Incorporating a Company in Spain: A Practical Guide for Startups

Incorporating a company in Spain can be a rewarding venture, offering access to a dynamic market in one of Europe’s most vibrant economies. However, the process involves several steps, each with its own challenges. By following a detailed and well-structured approach, businesses can successfully establish their operations in Spain, whether as a permanent establishment, branch, or subsidiary. This comprehensive guide, drawing insights from a conversation with Anton, a corporate lawyer in Madrid, is designed to help entrepreneurs navigate the process of setting up a business in Spain.

Understanding Your Options

When incorporating a company in Spain, you have several options, each with its own benefits and limitations. The right choice depends on the specific needs of the business, including the degree of independence desired and the legal implications of each structure.

1. Permanent Establishment: A permanent establishment allows a foreign company to register for tax and labor purposes without forming a branch or subsidiary. This option is often chosen for businesses testing the market in Spain. It is a simpler and less costly structure but comes with limited operational flexibility. The tax and labor implications of a permanent establishment require careful attention, as the company is subject to Spanish tax laws but does not have the legal personality of a separate entity.

2. Branch: A branch is an extension of the parent company but does not have its own legal personality. It allows the company to operate in Spain without establishing a new legal entity. While it can be quicker and simpler to set up than a subsidiary, it offers less operational autonomy. A branch is typically suitable for businesses that want to maintain control from the parent company and do not need to establish a separate legal identity for the Spanish operations.

3. Subsidiary (typically an S.L., or Sociedad Limitada): A subsidiary is a limited liability company with its own legal personality, which means it is a separate entity from the parent company. The subsidiary is the most common structure for foreign businesses wishing to establish a presence in Spain. It provides greater operational flexibility, limited liability, and potential tax benefits, but requires more paperwork and initial setup costs. This option is ideal for businesses looking to expand their operations and take advantage of Spain’s business incentives.

Steps for Incorporation

Once you’ve decided on the type of entity, the next step is the incorporation process. While the procedure can vary depending on the type of company being established, these are the general steps required for incorporation in Spain.

1. Obtain a Certificate of Company Name: The first step in the incorporation process is obtaining a certificate containing the name of the future company. A negative certificate of denomination must be obtained from the Spanish Commercial Registry, ensuring that the chosen name is available and not already in use.

2. Obtain Provisional Tax Identification Numbers (NIF): You must obtain provisional Tax Identification Numbers (NIF) and/or Foreign Identification Numbers (NIE) for the company, its shareholders, and its administrators. These numbers are required for tax purposes and identification within the Spanish system. The final NIF will be issued once the company is fully registered with the Mercantile Registry.

3. Open a Company Bank Account: To incorporate a company in Spain, you will need to open a bank account in the company’s name. This account will be used to deposit the company’s share capital. Be prepared for the possibility that opening a bank account may take some time, as Spanish banks may require detailed documentation and conduct due diligence, especially for foreign-owned companies.

4. Prepare and Execute the Deed of Incorporation and Articles of Association: A notary public must execute the deed of incorporation, which includes the company’s articles of association. These articles lay out the rules governing the company’s operations and structure. The notary ensures that the document is legally valid, and the cost for this service, including notary fees and registry costs, generally ranges from €2,000 to €4,000.

5. Register the Company with the Commercial Registry: After the deed of incorporation is executed, it must be registered with the Spanish Commercial Registry. This registry keeps public records of companies, providing transparency and accountability. Registration at this stage gives the company legal recognition in Spain.

6. Secure an Electronic Certificate: An electronic certificate for legal entities is necessary for various administrative processes, such as digital interactions with Spanish public authorities. This certificate is required for tasks like tax filings, submitting official documents, and handling correspondence with government agencies.

7. Register with Tax Authorities and Social Security: The company must be registered with the Spanish Tax Authorities for tax payments. If the company plans to employ workers in Spain, it must also register with Social Security. This registration ensures that the company complies with Spanish labor laws and contributes to the social security system.

8. Employee Registration: All employees must be registered with Social Security, which ensures that the company complies with Spanish labor laws. The registration process involves providing details about each employee, including their contract type, wage, and other relevant information.

Special Regime for Startups

Once the company is incorporated, it may qualify for special benefits under the Spanish Startup Law. By applying for certification as a startup from ENISA, a public entity, the company can access various advantages designed to help new businesses thrive.

The Startup Law offers several benefits, including a reduced corporate tax rate of 15% for the first four years of profitability. In addition, investors in startup companies may be eligible for tax deductions, which can help secure funding for the company. These incentives reduce the financial burden on early-stage companies, making Spain an attractive destination for entrepreneurs.

Considerations for Location

When choosing where to incorporate your business in Spain, it is important to consider the regional incentives available. For example, the Canary Islands offer favorable tax conditions for businesses, including a lower corporate tax rate and other incentives. Depending on the nature of your business, it may be beneficial to set up operations in this region, particularly if you plan to expand internationally.

Legal and Commercial Documentation

Before beginning the incorporation process, coordinate with corporate, tax, and labor advisors to ensure that all necessary documentation is in place. This includes understanding the requirements for establishing a permanent establishment, branch, or subsidiary. A legal expert can also help ensure that the company complies with local laws and regulations and that all necessary licenses and permits are obtained.

Making the Right Choice

Choosing between a permanent establishment, branch, or subsidiary requires careful consideration. Businesses should analyze their long-term goals, potential tax implications, and the level of independence they desire for their Spanish operations. While a permanent establishment may be suitable for businesses just testing the market, transitioning to a branch or subsidiary will offer greater flexibility and autonomy as operations grow.

- Permanent Establishment: Easier to set up and less costly, but it lacks legal personality and can result in complex tax issues.

- Branch: Simplifies administrative processes and is a direct extension of the parent company, but lacks operational flexibility.

- Subsidiary: Offers a separate legal identity and greater operational flexibility, but requires higher initial costs and more complex management.


Conclusion

Incorporating a company in Spain requires careful planning and knowledge of the legal, tax, and administrative steps involved. By consulting with experts and understanding the available options, businesses can choose the best structure for their needs. Whether setting up a permanent establishment, branch, or subsidiary, Spain offers a supportive environment for businesses looking to expand into Europe. Navigating the process efficiently can save time, reduce risks, and ensure compliance with Spanish regulations. To make your business expansion seamless, book a call with moviinn® today and let our experts guide you through every step of incorporating your company in Spain.