However, for the purpose of safeguarding the interests of creditors, the limited liability company must at least allocate 20% of its profits to its legal reserves until the said reserves, together with the company’s capital, reaches the amount of 3,000 Euros.

Additionally, if the company goes into liquidation, if its assets are insufficient to meet its obligations, the shareholders shall be jointly and severally liable for the difference between the amount of 3,000 Euros and the company’s capital.

According to the Create and Grow draft bill, it will be possible to set up a limited liability company online within a maximum of 10 working days and without the need to appear before a notary public nor at the Registro Mercantil (Companies House) in person.

Also, any variation of the company’s capital, will be published at the Mercantile Registry and effective within 10 working days.

Indeed, the Create and Grow draft bill establishes that all public notaries with power within the Spanish territory must be registered at the Notarial Electronic Agenda, in order to carry out the incorporation of companies online. A notary public cannot refuse any incorporation procedure initiated through the online system.

Combating Late Payment

According to article 4 of the Spanish Law 3/2004 of 29 December regarding payments in commercial transactions, the maximum period within which the debtor must pay any outstanding debt to a creditor is 30 days, unless the two counterparts set up another date of payment, which cannot exceed 60 days.

However, it is not uncommon for those deadlines not to be met and due to that, small and medium-size business can suffer lack of liquidity.

In order to combat late payment, the Create and Grow draft bill establishes that a company which does not makes a payment within the period mentioned above, will not be entitled to apply to any public subsidies nor be eligible for take part in public contracts.

Mandatory B2B E-Invoicing

Pursuant to the Create and Grow draft bill, electronic invoices must be used in all commercial relations between companies and self-employed people. This measure not only contributes to reinforce the digitalization of the business operations, but also guarantees greater traceability and control of payments for the public administration in order to combat the late payment mentioned above.

If the current version of the Create and Grow draft bill is approved, companies and self-employed with annual turnover over eight million Euros, must use the e-invoicing system within a year after the said draft bill enters into effect, while companies and self-employed with turnover under eight million Euros, must use the e-invoicing system within three years once the bill becomes enforceable.

According to the Create and Grow draft bill, businesses and self-employed must give free of charge access to their e-invoices, which should be readable, printable and downloadable.

In addition, said access to must be maintained for up to four years since the invoices were produced, even if the persons invoiced had expressly refused having access to them.

If businesses or self-employed persons do not comply with the e-invoicing regulation, they could face a fine of up to €10,000.

Laura Gallego Herráez.

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The day of the signing of the trade agreement, the Minister of Trade Policy George Hollingbery said: ´´The agreement signed today with Colombia, Peru and Ecuador will give added assurances to UK businesses trading with the region. Businesses will be able to continue trading like they do today after we leave the EU, with consumers and investors continuing to enjoy the benefits.´´

"We look forward to further strengthening our ambitious trade and investment relationship with the Andean Countries as we continue to work closely together in the future."

Which countries are covered by the UK-Andean agreement?

As we mention before, the countries covered by the UK-Andean agreement are:

• Colombia
• Ecuador
• Peru

What does the agreement include?

This trade agreement includes provisions on:

• trade in goods (including provisions on preferential tariffs, rules of origin, and tariff rate quotas);
• trade in services;
• intellectual property.

It replicates elements of the EU-Andean agreement, such as provisions on political dialogue and human rights.

Can a UK exporter process material from EU to export to Andean countries?

Yes, an UK exporter can use materials from EU to manufacture his product. However, an UK exporter must ensure that the processing over the materials, depending on the products, meet certain requirements.

For example, an UK exporter cannot simply package or label a product from the EU and export it to the Andean countries as a good originating in the UK.

Written by Laura Gallego.

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Operating in Uruguay trough a Permanent Establishment (Pe)

Pursuant to Article 5 of the said DTT, a British company has a PE in Uruguay, when it has, within the Uruguay´s territory, a fixed place of business or an operational site through which habitually performs a business activity.

Accordingly, a PE includes, but is not limited to:

• Places of management;
• Offices and workshops;
• Natural resources exploitation: petroleum or gas wells mines or quarries;
• Factories;
• Construction or installation sites

Therefore, the term PE shall be deemed not to include the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery.

Corporate Tax: 25%

Net income derived from business activities conducted in Uruguay, obtained by legal entities resident in Uruguay and non-residents operating through a PE in Uruguay, is taxed at a rate of 25%.

In order to determine the net taxable income, it is necessary to take into account tax deductions and allowances.

VAT: 22%

Uruguayan VAT is at a general rate of 22%.

Items subject to 10% VAT rate:

• Health services.
• Hotel services.
• The first sale of immovable assets.
• Food and medicines.

Items exempt from VAT:

• Books.
• Milk.
• Magazines.
• Agricultural machinery.
• Accessories.
• Certain bank services.

Imports/Exports between United Kingdom and Uruguay

• Total exports from United Kingdom to Uruguay amounted to £97 million at the end of 2021.
• Total imports from Uruguay to United Kingdom amounted to £319 million at the end of 2021.

See below, the latest statistics on trade and investment between United Kingdom and Uruguay provided by the British Department for International Trade

Trade and Investment Factsheet (publishing.service.gov.uk)

Written by Laura Gallego.

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1. Be newly created or if not being newly created, with no more than 5 years elapsed since its incorporation, in general, or 7 years in the case of biotechnology, energy and industrial companies.
2. It has not arisen from a merger, spin-off, or transformation operation.
3. Have their registered office or permanent establishment in Spain.
4. 60% of the workforce must have an employment contract in Spain.
5. Be an innovative company.
6. Not distribute or have distributed dividends.
7. Not be listed on a regulated market or a multilateral trading system.

How do we know that our startup is innovative for the purpose of the new Spanish legislation?

As we mentioned before, the new Spanish start-up law will apply to companies who meet the requirement of ´´being innovative´´, among others, but how we can conclude whether a start-up is innovative for the new Spanish start up rules propose?

Pursuant article 4 of the said law, entrepreneurs must contact ENISA (Empresa Nacional de Innovación SME S.A.) which is a state-owned company who will assess whether or not the start-up is innovative for this purpose.

Which are the main benefits provided by the new Spanish startup law?

The tax rate for start-ups in corporate income tax and non-resident income tax (IRNR) is dropped, from the general rate of 25% to 15%.

Also, with the aim of promoting investment, the new rules raise the maximum deduction base for investment in start-up companies from 60,000 to 100,000 euros per year. In addition, the deduction rate increase from 30% to 40%.

Moreover, this new law envisages the possibility for start-ups to request a deferral of the tax due on corporate tax for a period of 12 months.

On the other hand, in order to make simple the bureaucratic process, non-resident investors are no longer required to obtain a foreigner´s identification number (NIE) and they only will need to obtain a tax identification number (NIF).

Spain’s Entrepreneurial Nation Strategy

With the aim of becoming the number one country in Europe for investment in innovative entrepreneurship, the Spanish Government has announced the implementation of 50 measures to provide support on the innovative entrepreneurial field. These measures include and are not limited to the following:

Connected Industry 4.0 project, which has the objective of providing a strategy to support companies in their digital transformation.

The Spanish National Department of Traffic (Dirección General de Tráfico) leads the project Plataforma de vehículo conectado 3.0 where the Spanish Government proposes the increased of new technologies, automation, big data and 5G to improve the vehicles’ connectivity.

Also, the Spanish Government has approved an Integrated National Energy and Climate Plan 2021-2030 where promotes energy efficiency and renewable energy. Also, encourages to consumers to become active players in the energy transition.

In addition, Spain will launch the National Entrepreneurship Office to coordinate and organise support services for entrepreneurship in collaboration with public and private agents.

Spain will use its Next Generation EU subsidy which is approximately €1.5 billion to put these ideas into action.

When will be possible access to the benefits provided by the new Spanish startup rules?

We are expecting the official announcement from the Spanish Government.

If you want to be updated about this topic, send an email to london@scornik.com and you will receive the latest news.

Laura Gallego Herráez

Associate Spanish Lawyer and Business Developer at Scornik Gerstein LLP.

laura.gallego@scornik.com

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How is the process of a SoA?

1. Making an application

The Scheme of Arrangement’s procedure begins with an application at Companies Court (CC), which can be promoted by any of the following: ₂

• Any creditor of the company;
• The company itself;
• Any member of the company;
• If the company is in administration, the administrator;
• If the company is being wound up, the liquidator;

2. CC verifies whether the SoA meets the necessary legal requirements.

Creditors must act in good faith during the proceedings, and the terms of the agreement (SoA) must be reasonable to an honest and intelligent person.

3. Deliver a copy of the Soa at the Registrar of Companies.

If the SOA is sanctioned, the court's order must be then submitted for registration at the Registrar of Companies and once registered, it will be enforceable₃.

Can a foreign company use an English SoA after Brexit?

Yes it can₄, provided it has sufficient connection with England and Wales.

The concept of "sufficient connection" has been interpreted in a broad sense by the British courts.

The UK courts have sanctioned SoAs agreed by foreign companies using the following non-exhaustive criteria when:

• A clause of exclusive submission to the British courts has been agreed by the counterparts.
• Credits affected by the SoA are subject to the English Courts.
• The debtor has an establishment within the UK.
• Most creditors are domiciled within the UK.
• The foreign company has assets under English jurisdiction.

Why foreign companies can be interested in applying to a SoA under UK jurisdiction?

1. Speediness of English courts.
2. The SoA provides flexibility with a high degree of procedural and commercial certainty for all involved, including creditors.
3. Once the SoA is approved it will be binding on all creditors.

Written by Laura Gallego Herráez.

₁ https://www.legislation.gov.uk/ukpga/2006/46/contents

₂ Section 896 Companies Act 2006

₃ Section 899 Companies Act 2006

₄ Interestingly, UK schemes of arrangement were outside of the European Regulation on Insolvency Proceedings even pre-Brexit due to the UK’s lack of notification to the European Commission, which proceeding the UK deemed to be included in the Regulation (EU) 2015/848 of the European parliament and of the council of 20 may 2015 on insolvency proceeding (EIR).

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Also, a PE exists when a dependant agent executes a contract on behalf of the British company (principal). It is important to bear in mind that if the agent works independently from the principal, for example, with a self-employed status, a PE will not exist₃.

Accordingly, a PE includes, but is not limited to:

• Places of management;
• Offices and workshops;
• Natural resources exploitation: petroleum or gas wells mines or quarries;
• Factories;
• Construction or installation sites;
• Branches.

Let´s see some examples:

Example 1:

Debbie is running a shoe company in the UK and she has rented a factory in SP from which she will employ workers and apply for the necessary licences to manufacture shoes. Also, Debbie will export shoes directly from the factory to the UK and EU countries. Has Debbie a PE in SP?

Yes, Debbie has an EP in SP because it meets the requirements set out at Article 5 of the DTA.

Example 2:

Lucy, British resident, owns a property₄ in Mallorca (SP) and she is receiving income from renting it out . Has Lucy a PE in SP?

No. However, if Lucy had a British company that owns properties in Spain for the purposes of renting them out, Lucy will have a PE in SP.

What are the differences between a branch and a PE?

PE is a concept which does not appear in the commercial law field, it has been created by the tax authorities to tax income obtained in SP by certain non-resident companies.

Since PE is only identified by its physical nature, as an installation or a place in which a non-Spanish resident company, carries out business operations, we can say that the concept of a branch will always include the one of PE, but not the other way around.

Moreover, while the incorporation of a branch requires a series of legal formalities₅ which end with its registration at the Spanish Mercantile Register (registro mercantil), to set up a PE is simpler, being necessary, among other requirements, applying for a Tax Identification Number (NIF), but since it does not possess legal personality, it is not required for the PE to gain registration at the Spanish Mercantile Register (registro mercantil).

Which activities can perform a British company through a PE in SP?

The business activities performed by a British company, in SP through a PE must be stick to those set out in its statutes. For example, a British company that runs an English course business, cannot set up an EP in SP to produce shoes.

Will British companies operating in SP through a PE pay more taxes due to Brexit?

No, as we mentioned before SP and UK has a DTA in place which prevents paying tax in both countries on the same income and it still applies after Brexit.

Once my British company has a PE in SP which profits will be taxed?

Non Spanish residents that obtain income through a permanent PE within SP will be taxed on the total income attributable to said establishment, which are the following:

• Income from economic activities or operations carried out by the PE.
• Income, profits or capital gains derived from the assets of the PE.

Generally speaking, the income attributed to an EP will be taxed following the Spanish corporate income tax rules,₆ being the general corporate income tax rate currently at 25%₇.

How the income is taxed when the non-resident company has more than one PE within Spain?

When a taxpayer has more than one PE within the Spanish territory, whose activities and management are clearly differentiated, they will be taxed separately.

Accordingly, each PE must keep its own accountancy records separately from the other PEs.

Written by Laura Gallego Herráez.

₁ https://www.boe.es/buscar/act.php?id=BOE-A-2004-4527

₂ https://www.gov.uk/government/publications/spain-tax-treaties

₃ In this regard, we recommend our following article: Appointing a commercial agent in Spain after Brexit.

₄ In this regard we recommend our following article: Buying a property in Spain after Brexit: FAQ

₅ In this regard we recommend our following article: Brexit: operate in Europe through a subsidiary or branch

₆ https://www.boe.es/buscar/act.php?id=BOE-A-2014-12328

₇ You can find details about special tax rates in this link.

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However, if the goods depart out of the Freeport into the rest of the country the tariffs and taxes apply accordingly. As a consequence, Freeports are usually localized in or close to airports, seaports and river ports.

Therefore, a company can import goods into the Freeport zone without paying tariffs, process and manufacture them into an ended good, and after that, they can pay a tariff to sell the final product into the British domestic market or export it without paying the UK tariffs.

Where will the New Freeports be?

The locations of England's eight new Freeports are the following:

• Teesside
• South Devon
• Liverpool
• East Midlands Airport
• Felixstowe and Harwich
• Humber
• Plymouth
• Solent
• Thames

These Freeports are expected to be fully operational in late 2021.

Are Freeports compatible with Trade Agreements signed by the UK?

The UK announced new trade agreements with 23 different countries, including clauses prohibiting the use of tax breaks. Therefore, companies operating in Freeports zones will not get full benefits when they export the final product to some countries, such as Norway, Canada, Switzerland or Singapore.

Written by Laura Gallego Herráez.

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What are the main requirements for opening a branch office or a subsidiary in SP?

The procedure to open a subsidiary or a branch in SP is similar. The common requirements include the following:

1. Opening a bank account in the company’s name, which will be used for depositing the share capital.
2. A copy of the certificate of incorporation of the parent company.
3. Obtain (the provisional) and then keep (the definitive) tax identification NIF (número de identificación fiscal) at the Spanish Tax Agency.

The decision of setting up a subsidiary or a branch has to be taken by a general meeting of the shareholders of the parent company and the resolution must be legally translated into Spanish.

A public deed of incorporation must be granted before a Notary Public and then submitted at the Spanish Commercial Registry.

Must I travel to Spain to set up a subsidiary or a branch?

Not necessarily, our team of Spanish speaking lawyers can set up for you a subsidiary or a branch in Spain on behalf of the parent company, through a Power of Attorney.

Written by Laura Gallego Herráez.

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The agreement covers:

• trade in goods and services, including provisions on rules of origin, preferential tariffs and quotas
• intellectual property
• geographical indications
• government procurement

The agreement will ensure British businesses and consumers benefit from continued access to the region after the UK leaves the EU. For instance, consumers in the UK will continue to benefit from lower prices on goods imported from Central American countries party to this agreement. The same applies to consumers in Central America who will benefit from lower tariffs on goods produced in the UK.

It is preferable to trade on these terms rather than on World Trade Organization (WTO) terms, because this way the UK can strengthen its trading relationship with Central America and support British jobs.

The UK-Central America Association Agreement replicates some elements of the EU-Central America Agreement, such as provisions on political dialogue, increased economic ties and other forms of cooperation between the two regions on issues like the environment and human rights.

Then Foreign Secretary Jeremy Hunt welcomed the new Agreement and said: “This agreement is of real importance as we prepare to leave the European Union and strengthen our ties with the rest of the world.”

When does the agreement take effect?

The UK ceased to be a member of the political institutions of the EU on January 31st 2020. However, it will continue to be treated as a member of the single market and customs union until December 31st, 2020, which is the end of the transition period following its departure from the EU. The EU also requested that third countries with EU trade agreements treat the UK as a member state during this period.

Thus, the UK-Central America Association Agreement will not enter into force while the EU-Central America Agreement continues to apply to the UK.

Written Lucía Fernández

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Below we mention the main changes to be aware of in the event of Brexit in a No Deal scenario.

• European entities formed under EU law.
• uropean economic interest groupings (EEIGs)
• European public limited liability companies, known as ‘societas Europaea’ (SEs)

Following the UK Government guidance, SEs and EEIGs registered in the UK can make alternative configurations before 1 January 2021.

For instance, an SE can convert to a UK public limited company (PLC) if it has:

• had 2 sets of annual accounts approved. (*)
• been registered for at least 2 years
• EEIGs and SEs and can also move their seat of registration from the UK to another EU member state.

Any entities that have not completed the conversion process before the exit day, will automatically converted to a new UK corporate entity.

(*)We understand the last two annual accounts

Cross-border mergers

From 1 January 2021, UK companies will no longer be able to make use of the EU cross-border merger rules. Therefore, any cross-border merger involving a UK and EU company (or partnership) that has not been completed before exit day may fall.

Uk companies who would like to merge with another company outside of the UK will need to transfer liabilities and assets through contractual arrangements. This means following the same process that the UK has currently with non- EEA companies.

EEA companies: Filing and disclosure changes

After exit day, the UK will no longer be part of the EU.

The main changes relating to filing requirements will impact on EU-registered companies which have registered a UK establishment and UK companies who have appointed services from an EU corporate officer. In both cases, those companies will need to provide additional information to Companies House.

The Government is in the process to laying all necessary Statutory Instruments that will ensure the UK´s company law regulations is up to date with the UK´s status outside the EU.

Written by Laura Gallego Herráez.

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