Starting in business in Spain – The basics

Setting up in business in a foreign country can be a daunting experience and any new business person in Spain will have a lot of questions which need answering. Before you get started here is a list of the most commonly asked questions.

Do I need an NIE number?

If you don’t yet have a NIE number this is the first thing to obtain, an NIE number is a unique reference that will identify you when you are doing business and for any formal and legal procedure, from opening a bank account to purchasing property.

Do I need to register with the Social Security?

If you are going to work in Spain you must register with the Social Security office and start making monthly social security contributions, immediately after you register as trading with the tax office. These contributions entitle you and your family to have access to the Spanish National Health Service and any other social security related benefits. They are usually around 200 Euros, although there are reductions of up to 50% in certain circumstances.

Should I form a company or be self-employed?

The right choice will depend on your circumstances and you should seek personalised advice. However as a general guideline we tend to recommend that new entrepreneurs start the business by registering as sole traders, because the whole process is much simpler to set up, manage and wind down. Compliance obligations with the tax authorities are very similar whether you are self employed or trade through a company.

After a little while, and once the business has proven its capability to survive, then the right time will come to consider the incorporation of a limited company and changing the business over to the company.

Please note, which ever course you choose, you must register with the tax authorities before you start trading.

Is there any government funding available?

Andalucia’s regional government has a number of schemes in place to help and encourage self employment, generation of employment and development in young companies. In particular, women are a preferential group for many of these grants, there is also funding and guidance available for technology based and innovative businesses.

Here are a few indicators that may help you identify if you are eligible for government funding:

  • You are about to register as a self employed individual for the first time
  • You need to employ new staff
  • You are a woman and own at least 50% of your limited company
  • Your business offers something which is new in Andalucia
  • Your business has a high content of technology

Grants specifically aimed at first-time sole traders

If you have never been self employed in Spain before, there are a number of grants you can apply for, such as:

  • 6000 euro grant for commencement of trade
  • 4000 euro grant to help pay for set up and first year consultancy costs
  • Up to 5000 for employing someone for the first time
  • Refund of interest on the loan taken out to start the business

It is worth noting that these grants have to be applied for before you actually register as once you start trading you disqualify for these grants. It is only possible to apply for these grants a few times a year. Therefore, in practice it may not be possible to delay registration until the next available window of opportunity.

It also has to be said that not everyone who applies for government funding is successful as the funds are limited and the number of applicants high. They also take a few months to be processed and if successful paid, therefore, unfortunately they may not make or break your chances of taking your business of the ground.

You must also bear in mind that most grants have a number of strings attached; therefore we would only recommend that you apply if your application is genuine and you are likely to comply with the specific conditions of the grants you apply for.

What are the IRPF deductions present on invoices?

A factor that often confuses new businesses is the IRPF payments or ‘pay as you go’ income tax system. You are probably familiar with PAYE systems when applied to employees, whereby the employer withholds a little income tax from the employee and pays it over to the tax authorities. In Spain there is a PAYE system not just for employees but also for some self employed individuals and landlords of commercial property.

When a self employed person provides professional services to either other self employed individual or to a company, the client is obliged to retain some of his or her fees as a payment on account of the supplier’s income tax. Then, at the end of each quarter, the amounts withheld have to be paid to the tax authorities. The standard rate of withholding tax for professionals in Spain is 15%, although it may be reduced to 7% during the first two years of trading.

Similarly, tenants of commercial property, if trading as well, are obliged to withhold 18% of the rent due as a payment on account of the landlord’s tax, with the subsequent quarterly payment.

Conclusion

This is a brief overview of the questions we are most commonly asked. However there’s much more to learn and it’s worth taking your time to do your research before you take that leap. There are a number of useful information articles on our website www.roseandclavel.com

Article by Susana Serrano-Davey ACA from Rose & Clavel Anglo-Spanish Chartered Accountants. Rose & Clavel provide high-quality, professional and reliable accountancy services and innovative business solutions for English and Spanish speaking clients who expect the very best. To find out more, visit www.roseandclavel.com, or email info@roseandclavel.com.

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