Like most developed countries there are many options for setting up and carrying out business in Spain. The best route for you is really dependant on your circumstances as well as your business activity.
In this article we try to explain 2 main options, but you should seek further professional advice to decide best fit for your situation. In this article we are only covering Self-Employed (Autonomo) and Limited Liability Company (Sociedad Limitada or S.L.), as these are the 2 main forms most appropriate for start up businesses.
But before we get started, we need to get you familiar with some basic terminologies in Spain which you might be unfamiliar.
Residencia
Royal Decree 240/07 requires that all EU citizens planning to reside in Spain for more than 3 months should register in person at the Oficina de Extranjeros in their province of residence, or at a designated Police stations. When you register, you will be issued with a credit card size Residence Certificate stating your name, nationality, NIE number (Número de Identificación Extranjero), and your date of registration as a resident.
In 2012 the Spanish government introduced new residency requirements for all EU citizens. Under the new rules, EU citizens applying for residency in Spain may be required to produce evidence of sufficient financial means to support themselves (and dependants). Applicants may also be asked for proof of private or public healthcare insurance (Payment of Autonomo National Insurance in Spain can be used as proof).
Nationals of:
- Member state of the European Union
- National of the States party to the Agreement on the European Economic Area
- Swiss Nationals
have a right to reside in Spain for a period of longer than three months if they meet the conditions laid down in Article 7 of Royal Decree 240/2007. This law is in compliance with free movement of people in EU, and residence in Spain of Nationals of European Union member states, and of other states party to the Agreement on the European Economic Area.
What is NIE (Número de identidad de Extranjero)?
Spanish citizens have a DNI (Documento Nacional de Identidad) and fiscal number called NIF (Número de Identificación Fiscal), which in fact is DNI plus a letter. DNI is a number-for-life used for tax identity, tax returns, and many other essential legal processes in Spain.
As non-Spanish do not have DNI/NIF, they need to apply for NIE to enable them to carry out transactions in Spain such as purchasing property, renting property, purchasing a car, setting up business, tax return, etc. NIE (Número de identidad de Extranjero) has the same function as NIF and DNI for non-Spanish Residents.
However, NIE has additional uses. It is used as the number for your “Tarjeta de Residencia” (residency card), your driving licence number, Tax Reference number, as well as your VAT (IVA) number for the self-employed. Your NIE is a number-for-life and is your official identity reference number for myriad of transactions. In that sense, NIE has far more uses than your National Insurance number in the UK.
Autonomo
To register as Autonomo, you need to first obtain “Residencia” and prove that you are resident in Spain. Autonomo is exactly the same as self-employed set up in the UK, or other EU countries, where an individual is also the business entity. Many tradesmen and professionals in Spain are set up in this way due it the low cost of setup, and some tax advantages depending on your business activity. Women enjoy special benefits when setting up in business as Autonomo.
The major difference of this setup versus UK are:
- VAT (IVA – Impuesto al Valor Agregado) registration – There is no exemption for registration for IVA (VAT) in Spain. All businesses including self-employed must register for VAT/IVA. Activities should be declared in your quarterly tax returns including IVA (VAT). You must declare all your revenues and outgoings on quarterly basis during the financial tax year (Jan-Dec), and a final annual return where you balance the 4 quarters. For self-employed you use your NIE as your IVA/VAT number as well as your Tax Reference number with the Tax Office (Hacienda). For S.L. or S.L.U companies you will be issued with a Registration number (CIF/NIF) which is used for your VAT and tax returns.
- National Insurance – Unlike the UK, there is no Class 2 NI, and all self-employed people have to pay full National Insurance on monthly basis. However, this does entitle the self-employed person to full access to the Health Care service, as well as provide for State Pension. State Pension is linked to the number of years NI contribution have been paid. If you pay the “Enhanced” NI then you will also be entitled to additional benefits if you cease to trade.
There is a lot of debate about the issue of Spanish National Insurance as it is burdensome for those starting out on business. There is no relationship between the amount you pay and how much you earn. Political parties are currently divided on this with some wanting to link NI to income, others who want to abolish it completely, and those who want to keep it as it is today.
As of 2018, there is concession for “Start ups”, which offers lower NI Rate for the first 2 years of being self-employed. The monthly payment is gradually increased so that by the end of the second year the payment is equal to full rate. To qualify for this, the current rules require that you have not worked in Spain for 2 years, or have been unemployed in Spain for minimum of 2 years.
Sociedad Limitada (S.L.)
This is a limited liability company set up with minimum of 1 shareholder (S.L.U.), or multiple shareholders (S.L.). Royal Decree 13/2010 approved in 2010 included measures to streamline the process of setting up a company.
Minimum share capital issue is currently set at €3000, and shares can be divided between shareholders based on their contribution or by agreement between shareholders. The money must be deposited in a Spanish Bank Account in the name of the Company. Once the deposit is made, the account is locked so that funds cannot be removed until the company has been officially registered, however, these funds and the account is unfrozen once the company is issued with the Certificate of Registration (Deeds).
The company can commence trading by obtaining temporary tax number (NIF or CIF) from the Spanish State Tax Administration Agency (AEAT-Hacienda) using an online process. Once the company has been registered at the Companies House, the AEAT will issue the final NIF to the notary and registrar (this is usually the same as your temporary number).
At least one Executive Director must be nominated. Whilst Spain does have similar rules as UK’s IR35, Executive Directors of the company can invoice the entity for 100% of their income so long as they are also registered as Autonomo.
S.L. companies must submit quarterly Tax and VAT returns as well as a final annual report to both the tax office (Hacienda) as well as Company House in Spain (Registro Mercantil Central).
What is best for you?
This is the $64,000 question. It depends on your business activities, forecasted revenue, forecasted profits, whether you will employ people (and under what basis), etc. So there is no simple answer for everyone. We recommend you get advice from a professional legal, accountant and tax expert.
You can contact us for an appointment to discuss your planned or existing business, and do remember our first consultation is free of charge. Contact us today to see what we can do for you.
About the Author:
Ali Zartash-Lloyd is Managing Partner at Cognisant Associates a business consulting partnership. He is a management graduate from the University of Leicester. He held Senior Management positions at a number of Multinationals for over a decade including Director of Global SME Products at Avaya Inc. and European Sales & Marketing Director at Samsung Telecom.
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