The first decision to be made is usually whether to operate as a sole trader or to incorporate and set up a limited liability company. This decision may well be influenced by type of business, associated risks, assets to be acquired, need for business continuity, number of owners, anticipated profits, etc
Self-employed
In Spain a self-employed individual is widely referred to as being autónimo.
Advantages
- Simple setup procedure and less onerous tax filings compared to a limited company.
Disadvantages
- Unlimited liability with no division of assets such that all assets of owner including family home could be at risk from creditors or claims etc.
- Business with high profits might pay less if incorporated and paying corporation rather than income tax.
- Self-employed individuals must pay social security (approx EUR220 per month), however professionals may elect to pay fees to a Mutual instead.
Limited company
Although various types of companies exist the most common used is referred to as a Spanish SL company ( Sociedad de Responsabilidad Limitada). Another type is a Spanish SA company ( Sociadad Limitada) which is equivalent to a UK/Irish public limited company but such a vehicle is not normally used for small business.
Advantages
- Shareholders and directors are generally protected by limited liability providing the company is properly managed.
- A company is not dependent on its members and will continue to exist in the event of death of a shareholder or should that shareholder sell his interest in the business (i.e. the business has continuity).
- Ownership is easily transferable.
- Efficient management structure.
Disadvantages
- More onerous tax filing and accounting requirements.
- Needs to comply with Company legislation in terms of management, meetings and filing of accounts.
Branch or representative office
A Branch (sucursal) or Rep Office is not independent of its Head Office and the overseas Head Office will be responsible for all liabilities incurred by the Spanish branch
A Branch or Representative Office is considered a permanent establishment in Spain for tax purposes and will be subject to the same rules that apply to Spanish resident companies and must pay Spanish tax on its reported profits unless relieved under appropriate double tax treaties.
A branch must register in Spain for both VAT/IVA and payroll taxes/social security and comply fully with Spanish employment laws.
If it is envisaged that the branch office will be cash-consuming for a number of years then it may be tax advantageous to initially establish a branch and later when generating profits an SL company.
Procedure
Overseas company must pass a resolution authorising the establishment of a branch in Spain and also appointing a representative.
The signed resolution with the company's Memorandum and Articles of Association both having been legalised and translated into Spanish are then registered with the Mercantile Registry in Spain .
Other possible options
- Joint venture - associate with a business already established and trading. Spanish law provides for different types of joint venture.
- Commission agent
- Distribution agreement
- Franchise
