How to set up a Spanish company

 Man writing a check

 

 

 

 

 

 

 

 

“Spain will be the next Germany!” This was the headline in “EL PAIS” last week, a popular Spanish newspaper.

Is this true? Well, even though the headline may be exaggerated in my opinion, there are grounds for optimism as recent labour reforms will  benefit business development and the fall in salaries will increase both investment opportunities and businesses.

Times are tough, yes, but this is also a time of change and evolution.  We have seen an increase of enquiries from UK companies wanting to do business in Spain or set up a Spanish Limited company. Sometimes this is due to tenders or “one of” jobs but in other occasions we have seen UK corporate clients willing to enter into the Spanish market in very niche areas where there is a lack of specialisation or specific products needed.

But how is it done? Is it difficult to create a Spanish SL (Limited Liability company)?

Creating a Spanish SL when the shareholders are individuals is not complicated. It is a matter of choosing a name and then incorporating the company at the Notary’s office in Spain. On the other hand, complications start to appear when the Spanish company will be owned by a UK company. Below you will see a list with the steps that need to be taken to incorporate a Spanish Limited company when the shareholder is a UK company.

–          First of all, before creating a company we must decide its name and this involves applying for a Negative Certification of Name with the Spanish Companies house. This certification will indicate whether the name is available or not.

–          Once you have the name secured, you will have to go to the tax office in Spain to apply for the UK company’s  CIF  number (Tax Identification Number). However, this tax number will not be given unless you provide the Tax office with certified and translated copies of the company’s corporate documents. This means supplying the certificate of incorporation, memorandum and articles of association duly legalised and translated.

–          At the same time, you must open a Bank account in Spain, in which you will deposit the necessary capital for the company. The minimum capital is € 3,005.06 but nothing stops you from setting up a higher capital if this is convenient.

–          The incorporation of the Spanish company needs to be signed by the Director at the Notary’s office in Spain. If the Director cannot attend the signature, a power of attorney can be sorted and given to someone to act on his behalf.

–          Once the Deed of incorporation is signed, the stamp duty needs to be paid and the company will get registered with the Spanish Companies house.

–          If the company is going to have employees, the final step is to register the company with the Social Security Schedule because if not, the company will be unable to enlist its employees with the Social Security.

All these procedures should be done in person. If the procedure seems complicated to you, then the best thing is to instruct a firm of lawyers like ourselves or any other similar firm with experience in this field to prepare the documentation in the UK and the incorporation in Spain.  Your lawyers should also be able to put you in touch with the various Chambers of Commerce of the different regions in Spain which will inform you of the benefits for new incorporated companies as well as any potential business opportunities.

Buying under-value in Spain Part I

housefighting

It is no secret that the Spanish property market is very quiet. Nowadays, any person wanting to sell reasonably quick has to make a noticeably discount on the sale price. This could mean reducing the price in 20% or 30%. This could prove very atractive to the purchaser as it would allow him to buy a bargain but the said purchaser needs to be careful with a potential comeback from the Spanish Tax office in respect of the unpaid transfer tax. This is due to the fact that all properties in Spain have a minimum tax value. This is the minimum value assigned by the Tax office to each property.  Nothing stops someone from selling under that value but this could bring some consequences to the buyer.

The first one is in respect of transfer tax. As any person who has bought property in Spain will know, the purchase of a property in Spain is subject to transfer tax, which ranges from 7% to 10% depending on the area and price. This tax is paid by the purchaser. Now, imagine that Mr Joe Bloggs buys a property in Mallorca for 100,000 €. The minimum tax value of that property is 150,000 €. Mr Bloggs is supposed to pay 7% of the purchase price of 100,000 €, that is 7,000 €. However, the minimum tax value for that property is 150,000 €. This means that it is very likely that the Tax office will revert to the purchaser ande demand the outstanding transfer tax over the tax value, in this case a further 3,500 €. Why? Well, the Tax Office believes that the property is worth more money and although it accepts the sale for less than its tax value, the Tax Office is not prepared to give up on the potential revenue that would be genereated if the property had been sold for its minimum tax value and hence the requests for another 3,500 €.

Market value        100,000 €

Transfer tax 7%        7,000 €

Tax value               150,000 €

Transfer tax 7%         10,500 €

7000 € + 3,500 €= 10,500 €

If Joe Bloggs has paid 7000 € in respect of transfer tax then the Tax Office will request a further 3,500 € because it believes that the total tax that should have been paid was 10,500 €.

This is clearly unfair but unfortunately this seems to be the situation in many areas in Spain, where the tax values have not been adapted to the reality of the market.

The aggravated buyer can pay the tax and forget the matter or he can appeal the decision. Any appeal in this respect will require support with an independent valuation confirming that the price value is in accordance to the market value and therefore proving that the tax value is outdated. The Tax office will then consider the appeal and make a decision, which in some cases could imply withdrawing the request for extra payment. The main problem is that the appeal will involve lawyers and valuers and in some cases it may not be worth the effort. As always, each case needs to be studied separately as one solution cannot be applied to all the cases. However, if you are going to buy property in Spain for a very attractive price, you better check the tax value first to ensure that you will not be asked to make a further payment a few months after completion.