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Tax Legislation

Galicia’s basic commercial regulations are contained in the Spanish Commercial Code, which has been modified and supplemented by a great variety of laws, decrees and orders regulating the structure and functioning of different types of trading companies.

Public Limited Companies: This is the capitalist company par excellence. Its capital is made up of the contributions of the partners, who are not personally responsible for the company’s debts and are not entitled to be administrators of the company simply because they are partners. It is regulated by the Commerce Code and the Revised Text of the Public Limited Companies Law, approved by means of Royal Decree 1564/1989 (December 22nd), which adapted the regulation of this type of companies to Community directives. The rules applying to these companies were recently modified in order to regulate public limited companies with a single partner or sole traders.

Private Limited Companies: These companies share some of the characteristics of public limited companies and some characteristics of personalist companies. Their partners are not personally responsible for company debts and neither are they automatically entitled to participate in the company’s administration simply because they are partners. Private limited companies are regulated by the Commerce Code and by Law 2/1995 (March 23rd), concerning Private Limited Companies. As in the case of public limited companies, new rules regulate private limited companies with a single partner.

Collective Company: This is a personalist company. Its partners are responsible, on a personal, solidaristic and unlimited basis, for the company’s debts and all of the partners are entitled to participate in its management and administration.

Limited Partnership: These are made up of collective partners who have limited responsibility. Collective members have the same rights and obligations as the partners of collective companies. Limited-responsibility partners are obliged to make a contribution to the company, they are not personally responsible for the company’s debts and are not entitled to participate in its management and administration. A special type of limited partnership is called a Share-Based Limited Partnership, in which, as its name suggests, all of the limited-responsibility partners’ capital is represented by shares.

In order to create any of these trading companies in Galicia, the founding partners have to present the company’s incorporation document before a notary. This document should contain all the information identifying the company and regulating its functioning, such as its name, address, capital, duration and the start date of its operations. Officially, the company acquires legal status when its incorporation document is recorded in the Commercial Register of the province where it is based. In our case, the Commercial Register of A Coruña, located in Calle Novoa Santos, 5-7-9, 1º (15006 A Coruña). The incorporation process for a trading company in Galicia takes approximately two months. However, the new company can begin operating before being included in the Commercial Register. The cost of incorporating a company consists of 1% of its capital, as Patrimonial Transfer Tax, and notary and register expenses calculated according to list of fees.

It is important to point out that any of these companies can establish agreements with one or more companies to form a group of companies, without affecting their legal or financial independence. Groups of companies can be based on different kinds of agreements between businesspeople and help to jointly facilitate or further their members’ activities. The following are the main groups of companies that are legally recognised in Galicia:

Economic Interest Groups (AIE):

These are a kind of association of companies with their own legal status, which was introduced into Spain by Law 12/1991 (April 19th). The rules of collective companies that are compatible with the nature of the AIEs are applied on a subsidiary basis.

The ultimate objective of this type of group of companies is the implementation, in the Spanish market, of the functions carried out in Europe by European Groups of Economic Interest. They may be made up of companies, businesspeople, traders, professionals or non-profit research entities; they also have to be registered in the Commercial Register by means of an incorporation document. The partners of such groups are responsible, on a personal and solidaristic basis, for the debts, although this responsibility is subsidiary to the AIE.

The regulations regarding Corporation Tax (Law 43/1995 of December 27th), in effect since January 1st, 1996, establishes a special tax regime for AIEs. These entities are taxed according to a tax transparency regime, with the following exceptions:

  • The taxable base corresponding to the partners residing in Spain, which is assigned to them, is exempt from corporation tax.
  • Non se aplican limitacións respecto á imputación de bases impoñibles negativas.

  • This special regime is not applicable in tax periods in which the AIE carries out activities other than its normal ones, or is a shareholder in companies that are group members or runs the activities of its partners or third parties.

The following are exempt from Patrimonial Transfer and Documented Legal Actions Tax: the group’s incorporation, contributions on the part of its partners and its reduction, dissolution or liquidation.

European Groups of Economic Interest:

Regulated by Regulation EEC 2137/1985 (July 25th), European groups of economic interest are governed by the dispositions of Spain’s AIE law in those aspects in which the aforementioned regulation authorises or refers to internal legislation.

Like the groups in the previous case, European groups of economic interest enjoy a special tax regime regulated by the corporation tax rules of 1995. In general terms, these groups are not taxed according to corporation tax but rather according to a tax transparency system, while the limitations regarding negative tax bases do not apply. A special tax regime is also established for their partners, depending on whether they live in Spain or not. The same exemptions as the previous case applies as regards exemption from Patrimonial Transfer and Documented Legal Actions Tax.

Temporary Business Mergers:

This is a system of collaboration between businesspeople for a certain time (specific or non-specific), in order to carry out a job, service or supply. It does not have its own legal status and its members are not responsible for its activities and operations. This type of companies has been recognised since 1982 (Law 18/1982 of May 26th) and is likewise included in the Corporation Tax Regulation of 1995. Both laws establish the tax regime of this type of groups.

Branches of Foreign Companies

The branches of foreign companies set up in Galicia do not have their own legal status independent of that of their parent company. The creation of such branches requires two things: signing its incorporation document before a notary and its inclusion in the Commercial Register. The latter requires the following information:

  • the foreign company’s articles of association and incorporation document

  • the minutes of the meeting in which the said company’s boards of directors decided to open the branch, with all the details regarding equipment, proxies and representatives

  • a certificate issued by a Spanish bank confirming that the funds assigned in the minutes of the meeting have actually been transferred to Spain

In general, the costs of creating a branch represent 1% of the assigned capital, as Patrimonial Transfer Tax, and notary and register expenses calculated according to list of fees.

Individual Traders

Subject to the corresponding legal dispositions, any individual can establish his own business in Galicia with limited responsibility.