Starting a business in Spain
Ready to start a business in Spain? Should I form a new company or buy a ready-made company? What is the difference between a Sociedad Limitada (SL) and a Sociedad Anónima (SA)? Can I save on income taxes by creating a company? We answer some of the most common questions asked.
Should I form a new company or buy a ready-made company?
With a ready-made company (‘off the shelf’) you save the step of registering a new name (8-14 days). As soon as you come to sign at the notary, your company can begin operations. If you want to change the name of the company later on, though, it will cost 350€.
- A tax rate of 30%, applicable to the first 120,000 euros of taxable income
- Accelerated depreciation of certain fixed assets
- A 10% tax credit for investments and expenses in internet, information technology, and communications
What is the difference between a Sociedad Limitada (SL) and a Sociedad Anónima (SA)?
An SL is similar to the British ‘Ltd’ or the American ‘LLC’.
Accounting for an SL is fairly simple and in the first three years, you can apply for ‘simplified accounting’.
Accounting for an SA is more complicated and yearly auditing is required. An SL requires capital backing of 3006€, while an SA requires 60,000€.
In an SL there is wide flexibility regarding who can be named as a Director. In an SA, administration is strictly regulated. The job is usually performed by a group of paid professionals who represent all the shareholders.
You might choose an SA:
- If you want to be able to sell stock or company bonds, or go public (IPO)
- It will be a part of international estate planning
- To establish a non-resident company in Spain
Otherwise, you would choose an SL. Most companies formed are now SLs, and not just for small businesses
My company wants to open a branch in Spain. Is this better than creating a new SL?
Creating a branch has similar requirements to VAT registration in Spain. In most cases, it is preferable either to create an SL or to register for VAT. If you plan to have a business address in Spain, creating an SL usually offers more tax advantages than a branch. Comparing branch creation with VAT registration, for the latter you don’t have to file taxes in Spain whereas you do for a branch.
Should I be self-employed or should I form a company?
If you are self-employed (Autonomo) and someone files a lawsuit, then you are liable — your personal assets may be taken from you. If you form a company, then only the assets of the company are at stake. Normally, self-employment is the option when you’re just starting out and aren’t ready to commit money for company formation and accounting.
Can I save on income taxes by creating a company?
In some cases, yes. Example: Stan is a resident of Spain and earns a 100,000 salary from outside Spain. Stan has two choices:
Pay personal income tax in Spain (if he’s paying income tax elsewhere then this can be reduced). Stan is in the 42% income bracket, so he will pay around 40,000 euros.
Establish an SL, and the SL pays him. Stan’s company pays a corporate tax rate of 30% (after the first three years, this rises to 35%). However, corporate tax deductions are extensive in Spain. Stan deducts housing, car, and food for 50,000 euros. 30% of the remaining 50,000 euros is 15,000 euros, so the savings are well worth the costs of SL creation and accounting. With an SL, there are more options: money that Stan doesn’t plan to spend in the near future can be put in the company reserves, making it non-taxable.
I heard that Spain has become a tax haven. Is this true?
Spain has always had regulations for the creation of holding companies useful in international tax planning, but these regulations were not as advantageous as those of other countries with a longer tradition in this regard, such as Switzerland, Luxemburg or Holland.
In 2002, however, the government created regulations that have now made Spain one of the most competitive countries in the world for tax planning. Spain is even more advantageous now that the traditional tax havens of the world are being carefully watched in the aftermath of September 11th. The two best options are the Entidad de tenencia de valores extranjeros and Sociedades no residentes, sin establecimiento permanente.
What is a holding company?
In Spain, these are companies whose main activity is directing and managing their ownership interests (direct or indirect holdings of at least 5%) in non-resident entities and the financial resources directly related to such investments.
Their business activity may also include the rendering of services (including financial services) to the companies in which they invest and to companies in the same corporate group. The main characteristics differentiating the special tax rules for holding companies from the general code are:
Capital gains on share transactions within the holding company are tax-exempt
Dividends that the holding companies pay their nonresident investors are tax-exempt, as long as those investors are not based in so-called tax havens
Spanish resident individuals who perceive dividend payments from holding companies will not be able to deduct all dividends but rather only those taxed abroad.
Will establishing a company in Spain help me get Spanish residency?
No, establishing a company will not make it easier for you to obtain Spanish residency or a Spanish work permit.
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