Pros & Cons of Starting a Business in Spain?

Pros and Cons of Starting a Business in Spain?

Spain offers excellent opportunities for investors and entrepreneurs, along with a few important risks to keep in mind and—where possible—turn to your advantage. Understanding the pros and cons of starting a business in Spain will help you weigh the decision carefully and plan for the best possible outcome.

Pros of Starting a Business in Spain

The advantages of starting a business in Spain are plentiful and—in our opinion—outweigh the cons.

Strategic Access to International Markets

Located in Southwestern Europe on the Iberian Peninsula, Spanish businesses have direct geographical access to:

  • The European Union – the world’s largest common market
  • The Middle East
  • North Africa

Thanks to a common language and double-taxation agreements with several Latin American countries, Spain is also a strategic hub for trade with Central and South America as well as Mexico. Additionally, favourable free trade and foreign investment policies have made Spain a popular trading partner for businesses in the United States.

Take Advantage

To take advantage of Spain’s international ties, write your business plan with Spain’s key trading partners in mind. E-commerce stores can easily sell to customers in the EU with a merchant account provider that offers a secure global payment gateway and merchant services including customer support in the countries where you and your customers reside.

Well-Developed Infrastructure

Spain’s excellent infrastructure provides the access you need for exploiting the country’s regional and international ties. In terms of logistics, the country offers top-class rail, subway and maritime networks to help you get products efficiently from A to B. In terms of technological infrastructure, Spain’s expanding optic fibre networks ensure access to high-speed internet.

Take Advantage

Well-developed infrastructure is ideal for anyone wanting to start a thriving business with fast, low-cost shipping. Look for a European e-commerce business idea that exploits a growing niche and improves on the offerings of your competitors. Partnering with national postal networks like MRW (Mensajeros Radio Worldwide) and Correos Spain will ensure the fastest possible delivery of goods.

Welcomes Foreign Investment

The Spanish government welcomes foreign direct investment (FDI) and actively encourages it with relaxed business regulations and incentives for foreign businesses that want to invest. According to the UNCTAD World Investment Report, Spain is ranked ninth globally in terms of foreign investment.

Take Advantage

Pro-free-trade policies have strengthened US-Spain relations, in particular, smoothing the way for Americans who want to start a business or open a branch office in Spain. Tourism, cultural ties with Latin America and several international companies in the country are other sources of foreign investment. To take full advantage of government priorities, focus on business activities that support economic diversification, research and renewable energies.

The Business Culture Is Welcoming to Entrepreneurs

Madrid, Barcelona and Valencia have strong start-up cultures and Madrid and Barcelona—in particular—have thriving expat communities, making these ideal places to try out a new business idea. Culturally, Spain’s laid-back culture and a strong emphasis on relationships are conducive to forming new business connections and developing a strong social network.

Take Advantage

Businesses and entrepreneurs who are keen to try out innovative business ideas would do well establishing a base in Madrid or Barcelona and expanding their services from there. Spanish language learners will also find either of these cities fairly easy to navigate in English until they feel confident communicating in Spanish.

Amazing People, Food, Culture and Weather

Last but certainly not least, Spain is a delightful place to live! A sunny Mediterranean climate, delicious and varied cuisine and a thriving, diverse cultural scene attract tens of thousands of new residents each year from all around the world. If you decide to start a business in Spain, be sure to travel around the autonomous regions and experience all that this country has to offer!

Cons of Starting a Business in Spain

Reduced Consumer Spending

Slowing consumer spending had a big impact on businesses in Spain during the Global Financial Crisis and COVID-19 pandemic. After a five-year focus on job creation and growth following the GFC, Spain’s economy shrank by 11% in 2020 due to the pandemic and only started to show signs of recovery in 2021.

Despite the upward movement of the economy, unemployment in Spain at the end of Q2, 2022 was still at 12.48%, up from 8.2% in 2007 and much higher than the European Union average of 6.3% (2019), with under-25s the most affected. This lack of work further reduces many families’ ability to spend.

Take Advantage

Considering recession-proof industries for your business plan can give you a certain degree of resilience while Spanish wallets recover from two significant economic downturns. In particular, focus on things like daily essentials, health and hygiene, pet goods, baby goods, home and vehicle repairs, reusable products and cost-saving solutions.

In terms of unemployment, starting your own business gives you the chance to set your own rates and also create jobs for locals. There are government incentives available for employing young people and people with disabilities in Spain, so it’s definitely worth finding out about these incentives and including these sectors of the population in your plan.

Emigration of Spanish Professionals

Slow wage growth and high unemployment have led many young Spanish professionals to abandon Spain in search of opportunities abroad. To respond to this “brain drain”, the Spanish government has created a return plan to encourage Spanish university students studying abroad to return to Spain.

While some Spanish nationals are leaving Spain, thousands of new residents arrive each year from Morocco and Latin America, largely due to the higher earning potential in Spain compared to these new residents’ home countries. Many of these young professionals then send funds home to their relatives (1, 2).

Take Advantage

While thousands of Spaniards have left for the United Kingdom, France and Colombia, there is no shortage of talent in Spain. If employing Spanish nationals, take full advantage of “return plan” incentives and tax cuts for employing at-risk segments of the population.

If employing talent from other countries, consider paying these employees digitally using an international service such as Wise. These young professionals will be grateful for an easy way to receive and send money abroad and your thoughtfulness could encourage them to stay.

Bureaucracy

Finally, there is quite a lot of paperwork involved in starting a business in Spain, with an average of seven procedures compared to an OECD average of fewer than five. Forming an incorporated company takes an average of 12.5 days compared to an OECD average of 9 days and obtaining a construction permit takes 147 days to complete with 13 separate procedures.

Take Advantage

Completing all of the steps to incorporation correctly takes perseverance and attention to detail. This could be enough to dissuade potential competitors from trying to start a Spanish enterprise. However, once everything is properly registered, you will be able to access the fifth largest economy in Europe and all of Spain’s strategic trading partners. A little perseverance at the start will pay off in dividends later on.

Making the Best of the Spanish Market

When planning your Spanish company or enterprise, it’s worth consulting with a Spanish business lawyer to ensure that you understand the options and follow each step correctly.

Business Structures

In terms of business structures, you will need to choose between an unincorporated business structure (sole trader business or partnership) or an incorporated business structure (limited liability company or stock corporation).

If you start your own business, you are liable for company debts and can lose your personal assets. In contrast, with a limited company, your personal assets are protected.

Visas

If you aren’t an EU citizen, you will need a business visa to start a company or sole trader business in Spain.

  1. Entrepreneur visa. This is for entrepreneurs with novel business ideas. You will need to show enough funds to start the business and present a detailed business plan.
  2. Self-employed worker visa. This is for any professional who works in an industry that’s already established in Spain and wants to start a sole trader business.

Taxes and Employer Contributions

When you register a Spanish business, you will also need to open a bank account and register with the tax authorities (agencia tributaria or Spanish tax agency). Usually, this will be your local tax office. Corporations in Spain pay income tax, corporate tax and social security for themselves and their employees, in addition to things like professional development and paid leave.

Business Culture

Once you’re set up, adapting to the local business culture is a sure way to win the hearts of your Spanish business partners and customers. In Spain, professionals are expected to wear formal dress (suits for men and dresses or blouses and skirts for women) and show respect to superiors. When introducing yourself to a new business contact, hand them a business card with at least one of the sides in Spanish. Being able to speak the regional variety of Spanish will go a long way, too!

In terms of time, meetings often run long and small talk is expected—just stay clear of controversial topics like politics. While businesses don’t close for a complete siesta these days, long lunches are still common and retail and hospitality businesses stay open until late.

The Verdict on Starting a Business in Spain: Worth It? In Most Cases, Sí!

No economy is perfect in every way when it comes to starting a business. But as far as business culture, infrastructure and government support go, Spain is a strong choice. If you can use the pros and cons of starting a business in Spain to your advantage, you could do very well.

Just be sure to tailor your business idea to the local needs and respond to changes in the economy. With the right concept, the right attitude, hard work and perseverance, you have everything to gain.