"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 (“autónomos”) you first have to register with the Agencia Tributaria (Hacienda) and then the Social Security. Most autónomos have to present quarterly IVA returns (Spanish sales tax) and an annual income tax return (Renta). Other returns and declarations will frequently be applicable on a quarterly or annual basis, according to individual circumstances. All autónomos have to pay monthly social security. Rates vary according to age and circumstances and might start as low as €55 a month for a limited period.

Limited Company – several types exist but the commonest form is a “Sociedad Limitada” or S.L. 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, in recent years the authorities are taking much closer interest in who/what is behind the company to ensure that it has a legitimate purpose and is not fraudulent. The shareholders need to apply for a NIE and the "administrador", or company director/representative, will have to provide an address in Spain. For an EU passport holder this can be achieved without undue difficulty though adding to costs and the time required for completion. Without an EU passport the procedure becomes more complicated.

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 and annual tax certificates etc) and business social security contributions can be extremely onerous. So, think twice before putting staff on the payroll. Alternatively, hiring a freelancer may be cheaper but it also supposes certain obligations on the business as regards tax retentions and declarations to Hacienda. The penalties for ignoring them can be heavy.

3.      Cash planning

A new business always needs more money than you think until it becomes self-financing. Prepare a detailed cash budget for at least the first 6 months and remember that credit sales mean nothing until collected - while they remain unpaid you’ll need another source of income to finance your outgoings.

4.      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 uncertainties. Also many simply want to sign you up for a monthly/quarterly fee, providing a service that may be unnecessary, plying on a foreigner’s lack of experience and knowledge about procedures and obligations here. .

5.      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 tax? If you spend more than 183 days in Spain you're automatically considered tax resident here, 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 specific circumstances and freelance “autónomos” with very low incomes, if you’re resident for tax and earn income anywhere you'll be obliged to file an annual income tax return (Renta).

How does income tax work? All employees have a retention (IRPF) made from their monthly pay by their employer and all Spanish businesses must retain some tax from a sub-contractor's invoice. 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 return (Renta) filed in June each year. Current rates for the 2016 tax year start at 19%, rising to 49% in Catalonia (rates vary somewhat from region to region). Investment income is taxed broadly at a flat rate starting at 19% from 2016.

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 that can offset the tax against the IVA invoiced to its own customers. The basic rate on almost everything is now 21% though reduced rates of 10% and 4% also apply to certain products and a few specific services are exempt.

Is it tax advantageous to set up a company? This will depend on the expected income and the individual’s tax 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, local 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 in general in excess of €700k (important variations exist between the regions especially in Catalonia where the threshold is €500k).

Property taxes (Impuesto sobre Bienes & Inmuebles.) – levied by the local Town Hall (Ayuntamiento)on all properties owned by residents and nonresidents. 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 2016 at a starting rate of 19%. It can be complex to calculate, being dependent on the type of asset, length of time held and the individual’s tax status and circumstances. 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 beneficiaries of assets in excess of around €16,000 and even non-resident beneficiaries are liable when the assets or rights are located in Spain. Tax rates vary widely from region to region and exceptions apply for a spouse, child or parent.

Transfer tax and stamp duty (I Impuesto de Transmisiones Patrimoniales) - applies to certain real estate and commercial transactions, such as the incorporation of a limited company. 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 needed 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. From 2010 businesses also have to apply for it to be recognised as their EU tax number, essential for most 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:

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

  • For routine tax services for autónoms, a fixed quarterly rate starting at €150 p.q plus IVA though subject to specific requirements
  • For annual income tax returns fees for the Renta start at €90 and non-resident returns at €150
  • Fixed fee for a meeting on setting up a business, the appropriate type for you and explanations of the tax, legal and mercantile issues involved
  • For personal or business tax advice, fees start at €80 but subject to quotation depending on individual circumstances and complexity
  • Spanish IVA of 21% can be recovered if the business is registered for tax in Spain