"For advice on setting up a business and handling tax returns, SpainAccounting will give you first-class service and ideas."

Jonathan Goodman, The Spectrum Group S.L., Financial Services, (Barcelona)

Frequently Asked Questions

Setting up a business 

Brief outline of Spanish taxation 

Identity numbers 

Our Charges 


Setting up a business

1.      Main types of business

Self-employed – for freelancers or sole traders (known as “autónomos”) you first register with the Agencia Tributaria (Hacienda) and then with the Social Security. Most autónomos have to file quarterly IVA returns (Spanish sales tax) and an annual income tax return (Declaración de Renta). Other returns and declarations will frequently be applicable on a quarterly or annual basis, according to specific circumstances. All autónomos have to pay monthly social security which can start as low as €55 a month for a limited period.

Limited Company – several types exist but the commonest form is a “Sociedad Limitada” (SL) that can be set up with a minimum capital of €3,000. Though important in protecting the owner(s) from personal liability in the event of bankruptcy, its incorporation does imply a number of additional tax, accounting and mercantile obligations. In addition the authorities now take a much closer interest in who/what is behind the company thus adding to costs, bureaucracy and the time required for completion.

Branch office – similar to a limited company though less formalised, this can be used by an overseas business to establish a presence in Spain and in certain circumstances can be a viable alternative to a limited company.

2.      Employees and staff

Hiring employees involves a lot of paperwork (work contract, registration, social security, tax retentions, payslips etc) and the company's social security contribution can be extremely onerous. So think twice before putting staff on the payroll. Alternatively, hiring a freelancer may be cheaper but it also means certain obligations for the business as regards tax retentions and declarations to Hacienda.

3.      Beware of local lawyers &  “gestores”

There are thousands of “gestores” in Spain (they handle all administrative and bureaucratic red tape), all offering much the same service. However, take care you chose the right one because not all give good advice and most don't speak foreign languages, which frequently leads to misunderstandings and uncertainty. Also, many simply want to sign you up for a regular fee and provide a service that may be unnecessary.

4.      Finally, talk to us to get good, independent advice. We’ll explain what sort of business entity you really need and what to do about taxation, payrolls and bookkeeping. Our advice is always practical and we offer value-for-money solutions to accounting, tax and legal problems so that you can concentrate on running the business.

Brief outline of Spanish taxation

Am I liable to Spanish taxes? If you spend more than 183 days in Spain or your family is based here then you're automatically considered tax resident, liable for taxation on total worldwide income.

And as a non-resident? Income arising in Spain will normally be taxed at source (employer, bank, notary etc) and owned property is always subject to income tax either on the net rent received or an imputed amount based on the property's tax value.

Do I have to submit tax returns? With the exception of employees in very limited circumstances and very low income earners, if you’re resident for tax and earn income anywhere you'll be obliged to file an annual income tax return (Declaración de Renta).

How does income tax work? All employees have a retention (IRPF) made from their monthly pay by their employer and all businesses must retain some tax from a freelancer's invoice (usually 15%). These retentions are a down-payment of your annual tax bill and the resulting over- or underpayment will be declared and settled in the annual tax return (Renta) filed in June each year. Rates for the 2018 tax year start at 19%, rising to 48% in Catalonia (rates vary slightly from region to region). Investment income is taxed broadly at a flat rate of around 19% from 2018.

How does IVA work? As in the UK and most European countries, a sales tax is added to the price of almost all goods and services. The final consumer bears this unless it's a registered business which can then offset the tax against the IVA invoiced to its own customers. The basic rate on almost everything is 21% though reduced rates of 10% and 4% also apply to certain products and a few services are exempt.

Is it tax advantageous to set up a company? This will depend on the expected income and the owner’s fiscal situation. Current rates of Corporate Tax (Impuesto Sociedades) depend on turnover but the basic rate is currently 20% for small companies (PYMES) and under certain conditions the first €300K may be subject to a reduced rate of 15%.

Other taxes:

I.A.E. (Actividad Económica) – an annual business tax levied on companies and businesses with a turnover in excess of €1m.

Wealth tax (Patrimonio) – low rates ranging from 0.2% to 2.5% applied in bands to the individual’s total wealth, as a rule in excess of €700k per person (important variations exist between the regions especially in Catalonia where the threshold starts at €500k).

Property taxes (Impuesto sobre Bienes & Inmuebles or IBI) – levied by the local Town Hall (Ayuntamiento)on all properties owned by residents and non-residents. There are also minor taxes (Contribución Urbana) charged annually for rubbish collection and for owning cars and motorbikes.

Capital gains - included with the income tax return and taxed from 2018 at a starting rate of 19%. There is also a local tax on property gains levied by the Town Hall.

Inheritance and gift tax (Impuesto de Sucesiones y Donaciones) - regional tax levied on the beneficiary and even non-resident beneficiaries are liable when the assets are located in Spain. Tax rates and rules vary widely from region to region and exceptions may apply for transfers to family members.

Transfer tax/stamp duty (Impuesto de Transmisiones Patrimoniales) - applies to certain real estate and commercial transactions. The rate starts at 0.5% (for commercial activities) rising to 10% (for real estate transactions) and is paid by the buyer or the beneficiary of the transaction.

Identity numbers

NIE (Número de Identidad Extranjero): your identification number in Spain though for non-EU citizens having one gives NO rights as to residency and entitlement to work. It’s obligatory to have one to file taxes, set up a business and for just about any formal, official red tape. 

DNI (Documento Nacional de Identidad): the ID number for Spanish citizens. 

NIF (Número de Identificación Fiscal): tax ID number for all individuals and freelance autónomos. It's the same number as your NIE. 

CIF (Certificado de Identificación Fiscal): tax number for limited companies as issued by Hacienda as part of the incorporation process and is equivalent to the UK's Vat number. Businesses may also have to apply for it to be recognised as their EU tax number, essential for transactions within the EU.

Número de Seguridad Social: your employer applies for this number with the Social Security when you start your first job in Spain. The number then stays with you for all subsequent employment or contract work. If you’re self-employed, you'll have to apply for this number yourself.

OUR CHARGES:

Fees will depend on the type of service provided but are always competitive and we try to accommodate them to the client’s circumstances:

  • For routine tax services for an autónomo, a fixed fee starting at €150 per quarter plus IVA though subject to specific obligations for the individual's business
  • For the annual income tax return (Renta) our standard fee (for simple situations)is €90 and non-resident returns start at €160, both including IVA
  • For a consultation on setting up a business, the appropriate type for you and explanations of the tax, legal and mercantile issues involved, the fee will depend on complexity and nature of the business but starting at €120 inc IVA
  • For personal or general tax advice, fees start at €90 inc IVA but subject to individual circumstances and fiscal complexity