Business in Spain
Business Set Up
Not everyone who comes to live in Spain is of retirement age, some come with a view of starting afresh, giving the kids a better lifestyle, getting out of the rat race and generally enjoying life a bit more.
Looking for work isn’t easy in Spain especially if you don’t speak the language and although in recent years the unemployment rate has been going down, it’s still relatively high at 21%. Also, wages tend not to be as high as in other countries across Europe and contracts are hard to get.
Of course, you could always avoid the problem altogether and set up your own business, after all, nothing beats the satisfaction of building your own company and doing your own thing with no one but yourself to answer to.
When thinking of setting up for yourself it is imperative that you seek professional advice and assistance, not only is the process complex and very different from in the UK but errors could become costly with fines and penalties mounting up.
A good accountant is a financial investment that could not only stop costly mistakes but could also save you money by giving you access to new business start up loans and deductions.
Who can start a business in Spain?
In order to start a business, you must first have the right to live and work in Spain.
If you’re an EU citizen, the principle of free movement automatically gives you this right, all you need to start is an NIE number, if you’re not an EU citizen, you’ll also need to have a valid visa and work permit.
Regulated professions and businesses
Certain professions and types of business – lawyers, architects, healthcare professionals and financial services, to name a few – are heavily regulated. You’ll need to make sure you comply with the applicable rules before you can start trading.
Very often, the process will involve getting your qualifications officially accredited or recognised (called homologación). Depending on your profession or the type of business you want to carry out, you may also need to apply for a licence.
Rules may vary from region to region, so it’s a good idea to check out both national rules and the rules of the region you intend to base your business in ahead of time.
How do I start a business in Spain?
There are three different business categories in Spain:
Sole Trader
Operating as a sole trader is probably the easiest, cheapest and most flexible way to start a business, especially if you run your business on your own. It’s also the most straightforward way to set up.
Partnership
If you plan to go into business with one or more people, but you still want your structure to be flexible, you can run your business as a partnership. Like sole traders, partnerships don’t require a minimum investment for the set up. However, the process is a bit more time-consuming and expensive.
Limited Company
Out of the three legal forms available, a limited company is the most complex, formal and expensive to set up and run. It also has a number of distinct advantages over the other forms, including limited liability and more favourable taxation (if you earn more than a certain amount). Some types of business must be run as a limited company by law.
Sole Trader
In order to start operating as a sole trader you will need to do three things:
- 1 Register with the Spanish tax office (the Agencia Tributaria)
- 2 Register for social security (Seguridad Social)
- 3 Get a license (if your profession is regulated)
Registering for tax
This has to be done at the local tax office where you will have to complete modelos 036 or 037, (depending on your circumstances) and will be given a tax certificate, called an IRPF.
Empresa individual or autonomo?
When you register with the Spanish tax authorities, you’ll be asked whether you’re a sole trader (empresa individual) or a freelance professional (profesionales autonomos). The distinction is important because of the Spanish retention system (retenciones).
As a freelance professional, your clients retain a percentage of your invoice and pay it to the tax authorities on your behalf as an advance on your tax payments. These amounts are then credited when you fill in your annual tax return, the same doesn’t apply if you’re a sole trader.
Healthcare
If you live and work in Spain and make social security contributions, you’re entitled to free healthcare, although, as a self-employed person, you’ll need to join a health insurance fund (mutua) via the social security authorities. Your health plan will also cover any dependent family members living at your address.
Other formalities
Whether you’re a sole trader or a freelance professional, you’ll need to file a personal income tax return each year, as well as quarterly returns, you will also need to keep copies of invoices and receipts for all expenses you intend to deduct on your annual return.
How is my business taxed?
As a sole trader, you pay your taxes in one of two ways, depending on whether you’re an empresa individual or an autonomo.
If you’re an empresa individual, you’ll need to pay tax on a quarterly basis, on the other hand, if you’re an autonomo, the retention system applies, and clients will retain a percentage of your invoice and pay it to the tax authorities on your behalf.
Either way, you’ll have to file a tax return at the end of each financial year. This is the same tax return filed by any Spanish citizen or resident. Your return should include all your income for the year (whether from your business or otherwise) and any allowances and deductions.
Partnership (Sociedad Civil)
If you plan to go into business with one or more people, but you still want your structure to be flexible, you can run your business as a partnership. Like sole traders, partnerships don’t require a minimum investment for the set up. However, the process is a bit more time-consuming and expensive.
There are two types of partnership in Spain, a general partnership (sociedad general) and a limited partnership (sociedad comanditaria). Each has their own special requirements and come with different rights and responsibilities. Either way, you’ll need to do the following to set one up:
- Create a partnership agreement and sign it before a notary
- Include the words Sociedad Civil in your business name (if you have a partnership agreement in place)
- Register with the tax authorities
- Register for social security
- Apply for any licences (including an opening licence for your business premises)
A partnership agreement isn’t strictly required. However, it’s good to have, as it regulates the relationship between you and your business partners and outlines your responsibilities. This is especially helpful if things go wrong, or you have a disagreement.
How is my business taxed?
Each partner is responsible for paying their own income tax. You’ll need to declare your partnership income in your personal tax return, and the same allowances and deductions will apply as if you were a sole trader.
Limited Company
Out of the three legal forms available, a limited company is the most complex, formal and expensive to set up and run. It also has a number of distinct advantages over the other forms, including limited liability and more favourable taxation (if you earn more than a certain amount). Some types of business must be run as a limited company by law.
Types of limited companies
In Spain there are six types of limited company you can choose from. The main differences between them are the minimum number of shareholders required and the minimum amount of money you have to invest.
Whichever type of limited company you choose, you’ll need to follow the following steps:
01
Hire an accountant
Setting up a company is a complicated process and Spanish law differs considerably from the UK which why it is so important to consult with a professional. Your accountant can help you decide if forming a company is right for you, advise you on the exact requirements and help you throughout the process.
02
Certificate of uniqueness
Once you’re positive setting up a company is right for you, you need to check if the name you’ve chosen is available. You’ll also need to obtain a certificate to confirm this from the Mercantile Registry. On average, it takes three days to get an answer.
03
Get a Tax Identification Code (CIF)
A company is classed as a “legal person” in its own right, so you’ll need a tax identification code that’s specific to it.
04
Opening a bank account
Next, you’ll need to open a business bank account in the name of your new company and deposit the minimum investment amount. This will vary depending on the type of company you have chosen, once that’s done your bank will need to give you a certificate that proves you’ve made the payment.
05
Public deed of incorporation
The deed of incorporation is the document that sets up your company. It includes information such as the name of your company, its official address, the nature of your business, names and addresses of all shareholders, names and addresses of its officials (directors, company secretary and key officers) and so on. It will also have information on how the company is run. The deed must be published by a notary and is accessible to the public.
06
Register your company
In order to register your new company, you’ll need to do three things.
- Take the original deed to your local tax authority and have it stamped.
- Take your stamped deed to the Mercantile Registry for filing in the official registry of companies.
- Once you have received confirmation of registration, you’ll need to make another trip to your local tax office to obtain your final CIF number.
07
Register with the social security authorities
As a director, you’ll need to register with the social security authorities on behalf of the company.
08
Other formalities
Finally, you’ll need to take care of some other minor formalities. These include setting up proper accounting books, including VAT books, obtaining licenses necessary to operate your business, including an opening licence for your business premises and notifying the regional authorities etc.
How is my business taxed?
You have to pay Spanish corporate income tax on all the company’s income worldwide. Tax is due on your company’s net profits, after all allowable deductions are made.
VAT (IVA)
Unless you run a VAT-exempt business (teaching, for example), you’ll need to register for VAT. This applies whether you’re a sole trader, a partnership or a company; and no matter how little money you make. In Spain, VAT is charged at 21% (as of August 2017). However, some types of goods and services may attract a lower rate of 10% or even 4%.
You’ll need to submit periodic VAT returns, as well as an annual return and comply with specific accounting and invoicing requirements.
Social Security contributions
If you’re a sole trader or a member of a partnership, you’ll need to make your own social security contributions. These payments will entitle you to free healthcare and a pension if you pay social security for at least 15 years.
The minimum amount works out at about €265 a month. You can however choose to pay more in exchange for extra benefits, including a higher pension and extra insurance.
You’re exempt from paying social security if you earn less than €9,000 a year, however, if you don’t pay social security you won’t get any benefits, so it’s a good idea to make the payments anyway.
Companies are also obliged to make social security contributions. One director must register with the RETA and make contributions on the company’s behalf.
Tax And Social Security As An Employer
If you’re an employer, you have to make social security contributions on behalf of your employees. These contributions currently amount to 29.9% of an employee’s gross salary, plus a variable rate to cover occupational hazards, you’ll also need to deduct taxes and social security contributions from your employees’ salaries.