In this article, we provide you with a few general recommendations for when you are planning to start a business in Spain. You can also read our article “How to incorporate your business in Spain” where we provide a checklist for the most typical business forms in Spain, as an initial orientation.
What you should know:
- If you are a freelancer, your business’ income will be taxed as your personal income.
- If you are a SME (e.g. “S.L” or “S.A.”, your business’ income will be taxed as corporate tax (general corporate tax rate approx. 25%).
- S.L. companies require a share capital of 3,000 EUR.
- S.A. companies require a share capital of 60,000 EUR.
In general, if you are an entrepreneur considering starting a business in Spain, establishing yourself as a freelancer (“autónomo”) would probably be the most recommendable option. As a freelancer, you are not required to fulfill as many requirements and formalities as other business forms (e.g. there is no minimum share capital, registration to the Mercantile Register is optional, among other advantages). Therefore, freelance will be the most practical form for you in most of the cases.
If you are an entrepreneur considering starting a business in Spain, establishing yourself as a freelancer (“autónomo”) would probably be the most recommendable initial option.
However, once your business starts being more profitable, you may want to consider changing from freelance to a corporate structure, typically in to a S.L. (or S.R.L.) company. This is because, as freelance, your business’ income will be taxed after the rules of personal income taxation and hence, the income tax rate can be considerably high depending on your turnover and your overall personal income. On the other hand, as a business corporation the income of your business will be taxed as corporate tax (general tax approx. 25%), which can represent a big difference for your economy.
Another thing to consider as your small business grows is your liability. As a freelancer, you will be directly liable for any loss you inflict on your customers or suppliers. This is fine when your business is small and your business’ obligations are clear, foreseeable and manageable. But as your business grows, so does your potential liability. By changing your business from being freelance to a limited liability company, you contain your liability within the company rather than you being personally liable.
Once your business starts being more profitable, you may want to consider changing from freelance to a corporate structure, typically a S.L. (or S.R.L.) company.
The most popular business forms in Spain are S.L. (or S.R.L.) and S.A. For both types of corporations, a minimum of one “social partner” is required. Social partners usually have limited liability (there are a few exceptions in relation to S.A.). However, the requirements for the establishment of S.L. and S.A. differ greatly as a S.L. only requires a minimum share capital of 3,000 EUR, while the S.A. minimum share capital is 60,000 EUR.
Every business form offers different possibilities that should be assessed from a legal and financial point of view. To complicate things – your business’ needs will change over time as well.