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Six Steps for a Successful Business Plan
By Ian Clover
There are plenty of reasons why setting up a business in Spain appeals to so many people. The idea of being your own boss in a country with Spain’s climate is an obvious draw, but there are other benefits too.
If you can make a success of starting a company in Spain, just like anywhere, there are financial rewards for all your hard work, as well as that inimitable sense of achievement that money just can’t buy.
So, is it wise to think about setting up a company, business or bar in Spain? And if so, how do you go about it?
Step 1: Research the Market
As with any big decision in a foreign land – such as buying a property or choosing a school for your children – it is vitally important that you do your research. Want to run a bar? Look at where there is a gap in the market for what you have in mind. Want to set up an internet company? Then you will need a killer unique selling point.
Ensure you have the finances to ride out any dry spells, and draw up a professional business and marketing plan before you sign on any dotted line. Once you’re confident, then you must register your new company name with the local employment office. This takes eight to 14 days and is free to do. You may, however, have to employ a gestor to set up all of the paperwork for you.
You should decide at this stage whether your company will be an SL (Sociedad Limitada), which is similar to a UK “Ltd” and requires a minimum capital backing of €3,006; or an SA (Sociedad Anónima), which is more like a PLC. Most companies will be fine with SL, and it’s a fair sight cheaper, too.
Step 2: Sort out the Paperwork
As a would-be business owner, you require all of the typical legal documents that you would need as an employee in Spain – such as an NIE (Tax Identification Number for Foreigners) – as well as a CIF (Fiscal Identification Code). This is a tax ID number for companies, and is something you must apply for before starting a business in Spain.
To apply, you need your NIE and official photo ID, such as your passport. Once you are up and running and ready to start employing others (and yourself), then there will be additional tax and social security numbers to arrange. But, at the start, this is the first barrier between your dream and reality.
If you set up as self-employed then you personally are liable if anybody ever files a lawsuit, whereas by forming a company only the assets of that company are at stake.
Behave in a business-like manner when shopping around for premises
Step 3: Find Your Business Premises
An important step… As you would with a residential property, shop around for your business premises. Ask yourself – is it affordable? Are the overheads manageable? Is it in an area of heavy footfall? Does it matter if it isn’t? There are bound to be many more questions you will have to ask yourself, too. But behave in a business-like manner at all times – don’t let the heart rule the head.
Once you have found premises to rent, you will then have to negotiate the contract. It helps if you speak Spanish, or can take a trusted friend along with you who does. Otherwise, appoint a gestor or a lawyer. Most contracts are for a minimum of one year and an average of five. The contract will contain clauses on things like maintenance, repairs, utility installation, etc.
Your landlord is likely to require an “aval”, which is a bank guarantee that can be anything from two to 12 months’ rent. When dealing with foreign tenants like you, they may ask for more. There are no laws stopping them from doing this so, if you’re unhappy, shop around. It is important that you have trust and confidence in your landlord, and vice versa. This relationship can often determine whether your venture is a success or not.
Sign the contract in the name of your company, and the invoices for the monthly rent must state the company’s name and CIF number. You will pay some VAT (IVA) on your rental income – the government likes to “pre-collect” tax from businesses in this way. Some landlords may try to overlook this step in an attempt to have the income you are generating for them being left as undeclared. This is illegal, so be sure to insist on official IVA invoices.
If you are taking over the premises from an existing tenant, then the utility companies will inform the authorities of the name change – a practice that is helping to stamp out rogue landlords.
Step 4: Know Your Tax Situation
Never fun but an inescapable part of life, paying tax on your company in Spain may seem initially confusing but is actually quite straightforward.
You need to be aware that there are national taxes, regional taxes and local taxes, and that there are three main types of tax: corporate income tax (“impuesto de sociedades”), VAT (IVA), and a tax on business activity (IAE).
“Impuesto de sociedades” is the standard corporate income tax, and it is taxed at a rate that depends on the type of business.
The IVA tax can be deducted against all IVA charged as it is primarily a tax on end-consumers: i.e. your customers.
The IAE is a tax on business activity, and businesses that have an annual profit of less than €1 million are exempt. If your business really takes off, though, then there are a number of variables that will be taken into account, such as number of employees, turnover, location, etc.
Check out our Legal Advice pages or more information about Annual Taxes and Tax Advantages for Residents.
Step 5: Hiring and Firing
Unless your intention is to be a one-man band, you are going to have to employ staff for your business. Employees’ rights are famously well-protected in Spain, but the system is designed to be as fair as possible for both parties.
Firstly, you have to be aware of something called “convenios”. This is a legally-binding set of rules that dictate what jobs can be categorised as what, and the various rules that then govern those jobs, such as salary range, working hours, number of holidays, etc.
A legally-binding set of rules dictates what jobs can be categorised as what
The system is designed to be as fair as possible for both parties
However, these differences are slight, and the rule of thumb for Spanish workers is generally as follows: they work a 40-hour week, with 22 days’ holiday (excluding weekends), and they are paid monthly. (Some companies still work around the 14 payments rule, which means you pay your staff every month, plus two additional times – in summer, usually July, and winter, around December – but this practice has fallen out of favour in recent years.) Sick pay should only legally apply when your employee has a signed “baja médica” form from their doctor.
Step 6: Etiquette and Good Practice
Business Meetings
If a time has been set, do not worry too much if your client is 10 to 15 minutes late. That is normal. Also, business meetings tend to happen over lunch, and will often overrun. This does not mean the day is over: many Spaniards will enjoy a long lunch and then head back to the office until 9pm or even later in the evening. Detailed agendas, minutes, rigid processes… say goodbye to these, and embrace the new customs.
Working Hours
Be flexible… Don’t stick rigidly to the 9-5 model of the UK and northern Europe. Opening at 9am is fine, but many Spaniards will expect to be able to do business until at least 7pm in the evening. Sound late? It is, but remember that in some businesses not much gets done between 2pm and 4pm, as people are out to lunch. However, things are changing, becoming more in line with northern European practices, so if you insist on keeping British hours, for example, your clients and employees will have to get used to it.
Working hours are becoming more in line with northern European practices
National Holidays
Time off during Christmas, Easter and the other religious festivals is sacred to a Spaniard. Do not deny them this, even if you are trying to forge a European mentality.
PLEASE NOTE: Every effort was made to check the accuracy of the information contained in this article at the time of writing, but it may have been superseded over time. VIVA cannot accept responsibility for any errors or omissions, nor for the authenticity of any claims or statements made by third parties. We therefore strongly recommend that readers of this article make their own thorough checks before entering into any kind of transaction. Prices and figures were correct at the time of publication but may now vary due to circumstances beyond our control. The views and opinions of editorial contributors do not necessarily reflect those of VIVA.
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