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Questions on running a Ltd company as a Spanish resident

Questions on running a Ltd company as a Spanish resident

Old Feb 17th 2018, 3:44 pm
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Default Questions on running a Ltd company as a Spanish resident

Hi,

First post here, but I've read plenty.

I've been back and forth between Spain and the UK for 7 years and am planning to go for residencia before March next year. I'll be based in Tenerife, where my partner lives.

My conundrum is how to set up my business, which is online proofreading and editing through 2 businesses currently declared through self assessment to HMRC as a sole trader. At present I do no trade with Spanish companies or individuals.

I've spoken with a gestor about running these same businesses from Tenerife, which would mean quarterly declarations, end-of-year declarations and becoming autónomo. The main problem with that is that I'd have to charge IGIC (IVA for the Canaries) at 7% and my invoices would need to state that I am based in Tenerife. As my clients are mostly international postgrad students and UK businesses, I may lose some of these as they would prefer the 'prestige' of a UK-based service. Plus, I'd need to take the hit for IGIC as I couldn't pass that on to the non-business clients.

So, what I'd like to do is to form a limited company in the UK this year, which will have a registered office, phone answering service, etc. I would be the sole shareholder, and the sole director. I currently carry out about 80% of the work, and do all the administration (manning the emails), with freelance editors carrying out the rest of the work (20%) remotely from the UK and US. I would register autónomo, work for the company and declare my income quarterly, as well as any income from dividends on my annual declaration. The benefits of this would be that I wouldn't need to charge IGIC to my clients and could keep my English-language-related business in the UK. I might also work for some existing Polish clients I have from the Spanish side, so I would have some other income aside from this company. I also read that I might need to sign an autónomo TRADE contract with the company.

My concerns if I go down the LTD route are whether:

a) I could justify the company being based in the UK and liable for corporation tax if I am the sole non-resident director, and also whether this would be queried when I declare my shareholding during the residencia process.
b) I would need to charge IGIC to the company for my work
c) the Hacienda would demand employer's social security payments from the company.

If anyone has any experiences or advice to share it would be really welcome as my head is starting to spin with the permutations.
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Old Feb 17th 2018, 6:26 pm
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Default Re: Questions on running a Ltd company as a Spanish resident

Hi and a warm welcome to the Spanish forum on BE. Myself and Fred James are the moderators for the Spanish forums whilst myself and BEVS moderate Europe. Please read the Site Rules Site Rules | British Expatriate Community adhere to them so that the site runs smoothly. Moderators are there to ensure that the rules of BE are maintained. This is so that members gain the information that they are looking for and find their experiences on the forums to be friendly and worthwhile.

Problems and complaints should always be addressed to a moderator who will look into the matter and deal with it efficiently and fairly. Our members who post in the Spain Forums are usually friendly and helpful with a wealth of knowledge about the issues of living in Spain. I hope that you enjoy your time participating in the forums.

Please let me know if you need any further help.

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Old Feb 17th 2018, 6:29 pm
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Default Re: Questions on running a Ltd company as a Spanish resident

Thanks for the welcome Rosemary.
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Old Feb 19th 2018, 9:56 am
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Default Re: Questions on running a Ltd company as a Spanish resident

After more digging I have found a list of conditions that a Spanish autónomo must or must not meet:

He or she:

1. Must carry out the activity with own assets and productive structure. Additionally, takes the inherent risks of the business activity.
2. Must organise the work according to own criteria, though can follow preferences or technical indications of the client. If the client has other employees, there must be a clear distinction between them in the way they carry out the tasks.
3. Must be paid in relation to the results of his/her activity.
4. Must not have commercial or industrial premises or office open to the public.
5. Must not be part of a limited company (SL) or civil company (SC).
6. Must contribute to work accidents in the autónomo fee.

It looks like my case would fail at #5, and I would be deemed a falso autónomo.
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Old Feb 19th 2018, 10:16 am
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Default Re: Questions on running a Ltd company as a Spanish resident

Suggest you take professional advice from qualified solicitors/tax advisors. I would agree you would not be autonomo.
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Old Feb 20th 2018, 5:53 pm
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Default Re: Questions on running a Ltd company as a Spanish resident

Thanks Rob. I appreciate your advice and opinion.
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Old Mar 11th 2018, 4:33 pm
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Default Re: Questions on running a Ltd company as a Spanish resident

Originally Posted by melocoton

So, what I'd like to do is to form a limited company in the UK this year, which will have a registered office, phone answering service, etc. I would be the sole shareholder, and the sole director. I currently carry out about 80% of the work, and do all the administration (manning the emails), with freelance editors carrying out the rest of the work (20%) remotely from the UK and US. I would register autónomo, work for the company and declare my income quarterly, as well as any income from dividends on my annual declaration. The benefits of this would be that I wouldn't need to charge IGIC to my clients and could keep my English-language-related business in the UK. I might also work for some existing Polish clients I have from the Spanish side, so I would have some other income aside from this company. I also read that I might need to sign an autónomo TRADE contract with the company.

My concerns if I go down the LTD route are whether:

a) I could justify the company being based in the UK and liable for corporation tax if I am the sole non-resident director, and also whether this would be queried when I declare my shareholding during the residencia process.

Only you know your income level and whether this would justify you being a LTD company in the UK. The residencia process is much more simple than this, they want to see income paid into a Spanish Bank account and are not interested in your UK financial details.

b) I would need to charge IGIC to the company for my work
From what you have said there is no IVA retention to be made,
as the companies you deal with are outside of Spain


c) the Hacienda would demand employer's social security payments from the company. Not if it is a UK LTD. If you go down the Autonomo route you pay the Autonomo social security fee and you get healthcare also,

If anyone has any experiences or advice to share it would be really welcome as my head is starting to spin with the permutations.

After more digging I have found a list of conditions that a Spanish autónomo must or must not meet:

He or she:

5. Must not be part of a limited company (SL) or civil company (SC).

This is if you had a LTD company in Spain!
You can move to set up a UK Ltd company to move your business from the current self employed in the UK stage to being a company of one director and one employee etc

You should apply for residency after 90days of living in Spain and you become a tax resident six months after being here once you have residency.
You could just pay the tax due - this will be the difference of what you paid in the UK on your salary and dividends and what the Spanish tax would be - as world wide income.

Becoming autonomo can be useful - as a vehicle to paying the difference due above etc and for the healthcare

I found this link to illustrate - Guide to Spain's autonomo system

Last edited by Smithy73; Mar 11th 2018 at 6:31 pm.
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Old Mar 11th 2018, 6:38 pm
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Default Re: Questions on running a Ltd company as a Spanish resident

Becoming autonomo can be useful - as a vehicle to paying the difference due above etc and for the healthcare
but you would not use your autonomo status to invoice your UK Ltd company - this is a missconception
It becomes a portal for you to pay the tax difference only and for you to gain access to the Spanish healthcare system.
You do not need to register for IGIC either.
Please get yourself a good Gestor that has a little experience with doing the above.

Of course things could change after Brexit... but for now get on with your residency application and worry about your Spanish tax situation later in the year or early next year

Last edited by Smithy73; Mar 11th 2018 at 6:40 pm.
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Old Apr 25th 2018, 12:08 pm
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Default Re: Questions on running a Ltd company as a Spanish resident

Originally Posted by melocoton
Hi,

First post here, but I've read plenty.

I've been back and forth between Spain and the UK for 7 years and am planning to go for residencia before March next year. I'll be based in Tenerife, where my partner lives.

My conundrum is how to set up my business, which is online proofreading and editing through 2 businesses currently declared through self assessment to HMRC as a sole trader. At present I do no trade with Spanish companies or individuals.

I've spoken with a gestor about running these same businesses from Tenerife, which would mean quarterly declarations, end-of-year declarations and becoming autónomo. The main problem with that is that I'd have to charge IGIC (IVA for the Canaries) at 7% and my invoices would need to state that I am based in Tenerife. As my clients are mostly international postgrad students and UK businesses, I may lose some of these as they would prefer the 'prestige' of a UK-based service. Plus, I'd need to take the hit for IGIC as I couldn't pass that on to the non-business clients.

So, what I'd like to do is to form a limited company in the UK this year, which will have a registered office, phone answering service, etc. I would be the sole shareholder, and the sole director. I currently carry out about 80% of the work, and do all the administration (manning the emails), with freelance editors carrying out the rest of the work (20%) remotely from the UK and US. I would register autónomo, work for the company and declare my income quarterly, as well as any income from dividends on my annual declaration. The benefits of this would be that I wouldn't need to charge IGIC to my clients and could keep my English-language-related business in the UK. I might also work for some existing Polish clients I have from the Spanish side, so I would have some other income aside from this company. I also read that I might need to sign an autónomo TRADE contract with the company.

My concerns if I go down the LTD route are whether:

a) I could justify the company being based in the UK and liable for corporation tax if I am the sole non-resident director, and also whether this would be queried when I declare my shareholding during the residencia process.
b) I would need to charge IGIC to the company for my work
c) the Hacienda would demand employer's social security payments from the company.

If anyone has any experiences or advice to share it would be really welcome as my head is starting to spin with the permutations.
Hi, did you come up with a solution to this? I'm having exactly the same dilemma. Thanks
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Old Jul 23rd 2018, 3:52 pm
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Default Re: Questions on running a Ltd company as a Spanish resident

Hi PH79,
Sorry for the delay in getting back. The company is now incorporated in the UK. Next step is to go for Spanish residency.
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Old Jul 24th 2018, 7:30 am
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Default Re: Questions on running a Ltd company as a Spanish resident

'4. Must not have commercial or industrial premises or office open to the public.'

Yes, of course, autonomos can have business premises open to the public! But they must be licensed and only used for the stated business and conform to all relevant legislation
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Old Jul 24th 2018, 8:07 am
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Default Re: Questions on running a Ltd company as a Spanish resident

Originally Posted by spainrico
'4. Must not have commercial or industrial premises or office open to the public.'

Yes, of course, autonomos can have business premises open to the public! But they must be licensed and only used for the stated business and conform to all relevant legislation
@spainrico Thanks for your reply. Those 6 criteria are missing a little context. They are used to determine employee vs autonomo status - I think the article was steps to avoid being deemed a false autonomo. So, #4 would be fine as you point out, provided the premises are licensed to the automo's business interests, rather than the company/business the autonomo does work for.
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Old Jul 24th 2018, 10:08 pm
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Default Re: Questions on running a Ltd company as a Spanish resident

Originally Posted by Smithy73
Becoming autonomo can be useful - as a vehicle to paying the difference due above etc and for the healthcare
but you would not use your autonomo status to invoice your UK Ltd company - this is a missconception
It becomes a portal for you to pay the tax difference only and for you to gain access to the Spanish healthcare system.
I've just re-read this and am a little confused. How would I invoice the LTD if not through the autonomo?
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Old Jul 25th 2018, 12:03 am
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Default Re: Questions on running a Ltd company as a Spanish resident

Originally Posted by melocoton
I've just re-read this and am a little confused. How would I invoice the LTD if not through the autonomo?
Why would you be invoicing the company?

The requirement is that if you are living in Spain, you become a tax resident and pay taxes here.... The are no requirements on how you are employed!

I don't know how much you wish the Ltd company to pay you - re earnings

In Spain, salary or dividends are treated the same.

In the UK the tax is different for salary and dividends - You pay corporation tax of 20% on dividends - Then you used to be able to get £5000 in dividends personal tax free, but that changed this tax year. The allowance is now £2000 and then you pay a dividends tax of 7.5% on anything above, until the higher rate of tax.

The most tax efficient way of doing this, is that you would pay yourself and a partner/spouse a small salary each and a small amount of dividends.
For example if you pay yourself £700 (£701max) in salary a month. This is the upper limit of getting the NI stamp without contributions - remember as a LTD company you pay the employers and the employees NI which when added up becomes really expensive.
You can pay yourself a higher salary, but the NI employers contribution is 13.8% and the employees is 12%

So on a salary of £700 each to yourself and your partner - There is no tax to pay or NI in the UK
Your UK accountant on producing your real time PAYE will produce you a basic pay slip, all of which you give to the Gestor as proof of earnings for them to work out the tax calculation.
I make the assumption that your partner has a NI number in the UK - if not take the rest of the money that you need as a dividend.

Dividends are seen as the same as salary here in Spain. You could pay yourself a dividend - the company pays the corporation tax and you would claim back the personal tax on the dividend in the UK, as you are a tax resident in Spain. You then pay the tax due on whatever dividend you decide to take.

My accountant here in Valencia calculated that if I wanted to receive €25000 in a salary and dividend from the UK, there was something in the region of €2200 in tax to pay

Last edited by Smithy73; Jul 25th 2018 at 12:20 am.
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Old Jul 25th 2018, 8:14 am
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Default Re: Questions on running a Ltd company as a Spanish resident

First, many thanks for your detailed reply.

Originally Posted by Smithy73
Why would you be invoicing the company?
I suppose I've become a bit fixated with avoiding being classified as an employee here in Spain to avoid employer's NI being levied against the UK LTD by the Hacienda.
The requirement is that if you are living in Spain, you become a tax resident and pay taxes here.... The are no requirements on how you are employed!
See above.
I don't know how much you wish the Ltd company to pay you - re earnings
I now draw a monthly salary of £700, to stay under the UK's NI contributions limit.
In Spain, salary or dividends are treated the same.

In the UK the tax is different for salary and dividends - You pay corporation tax of 20% on dividends - Then you used to be able to get £5000 in dividends personal tax free, but that changed this tax year. The allowance is now £2000 and then you pay a dividends tax of 7.5% on anything above, until the higher rate of tax.

The most tax efficient way of doing this, is that you would pay yourself and a partner/spouse a small salary each and a small amount of dividends.
For example if you pay yourself £700 (£701max) in salary a month. This is the upper limit of getting the NI stamp without contributions - remember as a LTD company you pay the employers and the employees NI which when added up becomes really expensive.
You can pay yourself a higher salary, but the NI employers contribution is 13.8% and the employees is 12%
My partner is Spanish and employed, so it will only be me drawing the £700 monthly salary + dividends.

So on a salary of £700 each to yourself and your partner - There is no tax to pay or NI in the UK
Your UK accountant on producing your real time PAYE will produce you a basic pay slip, all of which you give to the Gestor as proof of earnings for them to work out the tax calculation.
I make the assumption that your partner has a NI number in the UK - if not take the rest of the money that you need as a dividend.
The confusion I have is that after I become tax resident in Spain, do I not then need to satisfy the 'Spanish equivalent' of maximum salary (or any salary) to avoid triggering the Hacienda seeking to levy employers NI on the UK LTD. Or is your view that they would not be interested in pursuing this as the company has no presence or clients here in Spain?
Dividends are seen as the same as salary here in Spain. You could pay yourself a dividend - the company pays the corporation tax and you would claim back the personal tax on the dividend in the UK, as you are a tax resident in Spain. You then pay the tax due on whatever dividend you decide to take.
That's useful to know.
My accountant here in Valencia calculated that if I wanted to receive €25000 in a salary and dividend from the UK, there was something in the region of €2200 in tax to pay
That is a much lower calculation of tax due than I had estimated - probably why I'm not an accountant. Along with the autonomo contributions that's only around 20% of total income.

Is it allowed to ask for recommendations for accountants through these forums? I'd happy use a peninsular-based accountant or gestor who is familiar with dealing with UK clients + their LTD, as I'm drawing a blank on that front in Tenerife.

Last edited by Rosemary; Jul 25th 2018 at 8:50 am. Reason: changed post to normal colour
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