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A foreign entrepreneur who is interested in doing business in Spain has the possibility of choosing to open a company in this country or perform his/her economic activity as a sole trader or empresario individual or autonomo (in Spanish). For setting up a sole trader, there is no need to deposit a minimum share capital or make an initial investment as you are required when opening a limited liability company or another type of company.
An individual who is registered as a sole trader hasunlimited liability for the business he/she performs and this means that the person representing the sole trader is responsible for the debts the company will have in the future. Our team of lawyers in Spaincan provide legal assistance on the main characteristics of a sole trader, including the ones concerning its taxation and liability; our lawyers can provide legal representation in all the steps necessary for opening a sole trader in this country.
Documents required for a sole trader in Spain
Every foreign citizen who wants to become a sole trader in Spain needs to obtain NIE (Numero de Identification de Extranjeros) – an identification number for foreigners. The persons who are not citizens of the European Union are required to obtain a self-employment work permit and a residence visa.
The following video offers a short presentation on the main requirements for starting a Spanish sole trader:
Foreign citizens, no matter their nationality, have to register for paying the IAE (Impuesto de Actividades Económicas), submit a declaration foropening the business at the local tax office, and register for social security purposes. The contributions for the self-employed persons system (RETA) must be paid every month, even if the sole trader has no income or he/she is on sick or maternity leave. The declaration for the tax office must contain the following information:
•the date in which the sole trader will begin its economic activity;
•a description of this activity (including if it is subject to VAT);
•the name of the founder, the founder’s address and identification number;
•the type of profit calculation and taxation system applicable to the company.
The sole trader in Spain is the simplest way to perform an economic activity and it is chosen by entrepreneurs who have a limited budget forstarting their business and who do not have an in-depth experience on corporate matters, as the sole trader will need to provide only few simple documents during thefinancial year. For example, unlike othertypes of companies in Spain, the sole trader is not required to keep a balance sheet.
Persons operating as sole traders may also be imposed with the withholding tax, which is generally applicable at the rate of 15% on the company’s income. However, in thefirst two years of financial activity, sole traders can opt for a lower tax base, imposed at therate of 7%. Our team of Spanish lawyers can further advise on this matter.
What types of sole traders can one choose in Spain?
In Spain, the sole trader is divided into two main categories, namely the sole traders registered as empresarios individuales, and the independent professionals, known as profesionales autonomos in Spanish. Although there aren’t numerous distinctions between the two (they still have the same liability obligations and main characteristics), the difference is very important in terms of taxation, according to the tax system applied by the Spanish Tax Office (Agencia Tributaria).
Thus, when opening a sole trader in Spain, the applicant must select a specific category, which refers to the type of work that will be developed through this business entity, the owner’s profession and the commercial activity. This requirement has to be completed with the Spanish Social Security Office and with the Spanish Tax Office by selecting one of the codes that is most relevant to the business activity developed through the sole trader/independent professional.
The main difference regarding the tax system is that the independent professional (also referred to as freelance professional) issues invoices that are characterized by a particular requirement. Thus, when the independent professional issues an invoice, the client retains a part of the value of the invoice and pays it to the local tax authorities on behalf of the independent professional. In the case of a sole trader in Spain, this regulation does not apply.
However, regardless if a local or foreign natural person registers a sole trader or as an independent professional, these entities must comply with the same tax and accounting requirements. The personal income tax return has to be completed in each case on a quarterly and yearly basis.
Tax returns obligations for Spanish sole traders
Most of the businesses operating in Spain are required toregister for tax purposesand then, tofile for tax returns as stated by the applicable requirements available for the respective type of company. If the sole trader is liable forvalue added tax in Spain, it will be necessary to file VAT returns of a quarterly and yearly basis.
A sole trader has to keep records of all the bills, invoices and receipts registered in a financial year and tosubmit VAT returns no later than 31st of January for the activity of the previous year. In the case of returns for the income tax, the company must submit documents by the end of June. A sole trader can be generally open in 15 days, if you have all the necessary documents imposed in this case.
Why start a Spanish sole trader?
Although the downsize of the sole trader is that the owner is personally liable for the company’s debts (which can be the case of other Spanish business entities, such as the partnership), a sole proprietorship represents the simplest way to register a company in Spain. This business form benefits from the simplest registration procedure. Its advantages are the following:
•it is designed for persons who want to start a business in their own name;
•it is the most common way to start a small family business in Spain;
•it can be selected for registration by persons who want to work as freelancers;
•the sole trader can benefit from a wide range of deductible expenses.
What are the main deductible expenses for Spanish sole traders?
As mentioned above, the Spanish sole traders are entitled to obtain several deductible expenses for specific matters. Our team of lawyers in Spaincan provide an in-depth presentation on the tax deductions available for this business form, but it is necessary to know that the following expenses can be deductible in this case: the social security contribution or the accounting fee paid to the sole trader’s accountant (although the sole trader has to comply with only several accounting and reporting requirements, they need to be concluded by a professional in the field).
Other deductible expenses may refer to a percentage on the amount paid on the rent in which the sole trader develops its activity, a part of the amount paid on utility bills, furniture, advertising or transportation. Provided that the sole trader is set up by a person who develops an activity that can be included in a trade and in the case in which the person registered to a specific professional organization, the membership fee can also be included in the set of deductible expenses.
Both Spanish sole traders and independent professionals can obtain tax deductions and in order to be able to receive them, it is necessary to keep copies on various documents attesting the company’s financial transactions, such as the invoices and the receipts for the expenses made for the benefit of the company.
What types of invoices can the sole trader issue in Spain?
One of the accounting requirements that must be kept by any sole trader in Spain refers to the invoices issued for any of its financial transactions. A sole trader can use various types of invoices, depending on the tax and nationality characteristics of the company with which the financial transaction was concluded.
Thus, a sole trader may select a model invoice created for businesses registered in Spain and which are VAT payers, a model invoice for companies registered in the European Union (EU) or for businesses outside the EU. Our team of Spanish lawyers can offer more details on other accounting documents necessary when operating through a sole trader.
If you need more details on setting up a sole trader, you may contact our law firm in Spain. Our Spanish lawyers will offer you information about the documents you need for becoming a sole trader and will help you open thistype of business.
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Federico Richardson is a lawyer experienced in dealing with international clients interested in doing business in Spain especially in corporate and real estate sectors. He is a graduate of the University of Navarra, took part in various businesses and now he coordinates the engagements at Lexidy Law Boutique SLP. Contact us for details
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