Living in Spain

Setting up a Business in Spain

Many people invest in Spain not simply to retire or acquire a holiday home but to actively engage in business. The most common investments, not surprisingly, revolve around supplying services to other expatriates or holidaymakers.

As in any country, it is vital that considerable thought is given not only to what business services can be provided but how investments should be made. As has already been inferred in respect to purchasing a Spanish property, the main window of opportunity to correctly structure ones affairs exists before becoming fiscally resident in Spain.

On a general level, it cannot be stressed too much that the Spanish way of doing things is often very different to the British or Irish norms and that such differences should be identified BEFORE investing. It is also a very good idea to ensure that you have sufficient savings to cover yourself for at least the first 6 months of your business venture. Further, as in the UK it is highly advisable to try and separate business from personal assets ideally by using a limited liability company or branch.

However, what cannot be over stressed enough is that thorough research should be carried out before proceeding with any business investment. In far too many cases the 'dream' of living in a sunny climate seems to mitigate all logic... Do not let this happen to you!

Major Legal Entities

As already discussed in respect to purchasing property there are two major limited liability entities in Spain; the sociedad anonima (SA) and the sociedad de responsibilidad limitada (SL). The former is equivalent to a UK or Irish public limited company or PLC whilst the latter is equivalent to a private limited company limited by shares or Ltd.

Unlike the British Isles far fewer small businesses use a limited liability entity primarily for reasons of cost - the average cost to set up a SL is between €1,500 and €2,500, with the minimum capitalisation level being €4,000 plus 1% duty - but it is still recommended for all but the smallest enterprises.

Apart from the two Spanish SA and SL companies, there is also the possibility of setting up a branch of a UK company, which has the considerable benefit of being far cheaper than setting up a SL whilst being governed by UK company law, rules, procedures and accountancy practices.

Partnerships - Partnerships in Spain may be either general (compania colectiva) or limited (compania en comandita). It should be noted that in both cases below the partnerships are fiscally transparent save for non-resident partners who will be taxed according to the appropriate double taxation treaty provisions.

Compania Colectiva (CC) - This is the basic partnership format. It is not a separate legal entity and in most cases is fiscally transparent meaning that separate accounts need not be submitted at the end of each financial year. All partners are jointly and severally liable for the debts and liabilities of the partnership whilst the 'Partnership Agreement' controls profit distribution. Partners who have contributed capital are obliged to partake in the management of the CC. Not recommended due to the lack of protection and the fact that potential liability is open ended.

Compania en Comandita (CEC) - This is the Spanish equivalent to the American limited partnership with both general and limited liability partners. The words "compania en comandita" must always follow the names of the partners concerned. There must always be at least one general partner who contributes to the capital and engages in the management of the partnership and one limited partner who simply contributes to the capital.

General partners are jointly and severally liable for partnership debts and liabilities. Limited partners are only liable - as a shareholder would be in a limited liability company - in respect to the amount they have contributed. Where one is a limited partner and one has confidence in the general partner or partners this vehicle is fine.

A much more in-depth explanation - including examples and diagrams - is given in the new book "How to Buy Spanish Property", available now for just £4.99