How to start a business in Spain

Spain is a popular holiday destination in Europe, and for good reason. Year-round sun, beautiful beaches, and the laid-back lifestyle are the reasons many Americans have come to call Spain their home.

Yet for many, starting life out in Spain coincided with a business venture. Since there can be a lot of red tape for Americans working in Spain outside of teaching roles where they may be preferential, starting a business is an excellent way to set up a new life in Spain.

This blog post will walk you through how to start a business in Spain.

Who can start a business in Spain?

Setting up a business in Spain is easier for Europeans than Americans, due to the free movement principle afforded to European citizens. However, it’s certainly possible for Americans to do so following the right guidance.

First, you must prove that yojnright to live and work in Spain. To this end, you’ll need to obtain your Número de Identificación de Extranjero (NIE) within the first 90 days of arriving in the country.

The NIE will become your unique Spanish tax identification number. You need it to pay your taxes, and complete bureaucratic processes such as buying a property, renting, and opening a bank account.

You can apply for the NIE from the US, too, at your local Consular Office to streamline the process of getting set up in Spain.

As well as a NIE, you’ll also need to acquire a valid visa and a valid work permit.

Spanish work permit application

If you wish to start trading in your business when you land in Spain, you’ll need to get a work permit to prove you can legally operate in the country.

To secure this work permit, you can either apply for one at your nearest Spanish embassy or consulate.

You’ll fill out an application form, and will need to supply the following documents:

1. A business plan (if appropriate). Find our business plan template here.
2. Evidence that you have enough money to invest in your business and support yourself
3. Proof of your skills or experience
4. Copies of any business contracts or commissions
5. Any applicable license or registration
6. Information about the potential to create employment in Spain

You’ll have to renew your work permit and prove you still fulfill all these conditions every year you’re in Spain.

After five years, you can apply for permanent residency in Spain under the EU regime for non-EU nationals, which means you can remain in the country indefinitely without further need for visas or permits.

Regulated professions and businesses

Certain professions and types of business - lawyers, architects, healthcare professionals and financial services, to name a few - are heavily regulated.

You’ll need to make sure you comply with the relevant rules and regulations before you can start trading.

Often, the process will involve getting your qualifications officially accredited or recognised (called homologación ). Depending on your profession or the type of business you plan to carry out, you may also need to apply for a license.

Rules may vary from region to region, so it’s a good idea to check out both national rules and the rules of the region you intend to base your business in ahead of time.

Try our Business Name Generator tool to generate ideas for your company name.

How can I do business in Spain?

Once your personal legal status is in order, it’s time to decide your business’s legal form. In Spain, you have three main options:

1. Self-Employed or Sole Trader
2. Partnership
3. Limited Company

Let’s have a look at what each involves.

1. Self-Employed or Sole Trader

Operating as a sole trader is one of the most affordable and most flexible ways to start doing business in Spain, especially if you’re the only person in your business.

It’s also the simplest type of business to set up.

In order to start operating as a sole trader in Spain, you’ll need to do three things:

1. Register with the Spanish tax office (the Agencia Tributaria );
2. Register for social security (seguridad social )
3. Get a license (if your profession is regulated)

Registering for tax

You can register for tax by visiting your nearest Agencia Tributaria tax office with your valid, unexpired passport and your NIE.

You’ll be asked to fill in a form (Modelo 036 or 037, depending on your circumstances) and given a tax certificate, called the IRPF, which you should keep in a safe place.

Empresa individual or autonomo?

When you register with the Spanish tax authorities as self-employed, you’ll have two options:

• *Sole trader (empresa individual) - A sole trader in Spain is legally the same as a freelancer, but there is no legal separation between the business and the individual
• Freelance professional (autonomo) - An autonomo is any self-employed individual that works independently, from freelancers to small business owners.

As a freelance professional, your clients retain a percentage of your invoice which starts at 7% for the first 3 years before increasing to 15%, and pay it to the tax authorities on your behalf as an advance on your tax payments. These amounts are then credited when you fill in your annual tax return.

The system doesn’t apply if you’re a sole trader.

Registering for social security

In addition to registering for tax, you must also register for social security under the special regime for autonomous workers (RETA) within 30 days of registering with the tax authorities.

In order to register, you’ll need the following:

1. Your passport
2. Your NIE number
3. A copy of your Modelo 036 or 037 form
4. Your IRPF form

You’ll need to fill out a form to complete the process.d

Healthcare

If you live and work in Spain and make social security contributions, you’re entitled to free healthcare.

Although, as a self-employed person, you’ll need to join a health insurance fund ( mutua ) via the social security authorities. Your health plan will also cover any dependent family members living at your address.

Other formalities

Whether you’re a sole trader or a freelance professional, you’ll need to file a personal income tax return (I.R.P.F.) each year, as well as quarterly VAT (IVA) returns.

You’ll also need to keep copies of invoices and receipts for all expenses you intend to deduct on your annual return.

Depending on the type of business and the region you live in, you may also have other periodic filing requirements. It’s best to consult with a lawyer or accountant, as failing to comply with these requirements will often result in fines and other penalties (including criminal liability).

2. Partnership (Sociedad Civil)

If you plan to go into business with one or more people, but you still want your structure to be flexible, you can run your business as a partnership.

Like sole traders, partnerships don’t require a minimum investment to be set up and come with less of the formalities you’d expect when setting up a limited company.

However, the process is generally longer and more costly.

There are two types of partnership in Spain: general partnership ( sociedad general ) and limited partnership (sociedad comanditaria).

Each type of partnership has its own special requirements and comes with different rights and responsibilities. Whichever you choose, you’ll need to do the following to set one up:

1. Create a partnership agreement and sign it before a notary (a lawyer can draft this for you)
2. Include the words Sociedad Civil in your business name (if you have a partnership agreement in place)
3. Register with the tax authorities
4. Register for social security
5. Apply for any licenses (including an opening license for your business premises)

A partnership agreement isn’t strictly required. However, it’s good to have, as it regulates the relationship between you and your business partners and outlines your responsibilities. This is especially helpful if things go wrong, or you have a disagreement.

3. Limited company

Out of the three legal forms available, a limited company is the most complex, formal and expensive to set up and run.

Running a limited company affords you limited liability and more favorable taxation (if you earn more than a certain amount). Some types of business must be run as a limited company by law.

Types of limited companies

In Spain there are six types of limited company you can choose from.

The main differences between them are the minimum number of shareholders required and the minimum amount of money you have to invest.

Limited company formation: A step-by-step guide

Whichever type of limited company you choose, you’ll need to follow these steps:

Step 1 - Hire a lawyer or accountant

Setting up a company is a complicated process; and Spanish law may differ substantially from the laws of your own country. It’s very important to consult with a professional.

A company lawyer or accountant can help you decide if forming a company is right for you, advise you on the exact requirements and help you throughout the process.

Step 2 - Certificate of uniqueness

Once you’re sure setting up a company is right for you, you need to check if the name you’ve chosen is available. You’ll also need to obtain a certificate to confirm this from the Mercantile Registry.

On average, it takes three days to get an answer.

Step 3 - Get a Tax Identification Code (CIF)

A company is a legal person in its own right, so you’ll need a tax identification code that’s specific to it.

You can apply for a CIF by downloading the form from the Agencia Tributaria’s website. You’ll need to return the form at your local tax office in person, together with the original and a copy of your NIE.

Step 4 - Opening a bank account

Next, you’ll need to open a business bank account in the name of your new company and deposit the minimum investment amount. This will vary depending on the type of company you have chosen.

As a US citizen, you’ll need to provide extra documentation to open a bank account, including proof of residency and a valid work permit.

Once that’s done, ask your bank to give you a certificate that proves you’ve made the payment.

Step 5 - Public deed of incorporation

The deed of incorporation is the document that sets up your company. It includes information such as the name of your company, its official address, the nature of your business, names and addresses of all shareholders, names and addresses of its officials (directors, company secretary and key officers) and so on.

It will also have information on how the company is run.

The deed must be published by a notary and is accessible to the public. You’ll also need to give the notary originals and copies of your tax forms, certificate of uniqueness, NIE and bank certificate.

Step 6 - Register your company

In order to register your new company, you’ll need to do three things.

1. Take the original deed to your local tax authority to have it stamped.
2. Take your stamped deed to the Mercantile Registry for filing in the official registry of companies. This process should take about 15 days.
3. Then, once you receive confirmation of registration, you’ll need to make another trip to your local tax office to obtain your final CIF number. Once again, you’ll need to take the original and copies of your deed and NIE with you.

Step 7 - Register with the social security authorities

As a director, you’ll need to register with the social security authorities on behalf of the company.

This involves a visit to your local office with originals and copies of your deed of incorporation, NIE, tax forms and form TA0521.

Step 8 - Other formalities

Finally, you’ll need to take care of some other minor formalities. These include:

• Setting up proper accounting books, including VAT books
• Obtaining any licenses necessary to operate your business, including an opening license for your business premises
• Notifying the regional authorities

Summary

	Sole Trader	Partnership	Limited Company
Setup	Easy	Moderate	Hard
Deed	Not necessary	Optional but recommended	Obligatory. Must be notarized.
Tax	Personal	Personal	Corporate
Minimum Investment	No	No	Yes. Variable, depending on type of company.
Formalities	Low. Quarterly returns. Some additional formalities may apply.	Moderate. Depends on the type of partnership chosen.	High. Regular monthly, quarterly and annual filings. Must hold regular meetings and keep minutes.

How is my business taxed?

If you run a business in Spain, you’re liable to pay taxes. As a US citizen living and working in Spain, you’ll need to manage taxes from both countries.

US Tax Obligations

When filing your taxes, you’ll need to report all of your income earned in Spain on your US tax return as you file your annual Form 1040.

Fortunately, Spain and the United States have a Double Taxation Treaty which means you won’t be taxed twice on the same income.

Furthermore, you may qualify for the Foreign Earned Income Exclusion (FEIE), which means you can ¹exclude up to $120,000 of foreign-earned income from your US taxes provided you satisfy the conditions for the physical presence or bona fide residence test.

You must also file a ²Foreign Bank Account Report (FBAR) if you have more than $10,000 in foreign financial accounts.

Your tax liability in Spain will depend on whether you’re a sole trader, a partnership or a company.

Sole Traders

As a sole trader, you pay your taxes in one of two ways, depending on whether you’re an empresa individual or an autonomo.

If you’re an empresa individual, you’ll need to pay tax on a quarterly basis under the IRPF at a rate of ³19% for the first EUR 6,000 of taxable income. From there, there’s a progressive rate increasing to 24%, 30%, and up from there, as your income rises above various brackets.

On the other hand, if you’re an autonomo, the retention system (explained previously) applies, and clients will retain a percentage of your invoice and pay it to the tax authorities on your behalf.

Either way, you’ll have to file a tax return at the end of each financial year. This is the same tax return filed by any Spanish citizen or resident. Your return should include all your income for the year (whether from your business or otherwise) and any allowances and deductions.

The minimum personal tax allowance will depend on various factors such as:

• Dependents
• Disability
• Marital status

You can deduct business expenses if they are entirely business-related, recorded in your accounting books and backed up with invoices or receipts.

Once you complete your return, you’ll either have to pay more tax or qualify for a refund, depending on how much you paid upfront during the year.

Partnerships

Each partner is responsible for paying their own income tax.

You’ll need to declare your partnership income in your personal tax return, and the same allowances and deductions will apply as if you were a sole trader.

Limited Companies

Limited companies pay corporation tax. You have to pay Spanish corporate income tax on all the company’s income worldwide.

Tax is due on your company’s net profits, after all allowable deductions are made.

These include:

1. Financial expenses ⁴up to €1 million or 30% of your company’s operating profit (whichever is less)
2. Bad debts
3. Depreciation (decrease in value of business assets over time)

⁵The general rate of tax is 25%. However, newly formed companies pay 15% tax on the first €300,000 and 20% on the remainder for the first two years.

VAT (IVA)

Unless you run a VAT-exempt business (teaching, for example), you’ll need to register for VAT. This applies whether you’re a sole trader, a partnership or a company; and no matter how little money you make.

In Spain, ⁶VAT is charged at 21%. However, some types of goods and services may attract a lower rate of 10% or even 4%.

You’ll need to submit periodic VAT returns, as well as an annual return. You’ll also need to comply with specific accounting and invoicing requirements.

Social Security contributions

If you’re a sole trader or a member of a partnership, you’ll need to make your own social security contributions. These payments will entitle you to free healthcare.

You’ll also get a pension if you pay social security for at least 15 years.

The most recent system for social security contributions means self-employed persons will pay contributions according to their level of income, which breaks out into 15 economic brackets.

Companies are also obliged to make social security contributions. One director must register with the RETA and make contributions on the company’s behalf.

Tax And Social Security As An Employer

If you’re an employer, you have to make social security contributions on behalf of your employees. These contributions currently amount to 29.9% of an employee’s gross salary, plus a variable rate to cover occupational hazards.

You’ll also need to deduct taxes and social security contributions from your employees’ salaries.

Hiring employees for your business in Spain

If you’re looking to build a business with employees other than yourself in Spain, here’s what you need to know:

There’s a 40-hour work week in Spain and salaries are paid out over the course of 12 payments as common in the United States, or 14 payments during the year - with July and December representing double payments.

Employees should receive 30 calendar days of vacation annually.

The minimum wage in Spain is ⁷€1,134 a month on the 14 payment scheme and €1,323 a month on the 12 payment scheme, having risen considerably in recent years.

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Summary

	Sole Trader	Partnership	Company
Income Tax	Individual - sliding scale. (19% to 47% national tax + regional taxes)	Individual - sliding scale. (19% to 47% national tax + regional taxes)	25% corporate tax
VAT	21%	21%	21%
Social Security	Approx. €265 per month minimum + contribution if employer	Approx. €265 per month minimum + contribution if employer	Director to register on behalf of company + contribution if employer
Allowable Deductions	Personal allowances and business expenses	Personal allowances and business expenses	As per company law rules

About the author:
	Panna is an expert in business finance topics for the US, covering topics from invoicing to international expansion. She creates high-quality reviews on business finance tools and products with the aim to help businesses save time and make informed decisions. You can read more useful business articles on her author profile.

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Sources used :

¹ IRS
² IRS
³ PwC
⁴ PwC
⁵ PwC
⁶ Agencia Tributaria
⁷ Statista

Sources last checked on 15-November- 2024.