Starting a business in Spain is an exciting journey, and it’s important to know about the different types of business structures you can choose from. One of the most popular options is the Limited Liability Company, or S.L. for short. This type of company has some unique benefits and responsibilities that make it attractive to many entrepreneurs. Knowing your options will help you make a smart and strategic decision for your new venture.
What is a Sociedad Limitada (S.L.) company in Spain?
SL company refers to a “Sociedad Limitada” (S.L.), which is the equivalent of a Limited Liability Company (LLC) in other jurisdictions. It is one of the most common business structures for small and medium-sized enterprises (SMEs) due to its flexibility, limited liability protection for shareholders, and relatively simple setup process.
The Sociedad Limitada (S.L.) company in Spain is the go-to choice for most business owners because it’s both flexible and affordable. If you’re an entrepreneur wanting to start a business without a huge initial investment, the S.L. is ideal since you only need a minimum of 3,000 EUR in share capital. Plus, it’s easy on the wallet when it comes to ongoing management costs, which is why it’s a favorite among local and international entrepreneurs alike.
Key Features of an SL (Sociedad Limitada) in Spain
- Limited Liability: Shareholders’ liability is limited to the amount of capital they have invested in the company. Personal assets are generally protected in case the company faces financial difficulties or debt.
- Minimum Capital Requirement: The minimum share capital required to form an SL is €3,000. This capital is divided into shares, which cannot be freely traded on the stock exchange.
- Number of Shareholders: An SL can be formed by one or more shareholders, who can be individuals or legal entities. There is no upper limit on the number of shareholders.
- Management: The company is managed by one or more directors, who can be shareholders or external professionals. The directors hold the authority to make decisions on behalf of the company, as specified in the company’s bylaws.
- Flexibility in Share Transfer: Unlike a public limited company (Sociedad Anónima, S.A.), share transfers in an SL are more restricted. Shareholders often have the right of first refusal when shares are being transferred.
- Taxation: SL companies are subject to corporate tax in Spain, which is generally set at a rate of 25%. However, there may be deductions and benefits depending on the sector and company structure.
- Legal Framework: The SL company is governed by Spain’s Corporate Enterprises Act (Ley de Sociedades de Capital). This law outlines the procedures for incorporation, administration, and liquidation of the company.
How to Setup an S.L. company in Spain?
The following steps to register a Sociedad Limitada company in Spain includes:
- Choosing a Company Name: The initial step is to select a unique and distinctive name for your company. This name must be approved and registered with the Central Mercantile Registry to ensure it is not already in use by another entity.
- Registering with the Mercantile Registry: After your company name has been approved, the next step is to formally register your business with the Mercantile Registry. This process grants your company legal recognition and formalizes its existence.
- Drafting and Signing the Articles of Association: The articles of association, which outline the governance structure and rules of your company, must be drafted and signed by all shareholders. These documents must then be notarized to ensure their legal validity.
- Obtaining a Tax ID Number and Registering for Taxes: Following registration, you must obtain a provisional Tax Identification Number (NIF) for your company. This number is crucial for tax compliance and must be converted into a permanent NIF once the company’s registration is complete.
- Obtaining Necessary Licenses and Permits: Depending on the specific nature of your business, you may need to secure various licenses and permits to operate legally. These requirements can range from local business licenses to industry-specific certifications, ensuring compliance with all regulatory standards.
- Opening a Business Bank Account: A business bank account is necessary for managing the financial operations of your company. This account will be used for various transactions, including the deposit of the minimum share capital required by law.
Requirements for Setting up an S.L. company in Spain
- Certificate of Corporate Name: The initial step involves obtaining a certificate of corporate name from the Central Commercial Register (Registro Mercantil Central). This certificate secures your trading name, ensuring it is unique and available for use.
- Tax Identification: It is mandatory for shareholders and directors to obtain a tax identification code in Spain. This ensures compliance with Spanish legal and tax requirements.
- Registered Office: Establishing a registered office address in Spain is required for receiving legal correspondence and official notifications. This address must be maintained throughout the company’s existence.
- Deed of Incorporation: The legal formalization of the company occurs when the deed of incorporation is signed before a notary. This document officially establishes the company as a legal entity.
- Provisional NIF: A provisional tax identification number (NIF) must be obtained to comply with tax regulations. This number is essential for initiating any fiscal activities.
- Company Bylaws: Drafting the company bylaws is a crucial step. These bylaws serve as the governing document for your limited liability company (SL), outlining the company’s internal regulations and management structure.
- Commercial Register: The company must be registered with the Commercial Register to obtain a permanent NIF from the Spanish Tax Agency. This registration finalizes the company’s legal standing.
- Corporate Bank Account: At this stage, opening a corporate bank account becomes mandatory to manage the company’s finances efficiently.
Benefits of a Sociedad Limitada (S.L.) company in Spain
Some of the advantages of S.L company in Spain are:
- Professional Management: A significant advantage is the streamlined management process, particularly when the company is managed by a professional law and economics firm rather than a local consultancy. This ensures expert oversight and efficient operation.
- Tax Deductions: All operational expenses are tax-deductible, providing substantial financial flexibility and enabling the optimization of operational costs.
- Corporate Tax: The sole tax applicable is the Corporate Tax, which is consistent throughout Spain. An exception exists for the Canary Islands, where a special tax regime is in place to promote economic development.
- Double Tax Treaties: Spain has the highest number of double taxation treaties in Europe. These treaties offer considerable tax benefits for international businesses, facilitating cross-border operations and reducing tax burdens.
- Limited Liability: Establishing an SL in Spain allows shareholders to limit their liability. This ensures that shareholders are not personally accountable for the company’s operations, providing a layer of financial protection.
Taxation of a Sociedad Limitada (S.L.) in Spain
- Corporate Income Tax: The standard corporate income tax rate in Spain is 25%. This tax is levied on the company’s net income, which is calculated as revenue minus allowable deductions.
- Value-Added Tax (VAT): SL companies are required to charge VAT on the sale of goods and services. The standard VAT rate is 21%, with reduced rates applicable to certain goods and services. Companies must file quarterly VAT returns using Form 303.
- Withholding Tax: For dividends, it is important to note that if a Spanish SL receives dividends from another company, the applicable tax rate is 1.24%. Withholding tax also applies to other types of payments, such as interest and royalties.
Conclusion
The Sociedad Limitada (SL) is a popular and flexible business entity in Spain, ideal for both local and international entrepreneurs due to its limited liability, tax benefits, and easy management. It’s particularly suited for small to medium-sized enterprises thanks to its low capital requirements and straightforward governance. Choosing the right structure is crucial, so consulting legal and financial experts is recommended. At OnDemand International, S.L., we offer comprehensive legal, fiscal, and accounting services, with a dedicated team ready to provide personalized solutions to meet your business needs. We’re committed to being your trusted partner in your entrepreneurial journey.
Frequently Asked Questions
What is the timeframe for incorporating a company as a Sociedad Limitada (SL) in Spain?
Setting up an SL in Spain typically takes a few days, but can extend to several months if partners reside overseas, delaying current account openings. OnDemand International expedites SL establishment in 48 hours, securing the NIF, followed by a three-week commercial register entry. We manage account openings, share sales, and business setup promptly.
How foreigners register their S.L. company in Spain?
Foreigners can register their Sociedad Limitada (SL) company in Spain without being present, except when they want to serve as the company’s administrator. Physical presence is only required to open the company’s bank account, which is necessary if assuming this role in Spain.
