Earlier this year, on March 29th, article 50 of the EU Treaty was triggered by the UK following the Brexit referendum. Much has been written in the past months about its implications, be it a hard or a soft Brexit, but whatever the scenario, it seems that in the long run, too many things will change that require action from many actors of the UK economy willing to continue to do business with or inside the EU. The reality is that, although the starting point is mostly the same from a regulatory point of view, chances are that as time passes, subtle initial differences will become major in the long run. Therefore, the answer to “when should I consider establishing a European Branch?” is now. Not tomorrow, and certainly not after the Brexit day in case it is a hard one. We aim not to discuss the Brexit, but rather why Spain was, is and will be a very good choice for the financial services industry.
Talk about referendums…
both the economic and financial stability are completely guaranteed, and Spain is a country where the rule of law applies
In the past weeks, a lot of noise has been made with regards to the so-called referendum for the independence of Catalonia. Regardless of one’s position on the matter, the Kingdom of Spain is a consolidated and stable democracy. Spain became a member of the NATO in 1982, membership that was confirmed by a referendum held in 1986, one year after it signed the European Economic Community treaty. Of course, Spain adhered to the Eurozone (by meeting its economic and regulatory requirements) since its inception in 1999. The simple fact is that both the economic and financial stability are completely guaranteed, and that Spain is a country where the rule of law applies, both its ones and those of the EU. Just as in France, Germany or Belgium. And, needless to say, with a much better climate.
Of course, as of today, no one is able to predict exactly how and when this will end. But in reality, the real economic impact that is currently taking place will be extremely quick to recover in national terms, given Spain’s economy globalisation.
Yes, there is uncertainty, the single most dangerous enemy of entrepreneurship and investment. And yet, this gives room for a lot of opportunities that nobody should overlook given, as mentioned, Spain’s undoubted stability in the short and long run.
But where is the financial industry?
today, the financial services industry is online
When it comes to financial services, two places arise very rapidly in one’s mind. Frankfurt, (ECB’s headquarters) and Luxembourg, which is one of the most developed marketplaces. But being close to the ECB in Frankfurt or the ESMA in Paris does not really mean an added value. The truth is that, today, the financial services industry is online. Physical proximity is no longer an issue given the geographical size of Europe, where no major city is more than 3 hours away and people have got accustomed to check many things out of a smartphone or a tablet.
So, given that all the big European capitals have a very well developed financial industry, with qualified human capital, once the financial regulations (which are basically the same across the Eurozone) and the availability of trained personnel taken out of the equation, what remains is mainly infrastructure, tax regime and, last but not least, quality of life.
Infrastructure, taxation and quality of life. Madrid has it all.
Madrid nearly halves the workplace cost per employee than that of Paris
And, under all these aspects, Madrid is probably one of the best possible choices, if not the best. In terms of infrastructure and cost, only Amsterdam, Dublin, Berlin and Brussels are cheaper in Prime Grade A office rental prices than Madrid, which nearly halves the workplace cost per employee than that of Paris. Its excellent public transport system allows access to almost any peripheral area of the city, where some of the main business parks and business areas are located. Most of them are accessible to the main axis and main roads, also. According to Savill’s European Cities 2017 report, Madrid ranks second in the available stock of prime real estate. Madrid airport ranks 5th in the EU in terms of passengers carried (50 m transited during 2016). Indeed, it is the hub to connecting with Africa and the major market that Latin America represents, which has an enormous cultural proximity to Spain.
Although Spain is generally considered as a “medium” level country in terms of tax regime, it has however the tax equivalent of the Luxembourg holdings, for example, as well as an extremely attractive regime for alien impatriation if certain conditions are met. Madrid on its side has some specificities concerning for example successions and donations taxation (with an exemption of 99% of the tax for the heirs). Of course, there is still a big difference with Ireland, but the other advantages far outweigh the low corporate income tax and make it an investment friendly city. It is to be noted also that near 300.000 British retired people already live in Spain, therefore creating an additional niche.
With plenty of international schools (the UK, France, Germany and Italy have all excellent representations in that sense), Madrid is one of the cheapest cities of Europe to accommodate staff. A mainly urban spirit, that offers a wealth of cultural, leisure and sporting activities make it attractive both to live in and to work in. It also offers several world heritage sites and some of the world’s best collections of art (Prado, Thyssen-Bornemisza and Reina Sofia Museums), not to mention the renowned Spanish cuisine and a vibrant night-life. When you add that the OCDE recognizes Spain as the second best country in terms of its work / life balance, the 7th best in the world in which to be a mother according to Save the Children and that the cost of living is one of the most accessible among large European capitals, it is clear that it is the city to consider. Indeed, Madrid is a very good choice.