Starting a business is an exciting, yet daunting process. If you are planning to operate in Spain make sure you have all the essential information before you start. Take things slowly so you can be sure to take the best route for your particular circumstances. To get you started we have answered the most commonly asked questions:
Should I form a company or be self-employed?
Before you start trading, you need to register with the tax authorities.
If you decide to engage in business as a self employed individual, you and the business are the same person in the eyes of the law. The invoices issued by the business will contain your NIE number and you will be personally responsible for the debts of the business.
Compliance obligations with the tax authorities are very similar whether you are self employed or trade through a company.
Setting up a company in Spain can be a lengthy and costly process. Companies also have additional compliance obligations with company's house and need to maintain full accounting records.
You and the company will be separate entities in the eyes of the law. However, it is important to realize that as the administrator of a company, you will bear many responsibilities that should not be underestimated.
Do I need an NIE number?
Yes! An NIE is key to living and working in Spain and if you don't yet have a one, 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 carry out business as a self employed person, immediately after you register as trading with the tax office, you need to register with the Social Security office and start making monthly social security contributions. This monthly contributions are usually around 200 euros, although there are reductions of up to 50% in certain circumstances.
If you are the administrator of a limited company and you also own more than 25% of the share capital, you are also obliged to make social security contributions.
These contributions entitle you and your family to have access to the Spanish National Health Service and any other social security related benefits.
Can I arrange a bank overdraft?
Unfortunately, bank overdrafts are not as common in Spain as in other countries. They can be arranged, but be prepared to offer guarantees to your bank either in the form of assets or some personal guarantor.
Is there any government funding available?
The regional government of Andalusia currently has a number of schemes in place to help and encourage self employment, generation of employment and development in young companies.
If you fall into any of the categories below you may be 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
What are IRPF deductions?
One particularity of trading in Spain is the "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.
What are the requirements of an invoice for an expense to be deductible?
Sales and purchase invoices should contain the full details of both the supplier and the client. These details should include the business name (whether a limited company or a sole trader) and the CIF or NIE number and full business address. The amount chargeable for goods and services as well as the relevant VAT and IRPF if applicable should be clearly stated.
Receipts are not suitable for the reclaiming of VAT therefore ask for proper invoices whenever possible.