Company Registration in Spain
Spain, a country on Europe’s Iberian Peninsula, includes 17 autonomous regions with diverse geography and cultures. The capital city Madrid is home to the Royal Palace and Prado Museum, housing works by European masters
The Spanish territory is the ideal landscape for foreigners from all around the world to start their own companies. Ideal infrastructures, worldwide talent, and an entrepreneurial ecosystem make cities like Barcelona or Madrid your best choice when deciding where to start. Nevertheless, the specific steps you should take in order to successfully have your company start running are not that clear.
Spain is present in South Western Europe and is accessible through the Atlantic Ocean. It shares land borders with France. It is one of the largest countries in South Europe. Company Registration in Spain is quite straightforward; however, it is important to comply with the rules of local law for company registration in Spain.
It is one of the largest markets in the European Union for conducting business. Hence investors would go through the process of company registration in Spain. Spain is considered the second-largest tourism market in the world. Hence there are different opportunities for investors in Spain.
Spain is a strategic location for investors from Africa and Europe. Spanish is the third largest spoken language in the world. This opens doors to potential customers in South America.
When it comes to tourism, Spain is the second-largest tourism market in Europe and is the fifth-largest in the world. All the above reasons make it one of the best destinations for carrying out business.
Benefits of Company Registration in Spain
- Tourism Market
- Government Incentives
- Tax benefits for Trading Companies
- Double Taxation Agreements
Tourism Market: When it comes to tourism, Spain is the second-largest tourism market in Europe and is the fifth-largest in the world. Madrid and Barcelona are thriving locations for tourism in Spain. Barcelona has one of the largest beaches in the world which makes it an attractive tourist destination and hub. Madrid has various tourist attractions which include the bullfighting arena.
Government Incentives
There are a lot of government incentives offered for foreign companies in Spain. Companies that go and invest in different forms of training programs for employees would secure a 75% rebate on the social security contributions. The financial subsidy is provided by the Spanish government, which includes some form of interest subsidy on bank loans.
Tax Benefits for Trading Companies
If a trading company is incorporated in Spain, then it is taxed at 15% for the first two years. Then the amount of tax levied on the trading company from the third year would be standard at the rate of 25%. There are different forms of Spanish Free Zones established. These free zones offer a certain amount of incentives, such as some form of reduced corporate tax. VAT and stamp duty reductions would also be applicable for such companies.
Double Taxation Agreements
Spain has different forms of DTAAs with other countries such as the UK, India, and America. Hence an investor would not get taxed twice.
Who can start a business in Spain?
Starting a business in Spain doesn’t always need to be an arduous process. Depending on the type of company you are setting up, however, you might find the journey somewhat bureaucratic and long-winded.
EU citizens setting up as sole traders or partnerships can jump through the required hoops relatively quickly. It’s a different matter, though, for ex-pats from outside of the EU; they will require a work permit to move to Spain and set up a business.
Which type of company should you choose? How to do business
Before starting the process of constituting a company, we must decide which will be its type. But we are not talking about the business model or specific project. We are talking about its legal structure.
The different business structures in Spain are gathered below :
- Sole trader
Probably the best option for small companies, as the legal process for its creation, is really simple. One of its main advantages is that it does not require any type of initial investment.
Nevertheless, being a sole trader (“Empresa individual”) has an important disadvantage: there is no distinction between the company’s assets and your personal assets. Hence, you are fully liable for any possible debt the company has.
2.Sole trader taxes
In terms of taxes, as a sole trader, you will pay income tax (IRPF). That implies that you will annually be in charge of your tax returns.
As your activities are regulated under the income tax regime, it is possible that you end up paying an unnecessary amount of taxes by using this legal structure. And that will happen if your income is higher than € 50.000 – € 60.000 per year.
So in case you are expecting to earn above that, our advice is to go for a limited liability company.
3.Sole trader vs “autonomy” (self-employed)
There is a generalized misconception that we must tackle here.
Many times we mistakenly assume that the word “autónomo” and self-employed are the same. And it’s wrong. Because yes, you may have your work permit as a self-employed worker. Nevertheless, that does not imply that the company you set up is an autonómo.
An autonómo is two things: a freelancer and the administrator of a company. On the other side, a freelancer or self-employed does not administrate the company necessarily.
Why are we mentioning this? Because the constitution process is exactly the same. You will need to fill out model 036 or 037, depending on the case. In that form, it is asked whether you are a sole trader (“Empresa individual”) or a self-employed individual (autónomo). You must choose the former.
- Limited liability company (SL)
This is, without any doubt, the most popular firm structure in the Spanish territory. Why? Because of its flexibility and easiness in the registration process, just demanding € 3.000 for the constitution process as a minimum capital investment.
If you foresee that you are going to get incomes over 60.000€, directly constitute a company instead of establishing yourself as a self-employed worker.
One of its main advantages is that your liability is limited to the capital investment made. So if you just invested € 3.000, that is the maximum amount it can be requested from you in case of indebtedness.
In this case, you won’t pay income tax, but corporate tax (“impuesto de Sociedades”), which is equal to 25% of your profits. Filing your VAT returns (“IVA”) is also required. Nevertheless, there are several exemptions that you can benefit from which can reduce the taxable amount considerably.
- Stock corporation
A stock corporation or “Sociedad anónima” is the legal structure reserved for big companies who trade with stocks. It is characterized by a much more rigid structure, and € 60.000 are needed for its constitution.
Its main advantage is that you can get external financing as the company’s shares can be bought at the stock market.
- Branch office
But what happens if you already have your own company in any other country and would like to expand in Spain?
In those cases, opening a branch in Spain is the right path. It will offer you the possibility to expand to a new market while harnessing the power of your brand and systems.
If you want to set up a branch of your company, you will need to present a notarized power of attorney and a copy of the company’s public deed of incorporation. In case the business law of your country requires it, you also need to present a certificate of good standing.
In this specific case, if you are the one opening and running the branch in the Spanish territory, you must be a resident of the country.
Steps for company formation in Spain
The steps for company formation in Spain for a foreign citizen are presented below, but foreigners can obtain in-depth information concerning these aspects from our team of consultants:
- obtain an identification number for non-Spanish citizens (NIE), a step which will allow the investors to perform the incorporation procedures;
- select one of the legal entities available under the Spanish commercial legislation;
- prepare the documents for obtaining a certification on the company’s name (investors can provide three different possible company names);
- open a corporate bank account at a local bank in Spain, which will be used for depositing the company’s minimum share capital;
- draft the statutory documents of the future company and sign them in front of a public notary;
- sign the public deed of incorporation; this document has to be signed by all the persons who have the quality of shareholders in the company;
- apply for a tax identification number with the Spanish Tax Agency.
Documents Required
The following documents are required for company registration in Spain:
- Deed of Incorporation
- Bye-Laws of the Company
- Articles of Association and Memorandum of Association of the Company
- Information on the shareholders and directors of the company
- The organizational structure of the company.
How to obtain a business visa in Spain?
Non-EU citizens moving to Spain to start a business will need a valid work permit to do so. To get a work permit, you will need to apply to the Spanish embassy in your home country.
First of all, you will need to provide evidence that you have enough capital to invest in your business and support yourself while living in Spain. You may also be required to submit a business plan and proof of your skills and experience. The Spanish government can ask you to provide evidence on how your company could create jobs for workers in Spain.
Work permits must be renewed every year, but after five years you can instead apply for resident status in Spain. This removes the need to get a work permit in the future.
Foreign companies opening up a branch or subsidiary in Spain
If you are running your own company at home, but are looking to set up a branch or subsidiary, doing this can be simpler than starting from scratch with a new company.
When processing your application, you must provide a series of documents, including the following:
- A copy of the main company’s certificate of incorporation and certificate of good standing
- Notarized power of attorney
- Spanish tax identification number (NIE)
- A member of staff at the Spanish branch to be a resident in Spain, who will agree to be liable for any company debts and tax payments
While additional branches and subsidiaries don’t need to file accounts on the business register, they must pay income tax and submit quarterly VAT returns through their NIE number. Some banks and business advisory companies will offer special packages to help you set up the particulars of opening a new branch in Spain.
What is the current economic situation of Spain?
Spain has a strong economy, with industries playing an important role in the European market, so those who are interested in opening a company here are advised to set their operations on the Spanish market. Besides, international trading and tourism are also of great importance for the Spanish economy.
The Spanish economy began to make important steps towards fast development, especially since 2015. Spain is ranked in seventh place in terms of receiving foreign investments. Over 10,000 foreign companies have been incorporated in Spain and the government is still looking for different incentives in order to attract even more investors from abroad. The main investors willing to open companies in Spain so far have been from the Netherlands, France, and the UK, but investors from Germany, France, or Mexico are equally attracted to enter a business in Spain.
Which are the main industries in Spain?
The main sectors on which the Spanish economy is built are processing foods, textiles, footwear, petrochemicals, electronics, steel, automobiles, the aerospace industry, and tourism. Foreign investors starting companies in Spain tend to be attracted by the construction sector, which has reported important results at the level of 2016.
Other investors arrive in Spain with the intention to set up companies that activate in sectors such as manufacturing, finance, and insurance, scientific activities, or electrical energy supply. Madrid and Catalonia attract the most foreign investments in Spain. It is important to know that, in 2014, the foreign direct investments in Spain were situated at a level above the average one met throughout the European Union.
At the level of 2017, Spain ranked as the sixth largest receiver (from all the European Union’s countries) of foreign investments, as specified by the United Nations Conference on Trade and Development (UNCTAD). As mentioned earlier, 2016 represented an important year for foreign investments, which increased by approximately 50% compared to the previous year.
Frequently Asked Questions
- How long will it take to incorporate a company in Spain?
It would take around a week’s time to incorporate a company in Spain. The process of company registration in Spain is quite straightforward.
- How many shareholders and directors are required for company registration in Spain?
All companies require a minimum of one shareholder. However, the requirements of the directors would depend on the requirements of the company.
- Do I require a resident director in Spain?
No, there is no requirement to appoint a resident director in Spain. Hence the company can be managed by a foreign director.
- What is the current corporate tax in Spain?
The current corporate tax levied in Spain is 25%.
- Do I require a foreign representative for company registration in Spain?
A foreign representative is only required for a branch office. Private limited companies and joint-stock companies do not require to appoint a foreign representative.