Creating a company in Spain is the first step for many entrepreneurs who wish to formalise their projects and give them a legal framework. However, before taking the plunge, it is vital to know the costs associated with this process, as they go beyond simple registration.
Below, we will break down these costs in a clear and straightforward manner. You’ll find out how much it really costs to set up a company in Spain and we’ll give you some tips on how to optimise each step of the process. Here we go!
Types of companies in Spain and their tax implications
Before we get into the cost issues, let’s first look at the different types of companies you can set up in Spain. Each has its own particularities and, of course, its own tax implications.
Limited Liability Company (SL)
The SL is the most popular option among Spanish entrepreneurs, and with good reason. With a minimum capital of just 3,000 euros (although since 2022 it can be set up with 1 euro), it is the most suitable for small and medium-sized companies.
In terms of taxation, SLs are subject to Corporate Tax, which currently stands at 25% for most companies. However, if you are a newly created company, during the first two years with a positive taxable base, the rate is reduced to 15%. A little help that always comes in handy!
Public Limited Company (SA)
On the other hand, there is the SA. This alternative is more formal, requires more capital (minimum 60,000 euros) and is usually preferred by large companies. So, if your dream is to be listed on the stock exchange one day, this is the way for you.
And from a tax point of view, the SA also has to pay 25% corporate tax. The main difference with the SL is in the form of organisation and how the share capital is divided (in shares instead of participations).
Other corporate forms (cooperatives, civil law companies, etc.)
In addition to the above-mentioned companies, there are other options that can be adapted to the needs of the company.
- Cooperatives: These are entities based on principles of social economy and collaboration. They require at least three worker-members (none can have more than 33% of the company) and the minimum capital is established in the articles of association, varying according to the Autonomous Community where they are set up.
- Civil company: This is a simple and flexible legal form, ideal for small businesses or collaborations between the self-employed. It is set up by means of a private contract between two or more people, who agree to share profits and responsibilities, and does not require a minimum initial capital.
- General partnership: Here, the partners actively participate in both the management and operations of the business, and each has unlimited liability. What does this mean? Well, in case of debts, they will be liable with their own money.
Main costs in the process of incorporating a company
Now, let’s talk about what we are interested in: the costs. Incorporating a company is not free (hopefully), but it doesn’t have to be a headache either. Let’s take a look at the main costs you will face.
Notary and public deed costs
Notary fees for incorporating a company are usually between 150 and 300 euros, depending on the complexity of the articles of association and the share capital. This is where the public deed is processed, which is the official document that attests to the incorporation of your company. It is like the birth certificate of your company.
Registration in the Commercial Register
Once you have your deed, it is time to register the company in the commercial register. This process usually costs between 100 and 200 euros, depending on the company’s share capital.
Remember that until it is registered, your company cannot operate. In other words, it is as if it did not legally exist! So don’t delay this step.
Legal and financial advice costs
This is where many entrepreneurs try to save money, but believe me, good advice can save you a lot of headaches (and euros) in the future. The costs can vary greatly depending on the complexity of your project, but bear in mind that it is an essential investment to guarantee the success of your business.
Taxes and administrative fees
And, of course, there are the taxes and fees. The most important of these is the transfer tax and stamp duty, which is exempt in the case of company incorporation. However, there are other administrative fees that can be added to the total.
What other formalities are involved in setting up a company?
Beyond just paying and signing papers, there are a number of additional formalities involved in setting up a company which, although they do not always involve a direct cost, do require time and effort.
Obtaining the provisional and definitive NIF
The tax identification number (NIF) is used to identify your company. Initially, you will receive a provisional one, and once the company is registered in the Mercantile Register, you will obtain the definitive one. This procedure is done at the Tax Agency and, although it is free of charge, it takes time and requires patience.
It is worth mentioning that without the NIF you will not be able to carry out commercial transactions or open bank accounts in the name of the company. Therefore, it is essential!
Registration with the Economic Activities Tax (IAE)
The IAE is a tax that applies to those who carry out business, professional or artistic activities. And although most companies are exempt from paying it (if they have a turnover of less than one million euros per year), it is compulsory to register. This procedure is handled by the Tax Agency or the corresponding local council, depending on the type of activity.
Common mistakes when setting up a company and how to avoid them
As with everything in life, mistakes can also be made when setting up a company. But don’t worry, we are here to help you avoid them!
Not choosing the right type of company
Choosing the type of partnership is like choosing a partner: it has to be the right one for you. Therefore, you should carefully analyse your needs and objectives before deciding. And bear in mind that changing company types later on can be costly and complicated – better to get it right the first time!
Underestimating the real costs of incorporation
Many entrepreneurs are unpleasantly surprised when they see the total cost of incorporating a company. This is because it is not only the direct costs that have to be taken into account, but also the time invested and possible consultancy costs. So budget realistically and add a margin for contingencies – it’s better to overdo it than to underdo it!
Failure to register the company correctly in the commercial register
Registration in the commercial register is crucial. A mistake here can cause delays and legal problems. For that reason, you must make sure that all the details are correct and that all the necessary documents are submitted. And if in doubt, do not hesitate to consult a professional.
Failure to obtain the definitive NIF in time
The provisional NIF is valid for 6 months. If you do not convert it into a definitive one on time, your company will become fiscally inactive. This small detail can cause you problems with the tax authorities and with your business operations. Therefore, mark the deadline in your calendar and do not miss it.
Forgetting to register the articles of association and company agreements
It is vital that the articles of association are well drafted and properly registered. The same goes for important corporate resolutions. Again, do not skimp on legal advice in these matters. A good lawyer can save you a lot of trouble in the future.
Conclusions
Incorporating a company in Spain may seem like a complicated and costly process, but with the information we’ve provided and a good dose of planning, you’ll find it’s totally manageable. So go ahead, you’ve got everything you need to take the plunge!
