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STARTING A BUSINESS




WORKING IN SPAIN

STARTING A BUSINESS



Updated: January 2014

This constantly updated guide takes you trough the Spanish world of Starting a Business. Information is up to date on time of writing.
Omissions/errors are always possible, so please take advice before you handle.

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The ways to start on your own.


“Autónomo” or Self-employed or sole trader

The most basic, quickest and cheapest way to start a business. Your business will be registered at the Tax Office (Hacienda) for IVA (VAT) and IRPF (income tax) in about ten days time. You will have only to pay your fees for Seguridad Social (Health & Pension) and an accountant.
The quarterly declarations depend on the system you choose:

The “Regimen General”, or Standard VAT system, where you declare intakes, set against expenses; you pay the balance or carry forward the IVA credit if you have more to claim than to pay. The income tax or IRPF will be calculated also quarterly, and you will have to pay “on account” 20% of your profit.

The “Regimen Simplificado de Estimación Objetiva” also called “Módulos” is a fixed-rate system based on parameters dictated by the Tax office for each type of trade. Only certain activities are allowed in this system. Bars, restaurants, repair services, removals, supermarkets are a few of them.

The “Regimen de Recargo de Equivalencia” is a mandatory system for certain activities, like food and drink stores, supermarkets, retail stores for example (not for bars or restaurants). The supplier will charge a percentage on top of the IVA. This extra money is considered as IVA on the future profit made on the sale of the product.
Ask serious advice before you decide a system or another and if you are to use a mandatory system or not. For example, if you choose system (i), you will have to keep it for 3 years, if you choose system (ii), you can quit every year and step over to (i). System (iii) applies to both other options (i) and (ii).


The “S.L.U.” or the one-man/woman- company

Is a “Sociedad Limitada Unipersonal”: one and only shareholder.
See hereunder the details about “S.L.” An SLU becomes an S.L. when an extra shareholder steps in.

A few of the usual ways to start with Partners.

The C.B.

The “Comunidad de Bienes”: a group of self-employed people (autónomos) put some money together and trade under one Company Name, and bring their personal labour and starting capital to the company. Also personal labour is brought to the company.
They choose one or more Directors, which have the full power of management.
Advantages: Cheap, quick, no minimum capital needed, no big paperwork at start-up.
Disadvantages: The Company has no corporate identity, which means that each partner is liable for the company with his own belongings/assets. Each of the partners pays his own Social Security fees. Tax wise, the profit is shared quarterly among partners according to the shared percentages written in the Act of Constitution. Each prepays his own income tax.


The S.C.

The “Sociedad Civil” is just like the C.B., however, there is necessarily some initial money involved at start-up.
The S.L.

The “Sociedad Limitada” is basically similar to the Limited Company, but different in a lot of aspects, in matter of legal management and paperwork required.
This Company is an abstract Corporate body (juridical entity), regulated by Law. The shareholders are only liable for the money they bring in as shares, in Spanish “el Capital”, minimum required is 3.000,00 €.
Usually, 3.000 € are divided in 3.000 shares of 1,00 € each. Capital can be made of    equipment also.
The S.L. has a registered and unique name. The Act of Constitution is signed at a Notary office. The “Capital” must be paid in cash in the account of the company before the Notary can accept to sign the Constitution act.
The S.L. is only accepted in the “Regimen General” for IVA purposes, and pays annually a fixed percentage of 20% to 25% on the net profit.

Advantages: Shareholders are liable until the limit of money they bring in as shares. Their personal assets are protected (also in an S.L.U.), only if there is no mismanagement. The “Adminstrador(es)” (Director(s)) can be non-shareholder(s). Shareholders and Director(s) pay and declare income tax on their own salary, like self-employed or employees. Presents a stronger and stable image to clients and suppliers. The company can own buildings, vehicles, etc., as deductible expenses.

Disadvantages: Costs more to constitute and start, accounting is more expensive, yearly results have to be filed at the “Registro Mercantil”(Registry of Commerce), income tax on net profit of the company is 20 to 25%.
A self-employed can earn up to approx. 30.000/40.000€ net a year, before it would be advisable to step over to S.L.


La SEGURIDAD SOCIAL – The Spanish Social Security and National Insurance system

Spanish “Seguridad Social” or Social Security covers the following:

Free Health service & Hospital service, including medication at a lower price;
Prescribed Medication at reduced prices
Accidents;
Pension from 65 years of age for 15 fulltime years of payments if worked in Spain only;
Unemployment (for self-employed under specific conditions, when they have paid extra fees during a determined period of time).
Daily allowance if ill or accident victim.

The Spanish Seguridad Social has two main basic systems:

Cuenta ajena (working as an employee)

Any E.U. citizen can work in Spain with any more formalities than the presentation of his passport or national identity card. An N.I.E. number is also compulsory.
The employees pay Social Security as a percentage (approx. 8%) retained by the Employer on their wages (“Nómina”), also does the business on the same wages. Employer’s Seguridad Social represents approx. 32% on top of the wages, plus usually one extra month’s salary twice a year)

Cuenta propia or “Autónomo”  (working as Self-employed or sole trader)

Any E.U. citizen can work in Spain with any more formalities than the presentation of his passport or national identity card. However, Spanish Hacienda (Tax office) and Social Security require an N.I.E. (foreign identification number) from a National Police office. Without NIE number, one could not be identified as a taxpayer.

The self-employed pays his/her own Social Security, a fixed monthly amount for the current year, calculated on a basic earning. In 2011, you would pay from approx. 270€ per month.
Even if you have no income, you have to pay the monthly fees; but you can stop and restart trading whenever necessary.


PLEASE NOTE



There is nothing like a “threshold” quantity that allows you to work without paying Social Security or IVA.

In Spain, your spouse cannot be hired as an employee, if you are self-employed or both are majority shareholders in a company: the spouse will be considered as a “self-employed” by the Seguridad Social, and will have to do his/her same monthly payments, but only if he/she has a position or works for the company.
Women and Men under 30 have right to discount, when they start their first business as self-employed.
Children up to 30 years old can be hired as employee or as apprentice.

Always keep an Agenda of your obligations, as you will not receive tax-forms from the Government.

Spain is based on “voluntary” electronic declaration and payment of taxes and fees.
Authorities very seldom send bills (only if you are too late) and if you didn’t receive them, you should go for it yourself.

If you happen to leave Spain for a while, do not forget to stop your business to avoid accumulating unnecessary debts in taxes and Social Security, which would “follow” you anywhere you move to.


If you leave Spain without intention to come back, take care of the same formalities, as Europe is now very well organised, regarding tax debts recovery.


When you start a business as self-employed, open a business bank account in your name and use it. Banks cannot help you when you are in need, if you keep the money somewhere else.
The best way to prove income is to bring your takings to the bank regularly and pay your expenses through the same account.

FREQUENTLY ASKED QUESTIONS


HOW MUCH PROFIT OR SALARY CAN I EARN BEFORE I PAY INCOME TAX ?

The taxation system changes a little every year. Ask your accountant  to run a simulation based on the previous year’s conditions.

WHAT IS THE DIFFERENCE BETWEEN “MODULOS” AND “DIRECT” DECLARATION SYSTEMS ?

-   MODULOS, Also called “Estimación Objetiva”, IS WHERE YOU PAY A PREDETERMINED AMOUNT, BASED ON A VIRTUAL INCOME determined by Hacienda, based on their parameters.
Can be tricky if you have bad trade. There is however nothing to declare, apart from your investments in the business, which can reduce your taxes, according to the kind of business.

-   DIRECT IVA/IRPF, also called “Estimación Directa”, IS WHERE YOU DECLARE your purchases, expenses versus your sales, pay IVA and prepay income tax, which is adjusted annually.

CAN I USE A BUSINESS NAME ?

You can, but no official authority will recognize it, if it’s not your company name.
Some businesses have to register their business name at a local authority (Tourism office for example), but the bearer of the name is the one considered by the authorities.
You can also have your business name as a registered trademark or logo.
Banks and Officials will only use your name as a self-employed or the company name (SL, SC, CB, SA, …)
As a sole trader, you are considered as a Business, not as a Company.

HOW CAN I BE CONSIDERED AS A RESIDENT IN SPAIN ?

Once you register at the Tax Office (Hacienda) by paying income tax, you are a Tax resident.
To prove it, Hacienda can issue a Certificate of Residence on your demand.
Resident cards are no more handed out, since the Law of 26/03/2007 abolishes them.
A Register is opened at National Police stations, in which any person who wishes/needs, can subscribe and get a green Card with the registration data. From 2013, you need to prove an income or (self)employment status to get the card.


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