Despite uncertainties over Brexit, increased numbers of British citizens opted to buy a Spanish property at the end of 2017 and relocated to places like the Costa del Sol to start their own business. At the time of writing it is not clear what the outcome of current negotiations between the EU and the UK government will be, so it is anyone's guess what impact this will have on British expats setting up in business in Spain. It is widely believed that the Golden Visa, which currently covers non-EU citizens who wish to obtain a residency permit in Spain, may then also cover UK citizens, as they will now be classed as "third country" individuals. The Golden Visa is generally speaking given to people who invest more than EUR 600,000 in either a Spanish property or a Spanish business.
For those who can apply for a Spanish passport, obtaining residency after the UK officially leaves the European Union in March 2019, it is believed it will be far easier to acquire permanent residency. It will be prudent for British citizens who plan to relocate to Spain and hope to work there to do this as soon as possible. You should also register on the local padron (ie. register with the local Council) as soon as you move into your Spanish property, as this will be proof of you trying to gain "settled" status. The next important step is to obtain an NIE number, then you can become either self-employed or start a limited company. For details on how to obtain an NIE number, please follow this link:https://www.propertyshowrooms.com/spain/property/news/how-obtain-nie-number-outside-spain_313616.html
or take a look at the official page designed to help people find their way around the NIE number set-up: www.mpt.gob.es. This page will also help you to find your local Foreigner's Department.
If you move to Spain but fail to register on the padron you could leave yourself in the worst possible situation, because ultimately you may spend a lot of money without being permitted in the end to stay permanently.
Putting aside Brexit issues, apart from where to relocate to, the only other important decision will be what type of business do you want to run, a limited company or do you want to operate as a sole trader?
There are benefits and disadvantages to both. Let's look at both forms of business to help you decide which is the best option for your Spanish business idea.
Setting up as Sole Trader or Limited Company?
In Spain sole traders are known as 'autonomos'. People who are just starting in business for the first time tend to choose this option, mostly because it is less complex and more economical to both set-up and manage afterwards. For example, choosing set-up as an autonomos means not having to find the required EUR 3,000 start capital necessary for private limited company set-ups in Spain.
What are your fiscal Obligations?
Irrespective which of the two options you choose, there are a number of fiscal obligations that the owner of any Spanish business will have to deal with.
Most businesses will be obliged to make a quarterly Value Added Tax return, which in Spain is called IVA, as well as an annual Income Tax return, called IRPF.
If you decide to create a limited company then you will also have to make a company tax return (called impuesto de sociedades) as well as file annual accounts with the Spanish Company’s Register. As a company you will need to retain up to 15% of any invoice presented to your business by a professional/autonomo and file a return. Such additional obligations mean that it is more expensive to maintain a limited company than being a sole trader.
What are your Social Security Obligations?
If you choose to operate as an autonomo or sole trader, then you will have to register with your local social security office and pay contributions each month. Unfortunately, in Spain such contributions tend to be significantly higher than in other northern European countries. The current minimum is a payment of approximately €250 per month, regardless of income.
Some reductions are available for sole traders less than 30 years of age and there are temporary discounts available, for example where a person has been unemployed for a while and decides to work as a self-employed person instead.
If you set up as a limited company you will have an obligation to make social security contributions on behalf of an employee of 24% of their income. If your company has no employees, then the single director company is obliged to have its director register as an autonomo and make those social security contributions as such. In that case, a single-person business would have been better off to set up as self-employed to start off with, as it would save a great deal of money and inconvenience.
Level of Liability
Just like in any other country, one of the main differences between the two types of business set-up is that creating a limited company ensures limited liability to the owner of the company. What does that mean? If, as a result of operating the company the business enters into a financial liability, the liability is limited to the amount of capital held in the company. This means the single director is not personally liable as an autonomos would be for any debts or losses incurred in your business. Any personal assets could thus be at risk if your business finds itself in financial difficulties, either as a result of damages owed to a client or failure to pay due social security contributions, IVA or income tax payments.
As a matter of law the minimum level of capital that any company in Spain can have at any time is set at €3000.
What are the overall options of starting a business in Spain?
You can start
- as a brand new company,
- a joint venture,
- as an acquisition,
- as a representative office (for example of an existing British company)
- as a Spanish branch, or
- as a self-employed person.
Setting up a basic Limited Company in Spain
The most common form of limited company is the sociedad limitada or S.L. Though it is important in protecting the owner(s) from personal liability in the event of bankruptcy, its incorporation presents a number of additional tax, accounting and mercantile obligations, as mentioned above.
The process of setting up an S.L company is to
- First obtain an NIE number (as explained via the above links). If you’re not an EU citizen, you’ll also need to have a valid visa and a valid work permit.
- The second step is to apply to the Registro Mercantil Central (RMC, The Mercantile Registry), which will give out a certificate, called a no-name coincidence certificate, which will verify the company name you wish to use for your business is not already taken by somebody else - in the same way as Company's House does in the UK. You can actually do this via www.rmc.es. It takes about three days before you'll receive the answer from the RMC by courier.
- Step three means applying for your C.I.F. (tax identification code). In order to do this, download a tax form 036 at www.aeat.es, AEAT stands for Agencia Estatal de la Administracion Tributaria. It's best to print this off at home and duly complete it in peace and quiet before taking it to the Treasury (Hacienda) or tax office to deliver it. When you do so, you must bring along the original and a photocopy of your NIE (numero identificacion extranjero). You should do this step in the appropriate office of the Hacienda, which will be the one that belongs to your post code address. You'll find the address in a local phone book. You will get the tax number immediately.
- Step four is to deposit EUR 3,000, the minimum authorised share capital, in a Spanish bank account. You can only make your deposit, once you have obtained the tax code and certificate of no-name coincidence. You must get evidence of your payment, which can be obtained in the form of a bank certificate for delivery to the notary or a lawyer. It will show the act of incorporation of the company. Expat forum Expatica explains how to open a bank account in Spain.
- This step involves visiting a notary with your three previous documents. Now you are ready to apply to be appointed as the company founding director or administrator, and you're in a position to prepare the company constitution. It's possible to arrange a local notary appointment to sign the deed of incorporation. At www.notariado.org you'll be able to find the one nearest to your area. It takes about one to three days to finalise the above documents, depending on how busy the local notary is. In order for the notary to prepare the documents, you'll need to supply original documents and photocopies of the following:
- tax form 036,
- your certificate from Registro Mercantil, and
- the evidence of your EUR 3,000 deposit at the bank.
- AEAT / Generalitat Once you have your original deed of incorporation document from the notary, you should register the deed at the Local Government Tax Authority (or AEAT). This step was previously subject to a stamp duty of 1% of the initial share capital. Currently this 1% has been removed, but the formality must still be fulfilled and therefore the deed will to be stamped certifying this fact. This shouldn't take more than two hours. Be sure to bring your original documentation and photocopy of the deed and your NIE with you.
- RM – Registro Mercantil Your stamped deed now has to be taken to the Registro Mercantil where it will be registered in the Spanish Register of limited companies. The registration process should take no less than 15 days. The original documents will be returned to you at this point. When you collect the original deed, it will bear a certificate from the Mercantile Registry that the company is now registered at the Spanish equivalent of Company's House.
- AEAT – Agencia Estatal de la Administracion Tributaria The penultimate step is to register your trading company at the tax office. Your second visit to the tax office will get you the the permanent Corporate Tax Identification Number (CIF) at the Hacienda, following the completion of the above incorporation process. You should note that newly incorporated companies must use the 036 form used to request a tax identification number (see above), to describe their business activity, and other circumstances of your business. Do not forget to bring the original and photocopy of the deed and NIE.
- TGSS – Tesoreria General de la Seguridad Social The final step of the S.L. registration process as the company's director is for social security and occupational accident insurance purposes.
This involves complying with certain procedural formalities at the local office of the Ministry of Labour and Social Affairs (or TGSS). There are different options, but it is more usual for the director to register as autonomo. Monthly payments for autonomos are ca. EUR 235. This step requires you to bring the original and photocopy of deed of incorporation, NIE, 036 form and form TA 0521. You can obtain the latter form at www.seg-social.es.
Although you can use the above guide to set up your S.L., it's best to hire the expert advice of a lawyer or an economist who can guide you through the process and help you avoid costly mistakes.
You can obtain advice from The British Chamber of Commerce in Spain on how to find an economist. They also tend to hold useful networking events for their members, so it's worth getting in touch.
Spanish Work Permit Application
If you need a work permit and plan to start your own business in Spain, there are certain rules you must follow. You must apply for your permit at the Spanish embassy or consulate in your home country. Besides the application, you’ll also need to provide the following documents:
- a business plan (if appropriate; various UK banks offer free downloadable templates for business plans, such as Lloyds Bank and Barclays PLC)
- evidence that you have enough money to invest in your business and support yourself while you are still establishing a cash flow
- proof of your skills or experience to run the business
- copies of any business contracts or commissions you already have arranged
- any applicable licence or registration needed to operate your business legally, such as lawyers, architects, healthcare professionals and financial services for example, all of which are heavily regulated. You will need to prove you can comply with the applicable rules before you are permitted to trade;
- information about the potential to create employment in Spain
You’ll have to renew your work permit and prove you still fulfil all these conditions annually. However, after five years you can apply for long-term Spanish resident status (via www.exteriores.gob.es, which guides you to the correct consulate page).