Setting up a Business in Spain as a Foreigner.
Foreigners who want to set up their own business in Spain must apply for a residence and self-employment permit. If they have permanent residence, they will not need to do so, they will only have to comply with the same requirements that are asked of Spaniards.
Business in Spain – What steps are necessary?
The first thing you must do is to plan your business well. You must make a business plan that includes the amount you are going to invest, the possibilities of creating jobs, the activity you are going to engage in, the benefits you plan to get and the documents and authorisations you need. Once you have the project ready, you must go to the Government Delegation to apply for a self-employment permit. The Delegation will stamp your application and you will have three months to return to your country of origin and apply for a work visa at the Spanish consulate. If you are approved, the Delegation will send it to the consulate and it must be included in your passport. From that moment on, you will enter Spain and start the activity from the moment you arrive.
How Long Does Business Authorization Last In Spain?
The initial authorisation will be granted for one year. Remember it is limited to the activity you applied for, which must also be carried out in the place that appeared in your initial business project. If the company does not work or you decide not to continue with it, apply for a different authorisation, as this is not valid for working for others.
However, if after the first year you decide to continue with the company, you can renew the job application for two years and then for another two years. After these four years, it will be permanent and you will no longer have to renew it. From the first renewal, you will also be able to work in any province, not only in the one where you initially set up your company.
You should remember if you have a permanent residence you do not need to carry out all these procedures. You will simply have to carry out the same procedures as any Spanish citizen.
Comunidad de Bienes (Community of Goods) – What Is It And How Does It Work?
At the time of starting a business, there are several options. The most used are two: to become autonomous or to make up a Limited Society. In fact, the most common is that the entrepreneur starts by becoming autonomous and leaves for later the creation of the company.
The problem is that we cannot always do this. Not even good accounting management software will make this impossible possible. So, when we do not undertake alone, a good option may be to launch a Community of Goods.
The Community of Goods is the simplest form of association between several self-employed to implement a common project. We can define the Community of Goods as the association between two or more self-employed (called common partners) who have a thing or right in common and by which they get a benefit or expect to get it through a business activity. It is the most advisable option when there are several people who are going to start a small business that does not require a high investment.
How to create a Community of Goods (Comunidad de Bienes) In Spain
It is necessary to sign a private contract of community of goods between the communal partners. This agreement must be detailed:
- Name, surnames and DNI of all the partners.
- Name that will be given to the new Community of Goods.
- Address of the community.
- The activity that is going to be developed.
- What each one of the partners contributes.
- The percentage of participation in the community.
- The system of administration of the community.
All the clauses that are agreed upon: duration, cause of dissolution, the possibility of transmission, etc. What is not agreed will be governed by the Civil Code.
After the signature of the contract, it will be necessary to register it in the organism of the autonomous administration that corresponds. If real estate is contributed, a public deed will be required.
Minimum Number of Partners
In order to create a Property Partnership, a minimum of two partners are required. There is no maximum.
Minimum share capital
There is no minimum contribution. They can contribute goods or money and work. These last two cannot be contributed separately, they must be combined.
There must always be a minimum starting capital that can be the contribution of the common thing.
Responsibilies With The Comunidad de Bienes
The Community of Goods does not have its own legal personality and therefore, as independent entrepreneurs that they are, the liability of the common partners for debts to third parties is unlimited and joint and several. The partners are liable for their present and future assets and support each other.
If the community accumulates outstanding payments they could claim the car, the house and any property of the partners. Thus it is deduced from the article 395 of the Civil Code referred to the Community of Goods. This is the major disadvantage that a Community of Goods presents regarding the Limited Company. However, we can limit our responsibility if we use the figure of Limited Liability Entrepreneur when starting the project.
Thanks to this, our property will be exempt from liability as long as its value does not exceed 300,000 euros and as long as we have acted in good faith.
Taxation of the Community of Goods (Comunidad de Bienes) In Spain
Tax obligations of the Community of Goods
As it does not have its own legal personality, it will not have to pay corporate tax. The entity as such will not have to pay taxes on the profits got, since they are distributed entirely among the members. This does not mean that the company itself does not have obligations regarding income tax in relation to its own activity. They are the following:
Withholdings on account of the income tax that you practice to your suppliers that you will settle through the Model 111 quarterly and 115 annual average.
Information return for entities under the income attribution regime. It identifies the members of the community and the income distributed to each of them. This will be done through Model 184, which is presented in February.
Declaration of withholdings on account of income tax and corporation tax. It is liquidated through Form 123 and will only be necessary if there are capitalist partners (they contribute investment but not work).
Informative declaration of withholdings and payments on account. Withholdings on account of income tax to capital partners that will be made through the annual informative declarations according to Model 180 and Model 190.
Regarding the VAT, the periodic liquidations must be presented. Specifically, you must file Form 303 on a quarterly basis and Form 390 annually, and the rest of the informative returns depending on the activity you carry out.
Tax obligations of the partners
The community members pay taxes through the Personal Income Tax (IRPF).
As a member of the community, it is also necessary to give an account of the expenses and income of the community on a quarterly basis by means of the Model 130 or Model 131. Obviously, each member will only report on his part of the company’s accounts, and not on the whole.
How to dissolve a community of goods if a member does not want
We will not enter here into the reasons that can lead a dirty person to want to stop being part of a Community of Goods. But we are going to point out that, once this decision has been taken, there are three basic options.
To transfer the society to a new buyer.
To liquidate the society, which implies that it is necessary to pay to creditors and to make a definitive closing.
Declare an insolvency proceeding. It must be considered that this only makes sense if the debts that the dissolution of the community will generate cannot be met.
Comunidad de Bienes Overview
We have just seen how a Property Company works, the easiest way to start a business among several people. Compared to a Limited Company, the advantages are mainly two:
- The incorporation procedures are much simpler.
- No minimum capital is required for its constitution.
- But there are also some disadvantages:
The responsibility of the co-owners is unlimited and joint and several. We have already seen that this responsibility may not be total if we declare ourselves a Limited Liability Entrepreneur. In spite of this, the responsibility will always be greater than in a Limited Company.
The other great disadvantage is that the Community of Goods is usually excluded from aid and subsidies.However, we assume that before you start your business in Spain you need to know the legal requirements:
Preparations For The Comunidad de Bienes
You have done enough market research to confirm the economic viability of your proposed business (if you do not know how to do this, I recommend that you buy a book on the subject or hire a consultant);
Ideally, you have previous experience in the industry you aspire to.
You are fluent in Spanish, or have a business partner who is fluent in Spanish.
Steps To Undertake a Successful Business in Spain
Please note that the information presented here is only a guide and should not replace the professional advice of a lawyer, manager, business consultant, accountant and/or financial advisor. I encourage you to make friends with these professionals early in the start-up process.
- To start a business in Spain follow the six essential steps
- Choose a name for your business (and register it)
- Choose a legal business structure.
- Create a business plan.
- Find financing.
- Find a suitable location for your premises.
- Get secure licenses and permits.
- Choosing a name for your business
A good business name is your company’s first asset in Spain. You can choose to register your company name, which in theory gives the owner of the name the exclusive right to use that name for commercial purposes. Registration of the trade name is optional and is managed by the Spanish Patent and Trademark Office.
In Spain, company companies can have a trademark or trade name different from their official trade name. See Companies in Spain: Types of Business Entities for Companies in Spain.
Selecting a Legal Business Structure In Spain
Spain offers various legal business structures, also known as business entities, to meet a variety of needs, each with a distinct set of legal and tax responsibilities. Choosing the right one is important to accommodate the present and future goals of your future business. The legal business structures in Spain are as follows (links take you to the corresponding bit of our page Companies in Spain: Types of Business Entities for Companies in Spain):
- Sole Trader or Sole Proprietor (Individual Entrepreneur or Self-employed)Joint Venture (Community of Goods or C.B.)
- Civil society
- Public limited company or S. A. (Public Limited Company)
- Sociedad de Responsabilidad Limitada, S. R. L. (Limited Liability Company, S. R. L.)
- New Enterprise Limited Company
- Empresa Laboral (Labour Company)
- Collective society
- Limited Partnership
- Cooperative (Cooperative Society)
- Creating a Business Plan
Whether it is to attract investors or to create a roadmap for growth, every business needs a business plan. Any good book on business creation should contain a chapter outlining the essential elements of a good business plan, but here is one such outline of the elements of a business plan, however, there are two additional things you should consider in Spain:
Language. If you plan to seek financing or investors from Spain, your business plan needs to be in Spanish. If you plan to look for a combination of Spanish and international investors, you should have a Spanish and English version of your business plan available to everyone involved.
Getting help. The local Chambers of Commerce in Spain offer free advice and support to entrepreneurs. Find a Chamber of Commerce in your area.
Looking for funding
Adequate commercial financing is key to any business, so don’t rule out any options just yet, including the following:
Especially for small businesses that do not require an extensive amount of capital, dipping into your savings (or asking for gifts or loans from friends or family) could be the shortest and best route to start your business.
Available to residents and non-residents alike, loan terms vary depending on the size of the loan needed (or whether it is considered a microloan), the amount of collateral, the financial institution and other factors. You may be required to repay the loan in as little as three years or sometimes up to fifteen years. Repayments may be monthly, quarterly or semi-annually. Check with the ICO (Instituto de Crédito Oficial, in English and Spanish) or any bank or savings bank. Make sure you go shopping.
Subsidies (Grants or Aid)
Grants are available to new and existing companies at municipal, provincial, regional, national and European Union level. The conditions for subsidies differ, but subsidies are usually available to companies in certain industries or sectors, creating employment in certain areas or employing certain disadvantaged populations.
Check with your municipal, provincial and regional government, or your local Chamber of Commerce, for available subsidies. Consult the Spanish subsidies at the DGPYME (Directorate-General for Small and Medium Enterprises Policy).
Business Angels are private investors who invest in new or existing businesses for a variety of personal or financial reasons. But angel or not, Business Angels expect a good return on their investment like any financial institution. The advantage of an angel investor is that the investment conditions and the amount of risk he or she is willing to take differ. Sometimes, when a bank rejects a loan, an angel investor may come to your rescue. Consult the Spanish Network of Business Angels.
Lines of Credit (Credit account or credit policy)
A line of credit during the start-up phase can be considered a peace of mind loan for those unforeseen extra costs (which there will be and you should plan for). You pay interest on the borrowed money when you need it, and a fee for the privilege of having a line of credit when you don’t. Interest rates can be fixed or variable and terms are usually one year.
Finding a suitable location for your business
Once you have considered who your customers are, where they will come from, what facilities you will need to accommodate your business (for example, will you need dressing room space? Will you need a warehouse? Will your delivery drivers need parking? and if you need to be close to certain other types of businesses, then you can start looking for a location for your business.
Walk around your area and look for signs such as “transfer”, “for rent”, “space available”, etc. Write down the phone number and call them. Or use an experienced local real estate agent. Or try a website such as Fotocasa. es, which offers a list of offices and commercial premises throughout Spain for rent, hire or purchase.
Licenses, permits and insurance
You will need licenses and permits from your respective municipal and regional governments. Check with your local council and regional government for the latest requirements.
To get an idea of what may be required, in the city of Madrid for example, you must get a licence (licencia urbanística) if you intend to build, renovate or demolish anything (interior or exterior) where your business will be developed. (You will not need a licence if you only want to paint the interior or change something small inside your unit. Licence fees vary depending on exactly what you are doing and how many square metres you are doing it on.
At a regional level in the Community of Madrid, certain business activities are required to get specific activity licences, such as travel agencies, tattoo shops, body repair shops, etc. Some licenses for which you will have to pay a fee. Depending on what your proposed business is, other types of licenses may be required as well.
It is not a licence per se, but you must also be prepared to charge Value Added Tax (VAT), which ranges from 4 to 21%. The tax rules are governed by different schemes (regimes) depending on your business. Consult your national tax office and your tax or financial advisor about your tax and reporting obligations.
“Libro de Visitantes” (Visitor’s Book)
Your business will also need a “Libro de Visitantes” (Visitor’s Book). You must acquire it from the Provincial Directorate of the Ministry of Labour and Social Affairs in your province and have it available at all times to the labour and social security inspectors.
Once you have successfully chosen a name and legal structure for your business, created a business plan, found funding and a location, and get licenses and permits, then you can start hiring employees, create a website, advertise and perform all the other tasks that will contribute to the success of your own Spanish business.