Business Structures and Taxation: Key Considerations

Posted on Dec 8, 2024 in Law & Jurisprudence

**Sole Trader**

  • A natural person who carries on a business in their own name through a commercial, industrial, or professional activity.
  • Liability: Unlimited
  • Capital: No minimum
  • Governing Bodies: The owner
  • Constitution: DNI, voluntary registration in the Commercial Register

**Limited Liability Company (SL)**

  • A commercial entity whose capital is divided into equal, cumulative, and indivisible shares, which cannot be incorporated into securities or called shares.
  • Liability: Limited to the contributed capital (minimum €3,005.06)
  • Partners: At least 1
  • Governing Bodies: General Meeting and Sole Administrator
  • Constitution: Public deed and registration in the Commercial Register

**New Company (SLNE)**

  • A special type of SL designed for quicker and easier establishment.
  • Partners: Between 1 and 5
  • Liability: Limited to the capital (minimum €3,012, maximum €120,202)
  • Governing Bodies: General Meeting and a single or multi-member administrator
  • Constitution: Public deed and registration in the Commercial Register

**Public Limited Company (SA)**

  • A company whose capital is divided into freely transferable shares.
  • Liability: Limited, with no personal liability for members’ debts (minimum capital €60,101.21)
  • Partners: At least 1
  • Governing Bodies: General Meeting and an Administrator or Board of Directors
  • Constitution: Public deed and registration in the Commercial Register

**Labor Society**

  • These are SAs or SLs where the majority of the capital belongs to workers who provide their services personally and directly, with an indefinite employment relationship.
  • Partners: Minimum of 3
  • Liability: Limited (SLL €3,005.06, SAL €60,101.21)
  • Governing Bodies:
    • SLL: General Meeting and a Sole Administrator
    • SAL: General Meeting and an Administrator or Board of Directors
  • Constitution: Public deed, registration in the Commercial Register, and registration in the Register of Labor Societies

**Community Property**

  • An agreement where an undivided asset or right belongs to several individuals.
  • Partners: At least 2
  • Liability: Unlimited
  • Capital: No minimum
  • Governing Bodies: All members jointly
  • Constitution: Verbal or written contract
  • Purpose: Conservation and use of a common asset
  • Registration: Must register with the IAE (Economic Activities Tax)
  • Taxation: Each member is taxed on their personal income tax based on their share of income.
  • Social Security: Employees must be registered. Members who contribute their work must register as self-employed; those who only contribute money are not required to register.
  • Nomenclature: Named after the first member followed by “CB”

**Franchise**

  • A contract between two parties: the franchisor and the franchisee.
  • Franchisor: The owner of a business, providing a profitable product or service and a well-known brand, along with the “know-how” to manage the business.
  • Franchisee: Receives the product, brand, and know-how through a license for exclusive exploitation in a specific area. They are not free to run the business independently and usually sign a non-competition agreement, preventing them from starting a similar business for a certain period after the contract ends.
  • Payments: The franchisee pays an initial fee, periodic royalties, and advertising fees.

**Value Added Tax (VAT)**

  • A tax imposed on consumption, ultimately borne by the consumer.
  • Businesses are responsible for collecting and remitting VAT to the tax authorities.
  • Regimes: General and Special
  • General Regime: When a business buys goods, it pays the VAT charged by its supplier. This is called input VAT.
Output VATInput VATResultAction
PositiveNegativePositivePay to the Tax Authority
PositiveNegativeNegativeReceive a refund from the Tax Authority
  • Tax Base: The price of the product or service, including commissions, freight, insurance premiums, interest on deferred payments, subsidies, taxes, and packaging. If discounts apply, VAT is charged after the discount.
  • VAT Rates:
    • Super-reduced: 4% (bread, milk, cheese, eggs, books, medicines for human consumption)
    • Reduced: 7% (passenger tickets, museums, etc.)
    • General: 16% (other products)
  • Exemptions: Certain products and services are exempt from VAT, such as postal services, hospitals, doctors, state lotteries, and sales of previously owned homes.

**Registration and Administrative Procedures**

  • City Council:
    • Application for building permit
    • Application for an opening license
    • Other municipal taxes
  • Finance Delegation or Management:
    • IAE registration
    • Registration in VAT headings and options
    • Property tax registration
    • Registration in the direct estimation or objective assessment method
    • Legalization of business books
    • CIF (Tax Identification Number) acquisition
  • Provincial Directorate of Labor and Social Security:
    • Notification of workplace opening
    • Guest book: obtain, fill, and seal
    • Work schedule book: obtain, fill, and seal
  • General Treasury of Social Security:
    • Registration of the business in the special regime for self-employed individuals
    • Social Security registration
    • Affiliation and registration of workers
  • Employment Offices:
    • Registration of contracts signed with workers
    • Communicate hirings in writing or report them if not in writing
  • Provincial Directorate of Industry:
    • Registration of industrial property