In the business world, bringing an idea to life takes much more than just a vision.
It involves a series of legal and tax procedures that are essential for the proper functioning of any business.
In Spain, these processes involve dealing with various bodies, the most prominent being the Tax Agency (Hacienda) and Social Security.
From choosing the legal form to complying with occupational risk prevention regulations, every step along the way is crucial to building a solid foundation for your business.
In this guide, we break down each of these steps, giving you a detailed map of the procedures needed to start your business in Spain.
Choosing the Legal Form
The first step on the road to establishing your business in Spain is choosing the legal form that best suits your type of business and your long-term plans.
A company’s legal form determines many key aspects of its operation, including its leadership structure, its tax and legal responsibilities, and its reporting obligations.
There are several legal forms of business in Spain, including the sole trader (autónomo), the limited liability company (S.L.), the public limited company (S.A.), the new-enterprise limited liability company (S.L.N.E), the worker-owned company (S.L. or S.A.), the cooperative society, among others.
The choice of legal form should be based on considerations such as the amount of capital available, the number of owners or partners, the nature of the company’s activity and risk tolerance.
For example, an S.L. is a popular choice for small and medium-sized businesses because of its minimum capital requirement and because liability is limited to the partners’ contributions.
On the other hand, sole traders are simpler and cheaper to set up, but owners have unlimited liability for the company’s debts.
It is important to bear in mind that each legal form has its own tax and legal requirements and obligations, so it may be useful to seek legal and financial advice before making a decision.
This initial choice will be crucial for your company’s future and will set the tone for all the procedures that follow.
Requesting a Company Name
Once you have decided on your company’s legal form, the next step is to choose a company name that represents your business.
This name must be unique and cannot be the same as, or too similar to, any other name already in the Central Mercantile Registry.
The company name request is made through the Central Mercantile Registry.
First, you need to come up with several name options, since the form will ask you to provide at least three alternatives.
These options will be checked in the order in which you listed them. If the first option is available, it will be approved.
Otherwise, the second option will be checked, and so on.
Once you have completed the application and paid the corresponding fee, the Central Mercantile Registry will issue a company name certificate.
This document certifies that your company’s name is reserved for you for a period of six months.
Make sure you choose a name that is representative and appealing and that complies with the rules of the Mercantile Registry.
Remember that your company’s name will be an important part of its identity and of how your customers and other stakeholders perceive you.
Choosing the company name is a significant step in setting up your business: it defines how you will be known in the market and marks the formal start of the incorporation process.
Obtaining the Tax Identification Code (CIF)
The Tax Identification Code, commonly known by its acronym CIF, is an essential identifier that every company needs in order to operate in Spain.
It is a unique code assigned to each company by the Tax Agency, which will be used in all transactions and communications with the tax authorities.
To obtain the CIF, you must file Form 036 with the Tax Agency.
This form is a census declaration used to register, amend or cancel a company’s status in the census of business owners.
In the initial filing, you will provide information about the company, including the company name, the legal form, the registered tax address and the business activity.
By filing this form, you will also register the company for the Economic Activities Tax (IAE), although companies are usually exempt from this tax during their first two years.
After filing Form 036, you will receive a provisional CIF, which will later become your definitive CIF once the company’s registration in the Mercantile Registry is complete.
Obtaining the CIF is a crucial step in the process of setting up a business in Spain, since without this code you will not be able to carry out any commercial or financial transactions on the company’s behalf.
It is therefore important to complete this procedure correctly and to keep the CIF for all your company’s future needs.
Registration for the Economic Activities Tax (IAE)
The Economic Activities Tax (IAE) is a tax levied on the exercise of economic activities carried out in Spanish territory.
This tax applies to both natural persons and legal entities, as well as entities without legal personality, that operate in Spain.
During the incorporation stage, registration for the IAE is done at the same time as the CIF application, using Form 036 from the Tax Agency.
Through this form, the company notifies the Tax Agency of the economic activity it plans to carry out, according to the classification of economic activities in the IAE.
It is worth noting that, although IAE registration is mandatory for all companies starting an economic activity, most companies are exempt from paying this tax.
Specifically, the exemption covers companies with a turnover of no more than one million euros, non-profit organizations, and new business owners during their first two years of activity.
However, even when you are exempt, registration is mandatory.
Registering for the IAE is an important step to formalize the company’s tax situation and to define the economic activities it will carry out.
This will let the Tax Agency know what the main activity of your business will be and determine the corresponding tax obligations.
Share capital is the amount of money that the partners or shareholders contribute to the company when it is created, and it represents the company’s initial assets.
This contribution can be made in cash, in goods or in rights, and it is used to meet the company’s obligations.
The amount required for the share capital depends on the company’s legal form.
For example, a Limited Liability Company (S.L.) requires a minimum of 3,000 euros, whereas a Public Limited Company (S.A.) requires a minimum of 60,000 euros.
This capital must be deposited in a bank account in the company’s name before it is incorporated.
The bank will issue a deposit certificate, which you must present to the notary when signing the public deed of incorporation of the company.
Depositing the share capital is a fundamental step in the process of setting up a company in Spain.
It not only provides the company with the funds needed to start its activity, but also gives creditors a guarantee that the company has a minimum of assets with which to meet its obligations.
It is important to remember that, although share capital represents the company’s initial assets, capital increases can be made throughout the company’s life to obtain more resources.
Deed of Incorporation of the Company
The deed of incorporation is one of the most important documents in setting up a company in Spain.
This document, which must be signed before a notary, formally establishes the company’s existence and sets out its basic articles of association, which are the company’s internal rules of operation.
The deed of incorporation must include relevant information such as the company’s name, its registered office, its corporate purpose (the detailed description of the activity the company will carry out), the share capital, the distribution of shares or holdings among the partners, and the identification of the company’s administrators or directors.
It is important to stress that the deed of incorporation is a public and official act that gives the company its legal personality.
In addition, this document also serves to protect the owners, since it sets out their rights and responsibilities in relation to the company.
Once the deed of incorporation has been signed, the notary sends an electronic copy to the Mercantile Registry for registration.
This registration is necessary for the company to acquire legal personality and be able to start operating legally.
Drafting the deed of incorporation requires careful consideration, and it is advisable to have the advice of a legal expert.
This document is essential to the company’s operation and governance, and it sets out the basic rules under which the company will be run.
Settling the Property Transfer Tax and Stamp Duty (ITP-AJD)
The Property Transfer Tax and Stamp Duty (ITP-AJD) is a tax that applies in Spain to certain documented legal acts, including the incorporation of companies.
The taxable base of this tax in the case of company incorporations is the share capital.
The applicable tax rate depends on the Autonomous Community where the company’s registered office is located.
It is worth mentioning that in the case of company incorporations, the transaction is subject to the ITP-AJD but exempt from it, which means that although you must file the tax return with the tax office of your Autonomous Community, you do not have to pay any amount.
However, you must file the corresponding form, which will vary depending on the Autonomous Community where the company is domiciled.
This procedure must be completed within 30 working days of the date the public deed of incorporation is signed, and it is an indispensable step for registering your company in the Mercantile Registry.
Make sure you meet this requirement on time to avoid possible penalties or delays in setting up your company.
And even though it is exempt, it is important to remember that the ITP-AJD is a tax that may apply to other transactions during your company’s life, such as capital increases or transfers of shares or holdings.
Registration in the Mercantile Registry
The Mercantile Registry is a Spanish public institution in which acts and contracts related to trade and businesses are recorded, giving them legal publicity.
Registering your company in the Mercantile Registry is a mandatory and essential step for your company to acquire legal personality and be able to operate legally.
After the public deed of incorporation is signed before a notary, the notary will electronically send a copy of it to the Mercantile Registry for the company’s registered office.
You will then have to file the settlement of the Property Transfer Tax and Stamp Duty (ITP-AJD), even though it is exempt in the case of company incorporations.
After this, the Mercantile Registry will register your company and give you a registration certificate.
This certificate proves that your company is legally incorporated and registered, and it is required for certain procedures, such as obtaining the definitive CIF.
Registration in the Mercantile Registry not only gives your company a legal existence, but also provides legal certainty to third parties who deal with your company.
The Mercantile Registry is also a source of public information about your company, which can be consulted by any interested person.
It is important to remember that registration in the Mercantile Registry requires payment of a fee, which will depend on the company’s share capital.
In addition, the registration must be renewed annually by filing the company’s annual accounts.
Registration with Social Security
Once your company is legally incorporated and registered, the next step is to register the company and its employees with Social Security.
This step is crucial, as it ensures that both the company and its employees are covered by Spain’s Social Security system.
Registration with Social Security is done through the General Treasury of Social Security (TGSS).
To register the company, you must file Form TA.6, and to register employees, you must file Form TA.2/S.
These forms must be submitted at the TGSS office for the company’s registered office.
In addition to registering the company and its employees, you must also choose the Social Security scheme that applies according to the company’s activity and the characteristics of its employees.
The most common schemes are the General Scheme and the Special Scheme for Self-Employed Workers (RETA).
Registration with Social Security is an essential step to ensure that employees are covered in the event of illness, workplace accident, unemployment, maternity, retirement, among other situations.
In addition, Social Security enrollment is mandatory for all companies and employees, and failure to comply with this obligation can result in penalties.
It is important to remember that registration with Social Security and payment of the corresponding contributions are ongoing responsibilities of the company for as long as it employs workers.
Therefore, make sure you keep your Social Security obligations up to date to ensure the proper functioning of your company.
Acquiring the Visitors’ Book and Work Calendar
The Visitors’ Book and the Work Calendar are two key elements you need to consider as part of your company’s compliance with its labor obligations.
Visitors’ Book:
Until a few years ago, all companies were required to keep a physical Visitors’ Book at each workplace so that labor inspectors could record their visits.
However, since 2013, the regulation changed and companies are no longer required to keep this book in physical form.
Instead, inspection reports are drawn up electronically.
Nevertheless, the company must be prepared to facilitate the inspectors’ work and properly record all inspection visits.
Work Calendar:
Under Spanish labor law, every company is required to draw up a work calendar and keep it available to employees and to the labor inspectorate.
The work calendar must include detailed information on working hours, the start and end dates of working periods, public holidays, vacation periods and other relevant information about working time.
This calendar must be drawn up every year and must be visible and accessible to all employees in a prominent place in the workplace.
These two elements are fundamental to complying with the company’s labor obligations and to ensuring a good relationship with employees and with the labor inspectorate.
It is important to remember that failure to comply with these obligations can result in penalties and fines, so it is crucial to keep these responsibilities up to date.
Compliance with Occupational Risk Prevention
Compliance with Occupational Risk Prevention (PRL) regulations is fundamental for all companies operating in Spain.
These regulations are designed to protect workers’ safety and health and to prevent workplace accidents and illnesses.
The Occupational Risk Prevention Act sets out a series of obligations for employers, including:
- Risk Assessment: The company must carry out an initial assessment of the occupational risks associated with its activity and with its employees’ jobs. This assessment must be updated regularly and whenever there is a significant change in working conditions.
- Prevention Plan: Based on the risk assessment, the company must develop an Occupational Risk Prevention Plan. This plan must include specific measures to eliminate or reduce the risks identified.
- Training and Information: Workers must receive adequate training and information on the risks associated with their job and on the preventive measures adopted. This training must be provided at the start of their employment and whenever working conditions change.
- Health Surveillance: The company must enable workers to undergo health examinations related to the occupational risks to which they are exposed.
- Consultation and Participation: Workers have the right to take part and be consulted on all matters relating to risk prevention in the company.
It is important to note that, depending on the size of the company and the nature of the occupational risks, it may be necessary to have one or more workers designated for risk prevention, or even an External Prevention Service, which is an entity specialized in managing occupational risk prevention.
Failure to comply with occupational risk prevention obligations can result in significant penalties and can have serious repercussions for workers’ health and safety.
It is therefore essential that all companies take their responsibility in this area seriously.
Legal Disclaimer
The information provided in this document is offered for general informational purposes and should not be construed as legal, tax or professional advice on any particular matter.
Each of these headings represents a general step in the process of setting up a business in Spain with respect to the Tax Agency (Hacienda) and Social Security.
However, every business case is unique, and these steps may vary substantially depending on the type of business, the company’s structure, its geographic location and a variety of other factors.
In addition, the process of setting up a company involves a series of legal and tax obligations that go beyond the basic steps described here.
It is essential that you seek professional legal and tax advice before starting any business activity.
A professional legal or tax advisor can help you understand the legal and tax obligations that apply to your particular situation, advise you on the best business structure for your needs, and guide you through the entire company formation process.
Failure to comply with legal and tax obligations can have serious consequences, including financial penalties and civil or even criminal liability.
It is therefore essential that you take your legal and tax obligations seriously and seek professional advice if you have any doubts.
This document does not create any advisor-client relationship and should not be used as a substitute for professional legal or tax advice.
If you have any questions about the content of this document or need advice on any matter related to setting up a company, we recommend that you seek the advice of a qualified professional.
Continuing with the “Start from Scratch” series, before these procedures it is advisable to be clear about your web positioning, and once your company is set up, the next step is to make a good expense forecast before you launch your business.
Before completing these procedures, you may want to review the main types of aid for starting a business in Spain, which can make much of the process easier.