Ready to start your business or expand your current operation to Spain?
A highly sought-after location for companies looking to grow their business in Europe, the World Bank organization has Spain listed as the third most attractive country in terms of ease of starting a business. It is also a renowned international business and trade hub with access to the European, North African, and Middle Eastern markets. Additionally, the country has strong trade links with Latin America. Here are the important things you need to know when incorporating a company in Spain.
Type of Business Entities in Spain
Sole Proprietor or Self-employed (Empresario Individual or Autónomo)
Individuals intending on running a business in their own names should have their enterprise registered as a sole trader or proprietor. It is the easiest and most convenient entity to establish in Spain. The only fiscal obligations are to register for tax, Value-Added Tax (VAT), and social security as a self-employed worker and also for tax on your business activities.
Furthermore, there is no minimum investment amount required. You can start with whatever capital you are willing to put into the business. However, you are accountable for all the business debts. A limited liability company may be worth the extra steps if you are not willing to assume that kind of risk.
Limited Liability Company (Sociedad Limitada or SL)
A limited liability company, also known as Sociedad de Responsabilidad Limitada (SRL), is the typical form of a small and medium-sized company in Spain. It is popular because it is relatively simple to setup as only a small investment is required, and your liability is limited only to the amount invested in the company. On the other hand, you will be charged corporation tax and VAT on top of your tax and social security contributions.
For this kind of entity, the minimum share capital is €3,000, and it must have at least 1 shareholder, with a maximum number of 50.
New Enterprise Limited Company (Sociedad Limitada Nueva Empresa or SLNE)
The new enterprise limited company is a simplified form of the limited liability company. An SLNE differs from an SL when it comes to the number of shareholders and company naming convention.
To keep the company small, the maximum number of shareholders is five. Meanwhile, the company name should contain all of the following:
- one of the founder’s names
- a registration number
- Sociedad Limitada Nueva Empresa or the abbreviated SLNE
The minimum capital investment is €3,000 and the maximum is up to €120,000.
Partnership (Sociedad Civil)
A partnership is a business relationship formed by two or more individuals who contribute capital in the form of money, labor, or equipment. The revenue is divided as they have contractually agreed. While there is no minimum investment, they must have the same amount of funding.
Similar to a Sole Proprietor, there is an unlimited liability for partners, which is shared equally. Debt and financial obligations will be divided among the shareholders.
Additionally, you will still need to pay one percent of the capital deposited in transfer tax and register for tax on economic activity. Partners will also have to register for income tax as self-employed workers and register with the social security authorities.
Public Limited Company or Corporation (Sociedad Anónima or SA)
A public limited company or corporation is a stock company that is highly regulated and structured. Because it requires a substantial investment, it is best for large businesses working on major projects or those who have long-term plans to invest in Spain. As an autonomous legal entity, the shareholders are not obligated to pay any of the company’s debts.
There is no minimum number of shareholders, they can be of any nationality and they do not need to be a resident of Spain. The advantage of a public limited company is that shareholders are exempted from personal liability. On the other hand, the challenge lies with the considerable investment, required annual audit, and administration.
Small & Medium-size Business (pequeñas y medianas empresas/PYME)
Small and medium-sized businesses make up 99% of Spanish companies. The government encourages the creation of PYMEs through the offer of grants, incentives, and reduced corporate tax rates.
There are 3 categories of PYMEs:
- Mediana Empresa or Medium-size Business
- Between 50 and 250 employees
- €50 million yearly turnover
- Pequena Empresa or Small Business
- Between 10 and 49 employees
- €10 million yearly turnover
- Micro Empresa or Micro Enterprise
- Fewer than 10 employees
- €2 million yearly turnover
Process of incorporating a company in Spain
- Submit possible company names to the Mercantile Registry to ensure there is no existing company with the same name.
- Apply for a provisional tax identification number (código de identificación fiscal or CIF).
- Register with Social Security for VAT for you and your employees.
- Open a bank account with the name of your business and deposit the required capital amount.
- Prepare the company constitution or deed of incorporation. Then, get it signed in front of a notary to make the business legal.
- Pay the stamp duty, also considered as the transfer tax. It is one percent of the amount of the capital deposited to the local tax office. This should be done within 30 days upon signing the deed of incorporation. Also, register your company with the Mercantile Registry.
- Get your permanent CIF from the tax office. To be issued a business license, register your company for the tax on economic activities or what is called the Impuesto sobre Actividades Económicas (IAE).
INS Global in Spain
If you are considering expanding your operation to the Spanish market, it will be best to have a partner who understands all the local regulations and processes. As one of the world’s leading HR solutions providers, we have been delivering high quality service to our clients for more than 15 years. We are able to assist your business with a range of different services such as our employment solution, recruitment, and payroll and tax administration. Get in contact with us today and our consultants can provide you with the expertise you need.