Make informed decisions before expanding your business into the thriving Spanish economy. Discover Spanish companies’ essential legal and regulatory requirements and considerations like partners, capital, and liability towards third parties.
In recent years, Spain has emerged as a thriving international business and trade centre, drawing companies from all over Europe. As an entrepreneur or an expanding enterprise, venturing into Spain can hold significant potential. However, before taking the plunge, it is crucial to understand the intricate legal and regulatory requirements governing businesses in the country.
This article sheds light on the essential formalities necessary to establish and operate a business in Spain. It is important to note that these requirements can vary based on the chosen legal structure, considering the number of partners, capital investment, and liability towards third parties.
Comprehending and complying with these regulations is paramount to ensure a smooth and legally compliant operation within the Spanish business landscape.
Before we head to the company registration steps, we must know the common legal structures in Spain for better understanding. In Spain, there are several legal structures for companies, each with its characteristics and requirements. Here are the names of different legal structures for Spanish companies in English:
- Sole Trader (Autónomo): This is a self-employed individual who operates a business on their own. The sole trader is personally responsible for all business obligations and debts.
- General Partnership (Sociedad Civil): A business structure where two or more individuals or entities join to carry out a business with shared responsibilities and liabilities.
- Limited Partnership (Sociedad en Comandita): Similar to a general partnership, but with a division between general partners (liable for debts) and limited partners (liable only to the extent of their contribution).
- Limited Liability Partnership (Sociedad Limitada Laboral): A type of partnership where the liability of partners is limited to the amount they invest in the business.
- Limited Liability Company (Sociedad de Responsabilidad Limitada or S.L.): A famous business structure in Spain that provides limited liability to its owners and shareholders.
- Public Limited Company (Sociedad Anónima or S.A.): A company whose shares are publicly traded on the stock market, offering limited liability to its shareholders.
- Cooperative (Sociedad Cooperativa): A business owned and operated by its members, who share profits and decision-making responsibilities.
- Branch Office (Sucursal): A foreign company’s extension in Spain, not considered a separate legal entity from its parent company.
- Representative Office (Oficina de Representación): Similar to a branch office, but with limited activities, primarily focused on representation and market research.
Starting a company in Spain is a relatively simple process, and many opt to begin by setting up a Limited Liability Company (L.L.C.) in the country. This approach is widely favored due to its ease and convenience.
To establish a limited company in Spain, follow these clear steps:
- Obtain Tax Identification Number (N.I.E.) or (N.I.F.)
- Register Your Desired Company Name with the Mercantile Registry
- Open a Business Bank Account
- Draft Deed of Incorporation
- Sign the Deed of Incorporation
- Registering with the Tax Agency
- Obtaining a Company Tax Identification Number (C.I.F.)
- Registering with Social Security
Minimum Capital Requirements
|Type of Company||Minimum Capital Requirement|
|Public Limited Company (S.A.)||€60,000|
|Private Limited Company (S.L.)||€3,000|
|Simplified Limited Company (S.L.S.)||€3,000|
|General Partnership (Sociedad Colectiva)||None (Liability is unlimited and the joint between partners)|
|Limited Partnership (Sociedad Comanditaria)||None (Liability of limited partners is limited to their contribution)|
|Cooperative Corporation (Sociedad Cooperativa)||The amount specified in the bylaws, or €3,000 if not specified|
|Sole Proprietorship (Empresario Individual)||No specific minimum capital requirement, but the owner’s liability is unlimited.|
In Spain, companies are subject to specific shareholder requirements to promote transparency and effective corporate governance. A minimum of one shareholder is needed to form a company, and they can be of any nationality. Shareholders need to have their identities registered. Shareholders need to have their identities registered with the Commercial Registry. Additionally, companies must hold annual general meetings, where shareholders can participate and vote on important matters.
Shareholders also have the right to:
- Attend meetings
- Supplement the meeting’s agenda.
- Access relevant company information, financial statements,
- And the ability to appoint directors.
Spanish law enforces strict regulations on insider trading and fraudulent activities to ensure fairness and protect minority shareholders, fostering a conducive environment for investment.
In Spain, entities are overseen by a management body known as “órgano de administración.” The management body is always obligated to prioritize and protect the corporate interest, which represents the common interest of the shareholders.
This body can have four structures:
- A sole director;
- Joint and several directors;
- Joint directors; or
- A board of directors.
Directors can be either natural or legal persons in non-listed companies. However, since June 2021, only natural persons can be appointed or re-elected as directors in listed companies.
An exception applies to listed companies in Spain, which must have a board of directors with at least three members. Nonetheless, many Spanish-listed companies delegate the regular management to an executive committee or one or more managing directors. Such a delegation requires approval by two-thirds of the directors and must be registered with the Spanish Commercial Registry to be valid.
|Corporate Income Tax||25% (Standard rate)|
|15% (Applicable to newly created entities)|
|25% (For certain small businesses)|
|Value Added Tax (V.A.T.)||21% (Standard rate)|
|10% (Reduced rate – applicable to some goods)|
|4% (Super reduced rate – applicable to basics)|
|Social Security||Approximately 30% of the employee’s salary|
|plus additional employer contributions|
|Local Taxes||Varies based on municipality and activities|
Corporate Income Tax (C.I.T.)
The tax rate applicable to companies subject to Corporate Income Tax (C.I.T.) in Spain varies depending on the entity type.
The standard rate is 25%. However, a newly incorporated entity conducting business and showing a positive tax base during its first two fiscal years qualifies for a reduced rate of 15. Cooperatives with a special tax regime are subject to a rate of 20%. In specific cases, different rates may apply: banks are taxed at 30%; non-profit entities at 10%; pension schemes at 0%; and collective investment institutions at 1%, among others.
The recently published draft General State Budget Law for the fiscal year 2023 proposes a decrease in the general C.I.T. rate from 25% to 23% for entities with a net turnover below E.U.R. 1 million in the previous fiscal year.
Value Added Tax (V.A.T.), known as “Impuesto Sobre el Valor Aadido” (I.V.A.) in Spanish, is a consumption tax applied to the sale of goods and services in Spain. The standard V.A.T. rate is 21%. However, specific goods and services, such as food and books, have reduced rates of 10% and 4% respectively.
Businesses registered for V.A.T. are required to charge V.A.T. on their sales and file regular V.A.T. returns. They can also reclaim V.A.T. paid on their purchases if used for business purposes.
In Spain, there are two types of V.A.T. registration:
Companies with a turnover exceeding €25,000 must register for V.A.T. and apply it to their sales, while smaller businesses can opt for voluntary registration. Even companies with lower annual revenues can opt for voluntary registration. Once registered, regular V.A.T. returns must be filed, and any owed V.A.T. must be paid to the Spanish Tax Agency.
For companies exporting goods or services to other E.U. countries, there is the option to use the V.A.T. Mini One Stop Shop (MOSS). This online portal allows businesses to report and pay the V.A.T. due in all E.U. countries with customers.
Annual Tax Return
Filing tax returns is a crucial annual task. It is mandatory to submit Corporate Income Tax (C.I.T.) returns within 25 calendar days after, six months from the end of the tax year. For instance, if the tax year aligns with the calendar year, the return should be filed anytime between the 1st and 25th July of the following calendar year. Remember, this timely submission is a legal requirement that must be met.
The financial statements encompass various essential documents, such as:
- The balance sheet,
- Profit and loss account,
- Equity changes statement,
- Cash flow statement,
- And a comprehensive report.
Requirement for Branches of Public Companies
Unlike unlisted companies, public companies cannot provide summarized versions of their financial statements; they must present full details. Moreover, public companies have additional reporting obligations. They must prepare and publicly share an annual corporate governance report, offering a detailed breakdown of the company’s governing system and practical operations. Additionally, there must be a yearly report on directors’ remuneration, which includes information about each director’s remuneration policy and individual compensations.
Requirement for Branches of Foreign Companies
However, branches of foreign companies operating in Spain are exempt from filing their financial statements. Instead, they need to obtain a certificate from the Commercial Registry of their home country, confirming that the financial statements have been appropriately submitted.
Spanish companies must submit their financial statements to the Commercial Registry every year in Spain. The company’s directors have a three-month window after the financial year’s end to release the financial statements, management report, proposed earnings distribution, and, if applicable, consolidated financial statements and management report.
Legal entities must fulfill at least two of the following three criteria in two consecutive years to meet the audit requirements:
- Total assets exceeding 2,850,000 euros
- Net revenue surpassing 5,700,000 euros, or
- Employing a workforce of over 50 people.
The appointment of an auditor takes place during the General Meeting or General Assembly before the end of the first financial year, requiring prepared accounts.
The company directors are responsible for presenting a comprehensive financial report, which should encompass the balance sheet, profit and loss account, cash flow, a statement of changes in equity, notes to the financial statements, and a management report. All financial reports must adhere to the accounting standards set in Spain.
The Spanish Employment Act sets rules and benefits for employees, which you should know when building a workforce:
- Minimum Wage: Full-time employees must receive a gross amount of 1,125.83 EUR per month, paid 14 times a year with extra payments in July and December.
- Work Hours: Full-time employees can work up to 40 hours a week, with a minimum 12-hour gap between working days. After 6 hours of continuous work, they are entitled to a 15-minute break.
- Overtime: Employees should be at most 80 hours of overtime per year. Overtime can be compensated monetarily or with paid time off.
- Paid and Unpaid Leaves: Full-time employees receive 22 paid working days off per year, but the number of days may vary depending on local and regional holidays. If a public holiday falls on a Sunday, it moves to the following Monday.
- Sick Leaves: Employees can claim an allowance for temporary absence due to illness, covering their daily income loss and healthcare expenses.
- Social Security and Taxes: Employees must register with the Spanish Social Security system (TGSS) and pay taxes. In return, they receive benefits and insurance coverage for sickness, accidents, unemployment, retirement, and parental leaves.