How to start a business in Spain

28.02.17
11 minute read

With incredible weather, affordable lifestyle, friendly locals, and quite an international community, life in Spain can a nice place to live. However, finding work may get a bit tricky.

Though 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.

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.

This guide will help you figure out how to go about it.

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. However, you’ll still need to obtain your Número de Identificación de Extranjero (NIE).

An NIE is your unique Spanish tax identification number. You’ll need it to pay your taxes and for anything else that requires an official process, including renting or buying property, getting connected to utilities and opening a bank account.

You can apply for your NIE in person once you’re in Spain or, even better, get it ahead of time via the Spanish embassy or consulate in your home country.

If you’re not an EU citizen, you’ll also need to have a valid visa and a valid work permit.

Spanish work permit application

If you need a work permit and plan to start your own business, there are certain rules you must follow.

You have to apply for your permit at the Spanish embassy or consulate in your home country. Besides the application, you’ll also need to provide the following documents:

  1. a business plan (if appropriate)
  2. evidence that you have enough money to invest in your business and support yourself
  3. proof of your skills or experience
  4. copies of any business contracts or commissions
  5. any applicable licence or registration
  6. information about the potential to create employment in Spain

You’ll have to renew your work permit and prove you still fulfill all these conditions every year. However, after five years you can apply for long-term Spanish resident status.

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 can I do business in Spain?

Once your personal legal status is in order, it’s time to decide your business’s legal form. In Spain, you have three main options:

  1. Sole Trader
  2. Partnership
  3. Limited Company

Let’s have a look at what each involves.

1. Sole trader

Operating as a sole trader is probably the easiest, cheapest and most flexible way to start doing business, especially if you run your business on your own. It’s also the most straightforward business to set up.

In order to start operating as a sole trader in Spain, you’ll 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 licence (if your profession is regulated)

Registering for tax

You can register for tax by visiting your nearest tax office with your valid, unexpired passport and your NIE.

You’ll be asked to fill in a form (Modelo 036 or 037, depending on your circumstances) and given a tax certificate, called IRPF, which you should keep in a safe place.

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 (currently set at 18%) 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 system doesn’t apply if you’re a sole trader.

Registering for social security

You must register for social security under the special regime for autonomous workers (RETA) within 30 days of registering with the tax authorities.

In order to register, you’ll need the following:

  1. your passport
  2. your NIE number
  3. a copy of your Modelo 036 or 037 form
  4. your IRPF form

You’ll also be asked to fill in a form.

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’ll also need to keep copies of invoices and receipts for all expenses you intend to deduct on your annual return.

Depending on the type of business and the region you live in, you may also have other periodic filing requirements. It’s best to consult with a lawyer or accountant, as failing to comply with these requirements will often result in fines and other penalties (including criminal liability).

2. 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 to be set up. However, the process is a bit more time-consuming and expensive.

There are two types of partnership in Spain: general partnership ( sociedad general ) and limited partnership ( sociedad comanditaria ).

Each have their own special requirements and come with different rights and responsibilities. Either way, you’ll need to do the following to set one up:

  1. create a partnership agreement and sign it before a notary (a lawyer can draft this for you)
  2. include the words Sociedad Civil in your business name (if you have a partnership agreement in place)
  3. register with the tax authorities
  4. register for social security
  5. 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.

3. 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.

Sociedad Anonima (SA) Sociedad limitada Nueva Empresa (SLNE) Sociedad Limitada (SRL / SL) Sociedad Laboral Anónima Sociedad Laboral Limitada Sociedad Cooperativa
Number of Shareholders 1+ Not more than 5 1+ 3+ 3+ 3+
Minimum Investment €60000 €3000 - €120000 €3000 €60000 (workers must own 51% of shares) €3000 (workers must own 51% of shares) €1800

Limited company formation: A step-by-step guide

Whichever type of limited company you choose, you’ll need to follow the following steps.

Step 1 - Hire a lawyer or accountant

Setting up a company is a complicated process; and Spanish law may differ substantially from the laws of your own country. It’s very important to consult with a professional.

A company lawyer or 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.

Step 2 - Certificate of uniqueness

Once you’re sure 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.

Step 3 - Get a Tax Identification Code (CIF)

A company is a legal person in its own right, so you’ll need a tax identification code that’s specific to it.

You can apply for a CIF by downloading the form from the Agencia Tributaria’s website. You’ll need to return the form at your local tax office in person, together with the original and a copy of your NIE.

Step 4 - 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, ask your bank to give you a certificate that proves you’ve made the payment.

Step 5 - 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. You’ll also need to give the notary originals and copies of your tax forms, certificate of uniqueness, NIE and bank certificate.

Step 6 - Register your company

In order to register your new company, you’ll need to do three things.

  1. Take the original deed to your local tax authority to have it stamped.
  2. Take your stamped deed to the Mercantile Registry for filing in the official registry of companies. This process should take about 15 days.
  3. Then, once you receive confirmation of registration, you’ll need to make another trip to your local tax office to obtain your final CIF number. Once again, you’ll need to take the original and copies of your deed and NIE with you.

Step 7 - Register with the social security authorities

As a director, you’ll need to register with the social security authorities on behalf of the company.

This involves a visit to your local office with originals and copies of your deed of incorporation, NIE, tax forms and form TA0521.

Step 8 - 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 any licenses necessary to operate your business, including an opening licence for your business premises
  • notify the regional authorities

Summary

Sole Trader Partnership Limited Company
Setup Easy Moderate Hard
Deed Not necessary Optional but recommended Obligatory. Must be notarized.
Tax Personal Personal Corporate
Minimum Investment No No Yes. Variable, depending on type of company.
Formalities Low. Quarterly returns. Some additional formalities may apply. Moderate. Depends on type of partnership chosen. High. Regular monthly, quarterly and annual filings. Must hold regular meetings and keep minutes.

How is my business taxed?

Of course, if you run a business, you’ll have to pay taxes. Your tax liability will depend on whether you’re a sole trader, a partnership or a company.

Sole Traders

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 at a rate of 19%. On the other hand, if you’re an autonomo, the retention system (explained previously) 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.

Personal tax-free allowances include a €5,500 personal allowance and child allowances. You can deduct business expenses if they are entirely business-related, recorded in your accounting books and backed up with invoices or receipts.

Once you complete your return, you’ll either have to pay more tax or qualify for a refund, depending on how much you paid upfront during the year.

Partnerships

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 Companies

Limited companies pay corporation tax. 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. These include:

  1. financial expenses up to €1 million or 30% of your company’s operating profit (whichever is less)
  2. bad debts
  3. depreciation (decrease in value of business assets over time)

The general rate of tax is 25%. However, newly formed companies pay 15% tax on the first €300,000 and 20% on the remainder for the first two years.

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%. 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. You’ll also need to 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. You’ll also get 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.

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Summary

Sole Trader Partnership Company
Income Tax Individual - sliding scale. (9.5% - 22.5% national tax + regional taxes) Individual - sliding scale. (9.5% - 22.5% national tax + regional taxes) 25% corporate tax
VAT 21% 21% 21%
Social Security Approx. €265 per month minimum + contribution if employer Approx. €265 per month minimum + contribution if employer Director to register on behalf of company + contribution if employer
Allowable Deductions Personal allowances and business expenses Personal allowances and business expenses As per company law rules

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