Company formation in Spain

Depending on the type of company you set up, you will need to fulfill Spanish regulations with regard to accounting, auditing and tax filing. Choosing the type of entity and determining its relationship with the parent company (if there is one) or international shareholder requires knowledge of Spanish mercantile law. In our experience, having the proper setup with help from professionals will save you money and time in the end. For example, changing the company director can take more time than forming a new company.

Articles:

FAQs:

Links:

Should I form a new company or buy an off-the-shelf company?

With an off-the-shelf company, you save the step of registering a new name (4-6 days). The problem is that in order to register the change of company director, the company registry can take longer than it takes to register a new company. The law stipulates that a new SL must be registered in 15 business days, but there is no time limit specified for changes to an existing company. The bank account won't be in your name until the company registry delivers the stamped company title, so if the use of a bank account is urgent, an off-the-shelf company is not the best option.

My company wants to open a branch in Spain. Is this better than creating a new company?

Creating a branch has similar requirements to VAT registration in Spain. In most cases, it is preferable either to create an SL or to register for VAT. If you plan to set up a permanent establishment in Spain, creating an SL usually offers more tax advantages than a branch. Comparing branch creation with VAT registration, for the latter you don't have to file corporate tax forms in Spain whereas you do for a branch.

Should I be self-employed or should I form a company in Spain?

If you are self-employed (autónomo) and someone files a lawsuit, then you are liable -- your personal assets may be taken from you. If you form a company, then only the assets of the company are at stake. Normally, self-employment is the option when you're just starting out and aren't ready to commit money for company formation and accounting. See our FAQ on the relative costs and tax rates for the two options.

A common situation is that you live in Spain and work for a foreign company. If the company wants you to be hired as an employee, then depending on the duration of your work, the company can either hire you directly or it can get a Spanish employer number to hire you. If you plan to work as a consultant, then the decision between self-employment and forming a company is primarily a tax decision based on how much you will be earning. Self-employment has an additional issue concerning invoicing the company (click here for more).

Read this article for more information on how to register as self-employed.

Can I save on personal income taxes by creating a company?

In some cases, yes. By creating a Spanish company, your earnings are then subject to the corporate tax rate, which is lower than the top personal tax rate. Maintaining a Spanish company, though, carries accounting and tax filing obligations, so there are costs involved. As a general rule, if you earn more than 60,000€ a year, it's time to start considering company formation as an option. Note that this option is only for those who are self-employed; if you are on payroll, then you will need to convince your company to hire you as a consultant.

What is the difference between a Sociedad Limitada (SL) and a Sociedad Anónima (SA)?

• An SL is similar to the British "Ltd" or the American "LLC", while an SA is similar to a corporation.
• Accounting:

  SL: Accounting for an SL is fairly simple, and in the first three years, you can apply for "simplified accounting".

  SA: Accounting for an SA is more complicated, and yearly auditing is required.

• Share Capital:

  SL: Requires backing capital of 3000€.

  SA: Requires 60,102€, though only 25% of this needs to be deposited in the bank at the time of incorporation.

• Administration:

  SL: There is wide flexibility regarding how the bylaws can establish the administrative organization (sole director, joint directors, board of directors). The duration of the director's position is indefinite in this case, unless there is a limit stated in the bylaws.

  SA: The bylaws must establish a concrete administration system. Any changes must be modified in writing. The duration of the directors' positions is limited to six years (with the possibility for re-election in equal periods).

• Bylaws:

  SL: Flexible: The bylaws can contain certain variations from the legal regime.

  SA: Rigid: There are more limited possibilities of establishing variations to the legal regime.

• Non-monetary Contributions:

  SL: Such contributions can be made without the necessity of a report by an independent expert.

  SA: Such contributions must be accompanied by a report from an independent expert.

• Share Transfers:

  SL: The law establishes limitations with regards to the transfer of shares to third parties. These limitations can be expanded or reduced in the bylaws.

  SA: In principle, there is freedom of share transfers, although the bylaws can also establish additional requisites.

• Meeting of Shareholders:

  SL: The meeting can be called by direct communication to the shareholders, if the bylaws allow it.

SA: The call for a Meeting of Shareholders should be published in the Official Bulletin of the Mercantile Registry, as well as in the newspaper.

• Dissolution:

  SL: If the shareholders agree to dissolve the company, it is not necessary to publish the agreement in the newspaper.

  SA: The agreement for the dissolution of the company should be published in the Official Bulletin of the Mercantile Registry and in the newspaper.

You might choose an SA:

• if you want to be able to sell stock or company bonds, or go public (IPO).
• as part of international estate planning.
• to establish a non-resident company in Spain.

Otherwise, you would choose an SL. Most companies formed are now SLs, and not only for small businesses.

Will creating a company in Spain help me get Spanish residency?

As long as the company will be a real, functioning business, then it can help you get Spanish residency through a vehicle called an investment visa, provided you go through the proper steps.

What is a holding company?

In Spain, these are companies whose main activity is directing and managing their ownership interests (direct or indirect holdings of at least 5%) in non-resident entities, and the financial resources directly related to such investments. Their business activity may also include the rendering of services (including financial services) to the companies in which they invest and to companies in the same corporate group. The main characteristics differentiating the special tax rules for holding companies from the general code are:

• Capital gains on share transactions within the holding company are tax-exempt.
• Dividends that the holding companies pay their non-resident investors are tax-exempt, as long as those investors are not based in so-called tax havens.
• Spanish resident individuals who perceive dividend payments from holding companies will not be able to deduct all dividends but rather only those taxed abroad.