You´ve had a good idea and want to set up a new business to make a bit of money…? What does this involve in Spain? EU citizens can set up a business once they have a NIE number (Numero de Identidad de Extranjero) and social security number. The simplest way then to run a business is to be a sole trader. This way you can either trade in your own name or as a business name. You may need to obtain an opening licence (Licencia de Apertura) if you have business premises.
Can you just see how the business goes without having to pay any mandatory expenses?
Unfortunately not legally. You are required to register with the Special Social Security scheme for self employed workers. You are then entitled to the local health service and if you pay for a certain number of years you may qualify to receive a pension.
You will have certain essential expenses, mainly tax, VAT (known as IVA), social security, your accountancy fees, insurance depending on your type of business, and running expenses.
IVA is Spanish sales tax and the general rule is that there is no exemption from charging IVA, the smallest business must charge IVA where applicable. In Spain you don´t need a VAT number as the NIE number is used as the equivalent.
Regarding tax: Registration has to be made with the Hacienda (the Spanish tax authority). A tax return for a self employed person is made annually in June (called I.R.P.F.). Besides Personal Income and Vat Returns, you may have other tax returns to present depending on whether you need to pay a rent retention for a business or whether you have employees.
Your fiscal representative can discuss this with you and will be able to discount expenses against income if you are a sole trader, so it is vital to collect the relevant factura receipts.
With regard to invoices (facturas) in Spain, even existing businesses are confused on what these must contain when they are asked to produce one. They should contain the following:
- Your company name, CIF or NIE for an Autonomo and address
- The customer´s full name, CIF (or NIF for Spanish or NIE for foreigners) and address
- An unique invoice number*
- The date
*The invoice must have a line for the amount before IVA is added as well as a line for the IVA itself.
The other major expense that we mentioned above that an Autonomo will have is Social Security. Autonomos are required to register with this scheme for self employed workers. (You are then entitled to the Spanish national health service after a certain period).
If you are not alone, two or more proprietors can set up a Comunidad de Bienes (CB). This is similar to a sole trader but, whilst each proprietor will pay their own income tax and social security contribution, the business makes the IVA return.
There are benefits to forming a company; a Sociedad Limitada (SL), or buying a ready-made one. It is less straight-forward and more expensive, but as the company is a legal entity, you may be protected if sued. Corporation tax rates are lower than the highest rate of personal income tax and you may be able to offset more of your business costs against your profits, which could reduce your tax liability.
If your business in Spain is structured as a company, you will need a name clearance certificate and to register the Articles of Association (Escritura) at the Mercantile Registry. A Notary needs to sign off the Articles of Association and you will have to register your company’s trading activities for tax and IVA. You will also have to pay pay stamp duty and the company needs a bank account with an initial share capital of E3,006 deposited. You have to pay social security for any employees and give them contracts.
This may sound quite daunting and in whichever manner you decide to start up your business, you will need the services of an accountant (gestoria). A sole trader set up, however, is not painful and, once the initial paperwork is done, you will be up and running and can get on with making some money.
Other types of business structures
Two or more proprietors can set up a Comunidad de Bienes (CB), similar to a sole trader but, whilst each proprietor pays income tax and social security contribution, the business makes the IVA return.
There are also benefits to forming a company; a Sociedad Limitada (SL), or buying a ready-made one. It is more expensive, but as the company is a separate legal entity, you may be protected from personal liability in the event of bankruptcy, and there can be tax benefits.
If you set up a company, it is more complicated and you are going to probably need help to do it. You will need a name clearance certificate and to register the Articles of Association. A Notary needs to sign them off and you will have to register your company for tax and IVA and to pay stamp duty. The company needs a bank account with initial share capital of E3,006 deposited.
Hiring employees involves a lot of paperwork (work contracts, registration, social security, tax retentions, payslips and annual certificates etc) and business social security contributions can be extremely expensive.
Each new worker should be registered with the social security authorities and his contract registered with the national employment service within ten days. If you don´t and your business is inspected by the labour authorities, you could be fined.
Paperwork to be kept to hand
On this point, you may be intermittently inspected by the Police Local as are other businesses and the paperwork that that you will be asked to produce is:
- The paperwork from the Town Hall regarding the business opening licence as we have premises
- The employees´ contracts
- The forms from the tax office that the company is registered (036/037)
Employees enjoy extensive rights, which include a minimum wage and and one month’s paid holiday and 14 public holidays (two of which are locally established).
The Spanish government is making considerable efforts to encourage employment stability. Permanent or indefinite or ‘fixed’ contracts are supposed to be the rule and temporary contracts the exception. Whichever type of contract you use, you must make sure that it complies with the minimum legal requirements for workers’ rights and you should obtain advice on this.
All contracts must, by law, be written in Spanish, so make sure that your adviser arranges a translation if you are not fluent in Spanish. Two copies of the signed contract must be sent off to the Employment Service, who will stamp and return them, one for the employee and one for your records. If you want to terminate an employee’s contract, you will need to tread with extreme care.
This all sounds quite daunting, but you will find that, once helped along by friendly professionals and friends, you will find your way through the system whether as a sole trader, or employing staff.