One of the dreams that many people have is to give up their jobs in the UK and move to Spain to set up a business of their own. They want to escape the rat race and do something that they enjoy doing in a relaxed environment with better weather. However, the reality can be very different and many people who attempt to start a business in Spain fail and end up closing up and returning to the UK within a few years.
This guide aims to start you thinking about some of the issues associated with starting a business in Spain and attempts to make you realize that often it is the planning and preparation that makes a business fail rather than the business idea itself.
Most people who start a business in Spain have never run a business before and therefore it is unsurprising that they do not know what they need to know about running a business in a different country with a different culture, different laws, different taxes and so on. Taking some advice early can avoid some of the common mistakes that people tend to make.
Starting a business in Spain faq’s
Is the legal system in Spain the same as the UK?
No, they are very different. The way that companies are structured can be very different. The way business plans are made is different. Banking procedures can be different. The tax system is very different. Employment law is different.
Do I need a lawyer to help me set up a business in Spain?
No, you don’t – just like you don’t necessarily need a lawyer when setting up a business in the UK. However, in reality you would always use a lawyer when setting up a business in the UK so what is so different about doing this in another country where you probably don’t have experience of buying before?
Am I best setting up a company or staying as a sole trader?
One of the most common questions that we get asked and also one of the most important decisions that you have to make as it has a major impact on how you run the business and what tax you pay. There is no “one size fits all” answer as each business is different and will have a different solution.
I have heard that there are problems with buying property in Spain. What is the situation?
Certainly there are potential problems when buying in Spain, just like there can be in any country including the UK. Most of the potential problems that you read about can be avoided by using common sense and by instructing an independent lawyer to advise you on the purchase. We often see people with problems with their property and they invariably tell us that they didn’t use a lawyer or used the lawyer given to them by the seller or estate agent.
Are the costs more in Spain than in the UK?
Yes, the total costs in addition to the purchase price are higher than you will be used to in the UK. It is therefore important to factor these into your budget from the beginning. Luckily property prices are currently rock bottom which not only reduces some of these costs but also makes the purchase price much cheaper.
New or existing
Having a business in Spain doesn’t necessarily mean that you have to set up a business from scratch. You may decide that a better option may be to buy an existing business.
The two options have advantages and disadvantages. Setting up a business allows you to do it in exactly the way that you want it to be. Buying a business allows you to hit the ground running with an existing name and existing clients. Of course, if you are taking over a business you need to fully understand why the existing owners are selling and whether there are any skeletons in the closet - you don’t want to be taking over somebody else’s liabilities or bad reputation!
Whichever way you decide to go you will need to think about licenses, staff and premises. How easy is it to set these up or transfer them to you?
If you are going to buy an existing business you need to find out about the plans of the existing owners. Are they able to stay on to assist with the transition? What are their plans after they have sold (you don’t want them to set up down the road in competition to you!). Do you still want them involved?
Finance and budget
Most new businesses need some sort of finance to get up and running. There is all sorts of things that need to be paid for - premises, stock, fittings, advertising, set up costs, licenses etc. the list often seems endless. Ater you have started the business it may take you a while before the business is covering itself financially. Most new businesses need some sort of finance to start up and to help them get on their feet. Think about what you need budget wise and then work out how you can obtain it. Then work out whether you can afford it. Many business ideas don’t get past this point.
Finance can come in many forms - savings, family loans, business partners, formal loans such as bank loans, subsidies (at regional, national or European levels) and so on.
It is vital that you work out what you need to set up your business and also how much you will need to bring in each month to cover the costs and bring you an income. It makes very good sense to work out a budget which plots month by month (or even weekly) what expenditure you have and what your predicted income is. Be realistic. This way you can work out where the pinch points are and try and plan around it.
What and where are you going to do?
There are many types of business that you can start. Most people assume that they would be setting up a bar or restaurant but there are many more opportunities available. Think about what your experience is. If your only experience of running a bar is as a customer do you really know what it takes to run one in a different country? Playing to your strengths and experience means that the business is more likely to succeed.
Similarly there is no point in opening a business just because you know how it works if there is already an oversupply of that type of business in the area. You might be more successful in another area or you may decide that there isn’t enough demand for yet another bar or restaurant in Spain.
When considering where to set up your business you will need to consider whether that location is good fro your customers and also your own personal life. There is no point in setting up a business close to home if your goods or services are not needed there and similarly there is no point in unnecessarily making things difficult for yourself with a long commute.
If you are importing and exporting goods internationally or regularly sending money abroad it probably makes sense to use a currency dealer.
When you are converting from one currency to another the difference between one exchange rate and another can literally make a difference of thousands of pounds on your purchase.
Do not underestimate the difference that a good exchange rate can make.
We know people who have sold properties and have made more money on the exchange rate difference than they have on the sale of their property.
We are not banks or currency dealers, but would recommend that you investigate the cheapest way of sending your money abroad. If you would like we can put you in contact with currency dealers that we know will give you a good exchange rate and a good service.
Currency dealers have increasingly sophisticated products. You can agree rates for the future. You can get them advising you when to buy or agreeing to buy for you when the rate hits a certain level. You can even agree a fixed rate for longer periods of time if you make regular payments abroad (for example for a mortgage or moving your pension money).
We work with currency dealers who can give you a good exchange rate for your purchase and whom we have known for years. We will normally receive a commission for introducing them to you. This does not cost you anything more as they are simply paying us part of what they make. This commission is costed into our overall charges for providing our services.
The NIE (Numero de Identificacion Fiscal, which translated literally is your Fiscal Identity Number) is your Tax Identity Number in Spain.
There are several times when you are likely to be required to produce your NIE number;
- Setting up a business
- When you buy a property
- Opening a bank account
- Dealing with the utility companies
- Taking out insurance
- Dealing with the tax authorities
- Buying or selling shares, bonds and stocks
- Buying a car
The rules on NIEs change regularly and between geographical areas. Sometimes you have to obtain this yourself and sometimes it can be done by somebody on your behalf. We will therefore advise you how this is working and costs at the time that you contact us.
Who should own the business?
This is probably the most important decision that you can make. Getting this right can save you thousands in costs and taxes. Getting it wrong can be an expensive mistake. T
he way that you would own a business in your home country is not necessarily the best way to own a business in Spain so don’t assume that you can adopt what you have done here to your business in Spain.
There are many options – ranging from being a sole trader, a limited liability sole trader, a partnership, a limited liability partnership, a limited company, a plc a co-operative and so on but there is no “one size fits all” solution that works for everybody.
Your circumstances and priorities are different from the next person. We are able to look at your circumstances and your priorities and advise you who should own the property based on that information. The solution may not necessarily be immediately obvious.
When deciding on the best form of ownership we would need to take into consideration both Spanish and UK tax and also a range of other circumstances such as your plans for the property in the future.
The black economy in Spain has always been a large percentage of the economy as a whole and there has been a long history of people running legal businesses or working for legal businesses but not paying the correct tax.
The Spanish Finance Ministry estimates that during the economic downturn the size of the black economy increased so that in 2012 it represented 24.6% of the total economy, up from 17.8% in 2008.
Many people claim that it is impossible to make a living in Spain without getting involved in the black economy to some extent or the other. They claim that as everybody does it then the “extra” tax that you have to pay if you do things properly makes you uncompetitive and un profitable.
Common tactics include; having staff that are not on the books and are paid in cash, not putting all transactions through the till and not declaring those transactions that are made in cash, and buying products and stock from other businesses that act in this way.
It is always amazing how quickly people who move to Spain adopt this practice, even if they would never dream of doing this back in their home country. Just because this is common practice does not make it legal.
The consequences of getting caught not paying the correct taxes and getting involved in the black economy can ruin a business. It can be “assumed” by the tax authorities that any un declared income has been earned in the current year if they discover it, meaning that you may end up in a higher tax bracket that you may otherwise have been in (as well as having fines and interest levied). Certainly if you get caught you are likely to have a tax inspection every year for the foreseeable future (assuming that you are not closed down or prosecuted for tax evasion), which will be a major headache and an added administrative nightmare.
Unsurprisingly the tax authorities in Spain are clamping down on the black economy as a way of trying to increase the amount of tax paid and therefore helping the economy as a whole. Getting involved in the black economy is not worth it.
It is vital that you make a business plan. This will help you identify whether your business idea is going to work in the first place, and if not what, if anything, you can do to make it work. Having the plan in your head is not enough. Writing it down will force you to think about all the different aspects of the business.
If you need finance from, for example, a bank, you will need to provide them with a copy of your business plan. If the financial institution is Spanish then you will need to make the business plan in the Spanish format and in Spanish. Business plans in different countries vary as in some countries the priority as to what is important can change.
After you start a business in Spain there are ongoing obligations that you need to meet;
It makes sense to insure your property and contents.
Council Tax (Impuesto Sobre Bienes Inmuebles)
This is normally paid annually in one lump sum between 15th September and 15th November. The amount will depend on the location, size and age of the property.
Non payment of IBI can lead to legal proceedings being taken against you and an embargo on the property.
You will be responsible for the utility charges – electricity, gas, water sewerage, rubbish collection etc. from the time that you buy the property
Community Charges (Cuota Comunidad de Propietarios)
You should pay these otherwise the property can be confiscated and auctioned in order to settle the debt.
If you are non-resident you must declare any income you have earned in Spain. This applies even if you receive this income by renting out to people from your home country and the money never touches Spain.
Even if you do not receive any rent from the property it is assumed that you have received some sort of benefit and you are taxed on this (but only at 0.5% of the Valor Catastral).
You will also normally have to declare this income in the country where you are tax resident but can normally offset the tax paid in Spain through Double Taxation Treaties.
The taxes that you pay when you have a business in Spain will normally depend on whether you are tax resident there or not.
Tax residence is a determined by a number of factors;
How long you spend in that country? Is it 183 days or more a year (not necessarily continuously). If so you are likely to be tax resident there.
Is your main home there? If it is then you are likely to be tax resident there.
Is your immediate family (spouse and dependent children) based there? If so you are likely to be tax resident there.
Is your main economic interest there? If so you are likely to be tax resident there.
If you do become tax resident in a country then you will normally stop paying taxes in your home country and start to pay taxes in the new country.
Do not be tempted to have selective amnesia when it comes to declaring taxes the authorities in both Spain and the UK are clamping down on people who do not do not do things properly.
Sometimes you should declare something for tax purposes in one country and also in another. Spain and the UK have a Double Taxation Treaty which means that you don’t normally pay tax twice and can offset the tax paid in the other country against the tax that you would otherwise pay in your home country.
Whenever you run a business there are tax consequences and there is a range of taxes that you need to pay even if you don’t make a profit. Just like in the UK the tax system in Spain is complicated and you should take specialist tax advice when setting up your business.
The tax year in Spain isn’t the same as in the UK and is the same as the calendar year. Taxes are levied at three different level (national, regional and local) and therefore where your business is based will have an impact on what taxes you pay and how much you have to pay for those taxes
The most common taxes that you may have to pay are; IVA (Impuesto Valor Aadido). This is the Spanish equivalent of VAT and it works in a similar way to the way VAT works. There is different rates of IVA that are applicable depending on what you are doing. The general rate is 21%. The reduced rate, which applies to certain products such as transport, hotel services and construction of property is 10%. The “super reduced” rate is 4% and applies to items which are considered a necessity, such as vegetables, milk, bread, fruit, books, newspapers and some pharmaceuticals.
IRPF (Impuesto sobre la Renta de Personas Fisicas). Personal income tax. You may have to pay this. If you have employees you may have to deduct this at source and pay this for them. The calculation is complicated but percentages range from 24% to 52%
Impuesto sobre sociedades (Company tax). Paid on taxable profit of the company, typically at 25% although there is reduced rates for newly formed small businesses.
When you set up a business in Spain you are likely to require several licenses.
Licencia de Apertura. This is the opening license that you will need to get from the Town Hall in order to open the business. The cost will depend on the type of business and the region. You will normally need an inspection of the business by the authorities before this is issued.
Licencia de obra. This is a building license which you may need if you are making alterations to the premises.
You may also require a license for the type of work that you do. For example if you handle food or drink you will need a license. If you carry out certain activities such as being a doctor you will need a license.
You will need all relevant licenses before you can trade. Investigate these before spending too much setting up your business as you don’t want to find out that you can’t get the necessary licenses.
|Abogado||Lawyer or solicitor|
|Agente de propiedad inmobiliario||Estate Agent|
|Asesor Fiscal||Tax Consultant|
|Compra / compraventa||Purchase / Buying and selling|
|Contrato de empleo / trabajo||Employment contract|
|Cuenta bancaria||Bank account|
|Director de banco||Bank manager|
|Empleo||Work (as in employment)|
|IBI (Impuesto Sobre Bienes Inmuebles)||Council Tax|
|IVA (Impuesto Valor Añadido)||VAT (Value Added Tax)|
|Jefe||Boss / Owner|
|NIE (Numero de Identificación de Extranjeros)||Foreigner’s Identification Number|
|Nota Simple||Land Registry Search|
|Pequeña y Mediana Empresa (PYME)||Small or Medium Enterprise (SME)|
|Plan de negocios||Business plan|
|Póliza de seguros||Insurance policy|
|Registro de propiedad||Land Registry|
|Sociedad Anónima (S.A.)||Public Limited Company (plc)|
|Sociedad Limitada (S.L.)||Limited Company (Ltd)|
|Sociedad Unipersonal de Responsabilidad Limitada||Company equivalent of Sole Trader|
|Impuesto Valor Añadido (I.V.A.)||Value Added Tax (V.A.T.)|
Setting up a business in Spain checklist
|1||Decide what business you want to set up|
|2||Instruct your independent lawyer (hopefully Judicare)|
|3||Look at the cost of setting up the business. Fix a budget. Stick to it|
|4||Look at how you are going to finance the business to start with. Write a budget that shows monthly cash flow|
|5||Look at how you are going to fund your family until the business takes off|
|6||Look at who should own the business.|
|7||View locations and possible premises. Be honest with yourself about what you and the customers need|
|8||Look at tax obligations|
|9||Make a business plan|
|10||Speak to currency dealer about getting the best rate for any money you are transferring to Spain|
|11||Consider who your target audience / clients are|
|12||What are your language skills like—with clients, suppliers, the authorities etc|
|13||Consider exit plans if it goes wrong|
|14||Lawyer deals with purchase|
|15||What licenses do you need to obtain?|
|16||What documents need to be translated into Spanish|
|17||Look at what staff you need and obligations to them|
|18||Arrange insurance – contents / buildings / health / employers liability etc|
|19||Signature of title deeds and registration at the Land registry|
|20||Make a Spanish Will and review your English Will|
|21||Arrange for Fiscal representation and tax advice|
|22||Open your business and be successful|
Why use Judicare
We have an experienced Spanish legal team comprising Spanish lawyers and English lawyers who have studied Spanish law.
We are Solicitors
We are a UK based firm of Solicitors regulated by the Solicitors Regulation Authority and who specialise in international legal issues.
We understand both sets of laws
Because we understand both sets of laws we understand the difficulties that come when two sets of laws meet.. This is particularly important when it comes to issues involving ownership, taxation and inheritance.
We are members of AIPP
The Association of International Property Professionals was set up to improve standards of professionalism in a largely unregulated overseas property market.
Our Spanish team has many years of experience dealing with a whole range of legal issues with Spain.
We speak your language
You need a lawyer who can speak your own language. More importantly you need somebody who can explain and discuss often complicated issues in terms that you understand.
We are independent. We are not allowed to act for the buyer and the seller at the same time. We are not linked with any Development Companies, Builders or Estate Agents