I remember the day I opened my limited company (SL) in Spain. My accountant presented me with an inked stamp to sign official documents, like those of the very expensive notary we had just gone to. The seal was affixed to every page of the incorporation document, which, even for a sole proprietor, was so long that it had to be bound.
Back then, in the year 2009, Estonian e-residency did not exist, which was founded exactly eight years ago, in December 2014. Therefore, as a resident of Spain, opening an SL was the only option. A cumbersome, expensive and time consuming option. What’s more, even to close the business a few years later, costs and administrative hassles complicated the process.
In 2018, I decided to start BlockSparks OÜme osaühing estonian (equivalent to a Spanish SL), and everything was simplified. I took the step because I was about to lose a great freelance opportunity because the non-EU client could only do business with a different legal entity and e-Residency digital identity it was the only viable way. Since then I continue to live in Spain, but for different reasons, I prefer to operate my business from Estonia.
Formation of modern companies in Spain and Estonia
Several years have passed and, in Europe, the business sector has evolved, but have things really changed in Spain?
To have an up-to-date picture of what means opening a business in Spain in 2022, I spoke to the e-Resident Louis Williams, whose Barcelona-based accounting firm, Entre Trámites, helps local and international residents navigate these types of issues, including cross-border trade and taxation.
In Spain, they are trying to establish legislation for the creation of companies to reduce the current capital requirements. In addition, there are now many company incorporation offices throughout Spain, private or government-run, where you can prepare a company incorporation document using your personal digital certificate, with the aim of launching a limited company by yourself and reducing thus the cost of the notary.
However, things have improved does not mean that there are no complications. The process of setting up a company in Spain requires a lot of time, since the document cannot be prepared until the name of the company has been approved in the Mercantile Registry. At this point, the entrepreneur can only wait, without even being able to check the availability of the name beforehand. Now, thanks to companies like Louis’s and the new digital DNI, the process that required me to wait months in 2009 would have been reduced to weeks, although the differences between Spain and Estonia are still abysmal. For anyone used to Estonian procedures, where the record time for company formation was set at 15 minutes and 33 seconds, Opening an SL in Spain continues to be an odyssey.
Self-employment in Spain
It is not surprising, then, that many individual entrepreneurs in Spain choose to register as self-employed to avoid the formalities of setting up a company. It does not offer any protection in terms of personal liability, but Avoid costs, delays and higher monthly rates accounting of a limited company.
The Estonian OÜ track it is an option for Spanish residents, but they should try to avoid permanent establishment in Spain. International tax law focuses on the concept of “substance”, that is, the extent to which a company or organization has operational and economic activity in a country. It includes aspects such as offices, assets and employees.
For digital nomads who never physically spend 183 days in Spain, permanent establishment will not be a problem. On the other hand, anyone running a fully virtual business with no fixed assets might be at less risk. Therefore, it is essential to obtain individual professional advice, because Estonia is by no means a tax haven. And accumulating profits in an entity abroad – such as an Estonian OÜ – can create tax risks for Spanish residents as well.
Operating an Estonian business while living in Spain generally means pay social security locally in Spain. It highlights that, despite the fact that the amount to be paid has recently changed, towards a scale that is more dependent on income, it is still very onerous for those who earn little. Likewise, Spanish residents are also required to pay income taxes in Spain (even on income earned abroad). The rate ranges from 19 to 47%, and is charged progressively based on income earned.
Paper and out-of-pocket savings
A Spanish freelancer has to digitize his own receipts, break them down into a spreadsheet every quarter and share them with an accountant by mail, making sure that every expense that comes up has a detailed invoice. However, as an immigrant in Spain but with an Estonian OÜyou can enjoy a frictionless level of management, unrecognizable for a local business.
With e-Residency, billing and accounting are easily done in multiple currencies and you can file expenses, file taxes, outsource work to other freelancers, and submit your annual report using e-Residency, quickly and easily. . For example, in Spain, a procedure as simple as justifying a business trip turns into an adventure talk to the airline, get a personalized invoice, meet a long series of conditions and wait for the Treasury to consider it a legitimate expense. However, in Estonia, these requirements are drastically reduced.
On the other hand, being autonomous in Spain Requires knowledge about taxation or have the help of a manager, since communications from the Treasury are cumbersome and difficult to understand. This goes beyond a mere waste of time, as it is also a significant financial expense for bureaucracy that can be avoided in Estonia.
Spain and Estonia: the future is business without borders
Just managing the accounting for my business makes it worth operating as a separate limited company, through a third country rather than trying to do all my work as a freelancer. For all this, The Estonian electronic residence is ideal for living and working in Spain. Also, although it is not mandatory, with the e-Residence I have the option of maintaining tax residence, paying taxes and social security like any other Spanish resident.
Maya Middlemiss, writer, journalist and e-Resident
