If you are NOT thinking of buying a freehold business property, then in general what you are “buying” is what is called here a “Traspaso”. This is a private transfer type of arrangement and what you are paying for is goodwill, stock, fixtures and fittings in the premises (if they are not the property of the premises owner) and also getting the existing business holder to give up the right to what ever is left on their premises rental contract. A much better format is to negotiate a proper lease “cesíon” – but this is not so readily accepted by Tenerife landlords!
Do the math! Look at the potential earnings and see if the return justifies the outlay. Why are the existing owners giving up the business? There are genuine reasons – family, retirement, moving up to a bigger better location etc – but if there is no obvious reason, are they leaving because they couldn’t make it? If they couldn’t what could you do differently? – perhaps you have more experience in the field, better work ethic, etc etc. but be honest with yourselves could you make it work if they can’t.
I would always investigate whether I could set my business up from scratch in an empty unit – would the set up costs exceed the cost of buying an existing business?- Goodwill and location are usually the key factors in that choice.
If you are going for an existing business, remember the concept of a lease as we understand it in the UK does not always apply. Have a meeting with the landlord to firm up what length of rental agreement he will give you as the “clock” starts again at zero when a new person takes over and you must negotiate the rent, deposit, possibly a bond to be lodged with a bank and any other terms and conditions of the agreement with the landlord yourself.
Also check with the landlord how much percent transfer fee of the transfer price he wants – he may be entitled to as much as 10% dependant on what is in his contract with the current business holder. Are you expected to pay that or the outgoing tennant?
Request a full inventory of items belonging to the business owner (NOT the landlord) to be included in the Traspaso – transfer of business.
Contact the local council to check whether the business has an opening licence or if not would that be looked on favourably or does the business in fact need an opening licence?. If there are problems what would have to be done?. ie getting the premises up to code and obtaining what is called a proyecto – which are architects plans to either confirm the premises are suitable for the use you intend OR detail what needs to be done and then act on those improvement requirements.
If dealing with food – check with the Sanitation department what level of catering licence – cafe/ bar 1 key 2 key etc. you could have in that premises. You may not have the set up to produce full meals for example. Also at least one of you will have to have a food handlers certificate (in Spanish)
If the premises are located as part of a complex or community, as a courtesy check with the “Comunidad” – community association. A friendly approach to the president or comittee can often go a long way – this lets you know what other owners in the complex see as problematic (if anything)
Then you have to get yourself set up as an “autonomo” – self employed person, or you could form a company or partnership but that may be overkill for a small business set up. Remember whatever way you work in Spain either for yourself or on contract to someone else you must have already formalised your immigration status. If you are a European Citizen then you need to apply for an NIE number if you do not already have one and then a Certificate of Residence Registration. If you are non-european the process is too complicated to explain here as there are variations from country to country. Please contact us for further information.
As a self employed person you can do this yourself at the “Ventanilla Unica” (Small business unit) in Santa Cruz – inside the chamber of commerce building, or at the indiviual agencies more locally – but you will need to speak Spanish or take an interpreter.
The chamber of commerce can advise you on whether your plan is viable – set up your Tax, IGIC (VAT) and Social Security requirements – they can also advise on licences and permissions required, dependant on the type of activity you are thinking of…..
Or if you are not comfortable going it alone there are firms like ours who will see you through all of this – I would personally opt for one who wasn’t also acting for the seller – but I imply nothing at all against any firm that helps both sides.
The basics of the procedure of becoming an AUTONOMO or self employed person entail:
- Extranjería – European citizens must obtain certificate of Residence further info here
- For UK Citizens from the 1 January 2021 Applying for a Self Employed Persons’ Visa (See detailed requirements here – TRP ES-EN.pdf (exteriores.gob.es) ) amonst other things a Business Plan of Activities that will be carried out will be required, with the anticipated investments shown, your projected profits and the possible amount of jobs created and proof of sufficient economic funds, or contracts of investments or loans from financial institutions. There must be evidence of sufficient funds to establish and maintain employment indefinitely.
Once a visa has been granted you will then have to be registered with:
- Spanish Inland Revenue (HACIENDA ESTADO)
· Census start-up declaration. Modelo 036/7 (*)
- Canarian Government (GOBIERNO DE CANARIAS)
· Inclusion in the Impuesto General Indirecto Canario (IGIC) system. Modelo 400 (equivalent to the VAT office) OR FROM 2018 most small traders who will/are invoicing less than 30 thousand euros per annum are now able to be exempt from charging IGIC further info here
- Advise of the opening of a new work centre if premises – Santa Cruz (Work Inspectorate)
- Consumer Complaint forms (certain activities.) – Santa Cruz
- The Treasury department of the Spanish Social Security (TESORERÍA GENERAL SEGURIDAD SOCIAL)
· Register and obtain a Spanish social security number if you do not already have one Modelo TA 1
· Register as a self employed person Mod. TA-0521.
· Register as an employer with the Social Security. Mod. TA-6. (if applicable).
· Add any employees (if applicable). Mod.TA-2
- Local Authority (AYUNTAMIENTO)
· Obtain an Opening licence for an inocuous activity – if you have a business premises (Does NOT apply to Market traders)
· Classified open licence (certain specified activities)
· Change of title holder of licence
· Licence for awnings and signage
- Provincial Directorate of Work (DIRECCIÓN PROVINCIAL DE TRABAJO (Santa Cruz)
· Social security inspection visit book you may have heard about this but THE REQUIREMENT TO HAVE THIS WAS REMOVED IN 2016
- You must also have the following documentation
- DNI or Green certificate of residence ( plus passport)
- Proof of IBAN number of Current Spanish Bank Account Number for Social Security Payments
- Other requirements
- You have 30 days from registering at the tax office to set up your Social security payments
- The Impuesto General Indirecto Canario (IGIC), Modelo 400, should be done on the same day as the tax office Modelo 037.
Once you have jumped through the necessary hoops to work for yourself, you then have to think about making tax declarations and keeping your books.
Basic Obligations for a Sole Trader with no employees or premises.
Estimación directa simplificada
Traders whose turnover does NOT exceed 600.000 € per year
You must keep the following books or spreadsheets (or dedicated computer programme)
Ventas e ingresos – Sales and Payments
Invoices raised should be numbered sequentially they MUST be in Spanish although they can be in English or another language as well.
2018-001 Mrs Bloggs Golf del Sur -Reparaciones 385,75 IGIC 7% 27,00 TOTAL 412,75
2018-002 Mr Brown Adeje- Azulejos Baño 2,500,00 IGIC 7% 175,00 TOTAL 2675,00
etc etc – if you don’t have specific client info put “contado” – cash sale
Compras y gastos – Purchases and Expenses
Receipts for expenditure MUST carry your name address & NIE number (get yourself a stamp!)
You should number each purchase sequentially (easier by month but up to you) in your book and the date it was made.
11/7/001 27/07/2018 Afortunadas pintura 36,95 IGIC 7% 2,58 TOTAL 39,53
11/7/002 30/07/2018 Sagrebb Varios 850,00 IGIC 7% 28,00 IGIC 13,5% 60.75 TOTAL 938,75
11/8/001 02/08/2018 Ofipapel Papel 47,00 IGIC 3,5% 1,65 TOTAL 48,65
etc etc see also changes for 2018
Bienes de inversión – Assets
New tools for example or perhaps later on a vehicle
Note the date, purchase invoice number, description and amount of the plant purchased.
Modelo 130/131: You have to do a tax return once a quarter which must be submitted by the 20th of the month following the quarter end (Even if a nil return) you pay 20% (correct as at Sep 2017) of your takings less net expenditure (Justified expenditure less 5%)
Once a year you must do a “Declaracion de la Renta” – Personal tax, return this is where your personal allowances are applied and unless you have done VERY well you are likely to get a rebate at this point. This must be submitted by the last working day of the month of June applicable for the Previous Tax Year January to December.
From the 1 Jan 2013 there are no exemptions for small traders – all will be required to charge the sales tax. HOWEVER retailers (Minoristas) operate under a different scheme. For service based activities the amount is 7%. Also there is no IGIC payable on IT services provided outside of the Canary Islands, but in Europe, provided the supply of information is made electronically and where NO PHYSICAL DELIVERY O F GOODS takes place, are exempt from charging IGIC – these people still have to submit nil IGIC returns and do have to charge IGIC for local clients.
Modelo 420 must be presented and paid quarterly. FROM 2018 most small traders who will/are invoicing less than 30 thousand euros per annum are now able to be exempt from charging IGIC further info here Hojas de
Reclamaciones – Clients Complaint forms (service or sales based activities)
Seguro de responsabilidad Civil – A legal requirement to get Public Liability Insurance if you are dealing with the public
Pay your Social Security – Monthly REGARDLESS of whether you are in profit or not.
The amount due depends on your age and what kind of activity you are undertaking also whether or not you wish to pay extra for unemployment insurance. Rough figure is between 250 and 350 euros for MINIMUM earnings – there are incentives for new start-ups with quotas with a 70% reduction for the first year 50% for the next six months and 30% reduction for the next six months, then in year 3 of trading the premiums will go up in accordance with your age, activity and whether you have decided to opt for unemployment insurance or not.
Other taxation and trading methods
Depending on the type of activity you are going to be undertaking there are other ways of complying with your tax obligations.
The tax authorities allow you to pay a pre-calculated fixed amount of tax every quarter for certain types of business that they have average calculations for. These include amongst other things bars and small restaurants. This is called Estimación Objectiva. The requirements are as above except that your fixed tax amount is declared on a Modelo 131 form. The advantage of this is that you can know exactly the amount you will be paying in tax every quarter, the disadvantage is that it is due come hell or high-water, whether you are in profit or not, and you are tied into the scheme for 3 years. But this is only available if your business is in certain categorie (Like bars) and complies with the following criteria;
- Total amount of takings in the previous year must not exceed 250.000 euros whether or not you are required to issue an invoice. Total amount of invoices raised for other businesses/autonomos must not exceed 125.000 euros.
- The total amount of purchases for goods and services (excluding property) must not exceed 250.000 euros.
If you are providing professional services SOLELY to other Spanish registered businesses then you can fulfil your tax obligations by the “retención” method. This means that the company that you provide your goods or services to deducts and retains the income tax due on the amount they pay you. They pay this into the state coffers on your behalf and once a year you do your declaración de la renta to work out if you owe any more tax (or are due a rebate) after your personal allowances and business expenses have been deducted.
The above is a VERY simplified summary of basic obligations for a self employed person in Spain and does not even touch on IGIC(VAT) obligations, employers obligations to employees, health and safety regulations, Limited Companies or Partnerships etc. ALWAYS SEEK EXPERT ADVICE TAILORED TO YOUR OWN CIRCUMSTANCES BEFORE STARTING OR INVESTING IN A COMMERCIAL VENTURE.