Many British expats looking to purchase a property in Spain are also looking for a reliable source of income to support them financially whilst living overseas. Setting up your own business is a great way to facilitate this, but only if you follow the correct procedures and regulations.
So for those of you moving to Spain to set up a business, once you have an idea you will need some help to get it legal and to get it right. You need to consider the different tax treatment of whether you run the business as a sole trader in Spain (running it as an individual) or as a limited company.
The simplest way to run a legal business in Spain is as a sole trader, or an “autónomo”, as you can either trade in your own name or as a business name. With the relevant documents, your business can be registered within around 15 days of the papers being signed, but you might need to obtain an opening license if you have business premises.
Can you just see how the business in Spain goes without having to pay any mandatory expenses? Unfortunately, not legally. You are required by law to register with the Special Social Security scheme for self-employed workers in Spain. You are then entitled to the local health service and if you pay for a certain number of years you may qualify to receive a pension. It is illegal to work in Spain without paying Spanish social security!
Tax and qualifications
As a sole trader, you will be assessed for Spanish income tax. You can choose between two methods of paying tax: a) you make quarterly VAT and Income Tax Declarations on the “direct estimations method”, just on your actual profit and earnings or b) you pay a quarterly fixed income tax & VAT amount under the “modulos” system. It is best to discuss the two systems with your accountant. Self-employed workers can also take on employees and so have the chance to expand their company once the business takes off.
There is the option to pay initial lower payments as your business grows increasing them for the first 18 months.
Being on top of your personal and business tax in Spain, as well as the Social Security obligations in Spain is crucial, or you will end up in trouble with the authorities. The right accountant is essential i.e., someone who can guide as your business grows and make sure that your day to day book-keeping and invoicing is what the Spanish authorities require.
For some businesses on the Costa Blanca, some relevant qualifications are a legal requirement. Estate agents in Spain are able to operate without proving relevant qualifications. A lawyer can not. Another example is that it is not possible to set yourself up on the Costa Blanca as a private hire taxi driver without relevant licences.
Licences are also important when premises are involved and you need to consult a gestor for assistance on this. You will need to arrange a “licencia de funcionamiento” (the operating licence), which is required for opening the business covered by the ´licencia de actividades´ (activity licence).
The local Spanish town council must grant the planning licences. Any refusal must expressly establish the reason why (i.e. in which specific aspect the project does not comply with the relevant planning regulations). In summary, the town council cannot discretionally grant or refuse licences. An architect will be required for the project and to present the information to the town hall (this takes a week to ten days in the Orihuela Costa area). The cost of the work by the architects is based on the Sqm of the unit and employees.
Employees and legal
If you are employing others, it is essential that you have employment contracts in place and that you pay time on staff as agreed, deduct tax accurately and comply with other legal requirements like social security. EU citizens can set up a business once they have an NIE number. A non-EU citizen has to have the necessary Visa, work permit and a minimum capital investment.
There are also benefits to forming a Spanish company or buying a ready-made one. As the company is a legal entity, you may be protected should you fall victim to litigation. Also, the rates of corporation tax are lower than the highest rate of personal income tax and you may be able to offset more of your business costs against your profits.
However, you need to open a company bank account and deposit an initial share capital. You will also have Notary fees for a notary and licences to pay. You will need a name clearance certificate and to register the Articles of Association (“Escritura”) at the Mercantile Registry. A Notary needs to sign off the Articles of Association and you will have to register your company's trading activities for tax and IVA (get a CIF code) and pay stamp duty.
This may all sound quite daunting and in whichever manner you decide to start up your business, you will need the services of an accountant and possibly a lawyer. A sole trader set up, however, is not too painful and, once the initial paperwork is done, you will be up and running and can get on with making some money. Getting the right advice is crucial to getting your dream future in Spain assured.