Setting Up in Business as a Sole Trader
The simplest way to run a business is to register as a sole trader (autonomo). As a sole trader you can either trade in your own name or trade as ‘name of business’, but the ‘business name’ doesn’t have its own legal identity. So, if you are sued your personal assets are at risk as opposed to your position if you establish a formal company, where only the company’s assets are at risk. Needless to say, because establishing a company is more bureaucratically burdensome and expensive, most businesses start out as sole traders.
As a sole trader you will be assessed for Spanish income tax either on your net income, which is the gross income of the business less all of the expenses relating to the business, or on a modular system, where the income and tax paid depends on the type of business and its size. This income will then be added to any other income you receive and taxed according to the scale rates, which start at 24%.
You must register with the social security department and choose whether to pay a basic contribution of approximately €250 per month.
You will also have to register your activity with the tax office.
Once established you file a quarterly income tax and IVA return, in addition to the annual tax return.
Our basic fee is €150 per month, and this includes filing of your quarterly income tax and IVA returns along with the preparation of your annual income tax return.
Setting up a Co-Owner Business
A small business can be set up by two or more proprietors. The legal requirements are almost exactly the same as those for a sole trader with the exception that, whilst each proprietor will pay their own income tax and social security contribution, the business will make the IVA return.
Fees are as quoted above for sole traders.
Starting a Spanish Company
The major benefits of forming a company as opposed to sole trading are as follows: -
1. The company is a legal entity, hence you are protected should you fall victim to litigation.
2. The rates of corporation tax are lower than the highest rate of personal income tax. So if your income is or is likely to be higher than say €50,000 per annum you are likely to have a lower tax burden if you operate as a company.
3. You can offset more of your business costs against your profits if you run your business through a company. This will further reduce your net profit before tax and thus your ultimate tax liability.
The standard rate of corporation tax is 30% from 1st January 2008. Companies with a turnover of less than €8 million in the previous year will pay corporation tax of 25% on the first €120,202.41 of profits, with any balance being taxed at the 30% rate.
Small companies are entitled to a 10% tax credit for investment and expenditure on internet, information technology and communications. Further tax incentives may also be available to allow you to reinvest profits into the company rather than pay corporation tax on those profits.
If losses are incurred they may be carried forward for up to 10 years following the period in which the losses arose, and the company can decide how much of any losses are used in any given accounting period. For new companies the 10 year utilisation period for losses only commences from the first year in which the company makes a profit.
If you decide to start a company you will need to open a company bank account and deposit initial share capital of €3,006. Our basic fees for preparing and filing the company’s accounts, filing corporation tax & IVA returns, filing the founding directors’ income tax returns and dealing with social security payments, payslips and retentions for up to 5 employees are €290 per month.
Note that all prices above are quoted without IVA.
Accounts, Corporation Tax and IVA Returns, Pay Advice Slips, Social Security for Employees
For further information about these services please contact us.