New Spanish business - should you incorporate or not?

Anyone setting up a business will face the question of whether to set up a company or not at some stage, whether from the outset or after a period of growth. There is no special requirement to incorporate a business in Spain and the vast majority of firms start life with only an "autonomo" (sole trader) registration. Why might you want to set up a company (there are various forms but the "SL" or Sociedad Limitada is by the far the most common, particularly for small firms)? The most common reasons are:

• Corporate tax rates are generally lower than personal income tax rates and for high levels of income there may be tax advantages
• Limited liability in case of business failure or other corporate liability
• Assistance with raising finance
• Enhanced credibility with certain companies or within certain sectors

None of these generally apply for small companies and some of the advantages are more theoretical than actual. For example, incorporation does not absolutely limit the owner’s liability in all situations (e.g. trading while insolvent). Also banks are likely to demand personal guarantees for loans whether the loan is applied for through a company or not. The tax advantages depend on circumstances particularly the level of profit.

What of the costs? Establishing a company in Spain takes longer, has more steps to the process and more associated costs than in many countries including the UK. The two main costs are notary fees and registry with the Mercantile Registry but there are others adding up to a minimum of 800€. My firm Advoco charges 400€ for setting up a simple SL but some firms charge considerably more. An SL has to have a minimum of 3006€ of capital at inception although of course this is not an expense as such because the money can be used for any purpose as soon as the company is registered. Also the running costs of an SL, in terms of tax declarations and financial reporting, are somewhat higher than a simple sole trader structure.

For further information see our webpage: Starting a business in Spain

I also just posted a new article about marketing a business in Spain.

Website promotion: Does it pay to pay?

Why do I always hear the voice of Sarah Jessica-Parker in my head when I write one of these snappy little questions? Sex and the City hang-ups aside, this is actually a very important question for the small and medium-sized business sector, at least for those businesses trying to promote themselves on the internet. As the owner of a relatively new business (www.advoco.es) with a virtually internet-only marketing strategy, I live or die by my success on the web and I have seen enough of both sides of this particular debate to publish some conclusions. First I’ll describe the issue, then give my conclusion and then modify it by detailing some important exceptions.

The internet marketing debate - PPC versus SEO

For those who don’t know the terms of the debate, it comes down to time versus money. Do you spend time steadily improving your website’s search engine rankings to attract custom or lots of money buying traffic? Search Engine Optimization (SEO) involves changing its content, layout and structure to “optimise” your site for search engines in relation to certain keywords (“lawyer spain”) and adding quality links from other sites to prove its worth and popularity. Alternatively you can buy traffic by signing up with search engines or other big internet players (e.g. Facebook) to place links to your site on search engine result pages (“sponsored results”) or by placing box ads, banners etc on other popular sites, usually on a Pay Per Click basis so that you pay only for the visitors the ads bring in. Google’s Adwords product is the dominant force in this sector.

Conclusion

Although it can certainly “pay to pay” I have decided to concentrate on SEO and other ways of “organically” growing traffic for my website. The advantages of paying are:

1. You can control the process more than conventional advertising as you select the targeted keyword combinations and, to some extent, how and where they are distributed on the net.

2. The results are pretty much instant and measurable – you should be able to calculate the profitability of your campaigns and adjust your strategy accordingly.

3. You save time having to work your way up the rankings which you can employ actually serving clients

However there are significant downsides to pay campaigns:

1. The traffic you pay for can be variable and skewed. Only a certain proportion of people click on sponsored search results or ads. You may also take a hit to your credibility – there is something “spammy” about paying for traffic.

2. The expense builds up quickly the more successful you are although you can monitor profitability and adjust your campaigns to make sure they are worthwhile.

3. You don’t have to spend time on search engine rankings but you still have to produce a decent website. There is no point paying for traffic to a boring or unappealing website that doesn’t generate sales or leads.

4. Tailoring a campaign is highly skilled and time-consuming task if done well, particularly selecting the right keyword combinations and how to target your ads. There are Google certified AdWords consultants to help you and some of them offer free AdWords vouchers to get you started e.g. http://www.qualityclicks.co.uk

For all these reasons I have adopted the approach of continually improving my website adding content which will over time improve my rankings and draw people to visit and importantly link to it. I also publish articles on various websites which helps draw people to the site via the author credit at the bottom. The advantages of this approach:

1. Improved credibility. The visitors to my site already have a good opinion of the business because they generally have liked the articles.

2. The site is more interesting and relevant so people should stay longer and engage with the business.

3. Only time, not money required

4. A long term strategy. Every time I publish a new article or improve the site it is a permanent benefit which will in time establish a strong competitive position which competitors will find hard to match.

Caveats and exceptions

You shouldn’t go away with the impression that I have no time for paid internet promotion. I have done a very successful campaign on a PPC basis (Starting a business in Spain) and will use the technique again. It has its place, for example when you are doing a guerilla campaign on a niche topic and need quick results. Here are some other exceptions to my conclusion that it doesn’t pay to pay:

1. Not everyone can be no1. Type “spanish lawyer” into Google and you will get 12 million results. It would be very difficult for a new law firm in Spain (like Advoco) to break into the top rankings for this search term. In some cases the alternative to paid advertising is invisibility.

2. SEO takes time. Despite what SEO consultants and salesmen will tell you, a solid organic SEO strategy takes time to bear fruit. If your business needs immediate cashflow then paid ads can help fill the gap.

3. SEO and PPC are not mutually exclusive. We have seen how the PPC user cannot neglect content but likewise organic SEO practioners can still benefit from advertising for example to fill gaps and niches that their SEO currently doesn’t cover.

4. We are not all blessed with the skills to make SEO work. There are a multitude of tools and articles to assist you with the technical side of SEO but there is a skill in assembling and creating quality content that not everyone will be able to develop. You can employ consultants and buy content but this undermines the money-saving argument for SEO.

http://hubpages.com/hub/Negotiating-bureaucracy-in-Spain

Avoiding income tax in Spain - part 2

Regular readers will know that I have addressed this subject before in my imaginatively titled post "Avoiding Income Tax in Spain - part 1". There I mused about the motives of the tax avoider and why it's so prevalent in Spain. Here I will touch upon the temptations of all things offshore, well make a couple of points anyway.

Most of us ordinary folk wouldn't ordinarily think much about going "off-shore". Indeed it's a phrase with a slightly pejorative ring; something that drug-dealers and rakish bounders might consider or at least something that only the rich need concern themselves with. But if you sell up in one country (e.g. the UK) and move to another (e.g. Spain) the thought of going offshore suddenly seems worth a look. After all you are soon to be non-resident for taxes in your own country, you're not yet resident in your adopted country and you have liquidated your assets. Consequently a lot of ordinary folk have opened offshore bank accounts, including myself. My experience of offshore banking was pretty uneventful - deposited some money for a while, took it out a bit later to invest in Spain, closed the account. But lots of people go a lot further and there can be dangers. Two basic ones - they are very obvious - could be avoided by following the "just because it's offshore" rules:

1. Just because it's offshore doesn't mean it's a good investmemt - once seduced into the world of offshore finance some of us start hatching exotic plans for our money. A few clicks of the mouse and you can find a host of funds, trusts and bonds linked to all manner of asset classes like Hedge Funds and currencies. Nothing inherently wrong there as long as you weigh up the risks in the same way as you would ordinarily. There are tight rules in the UK about how different products can be sold to retail investors which won't necessarily apply offshore i.e. they will focus more on the benefits (expect to hear a lot about "tax efficiency" and "tax free") than the possible risks. Look at currency risk for example. Also what about the charges? The headline charges might be low but are there charges buried in the product. A good example would be a hedge fund - linked unit trust; the trust may charge a reasonable % fee but the underlying hedge funds which drive the funds can be subject to charges of 20% (of gains). Often offshore products are called "bonds", "wraps", "trusts", "portfolios" which may sound reassuringly familiar but, as they are really tax-efficient vehicles for holding funds and other investments which may have all kinds of risk (and charges) associated with them, you need to dig deeper and understand exactly what underlies them.

2. Just because it's offshore doesn't mean it is invisible. I don't think there are many people out there that aren't aware of the noose closing around people "hiding" money offshore. It isn't the placing of money offshore that is the problem of course, it's the non-declaration of the income. Wherever you are resident you should report your income and gains from offshore investments. With tighter and tighter information-sharing rules (where offshore operators have to disclose who's got what with them to any government that wants to know) you are always at risk of penalties and prosecution. That's why so many people have taken advantage of the UK's two offshore amnesties and come clean about offshore income and paid the tax. At the moment the UK has information sharing agreements with:

• Jersey (PDF 187K)
• Gibraltar (PDF 280K)
• Guernsey (PDF 187K)
• Isle of Man (PDF 189K)
• Montserrat (PDF 149K)
• British Virgin Islands (PDF 167K)
• Netherlands Antilles (PDF 124K)
• Aruba (PDF 107K)

• Anguilla (PDF 117K)
• Cayman Islands (PDF 217K)
• Turks and Caicos Islands (PDF 219K)

• Bermuda (PDF 68K)
• Isle of Man (PDF 80K)

Of course for those with Spanish residency for tax, the Spanish tax authorities have their own agreements and there are EU wide directives.

Green shoots in the Spanish property market?

Anyone who has read my article on "Ten Reasons Spanish Property Prices will Stay Depressed" will know that I am a confirmed bear (pessimist) when it comes to Spain's property market quickly emerging from its current horrible slump. I am particularly gloomy when it comes to areas popular with foreigners like my own Costa del Sol, because that's where a lot of the eyesore empty and unfinished developments from the boom are situated. Factor in sickly sterling and horror stories about crooks, illegal builds and rip-offs and it's hardly surprising that our Estate Agents have been quieter than the secretary at Gordon Brown's Fan Club recently.

But, but ... Spain's appeal to foreigners and Brits in particular is enduring. There's lots of reasons but the fact that we are approaching mid-November and I'm still typing this in my boxer shorts (sorry for that image) will give you a clue as to the main one and the sun isn't going to desert Spain even it has lost its economic mojo. As regular readers know I am an accountant but I work for a law and accountancy firm and one of our biggest bread and butter sources of work is Spanish property conveyancing. After three months with barely a sniff of an enquiry for this service we have suddenly had 5 in a week, all from Brits. This could be because people are starting to find out we offer a fixed fee of 1.200€ instead of the usual 1% (rip-off) charged by other outfits [oh come on I'm allowed a plug on my own blog!] . I'll give you one or two details because I think they are significant:

• wealthy London couple want to buy a villa near golf course in Marbella for permanent move
• UK man has offer accepted on inland finca near Malaga for use as a Spanish holiday rental business
• Brit already in Spain buys villa in Marbella
• UK woman wants to buy a cheap village house near Malaga
• Expat British couple seek family house near their kids international school in Marbella

Notice the lack of apartments here - the bog-standard staple during the boom. Distinctive properties at the top end of the market and the bottom are the targets. Other conclusion: Marbella's enduring appeal.

Should a Spanish business aim at the Spanish market?

Sounds like a bit of an Irish question but from the point of view of expat businesses in Spain it is a very pertinent one. Say you are British and decide to set up a business in Spain; however well you think you know Spain, the language, culture and commercial environment, you are sure to be more comfortable dealing with British and other "Northern European" customers. On the other hand maybe you have a product or service that is new to Spain or at least your part of it, or perhaps you have spotted an area that is very badly served, overpriced and uncompetitive for Spaniards and foreigners alike. In this case you'd be a fool to pass up the largest part of the market wouldn't you? So the short answer to the question is probably "depends on your business - if it looks like there is a good opportunity to market to the locals as well as your compatriots then go for it". But I would just like to point out three pitfalls from my own experience:

Beware of the "impressing the natives" trap

There remains a tendency among foreigners in Spain to view the country as slightly backward and behind the times when it comes to new technology, products and ways of doing things. You may think the absence of something that has already taken off in the UK means introducing it in Spain will guarantee success. You may be right but bear in mind that we live in a global village and if something works in one country it tends to spread to others quite quickly. So perhaps your revolutionary product or service is in Spain already but you just haven't seen it perhaps because it is distributed in a different way. Or worse it has been tried in Spain already but failed for some cultural or legal reason you haven't fathomed.

Case Study: I spoke to a client recently who was convinced that he was going to make a killing setting up a type of consumer website that is very profitable in other countries (I can't be too specific). He was convinced that he could introduce it to Spain and make a killing. I asked if there was any competition and he said no. I found it hard to believe as I had heard of the fortunes being made in this area and was sure someone would have tried it in Spain. Sure enough, when I next got online, it took me about 20 seconds to find several established sites covering exactly the market he was going for.

Don't try and second-guess the Spanish mentality

A little knowledge is a dangerous thing and in this area it is particularly true. Someone without any pretence of knowing the Spanish language or customs would certainly shy clear of aiming their new product or service at the locals but someone who has some knowledge may think they know enough to base a business around Spanish trade. But you can never really think like a local even after long term Spanish residency and understand their thinking and you should be wary of thinking you can.

Case Study: a British couple in a very rural inland Spanish town decided to open a smart, continental-style cafe because the town's existing cafes were all fairly dingy and staid. They spent a lot of money on the cafe's interior, offered fresh cakes and sandwiches, a variety of speciality teas and coffees and were indisputably the smartest cafe in town. Unfortunately the project foundered not because the Spanish weren't happy to give it a try but because of three factors:

- the continental cafe's premium product needed to sell at a premium price which just wasn't accepted by the majority of price-conscious locals

- the owners never really adapted their menu sufficiently to local tastes. Yes their double mochachino espresso and lemon drizzle cake would go down well in a Soho Starbucks but here tostada and con leche will do fine for breakfast. They had to offer the locals what they were accustomed to and thus lost their uniqueness and premium pricing justification.

-the loyalty of Spanish customers to cafes that were plainly inferior because that's where they always went

CONCLUSION: obviously you can't overlook the local market particularly if there are some simple, easy steps you can take to attract the extra business (e.g. bilingual price lists, additional opening hours) but don't try and starting a business in Spain that relies too heavily on wowing the locals.

All change at Corte Ingles

I don't know about you but I've got mixed feelings about Corte Ingles. When I first moved to Spain, to a flat in the centre of Valencia, I was at the massive central CI there all the time and thought it pretty good: big range of stuff, decent quality, modern. I'm sure most of us foreigners know CI pretty well simply because there are no other comparable department stores. However as time's gone by my wife and I go there less and less. Price is a factor but also it's a bit on the staid, steady as she goes side. We are not alone in buying less there - sales were falling even before the recession mainly due to unemployment and the widespread Spanish mortgage problems, but it remains the 2nd biggest department store in the world.

But now it's all change at Spain's "Grace Brothers". They are apparently opening up floor space to external fashion chains in return for rent and other changes could be in store (pun intended) - beauty salons, restaurants, even gyms all from other established brands like Rodilla, Hedonai, BelRos and Cortefiel . They are also starting a new "store within a store" selling sports clothes and fashion accessories to a younger market called SportsTown (why is it that whenever a Spanish company tries to appeal to "youth" they go with an English name?)

Will I be rushing back to patronise "The English Cut" (not "Court" as some think - it's a tailoring thing) - frankly no, but at least they are trying to breathe new life into an old favorite.

For other Spanish business stories and articles try our new site:

Starting a business in Spain

Avoiding income tax in Spain - part 1

Part 1 - why?

Foreigners in Spain are often very keen to avoid local taxes wherever possible and indeed to keep out of the system in its entirety if they can help it. This may partly be because tax avoidance by the locals is a national sport and also because everyone seems to get away with it. It's not often you hear about the law catching up with anyone.

Also there may be some double standards operating: perhaps people who paid taxes meticulously in their home country do so reluctantly in their adopted country because they don't see themselves as part of the society being financed by those taxes. At some level they are still on holiday in Spain and don't feel the need to become full citizens, for example by signing up for Spanish social security.

Of course the main reason, as ever in matters of human motivation, comes down to opportunity and thus temptation. In your home country you cannot help but become enmeshed in the state system and avoidance opportunities are few (unless you are an MP with homes to flip). By moving states, EU or otherwise, the chance to cut all ties and start over again often brings an opportunity. It's down to you to put yourself in the system and start paying and declaring. For some people it's like being a kid in the sweet shop when the owner has to go out the back to get something leaving the counter undefended. There is a massive invitation to stuff your pockets with confectionery and many succumb.

In future posts I will discuss some of the ways people try and avoid tax, whether as individuals or if they are starting a business in Spain, and the implications.

http://www.advoco.es/services/35-spanish-tax-advice.html

Full list of Spanish holidays and fiestas in every locality

While researching my article "A guide to employment in Spain" I came across this link. It's to the Spanish Social Security site and has a list of all bank holidays whether they are national, provincial or local:

http://www.seg-social.es/Internet_1/Masinformacion/CalendarioLaboral/index.htm

You click through to the region, province or town you want and there they are. The national ones can catch me out but it's the local ones that can be killers. When I lived in rural Granada more than once I have driven from my village, with everything open, to the city of Granada for a shopping trip only to find a virtual ghost town with nothing open. Local holiday!

I just got 100$ of Facebook advertising for free!

I am a big fan of advertising on Facebook. You know those little boxes at the side with an eye-catching picture and sales pitch. You can create one of your own and promote your own website and / or business; you only pay when someone clicks on your ad and goes through to your site. We pay about 13p a click. You can target the ads to particular demographics e.g.

Married women between 18-23 within fifty miles of Marbella who use English as their language on facebook

or University-educated men between 30-45 throughout the UK who have mentioned Spain in their Facebook profile.

Best of all I got a 100$ credit from the Visa Business Network to pay for the ads. You only have to sign up to the network to get the credit not join Visa itself. Here is the link to the free credit:

http://www.visabusinessnetwork.com/adcredit/step1

I recently published a full article on Facebook complete with 2 amusing comedy clips here:

http://hubpages.com/hub/Promoting-your-business-on-Facebook

Don't be sucked in by false economic optimism

After a year or so of economic doom and gloom I suppose I should be happy with all the talk of recovery and the recession ending. The trouble is I don't buy it. Yes GDP may be grudgingly growing again and the champers might be flowing in the City, but you would expect that with all the money (and low interest rates) that governments around the world have thrown at the problem. But does that mean a lasting recovery? For some countries maybe but for the US I have my severe doubts, as I wrote in this article:

US economic decline is looking terminal

As for the UK, the housing market is rising once again and there are signs that the economy will start to recover after 6 quarters of decline. Again I am dubious partly because of the dire state of country's finances. If the government sort the problem by raising taxes or cutting spending the squeeze will have to be so tight that this will tip us back into recession. If they don't then the deficit will drag on the economy and the pound for years. As for the housing market recovery I'm not sure it's such a good thing that they have managed to get it going again - is the only way Britain can keep its economy going by pumping up mortgage debt??

Now a quick word on Spain. Actually there are not too many words of optimism here and not surprisingly given the state of the Spanish property market. I posted this article on our website 3 months ago and stand by it:

10 reasons Spanish property prices are not about to rise

BBC iPlayer, ITV catch up in Spain

Ever tried to view UK tv on your computer by using services like BBC iPlayer and ITV catch up in Spain? If you're like me you will probably have got a message like "Sorry, service not available in your territory" and given up. Apparently thought there is a way of resolving the problem even though it looks a bit fiddly. I came across this post:

http://www.manilvalife.com/forum/viewtopic.php?f=2&t=12127&start=16

There is a long post in the middle by a poster called Landsker which details the way to do it though I must say I haven't tried it. I'm not that desperate to watch re-runs of X-Factor.

The week's best new pop song

A good reason to get a Spanish driving licence

We've recently run a Facebook advertising campaign offering to change people's UK or other EU driving licences for Spanish ones (at the very reasonable price of 40€). Now being honest people we have put on the information page (Spanish Driving Licence) that it is not absolutely essential to change your licence even if you are resident in Spain, so we are not trying to win business by panicking people into changing their licence unnecessarily. However if you are resident in Spain and are driving around using your UK licence you should change it if:

- it's one of the tatty old paper ones which you should have changed over to a picture id one by now

- if you approaching 70. This is because your UK licence will expire on your 70th birthday and the DVLA will only issue you a new one if you are resident in the UK. You will thus have to either wangle one by using a false UK address which would be a bit dubious given that the DVLA are connected to other UK databases like the passport agency and social security OR take your test in Spain. Once expired you cannot exchange your UK licence for a Spanish one so do it when it is still in date.

The other problem with a UK licence is if it is lost or stolen. We had a client who couldn't get a replacement in the UK because he wasn't resident there and couldn't get one in Spain because all he had was DVLA letter saying he had the right to drive but not an actual licence. By all accounts the Spanish test is not much fun so maybe it does pay to get a Spanish driving licence.

How to get a Spanish driving licence

Spanish problems solved in English. . . I hope

I live in Manilva on Spain's Costa del Sol and work for Advoco, a legal and accountancy firm which is anglo-spanish in terms of the partners and staff but deals mostly with the non-Spanish (mainly Brits) and their problems.

Advoco has a website naturally enough (www.advoco.es) but this blog is where I intend to jot down my thoughts about the job and life in Spain generally. I am in charge of the website so I'll be explaining how that's going. It's also a new business - to some extent (I'll explain later) - so I thought I could write about setting up a new business in Spain. Also if I get any interesting bits of information or tips during the course of my work that will be useful to a wider community, I'll post them here.