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Spain is often considered as one of Europe’s most culturally rich and diverse countries. This reputation has made it one of the continent’s top tourist destinations. After all, who wouldn’t want to visit an exotic country with a Mediterranean climate, low crime rate, and delicious cuisine?
If you’re a business owner or an entrepreneur, you’ve probably viewed Spain through a different lens. This European country’s touristy appeal overshadows the fact that it is also an excellent place to do business. Spain has the fifth largest economy in the EU, serves as an international business hub, and offers financial incentives for local businesses.
All these factors entice many business owners into expanding their existing businesses to Spain. However, it can be tricky to do so without the right guidance. In this guide, we will go over some essential tips for anyone that intends to expand their business in Spain.
1. Research Market Conditions
Before attempting to expand your business to Spain, it is vital to research market conditions and whether they are favorable to your business. For example, Spain’s construction industry has been suffering for over a decade, or since its property market collapsed. For this reason, attempting to expand a construction business to Spain would be a bad idea.
Similarly, Spain’s agriculture sector isn’t favorable to new businesses. This is because farming activities are currently dominated by large-scale companies that are putting many smaller-scale farmers out of business.
There are a few industries that still present excellent opportunities for foreign business owners who wish to expand their venture to Spain. One of these is tourism. As mentioned earlier, Spain is a top tourist destination, so you are likely to do well if your business caters to such tourists. This includes hotel and tour guide businesses.
2. Select a Suitable Company Structure
It is also vital to select a suitable company structure for your business in Spain. The country’s government currently recognizes numerous business structures such as:
- Sole Proprietorship
Sole proprietorships are great for foreign business owners who intend to operate their company as a single person. This is great for those who wish to run their business independently and call the shots. If you choose to expand your business to Spain as a sole proprietorship, you won’t need to worry about answering to any directors or co-owners. However, you will need to bear responsibility for the company’s debts.
- Stock Corporation
Some business owners expand their business to Spain as stock corporations or “Sociedad Anónima” (SA), as they are locally known. Such businesses are owned by shareholders, which can be advantageous in a few ways. One of these advantages is that the business liability is spread across shareholders, so each one has limited liability. Each shareholder’s personal assets also won’t be affected if the business racks up debts.
- Limited Liability Company
Spanish Limited Liability Companies are locally known as “Sociedad de Responsabilidad Limitada” (SRL). This could be a good company type for your business if it is small or medium sized businesses. This business is also operated by a single owner, but there are also shareholders who share the liability.
There are a few other company types to choose from, but it is vital to do your research before making your decision. Your company type will determine who is liable for the company’s debts as well as who gets to call the shots. Choosing the wrong company type could lead to your business failing, even if your initial business idea and execution were good.
3. Choose Between Branches or Subsidiaries
Business owners and entrepreneurs must typically choose between opening up branches or subsidiaries in Spain as part of their expansion strategy. These two business types may sound similar, but they are different in many ways. It is vital to understand the pros and cons of branches and subsidiaries as it can impact how successful your Spanish operations will be.
Some of the key differences between Spanish branches and subsidiaries include:
Independence
Branches aren’t considered independent legal entities from their parent business. However, they do enjoy a degree of autonomy in their operations in Spain. In this setup, the foreign parent company is held liable for their Spanish branch’s debts.
Subsidiaries are independent and act on their own legal capacities. One advantage of choosing to open a subsidiary is that the business can adopt its own name. This could be useful if you want to choose a business name that appeals to Spanish customers and won’t impact your parent company’s reputation.
Minimum Investment
There is no minimum investment amount required to open a branch. However, you will need to put up €3,000 or more if you intend to open a subsidiary. This amount isn’t very high, but it may be a lot for smaller businesses to pay.
4. Select a Good Location
Selecting the right location for your business could be the key to its success. Spain is a diverse country with two major cities with populations over 1 million, 88 cities with populations between 100,000 and 1 million, and roughly 700 cities with populations between 10,000 and 100,000 people.
Based on this information, you will need to choose a region that matches your target audience. For example, if you intend to operate a cafe, you will need to choose a location with good foot traffic. An area within or around a busy shopping district would be ideal for this.
It is also vital to note the average rent in the area you choose. A spot that appears to be ideal for your business may have sky-high rent, and this could diminish your profits greatly. For this reason, you should weigh up the pros and cons of different locations before settling on the one that offers the right balance.
5. Understand Which Licenses and Permits You Need Beforehand
Businesses that wish to operate in Spain need to obtain specific licenses and permits before they can start their operations. These licenses and permits are different for each industry. For example, construction businesses must acquire municipal work permits, municipal activity permits, municipal first occupancy permits, and municipal opening permits.
Similarly, any business whose activities could negatively impact Spain’s natural environment will need to obtain an environmental permit before starting operations.
Attempting to operate your business without the right licenses or permits could result in a hefty fine. In some cases, the Spanish government may shut down your business’s operations completely. For this reason, it is vital to know which licenses and permits you need beforehand.
6. Learn the Language
Spanish locals are proud of their culture and heritage and love speaking their local language. Around 12% of the country’s population is fluent in English, but you may be able to make a better impression with locals by learning Spanish. You don’t have to be fluent in it, but knowing a few key words can help win over customers or potential investors in the country.
You can also focus on hiring local workers who speak both English and Spanish to help run your operations. This will allow you to overcome many language barrier hurdles while benefiting from sales from Spanish customers.
7. Stay on Top of Things
Expanding your business to Spain isn’t easy, and you will need to put in immense effort to pull this off. Setting up your business in the country presents many challenges, but keeping it going is also tough.
For this reason, you will need to monitor how your Spanish venture is doing regularly and make adjustments accordingly for several months. Following this, you can hire managers to oversee your operations.
Hiring the right managers is vital, as they should be experienced individuals that are comfortable operating in the Spanish market while helping maintain the company’s vision. In all cases, there should always be a dedicated person at the helm of your Spanish operations.
How OpenAEuropeanCompany Can Help
If you’re planning to expand your business in Spain, consider reaching out to OpenAEuropeanCompany for assistance. We have helped many entrepreneurs and business owners that were interested in doing business in Spain. Our experts are familiar with business registration in Spain and can take care of the process for you. We also specialize in business registration in multiple countries across Europe and other regions such as the United States, South America, Asia, and Australia. Get in touch with us and start operating your business in Spain with confidence.
