How to set up a business in Spain

Setting up a business in Spain
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Updated on 28 October, 2023

Starting a new business in Spain is exhilarating and daunting at the same time. For starters, there are many regulations, procedures and formalities to follow, which are simpler for EU citizens than for people from non-EU countries. Therefore, we've created this helpful guide to give you a head start before embarking on your new business venture.

Spain provides a business-friendly environment for anyone wanting to set up a small, medium or large enterprise. Foreign investments are welcome from European and non-European companies to boost employment prospects and the economy

Why set up a business in Spain?

The economy: Spain's economy is the 15th largest in the world, the 4th largest in the European Union, and has a GDP of around $1.4 trillion. As an EU member, it enjoys access to the world's largest market, the European Union. 

Market potential: There are approximately 47 million consumers in Spain and, on average more than 70 million tourists per year. 

A well-developed infrastructure: Spain has an extensive network of motorways, some of Europe's busiest airports and a vast railway system, including a high-speed rail network.

The quality of life: Thanks to a high standard of living, a universal healthcare system and Spanish cuisine, the average life expectancy in Spain is higher than in many other countries.

Qualified talent: A large section of the Spanish workforce has higher education, and there are more scientists and engineers than in many other EU countries.

Tax incentives: Spain encourages innovation, and there is a raft of tax incentives for RDI (research, development and innovation) activities.

Promising fields to set up a business in Spain

One of the most promising fields for businesses in Spain is tourism. The tourism industry is thriving, and setting up accommodations, restaurants and entertainment ventures could prove fruitful in bustling tourist hotspots like Barcelona, Madrid and the Balearic Islands.

The renewable energy sector is another promising field. The country is making significant progress in transitioning to clean energy sources like wind and solar power. The government's commitment to reducing carbon emissions and promoting sustainability has led to favorable incentives and support for renewable energy projects

Spain also has a growing technology sector, creating numerous opportunities for startups and businesses. Cities like Barcelona and Madrid are experiencing tech-driven growth, with numerous incubators, accelerators and innovative companies. Due to the country's tech-savvy population and supportive startup ecosystem, investing in software development, artificial intelligence, digital marketing, or e-commerce could yield significant returns.

Spain: A welcoming place for startups

Spain has emerged as a hotbed for startups and a good destination for entrepreneurs seeking to establish businesses. The country offers a thriving entrepreneurial ecosystem with a highly skilled workforce, world-class universities, research centers and over 80 science and technology parks

One of the key reasons why Spain is a good place for startups is its strong support system and access to venture capital funding. Over the years, Spain has witnessed a significant increase in venture capital investments, with a surge in angel investors and venture capitalists looking to back promising enterprises.

Additionally, in 2022, Spain passed the Startups Law, further strengthening its position as a startup-friendly nation. This legislation aims to reduce administrative burdens, ease regulatory processes and provide tax incentives tailored to new enterprises.

Types of companies in Spain

Spain is a land of opportunity for foreign investors, and there are several types of company structures, so choose the most appropriate entity for your needs. You can set up a business as a new company, an acquisition, a joint venture, a Spanish branch of an existing business entity, a representative office, or a self-employed person.

The most common business structures in Spain are:

  • Sociedad Limitada or S.L (Private Limited Company)
  • Sociedad Anónima (Public Limited Company)
  • A partnership
  • Sole trader

Let's look in more detail at the two most common types of commercial companies in Spain.

Sociedad Anónima (S.A.) Public Limited Company

  • The company can be listed on the stock market;
  • Must have a minimum capital stock of 60,000 euros with a minimum initial payment of 25%;
  • There should be at least one director;
  • Partner liability is limited to the capital contributed;
  • The business must file with the Mercantile Registry;
  • This type of company is for large businesses;
  • The company must use the initial S.A. next to its name.

Sociedad Limitada or S.L

  • This is the most common type of company and is suitable for small and medium-sized enterprises;
  • The company cannot be listed on the stock market
  • A minimum share capital of 3,000 euros is required;
  • Has to file with the Mercantile Registry;
  • The company must use the initials S.R.L. or S.L. with its name.

For more detailed information about setting up a business in Spain, speak to the Spanish embassy or consulate in your home country or in Spain. 

Work permit application in Spain

To start a business in Spain, you must have the right to live and work in the country.

If you are an EU citizen, you automatically have this right, although you will still have to apply for your NIE (foreigner's identity number).

If you are a non-EU citizen, you must have a valid visa and work permit for Spain.

To obtain a work permit, you will need to apply at the Spanish embassy or consulate in your home country. You will also have to provide the following:

  • A business plan;
  • Evidence that you have sufficient funds to support yourself and invest in your business;
  • Copies of business contracts or commissions;
  • Any relevant licenses;
  • Proof of skills/experience;
  • Information about how you plan to create jobs for workers in Spain.

The work permit has to be renewed every year. However, after five years, you can apply for long-term Spanish resident status.

Important:

Following Brexit, UK citizens no longer have an automatic right to work in Spain and start a business. They must apply for a work permit like other non-EU citizens.

How to establish your business in Spain

Anybody can start a business in Spain, provided you are a legal resident

Key steps include:

  • Ensure you have your foreigner's identification number and social security number. You will need a work visa to start your enterprise if you are not an EU citizen.
  • Establish your company name with the Mercantile Registry (Registro Mercantil Central - RMC). This entails obtaining a certificate of uniqueness, a document that states the company's name is free to be used and is yours. The process can take up to three business days.
  • Obtain a CIF (Código de Identificación Fiscal) from the Agencia Estatal de la Administration Tribiutaria tax authorities.
  • Open a business bank account and deposit the minimum capital.
  • Establish the articles of the company.
  • Appear before a Spanish notary with your business partners to apply to be appointed as the founding company director(s).

Note that the bank account has to be opened in the name of the partners. A bank certificate will be issued once you have deposited the minimum capital. You must show this to your notary for the deed of incorporation to establish your company.

Good to know:

The entire process can take several weeks before you're permitted to trade. However, you can speed up matters with a fast-track process called Sociedad exprés that reduces most of the steps involved in setting up a company. Creating and registering a company in less than 48 hours is possible.

Opening a branch in Spain

If you already own a business in another country and are considering expanding into Spain, opening a branch might be the best option. The costs, requirements and formalities are similar to those for the formation of a company. They include:

  • Appointing an individual or legal entity resident in Spain to represent the parent company when dealing with tax authorities;
  • Providing documentation that proves the existence of the foreign company and how the branch is related to it (articles of association);
  • Presentation of a notarized power of attorney;
  • Signing the public deed at the notary´s office;
  • Applying for registration at the Commercial Registry;
  • Registering for tax on economic activities;
  • Registering for VAT;
  • Registering for Spanish social security purposes.

Typically, setting up a branch takes between six and eight weeks.

Finding business financing in Spain

Adequate business financing is essential for many reasons, ranging from getting the company off to an excellent start to survival and expansion. How you finance your company affects your ability to develop, employ staff and purchase inventory. Among the sources of business financing in Spain are:

Personal financing: You may have enough funds in your savings account to get your business started, or friends and family members may be able to lend or give you some start-up capital.

Loans (prestamos): These are available to residents and non-residents. Just be sure to shop for the best deals from Spanish banks and other financial institutions.

Angel investors/business investors: If banks turn you down for a loan, angel investors may come to your aid. These private investors help finance new or existing businesses and ultimately expect a good return on their investment.

Grants (subvenciones or ayudas): Grants at the European, national, regional and municipal levels are sometimes available for new and existing businesses. Check with your local Chamber of Commerce to see if you're eligible.

Lines of credit (Cuenta de crédito or póliza de crédito): A line of credit can be helpful, especially during the start-up phase when there may be a host of unexpected costs. You pay interest on borrowed money when needed and a commission for when you don't.

Self-employment in Spain

If you want to be your own boss, you may want to consider becoming a freelancer (autónomo), which means you don't need to register as a company. To become self-employed in Spain, you have to:

  • Obtain your foreigner's identification number and a social security number;
  • Register with the Spanish tax authority and complete the 037 form (modelo 037) at the local tax office (Hacienda);
  • Register for the Spanish social security scheme for the self-employed (Régimen Especial de Trabajadores Autónomos, modelo TA0521).

In case you also want to register your own company, you will need to:

  • Apply for a business license at the nearest municipality or Gestión Tributaria office.
  • Register your employees, if any, in the social security system.
  • Keep accounting records.

Your region's compliance services may audit your company's equipment and premises before issuing a compliance certificate.

Whether you plan to work as a freelancer or run your own company in Spain, it's advisable to consult a gestor (tax advisor). Most companies use a gestor to file their quarterly returns. The tax system is complex, and rules tend to change frequently.

As an autónomo in Spain, you'll have two primary obligations:

  1. To make your monthly social security contributions which, as of 2023, averages around 280 to 300 euros per month. This is so you can access the country's public health system and receive a pension in the future.
  2. Pay your taxes.

Freelancers in Spain

Many freelancers in Spain file VAT (modelo 303) themselves and ask a gestor to handle yearly income tax (RENTA).

Spain offers financial advantages for newly registered freelancers during their first two years. The monthly amount they have to pay is reduced to €60 per month for the first 12 months of self-employment. During the second year, the figure is €150 per month. After this time, freelancers pay the standard monthly rate.

Advantages and disadvantages of being self-employed in Spain

Here are some of the pros and cons of going it alone in Spain.

Advantages

  • It is the cheapest and quickest way to set up a business in Spain and requires little if no start-up capital.
  • You have the freedom to control your own schedule and the location of where you work.
  • Compared to setting up other types of business in Spain, the process of becoming autónomo is relatively straightforward.

Disadvantages

  • You do not have a fixed salary or the same protection and benefits as those with full-time jobs.
  • Tax is charged at a progressive rate, and it may be best to set up a company if your income surpasses 60,000 euros per year.
  • There is no distinction between your business and personal assets; therefore, you are personally responsible for any debt incurred due to your work.

Tips on how to survive as a freelancer in Spain

  • Set working hours and stick to them. Sure, the beach, tapas bars, sunshine and countryside are tempting, but you need to stick to a strict schedule to be successful and make enough money. Construct a typical working day as you would if you were working in an office for someone.
  • Keep track of all your invoices and paperwork. This will make it easier for your accountant to prepare and file your taxes, ensuring that you don't pay too much or too little.
  • Always demand pre-work deposits where a client pays for part of your services before you start. For example, 50% of the total fee. Professional and respectful clients will not have a problem paying a deposit and will understand you need to share the risks. If someone is unwilling to pay a deposit, you may be better off walking away from the project.
  • Don't make assumptions about your ongoing income. Just because you earned well during the last three months doesn't mean you'll do the same or better during the next three. There's always a chance the work may slow down or dry up for a spell. Hopefully, that won't happen. But while it's always a good idea to look ahead with optimism, you need to be realistic, too.

 Useful links:

Central Mercantile Register

Central Mercantile Register - Registering your company

Ministry of Industry, Energy and Tourism of Spain - Setting up a business

We do our best to provide accurate and up to date information. However, if you have noticed any inaccuracies in this article, please let us know in the comments section below.