Starting a Business in Spain: Legal Requirements and Procedures

Spain is an attractive destination for entrepreneurs, offering a business-friendly environment with numerous opportunities for growth. However, navigating the legal requirements and procedures to start a business in Spain can be complex. This article provides an overview of the essential steps, legal structures, and tax obligations involved in setting up a business, as well as recent developments and regulations you need to be aware of.

Read my in-depth article about working in Spain, a legal guide for foreigners.

Steps to Start a Business

Starting a business in Spain requires careful planning and understanding of the legal framework. Here are the key steps involved in forming a company in Spain.

Business Structures in Spain

Choosing the right business structure is crucial for your company’s long-term success. Spain offers several legal structures, each with its own advantages and obligations.

• Sole Trader (Autónomo): A sole trader, or autónomo, is ideal for small businesses or freelancers. This structure allows for quick setup and fewer regulatory burdens. However, one drawback is that the business owner has unlimited personal liability. Recent tax incentives, effective in 2023, offer reduced social security contributions for the first three years, making this option even more appealing to entrepreneurs starting out. Read my in-depth guide on how to start as an autónomo (self-employed) in Spain.
• Limited Liability Company (Sociedad Limitada – SL): This is the most common form of business structure in Spain. The SL provides limited liability, meaning the personal assets of the owners are protected if the business incurs debt. As of September 2023, the minimum share capital can be as low as €1, although many companies choose to set it at €3,000 or higher to ensure better financial backing. The SL is flexible and suitable for businesses of various sizes, offering significant protection and tax advantages.
• Public Limited Company (Sociedad Anónima – SA): This structure is generally chosen by larger businesses or those planning to go public. The SA requires a minimum share capital of €60,000 and offers limited liability. It’s subject to stricter regulations and reporting obligations, making it ideal for companies seeking significant investment or planning to list shares on the stock exchange.

Read my in-depth article on how to start a business in Spain.

If you’re unsure about which business structure is right for your company, contact me, José María Ruiz Castillo, for expert advice on choosing the best structure for your business goals and legal protection.

CIRCE System

The CIRCE (Centro de Información y Red de Creación de Empresas) platform simplifies the business registration process by allowing companies to complete several registration steps online. This reduces the bureaucratic burden and speeds up the process of company formation. If you are looking to streamline your company registration, CIRCE is a valuable tool to consider.

Registering with the Commercial Registry

Once you’ve chosen the appropriate business structure, the next step is to register your business. All companies, particularly SLs and SAs, must be registered with the Spanish Commercial Registry (Registro Mercantil). This process involves drafting and notarizing the company’s articles of incorporation, followed by formal registration to make your business legally operational.

Foreign Investment Declaration

If you are a foreign investor, you may need to submit a Foreign Investment Declaration (Declaración de Inversión Extranjera) depending on the nature of your investment and the industry in which you plan to operate. This requirement ensures that foreign investments comply with Spanish regulations and are transparent to the authorities.

Social Security Registration

If your business plans to hire employees, it’s necessary to register with the Spanish Social Security system (Seguridad Social). This registration ensures your employees are provided with healthcare, pensions, and other legal entitlements. As a business owner, complying with these obligations is essential to avoid penalties and ensure the smooth operation of your company.

Tax Obligations for Companies

Understanding the tax obligations for businesses in Spain is critical to ensuring compliance and avoiding penalties. Spain imposes several taxes on businesses, including corporate income tax and VAT, which must be managed correctly.

Corporate Income Tax

Corporate income tax (Impuesto sobre Sociedades) applies to all companies operating in Spain. The standard corporate tax rate is 25%, but small companies with a turnover of less than €1 million benefit from a reduced rate of 23% as of 2023. Newly created companies may qualify for additional tax benefits during their first two profitable years.

Ensuring compliance with corporate tax laws requires proper bookkeeping and timely filing. I can help you manage your corporate tax obligations and maximize any available tax incentives.

VAT Obligations

In Spain, VAT (Impuesto sobre el Valor Añadido – IVA) applies to most goods and services. The standard VAT rate is 21%, with reduced rates of 10% and 4% for specific goods and services like food and medicine.

• Register for VAT: If your business provides taxable goods or services, you need to register for VAT with the Spanish tax authorities.
• File VAT returns: Depending on your turnover, VAT returns must be filed either quarterly or monthly.
• SII System: Large companies with a turnover exceeding €6 million are required to use the SII (Suministro Inmediato de Información) system, which mandates real-time reporting of invoices to the tax authorities.

VAT compliance can be challenging, particularly for businesses operating internationally. If you need assistance with VAT registration, reporting, or filing, contact me, José María Ruiz Castillo, for expert legal assistance.

Additional Considerations

Data Protection and GDPR Compliance

If your business collects or processes personal data, you must comply with the General Data Protection Regulation (GDPR), which applies to all companies operating in the EU, including Spain. GDPR compliance involves obtaining consent for data collection, ensuring data security, and allowing individuals to access or delete their personal information. Non-compliance can result in hefty fines.

I can assist you in understanding your obligations under GDPR and help you implement the necessary safeguards to protect your business.

Licenses and Permits

Depending on the nature of your business, you may need specific licenses or permits to operate legally. These requirements vary by industry and region. For example, opening a restaurant requires a food handling license, while an import/export business might need customs clearance permits. It’s essential to research the necessary permits for your industry and location.

Startups Law (Ley de Startups)

Spain’s Startups Law, introduced in 2023, is designed to foster innovation and support the growth of emerging companies, particularly in the technology and research sectors. The law provides numerous incentives, including tax reductions and simplified bureaucratic processes, making it easier for startups to operate. If your business qualifies as a startup, you can benefit from these advantages.

If you believe your business could qualify under this law, contact me, José María Ruiz Castillo, to explore your options and ensure you take full advantage of the benefits offered.

Social Security Obligations

Both autónomos and companies with employees must contribute to Spain’s Social Security system. Sole traders are responsible for paying monthly contributions that cover healthcare, pensions, and unemployment benefits. Companies must also contribute on behalf of their employees, with rates varying based on the type of contract and employee salary.

Complying with social security obligations is critical for your business, and I can provide guidance to ensure you meet all requirements.

Conclusion

Starting a business in Spain offers a wealth of opportunities, but it also requires a thorough understanding of the legal framework. From selecting the right business structure to managing tax obligations and complying with GDPR, there are many factors to consider.If you’re planning to start a business in Spain, or need help with legal registration, tax compliance, or social security obligations, contact me, José María Ruiz Castillo, for expert legal assistance. I can guide you through every step of the process, ensuring that your business is compliant with Spanish laws and set up for success.