STARTING OR BUYING A BUSINESS ON MALLORCA
Running your own business here on Mallorca can be extremely rewarding, if you get it right the first time. If Spanish is not your first language, you will need to be sure that you have everything in place in case of inspection and to avoid penalties and fines down the line for non compliance of the rules.
At Key Consultants Mallorca, we have put together this list of useful things that we think you need to know when running your business here.
Table of Contents
- NIE Numbers
- The purchase procedure
- The Different types of Legal Status
- CIF Number.
- Activity Licences
- Social Security & Employing Staff
- Issuing invoices
- Till & Cash Receipts
- IVA (VAT) & TAX
- In Case your premises are inspected
- Paying Rates and Rubbish
- Motor Vehicles & Expenses
- Complaints Forms (Hojas de reclamación)
- Data Protection
Let´s say that you have found the perfect business to buy or you have come up with the perfect idea for a business and you would like to get it off of the ground, you will want to know what do you do next?
When you purchase a business you will, unless you are purchasing an SL Company (Limited Company), you will need to form your own business or legal status in order to pay taxes, open a bank account and employ staff and show how that business will be run.
So generally when you buy a business, you are usually only buying the goodwill, the client list (if any) and the machinery contained within the premises as well as a right to take over the lease on the premises (if your new business is not home based). However as explained above in order to run that business you will need to form your own ´legal status´ or ´legal entity´ in order to be able to run that business.
Regardless as to whether you are purchasing the business with another person or alone, each person will need a Número de Identificación de Extranjero or NIE Number, as it is commonly known, in order to start and run any business. A NIE number is your unique identification number and is used for almost everything in Spain and you will not get very far without one. Apart from needing one to open a business here, you will also need it for:-
- Buying a car
- Obtaining an electric contract or other utility bills
- Mobile phone contract
- Health Insurance
- Working in Spain
- Paying your taxes.
Your NIE is probably one of the most important numbers that you will ever have in Spain and you will not get very far without one.
If you are looking to move to Mallorca, then our first piece of advice would be to obtain a NIE number. If you would like help or assistance in this regard, please email us at firstname.lastname@example.org
|3||The Purchase Procedure|
The procedure for buying a business in Mallorca is essentially the same as for buying any property, but you should tread carefully through it. You will be presented with a contract for sale (or trespasso (lease)) and usually pay a 10 per cent deposit to show your commitment to buy the business, with the balance payable, if all goes to plan, around 30 to 60 days later. The payment of a deposit ensures that the business is taken off the market while all the legal checks are made.
You should obtain a receipt and insist that the deposit is retained until completion of the sale, either by the agent or by a gestor, rather than handed over to the seller. This is important, as the legal checks might show that the seller doesn’t have the right to sell the business, the leasehold or the property. Once you’ve paid a deposit, the seller should provide your lawyer or agent with the title deeds (escritura) or a copy of the lease and an inventory of what’s included in the price. That way your lawyer or agent can check with the Land Registry to make sure that the seller is the legal owner or leaseholder and what the tenancy status is.
Your or agent should also check that all the licences are in place to operate the business legally (see below) and – most important of all – that there are no debts attached to the business or the property and no outstanding disputes with staff if the business is being sold with employees. In Spain, when you buy or lease a property or a business, you also take on the debts as well as any staff and the attendant social security obligations.
If there are any problems with the contract that are beyond your control (e.g. the seller doesn’t have the right to sell, the business isn’t licensed as advertised or there are debts or other liabilities that haven’t been or cannot be cleared up), your deposit should be returned. You should only lose your deposit if you change your mind without good reason. If your lawyer has made all the relevant checks and is satisfied that all is in order, you can go ahead to completion on the agreed date, at which point the balance must be paid and keys will be handed over to you.
If you’re buying a lease, make sure that you can fulfil your responsibilities as leaseholder before you sign a contract. During the term of the lease, you must pay all service charges such as water, electricity, telephone and local business taxes.
|4||THE DIFFERENT TYPES OF LEGAL STATUS|
As stated above, in order to run a business in Mallorca, you will need to decide in what legal form the business is going to be run. Eg, as a limited company, a sole trader or as a partnership. In Spain there are 4 main types of business:-
- Empresa Individual(Autonomous)
This is equal to a sole trader with the business being run in one person´s name only.
- Sociedad Civil(CB)
This is a partnership where several individuals will come together to form a business.
- Sociedad Limitada(SL)
This is a limited company with registered shareholders and a set minimum trading capital in the bank.
Sociedad Anonima (SA)
This is a larger company with a large minimum trading capital. This S.A. company also has shareholders.
There are pros and cons with each business format. For example, an autonomous person or a CB Partnership do not have the same strict accounting procedures as that of a limited company. On the other hand a limited company has its own legal entity and could employ you directly, which could have beneficial cost implications. In each case you should seek advice before starting your business from a qualified gestor or accountant who will be able to advise what business best suits your particular needs.
If you would like further information regarding what type of legal status is best for you, please feel free to contact us.
Depending on the type of legal status you set up, unless you are autonomous in which case your NIE number is the only number that will be required, your company will be allocated a unique identifying number from the Government. This is usually a CIF number and pertains to the activities of your company and the activity licences (explained below) that your new company has applied for.
Once you have this number then you can start to purchase things for your company. You will need to make sure that when you buy goods for your company that you request an official Factura (invoice) from the person supplier you the goods. If you do NOT obtain an official factura you will not be able to later claim the TAX and IVA benefit pertaining to that purchase.
Many people spend money purchasing furniture and goods without obtaining an official factura bearing the company name and CIF number hoping that they can later claim the tax benefit of this back later – they will not!
|6||ACTIVITY LICENCES (Licencia de Apertura)|
When opening a business, you will need to apply (or have the transferred into your name) the correct licenses to operate your business. It is extremely important to have the correct licenses in place before opening any business, or you could find yourself closed down within the same week of opening.
Every Business in Spain, whether you are autonomous (self employed) or have created a limited company, must have an activity licence (Licencia de Apertura) to trade. One of the advantages of buying an existing business, as opposed to starting a business from scratch, is that you can generally begin trading more quickly because any licences that are required continue to be valid regardless as to whether changes hands. The new owner simply has to register a change of name on the licence.
Different licences apply for each and every activity that you are looking to undertake. For example, if you are buying an existing business such as a bar and think it would be a good idea to serve food, then you would need 2 activity licences – one for the bar and one for food. In addition you will also need to ensure you have the correct food licence in place as food licences also vary depending on whether the food you are serving comes with a salsa (gravy). Different licences will also need to be applied for if you intend to play music in the bar. Live band music cannot be played in a bar that only has a licence for karaoke for example. You should always speak to your gestor (accountant) if you intend on changing the activity of the business, however slight that change may be.
So long as the nature or activity of the business doesn’t change, you shouldn’t have to wait weeks, or even months, while your new activity licence application is being processed, without any guarantee that it will be granted at all. No respectable selling agent should sell you an unlicensed business, but some do unfortunately. You may find yourself closed down by the police, as soon as you have opened, if you do not have a licence or the correct licenses in place.
If you’re buying a business that is already trading, it must by law have an existing activity licence. Make sure you physically see it and get a copy of the licence so that it can be displayed, or at least available, on the premises in case of an inspection. If the sellers of the business cannot provide it, there’s a possibility that the business you are looking to buy may be operating illegally.
Your sales agent should always ensure that the business you intend purchasing has all the necessary licences in place, and your gestor or lawyer should also check this issue. Do not under any circumstances sign an agreement until you have seen all licences and have copies in hand.
If the business is trading while waiting for a licence, this should be carefully checked with the issuing authority – especially the reason for the delay. In certain circumstances, the business can legally be offered for sale without a licence. If this is the case, your lawyer should check whether there are any potential problems obtaining one and ask for the price to be reduced accordingly.
|7||SOCIAL SECURITY & EMPLOYING STAFF|
All businesses (whether autonomous, CB or SL) are registered with the Social Security Office and as such will be liable for social security payments which vary according to the status of the business. Making these payments will entitle you to the benefits of the local health service such as doctors and hospitals. The payments will also contribute towards an old age pension, although contributions have to be paid for a minimum of 15 years to qualify.
One of the downsides of taking over a business is the issue of staff employment. If the current company is already employing staff, you really need to find out what type of contract they are employed on. You will inherit the contract and continuous employment rights (including redundancy). You should take note that seasonal staff acquire the same rights as permanent staff if they have been employed for 2 seasons or more. You may find it very difficult to get rid of that useless staff member without a fight or without going through the proper legal process.
A company employing people will also have to pay social security on their behalf. This stresses the fact that if you employ people you must have a proper written contract with them for mutual protection.
If you are considering employing staff to assist you with your business you should read our e-guide to “employing staff in Spain”. This guide will explain the whole process including the amounts payable under contract and the types of contract available. It includes:-
- Types of contracts (Seasonal, temporary, fixed)
- Working hours
- Holidays & Sickness
- 14 Monthly Payment scheme opt out
- Tribunals & Claims
If you would like a copy of this guide, please do not hesitate to contact us.
Once your business is open to the public, you will need to ensure that you have obtained an insurance policy, covering at the very least your civil liability. This is especially important if your business is of a nature where clients are attending your business – café, bar, restaurant, shop or office etc. If you do have an inspection, make sure that you have the policy together with your activity license easily to hand as these, as well as other items are likely to be the things that they will look for first.
If you are renting your premises, you will probably need, as part of the rental agreement, to obtain a contents insurance policy protecting your landlord in the event of fire or flood and you should factor in an amount for this when budgeting for your business.
|9||ISSUING INVOICES (FACTURAS) & CREDIT NOTES (ABONOS)|
If the company that you have decided to set up is one where you will issue your clients with an invoice as opposed to a receipt, then you must ensure that the invoice is official. Each invoice must have:-
- A unique invoice number -The invoice number must start at number 001 and all subsequent invoices must have sequential numbering without any gaps.
- The invoice must have your company or trading name together with your registered company address and company CIF number (or NIE number if you are self employed).
- The Invoice must have your customers, full trading name, address and their NIE or CIF number.
- You must show the sub total and the amount of IVA charged.
- The invoice must be dated with a date that does not pre or proceed the sequential numbering.
Once you have issued an official factura (invoice) you are liable to pay TAX and IVA on that factura regardless as to whether you have been paid or not.
Your accounts are prepared and submitted to the tax office at the end of every quarter:
- Jan to March (need to be submitted well in advance of the 20th April)
- April to June (need to be submitted well in advance of the 20th July)
- July to September (need to be submitted well in advance of 20th October)
- October to December (need to be submitted before 20th January – sometimes later)
If you have issued a Factura to a client who you suspect does not have the means to pay then it is important that you credit that Factura as soon as possible and especially before the end of December or you may find yourself paying for IVA and TAX on income you are unlikely to receive!
Facturas and Abonos need to be served on their recipients, so you should always keep a record of how each item was served in the event that you have to take recovery action at a later date.
NOTE: if you do issue Facturas, you will need to register with the Data Protection office.
|10||Till & Cash Receipts.|
If the company you have purchased or are about to purchase is a cash sales business or takes credit cards, such as a café or a bar, you are legally obliged to have a till and issue the customer with a receipt for each transaction the customer(s) makes.
The Government are trying to crack down on the number of undisclosed cash sales and have over recent years introduced a number of measures to try and reduce this and get business owners to pay their full taxes – and introducing tills was one of them.
Your daily takings should always match that what you have disclosed to your gestor and that on the daily Z Reading. Please be aware that each Z reading has a sequential numbering system and each till calculates the yearly amount rung through it. If you are every the subject to a financial investigation, the investigators are looking for you to pay more tax and are therefore looking for discrepancies in this regard.
|11||VAT (IVA) & TAX|
Depending on the type of Business you chose to undertake, you will need to pay IVA at the appropriate rate. The present rate of IVA currently stands at 21%. However, there are lower limits and discounts/exceptions for certain goods, trades and services.
Make sure you receive advice on the amount of IVA that you need to charge and be very clear with your gestor about the services that you are offering. An example of this is, say you open a T-shirt printing shop. Generally, selling clothes attracts an IVA rate of 10%. However, in this scenario, you are not selling just clothes, you are selling design and printing services also which attracts and IVA value of 21%. Be clear on the amount of IVA that you need to charge as, if you are subject to an inspection, you may find that you receive a hefty bill for the unpaid IVA amount.
Unlike some other countries where you do not have to register for IVA until your sales reach a certain threshold, in Spain IVA (Value added TAX) is applied and payable on each and every euro you make, and you should factor this into your pricing structure from the outset.
VAT RATES IN SPAIN
|21%||Standard rate||This applies to all other taxable goods and services not listed below.
|Reduced rate||This includes some food stuffs, some pharmaceutical products, some medical equipment for the disabled, some books (excluding e-books) certain newspapers and periodicals.|
|10%||Reduced Rate||This includes some food stuffs: water supplies certain pharmaceutical products, some medical equipment for disabled persons, domestic passenger transport, renovation and repairs of private dwellings: agricultural supplies, hotel accommodation, admission to certain sports, restaurants, waste collection, some soft drinks, bars cafes, night clubs and alcoholic beverages sold therein, cut flowers and plants for food production, some supplies for food production.|
|0%||Zero Rated||Taxation of some gold coins, ignots and bars.
Like other countries, tax is payable on the profit that you have received and is payable on the submission of your quarterly accounts.
Your accounts are prepared and submitted to the tax office at the end of every quarter:
- Jan to March (need to be paid before the 20th April)
- April to June (need to be paid before the 20th July)
- July to September (need to be paid before 20th October)
- October to December (need to be paid before 20th January – sometimes later)
As such your Quarterly accounts need to be submitted well in advance of the 20th of the relevant quarter that payment is due to be made.
Unless you are working under a contract of employment, tax is applied on all profits made and is also payable each quarter. Whilst each person is entitled to a personal taxable allowance, you will not receive the benefit of the tax allowance until the following year when you will need to submit your personal TAX return.
Tax Returns need to be submitted well in advance of the 30th June Each year.
As the taxable allowances are subject to frequent change, you should speak with you accountant regarding your personal allowances and the amounts charged.
At the time of writing income TAX is paid at the following rates:-
For limited companies SL – Please speak to your Gestor regarding payments and amounts.
In case your premises are inspected
Once your business is up and running, if you have premises, you will need to ensure that you have the following documents readily available to hand.
- Libro de Inspeciones
- Contracts of employment and Identification of all persons working in the premises
- Fire extinguishers
- Activity licences
- Certificate of insurance
- Certificate of data protection (if required).
- Hojas de reclamacíon (and notice displayed)
- That your toilets have dual flush for water preservation reasons
You may also be required to provide evidence that you have paid your own monthly autonomous payments.
|13||PAYING RATES AND RUBBISH|
Once your business is up and running, and depending on what is stated within your contract, you will no doubt be liable to pay the rates for the building and the rubbish collection.
These payments are usually issued at the end of June and the beginning of July and should be paid before the date specified on the bill.
Payments can usually be made either by the bank or at your local tourist information office on the specific dates shown on your demand. You may also chose to attend at the local Ayuntamiento (Town Hall) and pay the demands in person.
Late payment of these demands attract a penalty or fine of 20% and rising over time.
If you do not receive your demands, you should always attend at the Ayuntamiento and request copies of the demands. All you have to do is provide them with your NIE and, if applicable, your CIF Number.
|14||MOTOR VEHICLES & EXPENSES|
If you own and use a motor vehicle in the course of your business, you should be aware that you will only be able to reclaim 50% of the cost of running, maintaining and insuring the vehicle, if the vehicle has mixed business and personal use.
You may be able to claim the full extent of the motor vehicle use if you can prove 100% that the motor vehicle is used only for use in connection with your business, however this would be extremely difficult to prove and would involve providing evidence of each journey taken.
This is one of the most vague areas at the moment and with the government trying to find ways of obtaining money from individuals, the 50% rules that has been in use may fall under scrutiny if you have a business, where you do not have any real or “substantive”need for a vehicle.
In the future, the 50% claim may be reduced to as little as 10% where no evidence can be provided that the vehicle is an essential part of the business.
|15||COMPLAINT FORMS (Hojas de reclamación)|
If you have decided to run a service business, for example a café, restaurant or bar, you will need to have a complaints procedure in place that complies with the current regulations. You must have on your premises hojas de reclamacion (complaint forms) and you should also display a notice on your walls or windows informing clients that you have such a procedure in place.
If you do not have such a system in place then you will be liable to receive a fine of up to 3000.00€
If your business is one where you.
- Issue Facturas
- Employ staff
- Hold data about individuals on your computer
- Collect information by way of a website (including email)
- Have a business email address
- Hold sensitive information.
Then you will need to be registered with the Data Protection authority. Spain is very strong on this aspect. You can speak to your Gestor who will be able to advice you in respect of that matter. Avoid companies who will sell you a whole package and try to scare you into buying their services. They charge over the odds for services that are really not needed.
If you would like more information and advice in respect of any matter listed above or have any other questions, please do not hesitate to contact us.
Last updated: July 2017