Regional incentives take the form of financial aid (e.g., non-refundable subsidies, subsidies for the repayment of loans, reductions in the employer’s social security contribution for common contingencies) granted to regions by the State, in accordance with EU limits and requirements, for productive investment in the pursuit of business activities in certain areas of Spain, with a view to aiding in the alleviation of territorial imbalances and the reinforcement of the native potential of the most underprivileged regions.

The specific definition of eligible areas, maximum financing limits, and of the specific industry requirements, eligible investments and conditions, are regulated in the respective Royal Decrees demarcating Economic Development Areas.

The aforesaid Royal Decrees were prepared on the basis of the contents of the “Guidelines on National Regional Aid for 2007-2013” approved by the European Commission and having regard to which the Commission establishes an aid map for each Member State.

In connection with the preparation of the aforesaid map, please note that as a result of (ii) the so-called “statistical effect” arising from the incorporation of new EU Member States and (ii) Spanish economic development in recent years, some regions which were deemed eligible for subsidies in the 2000-2006 period have either exceeded the income threshold established for being regarded as eligible regions in this period or seen a reduction in the total incentives that can be granted for projects investing in the region.

In order to mitigate the adverse effects of this situation, in the Regional Aid Map (2007-2013) for Spain, the European Commission provided for two three-year periods (2007-2010 and 2011-2013), the first period being allocated higher aid limits than the second for regions affected by the aforesaid “statistical effect”.

According to the Map, the Spanish regions in which the granting of greater incentives is admitted, up to approximately 40% of the eligible investment, are the Autonomous Communities of Extremadura, the Canary Islands and Andalucía. The Autonomous Communities of Castilla-La Mancha and Galicia also deserve special mention, since aid of up to 30% of the eligible investment is permitted.

In the context created by the “Guidelines on National Regional Aid for 2007-2013 period ” and by Royal Decree 899/2007, of July 2006, implementing the Regional Incentives Law of December 27, 1985, the Government approved Royal Decrees, throughout 2007 and 2008, defining the Economic Development Areas (geographical areas of the State with a lower level of development) with a view to bringing them into line with the limits set in Community legislation, and with the content of the new Regulation.

In general, eligible projects are those aimed at (i) creating new establishments that generate new jobs; (ii) expanding existing activities or starting up new activities in the same establishment; and (iii) modernizing the business. These projects must refer to an eligible sector and activity and be located in one of the areas designated in the respective Royal Decree.

A large number of Spanish Autonomous Communities provide, on a smaller scale, incentives similar to those described above for investments made in their respective region.

For more information on Investment aid & incentives, you can download the following document:

Investment aid and incentives (1572kb.)

Prepared by Garrigues

Last updated: 20|07|2010