At Spain’s Door, a Welcome Mat for Entrepreneurs | Hacker News Reader

At Spain’s Door, a Welcome Mat for Entrepreneurs

nytimes.com

64 pointsammobear48 comments

Spain is like phone companies: a welcome mat for outsiders, a nightmare for insiders.

Spanish companies can't have anybody working (i.e. 'dormant' state), they always need an "administrador" who pays a monthly 300€ self-employment tax. This kills companies in early stages unless they can break even quickly (3600€/yr while not having any income, plus maintentance expenses, is terrible)

Creating a company is bureaucratically difficult, I reckon it was on the bottom area in the latest "easiest countries to create a company on" report.

If you're an exporter, you can go bankrupt because you owe worker taxes to the State... while they owe you return of export VAT. I personally know a case of these. They owed the State about 300k€ while the State owed them 500k€ for more than a year. They couldn't "cancel out" the debt. That is outrageous. They had to file bankrupcy.

And finally, if you're a small company, you have to pay a lot of taxes, while if you're big and can pay big lawyers/accountants, Spain is equivalent to a tax haven (i.e. Ireland). This is true. Spain attracts big companies with a tax maze which allows the rich to evade taxes.

This is really disheartening for Spanish enterpreneurs. We're treated as second-class citizens... in our own country. Our taxes go to finance big, foreign companies. That sucks.

Sorry for all the negativity, I'm currently trying to start a company in Spain and I'm meeting a lot of friends who also have. This is the general sentiment. Spain needs to fix A LOT of things if they want to be enterpreneur-friendly, starting with THEIR OWN enterpreneurs.

I agree that the 300€ are a big turnoff initially, but it is not a self-employment tax. It's social security contributions and it entitles you to full health coverage (and eventually a pension). Granted, you can get the same in the UK for almost nothing until you actually make money. But the 300€ is about the same as in Germany I believe and you get a big rebate in the first few years if you register as self-employed for the first time.

> Granted, you can get the same in the UK for almost nothing until you actually make money

You don't have to pay any National Insurance contributions (employer or employee) until your salary is above £153 per week. Although that's below the minimum wage for full time employees, as a director you can pay yourself what you want.

That's right, and on top of that you can create a limited company for a tiny fee with zero minimum capital requirements. The UK is pretty much ideal in that regard.

However, there is only one place in the UK for starting a startup and that place is London. Rent alone will cost you several times your Spanish social security contributions.

startups can only work in london? what a bizarre claim

Especially when we're talking about €300 / month being a high premium for a startup to pay, because the premium for one person to live in London is way way higher.

It was not my intention to make that claim. Startups can work anywhere in the world. But within the UK, London has by far the largest startup ecosystem. For a foreigner moving to the UK to start a startup, other places don't make much sense in my view. For UK nationals it may be a different matter.

> However, there is only one place in the UK for starting a startup and that place is London.

But it's a small-ish country, with decent transport connections. Why not Manchester, with trains every 20 minutes to London when needed? [1] Or Bristol [2]. Cambridge has had startups for ages.

[1] http://traintimes.org.uk/london/manchester [2] http://www.theguardian.com/technology/2014/jan/12/bristol-ba...

It's certainly possible to do it that way, but when I was living in NW England, I ended up not making the trip to London very often. You can blame my laziness if you like.

Germany is slightly different if you register as a freelancer rather than self-employed. As a freelancer you can apply for a 3 year exemption from pension contributions when are first registered.

Then as long as you don't earn more than 5/6ths of your income from a single client you can remain exempt.

Fall foul of that 5/6ths though and you have to pay full whack (half for the first 6 months) which is a whopping 500 EUR per month.

It is designed to discourage people who really 'should' be employed, working on long term contracts for a single employer.

I think most serious startups will want to incorporate pretty soon in order to have access to venture capital and limit personal liability. I wonder what the social security contributions are for owners of a limited company in Germany. (And no, I don't expect you to Google that for me ;-)

Not negative at all. It is actually quite accurate. I started up in Spain 5 years ago and was the worst decision ever. Never again.

For several reasons our venture failed and I was stuck with hundreds of thousands of € in debt w/o any protection, with me and my co-founders scared of losing our homes, and severely affecting our personal lives.

Spanish gov is specialist in showing a big smile in the pics that appear in the press, but the evil is in the details. When things go wrong you're alone. There's not legal protection for failed startuppers. Starting up in Spain w/o resources is extremely difficult, and can really mess up your life forever.

Looking back, I wish I had started with a LTD in UK, and working from Spain (yes, you can). It's what I'm doing next.

My 0.02

How would the tax situation work with having a LTD in the UK and residing in Spain?

You would normally have to make payments into the Spanish social security scheme. The rules are actually quite complicated but if you live and work in Spain that's where you have to contribute to social security. Owning a UK limited company does not change that.

But would you have to pay tax on your limited company's turnover both in the UK and then subsequently in Spain?

No, the company would have to pay taxes (corporation tax, VAT, etc) only in the UK, and if you personally get something out of the company, like a salary or a share of the profits, then you have to pay income tax or capital gains tax and social security contributions in the country you live in (i.e. Spain).

There is some double taxation of course because the company first pays corporation tax on its profits and then you pay income tax or capital gains tax on any profits you take out of the company. But that is the same regardless of where you live. One way to mitigate this is for your company to pay you a salary.

Yes, you can, but it doesn´t make things better. You will have to pay taxes in Spain if any of these conditions apply:

1) You operate the company from Spain, i.e., having an UK address is not enough.

2) Less than 15% of your revenue comes from customers outside of Spain.

Spaniard here. While I've never started a company, this resonates pretty strongly with my experience as a freelancer. In order to be an autonomous worker, you must pay 250€ a month. On top of the 21% VAT and the 16% IRPF taxes, of course, and without even having any income. According to the law, you only need to register as an autonomous worker and pay the tax if you expect to do this "regularly and as a way of living", but how this actually translates to your income was never written into law, which means you have to fight the state for it in court.

Luckily for me, I was under 30 when I did this, which means I got an 80% discount on the 250€ tax for six months. After that, the discount got reduced to 50%. Similarly, the 16% tax was on "super-reduced mode", which meant it was only a 7% tax.

Relating to the state in Spain in a non-trivial way seems to always be about navigating this ridiculous, expensive legalese maze. Don't ask me how was I supposed to fill my taxes with the autonomous community I lived on, because I still don't have a clue. Crossing my fingers and hoping they never ask for their money.

Careful with that IRPF "discount". In the end of the day you have to pay what you have to pay, they just let you pay less monthly. I was bitten in the ass this way my first year operating, I had to pay more money than I had in my bank when the tax season came.

Following years I started tributing at a 20% which resulted in the state owing me a bit (not much, nobody wants to lend interest free money).

I recall reading an article a few years ago where an entrepreneur was sued by the Spanish government after his company went under. Spain is, as is the rest of Europe, quite hostile to entrepreneurship. It seems like Spain is trying to attract people from outside rather than deal with the problems inside. If they could make it super easy to start a company, relax red tape for businesses under a certain size, and encourage Spaniards to start companies (not just in tech) and soften the blow of failure, I think only then is it time to start inviting in foreigners.

> as is the rest of Europe

This, as everything, wildly varies among European countries. There's plenty European countries where it's easier to start a business than in many a US state. There's also plenty where you don't even want to think about it (Serbia, anyone?). Don't forget that Europe has about as many countries as the US has states.

Absolutely and that was a generalization.

If you would like to register a business in the UK, go here: https://www.gov.uk/register-a-company-online

It says it takes 48 hours and costs £15. You must be at least 16, and you'll need an address -- it could be a rented post box so long as it's a full address.

As far as I can see, you don't need to be resident in the UK.

Indeed but bear in mind you are then obliged to submit annual tax returns for the company for which an accountant would charge you £300+

I lived in Spain for 9 years and ran a company there for 7 of those - I would never do it again. Even with competent professional legal & accounting assistance it's a bureaucratic nightmare by the standards of most other places I've been. It's also not particularly cheap - contrary to what the article says, Berlin in my experience is much cheaper.

That said, it's a nice place to live, especially Barcelona, and that helps to attract foreign talent if you can't find good people locally.

I agree with you, the bureaucracy is tough in Spain especially with accountants who don't really know the rules either. I don't think it's less bureaucratic then Germany though, Germany is only more predictable. Absolutely true what you say about hiring, people from abroad love coming to Barcelona & there are extremely skilled local people ready to work their butt off if you give them a chance. Also there are very attractive reductions in social security costs available if someone you hire has been unemployed before.

I'd like to echo the Germany bureaucracy comments but also add that while it I'd true that Germany has lots of it, and sometimes it seems crazy that one department of governent won't talk to the other on your behalf, the vast majority of the rules I've come across seem to be perfectly logical when I've taken a step back and looked at them properly. German bureaucracy is about closing loopholes. They don't like them. Spanish and British bureaucracy often seems to be there for no reason that I can fathom!

Moving to and living in a foreign country is a really great learning experience, but don't kid yourself - the sheer amount of bureaucracy involved in these entrepreneur-importing schemes plus the overhead of adapting to a new culture make them a net negative for any business you're starting.

Go if you want the adventure, but if you're really passionate about something you're working on, I'd recommend staying in place and working on it instead.

Bureaucracy can be dealt with by hiring a specialist legal firm. It sounds really expensive, but in many cases it's not - it's in 10-20K range, which is comparable to what it costs to move an established household from US/Canada to Europe. One can of course sell everything, move with just a backpack and do it frugally by trying to deal with all the formalities themselves, but that's certainly is taxing if you are over certain age or have family/kids.

That's exactly the kind of approach that inhibits entrepreneurship. It's very hard to see hurdles which kill non existent companies by preventing them from ever happening. There are big risky steps that happen before it feels real. The easier these steps are, the more likely it is that people take them.

Red tape that would not be more than an annoyance to an existing company kills off new companies. Maybe to an individual with decades of entrepreneurship 10-20k for a lawyer to handle stuff and make decisions about things he doesn't understand is fine, but to an average joe thinking about starting a business that represents a year or more of savings.

It just seems to painful to even freelance in Spain, I can't imagine the loopholes to run a business. Such an awesome place but it really hamstrings itself.

That all sounds nice but then you have this:

http://tech.eu/news/spain-government-startup-tax-reform/

.. provided that the taxpayer has been a Spanish resident for at least ten out of the fifteen tax periods before the last tax period.

While not amazing for people who have been living in Spain all their life, this isn't really a big deal for foreigners moving to Spain to set up a business?

I am a spaniard. I currently run a business on ruby on rails-ember.js development based on Madrid and I also lived in San Francisco and Chile for a year in both cases. So, I will share my experience in three basic elements: life quality, tech community, business management.

First, about Madrid. Madrid is a really beautiful and nice for living city. You can work hard and enjoy the life at the same time. You dont need that much money to make a decent living (1 - 1.5k€/month). There is a decent community for developers. Moreover, the developers technical level is good or pretty good. Finally, starting a business and managing the business is hard. It is hard because you start paying those 300€ month that sometimes are a big wall. Also, there is a lot of paperwork: taxes every 3 months, hiring someone is the hell, requesting money requires more money in prints than the amount requested.

Chile: The quality of life in Chile is not as good as I expected. The people here is pretty familiar (closed circles) so engaging with new friends is not as easy as in Madrid or SFO. There is a lack of cultural life in the city.

The tech community in Santiago is growing fast but still small compared with Madrid and thousand miles away from SFO. The tech quality is also mid-low.

The management of business on the other hand is very easy. The main problem is when you come here without a link to Startup Chile Program because being a non-tourist here is really complicated. You need a kind of id number - RUT that cant be get until you 5 months after you arrive if everything goes right. You cant have a telephone number, internet or bank account without this number.

SFO is the heaven and the hell at the same time. Lots of interesting people around from everywhere. I was living on hacker community that made my living fun and interesting. The main probloem is the cost of living in the city. And this is a HUGE issue in the midterm for the tech community in SFO. It is too expensive. The community in SFO, no words, just amazing. (I dont say anything about creating/managing business because i have no experience).

Hope this small and partial insights help anyone :)

The high COL in the SF bay area has become a significant liability because people like you realize it's way too expensive here. It's affecting everyone from startups to really large companies who prefer to hire in the SF bay area, but cannot do so.

According to the World Bank's 2015 Doing Business report, Spain ranks 74 of 189 countries for starting a business. That doesn't sound like startup heaven, but on the bright side it improved 41 spots from being ranked 115 in 2014.

The data at the bottom of this link provides some good data on the time, cost and number of steps required to start a company in Spain: http://www.doingbusiness.org/data/exploreeconomies/spain/

My experience starting a company in Spain has been very bad. I'm not going to repeat what other people said already, but it took almost two months for the process to complete. Don't even think about starting a business there during summer.

Despite I think that the new law is a huge step forward for Spain, the visas are nothing if there are not an infrastructure behind it. SV has a huge investors network that Spain just doesn't have.

True, but it is not as if there no VC available at all in Spain either:

http://startupxplore.com/blog/looking-funding-spain-active-v...

Actually this may improve soon as it looks that Google ventures is paying attention to the opportunity of investing in a country with great weather and high-qualified engineers: http://www.techrepublic.com/article/google-set-to-open-campu...

I think maybe it could be an option in several years... right now, as Spanish, I think it's not the best place to launch your start-up by far. We could consider the political atmosphere too, next year is gonna be the president election and the country could be unable to be managed...

The article goes into a lot of good detail about how much easier it is to get a visa & temporary residence. Let's assume that there was no uncertainty there, and you could instead get permanent residence and/or citizenship... After going through all that, what have you gained?

Why go there in the first place? It didn't look like the government was offering any sort of funding or tax relief for somebody who decides to start their business in Spain instead of anywhere else.

The US has a similar deal, with E-1 and E-2 visas. You can buy your way into the US by investing $500K. This tends to be used more by people who made money outside the US and want to live there than by people doing startups. This is a treaty arrangement available only to citizens of countries which offer a reciprocal deal to Americans. Spain and most of the EU are is on the list; China (mainland) is not.

When we did it we didn't even need all the cash for it. Started a company in the EU. Built software on a seed investment. Had software startup valued at USD500k+ merge that into a US company with all the staff from the EU, six of us. Get E-1(2?) visas. Done.

Interesting. I've been looking for a way to get an easy multi-year visa in Europe, and I have a sole proprietorship that I want to incorporate anyway. Previously, I was looking at DAFT, but it would cost me several thousand dollars. Maybe Spain is the way to go?

Is it bad to have a depressed local market though (to launch a company to)?

Online businesses don't need to aim to the local market. It is easy to aim at another market (or the whole world) while living in Spain.

You can also use Spain as a gateway to the entire Spanish-speaking market, which is always an attractive option in case you plan to go international.

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