatment. Recently there has been a turn that deserves special attention.
In its judgment of February 26, 2018, the Supreme Court modified the interpretation given by most experts and authorities and by the Directorate-General of Registries and the Notarial Profession in its decision dated June 17, 2016, ratified by the Barcelona Provincial Appellate Court in its decision 295/2017 of June 30, 2017, on the regulation of executive directors’ compensation.
In its judgment, the Supreme Court held that the compensation of directors “in their capacity as such” includes the compensation of both deliberative and executive functions and that, accordingly, approval of the compensation of directors who discharge executive functions is subject not only to article 249 of the Corporate Enterprises Law (i.e., the requirement for there to be a contract approved by a two-thirds majority of the board) but also to article 217. Consequently:
- the bylaws must stipulate the compensation scheme for executive functions (although no reference is made to amount); and
- the amount payable for the discharge of executive functions must be included in the maximum annual amount stipulated by the shareholders’ meeting.
The judgment was handed down in connection with a limited liability company and, furthermore, some of its considerations refer specifically to unlisted companies, although it does not clearly and indubitably exclude listed companies (which are, however, subject to specific rules under the compensation policy).
The publication of this Supreme Court judgment gives rise to the need for an individualized analysis of each specific case, so that the appropriate measures can be taken to enable companies to bring their policies into line with its conclusions.
The author of this post is Pablo Vinageras.
Once convinced of the utility of mediation as a method of resolving conflicts between franchisor and franchisee and taken the decision to include a clause in the contracts that provides for it, the last step would be what elements should be taken into account when drafting it.
- The previous negotiation. It seems advisable that both parties grant themselves the possibility of trying to solve the problem with a previous formal negotiation. Mediation does not exclude the previous attempt made by the interested parties or their lawyers; however, it seems advisable to contractually provide a suitable end according to the circumstances. Experience shows that lengthening this phase too long may result in the conflict becoming more complicated and even more difficult to approach mediation.
- The clause may also provide for the place where the mediation will take place. Again at this point the parties are free. It is convenient that this is accurate indicating the concrete city.
- The language in which the mediation will be developed is the a faculty of the parties. There will be no difficulty in mediations in which both parties use the same language, but it is very convenient in contracts with parties that have different languages, or that belong to regions or countries with different co-official languages. The drafting or signing of the contract in a specific language does not presuppose that this must be the language of the mediation. It is an element to be taken into account also when requesting a mediator who can use that language in the chosen mediation institution.
- The procedure can also be decided by the parties. In particular, the number of sessions, the maximum expected duration, the participation of advisors, etc. Keep in mind that the greater or lesser regulation will allow to avoid future conflicts in this respect, although it will also imply a greater limit to the freedom of the parties that, nevertheless, will remain free to modify the agreement by mutual consent.
- The term of the mediation can also be contemplated. This would allow, for example, to prevent mediation from being extended only for purely procedural strategic purposes or to gather information from the other party before starting a procedure, etc. The professional mediators, however, are able to identify these manoeuvres, also having the power to put an end to mediation in those cases.
- Choosing the mediator or the mediation institution is an important choice. The parties can agree on who will be their mediator, indicate in the contract the elements to choose it, or submit directly to a Mediation Institution so that it is the one who designates it according to its own rules. These decisions can be alternatives (that is, that the parties agree on the mediator and, in case of lack of agreement, submit to an institution that names it), or they can be unique. The designation of an Institution requires that it has a sufficient guarantee of stability (avoid designating short-term institutions or without much future guarantee), with a sufficient panel of mediators depending on the characteristics of the mediation (language, competence, experience) and that allows the necessary flexibility for its operation.
- Finally, it is convenient that the clause includes an alternative way in case the mediation does not succeed either because the parties do not reach an agreement, or because they withdraw from the mediation. It is important to recall that mediation does not close the doors to the conflict be resolved by recourse to ordinary jurisdiction or arbitration. And in terms of specialized arbitration in distribution contracts, the IDArb (https://www.idiproject.com/content/idarb-idi-arbitration-project) is an excellent option.
On the topic of the importance of Mediation in Distribution Agreements, you can check out the recording our webinar “Mediation in International Conflicts”
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The object of this post is the analysis of the new obligations that RDL 6/2019 establishes, in terms of Gender Equality, for all types of companies (regardless the number of workers they have) and, specifically, for those companies that have 50 or more workers.
The main novelty we find in this respect lies in the obligation, for companies with 50 or more workers, to implement an Equality in Business Plan (EBP), in accordance with the provisions of articles 45 and related of the LOIEMH.
Regarding the content and the conditions of implementation of the EBP, we find the following novelties:
- The subjects and minimum content that all EBP must have are listed exhaustively.
- An analysis of the female underrepresentation in the Company is introduced, as a matter that the EBP must contain.
- The diagnosis that the Company must make prior to the preparation of the EBP must be negotiated with the legal representative of the workers.
- A Register of EBP for companies is created, in which all the EBP implemented in the Companies must be registered, regardless of the number of workers they have.
On the other hand, RDL 6/2019 gives a new wording to Article 28 of the Workers’ Statute (WS), which includes the obligation of the Company to comply with the requirement of equal pay for men and women, establishing a series of measures and obligations in charge of the Companies, in order to ensure the effective fulfillment of the salary equality between genders.
In particular, these new measures adopted in article 28 of the WS are:
- What is to be considered as «work of equal value» is specified, in order to facilitate a single concept and eliminate any doubt in this regard.
- Companies have the obligation to keep a Salary Register, with the average values of salaries, salary supplements and extra-salary perceptions of their workforce, differentiated by sex and distributed by professional groups, professional categories or equal work positions value.
- The Salary Registry must be accessible to the legal representatives of the workers.
- In companies with 50 or more workers in which the average remuneration of workers of one sex is higher than the other by 25% or more, a justification for said difference must be included in the Salary Register, and must be certified that it is due to reasons unrelated to the sex of the workers.
The breach, by the Companies, of the obligations in matters of Gender Equality and, in particular, those related to the EBP and equal payment between men and women, may entail the imposition of important sanctions by the Labor Inspector and the “Tesorería General de la Seguridad Social”.
The Spanish Law of the Agency Contract and the European Directive provide for the agent -except in certain cases-, goodwill compensation (clientele) when the relationship is terminated, based on the remuneration received by the Agent during the life of the contract. It is, then, a burden that in general every Principal will have pending when the contract ends.
The temptation is to try to get rid of that payment and for this clients consult us frequently about strategies or tactics. I will try to summarize some of them indicating the chances of success (or not) that may have, both in the negotiation / drafting phase of the contract, and in the resolution phase.
- Change the name of the contract
The first idea is to make a contract «similar» to the agency or call it in a different way (services, intermediation, representation contracts…). However, the change of name does not have any incidence since the contracts «are what they are» and not what the parties call them. So if there is a continued mediation in exchange for remuneration, there is a good chance that a judge will consider it an agency contract, whatever we call it, and with all its consequences.
- Limitation of compensation in the contract
Another temptation in the drafting phase of the contract is to agree compensation less than the maximum legally envisaged, provide for payment in advance for the duration of the contract, or directly eliminate it.
None of these solutions would be valid if they try to reduce the possibility of the Agent to receive the legal maximum, or for reasons not foreseen in the Law or the Directive. The law is imperative.
- Linking different agency contracts
Given that the compensation is calculated according to the remunerations of the last five years and the clientele created, the temptation is to link several shorter contracts to consider only the clients of the last period.
This will not necessarily be a good idea if most of the customers were created last year for instance, but it may also be useless because the Spanish law and the Directive provide that the fixed-term contract that continues to be executed becomes indefinite. The judge may consider all linked contracts as one.
For this strategy to have the possibility of being useful, it would be necessary to liquidate each substituted contract, declare that «nothing has to be claimed by the parties» and that the successive contracts are sufficiently separated and have different entities, drafting, extension, etc. If the procedure is well thought out, it could be a way to get rid of a greater indemnity by clientele: a well-written pact whereby the agent declares the compensation received, and the following contract does not mimic the content and immediately to the previous one.
- Submitting the agreement to a foreign law
In international contracts the temptation is to submit the contract to a right that is not Spanish, particularly when the Principal has that citizenship.
The idea can be good or bad according to the chosen law and as long as it has some relation with the business. As is known, in the EU the Directive establishes minimum conditions that national laws must respect. But nothing prevents these laws from providing more advantageous conditions for agents. This means that, for example, choosing French law would be, in general, a bad idea for the Principal because compensation in that country is usually higher.
In some cases, the choice of a law outside the European Union that does not provide compensation for clientele when the agent is European has been rejected because that the minimum right recognized in the Directive has not been respected.
- Submit the contract to non-national rules and judges
Another less frequent possibility is to submit the contract to rules not from a country, but to general commercial norms (Lex Mercatoria) and to agree on a lower compensation.
This is very uncommon and may not be very useful depending on who is to interpret the contract and where the agent resides. If, for example, the agent resides in Spain and who is going to interpret the contract is a Spanish judge, he will most likely interpret the contract according to his/her own rules without being bound by what the contract envisages. This clause would have been useless.
- Submit the contract to arbitration
The question will be different if the contract is subject to arbitration. In this case, arbitrators are not necessarily subject to interpreting a contract according to their own national regulations if the contract is subject to different one. In this case, it would be possible that they felt freer to consider the contract exclusively, especially when the agent was not of their nationality, did not know what the law of the agent’s country and was not bound by the guarantees provided for his protection.
- Mediation in the agency contract
Mediation is an alternative dispute resolution system that can also be used in agency contracts. In mediation, the parties resolve the dispute by themselves with the help of a mediator.
In this case, given that the mediator is not deciding, it is possible for the parties to freely reach an agreement whereby the agent agrees to a minor indemnification if, for example, other advantages are conferred upon him, if he comes to the conviction of having less right, difficulty of proof, if he prefers to save other costs, time, energy for your new business, etc.
Mediators ensure the balance of the parties, but nothing prevents them to agree a compensation lower than the legal maximum (after the conclusion of the contract it is possible to negotiate a lower than the legal maximum). To foresee the possibility of mediation in the agency contract is, therefore, a good idea: this will permit the parties to better address and negotiate this compensation. In addition, providing for mediation does not limit the rights of any of the parties to withdraw and continue through the courts demanding the legal maximum.
- Imputing to the agent a previous breach
When the contract ends, this is undoubtedly the cause that is most often attempted: when the contract is to be resolved, the Principal tries to argue that the Agent has previously failed to comply and that this is why the contract is being resolved.
The law and the Directive exempt the payment of goodwill compensation when the agent has breach his obligations. But in that case, the Principal must be able to prove it when the agent discusses it. And it will not always be easy. The Principal must provide clear evidence and for this it will be convenient to collect information and documentation on the breach sufficiently and in advance and of sufficient importance (minor breaches are not usually accepted). Therefore, if the Principal wishes to follow this path it is advisable to prepare the arguments and evidences time before the agreement ends. It is strongly recommend contacting an expert advisor as soon as possible: he will help you to minimize the risks.
The procedure to incorporate a foreign owned company in Spain is, in principle, easy and straight forward, however it is necessary to take into account certain new requirements derived from the tax and the anti-money laundering regulations, which could cause long delays in the incorporation process, even to EU and US companies, if they are not well advised and managed from the beginning of the procedure.
The first step consist in collecting information about the foreign shareholder, in order to be able to prove its legal existence and activities: the foreign shareholder(s) will have to grant before a Notary Public in its country of residence a power of attorney authorising somebody in Spain to obtain its tax identification number (“NIE”), and also represent it before the Spanish notary when signing the deed of incorporation. In case the foreign shareholder is an individual person, the NIE should be applied for before the Spanish police or the Spanish Consulate at the country where the investor lives.
If the shareholder is a corporation, apart from the Power of Attorney, it will have to obtain a certificate from its Companies’ Registry or Chamber of Commerce, stating its legal existence and main characteristics. This document is called “good standing certificate” (in the UK and US), “K-bis” (in France), “KvK” (in the Netherlands) or “visura” (in Italy). These two documents, the Power of Attorney mentioned in the above paragraph and the certificate from the Companies’ Registry, will have to be Apostilled or legalized by the correspondent Ministry, and Sworn translated into Spanish. Please note that we use to draft bilingual powers of attorney in order to avoid its sworn translation.
The foreign shareholder will have to prove that its income is obtained from legal activities in order to be able to open a bank account in the name of the new company. The main document to prove this could be the Corporate or the Personal Income Tax return filed in its country of residence, but there could be other means, especially in case of individual persons.
In case of a corporate shareholder, it will be necessary as well to declare, in principle through a public deed granted in Spain, who are the individual persons who, directly or through other companies, will hold more than a 25% interest in the new company to be incorporated. In case nobody holds more than a 25% (i.e. because there are 5 individual shareholders, holding each of them a 20%), it is declared that the effective control of the new company corresponds to its director.
At this stage, it is also necessary to mention that the person(s) who will be the director(s) of the new company, in case they are foreigners, will also need to obtain their personal “NIE”. The NIE should be applied for before the Spanish police (this could be done by a proxy duly authorised though a Power of Attorney granted by the foreign director) or before the Spanish Consulate nearest to the city where the investor lives. In order to be a director of a Spanish company it is not necessary to be a shareholder, nor to have residence and work permit in Spain (provided the foreign director does not live in Spain).
Meanwhile the necessary documents (Powers of Attorney, Companies’ Registry certificate, etc.) are being prepared by the foreign shareholder, the lawyer in Spain will apply for the new company’s name. It is advisable to point out that generic or usual names are not available quite often, therefore it is necessary to think in original names. Three different names could be applied for simultaneously.
The drafting of the company’s Articles of Association or By Laws could be very quick, except if the company is going to have several shareholders and they wish specific clauses. In this case, it is also advisable to draft a Shareholders Agreement. The Shareholders’ Agreement could just contain some basic rules on dedication, compensation, non-competition, etc. and some more sophisticated rules on the sale of shares (tag along and drag along rights). As regards the By-Laws, they should mention the company’s name, its activity or activities, address in Spain –which cannot be just a P.O. Box-, share capital, number of shares and its face value, and starting date for the fiscal year, among other standard clauses.
The management of the company could be organized through a sole director, two directors who could act jointly or separately, and in case there are more than three directors, they should organize themselves through a Board of Directors, being usual in this case to appoint a C.E.O. In order to be a director it is not necessary to be a shareholder. Under Spanish laws, the director(s) could be held liable for some company’s debts under certain circumstances which are legally defined. For this reason, it is necessary that the directors formally accept their appointment (personally appearing before the Notary or through a Power of Attorney).
Before the incorporation, it will be necessary that either the new company’s director (the person to be appointed) or the representative of the corporate shareholder appears personally before the bank where the company will have its first bank account and signs the correspondent documents (KYC regulation). Once the bank account is opened, the shareholder will have to send a bank transfer for the new company’s share capital. In Spain, the minimum share capital for a limited company (S.L.) is Euros 3.000, while for a “Sociedad Anónima” (S.A.) it is Euros 60.000, but only 25% should be paid off at the incorporation moment. It is interesting to note that contributions to the share capital could be made in cash – which is the most common operation, especially at the incorporation – or in kind, with any type of assets: real estate, machinery, goods, trademarks, etc. The money for the share capital should be sent to the new company’s bank account from an account owned by the shareholder (or from each account owned by each shareholder, should they be several ones), not by any other different person. Once the Spanish bank receives the transfer, it will issue a certificate, which is necessary in order to incorporate the company.
Once all the documents are ready, it is possible within very few days (almost immediately) to make the appointment with the Notary and sign the public deed of incorporation. This can be done at any notary in Spain, not being necessary that the notary practises at the same city where the company will have its corporate address. In order to summarize, the list of the necessary documents is:
- Power(s) of Attorney granted by the foreign shareholder(s), apostilled and sworn translated.
- Certificate regarding the legal existence of the foreign shareholder (only if it is a corporation), apostilled and sworn translated.
- Statement on who are the last individual shareholders holding more than 25% interest in the new company, directly or indirectly (only in case of corporate shareholders).
- NIE of the foreign shareholder(s).
- NIE of the new company’s director(s), should they be a foreigners.
- Certificate for the new company’s name.
- Articles of Association.
- Bank certificate regarding the contribution to the new company’s share capital.
The deed of incorporation is signed by the proxy (or the individual shareholder(s), should they prefer to personally appear before the notary) before the chosen public notary, being also necessary to sign an official form to report the foreign investment to a public registry depending on the Spanish Ministry of Finance.
Once the deed of incorporation is signed, the next steps consist in applying before the tax authorities to obtain the new company’s tax number (NIF / CIF) and filing the deed of incorporation before the Companies’ Registry. Some banks do allow new companies to operate once they have the NIF (which could be 2-3 days after the incorporation), while others request to wait until the deed of incorporation is filed at the Companies’ Registry (2-3 weeks).
An estimation of the necessary time to complete all the procedure is 30-45 days, but of course the main delay is related to speed of the foreign investor in obtaining the necessary documents.
Please note that if you wish to incorporate a foreign owned company in Spain it is always necessary to seek specific professional advice, as each case is different and regulations and the application of such regulations vary from time to time. The above article just explains the main steps and requirements for the incorporation of a company.
Arbitration is a well-known system for dispute resolutions, and works as an alternative to judicial procedures. Parties are free to choose this system and to submit their conflicts to specific arbitrators or institutions.
It is usually considered that arbitration is a good way to solve conflicts but preferable to those arisen between big corporations or involving important amounts of money. Although this assumption is generally accepted, there is an alternative for distribution disputes suitable for smaller companies and cases with lower amounts claimed.
And here is the essential question: why a manufacturer/franchisor or a distributor/agent/franchisee should choose a specialized arbitration for their agreements instead of a more general one or, even, a judicial procedure? The answer seems clear: an arbitrator with knowledge not only in procedural questions but in substantive matters will be able to better understand the conflict between the parties and, therefore, to grant a better award. Take into account that, for instance in my Country, Spain, a Judge of First instance can deal in the same day with a distribution contract, a construction case, a conflict between heirs, and a discussion in a community of owners. All of this requires the analysis of different facts and completely different legislations and it is true that specific commercial problems do not usually have judges experts in international trading. But, how to choose a good specialized arbitrator? And, how to choose the arbitral procedure and the institution in terms of organization, neutrality, costs and time?
The IDArb was created in 2016 by the International Distribution Institute (www.idiproject.com) in collaboration with the Chambre de Commerce d’Industries et de Services de Genève (CCIG www.ccig.ch) and the Swiss Chambers’ Arbitration Institution (SCAI www.swissarbitration.org) and offers to the distribution sector (distribution, agency, franchising, selective distribution) a specialized, expedited and affordable arbitration procedure, not only for big international corporations but also for smaller cases. In fact, the expedited procedure is particularly foreseen for amounts below one million CHF (approx. 880.000 €).
The objectives and main characteristics of IDArb which make it suitable for all the distribution disputes are:
- A list of specialized arbitrators experts in this particular field is available for ad hoc or institutional arbitration and IDArb is able to assist the parties to choose one of them.
Specialized arbitrators from different countries and legal cultures have been appointed by a Selecting Committee reviewing their experience in one or more fields of distribution law. Therefore, parties can trust that the arbitrator will have concrete skills in the business with an in-depth understanding of the disputed issues. This is not a general knowledge on commercial law, but a concrete one on distribution, expressly verified by the Committee. Parties can even examine some examples of cases in which every arbitrator has been involved in.
- In order to maintain its high quality, the IDArb organizes training seminars for its appointed arbitrators. In these seminars, they are able to discuss about the general management of the arbitration, the procedural aspects and how to solve possible incidents in collaboration with the Institutions and their Rules. This will make all the proceedings more manageable and the possible difficulties more easily solved. Last seminar took place in Geneva in November 8, 2018 and participants have discussed, amongst other subjects, on evidences, witnesses and document production.
- The expedited arbitration procedure permits the parties to have a tailored procedure managed by SCAI under the Swiss Rules of International Arbitration, specially adapted for small disputes in the field of distribution.
- Time is also an essential element: the award in the expedited procedure will be issued in a maximum term of six months (only exceptional circumstances permit the Court to extend such time-limit), and, if parties agree, it can be decided only on documentary evidence.
- Costs are reasonable and known in advance.
- And, as final but important remark, IDArb has also adopted some recommendations where, upon request of the parties, mediation is favoured, the arbitrator my consider giving a preliminary non-binding and provisional assessment of the dispute and should have a pro-active position in order to facilitate an amicable settlement.
Spanish Law on Entrepreneurship (Law 14/2013) has approved new cases where foreigners from non-European Union countries can obtain the residence permit in Spain through the execution of investments:
- Investments in real estate for an amount equal or higher than € 500.000 (Five Hundred Thousand Euros). The investment can be made in one or more properties, but at least € 500.000 should be free of encumbrances (mortgage, i.e.). If the price is higher than € 500.000, the rest of the amount could be paid through mortgage.
- Financial investments for a value equal or higher than 1 million Euros. This type of investment includes listed and non-listed shares, in case of non-listed shares they could be from already operating companies or newly incorporated ones, investment funds, and deposits in Spanish banks.
- Investment in Spanish sovereign debt for an amount equal or higher than 2 million Euros.
- To carry on a business project in Spain that was considered as being of public interest. To this purpose, one of these conditions should be met: creation of jobs, execution of an investment that has a positive impact in the region where it is located, or a relevant contribution to scientific or technological innovation.
The visa granted through the execution of these investments is valid during at least one year, and in order to obtain the residence permit some other requirements should be met:
- to not stay previously in Spain in an illegal situation,
- to have more than 18 years,
- to not have criminal records,
- to have a health insurance (hired from a company operating in Spain)
- to have financial means for the stay in Spain (i.e. a bank deposit, or income from leases or dividends. Payroll does not qualify for this purpose).
If the above requirements are met, a two years residence and work permit could be granted. After this term, the residence permit can be extended for successive five years periods. The investments should be kept during all these periods. This permit does not request the foreigner to live in Spain for more than six months; therefore it will not be cancelled if the foreigner lives in another country.
The residence and work permit is granted to the individual who executes the investment. If he/she is married and/or has children or ancestors who depend on the investor, it is possible to apply for their visa at the same time or later on. It is possible to execute the investment through a company owned by the investor, provided it is not a company domiciled in a tax heaven country.
The Spanish visa allows free movements within the EU countries (Schengen space). The valid travelling document is the passport.
Foreigners who wish to carry on a self-employment project in Spain could obtain the work and residence permit, but through a different procedure than the above mentioned, and these cases the minimum investment amount is lower.
Investment in real estate
The investment in real estate could be in residential, commercial or industrial properties. The property could be leased to third parties before or after the acquisition, or used by the investor. For ambitious investors, there are several possibilities to structure the investment in buildings and apartments and to a higher return of the investment.
There are some costs related to the acquisition of real estate: the acquisition itself is taxed by Transfer Tax at rates ranging from 6 to 10% on the acquisition price, depending on each Spanish region where the property is located, to be paid by the buyer. Besides, the buyer should pay the Notary Public and Property Registrar’s fees, which approximately amount 3% of the acquisition price (the addition of both of them). These amounts are paid once, when the property is acquired.
The annual costs related to the ownership of real estate in Spain are the following ones:
- IBI or local property tax, whose amount is calculated based on the value and location of the property.
- “Community expenses”, that is those expenses related to the maintenance of the common areas of the building where the property is located: cleaning, lighting, etc.
- In some cases, also a small tax for garbage should be paid to the Town Council.
- Owners should file the Spanish Personal Income Tax Return, and pay a percentage between 1,1% and 2% of the property’s “cadastral value” (official value), in case the property is not leased to a third party. If the property is leased, the owner should also file the Personal Income Tax Return based on the amounts obtained from the lease.
Besides, owners should also pay the expenses related to their property: ordinary maintenance expenses, insurance, electricity and water, etc.
In Spain, the property right is considered as a full right, which implies that the owner can use the property by himself, can lease it to third parties, can mortgage or encumber it, can sell or gift it to any third party and can pass it to his heirs through a will.
The only limits to the use of the property by its owner or the persons appointed by him are those established by the civic rules regarding noises, pets, exterior image of the property, etc.
Regarding the lease of the property, in principle it is free, and the rights and obligations of landlord and tenant are those provided by the private lease agreement entered between both parties and the Spanish Urban Leases Law (Ley de Arrendamientos Urbanos). However, nowadays many Spanish cities (and specially Barcelona) have approved strong limits to the so called touristic leases, which are the short term (days or weeks) leases, and request a special license.
It is important to point out that foreigners who become residents in Spain can grant their will according to Spanish inheritance laws (according to EU Regulation 650/2012), which slightly vary depending on each Spanish region. In Catalonia, for example, the testator can freely appoint who will be his heirs.
Financial investment
Financial investments can be executed through different types of targets, being always the minimum amount 1 million Euros:
- Shares of companies listed in the Spanish Stock Market.
- Shares of non-listed companies, which could be already operating companies or newly incorporated ones. In both cases, there are no limits as regards the percentage of shares that can be owned by foreigners, and the activity sectors restricted to non EU foreign investment are very few (gambling, defense, aviation, TV and radio). Foreigners can be appointed Directors of Spanish companies with the only requirement of having previously obtained the so called “N.I.E.”, which is the Spanish identification number for foreigners.
In case of a newly incorporated company, the € 1 million requested as investment would constitute the company’s share capital, and can be used for the startup of the company’s activities: for example, acquisition of goods, payment of salaries and rentals, payment of purveyors and subcontractors, etc.
Spanish companies have access to all European markets and have a privileged position for trading with Latin American countries.
- Investment funds: Spanish financial entities offer a very wide range of investment funds, from very conservative to high risk.
Deposit in a bank
The main advantage of a real estate investment compared to a financial investment is that the requested amount is only € 500.000 for real estate, while for a financial investment is twice this amount. During the past years since the Law on Entrepreneurship became in force, investment in real estate has been the most popular way for obtaining the residence permit in Spain, probably because at that time (2013-2016) real estate market prices were quite low due to the crash in 2008.
However, the process to acquire a property in Spain is not so easy compared to the acquisition of a share in an investment fund or making a bank deposit: the investor has to choose the property, which normally requires one or two visits to Spain, the price and sale conditions have to negotiated and drafted, the purchase deed has to be signed before a Notary Public (by the investor or his proxy), there are taxes and expenses related to the acquisition, and once the property is acquired, it is necessary to pay ongoing expenses and taxes, and maintain the property in good condition.
Compared to this, the investment in funds or making a bank deposit only requires one visit to the bank by the investor, in order to sign the correspondent documents. There are not related taxes or expenses, and the liquidity of the investment is full (that is, the investment can be sold at any moment, quite probably at the same or at a higher price, but this is not guaranteed for real estate investments).
How to open and operate a bank account in Spain
In Spain, banks apply the regulations regarding anti-money laundering, which include the KYC (Know Your Client) rules and the obligation to prove the legal origin of the funds. The KYC rules imply the need for the investor to appear personally before the bank at least once, previously to operating the bank account. The legal origin of the funds can be proved through different means:
- In case of employees, through the payroll splits, or a certificate issued by the employer, or the investor’s personal income tax return.
- In case of self-employed individuals, through their personal income tax return, or another type of documents proving their professional activity.
- In case of company owners, through the company’s financial statements.
- If the investor has obtained the funds necessary for the investment through personal loans, the loan agreements should be provided, plus the documents proving the legal origin of the funds provided by the lenders.
- Other documents, for example, regarding dividends or income from the lease of properties owned by the investor could be provided.
All documents should be legalized by a Notary Public or the Spanish Consulate, and sworn translated into Spanish.
Please note that this article is aimed to provide a general overview on Spanish rules regarding the above matters, but it does not constitute any kind of comprehensive information on them, and in any case specific legal advice should be sought prior to taking any decision.
In all M&A operations one of the issues that deserves special attention as regards its analysis, ascertainment and negotiation is the tax liabilities. Even though the parties could agree on the amount of such contingencies, to negotiate the possible guarantees that the seller should grant in order to protect the buyer from a possible claim by the tax authorities, the term during which the guarantees should be in force, and to agree on the communication mechanisms between the parties (buyer and seller) and the legal defense strategies if such claim from the tax authorities arises, requires substantial negotiation efforts.
When the acquisition operation is formalized not through the purchase of shares, but through the purchase of the assets that form a business unit, the Spanish General Tax Law (“Ley General Tributaria” or “LGT”) provides a mechanism which implies an exception to the general principle provided by article 42 of the same law. Article 42 of LGT establishes the joint liability of the purchaser of a business unit for the tax liabilities of the selling company (“tax liability derived from company’s succession”). That is, in principle, according to article 42 of the LGT “the persons or entities that continue by any mean in the ownership or exercise of economic activities (the buyers) will be jointly liable with the previous owner for the tax liabilities derived from the exercise of such economic activities incurred by such previous owner”.
However, the joint tax liability of the buyer could be limited through the application before the tax authorities of the tax certificate regulated by article 175.2 of the LGT. This certificate should be applied for by the prospective buyer, with the authorization of the present owner (the seller), and, once issued, the tax liability of the buyer becomes limited to the debts, penalties and liabilities mentioned in the certificate. If the certificate is issued without mentioning any amount, or if the tax authorities do not issue it within a three months term from the application’s date, the applicant (the buyer) will be released from any tax liability derived from company’s succession.
The tax certificate for succession purposes includes the main taxes, as Value Added Tax and Corporate Income Tax, and can include as well debts derived from the withholding taxes on employees’ payroll, which in case of companies with a big number of employees could be of an outstanding amount. However, the buyer’s joint liability for salaries, related payroll amounts and social security contributions cannot be limited by such certificate, and such liability will always be joint with the business unit seller’s liability.
The application for the tax certificate should be filed before the acquisition of the business unit is completed, even if the issuance of the certificate takes place later tan the closing date (but of course, it is wiser to not close the acquisition before having the certificate). The certificate’s validity lasts for one year, as regards periodical tax obligations (for example, Value Added Tax, Corporate Income Tax and withholding taxes on salaries) and for three months as regards non periodical tax obligations.
It is very important to apply for the right tax certificate (“certificate for succession purposes according to article 175.2 of LGT”), and to not make a mistake and apply, for example, for the certificate regarding having fulfilled all tax obligations (“certificado de estar al corriente de las obligaciones fiscales”). Case law is plenty of judgments where a buyer applied for the wrong certificate, which showed no liabilities, and later on such buyer has been sentenced to pay the tax liabilities incurred by the previous owner of the business unit.
The remuneration of directors is an intricate issue and one that deserves adequate treatment. Recently there has been a turn that deserves special attention.
In its judgment of February 26, 2018, the Supreme Court modified the interpretation given by most experts and authorities and by the Directorate-General of Registries and the Notarial Profession in its decision dated June 17, 2016, ratified by the Barcelona Provincial Appellate Court in its decision 295/2017 of June 30, 2017, on the regulation of executive directors’ compensation.
In its judgment, the Supreme Court held that the compensation of directors “in their capacity as such” includes the compensation of both deliberative and executive functions and that, accordingly, approval of the compensation of directors who discharge executive functions is subject not only to article 249 of the Corporate Enterprises Law (i.e., the requirement for there to be a contract approved by a two-thirds majority of the board) but also to article 217. Consequently:
- the bylaws must stipulate the compensation scheme for executive functions (although no reference is made to amount); and
- the amount payable for the discharge of executive functions must be included in the maximum annual amount stipulated by the shareholders’ meeting.
The judgment was handed down in connection with a limited liability company and, furthermore, some of its considerations refer specifically to unlisted companies, although it does not clearly and indubitably exclude listed companies (which are, however, subject to specific rules under the compensation policy).
The publication of this Supreme Court judgment gives rise to the need for an individualized analysis of each specific case, so that the appropriate measures can be taken to enable companies to bring their policies into line with its conclusions.
The author of this post is Pablo Vinageras.
Once convinced of the utility of mediation as a method of resolving conflicts between franchisor and franchisee and taken the decision to include a clause in the contracts that provides for it, the last step would be what elements should be taken into account when drafting it.
- The previous negotiation. It seems advisable that both parties grant themselves the possibility of trying to solve the problem with a previous formal negotiation. Mediation does not exclude the previous attempt made by the interested parties or their lawyers; however, it seems advisable to contractually provide a suitable end according to the circumstances. Experience shows that lengthening this phase too long may result in the conflict becoming more complicated and even more difficult to approach mediation.
- The clause may also provide for the place where the mediation will take place. Again at this point the parties are free. It is convenient that this is accurate indicating the concrete city.
- The language in which the mediation will be developed is the a faculty of the parties. There will be no difficulty in mediations in which both parties use the same language, but it is very convenient in contracts with parties that have different languages, or that belong to regions or countries with different co-official languages. The drafting or signing of the contract in a specific language does not presuppose that this must be the language of the mediation. It is an element to be taken into account also when requesting a mediator who can use that language in the chosen mediation institution.
- The procedure can also be decided by the parties. In particular, the number of sessions, the maximum expected duration, the participation of advisors, etc. Keep in mind that the greater or lesser regulation will allow to avoid future conflicts in this respect, although it will also imply a greater limit to the freedom of the parties that, nevertheless, will remain free to modify the agreement by mutual consent.
- The term of the mediation can also be contemplated. This would allow, for example, to prevent mediation from being extended only for purely procedural strategic purposes or to gather information from the other party before starting a procedure, etc. The professional mediators, however, are able to identify these manoeuvres, also having the power to put an end to mediation in those cases.
- Choosing the mediator or the mediation institution is an important choice. The parties can agree on who will be their mediator, indicate in the contract the elements to choose it, or submit directly to a Mediation Institution so that it is the one who designates it according to its own rules. These decisions can be alternatives (that is, that the parties agree on the mediator and, in case of lack of agreement, submit to an institution that names it), or they can be unique. The designation of an Institution requires that it has a sufficient guarantee of stability (avoid designating short-term institutions or without much future guarantee), with a sufficient panel of mediators depending on the characteristics of the mediation (language, competence, experience) and that allows the necessary flexibility for its operation.
- Finally, it is convenient that the clause includes an alternative way in case the mediation does not succeed either because the parties do not reach an agreement, or because they withdraw from the mediation. It is important to recall that mediation does not close the doors to the conflict be resolved by recourse to ordinary jurisdiction or arbitration. And in terms of specialized arbitration in distribution contracts, the IDArb (https://www.idiproject.com/content/idarb-idi-arbitration-project) is an excellent option.
On the topic of the importance of Mediation in Distribution Agreements, you can check out the recording our webinar “Mediation in International Conflicts”
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The object of this post is the analysis of the new obligations that RDL 6/2019 establishes, in terms of Gender Equality, for all types of companies (regardless the number of workers they have) and, specifically, for those companies that have 50 or more workers.
The main novelty we find in this respect lies in the obligation, for companies with 50 or more workers, to implement an Equality in Business Plan (EBP), in accordance with the provisions of articles 45 and related of the LOIEMH.
Regarding the content and the conditions of implementation of the EBP, we find the following novelties:
- The subjects and minimum content that all EBP must have are listed exhaustively.
- An analysis of the female underrepresentation in the Company is introduced, as a matter that the EBP must contain.
- The diagnosis that the Company must make prior to the preparation of the EBP must be negotiated with the legal representative of the workers.
- A Register of EBP for companies is created, in which all the EBP implemented in the Companies must be registered, regardless of the number of workers they have.
On the other hand, RDL 6/2019 gives a new wording to Article 28 of the Workers’ Statute (WS), which includes the obligation of the Company to comply with the requirement of equal pay for men and women, establishing a series of measures and obligations in charge of the Companies, in order to ensure the effective fulfillment of the salary equality between genders.
In particular, these new measures adopted in article 28 of the WS are:
- What is to be considered as «work of equal value» is specified, in order to facilitate a single concept and eliminate any doubt in this regard.
- Companies have the obligation to keep a Salary Register, with the average values of salaries, salary supplements and extra-salary perceptions of their workforce, differentiated by sex and distributed by professional groups, professional categories or equal work positions value.
- The Salary Registry must be accessible to the legal representatives of the workers.
- In companies with 50 or more workers in which the average remuneration of workers of one sex is higher than the other by 25% or more, a justification for said difference must be included in the Salary Register, and must be certified that it is due to reasons unrelated to the sex of the workers.
The breach, by the Companies, of the obligations in matters of Gender Equality and, in particular, those related to the EBP and equal payment between men and women, may entail the imposition of important sanctions by the Labor Inspector and the “Tesorería General de la Seguridad Social”.
The Spanish Law of the Agency Contract and the European Directive provide for the agent -except in certain cases-, goodwill compensation (clientele) when the relationship is terminated, based on the remuneration received by the Agent during the life of the contract. It is, then, a burden that in general every Principal will have pending when the contract ends.
The temptation is to try to get rid of that payment and for this clients consult us frequently about strategies or tactics. I will try to summarize some of them indicating the chances of success (or not) that may have, both in the negotiation / drafting phase of the contract, and in the resolution phase.
- Change the name of the contract
The first idea is to make a contract «similar» to the agency or call it in a different way (services, intermediation, representation contracts…). However, the change of name does not have any incidence since the contracts «are what they are» and not what the parties call them. So if there is a continued mediation in exchange for remuneration, there is a good chance that a judge will consider it an agency contract, whatever we call it, and with all its consequences.
- Limitation of compensation in the contract
Another temptation in the drafting phase of the contract is to agree compensation less than the maximum legally envisaged, provide for payment in advance for the duration of the contract, or directly eliminate it.
None of these solutions would be valid if they try to reduce the possibility of the Agent to receive the legal maximum, or for reasons not foreseen in the Law or the Directive. The law is imperative.
- Linking different agency contracts
Given that the compensation is calculated according to the remunerations of the last five years and the clientele created, the temptation is to link several shorter contracts to consider only the clients of the last period.
This will not necessarily be a good idea if most of the customers were created last year for instance, but it may also be useless because the Spanish law and the Directive provide that the fixed-term contract that continues to be executed becomes indefinite. The judge may consider all linked contracts as one.
For this strategy to have the possibility of being useful, it would be necessary to liquidate each substituted contract, declare that «nothing has to be claimed by the parties» and that the successive contracts are sufficiently separated and have different entities, drafting, extension, etc. If the procedure is well thought out, it could be a way to get rid of a greater indemnity by clientele: a well-written pact whereby the agent declares the compensation received, and the following contract does not mimic the content and immediately to the previous one.
- Submitting the agreement to a foreign law
In international contracts the temptation is to submit the contract to a right that is not Spanish, particularly when the Principal has that citizenship.
The idea can be good or bad according to the chosen law and as long as it has some relation with the business. As is known, in the EU the Directive establishes minimum conditions that national laws must respect. But nothing prevents these laws from providing more advantageous conditions for agents. This means that, for example, choosing French law would be, in general, a bad idea for the Principal because compensation in that country is usually higher.
In some cases, the choice of a law outside the European Union that does not provide compensation for clientele when the agent is European has been rejected because that the minimum right recognized in the Directive has not been respected.
- Submit the contract to non-national rules and judges
Another less frequent possibility is to submit the contract to rules not from a country, but to general commercial norms (Lex Mercatoria) and to agree on a lower compensation.
This is very uncommon and may not be very useful depending on who is to interpret the contract and where the agent resides. If, for example, the agent resides in Spain and who is going to interpret the contract is a Spanish judge, he will most likely interpret the contract according to his/her own rules without being bound by what the contract envisages. This clause would have been useless.
- Submit the contract to arbitration
The question will be different if the contract is subject to arbitration. In this case, arbitrators are not necessarily subject to interpreting a contract according to their own national regulations if the contract is subject to different one. In this case, it would be possible that they felt freer to consider the contract exclusively, especially when the agent was not of their nationality, did not know what the law of the agent’s country and was not bound by the guarantees provided for his protection.
- Mediation in the agency contract
Mediation is an alternative dispute resolution system that can also be used in agency contracts. In mediation, the parties resolve the dispute by themselves with the help of a mediator.
In this case, given that the mediator is not deciding, it is possible for the parties to freely reach an agreement whereby the agent agrees to a minor indemnification if, for example, other advantages are conferred upon him, if he comes to the conviction of having less right, difficulty of proof, if he prefers to save other costs, time, energy for your new business, etc.
Mediators ensure the balance of the parties, but nothing prevents them to agree a compensation lower than the legal maximum (after the conclusion of the contract it is possible to negotiate a lower than the legal maximum). To foresee the possibility of mediation in the agency contract is, therefore, a good idea: this will permit the parties to better address and negotiate this compensation. In addition, providing for mediation does not limit the rights of any of the parties to withdraw and continue through the courts demanding the legal maximum.
- Imputing to the agent a previous breach
When the contract ends, this is undoubtedly the cause that is most often attempted: when the contract is to be resolved, the Principal tries to argue that the Agent has previously failed to comply and that this is why the contract is being resolved.
The law and the Directive exempt the payment of goodwill compensation when the agent has breach his obligations. But in that case, the Principal must be able to prove it when the agent discusses it. And it will not always be easy. The Principal must provide clear evidence and for this it will be convenient to collect information and documentation on the breach sufficiently and in advance and of sufficient importance (minor breaches are not usually accepted). Therefore, if the Principal wishes to follow this path it is advisable to prepare the arguments and evidences time before the agreement ends. It is strongly recommend contacting an expert advisor as soon as possible: he will help you to minimize the risks.
The procedure to incorporate a foreign owned company in Spain is, in principle, easy and straight forward, however it is necessary to take into account certain new requirements derived from the tax and the anti-money laundering regulations, which could cause long delays in the incorporation process, even to EU and US companies, if they are not well advised and managed from the beginning of the procedure.
The first step consist in collecting information about the foreign shareholder, in order to be able to prove its legal existence and activities: the foreign shareholder(s) will have to grant before a Notary Public in its country of residence a power of attorney authorising somebody in Spain to obtain its tax identification number (“NIE”), and also represent it before the Spanish notary when signing the deed of incorporation. In case the foreign shareholder is an individual person, the NIE should be applied for before the Spanish police or the Spanish Consulate at the country where the investor lives.
If the shareholder is a corporation, apart from the Power of Attorney, it will have to obtain a certificate from its Companies’ Registry or Chamber of Commerce, stating its legal existence and main characteristics. This document is called “good standing certificate” (in the UK and US), “K-bis” (in France), “KvK” (in the Netherlands) or “visura” (in Italy). These two documents, the Power of Attorney mentioned in the above paragraph and the certificate from the Companies’ Registry, will have to be Apostilled or legalized by the correspondent Ministry, and Sworn translated into Spanish. Please note that we use to draft bilingual powers of attorney in order to avoid its sworn translation.
The foreign shareholder will have to prove that its income is obtained from legal activities in order to be able to open a bank account in the name of the new company. The main document to prove this could be the Corporate or the Personal Income Tax return filed in its country of residence, but there could be other means, especially in case of individual persons.
In case of a corporate shareholder, it will be necessary as well to declare, in principle through a public deed granted in Spain, who are the individual persons who, directly or through other companies, will hold more than a 25% interest in the new company to be incorporated. In case nobody holds more than a 25% (i.e. because there are 5 individual shareholders, holding each of them a 20%), it is declared that the effective control of the new company corresponds to its director.
At this stage, it is also necessary to mention that the person(s) who will be the director(s) of the new company, in case they are foreigners, will also need to obtain their personal “NIE”. The NIE should be applied for before the Spanish police (this could be done by a proxy duly authorised though a Power of Attorney granted by the foreign director) or before the Spanish Consulate nearest to the city where the investor lives. In order to be a director of a Spanish company it is not necessary to be a shareholder, nor to have residence and work permit in Spain (provided the foreign director does not live in Spain).
Meanwhile the necessary documents (Powers of Attorney, Companies’ Registry certificate, etc.) are being prepared by the foreign shareholder, the lawyer in Spain will apply for the new company’s name. It is advisable to point out that generic or usual names are not available quite often, therefore it is necessary to think in original names. Three different names could be applied for simultaneously.
The drafting of the company’s Articles of Association or By Laws could be very quick, except if the company is going to have several shareholders and they wish specific clauses. In this case, it is also advisable to draft a Shareholders Agreement. The Shareholders’ Agreement could just contain some basic rules on dedication, compensation, non-competition, etc. and some more sophisticated rules on the sale of shares (tag along and drag along rights). As regards the By-Laws, they should mention the company’s name, its activity or activities, address in Spain –which cannot be just a P.O. Box-, share capital, number of shares and its face value, and starting date for the fiscal year, among other standard clauses.
The management of the company could be organized through a sole director, two directors who could act jointly or separately, and in case there are more than three directors, they should organize themselves through a Board of Directors, being usual in this case to appoint a C.E.O. In order to be a director it is not necessary to be a shareholder. Under Spanish laws, the director(s) could be held liable for some company’s debts under certain circumstances which are legally defined. For this reason, it is necessary that the directors formally accept their appointment (personally appearing before the Notary or through a Power of Attorney).
Before the incorporation, it will be necessary that either the new company’s director (the person to be appointed) or the representative of the corporate shareholder appears personally before the bank where the company will have its first bank account and signs the correspondent documents (KYC regulation). Once the bank account is opened, the shareholder will have to send a bank transfer for the new company’s share capital. In Spain, the minimum share capital for a limited company (S.L.) is Euros 3.000, while for a “Sociedad Anónima” (S.A.) it is Euros 60.000, but only 25% should be paid off at the incorporation moment. It is interesting to note that contributions to the share capital could be made in cash – which is the most common operation, especially at the incorporation – or in kind, with any type of assets: real estate, machinery, goods, trademarks, etc. The money for the share capital should be sent to the new company’s bank account from an account owned by the shareholder (or from each account owned by each shareholder, should they be several ones), not by any other different person. Once the Spanish bank receives the transfer, it will issue a certificate, which is necessary in order to incorporate the company.
Once all the documents are ready, it is possible within very few days (almost immediately) to make the appointment with the Notary and sign the public deed of incorporation. This can be done at any notary in Spain, not being necessary that the notary practises at the same city where the company will have its corporate address. In order to summarize, the list of the necessary documents is:
- Power(s) of Attorney granted by the foreign shareholder(s), apostilled and sworn translated.
- Certificate regarding the legal existence of the foreign shareholder (only if it is a corporation), apostilled and sworn translated.
- Statement on who are the last individual shareholders holding more than 25% interest in the new company, directly or indirectly (only in case of corporate shareholders).
- NIE of the foreign shareholder(s).
- NIE of the new company’s director(s), should they be a foreigners.
- Certificate for the new company’s name.
- Articles of Association.
- Bank certificate regarding the contribution to the new company’s share capital.
The deed of incorporation is signed by the proxy (or the individual shareholder(s), should they prefer to personally appear before the notary) before the chosen public notary, being also necessary to sign an official form to report the foreign investment to a public registry depending on the Spanish Ministry of Finance.
Once the deed of incorporation is signed, the next steps consist in applying before the tax authorities to obtain the new company’s tax number (NIF / CIF) and filing the deed of incorporation before the Companies’ Registry. Some banks do allow new companies to operate once they have the NIF (which could be 2-3 days after the incorporation), while others request to wait until the deed of incorporation is filed at the Companies’ Registry (2-3 weeks).
An estimation of the necessary time to complete all the procedure is 30-45 days, but of course the main delay is related to speed of the foreign investor in obtaining the necessary documents.
Please note that if you wish to incorporate a foreign owned company in Spain it is always necessary to seek specific professional advice, as each case is different and regulations and the application of such regulations vary from time to time. The above article just explains the main steps and requirements for the incorporation of a company.
Arbitration is a well-known system for dispute resolutions, and works as an alternative to judicial procedures. Parties are free to choose this system and to submit their conflicts to specific arbitrators or institutions.
It is usually considered that arbitration is a good way to solve conflicts but preferable to those arisen between big corporations or involving important amounts of money. Although this assumption is generally accepted, there is an alternative for distribution disputes suitable for smaller companies and cases with lower amounts claimed.
And here is the essential question: why a manufacturer/franchisor or a distributor/agent/franchisee should choose a specialized arbitration for their agreements instead of a more general one or, even, a judicial procedure? The answer seems clear: an arbitrator with knowledge not only in procedural questions but in substantive matters will be able to better understand the conflict between the parties and, therefore, to grant a better award. Take into account that, for instance in my Country, Spain, a Judge of First instance can deal in the same day with a distribution contract, a construction case, a conflict between heirs, and a discussion in a community of owners. All of this requires the analysis of different facts and completely different legislations and it is true that specific commercial problems do not usually have judges experts in international trading. But, how to choose a good specialized arbitrator? And, how to choose the arbitral procedure and the institution in terms of organization, neutrality, costs and time?
The IDArb was created in 2016 by the International Distribution Institute (www.idiproject.com) in collaboration with the Chambre de Commerce d’Industries et de Services de Genève (CCIG www.ccig.ch) and the Swiss Chambers’ Arbitration Institution (SCAI www.swissarbitration.org) and offers to the distribution sector (distribution, agency, franchising, selective distribution) a specialized, expedited and affordable arbitration procedure, not only for big international corporations but also for smaller cases. In fact, the expedited procedure is particularly foreseen for amounts below one million CHF (approx. 880.000 €).
The objectives and main characteristics of IDArb which make it suitable for all the distribution disputes are:
- A list of specialized arbitrators experts in this particular field is available for ad hoc or institutional arbitration and IDArb is able to assist the parties to choose one of them.
Specialized arbitrators from different countries and legal cultures have been appointed by a Selecting Committee reviewing their experience in one or more fields of distribution law. Therefore, parties can trust that the arbitrator will have concrete skills in the business with an in-depth understanding of the disputed issues. This is not a general knowledge on commercial law, but a concrete one on distribution, expressly verified by the Committee. Parties can even examine some examples of cases in which every arbitrator has been involved in.
- In order to maintain its high quality, the IDArb organizes training seminars for its appointed arbitrators. In these seminars, they are able to discuss about the general management of the arbitration, the procedural aspects and how to solve possible incidents in collaboration with the Institutions and their Rules. This will make all the proceedings more manageable and the possible difficulties more easily solved. Last seminar took place in Geneva in November 8, 2018 and participants have discussed, amongst other subjects, on evidences, witnesses and document production.
- The expedited arbitration procedure permits the parties to have a tailored procedure managed by SCAI under the Swiss Rules of International Arbitration, specially adapted for small disputes in the field of distribution.
- Time is also an essential element: the award in the expedited procedure will be issued in a maximum term of six months (only exceptional circumstances permit the Court to extend such time-limit), and, if parties agree, it can be decided only on documentary evidence.
- Costs are reasonable and known in advance.
- And, as final but important remark, IDArb has also adopted some recommendations where, upon request of the parties, mediation is favoured, the arbitrator my consider giving a preliminary non-binding and provisional assessment of the dispute and should have a pro-active position in order to facilitate an amicable settlement.
Spanish Law on Entrepreneurship (Law 14/2013) has approved new cases where foreigners from non-European Union countries can obtain the residence permit in Spain through the execution of investments:
- Investments in real estate for an amount equal or higher than € 500.000 (Five Hundred Thousand Euros). The investment can be made in one or more properties, but at least € 500.000 should be free of encumbrances (mortgage, i.e.). If the price is higher than € 500.000, the rest of the amount could be paid through mortgage.
- Financial investments for a value equal or higher than 1 million Euros. This type of investment includes listed and non-listed shares, in case of non-listed shares they could be from already operating companies or newly incorporated ones, investment funds, and deposits in Spanish banks.
- Investment in Spanish sovereign debt for an amount equal or higher than 2 million Euros.
- To carry on a business project in Spain that was considered as being of public interest. To this purpose, one of these conditions should be met: creation of jobs, execution of an investment that has a positive impact in the region where it is located, or a relevant contribution to scientific or technological innovation.
The visa granted through the execution of these investments is valid during at least one year, and in order to obtain the residence permit some other requirements should be met:
- to not stay previously in Spain in an illegal situation,
- to have more than 18 years,
- to not have criminal records,
- to have a health insurance (hired from a company operating in Spain)
- to have financial means for the stay in Spain (i.e. a bank deposit, or income from leases or dividends. Payroll does not qualify for this purpose).
If the above requirements are met, a two years residence and work permit could be granted. After this term, the residence permit can be extended for successive five years periods. The investments should be kept during all these periods. This permit does not request the foreigner to live in Spain for more than six months; therefore it will not be cancelled if the foreigner lives in another country.
The residence and work permit is granted to the individual who executes the investment. If he/she is married and/or has children or ancestors who depend on the investor, it is possible to apply for their visa at the same time or later on. It is possible to execute the investment through a company owned by the investor, provided it is not a company domiciled in a tax heaven country.
The Spanish visa allows free movements within the EU countries (Schengen space). The valid travelling document is the passport.
Foreigners who wish to carry on a self-employment project in Spain could obtain the work and residence permit, but through a different procedure than the above mentioned, and these cases the minimum investment amount is lower.
Investment in real estate
The investment in real estate could be in residential, commercial or industrial properties. The property could be leased to third parties before or after the acquisition, or used by the investor. For ambitious investors, there are several possibilities to structure the investment in buildings and apartments and to a higher return of the investment.
There are some costs related to the acquisition of real estate: the acquisition itself is taxed by Transfer Tax at rates ranging from 6 to 10% on the acquisition price, depending on each Spanish region where the property is located, to be paid by the buyer. Besides, the buyer should pay the Notary Public and Property Registrar’s fees, which approximately amount 3% of the acquisition price (the addition of both of them). These amounts are paid once, when the property is acquired.
The annual costs related to the ownership of real estate in Spain are the following ones:
- IBI or local property tax, whose amount is calculated based on the value and location of the property.
- “Community expenses”, that is those expenses related to the maintenance of the common areas of the building where the property is located: cleaning, lighting, etc.
- In some cases, also a small tax for garbage should be paid to the Town Council.
- Owners should file the Spanish Personal Income Tax Return, and pay a percentage between 1,1% and 2% of the property’s “cadastral value” (official value), in case the property is not leased to a third party. If the property is leased, the owner should also file the Personal Income Tax Return based on the amounts obtained from the lease.
Besides, owners should also pay the expenses related to their property: ordinary maintenance expenses, insurance, electricity and water, etc.
In Spain, the property right is considered as a full right, which implies that the owner can use the property by himself, can lease it to third parties, can mortgage or encumber it, can sell or gift it to any third party and can pass it to his heirs through a will.
The only limits to the use of the property by its owner or the persons appointed by him are those established by the civic rules regarding noises, pets, exterior image of the property, etc.
Regarding the lease of the property, in principle it is free, and the rights and obligations of landlord and tenant are those provided by the private lease agreement entered between both parties and the Spanish Urban Leases Law (Ley de Arrendamientos Urbanos). However, nowadays many Spanish cities (and specially Barcelona) have approved strong limits to the so called touristic leases, which are the short term (days or weeks) leases, and request a special license.
It is important to point out that foreigners who become residents in Spain can grant their will according to Spanish inheritance laws (according to EU Regulation 650/2012), which slightly vary depending on each Spanish region. In Catalonia, for example, the testator can freely appoint who will be his heirs.
Financial investment
Financial investments can be executed through different types of targets, being always the minimum amount 1 million Euros:
- Shares of companies listed in the Spanish Stock Market.
- Shares of non-listed companies, which could be already operating companies or newly incorporated ones. In both cases, there are no limits as regards the percentage of shares that can be owned by foreigners, and the activity sectors restricted to non EU foreign investment are very few (gambling, defense, aviation, TV and radio). Foreigners can be appointed Directors of Spanish companies with the only requirement of having previously obtained the so called “N.I.E.”, which is the Spanish identification number for foreigners.
In case of a newly incorporated company, the € 1 million requested as investment would constitute the company’s share capital, and can be used for the startup of the company’s activities: for example, acquisition of goods, payment of salaries and rentals, payment of purveyors and subcontractors, etc.
Spanish companies have access to all European markets and have a privileged position for trading with Latin American countries.
- Investment funds: Spanish financial entities offer a very wide range of investment funds, from very conservative to high risk.
Deposit in a bank
The main advantage of a real estate investment compared to a financial investment is that the requested amount is only € 500.000 for real estate, while for a financial investment is twice this amount. During the past years since the Law on Entrepreneurship became in force, investment in real estate has been the most popular way for obtaining the residence permit in Spain, probably because at that time (2013-2016) real estate market prices were quite low due to the crash in 2008.
However, the process to acquire a property in Spain is not so easy compared to the acquisition of a share in an investment fund or making a bank deposit: the investor has to choose the property, which normally requires one or two visits to Spain, the price and sale conditions have to negotiated and drafted, the purchase deed has to be signed before a Notary Public (by the investor or his proxy), there are taxes and expenses related to the acquisition, and once the property is acquired, it is necessary to pay ongoing expenses and taxes, and maintain the property in good condition.
Compared to this, the investment in funds or making a bank deposit only requires one visit to the bank by the investor, in order to sign the correspondent documents. There are not related taxes or expenses, and the liquidity of the investment is full (that is, the investment can be sold at any moment, quite probably at the same or at a higher price, but this is not guaranteed for real estate investments).
How to open and operate a bank account in Spain
In Spain, banks apply the regulations regarding anti-money laundering, which include the KYC (Know Your Client) rules and the obligation to prove the legal origin of the funds. The KYC rules imply the need for the investor to appear personally before the bank at least once, previously to operating the bank account. The legal origin of the funds can be proved through different means:
- In case of employees, through the payroll splits, or a certificate issued by the employer, or the investor’s personal income tax return.
- In case of self-employed individuals, through their personal income tax return, or another type of documents proving their professional activity.
- In case of company owners, through the company’s financial statements.
- If the investor has obtained the funds necessary for the investment through personal loans, the loan agreements should be provided, plus the documents proving the legal origin of the funds provided by the lenders.
- Other documents, for example, regarding dividends or income from the lease of properties owned by the investor could be provided.
All documents should be legalized by a Notary Public or the Spanish Consulate, and sworn translated into Spanish.
Please note that this article is aimed to provide a general overview on Spanish rules regarding the above matters, but it does not constitute any kind of comprehensive information on them, and in any case specific legal advice should be sought prior to taking any decision.
In all M&A operations one of the issues that deserves special attention as regards its analysis, ascertainment and negotiation is the tax liabilities. Even though the parties could agree on the amount of such contingencies, to negotiate the possible guarantees that the seller should grant in order to protect the buyer from a possible claim by the tax authorities, the term during which the guarantees should be in force, and to agree on the communication mechanisms between the parties (buyer and seller) and the legal defense strategies if such claim from the tax authorities arises, requires substantial negotiation efforts.
When the acquisition operation is formalized not through the purchase of shares, but through the purchase of the assets that form a business unit, the Spanish General Tax Law (“Ley General Tributaria” or “LGT”) provides a mechanism which implies an exception to the general principle provided by article 42 of the same law. Article 42 of LGT establishes the joint liability of the purchaser of a business unit for the tax liabilities of the selling company (“tax liability derived from company’s succession”). That is, in principle, according to article 42 of the LGT “the persons or entities that continue by any mean in the ownership or exercise of economic activities (the buyers) will be jointly liable with the previous owner for the tax liabilities derived from the exercise of such economic activities incurred by such previous owner”.
However, the joint tax liability of the buyer could be limited through the application before the tax authorities of the tax certificate regulated by article 175.2 of the LGT. This certificate should be applied for by the prospective buyer, with the authorization of the present owner (the seller), and, once issued, the tax liability of the buyer becomes limited to the debts, penalties and liabilities mentioned in the certificate. If the certificate is issued without mentioning any amount, or if the tax authorities do not issue it within a three months term from the application’s date, the applicant (the buyer) will be released from any tax liability derived from company’s succession.
The tax certificate for succession purposes includes the main taxes, as Value Added Tax and Corporate Income Tax, and can include as well debts derived from the withholding taxes on employees’ payroll, which in case of companies with a big number of employees could be of an outstanding amount. However, the buyer’s joint liability for salaries, related payroll amounts and social security contributions cannot be limited by such certificate, and such liability will always be joint with the business unit seller’s liability.
The application for the tax certificate should be filed before the acquisition of the business unit is completed, even if the issuance of the certificate takes place later tan the closing date (but of course, it is wiser to not close the acquisition before having the certificate). The certificate’s validity lasts for one year, as regards periodical tax obligations (for example, Value Added Tax, Corporate Income Tax and withholding taxes on salaries) and for three months as regards non periodical tax obligations.
It is very important to apply for the right tax certificate (“certificate for succession purposes according to article 175.2 of LGT”), and to not make a mistake and apply, for example, for the certificate regarding having fulfilled all tax obligations (“certificado de estar al corriente de las obligaciones fiscales”). Case law is plenty of judgments where a buyer applied for the wrong certificate, which showed no liabilities, and later on such buyer has been sentenced to pay the tax liabilities incurred by the previous owner of the business unit.
The remuneration of directors is an intricate issue and one that deserves adequate treatment. Recently there has been a turn that deserves special attention.
In its judgment of February 26, 2018, the Supreme Court modified the interpretation given by most experts and authorities and by the Directorate-General of Registries and the Notarial Profession in its decision dated June 17, 2016, ratified by the Barcelona Provincial Appellate Court in its decision 295/2017 of June 30, 2017, on the regulation of executive directors’ compensation.
In its judgment, the Supreme Court held that the compensation of directors “in their capacity as such” includes the compensation of both deliberative and executive functions and that, accordingly, approval of the compensation of directors who discharge executive functions is subject not only to article 249 of the Corporate Enterprises Law (i.e., the requirement for there to be a contract approved by a two-thirds majority of the board) but also to article 217. Consequently:
- the bylaws must stipulate the compensation scheme for executive functions (although no reference is made to amount); and
- the amount payable for the discharge of executive functions must be included in the maximum annual amount stipulated by the shareholders’ meeting.
The judgment was handed down in connection with a limited liability company and, furthermore, some of its considerations refer specifically to unlisted companies, although it does not clearly and indubitably exclude listed companies (which are, however, subject to specific rules under the compensation policy).
The publication of this Supreme Court judgment gives rise to the need for an individualized analysis of each specific case, so that the appropriate measures can be taken to enable companies to bring their policies into line with its conclusions.
The author of this post is Pablo Vinageras.
Once convinced of the utility of mediation as a method of resolving conflicts between franchisor and franchisee and taken the decision to include a clause in the contracts that provides for it, the last step would be what elements should be taken into account when drafting it.
- The previous negotiation. It seems advisable that both parties grant themselves the possibility of trying to solve the problem with a previous formal negotiation. Mediation does not exclude the previous attempt made by the interested parties or their lawyers; however, it seems advisable to contractually provide a suitable end according to the circumstances. Experience shows that lengthening this phase too long may result in the conflict becoming more complicated and even more difficult to approach mediation.
- The clause may also provide for the place where the mediation will take place. Again at this point the parties are free. It is convenient that this is accurate indicating the concrete city.
- The language in which the mediation will be developed is the a faculty of the parties. There will be no difficulty in mediations in which both parties use the same language, but it is very convenient in contracts with parties that have different languages, or that belong to regions or countries with different co-official languages. The drafting or signing of the contract in a specific language does not presuppose that this must be the language of the mediation. It is an element to be taken into account also when requesting a mediator who can use that language in the chosen mediation institution.
- The procedure can also be decided by the parties. In particular, the number of sessions, the maximum expected duration, the participation of advisors, etc. Keep in mind that the greater or lesser regulation will allow to avoid future conflicts in this respect, although it will also imply a greater limit to the freedom of the parties that, nevertheless, will remain free to modify the agreement by mutual consent.
- The term of the mediation can also be contemplated. This would allow, for example, to prevent mediation from being extended only for purely procedural strategic purposes or to gather information from the other party before starting a procedure, etc. The professional mediators, however, are able to identify these manoeuvres, also having the power to put an end to mediation in those cases.
- Choosing the mediator or the mediation institution is an important choice. The parties can agree on who will be their mediator, indicate in the contract the elements to choose it, or submit directly to a Mediation Institution so that it is the one who designates it according to its own rules. These decisions can be alternatives (that is, that the parties agree on the mediator and, in case of lack of agreement, submit to an institution that names it), or they can be unique. The designation of an Institution requires that it has a sufficient guarantee of stability (avoid designating short-term institutions or without much future guarantee), with a sufficient panel of mediators depending on the characteristics of the mediation (language, competence, experience) and that allows the necessary flexibility for its operation.
- Finally, it is convenient that the clause includes an alternative way in case the mediation does not succeed either because the parties do not reach an agreement, or because they withdraw from the mediation. It is important to recall that mediation does not close the doors to the conflict be resolved by recourse to ordinary jurisdiction or arbitration. And in terms of specialized arbitration in distribution contracts, the IDArb (https://www.idiproject.com/content/idarb-idi-arbitration-project) is an excellent option.
On the topic of the importance of Mediation in Distribution Agreements, you can check out the recording our webinar “Mediation in International Conflicts”
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The object of this post is the analysis of the new obligations that RDL 6/2019 establishes, in terms of Gender Equality, for all types of companies (regardless the number of workers they have) and, specifically, for those companies that have 50 or more workers.
The main novelty we find in this respect lies in the obligation, for companies with 50 or more workers, to implement an Equality in Business Plan (EBP), in accordance with the provisions of articles 45 and related of the LOIEMH.
Regarding the content and the conditions of implementation of the EBP, we find the following novelties:
- The subjects and minimum content that all EBP must have are listed exhaustively.
- An analysis of the female underrepresentation in the Company is introduced, as a matter that the EBP must contain.
- The diagnosis that the Company must make prior to the preparation of the EBP must be negotiated with the legal representative of the workers.
- A Register of EBP for companies is created, in which all the EBP implemented in the Companies must be registered, regardless of the number of workers they have.
On the other hand, RDL 6/2019 gives a new wording to Article 28 of the Workers’ Statute (WS), which includes the obligation of the Company to comply with the requirement of equal pay for men and women, establishing a series of measures and obligations in charge of the Companies, in order to ensure the effective fulfillment of the salary equality between genders.
In particular, these new measures adopted in article 28 of the WS are:
- What is to be considered as «work of equal value» is specified, in order to facilitate a single concept and eliminate any doubt in this regard.
- Companies have the obligation to keep a Salary Register, with the average values of salaries, salary supplements and extra-salary perceptions of their workforce, differentiated by sex and distributed by professional groups, professional categories or equal work positions value.
- The Salary Registry must be accessible to the legal representatives of the workers.
- In companies with 50 or more workers in which the average remuneration of workers of one sex is higher than the other by 25% or more, a justification for said difference must be included in the Salary Register, and must be certified that it is due to reasons unrelated to the sex of the workers.
The breach, by the Companies, of the obligations in matters of Gender Equality and, in particular, those related to the EBP and equal payment between men and women, may entail the imposition of important sanctions by the Labor Inspector and the “Tesorería General de la Seguridad Social”.
The Spanish Law of the Agency Contract and the European Directive provide for the agent -except in certain cases-, goodwill compensation (clientele) when the relationship is terminated, based on the remuneration received by the Agent during the life of the contract. It is, then, a burden that in general every Principal will have pending when the contract ends.
The temptation is to try to get rid of that payment and for this clients consult us frequently about strategies or tactics. I will try to summarize some of them indicating the chances of success (or not) that may have, both in the negotiation / drafting phase of the contract, and in the resolution phase.
- Change the name of the contract
The first idea is to make a contract «similar» to the agency or call it in a different way (services, intermediation, representation contracts…). However, the change of name does not have any incidence since the contracts «are what they are» and not what the parties call them. So if there is a continued mediation in exchange for remuneration, there is a good chance that a judge will consider it an agency contract, whatever we call it, and with all its consequences.
- Limitation of compensation in the contract
Another temptation in the drafting phase of the contract is to agree compensation less than the maximum legally envisaged, provide for payment in advance for the duration of the contract, or directly eliminate it.
None of these solutions would be valid if they try to reduce the possibility of the Agent to receive the legal maximum, or for reasons not foreseen in the Law or the Directive. The law is imperative.
- Linking different agency contracts
Given that the compensation is calculated according to the remunerations of the last five years and the clientele created, the temptation is to link several shorter contracts to consider only the clients of the last period.
This will not necessarily be a good idea if most of the customers were created last year for instance, but it may also be useless because the Spanish law and the Directive provide that the fixed-term contract that continues to be executed becomes indefinite. The judge may consider all linked contracts as one.
For this strategy to have the possibility of being useful, it would be necessary to liquidate each substituted contract, declare that «nothing has to be claimed by the parties» and that the successive contracts are sufficiently separated and have different entities, drafting, extension, etc. If the procedure is well thought out, it could be a way to get rid of a greater indemnity by clientele: a well-written pact whereby the agent declares the compensation received, and the following contract does not mimic the content and immediately to the previous one.
- Submitting the agreement to a foreign law
In international contracts the temptation is to submit the contract to a right that is not Spanish, particularly when the Principal has that citizenship.
The idea can be good or bad according to the chosen law and as long as it has some relation with the business. As is known, in the EU the Directive establishes minimum conditions that national laws must respect. But nothing prevents these laws from providing more advantageous conditions for agents. This means that, for example, choosing French law would be, in general, a bad idea for the Principal because compensation in that country is usually higher.
In some cases, the choice of a law outside the European Union that does not provide compensation for clientele when the agent is European has been rejected because that the minimum right recognized in the Directive has not been respected.
- Submit the contract to non-national rules and judges
Another less frequent possibility is to submit the contract to rules not from a country, but to general commercial norms (Lex Mercatoria) and to agree on a lower compensation.
This is very uncommon and may not be very useful depending on who is to interpret the contract and where the agent resides. If, for example, the agent resides in Spain and who is going to interpret the contract is a Spanish judge, he will most likely interpret the contract according to his/her own rules without being bound by what the contract envisages. This clause would have been useless.
- Submit the contract to arbitration
The question will be different if the contract is subject to arbitration. In this case, arbitrators are not necessarily subject to interpreting a contract according to their own national regulations if the contract is subject to different one. In this case, it would be possible that they felt freer to consider the contract exclusively, especially when the agent was not of their nationality, did not know what the law of the agent’s country and was not bound by the guarantees provided for his protection.
- Mediation in the agency contract
Mediation is an alternative dispute resolution system that can also be used in agency contracts. In mediation, the parties resolve the dispute by themselves with the help of a mediator.
In this case, given that the mediator is not deciding, it is possible for the parties to freely reach an agreement whereby the agent agrees to a minor indemnification if, for example, other advantages are conferred upon him, if he comes to the conviction of having less right, difficulty of proof, if he prefers to save other costs, time, energy for your new business, etc.
Mediators ensure the balance of the parties, but nothing prevents them to agree a compensation lower than the legal maximum (after the conclusion of the contract it is possible to negotiate a lower than the legal maximum). To foresee the possibility of mediation in the agency contract is, therefore, a good idea: this will permit the parties to better address and negotiate this compensation. In addition, providing for mediation does not limit the rights of any of the parties to withdraw and continue through the courts demanding the legal maximum.
- Imputing to the agent a previous breach
When the contract ends, this is undoubtedly the cause that is most often attempted: when the contract is to be resolved, the Principal tries to argue that the Agent has previously failed to comply and that this is why the contract is being resolved.
The law and the Directive exempt the payment of goodwill compensation when the agent has breach his obligations. But in that case, the Principal must be able to prove it when the agent discusses it. And it will not always be easy. The Principal must provide clear evidence and for this it will be convenient to collect information and documentation on the breach sufficiently and in advance and of sufficient importance (minor breaches are not usually accepted). Therefore, if the Principal wishes to follow this path it is advisable to prepare the arguments and evidences time before the agreement ends. It is strongly recommend contacting an expert advisor as soon as possible: he will help you to minimize the risks.
The procedure to incorporate a foreign owned company in Spain is, in principle, easy and straight forward, however it is necessary to take into account certain new requirements derived from the tax and the anti-money laundering regulations, which could cause long delays in the incorporation process, even to EU and US companies, if they are not well advised and managed from the beginning of the procedure.
The first step consist in collecting information about the foreign shareholder, in order to be able to prove its legal existence and activities: the foreign shareholder(s) will have to grant before a Notary Public in its country of residence a power of attorney authorising somebody in Spain to obtain its tax identification number (“NIE”), and also represent it before the Spanish notary when signing the deed of incorporation. In case the foreign shareholder is an individual person, the NIE should be applied for before the Spanish police or the Spanish Consulate at the country where the investor lives.
If the shareholder is a corporation, apart from the Power of Attorney, it will have to obtain a certificate from its Companies’ Registry or Chamber of Commerce, stating its legal existence and main characteristics. This document is called “good standing certificate” (in the UK and US), “K-bis” (in France), “KvK” (in the Netherlands) or “visura” (in Italy). These two documents, the Power of Attorney mentioned in the above paragraph and the certificate from the Companies’ Registry, will have to be Apostilled or legalized by the correspondent Ministry, and Sworn translated into Spanish. Please note that we use to draft bilingual powers of attorney in order to avoid its sworn translation.
The foreign shareholder will have to prove that its income is obtained from legal activities in order to be able to open a bank account in the name of the new company. The main document to prove this could be the Corporate or the Personal Income Tax return filed in its country of residence, but there could be other means, especially in case of individual persons.
In case of a corporate shareholder, it will be necessary as well to declare, in principle through a public deed granted in Spain, who are the individual persons who, directly or through other companies, will hold more than a 25% interest in the new company to be incorporated. In case nobody holds more than a 25% (i.e. because there are 5 individual shareholders, holding each of them a 20%), it is declared that the effective control of the new company corresponds to its director.
At this stage, it is also necessary to mention that the person(s) who will be the director(s) of the new company, in case they are foreigners, will also need to obtain their personal “NIE”. The NIE should be applied for before the Spanish police (this could be done by a proxy duly authorised though a Power of Attorney granted by the foreign director) or before the Spanish Consulate nearest to the city where the investor lives. In order to be a director of a Spanish company it is not necessary to be a shareholder, nor to have residence and work permit in Spain (provided the foreign director does not live in Spain).
Meanwhile the necessary documents (Powers of Attorney, Companies’ Registry certificate, etc.) are being prepared by the foreign shareholder, the lawyer in Spain will apply for the new company’s name. It is advisable to point out that generic or usual names are not available quite often, therefore it is necessary to think in original names. Three different names could be applied for simultaneously.
The drafting of the company’s Articles of Association or By Laws could be very quick, except if the company is going to have several shareholders and they wish specific clauses. In this case, it is also advisable to draft a Shareholders Agreement. The Shareholders’ Agreement could just contain some basic rules on dedication, compensation, non-competition, etc. and some more sophisticated rules on the sale of shares (tag along and drag along rights). As regards the By-Laws, they should mention the company’s name, its activity or activities, address in Spain –which cannot be just a P.O. Box-, share capital, number of shares and its face value, and starting date for the fiscal year, among other standard clauses.
The management of the company could be organized through a sole director, two directors who could act jointly or separately, and in case there are more than three directors, they should organize themselves through a Board of Directors, being usual in this case to appoint a C.E.O. In order to be a director it is not necessary to be a shareholder. Under Spanish laws, the director(s) could be held liable for some company’s debts under certain circumstances which are legally defined. For this reason, it is necessary that the directors formally accept their appointment (personally appearing before the Notary or through a Power of Attorney).
Before the incorporation, it will be necessary that either the new company’s director (the person to be appointed) or the representative of the corporate shareholder appears personally before the bank where the company will have its first bank account and signs the correspondent documents (KYC regulation). Once the bank account is opened, the shareholder will have to send a bank transfer for the new company’s share capital. In Spain, the minimum share capital for a limited company (S.L.) is Euros 3.000, while for a “Sociedad Anónima” (S.A.) it is Euros 60.000, but only 25% should be paid off at the incorporation moment. It is interesting to note that contributions to the share capital could be made in cash – which is the most common operation, especially at the incorporation – or in kind, with any type of assets: real estate, machinery, goods, trademarks, etc. The money for the share capital should be sent to the new company’s bank account from an account owned by the shareholder (or from each account owned by each shareholder, should they be several ones), not by any other different person. Once the Spanish bank receives the transfer, it will issue a certificate, which is necessary in order to incorporate the company.
Once all the documents are ready, it is possible within very few days (almost immediately) to make the appointment with the Notary and sign the public deed of incorporation. This can be done at any notary in Spain, not being necessary that the notary practises at the same city where the company will have its corporate address. In order to summarize, the list of the necessary documents is:
- Power(s) of Attorney granted by the foreign shareholder(s), apostilled and sworn translated.
- Certificate regarding the legal existence of the foreign shareholder (only if it is a corporation), apostilled and sworn translated.
- Statement on who are the last individual shareholders holding more than 25% interest in the new company, directly or indirectly (only in case of corporate shareholders).
- NIE of the foreign shareholder(s).
- NIE of the new company’s director(s), should they be a foreigners.
- Certificate for the new company’s name.
- Articles of Association.
- Bank certificate regarding the contribution to the new company’s share capital.
The deed of incorporation is signed by the proxy (or the individual shareholder(s), should they prefer to personally appear before the notary) before the chosen public notary, being also necessary to sign an official form to report the foreign investment to a public registry depending on the Spanish Ministry of Finance.
Once the deed of incorporation is signed, the next steps consist in applying before the tax authorities to obtain the new company’s tax number (NIF / CIF) and filing the deed of incorporation before the Companies’ Registry. Some banks do allow new companies to operate once they have the NIF (which could be 2-3 days after the incorporation), while others request to wait until the deed of incorporation is filed at the Companies’ Registry (2-3 weeks).
An estimation of the necessary time to complete all the procedure is 30-45 days, but of course the main delay is related to speed of the foreign investor in obtaining the necessary documents.
Please note that if you wish to incorporate a foreign owned company in Spain it is always necessary to seek specific professional advice, as each case is different and regulations and the application of such regulations vary from time to time. The above article just explains the main steps and requirements for the incorporation of a company.
Arbitration is a well-known system for dispute resolutions, and works as an alternative to judicial procedures. Parties are free to choose this system and to submit their conflicts to specific arbitrators or institutions.
It is usually considered that arbitration is a good way to solve conflicts but preferable to those arisen between big corporations or involving important amounts of money. Although this assumption is generally accepted, there is an alternative for distribution disputes suitable for smaller companies and cases with lower amounts claimed.
And here is the essential question: why a manufacturer/franchisor or a distributor/agent/franchisee should choose a specialized arbitration for their agreements instead of a more general one or, even, a judicial procedure? The answer seems clear: an arbitrator with knowledge not only in procedural questions but in substantive matters will be able to better understand the conflict between the parties and, therefore, to grant a better award. Take into account that, for instance in my Country, Spain, a Judge of First instance can deal in the same day with a distribution contract, a construction case, a conflict between heirs, and a discussion in a community of owners. All of this requires the analysis of different facts and completely different legislations and it is true that specific commercial problems do not usually have judges experts in international trading. But, how to choose a good specialized arbitrator? And, how to choose the arbitral procedure and the institution in terms of organization, neutrality, costs and time?
The IDArb was created in 2016 by the International Distribution Institute (www.idiproject.com) in collaboration with the Chambre de Commerce d’Industries et de Services de Genève (CCIG www.ccig.ch) and the Swiss Chambers’ Arbitration Institution (SCAI www.swissarbitration.org) and offers to the distribution sector (distribution, agency, franchising, selective distribution) a specialized, expedited and affordable arbitration procedure, not only for big international corporations but also for smaller cases. In fact, the expedited procedure is particularly foreseen for amounts below one million CHF (approx. 880.000 €).
The objectives and main characteristics of IDArb which make it suitable for all the distribution disputes are:
- A list of specialized arbitrators experts in this particular field is available for ad hoc or institutional arbitration and IDArb is able to assist the parties to choose one of them.
Specialized arbitrators from different countries and legal cultures have been appointed by a Selecting Committee reviewing their experience in one or more fields of distribution law. Therefore, parties can trust that the arbitrator will have concrete skills in the business with an in-depth understanding of the disputed issues. This is not a general knowledge on commercial law, but a concrete one on distribution, expressly verified by the Committee. Parties can even examine some examples of cases in which every arbitrator has been involved in.
- In order to maintain its high quality, the IDArb organizes training seminars for its appointed arbitrators. In these seminars, they are able to discuss about the general management of the arbitration, the procedural aspects and how to solve possible incidents in collaboration with the Institutions and their Rules. This will make all the proceedings more manageable and the possible difficulties more easily solved. Last seminar took place in Geneva in November 8, 2018 and participants have discussed, amongst other subjects, on evidences, witnesses and document production.
- The expedited arbitration procedure permits the parties to have a tailored procedure managed by SCAI under the Swiss Rules of International Arbitration, specially adapted for small disputes in the field of distribution.
- Time is also an essential element: the award in the expedited procedure will be issued in a maximum term of six months (only exceptional circumstances permit the Court to extend such time-limit), and, if parties agree, it can be decided only on documentary evidence.
- Costs are reasonable and known in advance.
- And, as final but important remark, IDArb has also adopted some recommendations where, upon request of the parties, mediation is favoured, the arbitrator my consider giving a preliminary non-binding and provisional assessment of the dispute and should have a pro-active position in order to facilitate an amicable settlement.
Spanish Law on Entrepreneurship (Law 14/2013) has approved new cases where foreigners from non-European Union countries can obtain the residence permit in Spain through the execution of investments:
- Investments in real estate for an amount equal or higher than € 500.000 (Five Hundred Thousand Euros). The investment can be made in one or more properties, but at least € 500.000 should be free of encumbrances (mortgage, i.e.). If the price is higher than € 500.000, the rest of the amount could be paid through mortgage.
- Financial investments for a value equal or higher than 1 million Euros. This type of investment includes listed and non-listed shares, in case of non-listed shares they could be from already operating companies or newly incorporated ones, investment funds, and deposits in Spanish banks.
- Investment in Spanish sovereign debt for an amount equal or higher than 2 million Euros.
- To carry on a business project in Spain that was considered as being of public interest. To this purpose, one of these conditions should be met: creation of jobs, execution of an investment that has a positive impact in the region where it is located, or a relevant contribution to scientific or technological innovation.
The visa granted through the execution of these investments is valid during at least one year, and in order to obtain the residence permit some other requirements should be met:
- to not stay previously in Spain in an illegal situation,
- to have more than 18 years,
- to not have criminal records,
- to have a health insurance (hired from a company operating in Spain)
- to have financial means for the stay in Spain (i.e. a bank deposit, or income from leases or dividends. Payroll does not qualify for this purpose).
If the above requirements are met, a two years residence and work permit could be granted. After this term, the residence permit can be extended for successive five years periods. The investments should be kept during all these periods. This permit does not request the foreigner to live in Spain for more than six months; therefore it will not be cancelled if the foreigner lives in another country.
The residence and work permit is granted to the individual who executes the investment. If he/she is married and/or has children or ancestors who depend on the investor, it is possible to apply for their visa at the same time or later on. It is possible to execute the investment through a company owned by the investor, provided it is not a company domiciled in a tax heaven country.
The Spanish visa allows free movements within the EU countries (Schengen space). The valid travelling document is the passport.
Foreigners who wish to carry on a self-employment project in Spain could obtain the work and residence permit, but through a different procedure than the above mentioned, and these cases the minimum investment amount is lower.
Investment in real estate
The investment in real estate could be in residential, commercial or industrial properties. The property could be leased to third parties before or after the acquisition, or used by the investor. For ambitious investors, there are several possibilities to structure the investment in buildings and apartments and to a higher return of the investment.
There are some costs related to the acquisition of real estate: the acquisition itself is taxed by Transfer Tax at rates ranging from 6 to 10% on the acquisition price, depending on each Spanish region where the property is located, to be paid by the buyer. Besides, the buyer should pay the Notary Public and Property Registrar’s fees, which approximately amount 3% of the acquisition price (the addition of both of them). These amounts are paid once, when the property is acquired.
The annual costs related to the ownership of real estate in Spain are the following ones:
- IBI or local property tax, whose amount is calculated based on the value and location of the property.
- “Community expenses”, that is those expenses related to the maintenance of the common areas of the building where the property is located: cleaning, lighting, etc.
- In some cases, also a small tax for garbage should be paid to the Town Council.
- Owners should file the Spanish Personal Income Tax Return, and pay a percentage between 1,1% and 2% of the property’s “cadastral value” (official value), in case the property is not leased to a third party. If the property is leased, the owner should also file the Personal Income Tax Return based on the amounts obtained from the lease.
Besides, owners should also pay the expenses related to their property: ordinary maintenance expenses, insurance, electricity and water, etc.
In Spain, the property right is considered as a full right, which implies that the owner can use the property by himself, can lease it to third parties, can mortgage or encumber it, can sell or gift it to any third party and can pass it to his heirs through a will.
The only limits to the use of the property by its owner or the persons appointed by him are those established by the civic rules regarding noises, pets, exterior image of the property, etc.
Regarding the lease of the property, in principle it is free, and the rights and obligations of landlord and tenant are those provided by the private lease agreement entered between both parties and the Spanish Urban Leases Law (Ley de Arrendamientos Urbanos). However, nowadays many Spanish cities (and specially Barcelona) have approved strong limits to the so called touristic leases, which are the short term (days or weeks) leases, and request a special license.
It is important to point out that foreigners who become residents in Spain can grant their will according to Spanish inheritance laws (according to EU Regulation 650/2012), which slightly vary depending on each Spanish region. In Catalonia, for example, the testator can freely appoint who will be his heirs.
Financial investment
Financial investments can be executed through different types of targets, being always the minimum amount 1 million Euros:
- Shares of companies listed in the Spanish Stock Market.
- Shares of non-listed companies, which could be already operating companies or newly incorporated ones. In both cases, there are no limits as regards the percentage of shares that can be owned by foreigners, and the activity sectors restricted to non EU foreign investment are very few (gambling, defense, aviation, TV and radio). Foreigners can be appointed Directors of Spanish companies with the only requirement of having previously obtained the so called “N.I.E.”, which is the Spanish identification number for foreigners.
In case of a newly incorporated company, the € 1 million requested as investment would constitute the company’s share capital, and can be used for the startup of the company’s activities: for example, acquisition of goods, payment of salaries and rentals, payment of purveyors and subcontractors, etc.
Spanish companies have access to all European markets and have a privileged position for trading with Latin American countries.
- Investment funds: Spanish financial entities offer a very wide range of investment funds, from very conservative to high risk.
Deposit in a bank
The main advantage of a real estate investment compared to a financial investment is that the requested amount is only € 500.000 for real estate, while for a financial investment is twice this amount. During the past years since the Law on Entrepreneurship became in force, investment in real estate has been the most popular way for obtaining the residence permit in Spain, probably because at that time (2013-2016) real estate market prices were quite low due to the crash in 2008.
However, the process to acquire a property in Spain is not so easy compared to the acquisition of a share in an investment fund or making a bank deposit: the investor has to choose the property, which normally requires one or two visits to Spain, the price and sale conditions have to negotiated and drafted, the purchase deed has to be signed before a Notary Public (by the investor or his proxy), there are taxes and expenses related to the acquisition, and once the property is acquired, it is necessary to pay ongoing expenses and taxes, and maintain the property in good condition.
Compared to this, the investment in funds or making a bank deposit only requires one visit to the bank by the investor, in order to sign the correspondent documents. There are not related taxes or expenses, and the liquidity of the investment is full (that is, the investment can be sold at any moment, quite probably at the same or at a higher price, but this is not guaranteed for real estate investments).
How to open and operate a bank account in Spain
In Spain, banks apply the regulations regarding anti-money laundering, which include the KYC (Know Your Client) rules and the obligation to prove the legal origin of the funds. The KYC rules imply the need for the investor to appear personally before the bank at least once, previously to operating the bank account. The legal origin of the funds can be proved through different means:
- In case of employees, through the payroll splits, or a certificate issued by the employer, or the investor’s personal income tax return.
- In case of self-employed individuals, through their personal income tax return, or another type of documents proving their professional activity.
- In case of company owners, through the company’s financial statements.
- If the investor has obtained the funds necessary for the investment through personal loans, the loan agreements should be provided, plus the documents proving the legal origin of the funds provided by the lenders.
- Other documents, for example, regarding dividends or income from the lease of properties owned by the investor could be provided.
All documents should be legalized by a Notary Public or the Spanish Consulate, and sworn translated into Spanish.
Please note that this article is aimed to provide a general overview on Spanish rules regarding the above matters, but it does not constitute any kind of comprehensive information on them, and in any case specific legal advice should be sought prior to taking any decision.
In all M&A operations one of the issues that deserves special attention as regards its analysis, ascertainment and negotiation is the tax liabilities. Even though the parties could agree on the amount of such contingencies, to negotiate the possible guarantees that the seller should grant in order to protect the buyer from a possible claim by the tax authorities, the term during which the guarantees should be in force, and to agree on the communication mechanisms between the parties (buyer and seller) and the legal defense strategies if such claim from the tax authorities arises, requires substantial negotiation efforts.
When the acquisition operation is formalized not through the purchase of shares, but through the purchase of the assets that form a business unit, the Spanish General Tax Law (“Ley General Tributaria” or “LGT”) provides a mechanism which implies an exception to the general principle provided by article 42 of the same law. Article 42 of LGT establishes the joint liability of the purchaser of a business unit for the tax liabilities of the selling company (“tax liability derived from company’s succession”). That is, in principle, according to article 42 of the LGT “the persons or entities that continue by any mean in the ownership or exercise of economic activities (the buyers) will be jointly liable with the previous owner for the tax liabilities derived from the exercise of such economic activities incurred by such previous owner”.
However, the joint tax liability of the buyer could be limited through the application before the tax authorities of the tax certificate regulated by article 175.2 of the LGT. This certificate should be applied for by the prospective buyer, with the authorization of the present owner (the seller), and, once issued, the tax liability of the buyer becomes limited to the debts, penalties and liabilities mentioned in the certificate. If the certificate is issued without mentioning any amount, or if the tax authorities do not issue it within a three months term from the application’s date, the applicant (the buyer) will be released from any tax liability derived from company’s succession.
The tax certificate for succession purposes includes the main taxes, as Value Added Tax and Corporate Income Tax, and can include as well debts derived from the withholding taxes on employees’ payroll, which in case of companies with a big number of employees could be of an outstanding amount. However, the buyer’s joint liability for salaries, related payroll amounts and social security contributions cannot be limited by such certificate, and such liability will always be joint with the business unit seller’s liability.
The application for the tax certificate should be filed before the acquisition of the business unit is completed, even if the issuance of the certificate takes place later tan the closing date (but of course, it is wiser to not close the acquisition before having the certificate). The certificate’s validity lasts for one year, as regards periodical tax obligations (for example, Value Added Tax, Corporate Income Tax and withholding taxes on salaries) and for three months as regards non periodical tax obligations.
It is very important to apply for the right tax certificate (“certificate for succession purposes according to article 175.2 of LGT”), and to not make a mistake and apply, for example, for the certificate regarding having fulfilled all tax obligations (“certificado de estar al corriente de las obligaciones fiscales”). Case law is plenty of judgments where a buyer applied for the wrong certificate, which showed no liabilities, and later on such buyer has been sentenced to pay the tax liabilities incurred by the previous owner of the business unit.
The remuneration of directors is an intricate issue and one that deserves adequate treatment. Recently there has been a turn that deserves special attention.
In its judgment of February 26, 2018, the Supreme Court modified the interpretation given by most experts and authorities and by the Directorate-General of Registries and the Notarial Profession in its decision dated June 17, 2016, ratified by the Barcelona Provincial Appellate Court in its decision 295/2017 of June 30, 2017, on the regulation of executive directors’ compensation.
In its judgment, the Supreme Court held that the compensation of directors “in their capacity as such” includes the compensation of both deliberative and executive functions and that, accordingly, approval of the compensation of directors who discharge executive functions is subject not only to article 249 of the Corporate Enterprises Law (i.e., the requirement for there to be a contract approved by a two-thirds majority of the board) but also to article 217. Consequently:
- the bylaws must stipulate the compensation scheme for executive functions (although no reference is made to amount); and
- the amount payable for the discharge of executive functions must be included in the maximum annual amount stipulated by the shareholders’ meeting.
The judgment was handed down in connection with a limited liability company and, furthermore, some of its considerations refer specifically to unlisted companies, although it does not clearly and indubitably exclude listed companies (which are, however, subject to specific rules under the compensation policy).
The publication of this Supreme Court judgment gives rise to the need for an individualized analysis of each specific case, so that the appropriate measures can be taken to enable companies to bring their policies into line with its conclusions.
The author of this post is Pablo Vinageras.
Once convinced of the utility of mediation as a method of resolving conflicts between franchisor and franchisee and taken the decision to include a clause in the contracts that provides for it, the last step would be what elements should be taken into account when drafting it.
- The previous negotiation. It seems advisable that both parties grant themselves the possibility of trying to solve the problem with a previous formal negotiation. Mediation does not exclude the previous attempt made by the interested parties or their lawyers; however, it seems advisable to contractually provide a suitable end according to the circumstances. Experience shows that lengthening this phase too long may result in the conflict becoming more complicated and even more difficult to approach mediation.
- The clause may also provide for the place where the mediation will take place. Again at this point the parties are free. It is convenient that this is accurate indicating the concrete city.
- The language in which the mediation will be developed is the a faculty of the parties. There will be no difficulty in mediations in which both parties use the same language, but it is very convenient in contracts with parties that have different languages, or that belong to regions or countries with different co-official languages. The drafting or signing of the contract in a specific language does not presuppose that this must be the language of the mediation. It is an element to be taken into account also when requesting a mediator who can use that language in the chosen mediation institution.
- The procedure can also be decided by the parties. In particular, the number of sessions, the maximum expected duration, the participation of advisors, etc. Keep in mind that the greater or lesser regulation will allow to avoid future conflicts in this respect, although it will also imply a greater limit to the freedom of the parties that, nevertheless, will remain free to modify the agreement by mutual consent.
- The term of the mediation can also be contemplated. This would allow, for example, to prevent mediation from being extended only for purely procedural strategic purposes or to gather information from the other party before starting a procedure, etc. The professional mediators, however, are able to identify these manoeuvres, also having the power to put an end to mediation in those cases.
- Choosing the mediator or the mediation institution is an important choice. The parties can agree on who will be their mediator, indicate in the contract the elements to choose it, or submit directly to a Mediation Institution so that it is the one who designates it according to its own rules. These decisions can be alternatives (that is, that the parties agree on the mediator and, in case of lack of agreement, submit to an institution that names it), or they can be unique. The designation of an Institution requires that it has a sufficient guarantee of stability (avoid designating short-term institutions or without much future guarantee), with a sufficient panel of mediators depending on the characteristics of the mediation (language, competence, experience) and that allows the necessary flexibility for its operation.
- Finally, it is convenient that the clause includes an alternative way in case the mediation does not succeed either because the parties do not reach an agreement, or because they withdraw from the mediation. It is important to recall that mediation does not close the doors to the conflict be resolved by recourse to ordinary jurisdiction or arbitration. And in terms of specialized arbitration in distribution contracts, the IDArb (https://www.idiproject.com/content/idarb-idi-arbitration-project) is an excellent option.
On the topic of the importance of Mediation in Distribution Agreements, you can check out the recording our webinar “Mediation in International Conflicts”
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The object of this post is the analysis of the new obligations that RDL 6/2019 establishes, in terms of Gender Equality, for all types of companies (regardless the number of workers they have) and, specifically, for those companies that have 50 or more workers.
The main novelty we find in this respect lies in the obligation, for companies with 50 or more workers, to implement an Equality in Business Plan (EBP), in accordance with the provisions of articles 45 and related of the LOIEMH.
Regarding the content and the conditions of implementation of the EBP, we find the following novelties:
- The subjects and minimum content that all EBP must have are listed exhaustively.
- An analysis of the female underrepresentation in the Company is introduced, as a matter that the EBP must contain.
- The diagnosis that the Company must make prior to the preparation of the EBP must be negotiated with the legal representative of the workers.
- A Register of EBP for companies is created, in which all the EBP implemented in the Companies must be registered, regardless of the number of workers they have.
On the other hand, RDL 6/2019 gives a new wording to Article 28 of the Workers’ Statute (WS), which includes the obligation of the Company to comply with the requirement of equal pay for men and women, establishing a series of measures and obligations in charge of the Companies, in order to ensure the effective fulfillment of the salary equality between genders.
In particular, these new measures adopted in article 28 of the WS are:
- What is to be considered as «work of equal value» is specified, in order to facilitate a single concept and eliminate any doubt in this regard.
- Companies have the obligation to keep a Salary Register, with the average values of salaries, salary supplements and extra-salary perceptions of their workforce, differentiated by sex and distributed by professional groups, professional categories or equal work positions value.
- The Salary Registry must be accessible to the legal representatives of the workers.
- In companies with 50 or more workers in which the average remuneration of workers of one sex is higher than the other by 25% or more, a justification for said difference must be included in the Salary Register, and must be certified that it is due to reasons unrelated to the sex of the workers.
The breach, by the Companies, of the obligations in matters of Gender Equality and, in particular, those related to the EBP and equal payment between men and women, may entail the imposition of important sanctions by the Labor Inspector and the “Tesorería General de la Seguridad Social”.
The Spanish Law of the Agency Contract and the European Directive provide for the agent -except in certain cases-, goodwill compensation (clientele) when the relationship is terminated, based on the remuneration received by the Agent during the life of the contract. It is, then, a burden that in general every Principal will have pending when the contract ends.
The temptation is to try to get rid of that payment and for this clients consult us frequently about strategies or tactics. I will try to summarize some of them indicating the chances of success (or not) that may have, both in the negotiation / drafting phase of the contract, and in the resolution phase.
- Change the name of the contract
The first idea is to make a contract «similar» to the agency or call it in a different way (services, intermediation, representation contracts…). However, the change of name does not have any incidence since the contracts «are what they are» and not what the parties call them. So if there is a continued mediation in exchange for remuneration, there is a good chance that a judge will consider it an agency contract, whatever we call it, and with all its consequences.
- Limitation of compensation in the contract
Another temptation in the drafting phase of the contract is to agree compensation less than the maximum legally envisaged, provide for payment in advance for the duration of the contract, or directly eliminate it.
None of these solutions would be valid if they try to reduce the possibility of the Agent to receive the legal maximum, or for reasons not foreseen in the Law or the Directive. The law is imperative.
- Linking different agency contracts
Given that the compensation is calculated according to the remunerations of the last five years and the clientele created, the temptation is to link several shorter contracts to consider only the clients of the last period.
This will not necessarily be a good idea if most of the customers were created last year for instance, but it may also be useless because the Spanish law and the Directive provide that the fixed-term contract that continues to be executed becomes indefinite. The judge may consider all linked contracts as one.
For this strategy to have the possibility of being useful, it would be necessary to liquidate each substituted contract, declare that «nothing has to be claimed by the parties» and that the successive contracts are sufficiently separated and have different entities, drafting, extension, etc. If the procedure is well thought out, it could be a way to get rid of a greater indemnity by clientele: a well-written pact whereby the agent declares the compensation received, and the following contract does not mimic the content and immediately to the previous one.
- Submitting the agreement to a foreign law
In international contracts the temptation is to submit the contract to a right that is not Spanish, particularly when the Principal has that citizenship.
The idea can be good or bad according to the chosen law and as long as it has some relation with the business. As is known, in the EU the Directive establishes minimum conditions that national laws must respect. But nothing prevents these laws from providing more advantageous conditions for agents. This means that, for example, choosing French law would be, in general, a bad idea for the Principal because compensation in that country is usually higher.
In some cases, the choice of a law outside the European Union that does not provide compensation for clientele when the agent is European has been rejected because that the minimum right recognized in the Directive has not been respected.
- Submit the contract to non-national rules and judges
Another less frequent possibility is to submit the contract to rules not from a country, but to general commercial norms (Lex Mercatoria) and to agree on a lower compensation.
This is very uncommon and may not be very useful depending on who is to interpret the contract and where the agent resides. If, for example, the agent resides in Spain and who is going to interpret the contract is a Spanish judge, he will most likely interpret the contract according to his/her own rules without being bound by what the contract envisages. This clause would have been useless.
- Submit the contract to arbitration
The question will be different if the contract is subject to arbitration. In this case, arbitrators are not necessarily subject to interpreting a contract according to their own national regulations if the contract is subject to different one. In this case, it would be possible that they felt freer to consider the contract exclusively, especially when the agent was not of their nationality, did not know what the law of the agent’s country and was not bound by the guarantees provided for his protection.
- Mediation in the agency contract
Mediation is an alternative dispute resolution system that can also be used in agency contracts. In mediation, the parties resolve the dispute by themselves with the help of a mediator.
In this case, given that the mediator is not deciding, it is possible for the parties to freely reach an agreement whereby the agent agrees to a minor indemnification if, for example, other advantages are conferred upon him, if he comes to the conviction of having less right, difficulty of proof, if he prefers to save other costs, time, energy for your new business, etc.
Mediators ensure the balance of the parties, but nothing prevents them to agree a compensation lower than the legal maximum (after the conclusion of the contract it is possible to negotiate a lower than the legal maximum). To foresee the possibility of mediation in the agency contract is, therefore, a good idea: this will permit the parties to better address and negotiate this compensation. In addition, providing for mediation does not limit the rights of any of the parties to withdraw and continue through the courts demanding the legal maximum.
- Imputing to the agent a previous breach
When the contract ends, this is undoubtedly the cause that is most often attempted: when the contract is to be resolved, the Principal tries to argue that the Agent has previously failed to comply and that this is why the contract is being resolved.
The law and the Directive exempt the payment of goodwill compensation when the agent has breach his obligations. But in that case, the Principal must be able to prove it when the agent discusses it. And it will not always be easy. The Principal must provide clear evidence and for this it will be convenient to collect information and documentation on the breach sufficiently and in advance and of sufficient importance (minor breaches are not usually accepted). Therefore, if the Principal wishes to follow this path it is advisable to prepare the arguments and evidences time before the agreement ends. It is strongly recommend contacting an expert advisor as soon as possible: he will help you to minimize the risks.
The procedure to incorporate a foreign owned company in Spain is, in principle, easy and straight forward, however it is necessary to take into account certain new requirements derived from the tax and the anti-money laundering regulations, which could cause long delays in the incorporation process, even to EU and US companies, if they are not well advised and managed from the beginning of the procedure.
The first step consist in collecting information about the foreign shareholder, in order to be able to prove its legal existence and activities: the foreign shareholder(s) will have to grant before a Notary Public in its country of residence a power of attorney authorising somebody in Spain to obtain its tax identification number (“NIE”), and also represent it before the Spanish notary when signing the deed of incorporation. In case the foreign shareholder is an individual person, the NIE should be applied for before the Spanish police or the Spanish Consulate at the country where the investor lives.
If the shareholder is a corporation, apart from the Power of Attorney, it will have to obtain a certificate from its Companies’ Registry or Chamber of Commerce, stating its legal existence and main characteristics. This document is called “good standing certificate” (in the UK and US), “K-bis” (in France), “KvK” (in the Netherlands) or “visura” (in Italy). These two documents, the Power of Attorney mentioned in the above paragraph and the certificate from the Companies’ Registry, will have to be Apostilled or legalized by the correspondent Ministry, and Sworn translated into Spanish. Please note that we use to draft bilingual powers of attorney in order to avoid its sworn translation.
The foreign shareholder will have to prove that its income is obtained from legal activities in order to be able to open a bank account in the name of the new company. The main document to prove this could be the Corporate or the Personal Income Tax return filed in its country of residence, but there could be other means, especially in case of individual persons.
In case of a corporate shareholder, it will be necessary as well to declare, in principle through a public deed granted in Spain, who are the individual persons who, directly or through other companies, will hold more than a 25% interest in the new company to be incorporated. In case nobody holds more than a 25% (i.e. because there are 5 individual shareholders, holding each of them a 20%), it is declared that the effective control of the new company corresponds to its director.
At this stage, it is also necessary to mention that the person(s) who will be the director(s) of the new company, in case they are foreigners, will also need to obtain their personal “NIE”. The NIE should be applied for before the Spanish police (this could be done by a proxy duly authorised though a Power of Attorney granted by the foreign director) or before the Spanish Consulate nearest to the city where the investor lives. In order to be a director of a Spanish company it is not necessary to be a shareholder, nor to have residence and work permit in Spain (provided the foreign director does not live in Spain).
Meanwhile the necessary documents (Powers of Attorney, Companies’ Registry certificate, etc.) are being prepared by the foreign shareholder, the lawyer in Spain will apply for the new company’s name. It is advisable to point out that generic or usual names are not available quite often, therefore it is necessary to think in original names. Three different names could be applied for simultaneously.
The drafting of the company’s Articles of Association or By Laws could be very quick, except if the company is going to have several shareholders and they wish specific clauses. In this case, it is also advisable to draft a Shareholders Agreement. The Shareholders’ Agreement could just contain some basic rules on dedication, compensation, non-competition, etc. and some more sophisticated rules on the sale of shares (tag along and drag along rights). As regards the By-Laws, they should mention the company’s name, its activity or activities, address in Spain –which cannot be just a P.O. Box-, share capital, number of shares and its face value, and starting date for the fiscal year, among other standard clauses.
The management of the company could be organized through a sole director, two directors who could act jointly or separately, and in case there are more than three directors, they should organize themselves through a Board of Directors, being usual in this case to appoint a C.E.O. In order to be a director it is not necessary to be a shareholder. Under Spanish laws, the director(s) could be held liable for some company’s debts under certain circumstances which are legally defined. For this reason, it is necessary that the directors formally accept their appointment (personally appearing before the Notary or through a Power of Attorney).
Before the incorporation, it will be necessary that either the new company’s director (the person to be appointed) or the representative of the corporate shareholder appears personally before the bank where the company will have its first bank account and signs the correspondent documents (KYC regulation). Once the bank account is opened, the shareholder will have to send a bank transfer for the new company’s share capital. In Spain, the minimum share capital for a limited company (S.L.) is Euros 3.000, while for a “Sociedad Anónima” (S.A.) it is Euros 60.000, but only 25% should be paid off at the incorporation moment. It is interesting to note that contributions to the share capital could be made in cash – which is the most common operation, especially at the incorporation – or in kind, with any type of assets: real estate, machinery, goods, trademarks, etc. The money for the share capital should be sent to the new company’s bank account from an account owned by the shareholder (or from each account owned by each shareholder, should they be several ones), not by any other different person. Once the Spanish bank receives the transfer, it will issue a certificate, which is necessary in order to incorporate the company.
Once all the documents are ready, it is possible within very few days (almost immediately) to make the appointment with the Notary and sign the public deed of incorporation. This can be done at any notary in Spain, not being necessary that the notary practises at the same city where the company will have its corporate address. In order to summarize, the list of the necessary documents is:
- Power(s) of Attorney granted by the foreign shareholder(s), apostilled and sworn translated.
- Certificate regarding the legal existence of the foreign shareholder (only if it is a corporation), apostilled and sworn translated.
- Statement on who are the last individual shareholders holding more than 25% interest in the new company, directly or indirectly (only in case of corporate shareholders).
- NIE of the foreign shareholder(s).
- NIE of the new company’s director(s), should they be a foreigners.
- Certificate for the new company’s name.
- Articles of Association.
- Bank certificate regarding the contribution to the new company’s share capital.
The deed of incorporation is signed by the proxy (or the individual shareholder(s), should they prefer to personally appear before the notary) before the chosen public notary, being also necessary to sign an official form to report the foreign investment to a public registry depending on the Spanish Ministry of Finance.
Once the deed of incorporation is signed, the next steps consist in applying before the tax authorities to obtain the new company’s tax number (NIF / CIF) and filing the deed of incorporation before the Companies’ Registry. Some banks do allow new companies to operate once they have the NIF (which could be 2-3 days after the incorporation), while others request to wait until the deed of incorporation is filed at the Companies’ Registry (2-3 weeks).
An estimation of the necessary time to complete all the procedure is 30-45 days, but of course the main delay is related to speed of the foreign investor in obtaining the necessary documents.
Please note that if you wish to incorporate a foreign owned company in Spain it is always necessary to seek specific professional advice, as each case is different and regulations and the application of such regulations vary from time to time. The above article just explains the main steps and requirements for the incorporation of a company.
Arbitration is a well-known system for dispute resolutions, and works as an alternative to judicial procedures. Parties are free to choose this system and to submit their conflicts to specific arbitrators or institutions.
It is usually considered that arbitration is a good way to solve conflicts but preferable to those arisen between big corporations or involving important amounts of money. Although this assumption is generally accepted, there is an alternative for distribution disputes suitable for smaller companies and cases with lower amounts claimed.
And here is the essential question: why a manufacturer/franchisor or a distributor/agent/franchisee should choose a specialized arbitration for their agreements instead of a more general one or, even, a judicial procedure? The answer seems clear: an arbitrator with knowledge not only in procedural questions but in substantive matters will be able to better understand the conflict between the parties and, therefore, to grant a better award. Take into account that, for instance in my Country, Spain, a Judge of First instance can deal in the same day with a distribution contract, a construction case, a conflict between heirs, and a discussion in a community of owners. All of this requires the analysis of different facts and completely different legislations and it is true that specific commercial problems do not usually have judges experts in international trading. But, how to choose a good specialized arbitrator? And, how to choose the arbitral procedure and the institution in terms of organization, neutrality, costs and time?
The IDArb was created in 2016 by the International Distribution Institute (www.idiproject.com) in collaboration with the Chambre de Commerce d’Industries et de Services de Genève (CCIG www.ccig.ch) and the Swiss Chambers’ Arbitration Institution (SCAI www.swissarbitration.org) and offers to the distribution sector (distribution, agency, franchising, selective distribution) a specialized, expedited and affordable arbitration procedure, not only for big international corporations but also for smaller cases. In fact, the expedited procedure is particularly foreseen for amounts below one million CHF (approx. 880.000 €).
The objectives and main characteristics of IDArb which make it suitable for all the distribution disputes are:
- A list of specialized arbitrators experts in this particular field is available for ad hoc or institutional arbitration and IDArb is able to assist the parties to choose one of them.
Specialized arbitrators from different countries and legal cultures have been appointed by a Selecting Committee reviewing their experience in one or more fields of distribution law. Therefore, parties can trust that the arbitrator will have concrete skills in the business with an in-depth understanding of the disputed issues. This is not a general knowledge on commercial law, but a concrete one on distribution, expressly verified by the Committee. Parties can even examine some examples of cases in which every arbitrator has been involved in.
- In order to maintain its high quality, the IDArb organizes training seminars for its appointed arbitrators. In these seminars, they are able to discuss about the general management of the arbitration, the procedural aspects and how to solve possible incidents in collaboration with the Institutions and their Rules. This will make all the proceedings more manageable and the possible difficulties more easily solved. Last seminar took place in Geneva in November 8, 2018 and participants have discussed, amongst other subjects, on evidences, witnesses and document production.
- The expedited arbitration procedure permits the parties to have a tailored procedure managed by SCAI under the Swiss Rules of International Arbitration, specially adapted for small disputes in the field of distribution.
- Time is also an essential element: the award in the expedited procedure will be issued in a maximum term of six months (only exceptional circumstances permit the Court to extend such time-limit), and, if parties agree, it can be decided only on documentary evidence.
- Costs are reasonable and known in advance.
- And, as final but important remark, IDArb has also adopted some recommendations where, upon request of the parties, mediation is favoured, the arbitrator my consider giving a preliminary non-binding and provisional assessment of the dispute and should have a pro-active position in order to facilitate an amicable settlement.
Spanish Law on Entrepreneurship (Law 14/2013) has approved new cases where foreigners from non-European Union countries can obtain the residence permit in Spain through the execution of investments:
- Investments in real estate for an amount equal or higher than € 500.000 (Five Hundred Thousand Euros). The investment can be made in one or more properties, but at least € 500.000 should be free of encumbrances (mortgage, i.e.). If the price is higher than € 500.000, the rest of the amount could be paid through mortgage.
- Financial investments for a value equal or higher than 1 million Euros. This type of investment includes listed and non-listed shares, in case of non-listed shares they could be from already operating companies or newly incorporated ones, investment funds, and deposits in Spanish banks.
- Investment in Spanish sovereign debt for an amount equal or higher than 2 million Euros.
- To carry on a business project in Spain that was considered as being of public interest. To this purpose, one of these conditions should be met: creation of jobs, execution of an investment that has a positive impact in the region where it is located, or a relevant contribution to scientific or technological innovation.
The visa granted through the execution of these investments is valid during at least one year, and in order to obtain the residence permit some other requirements should be met:
- to not stay previously in Spain in an illegal situation,
- to have more than 18 years,
- to not have criminal records,
- to have a health insurance (hired from a company operating in Spain)
- to have financial means for the stay in Spain (i.e. a bank deposit, or income from leases or dividends. Payroll does not qualify for this purpose).
If the above requirements are met, a two years residence and work permit could be granted. After this term, the residence permit can be extended for successive five years periods. The investments should be kept during all these periods. This permit does not request the foreigner to live in Spain for more than six months; therefore it will not be cancelled if the foreigner lives in another country.
The residence and work permit is granted to the individual who executes the investment. If he/she is married and/or has children or ancestors who depend on the investor, it is possible to apply for their visa at the same time or later on. It is possible to execute the investment through a company owned by the investor, provided it is not a company domiciled in a tax heaven country.
The Spanish visa allows free movements within the EU countries (Schengen space). The valid travelling document is the passport.
Foreigners who wish to carry on a self-employment project in Spain could obtain the work and residence permit, but through a different procedure than the above mentioned, and these cases the minimum investment amount is lower.
Investment in real estate
The investment in real estate could be in residential, commercial or industrial properties. The property could be leased to third parties before or after the acquisition, or used by the investor. For ambitious investors, there are several possibilities to structure the investment in buildings and apartments and to a higher return of the investment.
There are some costs related to the acquisition of real estate: the acquisition itself is taxed by Transfer Tax at rates ranging from 6 to 10% on the acquisition price, depending on each Spanish region where the property is located, to be paid by the buyer. Besides, the buyer should pay the Notary Public and Property Registrar’s fees, which approximately amount 3% of the acquisition price (the addition of both of them). These amounts are paid once, when the property is acquired.
The annual costs related to the ownership of real estate in Spain are the following ones:
- IBI or local property tax, whose amount is calculated based on the value and location of the property.
- “Community expenses”, that is those expenses related to the maintenance of the common areas of the building where the property is located: cleaning, lighting, etc.
- In some cases, also a small tax for garbage should be paid to the Town Council.
- Owners should file the Spanish Personal Income Tax Return, and pay a percentage between 1,1% and 2% of the property’s “cadastral value” (official value), in case the property is not leased to a third party. If the property is leased, the owner should also file the Personal Income Tax Return based on the amounts obtained from the lease.
Besides, owners should also pay the expenses related to their property: ordinary maintenance expenses, insurance, electricity and water, etc.
In Spain, the property right is considered as a full right, which implies that the owner can use the property by himself, can lease it to third parties, can mortgage or encumber it, can sell or gift it to any third party and can pass it to his heirs through a will.
The only limits to the use of the property by its owner or the persons appointed by him are those established by the civic rules regarding noises, pets, exterior image of the property, etc.
Regarding the lease of the property, in principle it is free, and the rights and obligations of landlord and tenant are those provided by the private lease agreement entered between both parties and the Spanish Urban Leases Law (Ley de Arrendamientos Urbanos). However, nowadays many Spanish cities (and specially Barcelona) have approved strong limits to the so called touristic leases, which are the short term (days or weeks) leases, and request a special license.
It is important to point out that foreigners who become residents in Spain can grant their will according to Spanish inheritance laws (according to EU Regulation 650/2012), which slightly vary depending on each Spanish region. In Catalonia, for example, the testator can freely appoint who will be his heirs.
Financial investment
Financial investments can be executed through different types of targets, being always the minimum amount 1 million Euros:
- Shares of companies listed in the Spanish Stock Market.
- Shares of non-listed companies, which could be already operating companies or newly incorporated ones. In both cases, there are no limits as regards the percentage of shares that can be owned by foreigners, and the activity sectors restricted to non EU foreign investment are very few (gambling, defense, aviation, TV and radio). Foreigners can be appointed Directors of Spanish companies with the only requirement of having previously obtained the so called “N.I.E.”, which is the Spanish identification number for foreigners.
In case of a newly incorporated company, the € 1 million requested as investment would constitute the company’s share capital, and can be used for the startup of the company’s activities: for example, acquisition of goods, payment of salaries and rentals, payment of purveyors and subcontractors, etc.
Spanish companies have access to all European markets and have a privileged position for trading with Latin American countries.
- Investment funds: Spanish financial entities offer a very wide range of investment funds, from very conservative to high risk.
Deposit in a bank
The main advantage of a real estate investment compared to a financial investment is that the requested amount is only € 500.000 for real estate, while for a financial investment is twice this amount. During the past years since the Law on Entrepreneurship became in force, investment in real estate has been the most popular way for obtaining the residence permit in Spain, probably because at that time (2013-2016) real estate market prices were quite low due to the crash in 2008.
However, the process to acquire a property in Spain is not so easy compared to the acquisition of a share in an investment fund or making a bank deposit: the investor has to choose the property, which normally requires one or two visits to Spain, the price and sale conditions have to negotiated and drafted, the purchase deed has to be signed before a Notary Public (by the investor or his proxy), there are taxes and expenses related to the acquisition, and once the property is acquired, it is necessary to pay ongoing expenses and taxes, and maintain the property in good condition.
Compared to this, the investment in funds or making a bank deposit only requires one visit to the bank by the investor, in order to sign the correspondent documents. There are not related taxes or expenses, and the liquidity of the investment is full (that is, the investment can be sold at any moment, quite probably at the same or at a higher price, but this is not guaranteed for real estate investments).
How to open and operate a bank account in Spain
In Spain, banks apply the regulations regarding anti-money laundering, which include the KYC (Know Your Client) rules and the obligation to prove the legal origin of the funds. The KYC rules imply the need for the investor to appear personally before the bank at least once, previously to operating the bank account. The legal origin of the funds can be proved through different means:
- In case of employees, through the payroll splits, or a certificate issued by the employer, or the investor’s personal income tax return.
- In case of self-employed individuals, through their personal income tax return, or another type of documents proving their professional activity.
- In case of company owners, through the company’s financial statements.
- If the investor has obtained the funds necessary for the investment through personal loans, the loan agreements should be provided, plus the documents proving the legal origin of the funds provided by the lenders.
- Other documents, for example, regarding dividends or income from the lease of properties owned by the investor could be provided.
All documents should be legalized by a Notary Public or the Spanish Consulate, and sworn translated into Spanish.
Please note that this article is aimed to provide a general overview on Spanish rules regarding the above matters, but it does not constitute any kind of comprehensive information on them, and in any case specific legal advice should be sought prior to taking any decision.
In all M&A operations one of the issues that deserves special attention as regards its analysis, ascertainment and negotiation is the tax liabilities. Even though the parties could agree on the amount of such contingencies, to negotiate the possible guarantees that the seller should grant in order to protect the buyer from a possible claim by the tax authorities, the term during which the guarantees should be in force, and to agree on the communication mechanisms between the parties (buyer and seller) and the legal defense strategies if such claim from the tax authorities arises, requires substantial negotiation efforts.
When the acquisition operation is formalized not through the purchase of shares, but through the purchase of the assets that form a business unit, the Spanish General Tax Law (“Ley General Tributaria” or “LGT”) provides a mechanism which implies an exception to the general principle provided by article 42 of the same law. Article 42 of LGT establishes the joint liability of the purchaser of a business unit for the tax liabilities of the selling company (“tax liability derived from company’s succession”). That is, in principle, according to article 42 of the LGT “the persons or entities that continue by any mean in the ownership or exercise of economic activities (the buyers) will be jointly liable with the previous owner for the tax liabilities derived from the exercise of such economic activities incurred by such previous owner”.
However, the joint tax liability of the buyer could be limited through the application before the tax authorities of the tax certificate regulated by article 175.2 of the LGT. This certificate should be applied for by the prospective buyer, with the authorization of the present owner (the seller), and, once issued, the tax liability of the buyer becomes limited to the debts, penalties and liabilities mentioned in the certificate. If the certificate is issued without mentioning any amount, or if the tax authorities do not issue it within a three months term from the application’s date, the applicant (the buyer) will be released from any tax liability derived from company’s succession.
The tax certificate for succession purposes includes the main taxes, as Value Added Tax and Corporate Income Tax, and can include as well debts derived from the withholding taxes on employees’ payroll, which in case of companies with a big number of employees could be of an outstanding amount. However, the buyer’s joint liability for salaries, related payroll amounts and social security contributions cannot be limited by such certificate, and such liability will always be joint with the business unit seller’s liability.
The application for the tax certificate should be filed before the acquisition of the business unit is completed, even if the issuance of the certificate takes place later tan the closing date (but of course, it is wiser to not close the acquisition before having the certificate). The certificate’s validity lasts for one year, as regards periodical tax obligations (for example, Value Added Tax, Corporate Income Tax and withholding taxes on salaries) and for three months as regards non periodical tax obligations.
It is very important to apply for the right tax certificate (“certificate for succession purposes according to article 175.2 of LGT”), and to not make a mistake and apply, for example, for the certificate regarding having fulfilled all tax obligations (“certificado de estar al corriente de las obligaciones fiscales”). Case law is plenty of judgments where a buyer applied for the wrong certificate, which showed no liabilities, and later on such buyer has been sentenced to pay the tax liabilities incurred by the previous owner of the business unit.
The remuneration of directors is an intricate issue and one that deserves adequate treatment. Recently there has been a turn that deserves special attention.
In its judgment of February 26, 2018, the Supreme Court modified the interpretation given by most experts and authorities and by the Directorate-General of Registries and the Notarial Profession in its decision dated June 17, 2016, ratified by the Barcelona Provincial Appellate Court in its decision 295/2017 of June 30, 2017, on the regulation of executive directors’ compensation.
In its judgment, the Supreme Court held that the compensation of directors “in their capacity as such” includes the compensation of both deliberative and executive functions and that, accordingly, approval of the compensation of directors who discharge executive functions is subject not only to article 249 of the Corporate Enterprises Law (i.e., the requirement for there to be a contract approved by a two-thirds majority of the board) but also to article 217. Consequently:
- the bylaws must stipulate the compensation scheme for executive functions (although no reference is made to amount); and
- the amount payable for the discharge of executive functions must be included in the maximum annual amount stipulated by the shareholders’ meeting.
The judgment was handed down in connection with a limited liability company and, furthermore, some of its considerations refer specifically to unlisted companies, although it does not clearly and indubitably exclude listed companies (which are, however, subject to specific rules under the compensation policy).
The publication of this Supreme Court judgment gives rise to the need for an individualized analysis of each specific case, so that the appropriate measures can be taken to enable companies to bring their policies into line with its conclusions.
The author of this post is Pablo Vinageras.
Once convinced of the utility of mediation as a method of resolving conflicts between franchisor and franchisee and taken the decision to include a clause in the contracts that provides for it, the last step would be what elements should be taken into account when drafting it.
- The previous negotiation. It seems advisable that both parties grant themselves the possibility of trying to solve the problem with a previous formal negotiation. Mediation does not exclude the previous attempt made by the interested parties or their lawyers; however, it seems advisable to contractually provide a suitable end according to the circumstances. Experience shows that lengthening this phase too long may result in the conflict becoming more complicated and even more difficult to approach mediation.
- The clause may also provide for the place where the mediation will take place. Again at this point the parties are free. It is convenient that this is accurate indicating the concrete city.
- The language in which the mediation will be developed is the a faculty of the parties. There will be no difficulty in mediations in which both parties use the same language, but it is very convenient in contracts with parties that have different languages, or that belong to regions or countries with different co-official languages. The drafting or signing of the contract in a specific language does not presuppose that this must be the language of the mediation. It is an element to be taken into account also when requesting a mediator who can use that language in the chosen mediation institution.
- The procedure can also be decided by the parties. In particular, the number of sessions, the maximum expected duration, the participation of advisors, etc. Keep in mind that the greater or lesser regulation will allow to avoid future conflicts in this respect, although it will also imply a greater limit to the freedom of the parties that, nevertheless, will remain free to modify the agreement by mutual consent.
- The term of the mediation can also be contemplated. This would allow, for example, to prevent mediation from being extended only for purely procedural strategic purposes or to gather information from the other party before starting a procedure, etc. The professional mediators, however, are able to identify these manoeuvres, also having the power to put an end to mediation in those cases.
- Choosing the mediator or the mediation institution is an important choice. The parties can agree on who will be their mediator, indicate in the contract the elements to choose it, or submit directly to a Mediation Institution so that it is the one who designates it according to its own rules. These decisions can be alternatives (that is, that the parties agree on the mediator and, in case of lack of agreement, submit to an institution that names it), or they can be unique. The designation of an Institution requires that it has a sufficient guarantee of stability (avoid designating short-term institutions or without much future guarantee), with a sufficient panel of mediators depending on the characteristics of the mediation (language, competence, experience) and that allows the necessary flexibility for its operation.
- Finally, it is convenient that the clause includes an alternative way in case the mediation does not succeed either because the parties do not reach an agreement, or because they withdraw from the mediation. It is important to recall that mediation does not close the doors to the conflict be resolved by recourse to ordinary jurisdiction or arbitration. And in terms of specialized arbitration in distribution contracts, the IDArb (https://www.idiproject.com/content/idarb-idi-arbitration-project) is an excellent option.
On the topic of the importance of Mediation in Distribution Agreements, you can check out the recording our webinar “Mediation in International Conflicts”
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The object of this post is the analysis of the new obligations that RDL 6/2019 establishes, in terms of Gender Equality, for all types of companies (regardless the number of workers they have) and, specifically, for those companies that have 50 or more workers.
The main novelty we find in this respect lies in the obligation, for companies with 50 or more workers, to implement an Equality in Business Plan (EBP), in accordance with the provisions of articles 45 and related of the LOIEMH.
Regarding the content and the conditions of implementation of the EBP, we find the following novelties:
- The subjects and minimum content that all EBP must have are listed exhaustively.
- An analysis of the female underrepresentation in the Company is introduced, as a matter that the EBP must contain.
- The diagnosis that the Company must make prior to the preparation of the EBP must be negotiated with the legal representative of the workers.
- A Register of EBP for companies is created, in which all the EBP implemented in the Companies must be registered, regardless of the number of workers they have.
On the other hand, RDL 6/2019 gives a new wording to Article 28 of the Workers’ Statute (WS), which includes the obligation of the Company to comply with the requirement of equal pay for men and women, establishing a series of measures and obligations in charge of the Companies, in order to ensure the effective fulfillment of the salary equality between genders.
In particular, these new measures adopted in article 28 of the WS are:
- What is to be considered as «work of equal value» is specified, in order to facilitate a single concept and eliminate any doubt in this regard.
- Companies have the obligation to keep a Salary Register, with the average values of salaries, salary supplements and extra-salary perceptions of their workforce, differentiated by sex and distributed by professional groups, professional categories or equal work positions value.
- The Salary Registry must be accessible to the legal representatives of the workers.
- In companies with 50 or more workers in which the average remuneration of workers of one sex is higher than the other by 25% or more, a justification for said difference must be included in the Salary Register, and must be certified that it is due to reasons unrelated to the sex of the workers.
The breach, by the Companies, of the obligations in matters of Gender Equality and, in particular, those related to the EBP and equal payment between men and women, may entail the imposition of important sanctions by the Labor Inspector and the “Tesorería General de la Seguridad Social”.
The Spanish Law of the Agency Contract and the European Directive provide for the agent -except in certain cases-, goodwill compensation (clientele) when the relationship is terminated, based on the remuneration received by the Agent during the life of the contract. It is, then, a burden that in general every Principal will have pending when the contract ends.
The temptation is to try to get rid of that payment and for this clients consult us frequently about strategies or tactics. I will try to summarize some of them indicating the chances of success (or not) that may have, both in the negotiation / drafting phase of the contract, and in the resolution phase.
- Change the name of the contract
The first idea is to make a contract «similar» to the agency or call it in a different way (services, intermediation, representation contracts…). However, the change of name does not have any incidence since the contracts «are what they are» and not what the parties call them. So if there is a continued mediation in exchange for remuneration, there is a good chance that a judge will consider it an agency contract, whatever we call it, and with all its consequences.
- Limitation of compensation in the contract
Another temptation in the drafting phase of the contract is to agree compensation less than the maximum legally envisaged, provide for payment in advance for the duration of the contract, or directly eliminate it.
None of these solutions would be valid if they try to reduce the possibility of the Agent to receive the legal maximum, or for reasons not foreseen in the Law or the Directive. The law is imperative.
- Linking different agency contracts
Given that the compensation is calculated according to the remunerations of the last five years and the clientele created, the temptation is to link several shorter contracts to consider only the clients of the last period.
This will not necessarily be a good idea if most of the customers were created last year for instance, but it may also be useless because the Spanish law and the Directive provide that the fixed-term contract that continues to be executed becomes indefinite. The judge may consider all linked contracts as one.
For this strategy to have the possibility of being useful, it would be necessary to liquidate each substituted contract, declare that «nothing has to be claimed by the parties» and that the successive contracts are sufficiently separated and have different entities, drafting, extension, etc. If the procedure is well thought out, it could be a way to get rid of a greater indemnity by clientele: a well-written pact whereby the agent declares the compensation received, and the following contract does not mimic the content and immediately to the previous one.
- Submitting the agreement to a foreign law
In international contracts the temptation is to submit the contract to a right that is not Spanish, particularly when the Principal has that citizenship.
The idea can be good or bad according to the chosen law and as long as it has some relation with the business. As is known, in the EU the Directive establishes minimum conditions that national laws must respect. But nothing prevents these laws from providing more advantageous conditions for agents. This means that, for example, choosing French law would be, in general, a bad idea for the Principal because compensation in that country is usually higher.
In some cases, the choice of a law outside the European Union that does not provide compensation for clientele when the agent is European has been rejected because that the minimum right recognized in the Directive has not been respected.
- Submit the contract to non-national rules and judges
Another less frequent possibility is to submit the contract to rules not from a country, but to general commercial norms (Lex Mercatoria) and to agree on a lower compensation.
This is very uncommon and may not be very useful depending on who is to interpret the contract and where the agent resides. If, for example, the agent resides in Spain and who is going to interpret the contract is a Spanish judge, he will most likely interpret the contract according to his/her own rules without being bound by what the contract envisages. This clause would have been useless.
- Submit the contract to arbitration
The question will be different if the contract is subject to arbitration. In this case, arbitrators are not necessarily subject to interpreting a contract according to their own national regulations if the contract is subject to different one. In this case, it would be possible that they felt freer to consider the contract exclusively, especially when the agent was not of their nationality, did not know what the law of the agent’s country and was not bound by the guarantees provided for his protection.
- Mediation in the agency contract
Mediation is an alternative dispute resolution system that can also be used in agency contracts. In mediation, the parties resolve the dispute by themselves with the help of a mediator.
In this case, given that the mediator is not deciding, it is possible for the parties to freely reach an agreement whereby the agent agrees to a minor indemnification if, for example, other advantages are conferred upon him, if he comes to the conviction of having less right, difficulty of proof, if he prefers to save other costs, time, energy for your new business, etc.
Mediators ensure the balance of the parties, but nothing prevents them to agree a compensation lower than the legal maximum (after the conclusion of the contract it is possible to negotiate a lower than the legal maximum). To foresee the possibility of mediation in the agency contract is, therefore, a good idea: this will permit the parties to better address and negotiate this compensation. In addition, providing for mediation does not limit the rights of any of the parties to withdraw and continue through the courts demanding the legal maximum.
- Imputing to the agent a previous breach
When the contract ends, this is undoubtedly the cause that is most often attempted: when the contract is to be resolved, the Principal tries to argue that the Agent has previously failed to comply and that this is why the contract is being resolved.
The law and the Directive exempt the payment of goodwill compensation when the agent has breach his obligations. But in that case, the Principal must be able to prove it when the agent discusses it. And it will not always be easy. The Principal must provide clear evidence and for this it will be convenient to collect information and documentation on the breach sufficiently and in advance and of sufficient importance (minor breaches are not usually accepted). Therefore, if the Principal wishes to follow this path it is advisable to prepare the arguments and evidences time before the agreement ends. It is strongly recommend contacting an expert advisor as soon as possible: he will help you to minimize the risks.
The procedure to incorporate a foreign owned company in Spain is, in principle, easy and straight forward, however it is necessary to take into account certain new requirements derived from the tax and the anti-money laundering regulations, which could cause long delays in the incorporation process, even to EU and US companies, if they are not well advised and managed from the beginning of the procedure.
The first step consist in collecting information about the foreign shareholder, in order to be able to prove its legal existence and activities: the foreign shareholder(s) will have to grant before a Notary Public in its country of residence a power of attorney authorising somebody in Spain to obtain its tax identification number (“NIE”), and also represent it before the Spanish notary when signing the deed of incorporation. In case the foreign shareholder is an individual person, the NIE should be applied for before the Spanish police or the Spanish Consulate at the country where the investor lives.
If the shareholder is a corporation, apart from the Power of Attorney, it will have to obtain a certificate from its Companies’ Registry or Chamber of Commerce, stating its legal existence and main characteristics. This document is called “good standing certificate” (in the UK and US), “K-bis” (in France), “KvK” (in the Netherlands) or “visura” (in Italy). These two documents, the Power of Attorney mentioned in the above paragraph and the certificate from the Companies’ Registry, will have to be Apostilled or legalized by the correspondent Ministry, and Sworn translated into Spanish. Please note that we use to draft bilingual powers of attorney in order to avoid its sworn translation.
The foreign shareholder will have to prove that its income is obtained from legal activities in order to be able to open a bank account in the name of the new company. The main document to prove this could be the Corporate or the Personal Income Tax return filed in its country of residence, but there could be other means, especially in case of individual persons.
In case of a corporate shareholder, it will be necessary as well to declare, in principle through a public deed granted in Spain, who are the individual persons who, directly or through other companies, will hold more than a 25% interest in the new company to be incorporated. In case nobody holds more than a 25% (i.e. because there are 5 individual shareholders, holding each of them a 20%), it is declared that the effective control of the new company corresponds to its director.
At this stage, it is also necessary to mention that the person(s) who will be the director(s) of the new company, in case they are foreigners, will also need to obtain their personal “NIE”. The NIE should be applied for before the Spanish police (this could be done by a proxy duly authorised though a Power of Attorney granted by the foreign director) or before the Spanish Consulate nearest to the city where the investor lives. In order to be a director of a Spanish company it is not necessary to be a shareholder, nor to have residence and work permit in Spain (provided the foreign director does not live in Spain).
Meanwhile the necessary documents (Powers of Attorney, Companies’ Registry certificate, etc.) are being prepared by the foreign shareholder, the lawyer in Spain will apply for the new company’s name. It is advisable to point out that generic or usual names are not available quite often, therefore it is necessary to think in original names. Three different names could be applied for simultaneously.
The drafting of the company’s Articles of Association or By Laws could be very quick, except if the company is going to have several shareholders and they wish specific clauses. In this case, it is also advisable to draft a Shareholders Agreement. The Shareholders’ Agreement could just contain some basic rules on dedication, compensation, non-competition, etc. and some more sophisticated rules on the sale of shares (tag along and drag along rights). As regards the By-Laws, they should mention the company’s name, its activity or activities, address in Spain –which cannot be just a P.O. Box-, share capital, number of shares and its face value, and starting date for the fiscal year, among other standard clauses.
The management of the company could be organized through a sole director, two directors who could act jointly or separately, and in case there are more than three directors, they should organize themselves through a Board of Directors, being usual in this case to appoint a C.E.O. In order to be a director it is not necessary to be a shareholder. Under Spanish laws, the director(s) could be held liable for some company’s debts under certain circumstances which are legally defined. For this reason, it is necessary that the directors formally accept their appointment (personally appearing before the Notary or through a Power of Attorney).
Before the incorporation, it will be necessary that either the new company’s director (the person to be appointed) or the representative of the corporate shareholder appears personally before the bank where the company will have its first bank account and signs the correspondent documents (KYC regulation). Once the bank account is opened, the shareholder will have to send a bank transfer for the new company’s share capital. In Spain, the minimum share capital for a limited company (S.L.) is Euros 3.000, while for a “Sociedad Anónima” (S.A.) it is Euros 60.000, but only 25% should be paid off at the incorporation moment. It is interesting to note that contributions to the share capital could be made in cash – which is the most common operation, especially at the incorporation – or in kind, with any type of assets: real estate, machinery, goods, trademarks, etc. The money for the share capital should be sent to the new company’s bank account from an account owned by the shareholder (or from each account owned by each shareholder, should they be several ones), not by any other different person. Once the Spanish bank receives the transfer, it will issue a certificate, which is necessary in order to incorporate the company.
Once all the documents are ready, it is possible within very few days (almost immediately) to make the appointment with the Notary and sign the public deed of incorporation. This can be done at any notary in Spain, not being necessary that the notary practises at the same city where the company will have its corporate address. In order to summarize, the list of the necessary documents is:
- Power(s) of Attorney granted by the foreign shareholder(s), apostilled and sworn translated.
- Certificate regarding the legal existence of the foreign shareholder (only if it is a corporation), apostilled and sworn translated.
- Statement on who are the last individual shareholders holding more than 25% interest in the new company, directly or indirectly (only in case of corporate shareholders).
- NIE of the foreign shareholder(s).
- NIE of the new company’s director(s), should they be a foreigners.
- Certificate for the new company’s name.
- Articles of Association.
- Bank certificate regarding the contribution to the new company’s share capital.
The deed of incorporation is signed by the proxy (or the individual shareholder(s), should they prefer to personally appear before the notary) before the chosen public notary, being also necessary to sign an official form to report the foreign investment to a public registry depending on the Spanish Ministry of Finance.
Once the deed of incorporation is signed, the next steps consist in applying before the tax authorities to obtain the new company’s tax number (NIF / CIF) and filing the deed of incorporation before the Companies’ Registry. Some banks do allow new companies to operate once they have the NIF (which could be 2-3 days after the incorporation), while others request to wait until the deed of incorporation is filed at the Companies’ Registry (2-3 weeks).
An estimation of the necessary time to complete all the procedure is 30-45 days, but of course the main delay is related to speed of the foreign investor in obtaining the necessary documents.
Please note that if you wish to incorporate a foreign owned company in Spain it is always necessary to seek specific professional advice, as each case is different and regulations and the application of such regulations vary from time to time. The above article just explains the main steps and requirements for the incorporation of a company.
Arbitration is a well-known system for dispute resolutions, and works as an alternative to judicial procedures. Parties are free to choose this system and to submit their conflicts to specific arbitrators or institutions.
It is usually considered that arbitration is a good way to solve conflicts but preferable to those arisen between big corporations or involving important amounts of money. Although this assumption is generally accepted, there is an alternative for distribution disputes suitable for smaller companies and cases with lower amounts claimed.
And here is the essential question: why a manufacturer/franchisor or a distributor/agent/franchisee should choose a specialized arbitration for their agreements instead of a more general one or, even, a judicial procedure? The answer seems clear: an arbitrator with knowledge not only in procedural questions but in substantive matters will be able to better understand the conflict between the parties and, therefore, to grant a better award. Take into account that, for instance in my Country, Spain, a Judge of First instance can deal in the same day with a distribution contract, a construction case, a conflict between heirs, and a discussion in a community of owners. All of this requires the analysis of different facts and completely different legislations and it is true that specific commercial problems do not usually have judges experts in international trading. But, how to choose a good specialized arbitrator? And, how to choose the arbitral procedure and the institution in terms of organization, neutrality, costs and time?
The IDArb was created in 2016 by the International Distribution Institute (www.idiproject.com) in collaboration with the Chambre de Commerce d’Industries et de Services de Genève (CCIG www.ccig.ch) and the Swiss Chambers’ Arbitration Institution (SCAI www.swissarbitration.org) and offers to the distribution sector (distribution, agency, franchising, selective distribution) a specialized, expedited and affordable arbitration procedure, not only for big international corporations but also for smaller cases. In fact, the expedited procedure is particularly foreseen for amounts below one million CHF (approx. 880.000 €).
The objectives and main characteristics of IDArb which make it suitable for all the distribution disputes are:
- A list of specialized arbitrators experts in this particular field is available for ad hoc or institutional arbitration and IDArb is able to assist the parties to choose one of them.
Specialized arbitrators from different countries and legal cultures have been appointed by a Selecting Committee reviewing their experience in one or more fields of distribution law. Therefore, parties can trust that the arbitrator will have concrete skills in the business with an in-depth understanding of the disputed issues. This is not a general knowledge on commercial law, but a concrete one on distribution, expressly verified by the Committee. Parties can even examine some examples of cases in which every arbitrator has been involved in.
- In order to maintain its high quality, the IDArb organizes training seminars for its appointed arbitrators. In these seminars, they are able to discuss about the general management of the arbitration, the procedural aspects and how to solve possible incidents in collaboration with the Institutions and their Rules. This will make all the proceedings more manageable and the possible difficulties more easily solved. Last seminar took place in Geneva in November 8, 2018 and participants have discussed, amongst other subjects, on evidences, witnesses and document production.
- The expedited arbitration procedure permits the parties to have a tailored procedure managed by SCAI under the Swiss Rules of International Arbitration, specially adapted for small disputes in the field of distribution.
- Time is also an essential element: the award in the expedited procedure will be issued in a maximum term of six months (only exceptional circumstances permit the Court to extend such time-limit), and, if parties agree, it can be decided only on documentary evidence.
- Costs are reasonable and known in advance.
- And, as final but important remark, IDArb has also adopted some recommendations where, upon request of the parties, mediation is favoured, the arbitrator my consider giving a preliminary non-binding and provisional assessment of the dispute and should have a pro-active position in order to facilitate an amicable settlement.
Spanish Law on Entrepreneurship (Law 14/2013) has approved new cases where foreigners from non-European Union countries can obtain the residence permit in Spain through the execution of investments:
- Investments in real estate for an amount equal or higher than € 500.000 (Five Hundred Thousand Euros). The investment can be made in one or more properties, but at least € 500.000 should be free of encumbrances (mortgage, i.e.). If the price is higher than € 500.000, the rest of the amount could be paid through mortgage.
- Financial investments for a value equal or higher than 1 million Euros. This type of investment includes listed and non-listed shares, in case of non-listed shares they could be from already operating companies or newly incorporated ones, investment funds, and deposits in Spanish banks.
- Investment in Spanish sovereign debt for an amount equal or higher than 2 million Euros.
- To carry on a business project in Spain that was considered as being of public interest. To this purpose, one of these conditions should be met: creation of jobs, execution of an investment that has a positive impact in the region where it is located, or a relevant contribution to scientific or technological innovation.
The visa granted through the execution of these investments is valid during at least one year, and in order to obtain the residence permit some other requirements should be met:
- to not stay previously in Spain in an illegal situation,
- to have more than 18 years,
- to not have criminal records,
- to have a health insurance (hired from a company operating in Spain)
- to have financial means for the stay in Spain (i.e. a bank deposit, or income from leases or dividends. Payroll does not qualify for this purpose).
If the above requirements are met, a two years residence and work permit could be granted. After this term, the residence permit can be extended for successive five years periods. The investments should be kept during all these periods. This permit does not request the foreigner to live in Spain for more than six months; therefore it will not be cancelled if the foreigner lives in another country.
The residence and work permit is granted to the individual who executes the investment. If he/she is married and/or has children or ancestors who depend on the investor, it is possible to apply for their visa at the same time or later on. It is possible to execute the investment through a company owned by the investor, provided it is not a company domiciled in a tax heaven country.
The Spanish visa allows free movements within the EU countries (Schengen space). The valid travelling document is the passport.
Foreigners who wish to carry on a self-employment project in Spain could obtain the work and residence permit, but through a different procedure than the above mentioned, and these cases the minimum investment amount is lower.
Investment in real estate
The investment in real estate could be in residential, commercial or industrial properties. The property could be leased to third parties before or after the acquisition, or used by the investor. For ambitious investors, there are several possibilities to structure the investment in buildings and apartments and to a higher return of the investment.
There are some costs related to the acquisition of real estate: the acquisition itself is taxed by Transfer Tax at rates ranging from 6 to 10% on the acquisition price, depending on each Spanish region where the property is located, to be paid by the buyer. Besides, the buyer should pay the Notary Public and Property Registrar’s fees, which approximately amount 3% of the acquisition price (the addition of both of them). These amounts are paid once, when the property is acquired.
The annual costs related to the ownership of real estate in Spain are the following ones:
- IBI or local property tax, whose amount is calculated based on the value and location of the property.
- “Community expenses”, that is those expenses related to the maintenance of the common areas of the building where the property is located: cleaning, lighting, etc.
- In some cases, also a small tax for garbage should be paid to the Town Council.
- Owners should file the Spanish Personal Income Tax Return, and pay a percentage between 1,1% and 2% of the property’s “cadastral value” (official value), in case the property is not leased to a third party. If the property is leased, the owner should also file the Personal Income Tax Return based on the amounts obtained from the lease.
Besides, owners should also pay the expenses related to their property: ordinary maintenance expenses, insurance, electricity and water, etc.
In Spain, the property right is considered as a full right, which implies that the owner can use the property by himself, can lease it to third parties, can mortgage or encumber it, can sell or gift it to any third party and can pass it to his heirs through a will.
The only limits to the use of the property by its owner or the persons appointed by him are those established by the civic rules regarding noises, pets, exterior image of the property, etc.
Regarding the lease of the property, in principle it is free, and the rights and obligations of landlord and tenant are those provided by the private lease agreement entered between both parties and the Spanish Urban Leases Law (Ley de Arrendamientos Urbanos). However, nowadays many Spanish cities (and specially Barcelona) have approved strong limits to the so called touristic leases, which are the short term (days or weeks) leases, and request a special license.
It is important to point out that foreigners who become residents in Spain can grant their will according to Spanish inheritance laws (according to EU Regulation 650/2012), which slightly vary depending on each Spanish region. In Catalonia, for example, the testator can freely appoint who will be his heirs.
Financial investment
Financial investments can be executed through different types of targets, being always the minimum amount 1 million Euros:
- Shares of companies listed in the Spanish Stock Market.
- Shares of non-listed companies, which could be already operating companies or newly incorporated ones. In both cases, there are no limits as regards the percentage of shares that can be owned by foreigners, and the activity sectors restricted to non EU foreign investment are very few (gambling, defense, aviation, TV and radio). Foreigners can be appointed Directors of Spanish companies with the only requirement of having previously obtained the so called “N.I.E.”, which is the Spanish identification number for foreigners.
In case of a newly incorporated company, the € 1 million requested as investment would constitute the company’s share capital, and can be used for the startup of the company’s activities: for example, acquisition of goods, payment of salaries and rentals, payment of purveyors and subcontractors, etc.
Spanish companies have access to all European markets and have a privileged position for trading with Latin American countries.
- Investment funds: Spanish financial entities offer a very wide range of investment funds, from very conservative to high risk.
Deposit in a bank
The main advantage of a real estate investment compared to a financial investment is that the requested amount is only € 500.000 for real estate, while for a financial investment is twice this amount. During the past years since the Law on Entrepreneurship became in force, investment in real estate has been the most popular way for obtaining the residence permit in Spain, probably because at that time (2013-2016) real estate market prices were quite low due to the crash in 2008.
However, the process to acquire a property in Spain is not so easy compared to the acquisition of a share in an investment fund or making a bank deposit: the investor has to choose the property, which normally requires one or two visits to Spain, the price and sale conditions have to negotiated and drafted, the purchase deed has to be signed before a Notary Public (by the investor or his proxy), there are taxes and expenses related to the acquisition, and once the property is acquired, it is necessary to pay ongoing expenses and taxes, and maintain the property in good condition.
Compared to this, the investment in funds or making a bank deposit only requires one visit to the bank by the investor, in order to sign the correspondent documents. There are not related taxes or expenses, and the liquidity of the investment is full (that is, the investment can be sold at any moment, quite probably at the same or at a higher price, but this is not guaranteed for real estate investments).
How to open and operate a bank account in Spain
In Spain, banks apply the regulations regarding anti-money laundering, which include the KYC (Know Your Client) rules and the obligation to prove the legal origin of the funds. The KYC rules imply the need for the investor to appear personally before the bank at least once, previously to operating the bank account. The legal origin of the funds can be proved through different means:
- In case of employees, through the payroll splits, or a certificate issued by the employer, or the investor’s personal income tax return.
- In case of self-employed individuals, through their personal income tax return, or another type of documents proving their professional activity.
- In case of company owners, through the company’s financial statements.
- If the investor has obtained the funds necessary for the investment through personal loans, the loan agreements should be provided, plus the documents proving the legal origin of the funds provided by the lenders.
- Other documents, for example, regarding dividends or income from the lease of properties owned by the investor could be provided.
All documents should be legalized by a Notary Public or the Spanish Consulate, and sworn translated into Spanish.
Please note that this article is aimed to provide a general overview on Spanish rules regarding the above matters, but it does not constitute any kind of comprehensive information on them, and in any case specific legal advice should be sought prior to taking any decision.
In all M&A operations one of the issues that deserves special attention as regards its analysis, ascertainment and negotiation is the tax liabilities. Even though the parties could agree on the amount of such contingencies, to negotiate the possible guarantees that the seller should grant in order to protect the buyer from a possible claim by the tax authorities, the term during which the guarantees should be in force, and to agree on the communication mechanisms between the parties (buyer and seller) and the legal defense strategies if such claim from the tax authorities arises, requires substantial negotiation efforts.
When the acquisition operation is formalized not through the purchase of shares, but through the purchase of the assets that form a business unit, the Spanish General Tax Law (“Ley General Tributaria” or “LGT”) provides a mechanism which implies an exception to the general principle provided by article 42 of the same law. Article 42 of LGT establishes the joint liability of the purchaser of a business unit for the tax liabilities of the selling company (“tax liability derived from company’s succession”). That is, in principle, according to article 42 of the LGT “the persons or entities that continue by any mean in the ownership or exercise of economic activities (the buyers) will be jointly liable with the previous owner for the tax liabilities derived from the exercise of such economic activities incurred by such previous owner”.
However, the joint tax liability of the buyer could be limited through the application before the tax authorities of the tax certificate regulated by article 175.2 of the LGT. This certificate should be applied for by the prospective buyer, with the authorization of the present owner (the seller), and, once issued, the tax liability of the buyer becomes limited to the debts, penalties and liabilities mentioned in the certificate. If the certificate is issued without mentioning any amount, or if the tax authorities do not issue it within a three months term from the application’s date, the applicant (the buyer) will be released from any tax liability derived from company’s succession.
The tax certificate for succession purposes includes the main taxes, as Value Added Tax and Corporate Income Tax, and can include as well debts derived from the withholding taxes on employees’ payroll, which in case of companies with a big number of employees could be of an outstanding amount. However, the buyer’s joint liability for salaries, related payroll amounts and social security contributions cannot be limited by such certificate, and such liability will always be joint with the business unit seller’s liability.
The application for the tax certificate should be filed before the acquisition of the business unit is completed, even if the issuance of the certificate takes place later tan the closing date (but of course, it is wiser to not close the acquisition before having the certificate). The certificate’s validity lasts for one year, as regards periodical tax obligations (for example, Value Added Tax, Corporate Income Tax and withholding taxes on salaries) and for three months as regards non periodical tax obligations.
It is very important to apply for the right tax certificate (“certificate for succession purposes according to article 175.2 of LGT”), and to not make a mistake and apply, for example, for the certificate regarding having fulfilled all tax obligations (“certificado de estar al corriente de las obligaciones fiscales”). Case law is plenty of judgments where a buyer applied for the wrong certificate, which showed no liabilities, and later on such buyer has been sentenced to pay the tax liabilities incurred by the previous owner of the business unit.
The remuneration of directors is an intricate issue and one that deserves adequate treatment. Recently there has been a turn that deserves special attention.
In its judgment of February 26, 2018, the Supreme Court modified the interpretation given by most experts and authorities and by the Directorate-General of Registries and the Notarial Profession in its decision dated June 17, 2016, ratified by the Barcelona Provincial Appellate Court in its decision 295/2017 of June 30, 2017, on the regulation of executive directors’ compensation.
In its judgment, the Supreme Court held that the compensation of directors “in their capacity as such” includes the compensation of both deliberative and executive functions and that, accordingly, approval of the compensation of directors who discharge executive functions is subject not only to article 249 of the Corporate Enterprises Law (i.e., the requirement for there to be a contract approved by a two-thirds majority of the board) but also to article 217. Consequently:
- the bylaws must stipulate the compensation scheme for executive functions (although no reference is made to amount); and
- the amount payable for the discharge of executive functions must be included in the maximum annual amount stipulated by the shareholders’ meeting.
The judgment was handed down in connection with a limited liability company and, furthermore, some of its considerations refer specifically to unlisted companies, although it does not clearly and indubitably exclude listed companies (which are, however, subject to specific rules under the compensation policy).
The publication of this Supreme Court judgment gives rise to the need for an individualized analysis of each specific case, so that the appropriate measures can be taken to enable companies to bring their policies into line with its conclusions.
The author of this post is Pablo Vinageras.
Once convinced of the utility of mediation as a method of resolving conflicts between franchisor and franchisee and taken the decision to include a clause in the contracts that provides for it, the last step would be what elements should be taken into account when drafting it.
- The previous negotiation. It seems advisable that both parties grant themselves the possibility of trying to solve the problem with a previous formal negotiation. Mediation does not exclude the previous attempt made by the interested parties or their lawyers; however, it seems advisable to contractually provide a suitable end according to the circumstances. Experience shows that lengthening this phase too long may result in the conflict becoming more complicated and even more difficult to approach mediation.
- The clause may also provide for the place where the mediation will take place. Again at this point the parties are free. It is convenient that this is accurate indicating the concrete city.
- The language in which the mediation will be developed is the a faculty of the parties. There will be no difficulty in mediations in which both parties use the same language, but it is very convenient in contracts with parties that have different languages, or that belong to regions or countries with different co-official languages. The drafting or signing of the contract in a specific language does not presuppose that this must be the language of the mediation. It is an element to be taken into account also when requesting a mediator who can use that language in the chosen mediation institution.
- The procedure can also be decided by the parties. In particular, the number of sessions, the maximum expected duration, the participation of advisors, etc. Keep in mind that the greater or lesser regulation will allow to avoid future conflicts in this respect, although it will also imply a greater limit to the freedom of the parties that, nevertheless, will remain free to modify the agreement by mutual consent.
- The term of the mediation can also be contemplated. This would allow, for example, to prevent mediation from being extended only for purely procedural strategic purposes or to gather information from the other party before starting a procedure, etc. The professional mediators, however, are able to identify these manoeuvres, also having the power to put an end to mediation in those cases.
- Choosing the mediator or the mediation institution is an important choice. The parties can agree on who will be their mediator, indicate in the contract the elements to choose it, or submit directly to a Mediation Institution so that it is the one who designates it according to its own rules. These decisions can be alternatives (that is, that the parties agree on the mediator and, in case of lack of agreement, submit to an institution that names it), or they can be unique. The designation of an Institution requires that it has a sufficient guarantee of stability (avoid designating short-term institutions or without much future guarantee), with a sufficient panel of mediators depending on the characteristics of the mediation (language, competence, experience) and that allows the necessary flexibility for its operation.
- Finally, it is convenient that the clause includes an alternative way in case the mediation does not succeed either because the parties do not reach an agreement, or because they withdraw from the mediation. It is important to recall that mediation does not close the doors to the conflict be resolved by recourse to ordinary jurisdiction or arbitration. And in terms of specialized arbitration in distribution contracts, the IDArb (https://www.idiproject.com/content/idarb-idi-arbitration-project) is an excellent option.
On the topic of the importance of Mediation in Distribution Agreements, you can check out the recording our webinar “Mediation in International Conflicts”
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- Банковское дело
- Финансирование и ценные бумаги
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Испания
Spain — The Spanish sentence on the European super league: everyone is happy
- Антимонопольное законодательство
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Испания
Scrivi a Javier
Spain — Agency and distribution agreements
16.01.2017
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Испания
- Распространение
The object of this post is the analysis of the new obligations that RDL 6/2019 establishes, in terms of Gender Equality, for all types of companies (regardless the number of workers they have) and, specifically, for those companies that have 50 or more workers.
The main novelty we find in this respect lies in the obligation, for companies with 50 or more workers, to implement an Equality in Business Plan (EBP), in accordance with the provisions of articles 45 and related of the LOIEMH.
Regarding the content and the conditions of implementation of the EBP, we find the following novelties:
- The subjects and minimum content that all EBP must have are listed exhaustively.
- An analysis of the female underrepresentation in the Company is introduced, as a matter that the EBP must contain.
- The diagnosis that the Company must make prior to the preparation of the EBP must be negotiated with the legal representative of the workers.
- A Register of EBP for companies is created, in which all the EBP implemented in the Companies must be registered, regardless of the number of workers they have.
On the other hand, RDL 6/2019 gives a new wording to Article 28 of the Workers’ Statute (WS), which includes the obligation of the Company to comply with the requirement of equal pay for men and women, establishing a series of measures and obligations in charge of the Companies, in order to ensure the effective fulfillment of the salary equality between genders.
In particular, these new measures adopted in article 28 of the WS are:
- What is to be considered as «work of equal value» is specified, in order to facilitate a single concept and eliminate any doubt in this regard.
- Companies have the obligation to keep a Salary Register, with the average values of salaries, salary supplements and extra-salary perceptions of their workforce, differentiated by sex and distributed by professional groups, professional categories or equal work positions value.
- The Salary Registry must be accessible to the legal representatives of the workers.
- In companies with 50 or more workers in which the average remuneration of workers of one sex is higher than the other by 25% or more, a justification for said difference must be included in the Salary Register, and must be certified that it is due to reasons unrelated to the sex of the workers.
The breach, by the Companies, of the obligations in matters of Gender Equality and, in particular, those related to the EBP and equal payment between men and women, may entail the imposition of important sanctions by the Labor Inspector and the “Tesorería General de la Seguridad Social”.
The Spanish Law of the Agency Contract and the European Directive provide for the agent -except in certain cases-, goodwill compensation (clientele) when the relationship is terminated, based on the remuneration received by the Agent during the life of the contract. It is, then, a burden that in general every Principal will have pending when the contract ends.
The temptation is to try to get rid of that payment and for this clients consult us frequently about strategies or tactics. I will try to summarize some of them indicating the chances of success (or not) that may have, both in the negotiation / drafting phase of the contract, and in the resolution phase.
- Change the name of the contract
The first idea is to make a contract «similar» to the agency or call it in a different way (services, intermediation, representation contracts…). However, the change of name does not have any incidence since the contracts «are what they are» and not what the parties call them. So if there is a continued mediation in exchange for remuneration, there is a good chance that a judge will consider it an agency contract, whatever we call it, and with all its consequences.
- Limitation of compensation in the contract
Another temptation in the drafting phase of the contract is to agree compensation less than the maximum legally envisaged, provide for payment in advance for the duration of the contract, or directly eliminate it.
None of these solutions would be valid if they try to reduce the possibility of the Agent to receive the legal maximum, or for reasons not foreseen in the Law or the Directive. The law is imperative.
- Linking different agency contracts
Given that the compensation is calculated according to the remunerations of the last five years and the clientele created, the temptation is to link several shorter contracts to consider only the clients of the last period.
This will not necessarily be a good idea if most of the customers were created last year for instance, but it may also be useless because the Spanish law and the Directive provide that the fixed-term contract that continues to be executed becomes indefinite. The judge may consider all linked contracts as one.
For this strategy to have the possibility of being useful, it would be necessary to liquidate each substituted contract, declare that «nothing has to be claimed by the parties» and that the successive contracts are sufficiently separated and have different entities, drafting, extension, etc. If the procedure is well thought out, it could be a way to get rid of a greater indemnity by clientele: a well-written pact whereby the agent declares the compensation received, and the following contract does not mimic the content and immediately to the previous one.
- Submitting the agreement to a foreign law
In international contracts the temptation is to submit the contract to a right that is not Spanish, particularly when the Principal has that citizenship.
The idea can be good or bad according to the chosen law and as long as it has some relation with the business. As is known, in the EU the Directive establishes minimum conditions that national laws must respect. But nothing prevents these laws from providing more advantageous conditions for agents. This means that, for example, choosing French law would be, in general, a bad idea for the Principal because compensation in that country is usually higher.
In some cases, the choice of a law outside the European Union that does not provide compensation for clientele when the agent is European has been rejected because that the minimum right recognized in the Directive has not been respected.
- Submit the contract to non-national rules and judges
Another less frequent possibility is to submit the contract to rules not from a country, but to general commercial norms (Lex Mercatoria) and to agree on a lower compensation.
This is very uncommon and may not be very useful depending on who is to interpret the contract and where the agent resides. If, for example, the agent resides in Spain and who is going to interpret the contract is a Spanish judge, he will most likely interpret the contract according to his/her own rules without being bound by what the contract envisages. This clause would have been useless.
- Submit the contract to arbitration
The question will be different if the contract is subject to arbitration. In this case, arbitrators are not necessarily subject to interpreting a contract according to their own national regulations if the contract is subject to different one. In this case, it would be possible that they felt freer to consider the contract exclusively, especially when the agent was not of their nationality, did not know what the law of the agent’s country and was not bound by the guarantees provided for his protection.
- Mediation in the agency contract
Mediation is an alternative dispute resolution system that can also be used in agency contracts. In mediation, the parties resolve the dispute by themselves with the help of a mediator.
In this case, given that the mediator is not deciding, it is possible for the parties to freely reach an agreement whereby the agent agrees to a minor indemnification if, for example, other advantages are conferred upon him, if he comes to the conviction of having less right, difficulty of proof, if he prefers to save other costs, time, energy for your new business, etc.
Mediators ensure the balance of the parties, but nothing prevents them to agree a compensation lower than the legal maximum (after the conclusion of the contract it is possible to negotiate a lower than the legal maximum). To foresee the possibility of mediation in the agency contract is, therefore, a good idea: this will permit the parties to better address and negotiate this compensation. In addition, providing for mediation does not limit the rights of any of the parties to withdraw and continue through the courts demanding the legal maximum.
- Imputing to the agent a previous breach
When the contract ends, this is undoubtedly the cause that is most often attempted: when the contract is to be resolved, the Principal tries to argue that the Agent has previously failed to comply and that this is why the contract is being resolved.
The law and the Directive exempt the payment of goodwill compensation when the agent has breach his obligations. But in that case, the Principal must be able to prove it when the agent discusses it. And it will not always be easy. The Principal must provide clear evidence and for this it will be convenient to collect information and documentation on the breach sufficiently and in advance and of sufficient importance (minor breaches are not usually accepted). Therefore, if the Principal wishes to follow this path it is advisable to prepare the arguments and evidences time before the agreement ends. It is strongly recommend contacting an expert advisor as soon as possible: he will help you to minimize the risks.
The procedure to incorporate a foreign owned company in Spain is, in principle, easy and straight forward, however it is necessary to take into account certain new requirements derived from the tax and the anti-money laundering regulations, which could cause long delays in the incorporation process, even to EU and US companies, if they are not well advised and managed from the beginning of the procedure.
The first step consist in collecting information about the foreign shareholder, in order to be able to prove its legal existence and activities: the foreign shareholder(s) will have to grant before a Notary Public in its country of residence a power of attorney authorising somebody in Spain to obtain its tax identification number (“NIE”), and also represent it before the Spanish notary when signing the deed of incorporation. In case the foreign shareholder is an individual person, the NIE should be applied for before the Spanish police or the Spanish Consulate at the country where the investor lives.
If the shareholder is a corporation, apart from the Power of Attorney, it will have to obtain a certificate from its Companies’ Registry or Chamber of Commerce, stating its legal existence and main characteristics. This document is called “good standing certificate” (in the UK and US), “K-bis” (in France), “KvK” (in the Netherlands) or “visura” (in Italy). These two documents, the Power of Attorney mentioned in the above paragraph and the certificate from the Companies’ Registry, will have to be Apostilled or legalized by the correspondent Ministry, and Sworn translated into Spanish. Please note that we use to draft bilingual powers of attorney in order to avoid its sworn translation.
The foreign shareholder will have to prove that its income is obtained from legal activities in order to be able to open a bank account in the name of the new company. The main document to prove this could be the Corporate or the Personal Income Tax return filed in its country of residence, but there could be other means, especially in case of individual persons.
In case of a corporate shareholder, it will be necessary as well to declare, in principle through a public deed granted in Spain, who are the individual persons who, directly or through other companies, will hold more than a 25% interest in the new company to be incorporated. In case nobody holds more than a 25% (i.e. because there are 5 individual shareholders, holding each of them a 20%), it is declared that the effective control of the new company corresponds to its director.
At this stage, it is also necessary to mention that the person(s) who will be the director(s) of the new company, in case they are foreigners, will also need to obtain their personal “NIE”. The NIE should be applied for before the Spanish police (this could be done by a proxy duly authorised though a Power of Attorney granted by the foreign director) or before the Spanish Consulate nearest to the city where the investor lives. In order to be a director of a Spanish company it is not necessary to be a shareholder, nor to have residence and work permit in Spain (provided the foreign director does not live in Spain).
Meanwhile the necessary documents (Powers of Attorney, Companies’ Registry certificate, etc.) are being prepared by the foreign shareholder, the lawyer in Spain will apply for the new company’s name. It is advisable to point out that generic or usual names are not available quite often, therefore it is necessary to think in original names. Three different names could be applied for simultaneously.
The drafting of the company’s Articles of Association or By Laws could be very quick, except if the company is going to have several shareholders and they wish specific clauses. In this case, it is also advisable to draft a Shareholders Agreement. The Shareholders’ Agreement could just contain some basic rules on dedication, compensation, non-competition, etc. and some more sophisticated rules on the sale of shares (tag along and drag along rights). As regards the By-Laws, they should mention the company’s name, its activity or activities, address in Spain –which cannot be just a P.O. Box-, share capital, number of shares and its face value, and starting date for the fiscal year, among other standard clauses.
The management of the company could be organized through a sole director, two directors who could act jointly or separately, and in case there are more than three directors, they should organize themselves through a Board of Directors, being usual in this case to appoint a C.E.O. In order to be a director it is not necessary to be a shareholder. Under Spanish laws, the director(s) could be held liable for some company’s debts under certain circumstances which are legally defined. For this reason, it is necessary that the directors formally accept their appointment (personally appearing before the Notary or through a Power of Attorney).
Before the incorporation, it will be necessary that either the new company’s director (the person to be appointed) or the representative of the corporate shareholder appears personally before the bank where the company will have its first bank account and signs the correspondent documents (KYC regulation). Once the bank account is opened, the shareholder will have to send a bank transfer for the new company’s share capital. In Spain, the minimum share capital for a limited company (S.L.) is Euros 3.000, while for a “Sociedad Anónima” (S.A.) it is Euros 60.000, but only 25% should be paid off at the incorporation moment. It is interesting to note that contributions to the share capital could be made in cash – which is the most common operation, especially at the incorporation – or in kind, with any type of assets: real estate, machinery, goods, trademarks, etc. The money for the share capital should be sent to the new company’s bank account from an account owned by the shareholder (or from each account owned by each shareholder, should they be several ones), not by any other different person. Once the Spanish bank receives the transfer, it will issue a certificate, which is necessary in order to incorporate the company.
Once all the documents are ready, it is possible within very few days (almost immediately) to make the appointment with the Notary and sign the public deed of incorporation. This can be done at any notary in Spain, not being necessary that the notary practises at the same city where the company will have its corporate address. In order to summarize, the list of the necessary documents is:
- Power(s) of Attorney granted by the foreign shareholder(s), apostilled and sworn translated.
- Certificate regarding the legal existence of the foreign shareholder (only if it is a corporation), apostilled and sworn translated.
- Statement on who are the last individual shareholders holding more than 25% interest in the new company, directly or indirectly (only in case of corporate shareholders).
- NIE of the foreign shareholder(s).
- NIE of the new company’s director(s), should they be a foreigners.
- Certificate for the new company’s name.
- Articles of Association.
- Bank certificate regarding the contribution to the new company’s share capital.
The deed of incorporation is signed by the proxy (or the individual shareholder(s), should they prefer to personally appear before the notary) before the chosen public notary, being also necessary to sign an official form to report the foreign investment to a public registry depending on the Spanish Ministry of Finance.
Once the deed of incorporation is signed, the next steps consist in applying before the tax authorities to obtain the new company’s tax number (NIF / CIF) and filing the deed of incorporation before the Companies’ Registry. Some banks do allow new companies to operate once they have the NIF (which could be 2-3 days after the incorporation), while others request to wait until the deed of incorporation is filed at the Companies’ Registry (2-3 weeks).
An estimation of the necessary time to complete all the procedure is 30-45 days, but of course the main delay is related to speed of the foreign investor in obtaining the necessary documents.
Please note that if you wish to incorporate a foreign owned company in Spain it is always necessary to seek specific professional advice, as each case is different and regulations and the application of such regulations vary from time to time. The above article just explains the main steps and requirements for the incorporation of a company.
Arbitration is a well-known system for dispute resolutions, and works as an alternative to judicial procedures. Parties are free to choose this system and to submit their conflicts to specific arbitrators or institutions.
It is usually considered that arbitration is a good way to solve conflicts but preferable to those arisen between big corporations or involving important amounts of money. Although this assumption is generally accepted, there is an alternative for distribution disputes suitable for smaller companies and cases with lower amounts claimed.
And here is the essential question: why a manufacturer/franchisor or a distributor/agent/franchisee should choose a specialized arbitration for their agreements instead of a more general one or, even, a judicial procedure? The answer seems clear: an arbitrator with knowledge not only in procedural questions but in substantive matters will be able to better understand the conflict between the parties and, therefore, to grant a better award. Take into account that, for instance in my Country, Spain, a Judge of First instance can deal in the same day with a distribution contract, a construction case, a conflict between heirs, and a discussion in a community of owners. All of this requires the analysis of different facts and completely different legislations and it is true that specific commercial problems do not usually have judges experts in international trading. But, how to choose a good specialized arbitrator? And, how to choose the arbitral procedure and the institution in terms of organization, neutrality, costs and time?
The IDArb was created in 2016 by the International Distribution Institute (www.idiproject.com) in collaboration with the Chambre de Commerce d’Industries et de Services de Genève (CCIG www.ccig.ch) and the Swiss Chambers’ Arbitration Institution (SCAI www.swissarbitration.org) and offers to the distribution sector (distribution, agency, franchising, selective distribution) a specialized, expedited and affordable arbitration procedure, not only for big international corporations but also for smaller cases. In fact, the expedited procedure is particularly foreseen for amounts below one million CHF (approx. 880.000 €).
The objectives and main characteristics of IDArb which make it suitable for all the distribution disputes are:
- A list of specialized arbitrators experts in this particular field is available for ad hoc or institutional arbitration and IDArb is able to assist the parties to choose one of them.
Specialized arbitrators from different countries and legal cultures have been appointed by a Selecting Committee reviewing their experience in one or more fields of distribution law. Therefore, parties can trust that the arbitrator will have concrete skills in the business with an in-depth understanding of the disputed issues. This is not a general knowledge on commercial law, but a concrete one on distribution, expressly verified by the Committee. Parties can even examine some examples of cases in which every arbitrator has been involved in.
- In order to maintain its high quality, the IDArb organizes training seminars for its appointed arbitrators. In these seminars, they are able to discuss about the general management of the arbitration, the procedural aspects and how to solve possible incidents in collaboration with the Institutions and their Rules. This will make all the proceedings more manageable and the possible difficulties more easily solved. Last seminar took place in Geneva in November 8, 2018 and participants have discussed, amongst other subjects, on evidences, witnesses and document production.
- The expedited arbitration procedure permits the parties to have a tailored procedure managed by SCAI under the Swiss Rules of International Arbitration, specially adapted for small disputes in the field of distribution.
- Time is also an essential element: the award in the expedited procedure will be issued in a maximum term of six months (only exceptional circumstances permit the Court to extend such time-limit), and, if parties agree, it can be decided only on documentary evidence.
- Costs are reasonable and known in advance.
- And, as final but important remark, IDArb has also adopted some recommendations where, upon request of the parties, mediation is favoured, the arbitrator my consider giving a preliminary non-binding and provisional assessment of the dispute and should have a pro-active position in order to facilitate an amicable settlement.
Spanish Law on Entrepreneurship (Law 14/2013) has approved new cases where foreigners from non-European Union countries can obtain the residence permit in Spain through the execution of investments:
- Investments in real estate for an amount equal or higher than € 500.000 (Five Hundred Thousand Euros). The investment can be made in one or more properties, but at least € 500.000 should be free of encumbrances (mortgage, i.e.). If the price is higher than € 500.000, the rest of the amount could be paid through mortgage.
- Financial investments for a value equal or higher than 1 million Euros. This type of investment includes listed and non-listed shares, in case of non-listed shares they could be from already operating companies or newly incorporated ones, investment funds, and deposits in Spanish banks.
- Investment in Spanish sovereign debt for an amount equal or higher than 2 million Euros.
- To carry on a business project in Spain that was considered as being of public interest. To this purpose, one of these conditions should be met: creation of jobs, execution of an investment that has a positive impact in the region where it is located, or a relevant contribution to scientific or technological innovation.
The visa granted through the execution of these investments is valid during at least one year, and in order to obtain the residence permit some other requirements should be met:
- to not stay previously in Spain in an illegal situation,
- to have more than 18 years,
- to not have criminal records,
- to have a health insurance (hired from a company operating in Spain)
- to have financial means for the stay in Spain (i.e. a bank deposit, or income from leases or dividends. Payroll does not qualify for this purpose).
If the above requirements are met, a two years residence and work permit could be granted. After this term, the residence permit can be extended for successive five years periods. The investments should be kept during all these periods. This permit does not request the foreigner to live in Spain for more than six months; therefore it will not be cancelled if the foreigner lives in another country.
The residence and work permit is granted to the individual who executes the investment. If he/she is married and/or has children or ancestors who depend on the investor, it is possible to apply for their visa at the same time or later on. It is possible to execute the investment through a company owned by the investor, provided it is not a company domiciled in a tax heaven country.
The Spanish visa allows free movements within the EU countries (Schengen space). The valid travelling document is the passport.
Foreigners who wish to carry on a self-employment project in Spain could obtain the work and residence permit, but through a different procedure than the above mentioned, and these cases the minimum investment amount is lower.
Investment in real estate
The investment in real estate could be in residential, commercial or industrial properties. The property could be leased to third parties before or after the acquisition, or used by the investor. For ambitious investors, there are several possibilities to structure the investment in buildings and apartments and to a higher return of the investment.
There are some costs related to the acquisition of real estate: the acquisition itself is taxed by Transfer Tax at rates ranging from 6 to 10% on the acquisition price, depending on each Spanish region where the property is located, to be paid by the buyer. Besides, the buyer should pay the Notary Public and Property Registrar’s fees, which approximately amount 3% of the acquisition price (the addition of both of them). These amounts are paid once, when the property is acquired.
The annual costs related to the ownership of real estate in Spain are the following ones:
- IBI or local property tax, whose amount is calculated based on the value and location of the property.
- “Community expenses”, that is those expenses related to the maintenance of the common areas of the building where the property is located: cleaning, lighting, etc.
- In some cases, also a small tax for garbage should be paid to the Town Council.
- Owners should file the Spanish Personal Income Tax Return, and pay a percentage between 1,1% and 2% of the property’s “cadastral value” (official value), in case the property is not leased to a third party. If the property is leased, the owner should also file the Personal Income Tax Return based on the amounts obtained from the lease.
Besides, owners should also pay the expenses related to their property: ordinary maintenance expenses, insurance, electricity and water, etc.
In Spain, the property right is considered as a full right, which implies that the owner can use the property by himself, can lease it to third parties, can mortgage or encumber it, can sell or gift it to any third party and can pass it to his heirs through a will.
The only limits to the use of the property by its owner or the persons appointed by him are those established by the civic rules regarding noises, pets, exterior image of the property, etc.
Regarding the lease of the property, in principle it is free, and the rights and obligations of landlord and tenant are those provided by the private lease agreement entered between both parties and the Spanish Urban Leases Law (Ley de Arrendamientos Urbanos). However, nowadays many Spanish cities (and specially Barcelona) have approved strong limits to the so called touristic leases, which are the short term (days or weeks) leases, and request a special license.
It is important to point out that foreigners who become residents in Spain can grant their will according to Spanish inheritance laws (according to EU Regulation 650/2012), which slightly vary depending on each Spanish region. In Catalonia, for example, the testator can freely appoint who will be his heirs.
Financial investment
Financial investments can be executed through different types of targets, being always the minimum amount 1 million Euros:
- Shares of companies listed in the Spanish Stock Market.
- Shares of non-listed companies, which could be already operating companies or newly incorporated ones. In both cases, there are no limits as regards the percentage of shares that can be owned by foreigners, and the activity sectors restricted to non EU foreign investment are very few (gambling, defense, aviation, TV and radio). Foreigners can be appointed Directors of Spanish companies with the only requirement of having previously obtained the so called “N.I.E.”, which is the Spanish identification number for foreigners.
In case of a newly incorporated company, the € 1 million requested as investment would constitute the company’s share capital, and can be used for the startup of the company’s activities: for example, acquisition of goods, payment of salaries and rentals, payment of purveyors and subcontractors, etc.
Spanish companies have access to all European markets and have a privileged position for trading with Latin American countries.
- Investment funds: Spanish financial entities offer a very wide range of investment funds, from very conservative to high risk.
Deposit in a bank
The main advantage of a real estate investment compared to a financial investment is that the requested amount is only € 500.000 for real estate, while for a financial investment is twice this amount. During the past years since the Law on Entrepreneurship became in force, investment in real estate has been the most popular way for obtaining the residence permit in Spain, probably because at that time (2013-2016) real estate market prices were quite low due to the crash in 2008.
However, the process to acquire a property in Spain is not so easy compared to the acquisition of a share in an investment fund or making a bank deposit: the investor has to choose the property, which normally requires one or two visits to Spain, the price and sale conditions have to negotiated and drafted, the purchase deed has to be signed before a Notary Public (by the investor or his proxy), there are taxes and expenses related to the acquisition, and once the property is acquired, it is necessary to pay ongoing expenses and taxes, and maintain the property in good condition.
Compared to this, the investment in funds or making a bank deposit only requires one visit to the bank by the investor, in order to sign the correspondent documents. There are not related taxes or expenses, and the liquidity of the investment is full (that is, the investment can be sold at any moment, quite probably at the same or at a higher price, but this is not guaranteed for real estate investments).
How to open and operate a bank account in Spain
In Spain, banks apply the regulations regarding anti-money laundering, which include the KYC (Know Your Client) rules and the obligation to prove the legal origin of the funds. The KYC rules imply the need for the investor to appear personally before the bank at least once, previously to operating the bank account. The legal origin of the funds can be proved through different means:
- In case of employees, through the payroll splits, or a certificate issued by the employer, or the investor’s personal income tax return.
- In case of self-employed individuals, through their personal income tax return, or another type of documents proving their professional activity.
- In case of company owners, through the company’s financial statements.
- If the investor has obtained the funds necessary for the investment through personal loans, the loan agreements should be provided, plus the documents proving the legal origin of the funds provided by the lenders.
- Other documents, for example, regarding dividends or income from the lease of properties owned by the investor could be provided.
All documents should be legalized by a Notary Public or the Spanish Consulate, and sworn translated into Spanish.
Please note that this article is aimed to provide a general overview on Spanish rules regarding the above matters, but it does not constitute any kind of comprehensive information on them, and in any case specific legal advice should be sought prior to taking any decision.
In all M&A operations one of the issues that deserves special attention as regards its analysis, ascertainment and negotiation is the tax liabilities. Even though the parties could agree on the amount of such contingencies, to negotiate the possible guarantees that the seller should grant in order to protect the buyer from a possible claim by the tax authorities, the term during which the guarantees should be in force, and to agree on the communication mechanisms between the parties (buyer and seller) and the legal defense strategies if such claim from the tax authorities arises, requires substantial negotiation efforts.
When the acquisition operation is formalized not through the purchase of shares, but through the purchase of the assets that form a business unit, the Spanish General Tax Law (“Ley General Tributaria” or “LGT”) provides a mechanism which implies an exception to the general principle provided by article 42 of the same law. Article 42 of LGT establishes the joint liability of the purchaser of a business unit for the tax liabilities of the selling company (“tax liability derived from company’s succession”). That is, in principle, according to article 42 of the LGT “the persons or entities that continue by any mean in the ownership or exercise of economic activities (the buyers) will be jointly liable with the previous owner for the tax liabilities derived from the exercise of such economic activities incurred by such previous owner”.
However, the joint tax liability of the buyer could be limited through the application before the tax authorities of the tax certificate regulated by article 175.2 of the LGT. This certificate should be applied for by the prospective buyer, with the authorization of the present owner (the seller), and, once issued, the tax liability of the buyer becomes limited to the debts, penalties and liabilities mentioned in the certificate. If the certificate is issued without mentioning any amount, or if the tax authorities do not issue it within a three months term from the application’s date, the applicant (the buyer) will be released from any tax liability derived from company’s succession.
The tax certificate for succession purposes includes the main taxes, as Value Added Tax and Corporate Income Tax, and can include as well debts derived from the withholding taxes on employees’ payroll, which in case of companies with a big number of employees could be of an outstanding amount. However, the buyer’s joint liability for salaries, related payroll amounts and social security contributions cannot be limited by such certificate, and such liability will always be joint with the business unit seller’s liability.
The application for the tax certificate should be filed before the acquisition of the business unit is completed, even if the issuance of the certificate takes place later tan the closing date (but of course, it is wiser to not close the acquisition before having the certificate). The certificate’s validity lasts for one year, as regards periodical tax obligations (for example, Value Added Tax, Corporate Income Tax and withholding taxes on salaries) and for three months as regards non periodical tax obligations.
It is very important to apply for the right tax certificate (“certificate for succession purposes according to article 175.2 of LGT”), and to not make a mistake and apply, for example, for the certificate regarding having fulfilled all tax obligations (“certificado de estar al corriente de las obligaciones fiscales”). Case law is plenty of judgments where a buyer applied for the wrong certificate, which showed no liabilities, and later on such buyer has been sentenced to pay the tax liabilities incurred by the previous owner of the business unit.
The remuneration of directors is an intricate issue and one that deserves adequate treatment. Recently there has been a turn that deserves special attention.
In its judgment of February 26, 2018, the Supreme Court modified the interpretation given by most experts and authorities and by the Directorate-General of Registries and the Notarial Profession in its decision dated June 17, 2016, ratified by the Barcelona Provincial Appellate Court in its decision 295/2017 of June 30, 2017, on the regulation of executive directors’ compensation.
In its judgment, the Supreme Court held that the compensation of directors “in their capacity as such” includes the compensation of both deliberative and executive functions and that, accordingly, approval of the compensation of directors who discharge executive functions is subject not only to article 249 of the Corporate Enterprises Law (i.e., the requirement for there to be a contract approved by a two-thirds majority of the board) but also to article 217. Consequently:
- the bylaws must stipulate the compensation scheme for executive functions (although no reference is made to amount); and
- the amount payable for the discharge of executive functions must be included in the maximum annual amount stipulated by the shareholders’ meeting.
The judgment was handed down in connection with a limited liability company and, furthermore, some of its considerations refer specifically to unlisted companies, although it does not clearly and indubitably exclude listed companies (which are, however, subject to specific rules under the compensation policy).
The publication of this Supreme Court judgment gives rise to the need for an individualized analysis of each specific case, so that the appropriate measures can be taken to enable companies to bring their policies into line with its conclusions.
The author of this post is Pablo Vinageras.
Once convinced of the utility of mediation as a method of resolving conflicts between franchisor and franchisee and taken the decision to include a clause in the contracts that provides for it, the last step would be what elements should be taken into account when drafting it.
- The previous negotiation. It seems advisable that both parties grant themselves the possibility of trying to solve the problem with a previous formal negotiation. Mediation does not exclude the previous attempt made by the interested parties or their lawyers; however, it seems advisable to contractually provide a suitable end according to the circumstances. Experience shows that lengthening this phase too long may result in the conflict becoming more complicated and even more difficult to approach mediation.
- The clause may also provide for the place where the mediation will take place. Again at this point the parties are free. It is convenient that this is accurate indicating the concrete city.
- The language in which the mediation will be developed is the a faculty of the parties. There will be no difficulty in mediations in which both parties use the same language, but it is very convenient in contracts with parties that have different languages, or that belong to regions or countries with different co-official languages. The drafting or signing of the contract in a specific language does not presuppose that this must be the language of the mediation. It is an element to be taken into account also when requesting a mediator who can use that language in the chosen mediation institution.
- The procedure can also be decided by the parties. In particular, the number of sessions, the maximum expected duration, the participation of advisors, etc. Keep in mind that the greater or lesser regulation will allow to avoid future conflicts in this respect, although it will also imply a greater limit to the freedom of the parties that, nevertheless, will remain free to modify the agreement by mutual consent.
- The term of the mediation can also be contemplated. This would allow, for example, to prevent mediation from being extended only for purely procedural strategic purposes or to gather information from the other party before starting a procedure, etc. The professional mediators, however, are able to identify these manoeuvres, also having the power to put an end to mediation in those cases.
- Choosing the mediator or the mediation institution is an important choice. The parties can agree on who will be their mediator, indicate in the contract the elements to choose it, or submit directly to a Mediation Institution so that it is the one who designates it according to its own rules. These decisions can be alternatives (that is, that the parties agree on the mediator and, in case of lack of agreement, submit to an institution that names it), or they can be unique. The designation of an Institution requires that it has a sufficient guarantee of stability (avoid designating short-term institutions or without much future guarantee), with a sufficient panel of mediators depending on the characteristics of the mediation (language, competence, experience) and that allows the necessary flexibility for its operation.
- Finally, it is convenient that the clause includes an alternative way in case the mediation does not succeed either because the parties do not reach an agreement, or because they withdraw from the mediation. It is important to recall that mediation does not close the doors to the conflict be resolved by recourse to ordinary jurisdiction or arbitration. And in terms of specialized arbitration in distribution contracts, the IDArb (https://www.idiproject.com/content/idarb-idi-arbitration-project) is an excellent option.
On the topic of the importance of Mediation in Distribution Agreements, you can check out the recording our webinar “Mediation in International Conflicts”
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