Business in Spain


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Setting up business in Spain

Setting up your own business in Spain is actually a lot easier than it may seem.  You follow the same logical basic rules as virtually any country in the world, but the actual procedure is different as it depends on the local bureaucracy.

Since the basic rules are well known, let’s turn to the specifics:
  • First of all think about how to overcome the language differences;
  • Develop a business plan;
  • Consider funding issues;
  • Select the type of business entity;
  • Choose the notary, accounting and tax advisers;
  • Select the company name and register it;
  • Find the office space;
  • Obtain the necessary licenses and permits.

The main types of business entities:

  • Corporation (Sociedad Anonima/S.A.);
  • Limited Liability Company (Sociedad de Responsabilidad Limitada, S.R.L./S.L.);
  • The new Limited Liability Company (Sociedad Limitada Nueva Empresa).

General company registration costs up to 1,500 euros.

While your company is being registered, you can formalize necessary professional service contracts (these could be accounting or tax advisory services, in other words whatever service you see fit). The amount of the professional fee usually depends on the volume of work: the fee is minimal at the beginning, and it will grow accordingly to your business and workload growth.  The duration of a new company registration can vary greatly, depending on whether you do everything yourself or entrust the matter on the specialists.  You can always seek the advice of VYM Canarias experts, and we will help you go in the right direction.

Which type of business entity to choose: S.A. or S.L.?

The main difference between a corporation (Sociedad Anónima, S.A.) and a limited liability company (Sociedad Limitada, S.L.) is that S.A., as a rule, has a large number of shareholders and therefore there are special management procedures in place to protect minority corporation shareholders.  In turn, S.L. generally has one owner or several co-owners, and these companies’ management procedures are simplified.

GENERAL CHARACTERISTICS AND DIFFERENCES BETWEEN S.A. AND S.L.:

The minimum backing capital for S.L. company is 3.005,06 euros. The minimum backing capital for S.A. company is 60.101,21 euros. There’s no maximum limit for backing capital neither for S.A. nor for S.L. type company.  A deposit of only 25% of the backing capital to the new company’s current account is sufficient when you open a S.A. company. A deposit of 100% of the backing capital to the new company’s current account is required when you open a S.L. company.  Both in S.A. and S.L. type of companies the shareholders and owners liability is limited by the amount of their contribution to the backing capital, i.e. shareholders and co-owners are personally responsible for the company debts only to the extent of their contribution to its backing capital.  The minimum and maximum number of co-owners of both types of companies is the same: from a single owner to an unlimited number of owners or shareholders.  Each co-owner’s equity participation in S.A. capital is determined by the number of his shares, which can be nominal or warrant shares.  Each co-owner’s equity participation in S.L. capital is determined by the number of his shares, which are always of nominal type.

In general, S.A.-type company management requires compliance with more requirements and formalities. For example, significant changes in the S.A.-type company constitution must be published in the newspapers and in the Trade Register Official Bulletin, which naturally implies certain expenses.

Limited Liability companies (S.L.) can be more flexible with the periodicity of mandatory general co-owners meetings than corporations (S.A.) with respect to shareholders meetings, which ultimately also reduces management costs.  The cost of a new company creation, be it of S.A. or S.L. type, is virtually the same with equal backing capital.  S.A. and S.L. pay the same amount of taxes.

Company or branch in Spain

Which is the best business option: a local company or a branch of a foreign company?

From a legal point of view the following differences exist between a branch and a new Spanish subsidiary company:
  • Minimum backing capital: For S.A.-type of company (corporation), is 60 101 euros. For S.L.-type of company (LLC) it’s 3005 euros, or 60,101 euros for commandit partnership. The branch does not require any minimum allocation.

A subsidiary is an independent legal entity, while a branch does not have a proper legal entity; it’s the same as that of the parent company.

  • Liability of a subsidiary company established as S.A. or S.L., in respect of its debts is limited to the amount of the capital contributions.

No liability limit for the parent company is established for the branch.  From a tax point of view both a branch and a subsidiary company pay the same income tax based on the amount of net profit; but there are some taxation and benefit differences.  A branch participates in the total cost of the parent company. Applied costs (if applicable) are easier to account for as deductible for the branch than for a subsidiary.  Interest on loans granted by the foreign parent company to its Spanish branch is not subject to tax credits for the branch. On the other hand, the interest on loans granted by the shareholders of the subsidiary is usually deductible for the subsidiary, provided that the transaction is valued at market prices.

Opening a company branch in the Canary Islands
Follow these steps in order to open a company branch in the Canary Islands:
  • Prepare documents related to the establishment of a parent company branch; have them translated by a sworn translator for their further submission to the Spanish Trade Register.
  • Obtain a certificate of legality of the parent company from the Spanish consulate in the country of company residence.
  • Deposit the amount of the backing capital to an account in any Spanish bank.
  • Sign the notarial deed of representative office registration.
  • Appoint a representative or trustee in Spain.
  • Apply for a VAT number (CIF).
  • Pay the corresponding legal formalities tax.
  • Submit documents to the Spanish Trade Register.