Business & Economy
Spainwide Business Newsletter, July 2003
By Thomas Leacy
Sep 2, 2003, 02:40

1. Suspension of Payments and Bankruptcy

A suspension of payments occurs when, although debtor's assets exceed his liabilities, because of cash difficulties he/she is temporarily unable to meet his/her current obligations. To obtain a declaration of suspension of payments, application must be submitted to the judge, with an inventory of stock, a list of debts and an explanatory report on reasons for the application. Suspension of payments is considered as "provisional insolvency" when a tradesman's assets exceed or equal his liabilities, and as "definite insolvency" if his liabilities exceed assets. The judge convenes the creditors to consider and approve an agreement, which may consist of a partial release, an extension, or both. During the suspension of payments and until agreement is reached, the debtor's business is controlled.
The declaration of bankruptcy is applicable when the debtor's liabilities exceed his assets. In this case, either of two different legal procedures may be followed. Under the first, the creditors intervene to collect all the bankrupt's credits and to sell them, after they have been classified to determine their order of priority. Under the other procedure, the bankrupt's possible liability is determined. Bankruptcy may be either fortuitous, guilty or fraudulent. In last case, criminal proceedings may be instituted against the bankrupt.

2. Tax Exemptions on Termination Payments

Termination or severance payments (indemnizaciones) are exempt from taxation up to the limits set out in the Workers’ Statute (Estatuto de los Trabajadores). After that point any further money received is taxable. The limits are as follows: 1) Unjust Dismissal (Despido Improcedente): 45 days’ pay per year worked up to a maximum of 42 months 2) Dismissal on Objective Grounds (Despido Objetivo): 20 days’ pay per year worked up to a maximum of 12 months 3) Termination by Common Agreement, Just Dismissal (Despido Procedente) or Resignation: the law provides for no legal right to termination payment, therefore any money paid out will be taxable. However it will be considered an irregular payment and as such it will be subject to a reduction of 30% of its taxable base as is the norm with these types of payments.
Further to the above, it is important to note that these exemptions will only apply when it is considered that there has been a real severance of the labour relationship (desvinculación) between the parties. Specifically it is considered that this has not occurred when the same worker returns to work with the same company or one closely connected to it, in a period of less than 3 years.

2. Invoice Requirements

In order for an invoice (factura) to be considered valid it needs to include at least the following:
1. Number and series (if there is more than one series)
2. Full name of person or entity of both parties (buyer and seller)
3. VAT number (N.I.F. or C.I.F.) of both parties
4. Description of the operation and the cost. If the operation is subject to VAT (I.V.A) you also need to indicate the rate applied and the amount due. If the operation includes different rates of VAT, the invoice should indicate the base for each, the rate applied and the amount of VAT due on each base.
5. Date and place of emission.

It is also customary to include the address of both parties as well as the word “factura” to differentiate it from other similar documents (albaranes, notas de entrega etc.).

For more information on these or other business or legal matters in Spain, please contact Thomas Leacy, Spainwide Business Services, Tel:34 91 547 1254 for a personal interview.

© Copyright 2003 by & Thomas Leacy