Spanish Business Finance and Tax Liability

When starting a business in Spain it is critical to be on top of the financial side of the business, including funding your business, budgeting, the impact of exchange rates and your tax liability. This guide provides a basic overview of these issues to help get you started.

Financing a Spanish business

Most new businesses need some sort of finance to get up and running. There are all sorts of things that need to be paid for - premises, stock, fittings, advertising, set up costs, licenses etc. the list often seems endless.

After 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.

Making a budget

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.

The importance of currency exchange rates

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.

Spanish business taxes

Whenever you run a business there are tax consequences and there are various Spanish business 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 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 are 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.

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.

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%

When Spanish business taxes are paid

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.

Nie (Numero de Identificacion Fiscal)

Your NIE (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.

Looking for advice on starting a Spanish business?

Our UK-based team of Spanish business team can help you with all of the legal sides of starting a business in Spain, including with finance agreements, understanding your tax obligations and buying Spanish property.

With a thorough understanding of both UK and Spanish law, we can provide clear, reliable legal guidance in plain English, helping you to get your business up and running smoothly and giving you the best chance of long-term success.

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