Business Formation & Tax Essentials in Spain

Key Business Terminology

Franchise

A contract between two parties, a professional or a company (the franchisor) and another company or professional (the franchisee), whereby the franchisor grants the franchisee the right to operate a business in exchange for economic compensation.

Royalty

A participation in income or a fixed amount a person pays to the owner of a right for the permission to exercise it.

Know-how (Expertise)

The method, form, and way to manage and run a business.

Procedures for Business Implementation

Individual Entrepreneur Procedures

• Registration with the IAE (Business Tax).
• Registration and option selection in the VAT census declaration prior to commencing activity.
• Choosing the Personal Income Tax (IRPF) regime.
• Registration of the company with Social Security.
• Registration as a self-employed worker with Social Security.

Corporate Entity Procedures

Two Types of Corporate Procedures

Corporate entities typically undergo two types of procedures: those for acquiring juridical personality and those for implementation.

• Obtaining a negative certification from the Central Commercial Register.
• Registration in the Commercial Register and with the IAE.
• Affiliation of partners with Social Security.
• Preparation of employment contracts.

Cooperative Procedures

• Drafting of the constitution and bylaws.
• Liquidation of transfer tax and stamp duty.
• Registration with the General Registry of Cooperatives.

Procedures for Communities of Property

• Drafting of the articles of association.
• Granting of the deed before a notary.
• Registration with the Commercial Register.
• Registration of the entity with Social Security.

General Procedures for Independent Legal Entities

• Acquisition of premises.
• Lease of premises.
• Request for an opening license.
• Registration of patents and trademarks.

Key Tax Concepts

IAE (Business Tax)

The IAE (Impuesto sobre Actividades Económicas) is a local tax that levies the exercise of business, professional, or artistic activities.

Census Declaration and VAT Options

The Census Declaration and VAT Options is a document that details the characteristics of the activity, the local tax option, and the chosen VAT regime.

Prior Declaration to Commencement of Activity

The Prior Declaration to Commencement of Activity is a statement to the tax administration necessary to deduct VAT assessments incurred before the start of the activity.

Personal Income Tax (IRPF)

The Personal Income Tax (IRPF) is a direct tax that levies the personal income of individuals, depending on the amount and their personal and family circumstances.