Business management has been interpreted in more ways than we could have possibly imagined as a result of Covid-19 and its ramifications.
Prior to the global pandemic, the idea of conducting a business meeting via Zoom on a Mediterranean island would have been nothing but an unrealistic dream many of us have only ever fantasized about. Even those who love their jobs would acknowledge that a better work-life balance would be ideal so that the best of both worlds can be experienced.
Fast forward to 2020 and almost overnight, the mind-set of both employers and employees changed drastically when Covid-19 sent us all home and forced us to work remotely. Businesses had to become digitalised in every way possible and as the year goes on, the idea of going back to a traditional working life is becoming less and less likely.
This shift encouraged employers and employees to consider the many ways in which they can save both time and money by embracing this new way of working. And we have come to the conclusion that for those who own their own businesses, they are twice as lucky.
Often regarded as a gateway to other European markets, and with more domestic disposable income than most, Spain is considered one of the more attractive European markets by UK investors in which they base themselves after the economic downturn caused by Covid-19.
Opportunities after Brexit
British investment in Spain has been growing exponentially since the Brexit vote took place in 2016, so much so that the UK became the number one destination for foreign investors in Spain in 2019.
According to the British Chamber of Commerce, investment by British companies during the first half of 2019 in Spain reached €3.13bn – up 79.5% from the previous year.
This year, we have seen that investors are looking to either buy small to medium sized Spanish businesses, or relocate their own UK-based business to the Spanish coast; the Balearic Islands and particularly Ibiza is one of the top destinations to centre operations from. This is most often the case for service-based businesses or consultancies that can operate from anywhere.
The sectors in Spain where we are seeing investment and M&A activity are very much wide-ranging, from solar energy to hospitality, IT and boat chartering. If you plan to move and operate your business from Ibiza (which appears to be the most popular choice), you might have the following questions which need to be considered:
What happens if I have a limited company in England and I want to operate in Spain and keep billing the UK companies?
If you have a company in England and want to change your residence to Spain, be aware that the company may be considered tax resident in Spain if the directors are managing and controlling it from there. Establishing a clear contractual relationship between yourself and your company and the services you provide is highly recommended. Creating a Spanish company could be an option although this should be carefully considered as could drive up costs which then overrides the potential advantages.
What are the corporate requirements to have a company in Spain?
You will find few differences between establishing and running a company in Spain versus the UK where rules such as directorship, accounting, payroll, tax and VAT are concerned.
The only real difference is that the minimum share capital in Spain is €3,000. There is no VAT-exempted threshold and registration for VAT is mandatory for all companies. The sole trader and employment regulations also differ, which must be considered seriously prior to employing anyone.
We are seeing UK residents take up Spanish residency while continuing operating their business in the UK. This incurs tax and legal consequences in both Spain and the UK, which differ depending on the type of business in question. In view of Brexit, the double tax treaty between both countries will provide the framework in which to decide the best option.
Five important tax and legal aspects that rules in Spain that differ from the UK’s:
- Corporation Tax and VAT Rules
You may be liable for Corporation tax in both the UK and Spain if providing consulting services in both countries; VAT rules also need to be contemplated.
- Income Tax and Social Security
Specific Spanish residency rules and income tax will apply so you must familiarise yourself with these first and you should also take into account where your social security stands.
- Property taxes
For any property you own (including a commercial one), or any assets or investments you have, you must pay taxes to the Spanish tax authorities. Taxes that apply to non-residents are specific to Spain so must be understood properly. Check with legal experts that you are aware of all expenses or you could find yourself with unpleasantly high expenses!
- Setting up a Spanish International Investment Company (ETVE)
Creating an Spanish International Investment Company (ETVE), known as “Entidades de Tenencia de Valores Extranjeros” is worth considering as it is very beneficial from a tax efficiency perspective. These are essentially Spanish holding companies which UK and foreign companies use when structuring investment holdings in Latin America, using Spain and its treaty network as the base.
- Residency status
Consider which residency status works best for you as this could greatly affect your tax position. You may choose to become a Spanish resident or else remain a non-resident:
- Qualify as a resident: you may qualify for resident status if you own a property in Spain or if you have family living there; if you spend more than half the year in Spain; or if you conduct your business from Spain.
- Apply for a Golden Visa: Applying for a Spanish Golden Visa is an option if you invest €500,000 in real estate or qualified financial investments which will supply you with Spanish residency.
- Remain a non-resident: Expats living in Spain may be eligible to apply for the Beckham Rule – a tax inpatriate regime that allows you to pay tax as a non-resident. This means any Spanish employment income is taxed at a fixed rate of 24% up to €600,000, as opposed to being taxed on a progressive tax scale up to 43% of your worldwide income as the rest of the Spanish residents.
If you are considering taking advantage of the new way the world is working and you want to invest in a Spanish business or relocate yours to Spain, consider the above and make sure to consult with a legal expert so that you can choose the option that works best for you. Being unaware of these considerations can be very costly.
Julio Prieto is a Registered EU Lawyer in England and a qualified tax lawyer (abogado) in Spain, based at Del Canto Chambers at 218 Strand, London.