Do you want to start a business in Spain as a foreigner? If YES, here is a complete guide plus legal requirements for starting a profitable business with no money in Spain.
Okay, having provided an in-depth analysis of the 50 best small business opportunities in Spain and a series of industry-specific sample business plan templates; we will now analyze in detail the legal requirements, market feasibility and every other thing it takes to start a business in Spain. So put on your entrepreneurial hat and let’s proceed.
Why Start a Business in Spain?
Spain whose capital is Madrid is a European country and a member of the European Union, the Organization for Economic Co-operation and Development, and the World Trade Organization. Spain’s economy happens to be the world’s thirteenth-largest economy by nominal GDP, and it is also one of the largest in the world by purchasing power parity.
Statistics show that the Spanish economy is the 5th largest in Europe behind Germany, United Kingdom, Italy and France; and the fourth-largest in the Euro zone, based on nominal GDP statistics. As a matter of fact, in 2012, Spain was recognized as the 12th largest exporter in the world and also the 16th largest importer.
Spain is listed 25th in UN Human Development Index and 28th in GDP per capita by the World Bank, thus it is classified as a high-income economy and among the countries with very high human development. According to The Economist, Spain has the world’s 10th highest quality of life.
Spain is open to business not just from her citizens, but also from international businessmen and businesswomen. This is not far-fetched because Spain is ranked 28 amongst 190 economies of the world in the ease of Doing Business according to World Bank Annual Ratings.
If you are considering starting a business in Spain, then you should be able to meet the basic requirements before you can be granted licenses and permits to operate.
There are different routes to take in order to launch your business in the Spanish business market. You can come in as a new company, or as an acquisition, or as a joint venture or as a Spanish branch of an international company or as a representative office of an international company or as autonomo which is referred to as one-man business/self-employed.
If you are coming as autonomo, please be informed that the registration process has to be made with the Spanish tax authority and the Social Security in Spain. Most autonomos have to present quarterly IVA – or value added tax (VAT) – returns and an annual income tax return (I.R.P.F.). Other declarations are frequently applicable on a quarterly and annual basis, according to circumstances.
Having said that, here are the basic steps that you should follow if you want to start your business in Spain.
Starting a Profitable Business in Spain as a Foreigner – A Complete Guide
Step One: Chose an Industry to Pitch Your Business Tent
The first step to take if you want to start a business in Spain is to choose an industry and the type of business you want to do. Records show that Spain’s economy is predominantly service oriented and services account for over 66 percent of Spain’s GDP and the main industries are tourism, manufacturing, clothing and footwear, food, medical equipment and construction et al.
Step Two: Choose a Catchy Name for Your Business
The next step to take in your quest to start a business in Spain after you have settled for an industry and a business idea is to choose a catchy name for your business. The truth is that when it comes to choosing a name for your business, you should be creative because whatever name you choose for your business will go a long way to create a perception of what the business represents.
Before choosing a name for your business, it won’t cost you anything to go online and check out the names of leading brands in the industry you intend starting a business in so as to be properly guided when choosing your own name.
Please note that whatever name you choose to register your business does not necessarily need to be the operating or promotional name of the company. You are expected to submit five names, in order of preference because it is only one that will be approved.
Step Three: Register the Business Name with the Registro Mercantil Central (RMC)
The next step to take after choosing a name for your business is to register the business name. You would need a no-name coincidence certificate from The Mercantile Registry to verify that the company name you want to use is available for use.
If you are not too sure whether the name you choose can be approved, then you should visit the RMC website to verify if the name is available. Please note that if you register your business name with Registro Mercantil Central (RMC), it will take about three days to receive an answer and it is via courier services.
Step Four: Choose a Business Structure for Your Business
Spain has two basic options that you can choose from if you are looking for a business structure to build your business on. The most important thing is that you should select a business structure that will best serve your overall business vision and mission.
The options are sole traders and partnerships in Spain (Empresa individual) or partnership (Sociedad civil) and Limited companies in Spain (Sociedad Limitada or S.L). As an aspiring entrepreneur, it will be a wise decision to look through these business structures to be able to make an informed choice.
- Sole Traders and Partnerships in Spain (Empresa Individual) or Partnership (Sociedad Civil)
If you intend starting a small business in Spain most especially if you don’t have huge capital base and the business won’t generating huge turnover, then your best bet is to come in as an unincorporated company. You can do this as a sole trader (empresa individual) or partnership (sociedad civil).
With this business structure, there are no minimum investment requirements and you won’t need to be subjected to the usual bureaucracies needed for setting up a limited company.
The business owner(s) is classified as an autonomo responsible for their personal tax return. One of the disadvantages of choosing this business structure is that there is no legal distinction between your business assets and your personal assets. If the business gets into debt, the business owners are personally liable.
- Limited Companies in Spain (Sociedad Limitada or S.L).
Limited companies in Spain (Sociedad Limitada or S.L) is another business structure available to interested investors who want to establish a standard and big business. This business structure is designed to protect the owner(s) from personal liability in the event of bankruptcy. Choosing this business structure does translate to attracting a number of additional taxes, accounting and mercantile obligations.
Please be informed that if you choose Limited companies in Spain (Sociedad Limitada or S.L), you have to present an annual corporation tax return and statutory accounts. Filing of IVA, and several other periodic declarations are mandatory when you choose Limited companies in Spain (Sociedad Limitada or S.L).
Step Five: Apply for Tax Identification Number
The next step to take after you have legalized your business name is to apple for Tax Identification Number (TIN). As a matter of fact, it is against the law to conduct business in Spain without a tax identification number and there two types of tax identification numbers. One is for individuals and the other is companies/businesses.
- NIE – Foreigner’s Tax Identification Number
In Spain, all citizens and non-citizens (foreigners) that conduct any form of business must have a foreigner’s tax identification number or NIE before proceeding to secure a tax identification number. The NIE is essential for any fiscal transactions in Spain, for example, to incorporate a company.
If you are a Spanish national, you will have a NIF rather than a NIE number. Applications for a NIE can be made at a processing office for foreign citizens (Oficina de Extranjeros) at national Spanish police station (comisaría). You can visit the nearest government office to make further enquiries.
- CIF – Company Tax Identification Number
If you have obtained your tax identification number, then you are cleared to apply for your C.I.F (certificado de identificacion fiscal) which is your company tax number. You need to complete the tax form 036, which can be done online or hard copy delivered to your local tax office. You can access information about the application form along with form downloads and links to completing online at the Spanish Tax Agency (Agencia Tributaria) website.
If you make the application in person at your local tax office, bring the original and a photocopy of your NIE (numero identificacion extranjero).
Please note that the Spanish tax office (Hacienda) does not send notifications via the post. So, it is important to obtain a Certificado Digital for the Company. It will enable you to access the notifications published on the Hacienda’s website.
Step Six: Open a Corporate Account or Business Bank Account
The next step to follow after you must have obtained your C.I.F (certificado de identificacion fiscal), your tax code and the certificate of no-name coincidence is to open a corporate account or business account with a Spanish bank and make a deposit of €3,000.
This is the minimum authorized share capital for a limited company in Spain (Sociedad Limitada or S.L). The evidence of payment can be obtained in the form of a bank certificate which will need to be provided to a notary or lawyer showing the act of incorporation of the company.
Step Seven: Apply for The Deed of Incorporation
The next step to take is to apply for the deed of incorporation in order for you to be able to incorporate your company. Please note that this is only applicable if you want to establish limited company in Spain (Sociedad Limitada or S.L). The Deed of Incorporation (DoF) is the official document that states they key details of the company (name, address, details of director, board members, shareholders, etc.).
You can contract a local notary appointment to sign the deed of incorporation for you because you will need one. You can find the nearest notary appointment in your area at www.notariado.org. This step lasts about one to three days depending on the notary.
Please note that in order to apply for the signatory of a notary appointment in Spain, you are expected to provide original documents and photocopies of your tax form 036, your certificate from Registro Mercantil, NIE, and the evidence of payment in the bank.
Step Eight: Incorporate the Company
Please note that registering a business name is different from incorporating a limited company in Spain (Sociedad Limitada or S.L) in Spain. In order to achieve this, you would need to take the original deed of incorporation obtained from the notary, you should then go to the Local Government Tax Authority to register the deed.
The deed will be stamped certifying this fact. Please be informed that you would need your original documentation and photocopy of the deed and your NIE and the whole process is not supposed to take longer than two hours.
As soon as the deeds have been signed by the administrator(s) and shareholders, the notary will register the Company with the tax office (Hacienda), acquire the Company’s Tax number (NIF) and register the Company with the Spanish equivalent of company’s House (Registro Mercantil).
After then, you will need to take the stamped deed to the Registro Mercantil alongside your original and photocopy of the deed and NIE where it will be registered in the Spanish Register of limited companies. It usually takes about 15 days or so for the deed to be registered and original documents to be mailed to the address you provided.
After you receive the business incorporation document, you are expected to take the original copy to the tax office to obtain the permanent Corporate Tax Identification Number (CIF).
Please note that newly incorporated companies in Spain must make use the 036-form used to request a tax identification number, to describe their business activity, and disclose other business details.
Step Nine: Register for Social Security
In Spain, in order to register for social security, you will need to take along your deed of incorporation, NIE, CIF and form TA 0521 and these documents can be obtained from your local social security office.
Please note that it is mandatory to comply with certain procedural formalities at the local office of the Ministry of Employment, Migration and Social Security (Seguridad Social) in Spain. There are different options for registration. Usually the company director will be registered as autonomo and will make monthly payments. Presently the fee is set at between 26.5 percent and 29.8 percent of the contribution basis.
Step Ten: Raise Capital for the Business
Interestingly, there is a standard amount you are expected to have if you want to establish a limited company in Spain (Sociedad Limitada or S.L). To establish limited company in Spain (Sociedad Limitada or S.L), you are required to inject capital to the value of €3000, into the business.
This can be in the form of cash paid into a bank account which is frozen until the limited company in Spain (Sociedad Limitada or S.L) is fully registered and functional or in the form of an “aportacion no dinerario” which can include items such as computers, office furniture or vehicles.
As a matter of fact, there are no restrictions on how you can source for the capital to inject into your new business and here are some of the options you can explore when sourcing for startup capital;
- Raising money from personal savings and sale of personal stocks and properties
- Raising money from investors and business partners
- Sell shares to interested investors
- Applying for loan from your bank
- Pitching your business idea and applying for business grants and seed funding from donor organizations and angel investors
- Source for soft loans from your family members and your friends.
Step Eleven: Choose a Location to Set up Your Business
Alicante, Valencia, Seville, Granada, Madrid, Barcelona and Bilbao are the top destination when it comes to business-friendly cities in Spain and it will pay you to settle for any of the cities if you are an immigrant businessman who is looking towards starting a business in Spain.
The truth is that your choice of location when establishing a business in Spain must meet certain requirements or else you will not get the required approval.
So, what you are expected to do before choosing a location for your business is to ensure that you visit the regulating authority to give you the requirements for such business before settling for a location. Besides, you are expected to choose a location that is easily accessible, secured and a location with a good number of skilled and affordable workforce.
Step Twelve: Open Your Doors and Start Welcoming Customers
If you have been able to successfully carry out step one to eleven, then you have indeed come a long way and it shows that you are truly ready for business. You cannot generate sales from your products or services if you do not open your door for business. In essence, the last step to take when starting a business in the Spain is to ensure that you open your door for business.
Lastly, it is important to state that this article only covers basics steps of starting a business in Spain, but there are other legal and accounting requirements that are not covered here but are also important procedures when it comes to starting a business in Spain.
We will advise that you contact professionals such as a lawyer or an economist, or an administrator (known in Spain as a gestor), to guide you through the processes of starting a business. Good luck as you start your business in Spain!