While businesses face challenging times on a global scale, it is no secret that the UK is far from feeling any form of relief from the Covid-19 pandemic.
With a second national lockdown on the cards, combined with the realisation that some businesses can operate remotely from anywhere, entrepreneurs, investors and high net worth individuals are contemplating where they would rather be locked down.
Adding to this Britain’s impending departure from the EU, and the UK is no longer quite so appealing as a destination from which businesses can grow.
Often regarded as a gateway to other European markets, and with more domestic disposable income than most, UK investors are viewing Spain as one of the more attractive markets in Europe in which to be based post a Covid-19 economic slump.
After the 2007-8 economic crisis, it was Spain that became the greatest single contributor to Eurozone growth and incentivised foreign investments through improved legislation and tax incentives.
British investment in Spain has been growing exponentially ever since the Brexit vote, to the extent that the UK became the number one foreign investor in Spain in 2019.
According to the British Chamber of Commerce, investment by British companies during the first half of 2019 in Spain hit €3.13bn – up 79.5 per cent year on year.
‘Investors are looking to relocate their own UK-based business to Spain’
This year, we have seen that investors are looking to buy small to medium sized Spanish businesses or else relocate their own UK-based business to Spain.
This is most often the case for service-based businesses or consultancies that can operate from anywhere.
The sectors in which investment and acquisitions or mergers are happening in Spain are wide-ranging, from solar energy to hospitality, IT and boat chartering.
There are many types of businesses, including horse riding and boat chartering, which UK citizens are buying from Spaniards for a good price because Spain is suffering financially.
If you plan to move and operate your business from Spain, you may have one or more of the following questions:
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, you should consider that the company may be considered tax resident in Spain if the directors are managing and controlling it from there. A clear contractual relationship must be established between you and your company and the services you provide. One option is to open a separate Spanish company, but this must be carefully considered to ensure the costs do not override the potential advantages.
What are the corporate requirements to have a company in Spain?
There is little difference between establishing and running a company in Spain and from the UK. It very similar in terms of directorship, accounting, payroll, tax and VAT rules that are required.
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 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.
What are the tax and legal aspects compared to UK?
#1 – Consider your liability for Corporation Tax
Providing consulting services from Spain to the UK may be subject to Corporation Tax in both countries and VAT rules must be considered. But there are also legal implications to decide the contractual relationships as well as social security considerations to be taken into account.
Irrespective of what business you are looking to invest in or operate from Spain, or whether you have or plan to purchase a property, you must become aware of the Spanish income tax and residence rules.
#2 – Consider property taxes
You are liable to pay taxes to the Spanish tax authorities for any property you own and any other assets and investments you may have, such us an office or a commercial space. If you do not pay the appropriate tax to the Spanish authorities your property may build up a debt against it on which interest is also due; this will lead to you having difficulties in selling it and your bank account could be embargoed.
Like in many other countries, Spain has its own set of taxes in place that also apply to non-residents. Before establishing your home or your business in the country, it is worth checking with legal experts to ensure that you are fully aware of all possible expenses. This is because mistakes in schedules, quantities or forms can end up increasing your bill through fines and other punishing costs.
#3 – Consider setting up an Spanish International Investment Company (ETVE)
Another way to set up business in Spain is by creating a Spanish International Investment Company (ETVE), known as “Entidades de Tenencia de Valores Extranjeros”, which are extremely tax-efficient international investments structures.
ETVE Spanish holding companies are widely used by UK and international companies to structure investment holdings in Latin America, using Spain, and its treaty network, as the base.
#4 – Consider which residency status is more convenient for you
For many British and other foreign expats, tax is probably the key concern before moving their business or their lives to Spain. This also implies selecting which type of residency is more convenient for them. Sometimes it is not easy to take this decision because they might have heard about its complexity, changes across geography and different treatment for nationals and foreigners. Depending on your current situation and your plans, you have different options to consider if it is convenient to become Spanish resident or to remain as a non-resident:
- Consider qualifying as a resident: If you have a second home under the sun you might qualify as a resident. Plus, you can also qualify if your dependent partner or family live in Spain; your main business is conducted in Spain; or you spend more than half of the year in the country. Of course, all of these conditions can and should be examined by a professional
- Consider applying for a Golden Visa: You may obtain Spanish residency by investing with your business in Spain, or through the Golden Visa scheme. The Spanish Golden Visa is a way to achieve Spanish residency by investing €500,000 in real estate or qualified financial investments, intended to attract entrepreneurs to Spain, promoting inbound investments in real estate and other qualifying financial assets
- Remain as a non-resident: Expats are eligible for the Beckham Rule: For expats that work in Spain they can be eligible of the Beckham Rule. The Beckham Rule or law in Spain is a special expats tax regime that enables foreigners who have moved to Spain the option of paying tax as non-residents, so that their Spanish employment income is taxed at a fixed rate of 24 per cent up to €600,000 euros, rather than the progressive tax rates applicable to Spanish residents. If taxed as a resident, the expat would be subject to a progressive tax scale up to 43 per cent depending on their level of their worldwide incomes.
If you plan on moving to Spain and operating your business from there – whether you are (a) an investor (b) looking to buy a small to medium-sized Spanish business; or (c) planning to relocate your own UK-based business to Spain – you are well advised to consult with a legal expert to ensure that you are fully aware of which scenario works for you, as your requirements will be specific to your situation.
Xavier Nova is partner at Del Canto Chambers