If you have been thinking of setting up a business in Spain it is essential you fully inform yourself of the different options available to you and exactly what each one entails. It is important to choose the option that best adapts to your business needs. This means finding the right balance between keeping the administration simple, protecting your personal assets and understanding how you will be taxed. There are many new opportunities in Spain, but to make the most of them you will almost certainly need specialist legal and accountancy advice. This is where we come in! In this article we will give you some guidance about the different types of business structures in Spain to get you started. Please feel free to contact us to set up a consultation in person or via phone/email for specific advice related to your business.

What type of Spanish business model best suits your needs?

The nature of the business you propose to establish will determine the type of business structure to be formed. The first legal choice to make is whether to form a company or to act as a sole trader.

There are different types of company under Spanish law, but the forms that tend to be most commonly adopted are the following:

• Sociedad Anónima: this is equivalent to a UK Public Limited Company or an American Corporation and requires a minimum share capital of €60,000.
• Sociedad de Responsabilidad Limitada: a Private Limited Company, which has a minimum share capital of €3,006.
• Empresario individual: a Sole Trader, where an individual manages the business, provides the capital and assumes the risk.
• Comunidades de Bienes: Community of Goods for Commercial Activities to which the Treasury gives a NIF number (Fiscal Identification Number), although it does not have a legal standing other than that of each individual owner. These Comunidades de Bienes are not a legal entity as such.

Sole traders or Community of Goods for Commercial Activities are personally responsible for any losses the business makes. This means your own possessions, including your home, could be at risk if you can’t keep up with the bills. In addition, you may also find it difficult to get financing to fund your business.

Members of a Sociedad Anónima or a Sociedad de Responsabilidad Limitada are protected from personal responsibility for business debts. Private companies limited by shares generally protect the individual from personal responsibility for business debts.

If you set up your business as a Sole Trader or as a Community of  Goods you will be taxed as self-employed and pay Personal Income Tax. 

Find out more about being self-employed in Spain (autónomo). 

Process for Setting up a Spanish Limited Company

• Choose a name for the company and apply to the Madrid Mercantile Registry for a certificate.
• Obtain a registration number for tax purposes.
• Pay a deposit of €3,006 into a Spanish bank account. This is the minimum authorised share capital. Evidence of payment can be obtained in the form of a bank certificate for delivery to the notary or lawyer showing the act of incorporation of the company.
• Draft the Articles of Association for the company according to its specific needs and sign the Articles before a Notary.
• Pay the Stamp Duty for the company’s address to the local government (comunidad autónoma).
• Register the company at the Mercantile Registry of its region.

Registering with the Tax Office

Once the company has been registered at Companies House, a copy of the title deed along with the original has to be submitted to the Spanish tax office in order to obtain a permanent registration number for tax purposes. This is done via a census return (forms 036 or 037) where you inform the tax office of company details, date of commencement of trade, description of activity, VAT liabilities, corporation tax and shareholders’ details.

Registering at the Social Security Office

After you have registered the company with the tax office, you then need to register the administrator at the social security office. Therefore, you will need to comply with certain procedural formalities at the local office of the Ministry of Labour and Social Affairs. Although there are different options, usually the director is the person registered as autónomo. There are various rates and options open to autónomos depending on their circumstances and economic activity classification. They all cost a minimum of approximately €275 a month. You will need to do this step using both the original and a photocopy of the deed of incorporation, your NIE (Foreigner Identity Number), form 036 and form TA 0521. You can obtain this last form at www.seg-social.es.

Other Requirements

Those are the bare minimum requirements for registering the company but there may be other steps to go through, depending on the type of business you are setting up. For example, anyone opening premises to the public will require an opening licence called a licencia de apertura. This is obtained from the local town hall and will be granted according to local bylaws.

Ongoing Obligations Applicable to all Companies

The obligations applicable to all companies are as follows:

• Corporation Tax and VAT (IVA) returns on a quarterly basis.
• Keeping up with social security payments (monthly).
• Issuing properly drawn-up invoices, including VAT where applicable, and income tax retentions where appropriate.
• Keeping accounting records according to the legal standard including income accounts, expense accounts, supporting invoices for expenses and accounts of capital items. These accounting records will be absolutely essential if you are selected for inspection by the tax office.
• A company also has to make financial information about the business publicly available by sending a copy of its annual accounts to Companies House.

Accounting Periods

Accounting periods for companies are the basis periods for corporation tax. Your first accounting period is when setting up the company. Accounting periods don’t have to be the same as the calendar year but they must not be longer than 12 months.

Starting up a business in Spain requires careful consideration to ensure you meet all the compliance requirements. It’s easy to get carried away and rush into starting up your business without taking the time to research the Spanish environment, or even without seeking professional advice.

As setting up a registered company in Spain is a lengthy and costly process, many people decide to start trading as a self-employed individual and set up a limited company if necessary further down the line. If you have considered all the options and concluded that self-employment is the best way for you, this is what you should expect.

Registering with the Tax Office

It’s important that you inform the tax office that you will be commencing a business activity before you start trading. This is done via a census return (forms 036 or 037) where you inform the tax office of your personal details, date of commencement of trade, description of activity, VAT liabilities and personal income tax method applicable to your trade.

The only real requirements are:

• a NIE (a foreigner identity number).
• a Spanish bank account (for the social security charges).
• a work permit (if from outside the EU).

Registering at the Social Security Office

After you have registered with the tax office, you then need to notify the social security office of your commencement of trade and register as a self-employed individual (Regimen Especial de Trabajadores Autónomos: RETA). From the moment you register, you will be liable to pay your monthly national insurance contributions so this must be factored into your monthly expenses.

Autónomo status is the Spanish equivalent of self-employed or freelance and in addition covers people operating (unincorporated) small businesses. Anyone engaged in any type of independent economic activity in Spain is obliged to register as autónomo, whatever their profession. The Spanish law is quite strict regarding this and everyone is obliged to register as self–employed, whatever their level of earnings.

However, it may be possible to opt out of paying autónomo social security if your earnings are sporadic and do not provide you with a proper living. Contact us to arrange a consultation in person or over phone/email if you need advice on whether you qualify for this exemption.

Other Requirements

Those are the bare minimum requirements for registering as self-employed but there may be other steps to go through, depending on the type of business. For example, anyone opening premises to the public will require an opening licence called a licencia de apertura. This is obtained from the local town hall and will be granted according to local bylaws.

Ongoing Obligations Applicable to all Autónomos

The obligations applicable to all autónomos are as follows:

• Personal Income Tax and VAT (IVA) returns on a quarterly basis.
• Keeping up with social security payments (monthly).
• Issuing properly drawn-up invoices, including VAT where applicable and income tax retentions where appropriate.
• Keeping accounting records according to the legal standard including income accounts, expense accounts, supporting invoices for expenses and accounts of capital items. These accounting records will be absolutely essential if you are selected for inspection by the tax office.