Are you an aspiring el impresario, as that you are here? Some rosy idea has struck your mind, and you are planning to reify into a real venture. Appreciative, indeed. The notion of launching a business and the prospects of its flourishing often keep the aspirants going in their highest spirits. Right? Absolutely, but only until the time you get to leap and jump out of virtually hoops and hurdles of bureaucracy to make it happen.
If cities of Spain like Valencia, Madrid, Barcelona, or its countryside have whetted your interest lately in locating your dream project, you are bang at the right place. Starting a business in the country is fruitful; however, the endless red tape involved can numb you for a while. There are taxes, fees, charges, and formalities to fulfill at every turn you steer. So, you can grok it knows that managing it all without an expert by your side is almost unworkable.
And if you are a foreigner, be prepared for more drudge. Being the fifth largest economy in Europe, Spain proposes immense scope for new businesses. Despite the large market in the country, unemployment, which has taken a toll on potential consumers, may hamper businesses a bit. Nonetheless, it still depends on the business you are planning to launch. Many workers from nearby nations such as Romania, China, Morocco, Venezuela, etc., land in the country. So, in case your business requires a huge workforce, basing a business in the country would prove to be a pragmatic decision. Thus, it will lower your wage bill.
Nonetheless, crafting a systematic plan, knowing the details, and hiring a gestor to help you crack the labyrinthine corridors of governmental institutions, fill forms one after the other, and ask government officials on your behalf. For natives, the process might come relenting at times; however, non-natives would have to bear extra formalities, such as getting a foreigner identity number known as NIE. Furthermore, the procedures you will go through may vary slightly from region to region.
Before you douse yourself further into getting tickets, visas, and other docs to head to Spain and start your venture, you need to know how it all works in Spain. In any country, before starting a business, you must be ready with an impactful business name that no one has yet taken, prepare a business plan, do some market research, understand the business culture of a country, know the legal obligations which you need to abide by, and so forth. Furthermore, entrepreneurs must choose a business setup type to register their business.
Commonly people setting up businesses in Spain choose autonomous, meaning self-employed workers or Sociedad Limitada meaning Limited Companies or SL. The business structure you select determines the tax regulations, benefits, mercantile obligations, liabilities, etc., your company will need to consider. Other steps of basing a business in Spain involve opening a business bank account, getting a CIF, signing the deed of incorporation, and registering for social security.
Knowing this isn’t enough. In the following sections, we shall parse through diverse requirements, ease of starting a business, and more details. So, you can easily arrive at a firm decision without hemming and hawing!
Process of setting up a business in Spain
Although it may seem arduous, as it slightly is, to start a business in Spain, it largely depends on the type of company you wish to start. Whether it is self-employed, limited company, partnership, or sole proprietorship. It is easy for European citizens to open a business as partnerships or sole proprietorships. However, things get slightly weighty for ex-pats coming from outside European Union as they need to get a work permit first to migrate to Spain and kick off a business there. Let’s see what it takes and what the process of setting up a business in Spain looks like.
- Prepare a business plan: Business Plan is crucial for new businesses. First off, while preparing it, you will get to deeply research the market size, competitors, product/ service demand and supply, etc. This would help you enhance your marketing strategies and further check its marketability and profitability. Moreover, those who wish to invest in your business or associate with it would ask for an elaborate business plan. Thus, having it ready would get you opportunities while presenting a professional image of your business.
- Choose the business’s legal structure: Before launching a business, one should research and finalize the type of legal structure you want for your business. Spain has diverse business structures with features, purposes, and benefits such as Limited Liability Company (SL), Sole Trader, Partnership, etc.
- Get the business and its name registered: It is really important to think of a winning business name to establish a business. However, at the same time, you need to consider that the name isn’t already taken by someone else, or it would be rejected. A certificate used to verify your business name that is not used by anyone else is known as a no-name coincidence certificate. This document can be procured from RMC (the Mercantile Registry), and the process usually takes three days.
- Procure NIE number: If you are an ex-pat aspiring to start a business in Spain, you must get your NIE number. This identification number is asked for at the time of tax identification, opening a business bank account, etc. The NIE number is a critical must-have in Spain to run business operations smoothly.
The process of procuring NIE is fairly simple and takes about 3-5 working days for EU citizens. The time this process will take for non-EU people depends on the speed and efficiency of the corresponding Immigration Office.
- Open a business bank account: You have to open a Spanish business bank account after getting your no-name coincidence certificate and a tax code. Here, you need to deposit at least €3,000, which is the minimum paid-in capital permitted when setting up a business. The payment receipt from the bank is needed at the time of the act of the company’s incorporation.
- Signing the public deed: The deed of incorporation is a document that entails details of a business such as an address, name, information about directors, stakeholders, board members, etc. To get this step done, you will have to yield the following documents (original as well as photocopies):
- Proof of cash in the business bank account
- Certificate from the Mercantile Registry
- Tax Form 036
You may want to consider a seasoned lawyer to sign the deed of incorporation. As you receive the original deed of incorporation for your business, head towards the Local Government Tax Authority to get it registered. The officials will further stamp the document, and it will hardly take more than 2 hours. The story doesn’t end here.
Take the stamped deed doc to the RMC. Here, officials will register in the Spanish Register made for limited companies. This step usually takes approximately 15 days, and after that, your documents will be returned, and the deed is finally registered.
- Procuring your CIF: After the incorporation process is accomplished, march towards the tax office to get your CIF (permanent Corporate Tax Identification Number). Take the photocopy of your nIE and the deed to fulfill this formality. Furthermore, new businesses need to use the 036 Form to solicit a tax identification number. In case your business intends to export or import within Europe, you must get an EORI number.
Hiring Employees in Spain
Once you get your business registered and have accomplished other official protocols for starting a business in Spain, you will need a workforce. At this phase, you need to consider several things as an employer before and after hiring people. For instance, you must be aware of Spain’s employment and labor laws and other regulations that govern the domain of hiring employees in the country. This is where an experienced HR agency like Zimyo can ease your process with experienced consultants and country experts.
Read on to know them all!
- Trial Period/Probation Period: In case no special provision was stated or included in the employment contract, the probation/ trial period in Spain cannot surpass the typical duration of 6 months. This is applicable to employees with academic degrees and other employees as well. Nonetheless, a trial period of 1 year has been clarified in the contract for entrepreneurs. Furthermore, for qualified technicians, the trial period cannot be extended beyond two months, while for other workers in companies with less than 25 workers, it is set to three months.
- Leave and Holidays: Employees in Spain, as per the law, must receive 30 days of paid vacation every year. This can be arranged further and improvised according to the requirements of the employer and the company or through a collective agreement. Furthermore, there are 14 public holidays in Spain, which may differ from region to region.
To support the workers who have suffered temporary disability due to work-related injury, non-work-related injury, common diseases, etc., Spain offers a subsidy benefit for up to 365 days. The duration may be extended further up to 180 days if the person’s recovery is almost sure.
Moreover, laws make it clear that employees who need to take care of a family member or a close relative who has suffered an accident, is seriously ill, handicapped, or does not engage in any paid activity, are entitled to a leave for at least two years and no more.
Other leaves provided in the Article 27 of the Worker’s Statute are:
- 15-days leave for marriage.
- 2-days leave for the accident, serious illness, injury, surgical operation, etc. If a worker has to travel in the given case, the benefit is extended to four days.
- 1 day leave for domicile changing.
- For the needed time for undergoing childbirth preparation, pre-natal and post-natal checkups that need to be done during working hours.
- Maternity Leave: Maternity leave in Spain is set to 16 weeks, where 6 of these weeks are allotted immediately after childbirth. At the same time, the employee can distribute the other ten weeks as per her medical requirements until the newborn is 12 months old.
A pregnant employee can also suspend the work for up to 4 weeks before the expected delivery date. For child deliveries occurring after January 1, 2020, partner leave is set up to 12 weeks. Here four weeks are assigned immediately post-childbirth, while the remaining eight weeks can be sorted at the concerned employee’s discretion. Furthermore, partner leave will last 16 weeks from January 1, 2021, as per maternity leave laws in Spain.
- Termination of Services: In Spain, an employee can be terminated on the following grounds:
- Mutual agreement of the parties involved.
- Reasons are stated in the employment contract.
- Resignation of the employee.
- Employee’s retirement.
- Collective dismissal is based on objective causes such as employee incompetence or inability to adapt to workplace culture.
- The employment contract term expires.
- Death of permanent illness of the employee.
- Voluntary exit by the employee due to infringement of the contract by the employer.
- Dismissing employees on the grounds of discipline such as physical or verbal insult toward the employer, excessive or unnecessary delay, low attendance at work, etc.
Generally, employment contracts in Spain are considered for an indefinite period. Nonetheless, a fixed number of definite-term employment contracts do exist. If an employee continues the job beyond the set term of the temporary employment agreement, the contract becomes indefinite. Furthermore, in this case, the employee becomes entitled to the standard severance pay upon service termination.
A mutually agreed termination of services in Spain takes agreement from the parties involved, the employee, and the employer. In the agreement, it is necessary to state the reasons for termination, timing & method of payment, clauses of confidentiality, the mutually consented compensation, and so forth.
- Pension: In Spain, retirement pensions are considered in every Social Security scheme and are meant for life. To get a pension, however, one first needs to attend to the following conditions:
- A person should be at least 65 years of age (with certain exceptions).
- A person must have contributed to the national insurance for at least 15 years. A minimum of two years of contributions must have occurred within 15 years before the retirement period.
- Work Hour Norms: Typically, the working week in Spain is 40 hours; however, it can vary for different occupations. The law states that there should be at least a 12-hour gap for rest between two consecutive working days. Furthermore, the number of overtime hours in a year cannot exceed 80 hours. Employers can compensate for overtime hours either by rest period within the next four months or by paying them. A typical working day in Spain begins at around 8:30 am/ 9:00 am to 1:30 pm, then from 4:30 pm/ 5:00 pm to about 8:00 pm.
How easy is it to conduct business in Spain?
To come directly to the answer to “how easy, it is to start a business in Spain?” you need to look at the Ease of Doing Business (EODB) Rankings. These ranks are conferred by the Doing Business project, which considers several factors like managing construction permits, payroll, insolvency resolutions, the eff
iciency of the judicial system, the number of formalities involved, etc.
The report studies diverse elements that may make starting a business harrowing or smooth. Once the subindices on these factors are prepared, the overall EODB rank is given to a particular economy. The study compares business regulations in 190 countries, and those that make their way into the top 20 positions are great places for launching businesses.
So, where does Spain lie?
Spain’s position in the 2020 EODB index is 30, while its Doing Business score is 77.9. Therefore, it’s not that hard. Let’s consider each subindex factor in detail.
- Starting a Business: The Doing Business measures the cost, time, paid-in minimum capital requirement, and several formalities one must bear when starting a business in a particular economy. Spain ranked 97 while scoring 86.9 out of 100 in this subindex, thanks to the infinite red tape hurdles one has to experience. However, the country has tried to simplify the process by introducing electronic system facilities for business registration and licenses.
- Managing Permits: This is yet another critical indicator that Doing Business considers to rank economies in the EODB list. Here, the Doing Business intends to investigate the formalities, several procedures, legal obligations, cost, and time, involved in getting permits for warehouse and company constructions. It also looks at the safety setups and quality control mechanisms in the construction allowance system. Spain secured 79th rank while getting a score of 70.8 out of 100 in this subindex. This implies that you will have to drudge much and for considerable time get permits and licenses for different operations in your company.
- Getting Electricity: You need a connection with the electrical grid for operating a business smoothly. Getting Electricity is another indicator considered by the Doing Business, which peruses the reliability and efficiency of the electricity system in the country, the cost, time, and several formalities one has to go through for getting an electrical connection for businesses. Spain got 55th rank while scoring 83 out of 100 in the Getting Electricity subindex. The country recently worked to streamline the process of procuring new commercial electricity connections.
- Getting Credit: The Doing Business put Spain at 80th in the EODB index 2020. To estimate this factor, the Doing Business considers the cost, number of formalities, procedures, and costs involved in getting funds for businesses. Furthermore, it also goes into understanding the efficiency of bankruptcy regulations and collateral laws in the country and the strength of credit reporting setups.
- Managing Payroll: As the company grows, so does the burden of responsibilities on your shoulders. There is a lot to be looked after, such as payroll management. It gets challenging for a company to keep track of employee leaves, attendance, payroll, and other things, triggering an uproar in the system. Therefore, it is crucial to integrate a productive and smart payroll management consultant like Zimyo into your business operations to ensure smooth business operations.
- Paying Taxes: The Doing Business probes into the time, payments, number of formalities, procedures, and number of legal obligations one has to consider while filing for tax payment and after that. In the subindex of the Paying Taxes, Spain came at 35th position. The taxation system for business in Spain is highly intricate and involves frequent meetings and confrontations with government officials and long queues. However, the country has made paying taxes less expensive by lowering the corporate income tax rate.
- Enforcing Contracts: To estimate this indicator, the Doing Business regards matters like cost, formalities, and procedures it takes to sort out a legal dispute. On top of this, it looks at the quality and efficiency of the courts, legal regulations and rules to help achieve just outcomes and more. Spain bagged 26th position for the Enforcing Contracts subindex according to the 2020 Doing Business report. The country endeavored to streamline the filing process for court users by introducing an obligatory online filing mechanism.
- Resolving Insolvency: A business may go into insolvency, and how it faces this period and tackles it is determined by the country’s insolvency laws where a business is located. The Doing Business considers Resolving Insolvency as one of the potential indicators of ease of doing business in a particular economy. Here, in the subindex, Spain got 18th rank and a score of 79.2 out of 100. The country altered its legal regulations that dictate insolvency proceedings to lower the time and cost.
Spain is indeed a beautiful country. If you consider launching a business in the country, you will surely relish the opportunities. However, you won’t find much ease while running here and there to get one or the other license, get the business registered, and other official formalities. The taxation rules as well as fairly cumbrous.
How easy it is to kick off a venture in Spain depends on the industry you wish to enter. Moreover, starting a business anywhere in the world may get overwhelming at one point, but perseverance, knowledge, and adherence to the law can render it smoother.
Zimyo is a leading HR and Payroll management services provider in Spain with multiple years of experience. The company helps businesses hire the best talent and takes care of the financial requirements of employees, such as advances or credit for a hassle-free work experience.