Business in Spain

Case Study: Setting Up a Business in Spain

Scenario Overview:

Anna, a UK-based entrepreneur, is looking to start a digital marketing agency in Spain. She has already built a successful online business in the UK and plans to expand her operations to Spain, targeting Spanish and European clients. Anna is considering setting up the business in Madrid, a hub for businesses and tech startups, and she wants to ensure everything from legal compliance to tax planning is handled correctly.

Step 1: Deciding on the Business Structure

Anna needs to choose the most suitable legal structure for her business. The most common structures for foreign entrepreneurs in Spain are:

Autónomo (Self-Employed):

Ideal for sole traders and freelancers.
Advantages: Simple to set up, lower administrative costs.
Disadvantages: Personal liability for business debts, higher social security payments.

Sociedad Limitada (SL) – Limited Liability Company:

Similar to a limited liability company in the UK or US.
Advantages: Limited liability, more professional image, tax advantages.
Disadvantages: Requires more paperwork, higher startup costs, and a minimum share capital of €3,000.

After consulting with a Spanish lawyer, Anna decides to set up a Sociedad Limitada (SL) due to the limited liability and scalability for future growth.

Step 2: Registering the Business

Choose a Business Name:
Anna selects a business name for her digital marketing agency. She checks the Spanish commercial registry to ensure the name is available and not already in use.
Obtain an NIE (Número de Identidad de Extranjero):
Since Anna is a foreign national, she needs to apply for an NIE, which is required for tax and business registration purposes. She applies at the local police station in Madrid.
Notary Public (Escritura Pública):
The company’s incorporation deed must be signed before a notary. Anna prepares the company’s statutes (basic internal rules), including the business activity, directors, and share capital.
Register with the Spanish Tax Agency (Agencia Tributaria):

CIF (Código de Identificación Fiscal): Anna applies for the company’s tax ID number.
VAT Registration: Since her business will provide services to both Spanish and foreign clients, she registers for IVA (VAT) at the Spanish Tax Agency.

Register the Company with the Commercial Registry (Registro Mercantil):
After the notary procedure, the company must be registered at the Commercial Registry in Madrid, formalizing its existence.

Step 3: Opening a Business Bank Account

Anna opens a Spanish business bank account in Madrid to handle her company’s finances. She will need:

Company documentation: Proof of company registration, notary deed.
NIE: Her foreigner’s ID number.
Proof of address: Local address in Spain.

She deposits the minimum share capital of €3,000 into the account, which will be part of the company’s equity.

Step 4: Setting Up the Social Security and Labor Obligations

Registering for Social Security:
Anna needs to register her company and herself (as the director) with the Spanish Social Security System (Seguridad Social). This is required to pay employer and employee contributions (if she hires staff).

Autónomos: If she were a sole trader, Anna would pay monthly social security contributions based on her income. As an SL, she must pay social security contributions as the company’s director.

Employee Contracts (if hiring):
If Anna hires employees in Spain, she must create formal employment contracts and register them with the Spanish Social Security.

Step 5: Understanding the Tax System

Corporate Tax (Impuesto de Sociedades):
The standard corporate tax rate in Spain is 25%, though there are possible reductions for small businesses or newly established companies.
Value Added Tax (IVA):

Spain follows the EU VAT rules. The standard VAT rate is 21%, but there are reduced rates for certain goods and services.
Anna will need to charge VAT to her clients (except those outside Spain), file quarterly IVA returns, and remit the tax to the Spanish Tax Agency.

Personal Income Tax:
If Anna draws a salary from her SL, she will need to pay IRPF (personal income tax), which ranges from 19% to 47% depending on income.

Step 6: Additional Considerations

Hiring Local Employees (Optional):
If Anna plans to hire employees, she will need to provide them with employment contracts, pay them salaries, and offer benefits (such as holiday pay). Spain also has strict labor laws, including protections for employees regarding working hours, conditions, and dismissal.
Accounting and Bookkeeping:
Spanish law requires businesses to keep accurate accounting records, file annual financial statements, and submit tax filings. Anna hires a local accountant to manage her monthly tax filings (quarterly VAT and corporate tax) and yearly financial statements.
Insurance Requirements:
Anna is advised to get business insurance, including:

Public Liability Insurance: To cover any potential claims against the business.
Health and Safety Insurance: Required if employing staff.

Step 7: Marketing and Client Acquisition

Website and Online Presence:
Anna already has an established online presence for her digital marketing agency but needs to create a Spanish-language version of her website to cater to the local market. She also optimizes for local SEO to appear in Spanish search results.
Networking:
Anna attends business networking events and joins local chambers of commerce to meet potential clients in Madrid. She also considers running Google Ads and Facebook Ads targeted at Spanish businesses.
Local Regulations:
Since she is in the digital marketing space, Anna needs to ensure compliance with Spain’s data protection laws (aligned with the GDPR), especially in relation to client data and email marketing.

Step 8: Ongoing Administration and Compliance

Annual Filing: Anna needs to file annual accounts, submit her tax returns, and ensure her business complies with all Spanish laws.
Renewing Licenses: Depending on her business activities, she may need specific permits (e.g., digital services licenses, advertising permits).
VAT Declarations: She will file quarterly IVA returns, especially if she has both Spanish and EU clients.

Conclusion:

By following the legal and tax steps outlined, Anna successfully sets up her digital marketing agency in Spain. She has chosen the right legal structure (Sociedad Limitada), handled all necessary registrations (tax, social security, commercial registry), and set up systems for compliance with Spanish tax laws. With careful planning, she can focus on growing her business and leveraging Spain’s strategic position in Europe to serve a global client base.