Establishing a company in Spain presents numerous advantages for entrepreneurs and international investors. With its dynamic economy, strategic location in Europe, and access to EU markets, Spain offers a favorable environment for business development. This article provides a practical guide on business structures, corporate taxation, and VAT regulations for those interested in setting up a legal entity in Spain.
Business Structures for Establishing a Company in Spain
When establishing a company in Spain, choosing the appropriate legal form is the first step. The three main structures are:
1. Limited Liability Company (Sociedad Limitada – S.L.)
The Sociedad Limitada (S.L.) is the most common choice for small and medium-sized enterprises. It offers a simple incorporation process, limited liability, and flexible governance—ideal for startups and growing businesses.
2. Joint Stock Company (Sociedad Anónima – S.A.)
The Sociedad Anónima (S.A.) suits larger companies and those planning to raise capital through public offerings. It allows for complex share structures and requires a higher minimum capital, but provides the same limited liability protection.
3. Branch Office
For foreign entities not looking to create a separate company, opening a branch office is another viable option when establishing a company in Spain. Although not a separate legal entity, it must be registered and is subject to Spanish tax and compliance obligations.
Corporate Taxation in Spain
Understanding corporate tax is a key part of establishing a company in Spain. The general corporate income tax rate is 25%, with a reduced rate of 15% available for newly established companies during their first two fiscal years.
Companies can also benefit from a 10% tax reduction by allocating retained earnings to a special reserve fund for five years. Corporate tax returns must be filed within six months and 25 days following the end of the financial year, and advance payments are made in April, October, and December.
VAT (IVA) in Spain
When establishing a company in Spain that engages in commercial activities, understanding VAT obligations is crucial:
- 21% general VAT rate for most goods and services
- 10% reduced rate for items like transportation and healthcare products
- 4% super-reduced rate for basic essentials like bread, books, and medicine
Since July 2017, VAT-registered companies must report invoice data electronically through the Immediate Supply of Information (SII) system. Invoices must be submitted to the Agencia Tributaria within four days of issuance.
Contact us for more information onsetting up a company in Spain, navigating local regulations or optimising your corporate structure and tax position.
