Building a Business Presence in Spain: Employment, Compliance, and Due Diligence 

Hiring Employees in Spain

Before hiring an employee who resides in Spain, a company should identify the employee’s role and determine how the employment relationship will be structured. 

The employee’s responsibilities may affect whether the U.S. company creates a permanent establishment in Spain. A director, senior executive, or person performing significant business functions may present different tax considerations from an employee serving in a more limited role. 

Businesses should also avoid assuming that an employer-of-record arrangement commonly used in other jurisdictions is an available solution in Spain. 

Depending on the circumstances, a U.S. company may instead be able to register as a nonresident employer for payroll purposes. This approach may allow the company to employ personnel in Spain, administer payroll, and make required Social Security contributions without first forming a Spanish subsidiary. 

Whether this arrangement is appropriate depends on the employee’s duties and the company’s broader activities in Spain. 

Spanish Employment Rules Require Advance Planning 

Employment relationships in Spain are generally subject to stronger employee protections than many U.S. companies may expect. 

An employer typically cannot dismiss an employee from one day to the next without considering applicable notice requirements, procedures, and potential financial consequences. The appropriate strategy will depend on the circumstances, including the reason for dismissal and the rules governing the employment relationship. 

Spain also has baseline employment requirements, including a general 40-hour workweek. Other terms may be governed by the collective agreement applicable to the employee. 

Understanding Collective Agreements 

The relevant collective agreement may depend on factors such as: 

• The employer’s industry 
• The region or city where the work is performed 
• The employee’s position 
• The size or identity of the employer 
• Whether the company has its own agreement 

These agreements may address vacation, working schedules, compensation terms, resignation, dismissal, and other employment conditions. 

A U.S. company should therefore provide its advisors with detailed information about each position, the location where the work will be performed, and the company’s industry before finalizing employment terms. 

Failure to follow applicable employment, payroll, tax, or Social Security requirements may expose the company to inspections, audits, penalties, and other consequences. 

When a Local Entity May Be Practical 

A U.S. company may be able to begin with a limited registration or nonresident employer arrangement. As the business grows, however, a Spanish subsidiary or another operational base may become more practical. 

A local presence may help the company: 

• Manage payroll and employment obligations 
• Work with insurers, logistics providers, and online marketplaces 
• Build credibility with customers and commercial partners 
• Coordinate local operations more effectively 
• Support broader expansion into Europe 

The additional cost of maintaining a local operation should be evaluated against the commercial, administrative, and operational benefits it may provide. 

For companies selling products, a European entity may also make it easier to obtain insurance, manage logistics, and satisfy the expectations of distributors and other commercial partners. 

Acquiring an Existing Spanish Company 

Acquiring an established Spanish company can provide a faster route to market than building operations from the ground up. 

An existing company may already have: 

• Employees and management processes 
• Local market knowledge 
• Customer and supplier relationships 
• Required licenses or authorizations 
• Operational systems and infrastructure 

This route may be particularly valuable in regulated sectors such as energy, consumer-facing industries, and medical businesses, where licenses and regulatory requirements can make a new launch more complex. 

The primary advantage is that the buyer may be able to enter the market through a business that already understands the local environment and has functioning operations. The value of that advantage, however, depends on the condition of the target company and the quality of the due diligence process. 

Building the Due Diligence Team 

A cross-border acquisition requires the target company to be reviewed from several perspectives. 

Depending on the proposed transaction, the due diligence team may include: 

• Corporate counsel 
• Tax counsel and tax advisors 
• Accountants and financial advisors 
• Employment counsel or employment advisors 

The review should address the target’s legal structure, tax position, financial records, employee arrangements, contracts, dismissals, and other material obligations. 

A buyer should not rely solely on the fact that the target is already operating in Spain. Existing operations may provide valuable infrastructure and market access, but they may also carry liabilities that must be identified and evaluated before the transaction proceeds. 

Key Takeaways 

• Employee roles should be reviewed for permanent establishment implications before hiring. 
• A nonresident employer registration may be available for payroll purposes in appropriate circumstances.
• Spanish employment rules and collective agreements can materially affect employment terms and termination procedures. 
• A local entity may improve operational efficiency, commercial credibility, and access to service providers. 
• Acquiring an existing company may accelerate market entry, particularly in regulated industries.
• Legal, tax, financial, and employment due diligence should be coordinated before completing an acquisition. 

Entering Spain through direct hiring, a local entity, or an acquisition can support long-term European growth. Each route creates different legal, tax, employment, and operational responsibilities. 

Companies accustomed to U.S. employment and business practices should be prepared for a different legal framework. Careful planning and coordinated advice can help a U.S. company establish its presence in a compliant and commercially practical way. 

Contact Basswood Counsel and Capital Auditors and Consultants 

U.S. companies planning to hire employees in Spain, establish local operations, or acquire a Spanish business should address legal structure, employment obligations, tax exposure, and due diligence before moving forward. Contact Basswood Counsel and Capital Auditors and Consultants for coordinated U.S. and Spanish legal and tax guidance designed to support a compliant and well-planned expansion.