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Setting up a business in Spain

There are plenty of reasons why setting up a business in Spain appeals to so many. The idea of being your own boss in a country with Spain’s climate is an obvious draw, but there are other benefits, too.

If you can make a success of starting a company in Spain, just like anywhere, there are financial rewards for all of your hard work, as well as that inimitable sense of achievement that money just can’t buy.

So, is it wise to think about setting up a company, business or bar in Spain? And if so, how do you go about it?

 

Step one – research the market

Research the marketAs with any big decision in a foreign land – such as buying a property or choosing a school for your children – it is vitally important that you do your research. Want to run a bar? Look at where there is a gap in the market for what you have in mind. Want to set up an Internet company? Then you will need a killer unique selling point.

 

Ensure you have the finances to ride out any dry spells, and draw up a professional business and marketing plan before you sign on any dotted line. Once you’re confident, then you must register your new company name with the local employment office. This takes 8-14 days and is free to do. You may, however, have to employ a gestor to set up all of the paperwork for you.

You should decide at this stage whether your company will be an SL (Sociedad Limitada) – which is similar to a UK ‘Ltd’ and requires a minimum capital backing of €3,006, or an SA (Sociedad Anónima), which is more like a PLC. Most companies will be fine with SL, and it’s a fair sight cheaper, too.

 

Step two – get your paperwork in order

As a would-be business owner, you require all of the typical legal documents that you would need as an employee in Spain – such as an NIE (Tax Identification Number for Foreigners) – as well as a CIF (Fiscal Identification Code). This is a tax ID number for companies, and is something that you must apply for before starting a business in Spain.

To apply, you need your NIE and official photo ID, such as your passport. Once you are up and running and ready to start employing others (and yourself), then there will be additional tax and social security numbers to arrange. But at the start, this is the first barrier between your dream and reality.

If you set up as self-employed then you personally are liable if anybody ever files a lawsuit, whereas by forming a company then only the assets of that company are at stake.

 

Step three – find your business premises

Business premisesAn important step. As you would with a residential property, shop around for your business premises. Ask yourself – is it affordable? Are the overheads manageable? Is it in an area of heavy footfall? Does it matter if it isn’t? There are bound to be many more questions you will have to ask yourself, too. But behave in a business-like manner at all times – don’t let the heart rule the head.

Once you have found premises to rent, you will then have to negotiate the contract. It helps if you speak Spanish, or can take a trusted friend along with you who does. Otherwise, appoint a gestor or a lawyer. Most contracts are for a minimum of one year and an average of five. The contract will contain clauses on things like maintenance, repairs, utility installation etc…

Your landlord is likely to require an aval, which is a bank guarantee that can be anything from two to 12 months’ rent. When dealing with foreign tenants like yourself, they may ask for more. There are no laws stopping them from doing this, so if you’re unhappy, shop around. It is important that you have trust and confidence in your landlord, and vice versa. This relationship can often determine whether your venture is a success.

Sign the contract in the name of your company, and the invoices for the monthly rent must state the company’s name and CIF number. You will pay some VAT (IVA) on your rental income – the government likes to ‘pre-collect’ tax from businesses in this way. Some landlords may try to overlook this step in an attempt to have the income you are generating for them as undeclared. This is illegal, so be sure to insist on official IVA invoices.

If you are taking over the premises from an existing tenant, then the utility companies will inform the authorities of the name change – a practice that is helping to stamp out rogue landlords.

 

Step four – know your taxes

Never fun but an inescapable part of life, paying tax on your company in Spain may seem initially confusing but is actually quite straightforward.

You need to be aware that there are national taxes, regional taxes and local taxes, and that there are three main types of tax: corporate income tax (Impuesto de Sociedades), VAT (IVA), and a tax on business activity (IAE).

Impuesto de Sociedades is the standard corporate income tax, and is taxed at 35%. However, for all companies with an annual turnover of under €8 million there are some tax breaks that apply – the tax rate is 30% for the first €120,000 of taxable income, and a 10% tax credit for any investment you make on Internet, IT or communications costs.

The IVA tax can be deducted against all IVA charged as it is primarily a tax on end-consumers, ie, your customers.

The IAE is a tax on business activity and businesses that have an annual profit of less than €1 million are exempt. If your business really takes off, though, then there are a number of variables that will be taken into account, such as number of employees, turnover, location etc…

See our Legal Stuff pages for more information about AnnualTaxes and moreTax Advantages for Residents.

 

Step five – hiring and firing

Hiring and firingUnless your intention is to be a one-man band, you are going to have to employ staff for your business. Employees’ rights are famously well-protected in Spain, but the system is designed to be as fair as possible for both parties.

Firstly, you have to be aware of something called Convenios. This is a legally-binding set of rules that dictate what jobs can be categorised as what, and the various rules that then govern those jobs, such as salary range, working hours, number of holidays etc.

However, these differences are slight, and the rule of thumb for Spanish workers is generally as follows: they work a 40-hour week, with 22 days’ holiday (excluding weekends) and are paid monthly (some companies still work around the 14 payments rule, which means you pay your staff every month, plus two additional times in the summer – usually July – and the winter – around December – but this practice has fallen out of favour in recent years). Sick pay should only legally apply when your employee has a signed baja médica form from their doctor.

If your employee gets married then they are entitled to 15 days (including weekends) off work. Maternity leave is four months on maternity pay, a death in the family is two days, and employees are even (legally) entitled to one day a year off work for a home relocation.

When laying off staff, currently you must pay 20 days of indemnisation compensation for every year they have worked. If you have just grounds to fire somebody, then they are not entitled to this payment. It is worth noting, though, that Spanish workers know their rights and will have no hesitation in calling for an employment tribunal if they think they are owed money.

 

Step six – etiquette and good practice

Salaries – Spaniards do not expect dazzling salaries, so you can get away with offering lower wages than you would in the UK. Also, salaries are spoken about in monthly terms, so when making a job offer tell them what you will be paying them monthly, in net salary – basically, a Spaniard will want to know what they will receive in their bank accounts each month. Taxes, annual gross etc… they will happily leave that up to you.

Type of contract – An indefinido contract is an indefinite contract, and is highly sought by employees in Spain. This means that they are incredibly difficult to fire or make redundant, and so a lot of companies will try to avoid awarding such a contract to their staff. Temporary, casual, trainee and self-employed autónomo contracts (where the employee is responsible for their own tax contributions) are much more common, giving the employer more flexibility. If you are unsure what to offer, seek expert legal employment advice.

Business meetings – Spaniards are not, as the old adage would have you believe, lazy. They are, though, a little more relaxed with time-keeping for meetings. So if a time has been set, do not worry too much if your client is 10-15 minutes late. That is normal. Also, business meetings tend to happen over lunch, and will often overrun. This does not mean that the day is over – many Spaniards will enjoy a long lunch and then head back to the office until sometimes 9pm in the evening. Detailed agendas, minutes, rigid processes – say goodbye to these, and embrace the new customs.

Working hours – Be flexible. Don’t stick rigidly to the 9-5 model of the UK and northern Europe. Opening at 9am is fine, but many Spaniards will expect to be able to do business until at least 7pm in the evening. Sound late? It is, but remember that not much gets done between 2pm – 4pm: everyone is out at lunch. However, things are changing to become more in line with northern European practices, so if you insist on keeping British hours, then your clients and employees will have to get used to it.

National holidays – time off during Christmas, Easter and the other religious festivals is sacred to a Spaniard. Do not deny them this, even if you are trying to forge a UK mentality.

By journalist, editor and former Costa del Sol resident, Ian Clover.

 

While every effort is made to check the accuracy of our website content, neither VIVA Homes Under The Sun Ltd, nor any of its associate companies, employees or independent authors can be held responsible for any errors, omissions, or the accuracy or authenticity of any information supplied which is subject to change without prior notification. We therefore strongly recommend that readers make their own thorough checks before entering into any kind of transaction or decision-making based on the content of this article.

Please don’t hesitate to contact us for more information.

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