Due to Covid-19-related restrictions, UK business owners are increasingly looking to move their business operations to sunnier climates. As many entrepreneurs come to realise that operating their business can happen remotely anywhere in the world, Spain has become one of the most popular choices; not only is Spain considered a gateway to other European markets, but it also has many legislative and tax-related incentives where foreign investments are concerned, and UK business owners are picking up on these.
Since the Brexit vote, interest from British investors into Spain has grown significantly, with the UK becoming the main foreign investor in Spain in 2019. Investment by British companies increased by almost 80% in the first half of 2019 compared to the same time in 2018, to €3.125bn.
While many entrepreneurs are considering relocating their UK-based business to Spain, there are also many investors looking to buy a small or medium sized enterprise over there. The types of business vary greatly, from service-based businesses to boat chartering and horse riding, with Spaniards selling these to UK citizens at favourable prices due to Spain’s economical struggles.
For British citizens and foreign expats planning on moving or operating their business from Spain, there are many tax-related options available. The first point to consider is what kind of residency status you should seek.
One option to is become a Spanish resident, which you might qualify for if: you operate your main business from Spain; you own property there; or your dependent partner or family live in Spain. Another way to become a resident is by obtaining a Spanish Golden Visa, which can be achieved by investing €500,000 in real estate or qualified financial investments.
The Spanish tax and residence rules apply irrespective of the business you are operating or looking to invest in in Spain. For example, you are liable to pay taxes to the Spanish tax authorities for any property you own and any other assets and investments, including a commercial office space for example. You could end up accruing a debt against the interest due if you fail to pay the appropriate tax to the authorities, resulting in difficulties you decide to it.
For those remaining non-residents, there is an expat scheme known as the Beckham Rule, which you may be eligible for if you work in Spain. This special expat tax regime allows foreigners who have moved to Spain to pay tax as non-residents, meaning that their Spanish employment income is taxed at a fixed rate of 24% up to €600,000 (as opposed to the progressive tax rates otherwise applicable to Spanish residents, which could be up to 43% on worldwide incomes).
For those with a limited company in the UK and who want to become as a Spanish resident to move operations over to Spain, you should consider the company be considered tax resident in Spain if the directors are managing it from there. There can be advantages to opening a separate Spanish company making sure a clear contract is in place between yourself and the company / or the services you provide.
There are many similarities between establishing / running a company in Spain vs the UK in terms of directorship, payroll, accounting, tax and VAT rules. The main difference lies in the minimum share capital, which in Spain is €3,000. No VAT exempted threshold applies, and all companies must register for VAT. Be aware that employment regulations differ.
For UK residents taking up Spanish residency while continuing conducting their business in the UK, the tax and legal consequences vary based on the type of business. The double tax treaty that will exist between the two countries post-Brexit will inform the applicable framework to follow.
Corporation tax and VAT rules must be considered when providing consulting services from Spain to the UK, and legal implications will inform the best contractual relationship and social security considerations to be brought forward.
Finally, another option to set up a business in Spain is to create a Spanish International Investment Company (known as Entidades de Tenencia de Valores Extranjeros, aka ‘ETVE’). They are highly tax-efficient international investment structures commonly used by UK and international companies to structure investment holdings in Latin America, using Spain as its treaty network (i.e. the base).
There are many reasons for wanting to move to Spain and operate a business from there, especially in today’s climate; for those looking to do so, seeking legal advice from experts with this particular knowledge is of utmost importance to ensure you are making sound financial decisions.
For more information on relocating your business to Spain contact Del Canto Chambers.