How to open the firm in Spain?

How to open the firm in Spain?

Individual entrepreneur in Spain is a very interesting and profitable job. But at the same time, it requires much attention and individual approach. Before proceeding to the registration of individual enterprise, you should carefully study all its advantages and disadvantages and determine whether it suits you.
You should carefully read the following sections: preparation for the registration, the stages of registration, social insurance, record-keeping, taxation and liability of entrepreneur.

Preparation for the registration
The registration of individual enterprise is not an easy task. This tedious work requires a lot of your time. Therefore, if you decided for the registration, be patient. You’ll have to collect many documents and pass the necessary administrative procedures. To facilitate this process, we recommend you to read the following sections of our article.

The stages of registration as an individual entrepreneur
1. Your task № 1 is to register as an economic activity taxpayer – Impuesto de Actividades Económicos (IAE). This is a mandatory tax for (except for the companies and legal persons, whose annual turnover is at least 1 million euro. However, you must pass the registration on Impuesto de Actividades Económicos (IAE). Moreover, the registration of different activities must be conducted separately, even if their owner is the same individual entrepreneur. You also need to indicate the direction of economic activity (professional or entrepreneurial. You should be very careful, as it affects the tax system. The registration of individual entrepreneur is carried out in the IRS at the location of commercial premises of office or at the home address of the future individual entrepreneur (in this case, you should indicate the useful floor area). Make sure you’ve filled an individual form for each activity. The cost of registration depends on the type of activity, location of your company, etc. This procedure takes 10 days. Then, within 30 days, you should register as an individual entrepreneur in the Treasury Management – Administración de la Tesorería de la Seguridad Social.
2. Let’s move on to the next stage – registration with tax authorities – Hacienda. This registration implies the declaration of beginning, changing or closing the activity. You must pass this process in the IRS at the place of registration of the company on the basis of an application (model 036 for the conventional tax system or 037 for the simplified taxation). You must also submit the original and copy of your resident card (tarjeta de residencia) and the certificate of registration of IAE (tax on economic activity, see item 1). This stage of registration takes less time (only a few days) and is free of charge.
3. Now you have to ensure your peace and confidence with the registration in social security institutions – Seguridad Social. This procedure is carried out in the Treasury – Tesorería de la Seguridad Social on the basis of an application (model ТА0521). Attach the original and copy of your resident card, social security number (if you have already worked and were registered in the find) and the document confirming insurance against accidents at work to receive payments in the event of temporary incapacity to your certificate of registration of IAE.

Rental of premises (or the registration of your own one) for the individual entrepreneur
1. To open the premises, you must obtain a license for opening activity and installations– Licencia de Apertura de Actividades e Instalaciónes, confirming that the offices and its equipment meet the current standards of urban development and technical regulation. After obtaining it, you should apply for the licence to operate – Licencia de Funcionamiento. If the premises intended for performing your activities, is not ready for opening and needs repair or modification, you’ll require a technical project – Proecto Técnico and the operating license– Licencia de obra.
2. To carry out construction and renovation works in your premises, you should obtain license to carry out activities – Licencia de Obras. If your work involves the change of the building structure, you should provide the draft, signed by the competent technician. The project must be authorized by the panel concerned and contain plans, budget and certificate of the quality of performed works.

Registration of employees
1. When concluding the first contract with your employee, you should register your company in the social security institutions and receive the payment code. For this, you need to complete the form ТА6, indicating the company with which you signed an industrial accident insurance and submit the original and copy of your resident card. Moreover, you should submit the original and copy of certificate of registration of IAE, as well as the original and copy of registration as an individual entrepreneur in the social security institutions – Régimen Especial de Trabajadores Autónomos (RETA). This procedure is mandatory for the legal persons and individual entrepreneurs, who plan to hire employees.
2. In the first employment of each worker, you should register in the social security institutions. This procedure is carried out only once. For the registration, you have to submit the application (model ТА1) and the copy of resident card, DNI (if the employee has the Spanish citizenship) or another identity document.

Additional information
1.  At will, individual entrepreneur can be registered in the Commercial Register – Registro Mercantil.
2. All individual entrepreneurs must have the visitors’ book – Libro de visita. It is valid for 5 years and must be available at the request of the labor inspector.

Social insurance
Individual entrepreneurs, who have registered in the social security institutions, have the right to receive medical treatment. You will receive assistance in the event of common disease, any non-work accident and medical care in case of maternity. If you want to be insured in case of work injuries and occupational diseases, you must conclude an agreement with a private insurance company. Usually, such companies have their own health centers, where individual entrepreneur can obtain medical care in case of occupational injury.

Record-keeping of individual entrepreneurship
As any activity, individual entrepreneurship requires record-keeping. According to the current Spanish legislation, individual entrepreneurs must issue invoices (the main document of individual entrepreneurship record-keeping) for every work performed or services provided. The invoice must meet certain norms (it can be paper or electronic). There are several types of invoices, each of which corresponds a particular activity.

There are following types of invoices:
Common invoices confirm the commercial operations. Correcting invoices enable to make changes in the previous invoices, carry out the return of the goods or provide volume discounts. Summary invoice group the previously issued invoices for a certain period.

Invoice requirements
Identification data of the person or company, carrying out the works or providing services: full name, address and tax number; number and date of invoice issue. Identification data of the person or company, to which the services are provided; brief description of service provided; price of services; personal income tax (IRPF); VAT (IVA); total amount; form of payment; bank account number (in case of payment from a bank account).

Possible activities for the individual entrepreneur
Individual entrepreneur, who doesn’t own a company, is less likely to find a job than the employee, as most people prefer contract employment. But if you’re determined to be a freelancer» (i.e. work for yourself), you’ll have to gain your own client base and pay great attention to the quality of the services provided. The bigger your client base is, and the more good feedbacks you get, the bigger are your chances for success. There are following popular professions for individual entrepreneurship: programmers, designers, translators, business consultants, site creators, etc.

Responsibility
Individual entrepreneur must understand that his/her liability is unlimited. The property of individual entrepreneur’s company is his personal property. So, in case of bankruptcy, individual entrepreneur can lose all his/her personal movable and immovable property that will be used to pay off the debts.

Tax 
Social insurance payments – Seguridad Social.
Since 1 January 2013, the conventional tax for individual entrepreneur is from 858.60 to 3425.70 euro. The rate is 29.80%. For female individual entrepreneur, the rate can be increased by 0.10% to cover the risk during pregnancy and in the postpartum period. For people over 48, individual entrepreneur tax is from 925.80 to 1888.80 euro.

Preferential taxation
Preferential tax treatment concerns the individual entrepreneurs under the age of 30 (women – under 35), disabled persons, people over 65, women after pregnancy and childbirth, victims of domestic violence, residents of Ceuta and Melilla, experts of handicrafts, etc.

Personal income tax – Impuesto sobre la Renta de la Personas Físicas (IRPF).

The next type of taxation we will read about is the tax on economic activity – Impuesto de Actividades Económicos (IAE).

If you chose the professional direction (profesional), you’ll have to consider the personal income tax in each invoice, issued to any legal person or other individual entrepreneur. Professional activity is intended for the specialists providing independent services in their specialties (lawyers, doctors, nurses, dentists, accountants, architects, translators, etc.) They work on retainer and issue the receipts of payment. The second option is entrepreneurial direction (empresarial). It is intended for the sales persons, production and construction workers,etc. In this case, IRPF (personal income tax) is not included in the invoice.

Personal income tax (IRPF) rises with an increase of income. Individual entrepreneurs, who prefer to work in professional services, must take account of personal income tax in the invoices for legal persons and other individual entrepreneurs. Personal income tax (IRPF) is deducted from the total amount. The tax rate is usually 21% (9 % within the first three years of activity). The sum of taxes will be transferred on your account by the companies and individual entrepreneurs, to whom these invoices were issued. The calculation takes place when the annual income reports are given to the IRS.

 Value added tax (VAT) – Impuesto sobre el Valor Añadido (IVA). 

IVA (VAT)  is a property tax, paid off the sale of products, goods and services.

VAT is calculated on a quarterly basis and represents the difference between the payable and receivable tax amount. If, within three months, the individual entrepreneur issued an invoice for 3000.00, he/she gets 630.00 from the clients (3.000,00 * 21%). At the same time, he bought the products or materials worth 2000.00 and paid VAT in the amount of 420.00 euro (2.000,00 * 21%).

Finally, submitting the quarterly VAT returns, the individual entrepreneur will have to pay for the difference: 630.00 – 420.00 = 210.00 евро. Most goods and services are subject to VAT at the rate of 21%.

Assistance of the employment service during the registration of individual entrepreneurship
If you are registered with the employment service, receive unemployment benefit and want to officially become an individual entrepreneur, you are entitled to receive grant. The grant application must be submitted to the employment service before starting your business. You will be once paid from 60 to 100% of the investment needed for starting business. Depending on the benefits, 100% of total investment is paid to the disabled persons with over 33% incapacity, 80% – to the male individual entrepreneurs under 30 and female individual entrepreneurs under 35, 60% – to the other unemployed persons). You can direct total sum of grant to the social security payments. Young entrepreneurs can also count on the material support. This amount usually amounts to 5000.00 euro.

Conclusion
It can be concluded that registration and functioning as an individual entrepreneur is hard and tedious work. However, such activity also has many advantages, the main of which are: 1) independence from the employers, partners and colleagues, autonomy in taking decisions on the work, 2) easier, more understandable and economic (in case of  low income level) tax system. The flaws of functioning as an individual entrepreneur are following: 1) full responsibility for both personal property and that involved in business activities; 2) when the annual income increases, the tax rises substantially as well. Therefore, starting a private business and registering as an individual entrepreneur is most suited for small business owners.