Key Considerations For Starting A Business In Spain In 2024

Spain is known for its vibrant culture and robust economy, making it an attractive destination for starting a business.

There are many reasons why entrepreneurs are drawn to Spain, but it’s essential to consider specific factors when setting up a business. These include the current economic conditions, the legal and regulatory framework, applicable taxation, and labour laws.

Understanding these aspects ensures that your business complies with local requirements and is well-positioned for success in the Spanish market.

Economic Overview

Spain’s economy is displaying notable resilience, countering some of the more pessimistic predictions. The European Commission states that after a strong rebound from the pandemic with 5.8% growth in 2022, the economy is expected to continue expanding by around 2.1% in 2024, driven primarily by domestic demand and increased household spending.

Employment trends are also encouraging. Unemployment has been steadily decreasing, reaching 12.1% in 2023 and is projected to fall further, aided by immigration that helps alleviate labour shortages.

However, there are still significant challenges High public debt, which surged during the pandemic, poses a substantial concern. The government is making efforts to reduce it, but this will be a lengthy process.

Inflation, while beginning to cool, still remains above average and could potentially curb consumer spending and business investment over time.

Legal And Regulatory Framework

Before launching a business in Spain, understanding the legal and regulatory framework is essential. The first step is selecting your business structure, with the Sociedad Limitada (SL) being a popular choice for foreign investors due to its provision of personal asset protection.

Securing a NIE (foreigner’s tax identification number) is crucial for any financial transactions in Spain. Additionally, confirm the availability of your business name through the Central Mercantile Registry.

Key steps in the registration process include:

Drafting The Articles Of Association: This document outlines the company’s objectives, structure, and management.
Opening A Business Bank Account: You need to deposit the minimum share capital of €3,000 for an SL.
Signing The Deed Of Incorporation: A notary public must officially establish your company.
Registering With The Mercantile Registry: Submit all required documents for formal registration.
Obtaining A Company Tax Identification Number (CIF): This unique tax ID is necessary for your business.
Registering For Social Security: Enroll both your company and employees in the Spanish social security system.

Additional licenses or permits might be required depending on your industry. Consulting a lawyer or business advisor can ensure compliance with all legal requirements. While the process may appear complex, Spain has simplified many aspects in recent years, making it easier for businesses to start operating. Proper preparation is key to ensuring your venture thrives.

Taxation and Financial Management

Spain’s tax regulations is a significant advantages for startups, making it an attractive destination for new businesses. The general corporate tax rate is 25%, but startups benefit from a reduced rate of 15% for the first two fiscal years of taxable profit, with the possibility of extending this reduction for an additional two years under certain conditions.

The Value Added Tax (IVA) in Spain operates similarly to a sales tax, with a standard rate of 21%. However, certain goods and services, such as food and books, enjoy reduced rates of 10% or even 4%. Businesses registered for VAT must charge it on sales and file regular returns, but they can also reclaim VAT paid on business purchases.

Registration is mandatory for businesses with an annual turnover exceeding €25,000, though smaller businesses may choose to register voluntarily.

Other taxes to consider include income tax for self-employed individuals, property taxes, and social security contributions for employees. Proper financial planning is crucial to comply with these obligations.

Hiring And Managing Employees

Clear, written employment contracts are essential, detailing working conditions, salary, vacation time (30 days per year), and termination clauses. Both fixed-term and indefinite contracts are common.

Employers must register employees with the Spanish Social Security system, covering healthcare, unemployment benefits, and pensions, usually handled via a payroll provider. The standard workweek is 40 hours, with regulated and compensated overtime. Spanish work culture often includes long lunches and siestas, leading to flexible work schedules in many sectors.

Spanish employees benefit from strong legal protections, including paid sick leave, parental leave, and substantial severance packages in case of dismissal. It is crucial for employers to respect these rights and ensure fair treatment.

Navigating the complex system of hiring can be challenging, especially for newcomers. Partnering with a Professional Employer Organisation (PEO) or an administrative services firm (Gestoría) can help manage payroll, social security, and other HR tasks.

Spain presents a promising environment for businesses, with a resilient economy, supportive legal framework, and favourable tax conditions for startups. While challenges such as high public debt and inflation remain, careful planning and compliance with regulatory requirements can help businesses thrive. By understanding and navigating the processes of hiring and financial management, entrepreneurs can take advantage of Spain’s business-friendly economy and build successful ventures.