Starting a business as a foreigner in Spain

Spain, with its strategic location, and thriving consumer market, presents an alluring prospect for entrepreneurs from around the globe. Whether you're dreaming of opening a sunny seaside café or launching a tech start-up, Spain's diverse economy offers a plethora of opportunities. But before booking your one-way ticket to this entrepreneurial paradise, there are several key points to consider.

Why start a business in Spain?

Over recent years, Spain has turned into a dynamic European business centre, with Madrid, Barcelona, and Valencia at the forefront of entrepreneurship. With a robust economy and a unique position as a gateway into Europe, it's an ideal base for companies with their sights on markets in the United States, Central and South America, and Asia. Furthermore, Spain proudly boasts the most double-taxation avoidance agreements within Europe, which can significantly ease the financial burden for international entrepreneurs. Here are some compelling reasons why starting a business in Spain is an excellent choice:

• The presence of successfully established startups attracts international investments and talent.
• Excellent logistics and infrastructure support ensure businesses thrive.
• A diverse market that provides ample opportunities for a variety of business ventures.
• The unique Spanish lifestyle combines work and pleasure seamlessly.
• An optimal business culture that fosters networking and successful partnerships.

Where is the best place to start a business in Spain?

The best location for starting a business as an expat in Spain will ultimately depend on the nature of your venture. Barcelona and Madrid are the country's economic powerhouses, offering a dynamic international environment, technological infrastructure, and a talented workforce. For tourism-related businesses, coastal regions like the Costa del Sol or the Balearic Islands offer year-round customer flow. It's worth considering the local market, rental prices, and the availability of suppliers when deciding on the ideal location.

Is it possible to start a business in Spain as a foreigner?

Yes, it is perfectly possible to open a business as a foreigner in Spain, and the government has made efforts to simplify the process for international entrepreneurs. The Entrepreneur’s Law is a testament to Spain’s commitment to attracting foreign investment and talent. Nonetheless, non-EU/EFTA entrepreneurs will need to navigate additional steps, such as obtaining the necessary visas and permits:

• Entrepreneur Visa - Tailored for those with innovative business ideas, the entrepreneur visa requirements are stringent and you'll need a well-thought-out business plan, proven competencies, and financial stability. It's processed relatively quickly, usually within 20-30 days. But, it's important to get familiar with all prerequisites before getting started. While there's no explicit minimum investment attached to the visa, the viability and potential economic impact of your project are crucial. Investments that create jobs, introduce innovation, or contribute positively to the national economy are looked upon favourably when granting the visa.
• Self-employed Worker Visa - For business concepts that don't fall under 'innovative', you’d be looking at the self-employed worker visa. This path is appropriate for standard products or service offerings.

For EU nationals, setting up a business is relatively streamlined — no work permit is needed. An NIE (número de identidad de extranjero), essentially a foreigner’s identification number, alongside an EU registry certificate is sufficient to head straight into company incorporation.

Choosing Your Business Structure in Spain

Deciding on the structure of your enterprise is a critical foundation step:

Sole Trader or Autónomo

Suited for relatively low turnover. As a self-employed individual or freelancer, you will be required to file quarterly VAT returns and an annual income tax return. This structure is Ideal for small-scale operations without any initial capital requirement. A sole trader bears full liability for any debts since there's no distinction between personal and company assets. Tax wise, you’ll be dealing with income tax (IRPF) and if your earnings exceed €50,000 - €60,000 annually, a limited liability company might be a better choice. Find out how to register as a self-employed individual in Spain.

Sociedad Limitada (SL) - Limited Liability Company

The Limited Liability Company, known in Spain as Sociedad de Responsabilidad Limitada (S.L.), is a widely chosen business entity among entrepreneurs in the country, largely due to the liability protection it offers. Within an S.L., the private assets of the owners are safeguarded against the debts of the company. Liability is restricted to the share capital invested.

To set up an S.L. in Spain, a minimum share capital of €3,000 is required. This type of business can be initiated by either individual(s) or legal entity(ies), and there is no residency prerequisite for the owners in Spain. The shares of an S.L. are divided among the owners but are not available for public trading. Designed to cater to the needs of small to medium-sized enterprises (SMEs), the S.L. structure is particularly popular with foreign investors because of its combination of flexibility and protection against personal financial liability. Instead of income tax, you'll pay corporate tax, which stands at 25% on profits, and manage VAT returns – something best handled by an accountant.

Sociedad Anónima - Stock Corporation

In Spain, the Stock Corporation or Sociedad Anónima (S.A.) represents another business framework, particularly suited for large-scale operations due to its requirement for significant initial investment. To establish an S.A., a minimum share capital of €60,000 is compulsory, with a requirement that at least 25% of this amount is paid up at the time of incorporation.

Ownership in an S.A. is allocated via shares that can be freely transferred and potentially listed on the stock exchange, thereby making it an appealing structure for bigger companies looking to gather investment via public equity markets.

Moreover, the liability of the shareholders within a Sociedad Anónima is limited to their input of capital, offering a measure of protection for investors. This company format is typically favoured by large-scale enterprises for its proficiency in securing capital through the sale and exchange of shares.

Branch Office

Opening a branch office, or "sucursal" as it's referred to in Spanish, presents a viable path for international businesses aiming to expand their presence into Spain. Nevertheless, this option is accompanied by specific requirements and challenges unique to this form of establishment.

A crucial prerequisite for creating a branch office in Spain is the need for a fiscal representative based in the country. This individual plays a pivotal role in overseeing the branch's interactions with Spanish tax authorities and other governmental bodies. A branch office serves as an extension of the parent company, it introduces its own set of complexities regarding management and financial implications. Notably, the rules governing expense deductibility for a branch office are different from those applied to a Limited Company, potentially complicating the branch's financial administration.

Therefore, contemplating the establishment of a branch office in Spain necessitates a comprehensive evaluation with a professional advisor. Doing so ensures that the chosen course of action is in harmony with the company's strategic objectives and considers the financial and legal repercussions involved.

Partnership Structures

In Spain, there are various partnership structures available, with the Civil Partnership (Sociedad Civil) and General Partnership (Sociedad Regular Colectiva) being among the most prevalent. These business structures are founded on an agreement between two or more individuals to share the profits and losses derived from a collective enterprise.

Partnerships offer the advantage of pooling together diverse skills, resources, and shared responsibilities, making them an appealing option for small to medium-sized ventures and professional services firms. Nevertheless, within a General Partnership, all partners bear unlimited liability for the debts of the business, putting their personal assets in jeopardy should the enterprise encounter financial difficulties. For this reason, forming a detailed partnership agreement that specifies each partner's duties, contributions, and procedures for resolving disagreements is critical.

Non-Profit Structures

Non-profit organizations (NPOs) are integral to the Spanish business environment, with Spain facilitating the creation of various non-profit entities such as associations, foundations, and cooperatives. These entities are governed by specific laws: the Associations Law, Foundations Law, and Cooperatives Law.

These NPOs enjoy certain tax benefits in Spain, contingent upon fulfilling specific criteria like engaging in activities deemed of general interest. They must utilise their revenues primarily for their stated non-profit missions and are prohibited from distributing income to their members or founders. Moreover, they are required to maintain transparency in operations and adhere to stringent accounting and reporting standards.

Associations in Spain can be established by any combination of individuals or corporations committed to a non-profit cause. In contrast, foundations are typically set up by one or more individuals who allocate part of their assets towards a non-profit objective.

Spanish cooperatives may participate in economic activities but are characterised by their unique democratic governance and are primarily focused on addressing the needs of their members rather than on profit-making. They also benefit from particular tax incentives. Opting to establish a non-profit in Spain can be a strategic move for those looking to generate social value and contribute positively to the community, leveraging the legal benefits provided to such organisations.

Setting Up: A Step-By-Step Process

Initiating a business in Spain for foreigners involves following a structured process that aligns closely with the protocol for Spanish nationals. Below is a summary of the required steps to get your business up and running:

1. Secure a Foreigner’s Identification Number (NIE), which is necessary for all financial and legal transactions.
2. Choose a business structure that suits your objectives, such as a sole trader or a limited liability company.
3. Obtain a No-Name-Coincidence Certificate - This certifies your company name as unique and is obtainable through the Registro Mercantil Central. More information below.
4. Open a corporate bank account and deposit the mandatory minimum capital if necessary.
5. Formalise your business’s articles of incorporation through a notary.
6. Establish Shareholders - Determine who will be shareholders in the public deed of incorporation, outlining their stakes and responsibilities.
7. Sign the Public Deed - Conducted in the presence of a notary, this legalises your company and outlines its nature of activity, along with directorship and shareholder specifics.
8. Enroll with the Spanish Tax Agency (Agencia Tributaria) to obtain your Corporate Tax ID Number (CIF).
9. Register with Spain’s Social Security System to ensure you're compliant with Spain’s social welfare system.
10. Acquire any specific licences or permits that your particular business operations may require.

It’s important to note that the process remains consistent for all, but non-EU/EEA/Swiss nationals must additionally arrange the pertinent visa or authorisation to legally reside and conduct business within Spain.

Legal assistance when setting up a company in Spain

Each of these stages detailed above has its particular requirements. To navigate the complexities of setting up a business in a new country, it is wise to seek assistance from experts who understand the local legal system. A multi-jurisdictional law firm can provide invaluable advice, helping to clarify the differences between Spanish commercial law and that of your home country. They can guide you through the process, ensuring you choose the most suitable commercial entity for your venture and helping you avoid common pitfalls that could delay your business registration.

How to register a company name in Spain

Ensuring your company's name in Spain is distinctive and legally compliant is not simply about marketing; it's a crucial formal step in the business establishment process. Your chosen name must stand out, avoid excessive generality, and not mimic any existing entities.

Here's how to go about registering your company name in Spain:

1. Compile Name Options: Begin with up to five possible names for your company. The Mercantile Registry will review the options based on your priority list provided.
2. Submit Names for Verification: Present your chosen names to the Central Mercantile Registry for review. This can be handled online, in person, or by postal service. They will examine whether your names clash with others that are already on the register.
3. Acquire Certificate of Clearance: If one of your names is approved, you will be issued a "Certificación Negativa de la Denominación Social" by the RMC, indicating no conflicts with existing registered company names.
4. Proceed with Registration: With a valid certificate, which lasts for three months, you can go ahead and include it in your company establishment documentation.
5. Name Reservation Option: If desired, you may reserve your company name for up to two years by paying a nominal fee, which could be beneficial if you're not quite set to launch your company.

Select your proposed names carefully, ensuring that they align with your business's goals and are in line with regulatory standards

How much tax do businesses pay in Spain?

Taxation is a crucial factor in any business setup. In Spain, the tax regime for businesses can be summarised as follows: Corporate Tax (Impuesto sobre Sociedades) generally stands at a flat rate of 25%. However, new companies benefit from a reduced rate of 15% for the first two years of declaring profits. VAT (IVA in Spain), ranging from 4% to 21%, depending on the goods or services provided, also applies. It’s essential for businesses to navigate through Spain’s tax system with the help of a local tax consultant to ensure compliance and optimise tax liabilities.

Can you get residency in Spain if you open a business?

Yes, opening a business can be a viable route to obtaining residency in Spain. The Entrepreneur’s Law (Ley de Emprendedores) was designed to attract investment and talent, offering non-EU/EFTA nationals who start innovative businesses the chance to apply for a residence visa. Success in this application hinges on creating a business plan that is deemed of interest to Spain, further underlining the importance of thorough preparation and local advice.

How much does it cost to open a business in Spain?

The initiation costs for a business in Spain are subject to various factors, like the business model, the required services, and the professional consultancy involved. Here's an overview of the expected costs:

• Company Establishment: Forming a company can range from a few hundred to several thousand euros, encompassing notary, registry, and a minimum capital requirement for some entities (e.g., €3,000 for a Sociedad Limitada).
• Legal and Consultancy Fees: Engaging with lawyers, accountants, and consultants is essential for compliance with Spanish regulations. The fees will depend on the complexity and support level your business demands.
• Premises Costs: Rent or purchase prices for business spaces will vary by location and size.
• Licences and Registrations: Varied depending on business requirements.
• Employee Costs: Budget for salaries, social benefits, and additional expenses like recruitment and training.
• Tax Obligations: Be aware of corporate, VAT, and local taxes that apply to your business.

For a Sole Trader

Setting up as a sole trader (autónomo) in Spain can be more economical, but professional legal and accounting advice is vital, particularly for early engagement with the Tax Agency.

• Registration Fee: No official fee exists for registering as a sole trader, but professional services during this process will incur varying costs.
• Social Security Contributions: The base monthly contribution for 2023 is about €275, with a discounted rate of approximately €80/month for the first year available to new sole traders.
• Income Tax (IRPF): Payable quarterly, the rate is profit-dependent.
• VAT (IVA): Applicable to VAT-liable businesses, it must be charged to clients and reported quarterly.
• Professional Assistance: Costs for legal and accounting guidance will vary.

For a Limited Company (Sociedad Limitada - S.L.)

The creation of an S.L. involves multiple costs, such as:

• Minimum Share Capital: Mandatory €3,000 to be deposited during the incorporation phase.
• Notary Fees: Notarisation of company statutes can cost between €600 and €800.
• Registration Fees: Around €200 to €400 for Mercantile Registry enrollment.
• Legal and Professional Fees: Costs can significantly vary, especially if shareholders are foreign entities requiring translations and legalised documents..
• Administrative Expenses: Additional smaller fees for tax identification numbers, VAT registration, and similar administrative processes are to be expected.

Keep in mind these costs are just for starting the business; running it will lead to ongoing expenditures such as recurrent taxes, accounting services, payroll, and regulatory fees depending on business activities.

Launching a business in Spain can be an exhilarating venture filled with opportunities and challenges alike. While the prospect of navigating a new bureaucratic and cultural landscape may seem daunting, the rewards of establishing a successful enterprise in this vibrant country are manifold. From the sun-kissed Mediterranean coastlines to the bustling streets of Madrid and Barcelona, Spain offers a unique blend of lifestyle and business opportunities.

Preparation, local knowledge, and adaptability are key to unlocking the potential of your Spanish business dream. With the right approach, Spain not only provides a scenic backdrop for your entrepreneurial journey but also a strategic platform for growth and success in the European market and beyond. To find experts who can help you on your business journey in Spain, visit our directory.