Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
Sales channels to consumers have developed significantly in the last few years. While the traditional method of wholesalers selling directly to small shops continues, online sales, big box stores, and shopping malls are growing rapidly throughout the country.
Madrid and Barcelona are the two major hubs for the regional market. Most agents, distributors, foreign subsidiaries, and foreign trade related entities are present in both cities. The section “Regions” on the website “Invest in Spain” includes details on each Spanish region, including main sectors of opportunity and investment incentives. Nonetheless, given the ongoing importance of the 17 autonomous communities, greater importance is being attached to distributors being in the respective region. In the case of Catalonia, products for distribution in the region need to be labeled in the language of the region, i.e., Catalan.
Price is a very important factor in Spain. Although EU member states’ exports to Spain have lower tariffs than those imposed on U.S. goods because of the EU’s common External Tariff, the dollar-euro exchange rate, and possible lower production costs keep U.S. companies competitive with EU exports.
While Spain remains an eligible market for ExIm Bank financing, given the availability of private sector financing, ExIm Bank is not as active in Western Europe as it is in developing economies. ExIm financing is viable for projects where Spanish companies are procuring U.S. products destined for third country markets, such as Latin America.
Using an Agent or Distributor
The legislation governing business activities in Spain is like that of other OECD (Organization of Economic Co-Operation and Development) countries.
The most common forms of representation agreements in Spain are:
- Commercial Concessions or Exclusive Distribution Agreements: The supplier agrees to provide its products to several distributors within a specific territory and agrees not to sell those products itself within the territory of the exclusive distributor(s).
- Sole Distribution Agreement: Includes the provisions in the above-mentioned Exclusive Distributor Agreement and reserves the right of the distributor to supply certain products to users in the territory of concession.
- Authorized distribution agreements under the selective distribution system: Distributors are selected according to their ability to handle technically complex products and to retain a certain image or brand name.
The agent promotes and sells the products as if he or she is the principal supplier; informs the principal supplier of all matters relating to the agency.
Commission Agency Agreements:
- Involve occasional engagements; agent facilitates the conclusion of an agreement but does not ultimately represent either party.
- Models of distribution contracts and clauses are available online from the bookstore of the International Chamber of Commerce. It is recommended that contracts be reviewed by legal counsel prior to signature.
EU standards provide protection for self-employed commercial agents, changes in clauses, competition in the internal market, and payment delays. Companies with grievances regarding inefficient management can contact the European Ombudsman, which will investigate cases.
Establishing an Office
There are two options for businesses interested in establishing an office in Spain: incorporating a subsidiary or establishing a branch. Both options have full legal status, and their profits are taxable in Spain. It is recommended that companies obtain legal advice to aid in the process.
A subsidiary can be one of the following: a corporation, a public limited-liability company (Sociedad Anónima, SA) or a private limited company (Sociedad de Responsabilidad Limitada, SL or SRL).
The structure of the SA is better suited for larger operations and the SL/SRL for smaller.
Corporations (S.A.) and limited liability companies (S.L.) are similar in that the shareholders are not liable for the company’s debts and are limited to their contribution. The main differences between these entities are:
- Capital (USD 67,200 mínimum (60,000 euros) versus USD 3,360 (3,000 euros);
- Flexibility permitted at general meetings, transfer of shares and management of an S.L.
The steps to legally establish a branch are:
- Register company name: Applications are made at the Central Mercantile Registry. The certification is valid for two months.
- Declare the investment to the Spanish Ministry of Economy and Competitiveness.
- Notarize public deed of incorporation.
- Pay asset transfer tax and legal proceedings document tax: These taxes are for new incorporations (roughly one percent of capital stock).
- Request a tax identification number (locally called NIF – Número de Identificación Fiscal): This must be done within 30 working days from the signing of the public deed. The NIF must be used within six months of application.
- Register the company in the Mercantile Registry: This is done at the corporate registry corresponding to the company’s official address. On average, it takes two months to complete registration. The Spanish Government and local chambers of commerce have created the “Ventanilla Unica” (One Stop Shop) to simplify the process of setting up a business in Spain.
- The Spanish government’s website, Invest in Spain, has specific chapters addressing “Establishing a business in Spain” and “Company and Commercial Law”.
Please find further information through: U.S. Department of State website.
Spain has faced many challenges and hardships since the onset of the COVID-19 pandemic and the franchise sector is no exception. Several brands have closed their business and reduced their expansion plans by having to readjust their development plans and renegotiate royalty fees. Franchisors adjusted their contracts quickly to adapt to change in the logistics and supply chain, labor force disruptions and new consumer trends like on-line procurements and delivery services. This is a task that is on-going until at least 2023.
When drawing up contracts, franchise companies – whether Spanish, foreign, or the master franchisee – need to meet the requirements of the Disclosure of Pre-Contractual Information. As of December 2018, national franchise agreements no longer need to be registered. Some regional regulations could, however, require registration at a regional level, but only when the franchisor intends to operate exclusively in that specific region. The intended franchisee must receive all the required information in writing at least 30 days prior to signing a franchising contract or a pre-contract, or prior to any payment to the franchisor. All new contracts should comply with Spanish and EU legislation. Current contracts should also be reviewed whenever possible.
Franchise Disclosure Rules in Spain
According to current law, the most important considerations are:
Each franchisor must disclose how long he/she has been managing the franchised business in question prior to disclosure.
- Master franchisees are obliged to annex to their disclosure document a copy of his/her Master Franchise Agreement.
- Foreign companies must translate all legal documents into Spanish and register them together with the original language versions.
Additionally, each franchisor may voluntarily register the following information:
- The company’s quality certifications.
- Any mediation or Alternative Dispute Resolution (ADR) systems in use in the franchise network.
- Whether the franchisor observes a Code of Conduct.
- Whether the franchisor participates in the consumers’ arbitration system or any other system to settle consumer complaints. Both sides must decide in which country or countries the arbitration method will apply, if needed.
The major trade show supported by our office is the IFE- International Franchise Expo in New York City, promoted by the U.S. Department of Commerce to U.S. and foreign audiences (including Spanish), which will push to host the first official Spanish pavilion organized by ICEX España Exportación e Inversiones, the Spanish Institute for Trade and Investment. The next edition will be from June 1 to 3, 2023.
The Spanish Franchisors Association prepares annual reports on the sector.
For more sector information, please contact Angela Turrin at the U.S. Commercial Service in Madrid, Spain.
Despite the steady progress of eCommerce, direct marketing continues to be an important promotional activity in Spain. The sector reflected a smaller increase than expected in investment during 2021, but still positive.
According to INFOADEX (leading source of advertising sector intelligence), total investment in 2021 reached USD 13.72 billion, reflecting an average increase of 7.8 percent over the previous year.
Total investment in traditional marketing was USD 6.43 billion, an increase of 11.5 percent over 2020. The two main segments in this category are digital marketing (45.6 percent) and television (32.6 percent). Investment in digital marketing is reported at USD 2.9 billion, an increase of 14.2 percent over the previous year, while investment in television came to USD 2.0 billion, an increase of 8.3 percent.
Total investment in non-traditional marketing also increased in 2021 to USD 7.29 billion, an increase of 4.7 percent. The most important segments are telemarketing with an increase of 10.7 percent to USD 1.81 billion; personalized mailing, reflecting an increase of 3 percent to USD 1.7 billion; and on-site advertising growing by 8.8 percent to USD 1.68 billion. Largest increases in this category are for catalogues segment (42.4 percent to USD 48.3 million) and the emerging “influencers” segment (23.9 percent to USD 110.8 million).
The wide range of EU legislation covering the direct marketing sector is applicable in Spain. Companies are required to provide full and transparent information to consumers prior to the purchase, as well as detailed information on the procedures followed to collect and use customer data. Compliance requirements are stiffest for marketing and sales to private consumers.
The EU has a single rulebook, titled “the Consumer Rights Directive”. It covers important areas of Distance Selling to Consumers, Doorstep Selling, Financial Services, and eCommerce. Consumers have the right to turn to quality alternative dispute resolution entities for all types of contractual disputes including purchases made online or offline, domestically or across borders. The platform to handle online dispute resolutions became operational at the end of 2015.
Trust is an important competitive factor in this market. The Spanish ECommerce and Direct Marketing Association (Asociación Española de la Economía Digital) places importance on generating greater consumer confidence and requires members to follow a number of ethical codes, including a code of self-regulatory rules for electronic advertising.
As indicated in Chapter 1, new EU legislation, the General Data Protection Regulation (GDPR) covering data privacy came into effect in May 2018, replacing the previous data protection Directive 1995/46. The GDPR applies in all member-states of the EU, including Spain. This horizontal privacy legislation applies across sectors and to companies of all sizes and will continue to gain importance in all areas of marketing.
On March 25, 2022, the United States and the European Commission announced the Trans-Atlantic Data Privacy Framework.
The United States and the European Commission have committed to a new Trans-Atlantic Data Privacy Framework, which will foster trans-Atlantic data flows and address the concerns raised by the Court of Justice of the European Union when it struck down in 2020 the Commission’s adequacy decision underlying the EU-U.S. Privacy Shield framework. This Framework will reestablish an important legal mechanism for transfers of EU personal data to the United States. The United States has committed to implement new safeguards to ensure that signals intelligence activities are necessary and proportionate in the pursuit of defined national security objectives, which will ensure the privacy of EU personal data and to create a new mechanism for EU individuals to seek redress if they believe they are unlawfully targeted by signals intelligence activities. This deal in principle reflects the strength of the enduring U.S.-EU relationship, as we continue to deepen our partnership based on our shared democratic values.
Distance Selling of Financial Services
Financial services are covered by a separate directive (2002/65/EC), designed to ensure that consumers are appropriately protected in transactions where consumer and the provider are not face-to-face. In addition to prohibiting certain abusive marketing practices, the Directive establishes criteria for the presentation of contract information.
License contracts in Spain may include industrial property rights (patents, utility models, and trademarks), intellectual property rights (rights of use for literary, scientific, artistic works, or software), know-how, or other uses of technology. The Spanish system allows for flexibility when negotiating the terms and conditions of the agreement. Common clauses include:
- Exclusivity clauses, including exclusive purchase obligations.
- Measures to limit a licensor’s commercial activity.
- Confidentiality and non-compete 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.
- Restitutions, in case of breach of contract.
- U.S. companies can also enter the Spanish market through joint ventures.
Major global organizations such as DHL, FedEx, UPS, ARAMEX and others operate in Spain and offer express delivery services. Transit times vary but for packages shipped from the United States to Spain, the average time is two to three days, not including the customs clearance process. Express service points are serviced at several locations around the country.
Customs procedures and requirements are standard and can be found on the Spanish Customs website.
Product safety testing and certification is mandatory for the EU market. U.S. manufacturers and sellers of goods must perform due diligence (act with a certain standard of care) in accordance with mandatory EU legislation prior to exporting.
CS Spain provides International Company Profiles and input from a qualified local credit-reporting agency. Commercial information and financial reporting are also available from the private sector or local chambers of commerce.