Setting up a business in Spain involves costs, but there are also tax benefits that many entrepreneurs fail to take advantage of. Some apply automatically; others must be claimed within a specific timeframe or depend on how the business is structured from the outset.
If you are a foreign entrepreneur or an international company setting up a subsidiary in Spain, finding out about these incentives before incorporating the company could lead to significant savings in the first few financial years.
What is considered a start-up?
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For tax purposes, it is an entity that commences an economic activity for the first time. It is not considered a new entity if the activity was previously carried out by another person or a related entity, if the company forms part of a commercial group in certain circumstances, or if it is a holding company.
This is a key point: converting an existing business into a company does not, in itself, entitle it to the benefits available to newly formed companies.
Reduced rate of 15 per cent for corporation tax
Newly established companies are taxed at 15 per cent instead of the standard rate of 25 per cent:
- In the first tax period in which there is a positive taxable amount.
- And in the following period.
Years in which the company makes a loss do not eat into its profits: the accountant only starts counting when the company makes a profit for the first time.
Certified start-ups: extended benefits (Law 28/2022)
Start-ups recognised by ENISA under the Start-ups Law enjoy additional benefits:
- A rate of 15 per cent for four periods: the first with a positive taxable amount and the following three.
- Deferral of corporation tax liability for the first two financial years in which a profit is made, without the need for security or interest on arrears (12 and 6 months).
- No instalment payments in the first two periods where the tax base is positive.
- A 50 per cent income tax deduction for investors, up to a maximum of €100,000 per year.
To qualify, you must apply for start-up certification from ENISA, which requires, amongst other things, that the business be innovative and have a scalable business model.
Unlimited loss relief in the early years
Generally speaking, tax losses can only be set off against up to a certain percentage of the tax base for the financial year. Start-up companies are not subject to this limit during the first three periods in which they generate a positive tax base. In other words, they can set off all their losses from their start-up years.
Exemption from the IAE for the first two years
Those starting a business are exempt from Business Tax for the first two tax years. Furthermore, companies with a turnover of less than 1 million euros are permanently exempt.
Even so, you must register on the census using Form 036.
Incorporation of a company exempt from ITP and AJD
The incorporation of companies and capital increases are exempt from corporation tax. Start-up costs are limited to notary, registration and administrative fees.
Self-employed workers: flat-rate scheme and income tax relief
If you start out as a self-employed person rather than as a company:
- Flat-rate Social Security contribution: a reduced contribution of €80 per month for the first 12 months, extendable for a further 12 months if net earnings are below the minimum wage.
- A 20 per cent reduction in income tax on the net profit from the business during the first period in which a profit is made and the following period.
Choosing between self-employment and setting up a company directly affects which benefits you are eligible for. It is worth looking into this before registering as self-employed.
If you’re coming from abroad: the Beckham Law
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From 2023, entrepreneurs who move to Spain to set up a business will be eligible for the special scheme for posted workers: taxation at 24 per cent on income from employment in Spain up to €600,000 for a maximum of six years.
The application must be made using Form 149 within six months of the start of the activity. Once this period has elapsed, the option is lost.
Checklist before setting up a company
✓ A genuinely new business activityConfirm that it does not originate from a related business.
✓ Self-employed or companyDecide based on the benefits you are eligible for.
✓ Start-up certificationAssess whether the project is eligible for certification from ENISA.
✓ Form 036 completed correctlyBusiness registration with the business activity clearly defined from the outset.
! Deadline for Form 149If you are coming from abroad, you have 6 months from the start of your business activity.
✓ Keep your accounts up to date from the very first yearThis is what will enable you to offset your start-up losses. Which official accounts you need to keep.
Frequently Asked Questions
Does the 15 per cent rate apply even if the company makes a loss in its first year?
The 15 per cent applies from the first profitable year. Years in which there are losses do not count, so the benefit is not lost.
Can a Spanish subsidiary of a foreign group apply the start-up tax rate?
It depends on whether the activity was already being carried out within the group. Each case must be examined individually.
Which is better to start with: self-employment or a company?
It depends on the expected profit, the financial risk and the applicable benefits. Where profits are moderate, it is usually worth starting out as a self-employed person; where profits are high or there are partners, it is better to set up a company.
Is the flat-rate scheme for the self-employed automatic?
This is required when registering with the RETA and applies if you have not been registered as a self-employed person in the previous two years (three years if you have previously benefited from the flat-rate scheme).
Is your business making the most of all the tax benefits available?
At GR International Advisors, we analyse your project before setting it up, choose the most efficient legal structure and ensure that every tax relief claim is submitted on time. [Request a consultation]
The information in this article is for guidance only. Each case requires a personalised assessment by an adviser.