Doing business in Spain: Advantages and risks

In terms of solvency and credibility, Spain is in its strongest position in years. The introduction of a series of expansive domestic structural reforms has also increased labor flexibility and spurred new business growth, making Spain more competitive — and a more attractive setting in which to conduct global business.

Advantages and benefits for doing business in Spain

Strategic location and trade partnerships

Spain has a strong strategic location and deep trade partnerships, with access to the markets of the EMEA (Europe, Middle East, North Africa) region and ties and trade links to Latin America. Additionally, Spain is a member of the European Union (EU), which also grants it privileged access to the world's largest common market, one with 500 million people and a per capita income of nearly $36,000.

Spain has also drawn praise for being the best European base from which to conduct business in Latin and South America. Spain has 17 agreements to avoid double taxation in Central and South America and 19 agreements for reciprocal protection and promotion of investments.

Spain is an equally attractive base for doing business in the markets of EMEA, as it features 21 bilateral agreements to avoid double taxation, 18 bilateral agreements for reciprocal protection and promotion of investments. The Canary Islands, a Spanish archipelago off the coast of northwestern Africa, also represents a strategic hub for doing business in Africa.

Open to FDI

Foreign direct investment is also welcome in Spain and plays a critical role in U.S.-Spain economic relations. The Spanish government has adopted a pro-free-trade and pro-investment posture by relaxing business regulations and increasing incentives to attract foreign businesses and investment across all levels. These maneuvers have helped Spain rise to ninth globally in terms of foreign investment, according to the UNCTAD World Investment Report.

Other reasons for the inflow of foreign investment include a restructured financial sector, a robust tourist economy, an efficient and well-regarded transport network, a focus on global research and renewable energies and longstanding cultural links to Latin America, heightened by the presence of numerous Spanish multinational companies.

Excellent infrastructure

Spain's infrastructure has also modernized rapidly over the last few decades, as the country now boasts some of the world's finest rail and subway systems. The country also has a robust maritime economy, with 46 state-owned ports located on both of Spain's coasts. Spain has three of the top ten container ports in Europe, and its port infrastructure is world-class. Spain also has a burgeoning tech sector, with more than 70 technology parks and extensive fiber optic cable deployment, allowing for accessible high-speed Internet connections.

Commitment to reform

As mentioned, Spain has undertaken a variety of key structural reforms. These include giving more autonomy to local regions, harnessing innovation to help diversify the national economy, improving national employment conditions, enhancing social welfare programs and investing in national research and development capabilities.

Disadvantages and risks of doing business in Spain

Slowing economy

The economy has slowed, with consumer spending dipping to a five-year low and household savings increasing. The IMF predicts this slowdown will persist at least into 2021, largely due to global protectionism, Spain's internal political divisions and a tempering of foreign investment interest. Domestic demand is expected to lead growth in the coming years.

Unemployment

While Spain's national employment rate is at its highest level since the global financial crisis of 2008, it still has not risen to pre-2008 levels. Unemployment in Spain was more than 15% in 2018, yet only 8.2-percent in 2007. That's the second-highest unemployment rate within the EU, which has an average rate of 6.3 percent. Spain leads only Greece — a country that has struggled with massive debt and unemployment over the last ten-plus years — in this regard. The Spanish unemployment rate is even more pronounced for young workers: 31.7 percent for those under 25.

Emigration

This sustained employment insecurity resulted in a wave of highly qualified workers leaving Spain between 2007 and 2017, with 87,000 workers leaving for other EU states. Unemployment and slow wage growth were cited as the key reasons. Spain's government has promised to reverse this "brain drain" phenomenon by introducing a "Return Plan" to convince highly skilled young workers (with an emphasis on college students) to return home.

Starting a business

In terms of ease of starting a business, Spain is in the middle of the pack, ranking 97th (out of 190) in Doing Business Report global rankings. Seven procedures must be completed to start a new enterprise — the OECD average is less than five — which include securing a certificate of availability for the proposed company name; opening a corporate bank account and depositing funds and securing via a notary the registered public deed of incorporation and the necessary fiscal identification number. These steps take an average of 12.5 days to complete; the OECD average is around nine days.

Construction permits require 13 procedures and 147 days to complete on average. These steps include securing a soil study (17 days to complete), acquiring a certificate of alignment showing the precise boundaries of private property with public roads (14 days to complete) and a topographical study (7 days to complete).

Culture

Spanish culture also departs from the U.S. standard. Spaniards are typically more formal with regard to personal relations, although this has diminished somewhat over the last decade. Business culture is somewhat similar to that found in France or Italy. Hierarchy, family, risk aversion and proximity are all central factors in the traditionally Spanish approach to conducting business. Business dress codes are very formal, with jackets and ties being the norm regardless of weather, and women wearing dresses, blouses and skirts.

Business cards are also essential and should be exchanged at the outset of a meeting, ideally with a Spanish side that can be displayed as well. Personal relationships are important and valued and small talk is encouraged. While talking about one's background, family or sports is encouraged, politics is a subject best avoided. In the realm of Spanish business, personal qualities are often valued as much or more than technical skills.