NEW OR EXISTING BUSINESS?

Buying an existing business

It is easier to buy an existing business than it is to start a new one. Taking over an established business is less of a risk than starting something new. Buying an existing business that is profitable is not easy. Most people do not sell a thriving business without a good reason. Traditional Spanish businesses are usually passed down within the family.

• What is the reason for selling? Is there a hidden motive?
• Check at the local planning office for any development that may affect a business.
• Have two independent valuations been obtained?
• Make sure sales turnover and profit claims can be substantiated while accepting that the declared turnover for tax purposes is usually lower than actual turnover.
• Remember when buying a business property in Spain that all debts against the property are automatically transferred to the new owner.
• It is important to obtain all necessary licences and approvals before signing any lease or purchase contract, or alternatively such leases and contracts should be signed subject to the licences and approvals being obtained.
• Never sign anything that is not fully understood.

Starting a new business

What type of company?

A self-employed person (trabajador autónomo) or a sole trader (empresa individual) does not have the protection of a limited company should the business fail. It may be advantageous to operate as a limited company, but limited companies cannot be purchased off the shelf. A gestor can do this, but it usually takes some time.

A business may assume various legal titles. Most small business people operate as sole traders and must register with the appropriate trade association, and pay a small entrance fee and a monthly subscription. They are taxed as an individual. A small company is usually a private limited company (Sociedad de responsabilidad Limitada) designated SL. It is the simplest and most common form of limited company, does not have any public shares and is subject to corporate taxation. A large limited company is a public company (Sociedad Anonima) designated SA which is similar to a British pic or an American Inc. Forming an SA requires significant share capital, at least 50 employees and one director.

In order to create a new business entity the most important prerequisite is patience. You will have to visit a range of offices and officials. The hurdles are too great for some, so 40 per cent of businesses remain unlicenced. There is little doubt that setting up a company is a specialised task – even for a small SL. It is important to appoint someone who has experience in doing it. The core document is a Deed of Incorporation which must be signed before a notary. However, registration of the company name, registration at the tax office and payment of a share capital deposit into a bank account are all necessary before a business is up and running. This, together with an opening licence, all costs money. The minimum cost for setting up a small SL is as follows.

Transfer tax	30€
Share capital deposit	3,000€
Company name and registration	200€
Legal fees	1,000€
Opening licence	200€
Total	4,430€

Business considerations

• Is there a business plan in existence?
• Most people are too optimistic about the prospects of a new business.
• Lack of capital is the most common reason for business failure.
• All banks are wary of lending to a new business.
• Borrowing money? Is it the euro, the dollar or the pound?
• When starting a retail business, people traffic is governed by location.
• Is access to motorways and rail links important?
• Are any housing developments or new shopping centres planned nearby?

Grants

Investment incentives are available from the Spanish government and the European Union. Incentives include investment subsidies, tax relief, low-interest or interest-free loans, social security rebates and reduced local taxes during the start-up period. There are also regional government incentives for investment in economic promotion zones, declining industrial zones and urgent reindustrialisation zones.

LEASEHOLD OR FREEHOLD

Business premises are most commonly purchased as leasehold because it is easy to terminate the lease if required. Buying freehold (purchasing a property) may be worthwhile for a secure business venture. Some contracts offer leasehold with a view to purchase, which allows the buyer to agree a price with the vendor at the start of a lease.

A Spanish lease is known as a cesion (cession) the historic definition traspaso (transfer) no longer being appropriate. The landlord owns the shell of the building, for which they receive a fee and a monthly rent, but the tenant owns everything else. The lease can be anything from five to 25 years and sometimes can be for an indefinite period. However, five to ten years is a normal lease period.

Lease agreements have no set formula. The exact terms of the lease are stated in the contract. During the agreed period of the lease, rent can only be increased by the annual cost of living index. The leaseholder is responsible for services such as electricity, water, personal taxes and social security payments. IBI may be paid by the landlord.

In the UK a leaseholder is responsible for the full term of the lease regardless of what happens. In Spain only two months’ notice are required to terminate a lease. A landlord cannot terminate a lease for any reason other than non-payment of rent.

The cost of a leasehold comprises a one off, up front fee, for which a ten per cent deposit will be required to secure its purchase and the balance usually payable in 30-60 days. The rules are similar to buying a property – should the potential leaseholder default the deposit is lost. Upon completion the landlord must be paid a security deposit of two months’ rent and further rent instalments paid monthly in advance. A normal business transfer will cost 1,250€ for legal fees which includes preparation of a new lease contract, licence transfers and census registrations.

The benefits of freehold should not be ignored. The initial cost may be high, but so too is property inflation. The freeholder always has the option of selling the leasehold of a property for which they will receive a fee and monthly rental income. The costs of buying are exactly the same as for buying any property.

LEGAL REQUIREMENTS

Opening licence

A business with premises such as a shop, workshop or offices requires an opening licence (licencia de apertura) from the local town hall before starting. For a new building it is necessary to employ the services of an architect, to submit a project to the town hall. The council will visit the premises to make sure that they fulfil all legal and sanitary obligations, but it is not unusual for them to take six months before examining a project and issuing a licence. Many people operate on the basis of a stamped application for a licencia de apertura. This is usually tolerated by the authorities.

If a business is likely to inconvenience the local community, such as by noise from a bar or discotheque, the council will insist on certain requirements before granting an opening licence. A licence application is not necessary if the business premises are to be used for the same purpose as previously. The serving of alcohol and food also requires a health licence.

A licence issued for a business owned by a non-EU national may be conditional on the employment of a minimum number of EU citizens. A non-EU citizen wishing to start a business in Spain must also make an investment of around 120,000€ in order to be granted a work permit.

Special authorisation

To be able to carry out certain business activities other relevant authorisation is needed. This will depend on in which sector a company is going to operate. For example, in order to be able to open a bar, restaurant or hotel an authorisation from the Delegation of the General Directorate of Tourism in the Region where the business activity is going to be performed must be obtained. There are also a number of regulated activities which require additional approval, such as travel agencies, security and toxic substances storage.

Building work

When work must be carried out on premises or land where the business activity is going to take place, the relevant Works Licence (Licencia de Obras) must be requested from the town hall. Details required include the plans, relevant application form, layout and sketch of the project, description of the works to be carried out and its total valuation.

Declaration of opening a workplace

The opening of the workplace must be declared to the labour authorities – Declaracion de Apertura del Centro de Trabajo – within 30 days following the start of a business activity. The official form obtained at the Direccion Provincial del Ministerio de Trabajo y Seguridad Social gives information about the company, employees and activity.

Social security

All self-employed people, even those who work part-time, must contribute to the social security system. Not only are social security contributions under this scheme higher than for employees, there are also fewer benefits too. There are various levels of social security payable, depending on the size of pension on retirement and if aged over 50 years. The autonomo scheme will cost a minimum of around 230€ per month.

Impuesto sobre Actividades Economicas (IAE)

All self-employed people and businesses must register at the Hacienda to pay a tax known as IAE. It is payable if business turnover exceeds 600,000€ per year. What is it? They say it is a tax on economic activities. The high sales threshold is designed to help small and medium businesses.

Impuesto sobre el Valor Anadido (IVA)

All self-employed people and businesses must register for Valued Added Tax (IVA) and levy this tax on all services or goods.

Taxation

Small businesses pay an estimated quarterly tax with a refund made, or an additional payment demanded, at the end of the tax year. Limited companies must file corporate tax returns to the provincial tax headquarters in the area where the business is registered. Various returns must be made including corporation tax, personal income tax and Value Added Tax. Procedures for keeping the books are also defined.

FURTHER INFORMATION

Guy Hobb, Starting a Business in Spain. Oxford: Vacation Work Publications. A definitive guide to setting up or buying a business in Spain.

Spanish Embassy, Office for Economic Affairs, 66 Chiltern St, London W1U 4LS. Tel: 0044 2074672330. A starting point for employers.

The British Consulate website www.ukinspain.com is a good starting point for job seekers.

www.Spainlawyer.com is an excellent site for employment law.

www.ipyme.org An office for small and medium enterprises.