Business in Spain: Freelance or Company?

Optimize Your Business in Spain: A Comprehensive Guide to the Spanish Limited Company (S.L.)

Setting up an correct business structure is essential to operate with fiscal and operative efficiency and to ensure that your business can be transferred optimally when the time comes. A Spanish limited company (Sociedad Limitada or S.L.) offers several advantages in this respect, from protecting your personal assets, minimizing tax obligations, and facilitating the transition to heirs, partners or third parties.

Limited Company Benefits

• Personal Asset Protection: A limited company provides personal asset protection. An S.L. is a separate legal entity, and the company’s assets are seperated from your personal possessions. In case of debts or claims against the company, your personal assets are shielded, minimizing risks and safeguarding your estate. Freelancers operate as individuals, with no legal distinction between the owner and the business, making the owner personally responsible for all aspects of the business, including debts and liabilities.
• Continuity and Stability: A company allows business operations to continue without interruption when a shareholder sells or donates his shares, ensuring the stability and the value of the enterprise. As a legal entity, its existence does not depend on a particular person and property can be transferred to heirs or third parties through share operations. Transferring shares is less complex than transferring individual personal assets and can be done through a simple legal act, without the need for multiple complex operations.
• Tax Benefits: Spanish companias pay a fixed corporate tax of 15%, 23% or 25%, while a freelancer pays tax on a progressive personal income tax scale up to 49%.  Besides, a limited company can choose to keep benefits in reserves, to reinvest in existing or new businesses or to pay dividends at a suitable time, while freelancers are taxed as soon as benefits are generated. If you have several businesses, a Holding structure facilitates tax free transfer of benefits between companies within the group.
• Asset Management: Assets can be incorporated in a company or a holding structure. This means that they become an integral part of the company and can be transferred as a whole through share operations. Furthermore, assets can be depreciated over time and are considered deductible expenses that help lowering your corporate tax base.
• Image and Financing: Freelancers may face challenges in terms of image and credibility, while Limited Companies project a more professional image, instilling confidence in clients, suppliers, and investors. They also have better access to banks and other financial resources and can benefit from specific tax benefits, grants and deductions that are not available for freelancers.
• Share Capital Transactions: Limited Companies can engage in various share capital transactions like mergers, acquisitions and including or excluding partners in a clear and documented manner. This allows for flexibility and expansion opportunities, while regulating essential issues like ownership, responsibilities and profit sharing. If shares of an ongoing business are transferred to heirs, up to a 99% exemption of inheritance tax may apply.
• Personal Income Planning: A company offers several ways of obtaining personal income. Options range from having a salary as en employee or dividend payments as a shareholder to loans or deferred equity operations. These can be combined and balanced for tax planning purposes, such as income splitting or taking maximum advantage of incentives and deductions.

Requirements

There are a number of formal requirements for setting up a limited company in Spain that can be summarized in the following steps:

• Choose entity type and name
• Register the name for your company
• Define government, statutes and bylaws
• Prepare Notarial deed of constitution
• Sign the deed of constitution before public notary
• Acquire a fiscal identification number
• Register the company in the trade register
• Open a bank account for the company
• Obtain a digital certificate for the company
• Obtain a social security number for the company
• Apply for an EU tax number registration
• Register activity in the tax agency census

Beware that a company has to develop its own economic activity and cannot exclusively depend on professional services delivered by the director or shareholder of the company. In this last case, the company might be considered a shell company created merely for tax purposes and subject to scrutiny from the tax agency.

How We Can Help You Form Your S.L.

We provide comprehensive support and guidance to foreign investors and entrepreneurs in Spain. Our services include:

• Legal advice and assistance with company incorporation and shareholder agreements
• Tax planning and compliance services tailored to your personal and business needs
• Assistance with share capital transactions, mergers, acquisitions, and other financial operations
• Support and consultation to manage the complexities of operating a company in Spain

The S.L. as a Strategy for Growth and Protection

Establishing a Spanish S.L. offers significant benefits as opposed to doing business as a freelancer. From asset protection to tax advantages, business continuity, and simplified property transfer, an S.L. is a powerful instrument to maximize operational flexibility, wealth management and estate planning. Our team provides comprehensive support, including legal advice, tax planning, accounting services, and assistance with financial transactions.

ACCOMPANY is committed to being your strategic partner, guiding you through the dynamic Spanish business landscape. For more details about our support, visit our Business Services page.