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How to set up a Spanish company

Spain offers diverse business opportunities across various sectors due to its strong and dynamic economy. Key industries with significant growth potential include Information Technology Services, E-commerce, Interior Designing, Insurance, Pharmaceutical Business, Organic Farming, and Cloud Kitchens. The country’s diverse geography also supports agricultural activities, making it a leading producer of olives, wine, and citrus fruits. In addition, cities like Barcelona and Madrid are emerging as tech hubs, presenting numerous opportunities for tech startups and digital services.

Table of contents

    Benefits of starting a business in Spain online

    1. Strategic Location and Partnerships: Spain serves as a gateway to the Europe, Middle East, and North Africa (EMEA) region and has strong economic ties with Latin America. As a member of the European Union (EU), it provides preferential access to one of the world’s largest markets, making it an excellent base for international business.

    2. Welcoming Foreign Investment: The Spanish government offers favorable business regulations and incentives, making it easier for foreign companies to invest and establish themselves. This welcoming environment has made Spain one of the top destinations for foreign direct investment in recent years.

    3. Vibrant Infrastructure: Spain boasts advanced infrastructure, including efficient transport networks, ports, railways, and a well-developed telecommunications system with extensive fiber-optic networks. This robust infrastructure supports various business operations and makes it an attractive location for companies looking to expand.

    These elements make Spain a compelling choice for entrepreneurs and businesses seeking growth opportunities and a strong presence in Europe.

    Choosing the right business structure

    Sole Proprietorship (Empresario Individual)

    A sole proprietorship, known as “Empresario Individual,” is one of the simplest business structures in Spain. It is operated under the owner’s name, who has complete authority over the business. While this structure allows for full control and minimal paperwork, it comes with unlimited liability, meaning the owner’s personal assets could be at risk if the business incurs debts. There’s no minimum investment required, and the income is taxed as personal income.

    Limited Liability Company (Sociedad Limitada or S.L.)

    The Limited Liability Company (S.L.) is a popular choice among both local and foreign entrepreneurs in Spain. It offers the benefit of limited liability, protecting shareholders’ personal assets from business debts. An S.L. can be formed with a single owner or multiple partners, requiring a minimum capital investment of €3,000. The shares of the company cannot be freely transferred, and corporate tax is applicable. This structure offers credibility and flexibility but involves more regulatory requirements than a sole proprietorship.

    Public Limited Company (Sociedad Anónima or S.A.)

    The Public Limited Company (S.A.) is suitable for larger ventures and companies planning to go public. This structure allows the capital to be divided into shares that can be transferred freely, making it easier to raise funds. It requires a significant initial investment of €60,000 and is subject to stricter regulatory requirements, including regular audits. The shareholders’ liability is limited to their contribution, and the company is taxed at the corporate tax rate.

    General Partnership (Sociedad Colectiva)

    A General Partnership is ideal for small-scale commercial ventures where two or more partners share management responsibilities. Partners have personal and unlimited liability for the company’s debts, and there is no minimum capital requirement. This structure is suitable for businesses where the partners have a high level of trust and are actively involved in the company’s operations.

    Limited Partnership (Sociedad Comanditaria)

    A Limited Partnership consists of two types of partners: general partners, who manage the company and have unlimited liability, and limited partners, who only invest in the business and have no influence over its management. Limited partners’ liability is restricted to their investment. This structure requires at least two partners and does not have a minimum capital requirement.

    Branch Office vs. Subsidiary

    For foreign companies, establishing either a branch office or a subsidiary in Spain is an option. A branch office is an extension of the parent company and does not require a minimum starting capital, but it has limited independence. In contrast, a subsidiary is an independent legal entity with separate management and requires forming an S.L. or S.A. This distinction allows for more operational flexibility and the ability to operate as a standalone entity in Spain.

    How to register a company in Spain online

    1. Obtain a residency and NIE (Número de Identificación de Extranjero)

    Before registering a company in Spain, you need to obtain a residency permit and the NIE, which serves as your identification number. This number is essential for all legal and financial activities, such as opening a bank account and paying taxes. You can apply for an NIE at the Spanish consulate in your home country or within Spain, and the process typically takes 3-5 working days.

    2. Register the business name

    To ensure your company’s name is unique, you must register it with the Central Commercial Registry (Registro Mercantil Central). You’ll need to provide a list of three potential names, and the registry will confirm the availability. Once approved, you’ll receive a certificate of uniqueness, which will reserve the name for your company. This step usually takes about three days.

    3. Open a bank account

    Next, open a business bank account with a Spanish bank and deposit the minimum capital required for your chosen business structure (e.g., €3,000 for an S.L. or €60,000 for an S.A.). You’ll need to obtain a bank certificate as proof of this deposit, which will be used later in the incorporation process. This step ensures that your company has the necessary financial foundation to begin operations.

    4. Draft and prepare the deed of incorporation

    The deed of incorporation is a legal document that contains vital information about your company, such as its name, address, purpose, details of directors, and shareholders. You’ll need to have this deed signed by a local notary, who will verify its authenticity. The notary will also ensure that you have all necessary documents, such as the NIE, certificate of business name, and bank certificate.

    5. Appoint a legal and fiscal representative

    If you are a non-resident, it’s mandatory to appoint a legal and fiscal representative who will act on your behalf in all administrative matters. This representative will handle interactions with Spanish authorities and ensure compliance with local regulations. The appointment is made through a power of attorney, which allows your representative to manage legal, tax, and financial aspects of your business.

    6. Obtain required licenses and permits

    Depending on your business activity, you may need to apply for specific licenses and permits. For example, if you are opening a restaurant, you will need health and safety permits, while retail stores might require a local municipal license. It’s important to check with local authorities to ensure that you have all the necessary permits to operate legally.

    7. Register the deed of incorporation with the Local Tax Authority

    The final step is to register your deed of incorporation with the Local Government Tax Authority. This registration will certify your company as a legal entity in Spain, allowing you to obtain a permanent Corporate Tax Identification Number (CIF). After this, you’ll need to register your company with the Mercantile Registry to complete the incorporation process. Once completed, your business will be officially recognized and ready to operate in Spain.

    Understanding the taxation system

    Value Added Tax (IVA)

    Value Added Tax (IVA) is a consumption tax applied to most goods and services in Spain. The standard IVA rate is 21%, but there are also reduced rates of 10% for certain products, such as food and beverages, and 4% for essential items like bread, milk, and books. If your business provides taxable goods or services, you are required to register for IVA and regularly submit IVA returns. This applies even to small businesses, and compliance with IVA regulations is essential to avoid penalties.

    Corporate Tax (Impuesto sobre Sociedades)

    The Corporate Tax in Spain is imposed on the profits generated by companies. The standard corporate tax rate is 25%, but there are some exceptions. Newly formed companies can benefit from a reduced rate of 15% for their first two profitable years. There are also various tax incentives and deductions available, especially for activities related to research and development (R&D), as well as investments in certain sectors. Companies are required to file annual tax returns and make quarterly payments based on their estimated profits.

    Personal Income Tax (IRPF)

    Personal Income Tax (IRPF) is a progressive tax applied to individuals, including sole proprietors and company employees. For sole proprietors, business income is taxed under the IRPF system. The tax rates are progressive, meaning they increase as income rises, ranging from 19% to 47%, depending on the income bracket and the region in Spain. As a business owner, you may be eligible for certain deductions based on your expenses, family situation, or investments. Compliance with IRPF regulations requires submitting regular tax returns and payments throughout the year.

    Registering with Social Security

    Once your company is established, you must register with the Spanish Social Security system to operate legally and hire employees. This step requires submitting several documents, including the deed of incorporation, your NIE (Número de Identificación de Extranjero), CIF (Corporate Tax Identification Number), and form TA 0521, which is the official application form. You can register through the local social security office, and it is essential to complete this process before you begin employing staff. This ensures that your business and employees are covered under Spain’s social security system, which provides access to healthcare, pensions, and other benefits.

    Understanding employer contributions

    As an employer in Spain, you are required to contribute to social security on behalf of your employees. The total social security contribution rate is approximately 30%-35% of an employee’s salary, with the employer responsible for the majority of this amount. These contributions cover various benefits, such as healthcare, unemployment insurance, maternity/paternity leave, and pensions. It’s important to accurately calculate and make these payments to avoid penalties and ensure compliance with Spanish labor laws.

    By properly registering with social security and understanding your contribution obligations, you ensure that your business operates within legal requirements and provides necessary protections for your employees.

    Hiring employees in Spain

    In Spain, there are several types of employment contracts that cater to different employment situations:

    1. Indefinite contracts (contratos indefinidos): These are the most common and offer permanent employment without a fixed end date, providing stability for both employer and employee.

    2. Temporary contracts (contratos temporales): These are used for short-term employment needs, such as seasonal work or specific projects. They have a clear start and end date and are often used for roles that are expected to last less than six months.

    3. Part-time contracts (contratos a tiempo parcial): These contracts are for employees who work fewer hours than a full-time employee. The terms of employment, including working hours, are specified in the contract.

    4. Training and apprenticeship contracts: These contracts are designed for younger individuals who are still acquiring skills and training. They allow businesses to hire employees at a lower cost while providing training opportunities.

    It is crucial to choose the right contract type to ensure compliance with Spanish labor laws and to meet the needs of both the employer and the employee.

    Employee rights and benefits

    Employees in Spain are entitled to a range of rights and benefits:

    • Working hours: The standard working week is 40 hours, with a daily maximum of 9 hours. Employees have the right to rest breaks and at least 1.5 days of rest per week.

    • Paid holidays: Employees are entitled to a minimum of 30 calendar days of paid annual leave. In addition, there are around 14 public holidays, depending on the region.

    • Sick leave: Employees are entitled to paid sick leave, which is typically covered by social security, with varying compensation rates depending on the duration of the illness.

    • Maternity and paternity leave: Mothers are entitled to 16 weeks of paid maternity leave, while fathers are entitled to up to 12 weeks of paternity leave. Both leaves can be extended in cases of multiple births or adoption.

    • Severance pay: In case of termination, employees may be entitled to severance pay, which depends on the length of employment and the reason for termination.

    Social security contributions for employers

    Employers in Spain are responsible for contributing to the social security system for each employee. The employer’s contribution is approximately 30%-35% of the employee’s gross salary. These contributions cover benefits such as healthcare, unemployment insurance, pensions, and disability. Employers are required to deduct the employee’s share of the contribution (around 6.35% of their salary) and remit it along with the employer’s share to the social security system monthly.

    By adhering to these obligations, employers ensure compliance with Spanish labor laws and provide their employees with access to important social benefits and protections.

    Special considerations for foreign companies

    Foreign companies looking to establish a presence in Spain have the option to open either a branch office or a subsidiary:

    • Branch office: A branch office is an extension of the parent company and is not an independent legal entity. It allows the parent company to operate in Spain without the need to create a separate company. The branch office must be registered with the Spanish Commercial Registry and obtain a tax identification number (CIF). One advantage of this structure is that there is no minimum capital requirement, making it a cost-effective option. However, since it is not a separate legal entity, the parent company is liable for any debts or obligations incurred by the branch.

    • Subsidiary: A subsidiary is an independent legal entity that can operate as a Sociedad Limitada (S.L.) or Sociedad Anónima (S.A.). This structure offers more autonomy and limits liability to the subsidiary itself, protecting the parent company from financial risks. Establishing a subsidiary requires a minimum capital investment of €3,000 for an S.L. and €60,000 for an S.A. The subsidiary must comply with all local regulations, including corporate tax requirements and social security contributions.

    Choosing between a branch or a subsidiary depends on factors such as the level of control desired, liability considerations, and the scale of operations planned in Spain.

    Legal and fiscal representation requirements

    Foreign companies operating in Spain are required to appoint a legal and fiscal representative if they do not have a permanent establishment or physical presence in the country:

    • Legal representative: This individual or entity is authorized to act on behalf of the foreign company in all legal matters, including interactions with Spanish authorities and compliance with regulations. The representative should be familiar with Spanish laws and regulations to ensure smooth business operations.

    • Fiscal representative: The fiscal representative is responsible for handling the company’s tax obligations, such as filing tax returns, VAT declarations, and managing tax payments. This representative is mandatory for non-resident companies engaging in business activities in Spain.

    To formalize the appointment, a power of attorney must be granted to the legal and fiscal representatives, giving them the authority to manage administrative and financial matters on behalf of the foreign company. Having knowledgeable representatives ensures compliance with Spanish regulations and helps navigate the complexities of operating in a foreign market.

    Final tips for successful business registration in Spain

    Successfully registering a business in Spain requires thorough preparation and attention to detail. Here are some key tips to help you through the process:

    • Understand the legal requirements: Familiarize yourself with Spain’s business structures, tax obligations, and labor laws to ensure compliance. This will help you make informed decisions about the most suitable structure and avoid potential legal complications.

    • Prepare all necessary documentation: Gather and prepare all required documents in advance, such as your NIE, business name certificate, bank certificate, deed of incorporation, and other legal documents. Ensuring your paperwork is complete and accurate will help streamline the registration process.

    • Choose the right business structure: Carefully consider the pros and cons of each business structure (Sole Proprietorship, S.L., S.A., etc.) and select the one that best aligns with your goals, financial resources, and long-term plans.

    • Stay informed about tax regulations: Spain has specific tax obligations for businesses, including corporate tax, IVA, and social security contributions. Staying up-to-date with these requirements is crucial for maintaining compliance and avoiding penalties.

    • Utilize local resources: Make use of local business consultancy services, government agencies, and online resources to gain a deeper understanding of Spain’s business environment.

    FAQ

    Can I register a company in Spain if I’m not a resident?

    Yes, non-residents can register a company in Spain. However, you will need to obtain an NIE (Número de Identificación de Extranjero), and appoint a legal and fiscal representative to handle administrative and tax matters on your behalf.

    What is the minimum capital required to start a business in Spain?

    The minimum capital required depends on the type of business structure. For a Limited Liability Company (S.L.), the minimum capital is €3,000. For a Public Limited Company (S.A.), the minimum capital is €60,000, with at least 25% of this amount paid up front at the time of registration.

    What taxes will my company be subject to in Spain?

    Your company will be subject to various taxes, including Corporate Tax (Impuesto sobre Sociedades), which is generally 25%, Value Added Tax (IVA) at 21%, and social security contributions for employees. Sole proprietors will be taxed under the Personal Income Tax (IRPF) system, with progressive rates ranging from 19% to 47%.

    Do I need to register for VAT (IVA) when starting a business in Spain?

    Yes, if your business sells goods or services subject to VAT, you need to register for IVA. You will then be required to submit regular IVA returns, even if you run a small business.

    Is it mandatory to have a Spanish bank account to register a company?

    Yes, you need to open a business bank account in Spain to deposit the required capital for your company. A bank certificate confirming the deposit is needed for the incorporation process.

    Can I operate a business in Spain remotely without relocating?

    Yes, it is possible to operate a business in Spain without relocating. Appointing a legal and fiscal representative and handling administrative processes through power of attorney allows you to manage your business remotely. This option is ideal for foreign entrepreneurs who wish to establish a presence in Spain without physically moving.