If a foreign investor wishes to do business in Spain, he has at his disposal, under the same conditions as a Spanish investor, different types of legal structures in Spain. The most popular of them, above others such as the Joint Stock Company (S.A.), is the Limited Liability Company (S.L. or S.R.L.). He can also resort, of course, to the opening of a branch office, or the purchase of an already existing company. But in case he prefers to start from scratch, the most popular legal structure is, as I say, the Limited Liability Company. Being so, what steps are necessary to take to set up this kind of company? What advantages does it represent compared to other structures? To what taxation is it subject to?

Types of Legal Structures in Spain: Steps and Advantages

A. Steps

1. To obtain the Foreigners’ Identification Number (NIE) at a Spanish Consular Office abroad or at any Inmigration Office in Spain. All foreigners having an economic, professional or social relation with Spain shall be provided with this Number for identification purposes.
2. To get a No-Name Coincidence Certificate from the Commercial Register in order to verify that the company name to be used is not already taken.
3. To open a Bank Account to make a deposit of the company’s minimum capital – € 3,000- and receive from the bank a Certificate proving the deposit of this capital.
4. To draw up the Deed of Incorporation and  the By-Laws of the company, specifying, among other things, the share capital, the number of shareholders – 1 at least-, the registered headquarters and the corporate purpose and get these Deed and By-Laws authorized by a Notary Public.
5. To file up Form 0-36 with the local Tax Agency and get both the Deed and the By-Laws duly stamped by it in order to apply for the Company’s Tax Identification Number.
6. To register the Deed and the By-Laws in the Commercial Register.
7. To obtain the definitive Company’s Tax Identification Number and the Company’s Employer Identification Number (EIN).

B. Advantages

1. The company can be set up with a single partner, either a natural or a legal person.
2. Its constitution does not require a tax representative in Spain.
3. It can have any corporate purpose and  activity.
4. Its partners’ responsibility is limited to their capital contribution.
5. To avoid the paying  up of a share capital of € 3,000 at its incorporation, there is the possibility of resorting to the Limited Company of Successive Incorporation. This company allows its incorporation without the need of paying up in full the share capital of  € 3,000 at its constitution. Yet, it has to be taken into account that until the share capital of € 3,000 is not fully paid up, the responsibility of the partners is not limited.
6. Spain’s strategic location can be the “gateway” for the rest of Europe, Latin America and North Africa.
7. A greater ease of access to bank credit. For instance, during the pandemic only 3% of the requests for financing made by SMEs were rejected.

C. Taxation

1. Limited Companies are subject to three main types of taxes: Corporate Income Tax, Personal Income Tax and Value Added Tax.
2. Corporate Tax is levied on the profits obtained by the company in the corresponding  fiscal year. Its general rate is 25%, except in the case of newly constituted companies. In these cases, the applicable rate is 15% on the first € 300,000 of benefits, and 20% on the benefits that exceed this threshold, during the first two years. The Forms to be filed with the Tax Agency are Form 202 (quaterly) and 200 (yearly).
3. Personal Income Tax corresponds to the withholdings that the company has to make on the payrolls of its workers. In order to do it, the company has to calculate this withholding taking into account the particular conditions of its workers, the estimated salary accruals and the personal income tax percentage set by the Tax Agency. As for the latter, this percentage goes up to 19% for a salary of € 12,450; 24% for a salary from € 12,450 to € 20,200; 30% for a salary from € 20,200 to € 32,500, etc. The Forms to be filed with the Tax Agency are Form 111 (quaterly) and 190 (yearly).
4. Value Added Tax is levied on any good or service marketed in Spain, being its general rate of 21%. The Forms to be filed with the Tax Agency are Form 303 (quaterly) and 390 (yearly).
5. As for the Costs, there are a number of them that can be deducted, but to do so they have to be recorded on the company’s profit and loss account, be justified and keep a close relationship with the company’s income. These may include, among others, public relation expenses and  I+D+I.

Antonio Viñal
Lawyer
AVCO Legal
madrid@avco.legal