Country Commercial Guides for
Report prepared by U.S. Embassy Madrid,
III. POLITICAL ENVIRONMENTIV. MARKETING U.S. PRODUCTS & SERVICES
Distribution and Sales Channels
As a result of the growth of the Spanish economy, distribution has become a key factor in supplying the consumer market. Differentiated sales channels to consumers have developed significantly in the last few years, ranging from traditional distribution methods, in which wholesalers sell to traditional shops and those shops sell to the public, to more sophisticated methods, characterized by an increased presence of large multinational supermarkets, retail-stores and Central Purchasing Units.
The major competitors to U.S. exporters and investors in Spain are Western European firms. Japanese companies are also emerging as formidable competitors. Cost, financing terms, and after-sales service play important roles in a firm's marketability. Since Spain joined the E.U., member states' exports to Spain have benefited from tariffs that are lower than those for U.S. exports. Beginning January 1, 1993, import duties for all E.U. goods entering Spain were zero while U.S. goods remain subject to the E.U.'s Common External Tariff (CET).
European exporters provide generous financing and extensive cooperative advertising and most of their governments support exporting efforts with trade promotion events. Although U.S. products are well respected for their high level of technology and quality, U.S. firms often fall short of their competitors in terms of flexibility on financing, adaptation of product design to local market needs and assistance with marketing and after-sales service. Nonetheless, American products are still competitive with E.U. exports, due to lower production costs derived from economies of scale.
Spanish procedures are in alignment with the rest of Western Europe, where price remains paramount. However, credit terms, marketing assistance and after-sales service are key factors in local purchase decisions.
The use of credit to purchase consumer goods is widely accepted in Spain, particularly in the cities, with banks competing aggressively to offer coverage. All major U.S. credit cards are used, including Visa, Master Card, American Express, and Diners Club. Department stores and some upscale retailers sometimes offer their own credit, particularly for purchases of large ticket items. Consumer credit is commonly used for the purchase of cars and homes. Housing developers, automobile dealers, and some manufacturers offer direct consumer financing.
The Spanish market is a series of regional markets joined by two major hubs: Madrid and Barcelona. The vast majority of agents, distributors, foreign subsidiaries, and government-controlled entities that make up the economic power block of the country operate in these two hubs. Dealers, branch offices, and government offices found outside these two hubs will almost invariably obtain their supplies from their Madrid and Barcelona contacts rather than engage in direct importation. The key to a foreign firm's sales success is either to appoint a competent agent or distributor or to establish an effective subsidiary in the Madrid or Barcelona area. However, investment incentives designed to reward investors for establishing manufacturing operations in less developed areas have dispersed some U.S. investment from the major hubs in recent years.
Regional characteristics influence buying patterns. A competent agent or distributor considers regional variation when marketing his or her products. The Basque Country, part of Spain's north coast, and Catalonia, which includes Barcelona, are autonomies with ancient traditions and their own languages and cultures. There are 15 other autonomous communities in Spain (similar to U.S. states) with varying, but lesser degrees of autonomy and cultural identity.
Madrid is Spain's center for banking, administration, telecommunications and transportation and it serves as the headquarters of many large international companies. Barcelona is the capital of Catalonia. It boasts a strong industrial tradition, with primary industries in textiles, paints, chemicals, printing, plastics, electrical engineering, and machinery manufacturing. Barcelona and Bilbao, the Basque Country's industrial center, are Spain's leading ports.
As an important container port, the Bilbao region has extensive shipyards, steel-works, iron-ore mines, chemical and cement works, pulp and paper mills, and oil refineries. In eastern Spain, Valencia is the center of the Spanish furniture and ceramic industries, as well as a major center for citrus fruits and vegetables.
Seville, located on the Guadalquivir River, is the commercial center of Andalucia and is a major source of olive oil, cork, wine, and other agricultural products. The free port City of Vigo, in the far northwest, in Galicia, is one of Europe's most important fishing and fish-canning centers.
Distribution and Agency Contacts; Finding a Partner in Spain
There are various forms of representation agreements available in Spain, which might be used to penetrate the market:
Spanish law does not specifically regulate distribution contracts, although court cases have defined the rights and obligations of the parties in certain cases. In addition, the recent enactment of legislation that regulates agency contracts is influencing all distribution contracts.
There are three basic categories of distribution agreements:
(1) Commercial Concessions or Exclusive Distribution Agreements: The supplier not only agrees to provide its products to a select number of distributors within a specific territory but also not to sell those products itself within the territory of the exclusive distributor(s).
(2) Sole Distribution Agreement: Includes the provisions in the above mentioned Exclusive Distributor Agreement, but reserves to the distributor the right to supply certain products to users in the territory of concession.
(3) Authorized distribution agreements under the selective distribution system: In this case, the distributors are carefully selected according to their ability to handle technically complex products and to retain a certain image or brand name.
In general, distribution contracts establish a commercial relationship between the supplier and the distributor, who then resell the products to retailers. The distribution contract should contain conditions regarding the sale of goods, licensing of industrial property, markets or territory, advertising, financing and servicing, among others. The main features of distribution contracts may be summarized as follows:
(1) The distributor obtains the merchandise from the supplier "in its own name and interest", and assumes the risk of the transaction for later re-sale at a profit.
(2) The relationship between the supplier and the distributor is a legal relationship within a specific time period.
(3) The distribution contract may obligate the parties to future purchases and sales.
Ordinary clauses of a distribution contract may cover any subject to which the parties agree provided that the clauses are not contrary to the laws of Spain, morality, or public order. The standard clauses of a distribution contract often include:
(1) The territory covered by the distribution contract and the indication of any exclusive character of this territory
(2) Limits to third party purchases
(3) A minimum volume of sales and subsequent modifications
(4) A pricing system and modifications: periods, pricing, percentage basis, promotions, notifications, and the effective dates of new prices
(5) The party responsible for executing advertising and financing
(6) The duration and extension of the contract and conditions for its rejection and termination
(7) Conditions for the repurchase of products
(8) Notification of the parties
(9) A dispute resolution mechanism that can include commercial arbitration, under Spanish or foreign decision, and which is subject to any legislation with which the contracts or the parties may have minimum contacts. The contract may also contain a damages clause governing the amount of compensation paid to the parties in the case of annulment or cancellation.
Regarding termination, the courts distinguish between two types of contracts: those for a specific period and those that are indefinite.
Contracts for a specified period will terminate with the expiration of the agreed period, while contracts for an indefinite term may be terminated at any time unilaterally. No express provision establishes the length of the notice period in cases of unilateral termination. However, Law 12/92 on agency contracts (discussed below) provides the period for notification, which is one month per year of the term of the contract, up to a maximum of six months.
Spain's courts recognize the right of the distributor to indemnity after the party terminates the contract if the following conditions are met:
(1) The distributor must have increased the customer base, either in the number of clients or in the volume of sales.
(2) The supplier or a new distributor takes advantage of the opportunities obtained by the dismissed distributor.
After meeting both conditions, the courts sustain the right of the distributor to claim compensation for goodwill, without distinguishing between definite and indefinite duration contracts.
Law 12/92, of 27 May 1992, regulates Agency Agreements, implementing the principles of the European Union Directive 86/653. This law establishes that a commercial agency contract is an agreement in which a person or a company is bound with another (the principal). The purpose of this union is to advance the principal's business, or to advance and conclude transactions on the principal's behalf, without assuming the risk of such transactions.
This law establishes:
(1) The independence of the agent
(2) The agent's payment
(3) The relationship between the parties
One main feature of the law establishes a contract in which mutual confidence is essential. The duties of loyalty and good faith govern the agreement and violation may cause the termination of the contract.
Law 12/92 requires that the rights and obligations derived from the agency contract must be upheld by the agent or agent's assistants. The law prohibits the assignment of obligation to a third party (sub-agent) without the consent of the principal. Similarly, the law requires prior consent by the principal if the agent wants to represent goods or services, which are similar or identical, from other companies. Except in the case of conflict, or an agreement to the contrary, the agent may act freely on behalf of other suppliers.
Beyond the basic obligations to act loyally and in good faith, the agent must:
* Promote the products and, if empowered to do so, conclude the transactions;
* Inform the principal supplier of all matters relating to the agency, especially the financial aspects of all parties with whom there are pending transactions;
* Obey the principal's instructions and company policies (for example, prices, delivery dates, procedure for claims);
* Receive any claims by third parties regarding defective merchandise in the merchant's name; and
* Maintain independent accounting for each principal represented.
Beyond the same basic obligations of loyalty and good faith, the principal supplier must:
* Provide books, catalogues, price lists and other needed literature;
* Make payments on time and as agreed;
* Give the agent the information required for the performance of the agency contract; and
* Inform the agent with reasonable notice of the acceptance, refusal, or the lack of performance of each deal obtained by the agent. The agent has the power to judicially request the accounting books of the principal.
An agent's compensation may consist of a fixed amount, a commission, or a combination of both. This law recognizes the right of the agent to receive a commission for transactions concluded through him or her. Additionally, it recognizes the right of the agent to have other transactions take place, during the term of the contract with any of its clients, even if the agent has not intervened in the operation. Moreover, the agent has the right to receive a commission for all the transactions concluded within three months after the termination of the contract.
The Agency Law establishes that commissions are generated the moment the transaction takes place. The supplier must pay the commissions by the end of each quarter of the year. The supplier is not responsible for paying commissions on unfinished operations, which have resulted from actions beyond the principal's control. The agent's compensation does not include reimbursement for expenses, unless expressly agreed otherwise.
The agency law distinguishes between contracts for a specific period and those that are indefinite. Contracts for a specified period terminate with the expiration of the agreed period, while contracts for an indefinite term may be terminated at any time unilaterally, with prior written notice. Notice of the termination is one month per year of the term of the contract, up to a maximum of six months.
The law also establishes those cases that do not require prior notification:
* Non-performance of contract duties
* Bankruptcy or receivership of any of the parties
* Death of the agent
The law establishes that an agent can claim indemnity under the following conditions:
(1) If the agent has increased the customer base, either in the number of clients or in the volume of sales. (2) The supplier continues to benefit from the opportunities obtained by the dismissed agent.
The agent is not entitled to any indemnity or compensation when:
* The principal terminates the contract because of the agent's breach of contract;
* The agent disclaims the contract, unless he or she can prove that the cause is due to the principal;
* The principal disclaims the contract based on old age, incapacity or illness of the agent; and
* With the consent of the principal, the agent has assigned the rights and obligations of the agency to a third party.
Finally, the law establishes that jurisdiction, for all legal actions derived from the agency contract, is the legal responsibility of the agent.
Commission Agency Agreements
Commission Agency Agreements are mandates under which an authorized agent (commission agent) undertakes to perform or participate in a commercial act or agreement for the account of another (the principal). Commission agents may act in two capacities:
(1) In their own name: They are not direct representatives and they acquire rights against the contracting third parties and vice versa.
(2) On behalf of their principal: This gives rise to the effects of direct representation and, accordingly, the principal acquires rights against third parties and vice versa.
The obligations of commission agents are as follows:
* To defend the interests of their principals as if such interests were their own and to perform their engagement personally. Commission agents may delegate their duties if they have authority to do so and may use employees under their responsibility.
* To account for amounts that they have received as commission and to reimburse any excess amount. They are required to return any unsold merchandise.
In general, commission agents are not liable to their principals for the performance by third parties of the related agreements. Although, this risk is secured by a commission "del credere" under which commission agents are held personally liable for the performance by third parties of their obligations.
Unless their principal consents, commission agents are barred from buying for their own account or for the account of another the goods that they have been instructed to sell, and from selling the goods that they have been instructed to buy.
The main similarity between an Agency Agreement and a Commission Agency Agreement is that, in both cases, an individual or legal entity undertakes to pay another a compensation for arranging an opportunity for the former to conclude a legal transaction with a third party or for acting as the former's intermediary in concluding that transaction.
The main difference is that Agency Agreements involve an ongoing engagement, whereas Commission Agency Agreements involve occasional engagements. In addition, a Commission Agent seeks to facilitate the conclusion of an agreement but does not ultimately represent either party. The Commission Agent brings the parties together so that they can conclude an agreement, but is not party to that agreement, whereas an Agency agent represents one of the parties.
In all cases, U.S. firms should take into consideration that Spain is a participating country in the European Monetary Union (EMU). In general, companies will benefit through greater transparency in agent/distributor commissions throughout Europe, simplification of compensation plans and greater transparency in reporting revenues to national tax authorities. Contracts signed prior to 1999 will continue to be valid (no contract can be broken by either party due to the introduction of the Euro).
After January 1, 2001, the contracts will still be valid, but the Peseta value listed in the contract will be converted into Euros, at the corresponding conversion rate. This will not affect other details on contracts, such as interest rates, duration, etc.
Franchising is a system for marketing goods, services and technology based on close, ongoing cooperation between enterprises that are legally and financially distinct and independent. Under this system, the franchiser grants a right to, and imposes an obligation on, its individual franchisees to do business using the franchiser's concept.
Spain does not have specific legislation regulating franchising. In the absence of detailed regulation, parties are free under the Civil and Commercial Codes to enter into any contractual agreement by stipulating the terms and conditions they consider appropriate, provided those terms are not contrary to the law, morality or public order. Nonetheless, when drawing up the contracts, the franchiser should bear in mind the following:
* The contract term and termination
* Agreements on transfer of know-how, management service fees and levels of royalty rates
* The submission of disputes to foreign arbitration or courts
* Agreements including restrictions on free competition: Royal Decree 157/1992 provides exemption to franchising agreements exclusively affecting the Spanish market provided the terms of the agreement fall within the provisions of the E.U. Regulation 4087/88
General requirements of franchising agreements to meet E.U Regulation in order to avoid violating antitrust law are:
* The use of a common mark or other distinctive sign and the uniform presentation of premises, in order to preserve the unity of the network
* The communication by the franchiser to the franchisee of secret, substantial and identified know-how
* Ongoing provision of assistance by the franchiser
In the last few years, franchising has grown rapidly. There are over 676 franchise systems operating in Spain, with an estimated 26,900 franchised units. Retail sales by franchised units accounted for about 6.5 percent of total retail sales. Based on trade statistics, the annual sales for business format franchises in Spain for 1998 were estimated at USD 7.15 billion.
Franchising is most popular in the restaurant/food business sector with 11.2 percent of total franchised retail outlets, followed by the distribution/self-service sector with 10.2 percent and textile/fashion with 9.5 percent. Apart from the key sectors, franchising opportunities can be found in retail specialty shops, home furnishings and decoration, educational products and services, automotive products and laundry and dry cleaning.
Forecasts show that franchises will account for 7.5 percent of all retail stores by the year 2000. Around 70 percent of franchises are Spanish, followed by American (11 percent), French (ten percent), Italian (four percent) and British (two percent). The U.S. is regarded as the benchmark and model country in franchising. It is expected that there will be approximately 90 U.S. franchisers in Spain by the year 2000, with total sales nearing USD one billion.
For small, traditional retail stores, franchising offers a means of competing with larger stores. In large urban areas, small retailers have few options. They must specialize, associate with other retailers, or close. Franchising is a safe and promising new option.
Domestic statistics show that out of every five new independent retail operations opened each year, between three and four either change the type of business, ownership, or close before their first anniversary. However, the same survey shows a different outlook for franchised outlets. Four out of five franchises remain open and are still working with the same brand and promoter after their first anniversary.
Analysts believe that the demand for franchising will be sustained in the future. As the market becomes more segmented and requires further specialization in retailing, demand for franchising will continue.
There are various types of franchising agreements, which differ according to their subject matter: industrial franchising agreements (for the manufacture of goods), distribution franchising agreements (for the sale of goods) and service franchising agreements (for the provision of services).
Regarding tax treatment of franchising agreements, the nature of the consideration paid by the franchisee to the franchiser should be analyzed since it could be considered as a royalty and as business income, or only as a royalty, depending on the different services rendered and rights granted (if royalties, they are taxed in Spain at 25 percent or at the reduced tax treaty rate, if any).
Direct marketing is becoming one of the most favored marketing and distribution tools in Spain. In 1997, this sector's annual billings reached USD 1.5 billion. Estimated annual growth figures through the year 2000 are healthy and the forecast shows that direct marketing could reach billings of USD 2 billion by the end of the decade.
Several factors are fueling direct marketing in Spain. They include technological advances in printing and distribution, a steady development of credit card use, and changing lifestyles. The Spanish urban population is moving out of the cities to residential areas, which are often away from the main commercial centers. Therefore, they use mail order to fulfill their consumer needs. Additionally, more women are entering the job market and are seeking ways to save time in making household purchases. Consequently, mail order and TV direct marketing have become increasingly popular and profitable.
Mail-order companies lead the direct marketing sector. This sub-sector makes up more than 65 percent of total direct marketing billings at present. Mail order companies sold USD 975 million worth of goods during 1997. Approximately 90 percent of these sales came from individuals/households.
Tele-marketing is the fastest growing sub-sector, reaching billings of USD 129 million in 1997. Increased sophistication in the telephone services offered by the formerly state-owned Telephone Company Telefonica and their new competitors (after telecommunications services liberalization) brightens tele-marketing's future.
Television direct marketing companies have been operating in Spain since 1990, when television was opened to private broadcasters. In this short time, it has become increasingly popular and profitable. Companies reported sales as high as USD 140 million during 1997.
Trust is an important competitive factor in this market. Often, consumers trust the direct marketing firms who are members of the Spanish E-commerce and Direct Marketing Federation (Federacion Espanola de Comercio Electronico y Marketing Directo). Membership implies adherence to a number of ethical codes. Furthermore, after several years without ethical regulation, the Spanish Parliament passed a Data Protection Omnibus Law in October 1992. Known as LORTAD, the law regulates all aspects of data protection against the misuse of personal data.
Electronic commerce is booming in Spain. Spaniards, however, will still require some time to get used to this technology. A survey conducted by the Asociacion Espanola de Comercio Electronico (Spanish Association of E-commerce) indicates that 67 percent of users are still reluctant to use Internet to make purchases and only 23 percent made purchases through the net in 1998. Although 72 percent of Spanish firms have a web page, on-line sales are not yet available in the majority of the cases. One of the reasons that has been raised is that most Spanish firms are small and medium-sized enterprises led by middle-aged executives. New generation executives tend to be more innovative and prone to applying technology.
The Asociacion Espanola de Comercio Electronico (Spanish Association of E-commerce), which is part of the Federacion Espanola de Comercio Electronico y Marketing Directo (Spanish Federation of E-commerce and Direct Marketing), and recent private surveys are optimistic in their forecasts and believe that E-commerce will experience a very fast growth rate in the near future (89 percent through the year 2000) when more than ten percent of transactions, in Spain, are expected to be made through the net.
Large firms are taking the lead in the use of the Internet for sales to end-users. Thus, El Corte Ingles, a leading luxury department store chain in Spain that sells products from jewelry to furniture to car equipment, is already on the net and will soon be selling up to 70,000 products from different departments. The first products already available from their web page are books and supermarket products.
Virtual banking is becoming increasingly common for Spaniards. Due to the many benefits, such as 24 hours a day services, this type of service is growing at a fast pace. Banking services have been well received by Spaniards. Within the next few years the number of clients should increase substantially.
Spanish airline companies such as Iberia, Spanair, and Air Europa also offer on-line services for consulting tariffs, reserving and buying tickets on-line.
The Spanish E-commerce Association has developed a code of rules for electronic advertising, which is already being implemented by the 30 founding member firms of the Association. The potential market for E-commerce in Spain is defined by the following parameters: eight million computer users in Spain in 1997 (10 percent over 1996 figures); 1.3 million internet users in 1997 (78 percent over the previous year), 65 percent of which use it more than 5 hours a week; more than 400,000 registered Internet addresses in Spain; and annual growth forecasted of 30 percent through the year 2000.
Federacion Espanola de Comercio Electronico y Marketing Directo Avda. Diagonal, 437
Tel: (3493) 414-0538
Fax: (3493) 201-2988
Asociacion Espanola de Comercio Electronico
Avda. Diagonal, 437
Tel: (3493) 240-3133
Fax: (3493) 240-3134
Another way for a U.S. company to penetrate the Spanish market is through a joint venture. Companies may pursue different types of joint ventures. For example, it is common for companies to invest as minority shareholders in existing companies, or to set up jointly controlled companies. Other joint ventures consist of companies that take majority stakes, which fall short of full ownership, or join temporary arrangements with other companies. A description of temporary joint ventures under Spanish law follows. For other forms of joint ventures, such as setting up a company in Spain with a local partner, see the subsection entitled "Steps to Establishing an Office."
A group of companies can form temporary business associations (Uniones Temporales de Empresas -UTE), to undertake specific projects for a limited time. This type of association does not have a separate legal personality. Therefore, companies maintain their legal status while allowing common operations under a pre-established set of rules. Foreign companies can enter this type of arrangement.
An Economic Interest Group (Agrupacion de Interes Economico -AIE) is also a type of joint venture between Spanish participants (please note that American companies established in Spain are considered Spanish companies). It is similar in concept to a partnership because its participants have joint and separate liability for their debts. To form an AIE, the participants must execute a public deed, incorporating bylaws, and record it at the commercial register. The internal operation of an AIE is similar to that of a corporation and one can transform an AIE at any time into any other type of commercial entity.
There is also a European version of the AIE, the European Economic Interest Group (Agrupacion Europea de Interes Economico -AEIE). This is a cross-border version of the Spanish AIE, introduced by E.U. Regulation 2137 of 1985. A local AEIE is a separate legal entity and must be incorporated in Spain and recorded in the commercial register. In most respects, it is similar in constitution and operation to an AIE.
These three models of joint ventures are tax transparent, and they apportion their income among members. In all of these cases, the members are responsible for losses and profits.
License contracts in Spain may cover industrial property rights (patents, utility models, trademarks); intellectual property rights (rights of use for literary, scientific or artistic works, or software); know-how; or other uses of technology. Regarding the contents, Spanish regulations allow the parties a wide range of freedom to negotiate the terms and conditions of the agreement. Even so, there are many clauses common to this type of contract:
* Exclusive clauses, sometimes complemented with exclusive purchase obligations;
* Measures to limit the licensor's commercial activity;
* Confidentiality and non-competition obligations;
* Obligations relating to improvements and innovations (this includes updating the rights granted to the licensee and communicating to the licensor innovations developed by the licensee); and
* Indemnification in case of breach of contract by one party.
In Spain, license contracts are only valid if they are drafted in accordance with regulations. License contracts for trademarks, patents, and utility models must be in writing, and the Spanish Patent and Trademark Office must register them before they take effect.
The License contracts covering intellectual property rights (copyright) must also be in writing. If the author of a contract requires it be recorded in writing, and the licensee fails to draft such a contract, the author may rescind the contract. Publishing contracts must also be formalized.
There are other License contracts which are not subject to special requirements or form. Please note that under Spanish law, the term intellectual property is limited to the author's rights (copyright) and does not include patents and trademarks (called industrial property rights).
Under Spanish law, a royalty is defined as "the consideration paid by the licensee to the licensor for the knowledge transmitted". The knowledge may or may not be patentable, but it must allow the licensee to use it within a commercial or industrial process.
Steps to Establishing an Office in Spain
The first decision a foreign investor in Spain must make is whether to incorporate a subsidiary (i.e., a separate corporation) or a branch. Both have full legal status and their profits are taxable in Spain.
If the investor decides to incorporate a subsidiary, the next decision is whether to incorporate a public limited-liability company (Sociedad Anonima, or S.A.) or a private limited company (Sociedad de Responsabilidad Limitada or S.L. or S.R.L.). The structure of the S.A. is for larger operations and the S.L. for smaller. Three other kinds of mercantile entity can be formed, but they are not so frequently used: General Partnership (Sociedad Regular Colectiva), Limited Partnership (Sociedad en Comandita), or Limited Partnership by Shares (Sociedad en Comandita por Acciones).
Shareholders in corporations (S.A.) and limited liability (S.L.) companies are not liable for the company's debts. The main differences between them are in their capital (10 million pesetas versus half a million), the number of founding members (three versus two), flexibility permitted at general meetings, transfer of shares, and management of an S.L.
Companies interested in establishing operations in Spain should obtain legal advice. Major consulting groups and law firms are available to help firms incorporate. A summary of the steps involved follows.
(A) To acquire legal status, an American firm must follow the following steps:
(1) Registration of company name: Promoters must acquire a certification that the name chosen for the future company is not already registered. Applications must be presented at the Central Mercantile Registry. The certification is valid for two months.
(2) Public deed or incorporation charter: The founding partners sign the constitution deed for the business according to the company's charter. This is done at any of the notary publics that exist in Spain. Both the name certification and the company's charter are required.
(3) Pay asset transfer tax and legal proceedings document tax: These are taxes paid for a new incorporation (they amount to roughly one percent of capital stock). The company must pay the taxes at the provincial tax delegation where the company incorporates. Necessary documents: a completed form-model 600 and both a legalized and simple copy of the Public Deed (provided by the notary public). This must be done within 30 working days from the date of the Public Deed.
(4) Acquire the Tax Identification Code (locally called CIF - Codigo de Identificacion Fiscal): This number becomes the means of company identification and is required for all transactions. The provincial tax delegation provides the code. Necessary documents: form model 036, a copy of the public deed and a photocopy of the applicant's I.D. if it is a partner, or photocopy of the power of attorney authorizing the applicant. This must be done within 30 working days from the signature of the public deed. The CIF number must be withdrawn within six months of application.
(5) Registering the company: the company must register at the corporate registry corresponding to the incorporation address. Necessary documents: first copy of the public deed (provided by the notary public) and certification that taxes (see above) have been paid. On average, it takes two months to complete registration.
(B) To start any economic activity the following are required: (1) A fiscal license: Companies must get a fiscal license. This is a local tax levied on fiscal year activities and can be acquired at the local tax administration. Necessary documents: I.D. of the individual or C.I.F. (tax identification code) for companies, I.D. of the legal representative, and motor vehicle tax and technical inspection card if it is a transport enterprise. In some professional services the approved seal of the professional association or bar is required. The individual or company must request this license 15 days before starting any economic activity.
(2) Census declaration: Companies must register in the corporate census for Value Added Tax purposes and inclusion under the personal tax declaration system. This is done at the local tax administration. Necessary documents: A photocopy of C.I.F. (tax identification code) and identity card. Documents must be submitted prior to the beginning of business activity.
(3) Tax books: Regulations establish that companies must reflect different internal operations in special books: an income and sales book; an expenses or purchase book; and an inventory book. Necessary documents: fiscal license and a photocopy of I.D. The local tax administration must legalize the books within 30 days following the issuance of the fiscal license. As of January 1999, with Spain's participation in the European Monetary Union (EMU), companies might start keeping their books in Euros.
(C) Social Security Registration:
(1) Registration of a company: Once incorporated and ready to start operations, companies have to register with the Social Security system. This registration is unique for each province where a work center exists. The self-employed have to register as well. Necessary documents: a copy of the deed of the constitution of the company and photocopy of the applicant's I.D. or power of attorney. For individual businesses, an I.D. is needed. This procedure also requires a contract with the Workers Compensation Fund. The local Social Security delegation carries out the necessary procedures.
(2) Opening communication: Communication of the opening of the work center or resumption of economic activity must be done within 30 days of opening. Companies and individual businesses must also keep two logs: a visitor's log and a personnel registration book. This needs to be completed at one of the Social Security's provincial delegations. Necessary documents: details of the company and work center plus a description of business activities.
(D) The town council may require the following procedures (it varies from town to town).
* Municipal tax liability, depending on the street category * Construction licenses if there is going to be any work carried out on the premises to adapt it to new economic activity
* Opening license that accredits that the project's installations conform with municipal regulations
* Notification every time there is a change in ownership
(E) Other specific requirements:
* Industry Property Registry for trademarks, patents, commercial names, distinguishing signs, industrial models, etc. * Industrial Registry for industrial activities, workshops, toxic or dangerous substance warehouses, and manufacturing operations of any product
* Company Qualification Certificate for construction, installations and/or electrical repairs, wood and cork sectors, and engineering and consulting activities
* Identification papers or certificate for individual persons or companies involved in electrical installations, gas, air conditioning and compressors
* Special Registry for food industries and wholesale establishments (except supermarkets and hypermarkets) * Special Registry for industries that transform and store agricultural products
* Special registry for manufacturers, importers, retailers and distributors of gambling equipment
* Commencement authorization for bars, cafeterias, restaurants and hotels
* Application license for travel agencies
* Special registry for companies involved in the security sector
Until recently, client satisfaction was not a major concern in Spain. Foreign distribution companies that have entered this market have introduced this concept. Spain passed a new product liability law in July 1994 to protect consumers. Relationships are still very important in selling U.S. products in Spain. This factor is sometimes more important than price or quality, especially in large account sales. The decision making process within a Spanish company is different from that in the United States. In Spain, for example, the company's leading executive is responsible for decisions. This person takes action after review by different departments, making the sales process longer. An initial "yes" usually means that the company will study the situation, and not necessarily that it will buy the product.
Department stores, hypermarkets, shopping centers and very specialized outlets are introducing the "fidelization" concept, which usually involves issuing of client cards, cumulative discounts and special offers for frequent customers.
New selling techniques are becoming very popular. Vending machines have spread throughout Spain in the last decade. Direct marketing by mail order, telephone, TV or electronic commerce is growing considerably (see Direct Marketing section). Demand for logistical services is also rising sharply. Otherwise, selling techniques, taking into consideration local tastes, are very similar to those in the Western World.
TELEVISION: Almost every Spanish home (99.7 percent) has television and 91 percent of Spaniards watch television each day. Peak viewing hours are 2:00-4:00 p.m. and 9:00-11:30 p.m.
Prior to 1990, state-run Television Espanola (Channels 1 and 2) and regional stations run by the autonomous governments were the only options available to Spanish viewers. In 1989, the Spanish government authorized the creation of commercial television and issued licenses to three national private commercial channels (Antena 3 TV, Canal Plus, and Telecinco). Under the Real Decreto-Ley 1/1997, Spain adopted E.U. regulations Directive 95/47/CE in order to undertake measures for the liberalization of TV. The Liberalization of Telecommunications Act took effect December 1, 1998, although major changes will remain unnoticed in the short term.
On January 8, 1999, Spain's Council of Ministers called for a competition to manage the introduction of terrestrial digital TV throughout Spain. Terrestrial digital TV will go on the air starting June 30, 1999. By the year 2000, it will reach all cities with over 2,000 inhabitants, with full national coverage within a decade.
Television Espanola (Channels 1 and 2): State-run Television Espanola (TVE) began broadcasting in 1956. Channel 2 was added in 1965. Funded by the government and private-sector advertising and directed by a government-appointed director general, TVE regularly runs large budget deficits. These deficits, along with criticism by both major political parties (when in opposition) of "politicization" of news coverage, keep TVE under constant political scrutiny. The flagship Channel 1 continues to be the national ratings leader with 25.6 percent of total audience. Channel 2, with more cultural and educational programs, has a 7.3 percent share.
Antena 3 TV: Introduced in January 1990, popular entertainment-oriented Antena 3 TV was the first private national network to begin broadcasting. Today it broadcasts 24 hours per day, reaching virtually all of Spain with 22.3 percent of the audience.
Telecinco: TV 5, the second private channel, began broadcasting in March 1990. The Italian company Fininvest is the principal shareholder. Other investors include Telefuturo, belonging to the German group Kirsch and Sotelcin division of Correo Group, one of the most important communication groups of Spain. Telecinco has a 20.8 percent audience share.
Canal Plus: Controlled by PRISA, Canal Plus broadcasts a mixed program of free and coded programs, primarily feature films. For the latter, over 1.5 million viewers pay a subscription fee. Unencoded programs (mainly news) are available to anyone with a television set. It has a 2.4 percent share. In January 1999, CNN Plus, a collaborative all-news venture between Canal Plus and CNN, began broadcasting on PRISA's Canal Satelite Digital (see below), using original coverage produced in Spain by its own news team (which it shares with Canal Plus) and international coverage from CNN.
Autonomous and Local Television
Spain now has six "autonomous" (regional) TV stations in Catalonia, the Basque Country, Galicia, Andalucia, Valencia, and Madrid; and over 75 local stations. Altogether, they represent a 17.8 percent TV audience share. In 1990, the Federation of Autonomous Radio and Television (FORTA) was formed to centralize film and sports rights acquisition for regional television stations, to coordinate their planning and programming processes, and to share news coverage.
Cable and Satellite TV
1.2 million Spanish homes (about ten percent) have either cable or satellite TV. Of these, the majority, 790,000, have some kind of satellite system while the remainder have cable. Last year's estimated growth in cable and satellite was 150,000. At present, there are only 12 local cable outlets in all of Spain. Under current law, the national government shares licensing responsibility with provincial and municipal governments. Non-European investment is limited to 25 percent.
Analog satellite television (carrying European, American, and Middle Eastern stations) is available in Spain. The most widely-viewed programs are carried on Astra and the Spanish-owned Hispasat satellites.
Digital direct-broadcast satellite television has the capacity to deliver a large number of high technical-quality channels to a very small antenna, owned by the viewer (and the strongest alternative to widespread development of cable TV). It is Spain's most promising chance to rapidly improve its domestic television system. In July 1998 Spanish-led multimedia groups Via Digital, led by Telefonica and RTVE, with over 300,000 subscribers; and Canal Satelite Digital, led by the PRISA subsidiary Sogecable, with over 500,000 subscribers, signed an agreement to create a common "digital platform." Three months later the two companies broke their agreement due to disputes over rights to football matches. Most experts believe that Spain can financially support only one platform and that only one group will emerge victorious.
RADIO: Almost sixty percent of Spaniards listen to radio every day, most (two-thirds) to FM. Spain has 16 networks, 811 FM stations and 129 AM stations. Peak listening hours are early in the morning and late at night. The leading radio programs, based upon audience, are the talk shows "Hoy por Hoy" with Inaki Gabilondo on Radio SER (1,886,000) and "Protagonistas" with Luis del Olmo on ONDA CERO Radio (1,524,000), followed by "La Manana" with Luis Herrero on Radio COPE(1,384,000) and "Buenos Dias" (1,194,000) with Carlos Herrera on RNE1. The principal radio networks are:Audience SER (private - PRISA) 4,109,000 COPE (Catholic Church) 2,846,000 RADIO NACIONAL (government) 2,029,000 ONDA CERO (private) 1,965,000
PRESS: Thirty-eight percent of Spaniards read a newspaper every day, but circulation of the major national dailies is declining. Over 140 different dailies (mainly local) plus seven supplements are published in Spain. In Madrid, five major daily newspapers and three economic/financial dailies carry international and national coverage from correspondents, the major world wire services and the three Spanish news agencies, one of which is the government-owned EFE service. Most of the Madrid dailies have U.S.-based correspondents. The Madrid dailies are:
Title Circulation EL PAIS (liberal-left) 440,628 ABC (conservative) 310,670 EL MUNDO (centrist) 284,519 DIARIO 16 (centrist) * ------ LA RAZON **4,000 EXPANSION (economic) 54,426 CINCO DIAS (economic) 26,655 GACETA DE LOS NEGOCIOS (economic) 12,886
*No figures available. **Circulation estimated.
The three major Madrid-based news agencies are: EFE, Colpisa and Europa Press.
Barcelona has three daily newspapers. Each have their own correspondents in the U.S. and receive international coverage from the international wire services and the three news agencies headquartered in Madrid. Barcelona dailies:Title Circulation A VANGUARDIA (independent) 210,012 **Audience 588,000 EL PERIODICO (center-left) 207,772 AVUI (Catalan/nationalist) 34,156
PERIODICALS: Fifty-five percent of Spaniards read at least one magazine regularly, but circulation is in decline. More than two thousand different magazines are published in Spain. Some of the more important are:
Title Circulation HOLA (celebrity/social) 627,514 TIEMPO (left-independent) 81,972 TRIBUNA (independent) * 60,000 CAMBIO 16 (centrist) *51,000 EPOCA (conservative) 39,509 DINERO(economic/conservative) 10,136 ACTUALIDAD ECONOMICA (economic/conservative) * 22,252 POLITICA EXTERIOR (foreign affairs bimonthly) *12,000
U.S. NON-GOVERNMENT CORRESPONDENTS AND MEDIA REPRESENTATIVES: The Associated Press, AP/Dow-Jones, Bridge News, Reuters, and Bloomberg Business News have full-fledged bureaus in Spain. Time, Newsweek, The New York Times, The Miami Herald, USA Today, and The Wall Street Journal are also represented in Madrid. Among broadcast media, CBS, ABC, and CNN are all represented by stringers; the AP bureau includes the television operation APTN.
Product Pricing/ Payment Terms
Pricing practices in Spain are similar to those of the United States, although mark-ups tend to be slightly higher. Products and services in Spain are subject to a Value Added Tax, which is presently 16 percent. A reduced rate of seven percent is applied to the sale and imports of human or animal foodstuffs, water, agricultural chemicals, pharmaceuticals for animal use, medical and health products, mopeds, personal dwellings, hotel and restaurant services, transportation services, agricultural services, street cleaning services, entertainment services, building and construction services, medical services and funeral services.
A further reduced rate of 4 percent is applied to bread, dairy products, eggs, fruits and vegetables, books and newspapers, pharmaceuticals for human use, vehicles and medical items for handicapped people and vehicles for public transportation. VAT is not imposed in the Canary Islands, Ceuta and Melilla. The General Indirect Canarian Tax of 4.5 percent is imposed in the Canary Islands.
Payments are usually based on 30, 60 or 90 day terms. Large corporations (including large retailers) negotiate or impose larger payment terms that can last up to six months. The government defers all payments. Depending on the department, payments can be deferred up to one year. Product pricing must also include the necessary financial charges.
Companies in the United States also need to be "Euro-ready" as Spain is one of the eleven countries initially participating in the European Monetary Union. Depending on their size and the requirements of their customers and suppliers, U.S. firms may be required to start quoting prices in local currency and Euros as of 1999.
Given that the Euro will be available as a physical currency in 2002, most consumer products should see a slow phase-in period as retailers invest in either duplicate cash registers or modify their pre-existing cash register systems to include the new currency. Companies who engage in electronic commerce will need to look at modifying their web sites to reflect doing business in the new currency.
Sales Service/Customer Support
Demand among Spanish consumers for sales and customer service is growing. All technical products and most consumer products have sales service/customer support. Regulations require that sales service be available for government procurement.
Customer support is not as developed as it is in the United States. Many shops have no return policies. Only large department stores and new retailers (usually foreign) have liberal return policies similar to those in the United States.
Selling to the Government
In Spain, all levels of administration (the Central Government, Autonomous Communities. Local Municipalities and Companies that have over 50 percent government ownership) have to follow certain procurement practices encompassed in Law 13/1995, "Contracts With Public Administration", published in November 19, 1995.
The Authorities that are allowed to contract or obligate funds on behalf of the Government are:
* Central Government: Ministers and State Secretaries
* Autonomous Communities: Legal representatives as established by the local government (usually a member of the cabinet)
* Local Municipalities: The Mayor or any other formally designated official
* State-owned companies: The Chief Executive Officer
Furthermore, any contract over two billion pesetas (USD 13.7 million at current exchange rates) requires approval by the Council of Ministers (Executive Cabinet).
All potential suppliers to the Spanish Government (both foreign and domestic) need to register with the Ministry of Economy, in the "Registro Oficial de Contratistas". Any company that can prove economic/financial as well as technical solvency is eligible to contract with the government. A company can demonstrate its economic/financial solvency by proving the security of financial risks, shares, business balances and cash flows, and by stating its global business obligations. Technical solvency can be established by means of academic titles, experience, description of work done in the past five years, and via machine, materials and technical equipment at the company's disposal for the completion of the work.
There are three different types of contractual proceedings: Open, Restricted and Negotiated. In open proceedings, all opportunities are published and open to all interested companies. It is more difficult for foreign companies to participate in restricted proceedings. Between five and twenty companies are invited to present their documentation for evaluation and, upon completion of this process, qualified companies are invited to bid. Negotiated proceedings are even stricter. No less than three companies are invited to bid and invitations are presented based on known qualifications, so documentation is not necessary.
In certain situations, urgent or emergency proceedings may be necessary and will follow different rules. Government agencies can also pre-qualify companies and invite them for a restricted procurement. Although, this is a practice that governments often use for military and other sensitive procurement, it can also be applied in the environmental technology field. Foreign and domestic companies can be pre-qualified and invited to participate in restricted procurement projects.
All requests for proposals must be published in the "Bulletin Oficial del Estado" a publication similar to the Federal Register. Invitations to bid on government contracts are published at least 26 calendar days before the due date of bids. In addition, all contracts above USD 4.5 million are published at least 40 calendar days before the due date of bids in the European Community Bulletin.
The procedure to bid for a specific tender is relatively straightforward. All proposals are kept secret and must be accompanied by proper documentation. This information should include:
(1) Accreditation of the legal representation used by the company
(2) Proof of economic, financial, technical or professional solvency and competence plus a declaration that the company is not prohibited from contracting
(3) Provisional guarantee must be accredited to prove it has been deposited
(4) For foreign companies, formal acceptance of the jurisdiction of the Spanish courts if necessary (Spanish legal representation is required)
(5) Accreditation of having met all fiscal and social security obligations
Foreign companies wishing to contract with the Spanish government need to validate all certifications with the Spanish Consulate. It is possible for foreign companies to be involved in the negotiated and restricted procedures if qualified. According to local law, all foreign firms must have a legal presence in Spain (formal agency agreement, distributor, branch office or subsidiary) before bidding on contracts. American companies also have to accept the jurisdiction of Spanish courts in legal issues that may result from a contract with the Spanish Government. In case of disputes, the Spanish national and local governments will only recognize Spanish courts. Arbitration procedures are not accepted.
American companies interested in bidding for a contract with the public administration must contact Spain's Embassy in Washington DC, to document their compliance with the norms.
Embassy of Spain
2558 Massachusetts Ave. N.W.
Washington, DC 20008-2865
tel: (202) 265-8600
fax: (202) 265-9478
Protection against IPR Infringement
Spain is a signatory to the Paris Convention for the Protection of Industrial Property. The Spanish Patents Act of March 20, 1986, brought Spain into conformity with the European Patent Convention and the anticipated E.U. Patent Convention as a requirement for its entry into the E.U. Both the Trademark Law of November 1988 (Law 32) and the Intellectual Property Law 1750/87 address protection for brand names and trademarks. Spain is also a party to the Madrid Agreement on Trademarks. These laws follow E.U. standards. The Intellectual Property Law of November 1987 offers copyright protection.
A non-renewable 20-year period for working patents is available, if the patent is used within the first three years. Spain is revising its patent laws for chemicals, pharmaceutical, and biotechnology to conform with E.U. standards.
b) Industrial Designs
Known by their form or external characteristics, industrial designs are eligible for exclusive exploitation for renewable periods of 10 years. Although third parties may oppose registration on the basis of similarity to already registered models, registration is not forfeited because of non-use.
The Industrial Property Registry provides protection of trademarks for a 10-year period from the date of application. Trademarks must be registered for protection and may be renewed. Protection is not granted for generic names, geographic names, those that violate Spanish customs, or other inappropriate trademarks.
The law extends copyright protection to all literary, artistic, or scientific creations, including computer software. Spain and the United States are members of the Universal Copyright Convention. For protection, U.S. authors must register with this organization.
The Office for Harmonization in the Internal Market (OHIM) for the registration of community trademarks in the European Union started its operations in 1996 and has its headquarters in Alicante:
Oficina de Armonizacion del Mercado Interior
-Office for Harmonization in the Internal Market-
Avenida Aguilera, 20
Tel: (3496) 513-9100
Fax: (3496) 513-9173
Need for a Local Attorney
Foreign companies and individuals are advised to acquire legal advice for any complex business transaction that they intend to do in Spain. A local attorney can help set up either a subsidiary or a branch, carry out business transactions, represent a company in government contracts, or find residency in Spain. Regulations are complex and legal help may be useful in many commercial activities.
A list of attorneys may be obtained from the U.S. Embassy Consular Section or from the Commercial Service (CS) offices in Madrid or Barcelona. (For contact information, see Appendix E).
Performing Due Diligence/Checking Bona Fides of Banks/Agents/Customers
CS Spain discontinued its International Company Profile service as adequate commercial information and financial reporting are available at a reasonable cost from the private sector.
Local Chambers of Commerce usually provide this type of services. Dun & Bradstreet has offices in Spain located at Salvador de Madariaga, 1 2, 28027 Madrid, Tel: 34-91-377 9100, Fax: 34-91-377 9101. A complete list of credit reporting agencies may be obtained from CS Spain.
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Note* International Copyright, United States Government, 1999. All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title 17, United States Code.