As international companies grow their footprint and tap into new markets, understanding local hiring laws and employment structures becomes vital to building sustainable operations. In this 17- part series, we guide foreign businesses through the legal and strategic aspects of employment in key global jurisdictions.
This installment brings us to Spain – a major European economy with a wellregulated labor market, high employee protections, and strict enforcement against worker misclassification. While direct employment remains the most common and compliant model, foreign companies can also explore alternatives such as temporary employment agencies, outsourcing arrangements, and independent contractors. However, not all international models, like employerofrecord services, are compatible with Spanish law. Choosing the right structure requires careful legal and tax planning, particularly around establishment options and sector-specific collective agreements that may impact payroll and benefits.
Authored by Josep Conesa
Aliant Law Firm in Spain
1.Are there alternatives to direct employment?
Yes but not many. Foreign companies have some alternatives to direct employment in Spain. Common options include:
- Temporary Employment Agencies (ETTs): In Spain, ETTs are the only entities legally authorized to hire employees and “assign” them to client companies to perform services under the client’s management and supervision. This is the lawful form of worker leasing or employee outsourcing because temporality jobs (not indefinite)
- Independent contractors (autónomos): Companies can engage self-employed professionals (freelancers) for specific projects. This model is flexible and does not generate employer social security obligations, provided the freelancer operates independently and without subordination.
- Outsourcing to service providers: Companies may fully outsource certain functions (e.g., IT, customer support) to Spanish service providers or consulting firms, which manage their own employees and service delivery independently.
⚠️ Important note: Unlike in other countries, the Employer of Record (EoR) / PEO model as commonly known internationally is not fully compatible with Spanish labor law, unless the provider is also a registered ETT. Otherwise, it could be deemed an illegal transfer of workers (cesión ilegal) under Article 43 of the Spanish Workers’ Statute being both companies responsible of all debts and be sanctioned for the employment authority.
2. Is it necessary to set up a local entity to hire an employee?
EU Companies do not have to set up an entity necessarily to hire employees. As far as freedom of movement and capitals is an European principle any EU Company only needs to enroll their company into the Spanish Tax Ageny and Social Security Agency and provide them an address for notifications.
For non EU Companies these are the options to hire people in Spain.
- Create a Limited Liability Company in Spain
- Personal Liability of the shareholders: generally limited to the amount of the share capital contributed by each of them (except in the case of abuse of the law).
- Minimum capital stock: €3000 (payment in full upon incorporation).
- No minimum number of shareholders required. Shareholders can be individuals or companies.
- Governing bodies:
- Shareholder’s meeting (the supreme governing body): The Ordinary shareholders meeting takes place within the first six months of the financial year to approve, if appropriate, the annual accounts of the prior year;
- Director/s (‘administradores’) (the governing body, which may be entrusted either to a sole director, several directors acting on a a several or joint basis, or a board of a minimum of three directors). Directors do not need to be Spanish citizens and do not need to be shareholders.
- Shares can be transferred through a public deed.
- Financial statements: Annual accounts and the distribution of profit proposal put foward by the director(s) are approved by the Ordinary shareholders’ meeting within six months of the fiscal year ending. Annual accounts of the Spanish company must be registered at the Commercial Registry.
- Dividend distribution: The profit can be distributed by dividends to the shareholders in proportion to the capital they have contributed. Payment of interim dividends is also possible.
- Steps to set up the company:
o Obtain a Certificate issued by the Central Commercial Registry with the corporate name
o Open a Spanish bank account
o Prepare the Articles of Association
o Notarise the Deed of Incorporation and submit it to the Commercial Registry
o Obtain the NIF (fiscal identity number) of the Spanish Company
o Obtain the company’s electronic signature certificate
o Register the company with the Spanish Tax Agency, the Tax Agency of Cataluña and the Social Security Office.
o Inform the Ministry of the Economy about the foreign investment.
- Tax: Liable for corporate income tax (15% rate for the first two tax periods in which they have taxable incomes, and a 25% rate for the third and following tax periods)
- Branch in spain
- Secondary establishment with a permanent representation and certain managerial independence.
- Liability: no limit to the parent company’s liability, i.e. their activity and legal liability will be directly related to the foreign investor parent company.
- There is no capital required. (However, it is advisable for practical reasons).
- A branch does not have a decision-making body in the form of a board or meeting. It requires a resident representative in Spain, who acts as attorney of the branch in the name and on behalf of the parent company, especially for tax matters (tax representative).
- A branch can not be transferred because it does not have legal personality.
- Financial statements: The branch must keep its own accounts with respect to the transactions it performs and its assets. The branch must submit the annual accounts of the foreign parent company to the Spanish Commercial Registry.
- Dividends distribution: dividends do not exist because profits strictly pertain to the parent company.
- Steps to set up the branch:
o Public deed creating the branch (with some documents from the foreign head office) which must be registered at the Commercial Registry.
o Open a bank account.
o Grant special powers attorney with regards to correspondance with Spanish banks, representation for tax purposes, etc.
o Obtain a Spanish Fiscal Identification Number (NIF)
o Obtain the electronic signature certificate of the branch
o Register the branch with the Spanish Tax Agency, the Tax Agency of Cataluña and the Social Security Office
o Inform the Ministry of the Economy about the foreign investment.
- Tax: Liable for the non-resident income (in general terms, this is taxed at the same rate as Spanish companies, 25%).
- Representative office in Spain
A representative office does not have its own legal personality independent from the parent company (no limit to the parent company’s liability). The steps of incorporation are the same as that of a branch, except that there is no need to grant a public deed and it is not necessary to register the representative office at the Commercial Registry. It is, however, necessary to appoint a tax resident representative in Spain.
In principle, the activities of a representative office are limited, essentially consisting of coordination, collaboration etc.
Advice:
The steps and cost of incorporation, formal obligations and maintenance costs (tax, accounting, and labour issues) are almost the same for all entities. That’s why we consider that the best option is, generally speaking, to create a limited liability company. In fact, the key difference boils down to the level of independence (and liability) as related to the parent company.
3.Direct employment vs. independent contractor: what about costs?
o Direct employment in Spain comes with several mandatory costs, including:
o Employer’s social security contributions (approx. 30%-33% on top of gross salary),
o Severance costs in case of termination (for unfair dismissal, typically 33 days per year of service),
o Paid vacation (30 calendar days per year),
o Statutory benefits (such as sick leave, parental leave, etc.).
⚠️ Important note: It is important to note that there are quite a lot of activity sectorial collective agreements that makes payroll difficult in Spain since they make quite a lot of exceptions to the general law, improving conditions.
- Independent contractors (autónomos), on the other hand, are responsible for their own social security contributions (self-employment quota) and taxes. For companies, engaging an autónomo tends to be more cost-effective since there are:
o No employer social security contributions,
o No severance obligations,
o More contractual flexibility.
However, misclassification risk exists. Spanish labor authorities may reclassify a contractor as an employee if certain indicators of subordination or economic dependence are present (e.g., exclusive work, fixed working hours, lack of autonomy). This could lead to penalties and back payments.
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