Setting up a business
1. Main types of business
Self-employed – known as “autónomos”, registration has to be made with Hacienda (the Spanish tax authority) and the Social Security. Most autónomos have to present quarterly IVA returns (Spanish sales tax) and an annual income tax return (I.R.P.F.). Other sundry returns and declarations are frequently applicable on a quarterly and annual basis, according to circumstances.
Limited Company – several types exist but the commonest form is the “Sociedad Limitada” or S.L. that can be set up with a minimum capital of €3,006. Though important in protecting the owner(s) from personal liability in the event of bankruptcy, its incorporation does imply a number of additional tax, accounting and mercantile obligations. In addition, in recent years the authorities are taking much closer interest in who/what is behind the company to ensure that it has a legitimate purpose and is not fraudulent. Now the shareholders need to apply for a NIE and the “administrador”, or company representative, will have to demonstrate having an address in Spain. For an EU passport holder this can be achieved without undue difficulty though adding to costs and the time required from start to finish. Without an EU passport the proceedure becomes very complicated.
Branch office – similar to a limited company though less formalised, this can be used by an overseas business to establish a presence in Spain and in certain circumstances can be a viable alternative to a limited company.
2. Employees and staff
Hiring employees involves a lot of paperwork (work contract, registration, social security, tax retentions, payslips and annual certificates etc) and business social security contributions can be extremely expensive. So, think twice before putting staff on the payroll. Alternatively, hiring a freelancer may be cheaper but it also supposes certain obligations on the business as regards tax retentions and declarations to Hacienda. The penalties for ignoring them can be harsh.
3. Cash planning
A new business always needs more money than you think until it becomes self-financing. Prepare a detailed cash budget for at least the first 6 months and remember that credit sales mean nothing until collected - while they remain unpaid you’ll need another source of income to finance your outgoings.
4. Beware of local lawyers & “gestores”
There are thousands of “gestores” in Spain (they handle all administrative and bureaucratic red tape), all offering much the same service. However, be careful in choosing the right one because not all give good advice and most do not speak foreign languages, which frequently leads to misunderstandings and doubts. Most want to sign you up for a monthly fee, providing a service that may be unnecessary, plying on a foreigner’s lack of experience and knowledge about procedures and obligations in Spain.
5. Finally, talk to a solicitor to get good, independent advice. They will explain what sort of business entity you really need to set up and what to do about taxation, payrolls and bookkeeping.
