It was written on 1 June 2016. The law and practice in Spain change all the time. Our guides are updated as frequently as possible - typically every three years - but may be out of date.
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This guide covers all the basics for a foreigner wanting to start a business in Spain.
It describes, in particular, how to start a business in the area of Andalusia/Andalucía – which contains the Costa del Sol. See a map here. Please note that certain aspects of the law in Spain vary from one "autonomous community" (comunidad autónoma) to another.
Many foreigners want to start a business on the Costa del Sol. They fall into two groups.
There are international entrepeneurs who simply see business opportunities on the Costa del Sol. They see that there are some areas of activity where Spain is much less developed than in the country where they live or work - and so they can jump in and fill a niche - or they simply consider that they can be competitive in a business area that works well on the Costa del Sol, and that they know well.
Then there are the people who visit the Costa del Sol, fall in love with it and want to find a way of being able to stay there - which usually means either finding a job or starting a business. For many of these people, especially if they don't speak Spanish, there are few job opportunities and those that exist tend to be low paid. So it seems to make sense to start a business.
Spain is very welcoming when it comes to people wanting to set up new businesses. They realise that new business boosts the economy and creates local employment.
There are no restrictions to foreigners that want to start their business on the Costa del Sol. In fact, as there are many expat communities from other nationalities, some foreign professionals will find they have an audience for their scope of work. This is the case of some doctors or health specialists that specialise in expat patients, who in some cases do not speak any Spanish and therefore have difficulties when they see local doctors.
Before starting your business, you must bear in mind that there are quite a large number of activities where a professional qualification is required. You must ensure that your qualification is valid in Spain, and then legalize and translate the documents that prove it.
See our Guide to Immigration & Residence on the Costa del Sol for details of the visa requirements for someone coming to Spain to set up a business.
Traditionally, expats wishing to start a business on the Costa del Sol have tended to look at business opportunities where (they believe) their lack of fluency in Spanish will not be a huge impedement. They open bars, restaurants and property management companies or they set up a business offering services exclusively to the expat community.
However, this is rather narrow-minded. It also ignores the fact that, even if you're running (say) a bar where the large majority of your customers are (say) English, youwill still find it difficult if you do notspeak at least some Spanish (see our Guide to Learning Spanish on the Costa del Sol. You will need to buy your supplies and you will need to deal with local customers.
During the last five years, we have had clients who came to Spain to set up not only bars and restaurants but businesses such as:
Marketing and publicity
Health & fitness related products
And many more!
In short, do not allow your options to be restrained by unnecessary fear of working ina new environment.
Once you have had your 'eureka!' moment and seen a fantastic opportunity on the Costa del Sol, it is very tempting to race ahead and develop the business. However, before doing so, it is essential to check that your brilliant idea is actually going to work.
Although you can never be 100% sure that it will work, there is a brief research that can you help realize the chances of success you may have.
For example, you may start a business where a significant initial investment is required, and realise too late that you are unable to run that type of business in Spain for whatever reason.
Seeking advice is not likely to be expensive unless your business idea is complex. An initial overview might cost you €100.
Traditionally, the people who deal with setting up businesses in Spain are accountants (rather than lawyers) and so your best source for this confirmation is probably an accountant (and, much better, an accountant that works with a lawyer).
You may find you can get additional informal (and free) help from the more experienced members of the expat community on the Costa del Sol. However, using them does carry two risks: they're unlikely to be familiar with all of the Spanish legislation - and they might steal your idea!
Starting and running a business in Spain is probably no more simple than starting and running a business at home. Even in your own country, one business in four is likely to fail in its first year. Starting a business in an unfamiliar country increases this risk - which makes it really important to plan on a sound basis and take advice. This can help avoid the problems that (to a local person) are obvious but which (to you) are not.
It is extremely helpful if you have had previous experience working in the same area of activity. Without experience, starting a restaurant or hotel is hugely difficult and very likely to fail. Even with experience the risk of failure is significant.
Even if you don't have any directly relevant experience, you may find that you have very relevant transferable skills. For example, you may have worked for many years as a car mechanic but see better opportunities as a mechanic (engineer) looking after foreigners' boats in Spain.
Before you commit to opening a business on the Costa del Sol, learn as much as you can about the place. See our Guide About the Region and our Guide to Cultural Differences on the Costa del Sol for some basic information and sources of further information. Speak to any expats you know, or even strangers (whether that's face-to-face orvia online forums).
You may decide to set up a small business entirely on your own. For example, maintaining pools for foreigners of your own nationality. Probably the majority of foreigners starting a business on the Costa del Sol do so in this way.
However, quite a large number also recognise the advantage of having an experienced partner. This could be a local Spanish person (bringing in a wide range of contacts and contributing both cultural understanding and language skills), or a fellow expat. Each has its advantages and disadvantages.
It's worth thinking carefully about this issue (although, in practice, most people are instinctively attracted to one method or the other and unlikely to change their mind).
In either case, make sure that your partner is a person you have references of, and that you can trust. Engaging in a business with someone you do not know could have very negative consequences for you and your business.
Once you have done your basic research you should discuss your plan with your lawyer or (more likely) the accountant who you choose to use to set up the business. If you do not know of a good accountant your lawyer can probably recommend one - or you may get recommendations from the local expat community.
After you've discussed your plan you will come up with a list of further action required by you and by your accountant.
Once you have completed those tasks, you need to produce your two plans.
You will, I hope, be familiar with the concept of a business plan. A business plan sets out, in writing, your objectives, why they will work, how you're going to achieve them, and how you're going to fund the business.
Making a written business plan is, basically, essential. The very process of putting things down on paper and working out all the numbers will usually identify lots of potential problems and challenges.
However, it's important to note that a Spanish business plan will be somewhat different from the business plan you'd produce to your bank or business partners in the US, Germany or the UK. Those, in turn, will usually be quite different from each other.
If the business plan is only for your own use then this doesn't matter but if you want to use it to seek finance or to present to a bank then it really needs to be in the format with which the reader will be most comfortable. So, for example, if you were seeking finance from the US it is very helpful to have your business plan converted into the format with which an American would be most familiar. Similarly, if you want to present it to an Spanish bank, it will not only need to be translated into Spanish it will need to be adjusted (quite substantially) so that it looks and feels like an Spanish business plan.
When producing your business plan, you must focus on several points:
Explain the business activity
Prepare a budget
Make cash projections going forward 5 years
You must also explain who you are, your qualifications and experience in the field you want to start your business in.
However, depending on the purpose of your business plan, you will be required to include different information: and for this, your lawyer or accountant will be able to advise you.
Your life plan is, in some ways, even more important than your business plan. How are you going to make a move to Spain work?
What are you going to do about:
Somewhere to live
Somewhere to do business
Education for your children
Savings & investments
Have a look through our various Guides about the Costa del Sol for information on some of these areas.
As in almost every country, there are a number of legal structures that you can choose to use when you set up a business. At the time, this may strike you as boring and unimportant - but choosing the right structure will have huge implications later on, particularly if your business grows.
It will affect the taxes you have to pay. It will affect your ability to employ people. It will affect how (and if) you will be able to obtain funding for your business. It will affect the ease of selling your business when the time comes.
True self employment - working on your own - means that you can run your business without the need for any special business structure.
In Spain, you will be able to have employees using this structure should you later wish to do so.
The main advantages to this structure are:
It's very cheap and simple to set up
Unless your business has a very high turnover you will benefit from a much simplified way of dealing with your taxes
If you wish to do so you can later convert this into one of the other business structures.
Bear in mind that working in a self employed capacity does not give your business the protection you would have if you ran it as a limited company. Its debts are your debts and if it goes bust you go bust.
For most purposes a uni-personal business is the same as working in a self employed capacity but with the benefit of limited liability.
A uni-personal company is a special type of limited company where there is only a shareholder, and it can be changed into a regular limited company simply by selling some of the company shares.
It gives you the same protection (limited liability) as other limited liability companies.
This means that the business is treated as a separate legal entity, not as a mere extension of you. Its debts are not your debts and if the business fails it need not take you down with it.
To enjoy this protection you do have to operate the business properly and responsibly in accordance with Spanish law.
The downsides, for most people, are:
There are more formalities associated with running a uni-personal business. More paperwork for the government and more rules to follow.
Because it is a legally self-contained entity, it will have its own income and its own tax liability. Once the business has paid its taxes it may release any profit to its shareholder (you) but you will then have to pay taxes on the income you receive.
A partnership is a business operated by two or more people or legal entities. If it is operated by two or more actual people it is called a sociedad civil. If it is operated by two or more companies working together it is called a UTE (union temporal de empresas) .
A partnership does not give any form of limited liability. However, of course, in the case of a UTE where the partners are limited companies, then they will each have their own element of limited liability - though you should note that each of the partners will be responsible for all of the debts of the company if his (or its) fellow partners cannot or do not pay their share.
A sociedad civil is very unusual, because it has no longer fiscal advantages and it performs in the same way as a limited company, but without the protection of limited liability.
Most small and medium-sized businesses are private limited companies.
A private limited company is a smaller, simpler and less formal version of the public limited company (see below).
It has the same limited liability but its shares cannot be traded on the stock exchange. They can, however, be sold privately.
Because its shares cannot be traded publicly it has to file very little in the way of official returns and information to the government and its management structure is allowed to be a great deal simpler.
Your accountant can set up a private limited company for you. It will typically cost about €1,500, much of which is spent on Notary and mercantile registry fees.
A private limited company has to have a minimum share capital of €3,000. This amount has to be paid into the company's bank account, or it can be raised by means of contribution of materials made by the shareholders.
The company must file an annual report to the Companies Registry (Registro Mercantil Central) . This document shows details of the company's assets and profit plus the names and addresses of its shareholders. This document is produced and filed by your accountant, and needs to be signed by the company director (administrador).
The company is a separate legal entity from its shareholders and so pays its own taxes in the same way as the uni-personal company referred to above.
A public limited company is the structure usually adopted by large companies.
It is unlikely to be used by someone setting up a new business.
Public limited companies, the minimum capital required to set up a sociedad anónima is €60,000.
The main advantage of the public company is that its shares can be traded on the Spanish stock exchange.
The main disadvantage is that, to protect the investors, a great deal more disclosure is required in its accounts and annual report.
A public company is taxed on the same basis as a private company.
A franchise is not, strictly speaking, an operating structure. The franchisee (person operating the franchise) could be a self employed person or any type of limited company.
In a franchise, the franchisor usually has a set of products and a system of working which it allows the franchisee to use in return for a payment of an annual franchise fee.
Examples of franchises include many restaurants (McDonalds, Subway, etc) and some car repair facilities (e.g. Speedy Exhausts).
Many people feel that starting a new business using a well-proven system takes away a lot of the risk. However, you do lose a significant portion of your profit.
If you're thinking of operating a franchise, you need to do considerable due diligence to check out exactly what you're getting and what it will cost you. Once again, your accountant will be able to advise you about this.
A joint venture, under Spanish law, is simply a partnership operated either by two or more limited companies or an individual and one or more limited companies.
For the purposes of this guide, it can be treated as a partnership (see above).
If you're going to start a new business in Spain, you have an extra thing to think about.
There are three ways of doing business here if your business is related to or part of a larger business operated elsewhere. This section will not be relevant if you are setting up a brand new self-contained business on the Costa del Sol.
If the business is linked to another one, your choices are:
The representative office is your eyes and ears in Spain. It does market research and marketing. It can find clients. It can provide customer care services.
What it can't do is enter into any contracts or do any work for those clients or customers.
Your earnings and all of the expenses of the business must be paid by the main company.
The contract must be with and the work must be done by your main business.
As a result, and as a concession, your activities in Spain will not be subject to any taxation in Spain.
If you are exploring the market on the Costa del Sol, and intend to sell products or services manufactured or based elsewhere, this structure has the benefit of being extremely simple and free of tax.
Your accountant can advise you whether it's going to be appropriate in your case.
If you want to do more than you are permitted to do as a representative office you can either set up a subsidiary of your main company on the Costa del Sol or a completely self-contained Spanish business.
A subsidiary is, legally, treated as the child of your main business.
It operates as a proper business in Spain - it can take orders and deliver services or goods - and it will itself bill customers for those services or goods.
Your salary and all of the expenses of the business will be paid by the subsidiary business in on the Costa del Sol.
Tax-wise, you will pay tax on the Costa del Sol in the same way as if you were running a Spanish company, so in this sense it has no advantages for tax purposes.
Is is only advisable to set up a subsidiary company when it is relevant to your main company structure, as from the tax point of view, there is no difference or advantages to it. Talk to your accountant!
Some companies prefer to keep each of their operations entirely self-contained. Thismeans that they are treated (for all purposes) as separate legal entities. This is permitted. Again, your accountant can advise as to whether it is in your interests to structure your business in this way.
Normally Spanish banks will require a copy of the incorporation deed for your company (which you can get from a Notary) duly registered in the local Companies Registry (see above), along with a company tax identification code (código de identificación fiscal/CIF). The company administrator must do this in person, showing his personal ID and proof of his position within the company (this is specified in the deed of incorporation).
The process is then simple and quick.
If you need accounts in foreign currencies (US dollars, Japanese yen etc), you can also check this with your bank.
Most businesses will need some premises from which to operate. You have several options.
Many businesses start off by working from home. Clearly, this is not possible in all cases - it might be a bit tricky if you're running a bar! - but it can be a very useful way of testing whether your business is going to succeed and to delay incurring major expenditure until it does.
However, apart from the practical restrictions on your ability to work from home, there may be other limitations on your ability to do so.
If you are renting a property, you will need the consent of your landlord if you wish to operate a business from the premises.
If you own property or rent property located within a community of owners (usually an apartment or a property that shares common facilities such as a pool or tennis courts that are owned and controlled by all of the owners in the complex) you will need their consent before running a business from home. Some communities completely prohibit all business activity on the grounds of noise and nuisance.
If you are doing anything other than office and administrative type work, you may need to apply for the property to be reclassified as business premises. This is likely to lead to a substantial increase in your local property taxes.
Despite all of these limitations, it is commonplace for businesses to be run from home for at least a few months after they have been launched.
There is plenty of commercial property available for rent on the Costa del Sol. You can find premises of all types from the expensive and impressive to the cheap and cheerful.
For most people, renting the property from which their business will operate is the most sensible solution although, again, your accountant will be able to advise you which is the most appropriate in your case. See our Guide to Buying Commercial Property on the Costa del Sol for some of the pros and cons of renting commercial property in Spain.
There is one major downside to operating a business from rented property, particularly if it is a business such as a bar, restaurant or garage providing direct service to the public. If your landlord cancels your lease or do not wish to renew your contract -it depends on the terms on the contract - he will be left not only with all of the improvements that you have carried out on the premises but also a ready-made business of some value as your customers continue to turn up to the premises that they know to be an Indonesian Restaurant or a specialist Ferrari garage.
Many people - particularly the British - like the idea of owning property and like the idea of owning the property from which their Costa del Sol business operates.
They have seen property prices rise a lot over the years (despite the occasional disastrous crash) and they see this as an extra source of profit from the business.
They also feel that the money they're spending on improvement to the premises is being spent for their benefit, not for the benefit of a landlord.
They find that the cost of renting is, typically, about 5% of the value of the property and - in today's climate - if they have some spare money they feel that this is a good investment, particularly taking into account the other factors I have referred to.
The big downside is that it consumes lots of your cash. It will be difficult to obtain mortgage finance to buy a commercial property and so you will have to use your own capital. This may be money you need to run the business or, at the very least, money that would generate you more profit by being invested in your successful business.
You must also bear in mind the costs involved in buying commercial property, as this would not be normally covered in the event that you obtain a mortgage.
For most people, renting turns out to be the better option unless they have lots of spare cash.
See our Guide to Buying Commercial Property on the Costa del Sol for more information.
Any new business will need funding.
It is extremely difficult - to the point of being virtually impossible - to obtain funding within Spain for a new business venture being started by a foreigner who is recently arrived on the Costa del Sol. The only possible exception to this is the emerging concept of crowd funding.
Most people setting up their businesses will, therefore, fund them themselves.
When you require a mortgage for a newly created company that will start a new business, you need to convince the bank that the business will be profitable, but above all you must offer valid guarantee, normally by using your own assets as guarantee.
Business in Spain do not require any specific registration, apart from with the Mercantile Registry.
Certain professions require you to enrol in an Association (e.g. lawyers, doctors and architects), but in most cases all you need to do is request an opening license from the local Town Hall.
You must register with the tax office, specifying which activity you will carry out, and where. Your accountant will normally do this for you.
Employing people in Spain is a somewhat bureaucratic procedure and formal employment is something that most Spanish businesses seek to avoid, preferring to rely on contracting with people to provide specific services on a self employed basis. As in most countries, such contracts are not legal (because they do not represent the true position) if you are really employing someone full time and dressing it up as self employment. See our Guide to Employment Law on the Costa del Sol.
For every type of business except those run through public companies - where the responsibilities are more onerous - a business in Spain must do the following:
If you are a company, every year you must file your annual accounts and the shareholders' meeting minutes to the Mercantile Registry, describing the activity, assets, profit and ownership of the business.
Companies, pay company tax once a year. Self employed people will pay on the profit obtained through their personal income tax, also once a year.
Every three months, pay your VAT (IVA) to the government Tax Department. Note that, unlike many countries, there is no threshold for liability to VAT. You pay VAT (currently at 21%) on every euro that the business earns. As with all VAT regimes, the tax payable is based on the difference between your 'inputs' and your 'outputs' - that is between VAT you charge on the the income you generate from sales and the amounts of VAT you pay on the services used by your business.
Every month, you must pay your social security payments (for you and for any employees) to the social security.
You must take out insurance against accidents and injury suffered by your employees (see our Guide to Accidents at Work on the Costa del Sol.
These are your primary obligations but your accountant will advise you of any other things required in the case of your particular business.
There is free movement of capital into and out of Spain.
If you want to send some of your profits to another country you can simply transfer them to that country once you pay your tax on it.
You can transfer any funds as long as you comply with the bank's anti-money laudering policies.
Once you have built a successful business it will build up in value and can be sold.
In order to sell your business you are likely to need the following:
All of your business paperwork (all your company tax up to date, annual accounts duly filed).
Accurate business accounts.
If you wish to obtain full value for your business when you sell it, you will need to make sure that your accounts accurately reflect the turnover and profitability of the business.
You must either dismiss your employees or transfer them to the new business. This depends on what you agree with the buyer, and the employees will have to sign paperwork accepting that transfer.
A proper contract of sale for the business. Depending upon the size of the transaction and the complexity of the contract, this will be prepared either by your accountant or your lawyer.
Have you got experience starting a business in Spain? Tell us about it by emailing firstname.lastname@example.org.
Having your own business on the Costa del Sol is a very tempting proposition. There are lots of opportunities, although the tax is not particularly low. But this is a great place to work and live.
However, you do need to make sure that you have prepared thoroughly taken proper advice to make sure you understand all of the ins and outs of business life in Spain.
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This guide deals with the extra things that you will need to take into account when buying commercial property on the Costa del Sol. By commercial property, we mean things such as offices, shops, bars, restaurants and warehouses.
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This guide is about some of the common business issues and problems that can arise when doing business with or in the Costa del Sol
|Employment Law on the Costa del Sol
This guide is about the law relating to employment on the Costa del Sol. It sets out both your rights and your obligations as an employee.
|Setting up a Company on the Costa del Sol
This guide covers the types of companies available in Spain, how to set one up, its continuing obligations and how to close one down.
|How to legally incorporate your company in Spain
A simple and effective guide from JustLanded.com
We hope you have found this guide useful. If you need any further help, please contact us.Manzanares Abogados S.L. 1 June 2016