Attracting foreign investment: tax advantages and legal strategies in Spain

Attracting foreign investment: tax advantages and legal strategies in Spain

Spain: a gateway for international investment: corporate structures, tax advantages and legal strategies to attract foreign capital.

In recent years, Spain has established itself as one of the most attractive destinations for international investors seeking to set up or expand their operations in Europe. Its privileged geographical position, membership in the European Union, and its natural role as a bridge to Latin America create an ideal environment for the development of international business. Added to this is the stability of the Spanish legal framework, which offers legal certainty, protection for foreign investment and flexible corporate regulation that allows each structure to be adapted to the specific needs of investors.

Corporate vehicle in Spain

From a corporate perspective, the most commonly used vehicle by foreign companies operating in Spain continues to be the limited liability company (Sociedad de Responsabilidad Limitada or S.L.), regulated by Royal Legislative Decree 1/2010 of 2 July, which approves the Spanish Companies Act (Ley de Sociedades de Capital). This corporate form combines management agility, fewer formal requirements, and accessible share capital—starting from as little as one euro—making it a practical option for projects seeking rapid establishment and controlled costs. In addition, the limitation of liability to the capital contributed provides the level of security that international investors typically seek during the early stages of their operations.

However, for larger-scale operations or those that foresee the entry of multiple institutional investors, it is common to opt for a public limited company (Sociedad Anónima or S.A.), a more structured format that allows greater flexibility in the entry and exit of shareholders through the free transfer of shares. This corporate form is particularly attractive in international expansion processes or projects that, in the medium term, contemplate access to the capital markets or the issuance of financial instruments.

Alongside these traditional forms, many foreign groups choose to open branches or permanent establishments when they wish to maintain a more direct relationship between the parent company and the local business without creating a separate legal entity. Although this option may be suitable during the initial or exploratory phases of market entry, it presents certain limitations in terms of liability and taxation, since such entities are subject to the Non-Resident Income Tax (IRNR) on the profits generated in Spain.

Tax advantages in Spain

From a tax standpoint, Spain offers a range of competitive advantages that make it one of the preferred destinations for foreign investment. The special tax regime for Foreign Securities Holding Entities (Entidades de Tenencia de Valores Extranjeros or ETVE), regulated in Articles 107 and following of the Corporate Income Tax Law, allows for the exemption of dividends and capital gains obtained from foreign subsidiaries. This makes Spain an ideal hub for structuring international groups and channeling investments to other jurisdictions.

Furthermore, Spain’s extensive network of double taxation treaties—currently numbering over ninety—prevents double taxation and facilitates the efficient repatriation of profits.

There are also fiscal incentives aimed at promoting innovation and attracting talent. Companies can benefit from significant tax deductions for R&D and technological innovation activities, while executives and professionals relocating to Spain may qualify for the special expatriate tax regime, commonly known as the “Beckham Law”, which allows them to be taxed at a reduced flat rate during their first years of tax residence in Spain.

Legal and corporate framework

Yet Spain’s appeal lies not only in its fiscal advantages. The legal and corporate framework itself also offers strong protection for investors through sophisticated contractual instruments that balance the relationship between founders and new shareholders. Shareholders’ agreements are a key tool for defining internal corporate relationships, regulating economic rights, control mechanisms, and exit strategies. Their value is particularly evident in venture capital and private equity transactions, where transparency, sound governance, and stability are decisive factors in investment decisions.

In practice, an increasing number of companies are using co-investment structures or joint ventures with local partners, which facilitate access to the Spanish market and provide operational insight into the business environment. These alliances are often implemented through jointly-owned companies, and when they involve cross-border mergers or restructurings, they fall within the scope of Law 3/2009 on structural modifications of commercial companies.

Finally, a key element in attracting foreign capital is trust in corporate management and regulatory compliance. Companies that adopt compliance models and transparency policies not only enhance their reputation before authorities and the market but also inspire confidence among institutional investors, who place particular value on robust corporate governance structures.

In short, Spain offers not only a competitive tax environment and strong legal security but also the flexibility needed to design corporate structures adapted to an international context. From limited liability companies to ETVEs acting as holding entities, and from well-drafted shareholders’ agreements to effective compliance mechanisms, Spain stands out as an optimal platform for channeling and managing foreign investment, both into Europe and Latin America.

At Letslaw, we support our international clients throughout this entire process: from identifying the most suitable corporate vehicle to designing the optimal tax structure and negotiating shareholders’ agreements that ensure the protection of their investment. Our goal remains the same in every case: to help each foreign project established in Spain do so with the highest level of legal certainty and economic efficiency.