The cost of having a company in Spain

So you want to settle or start your company is Spain. Like in any other place there are a series of cost for running a company. Here I will roughly go through the cost of having and S.L, one of the most typical companies that can be formed (similar to the American LLC).

There are three types of costs, establishment costs (you just pay once), fixed costs (you pay regularly no matter what your sales are), and variable (you pay regularly depending on your sales).

I won’t go through the establishment costs since they are only paid once, and if you are in it for the long run they are almost negligible.

The fixed costs for a small S.L are basically two; first you need to sign up as a self-employed (autónomo) in order to be able to have a company, that will cost you between 250€ and 300€ per month. You then need to submit your accounts to the government once per quarter. You can prepare your accounts yourself, but you will most likely mess up more often than not and have to pay plenty of fees for it, so you are definitely better off hiring an accountant to take care of it, this will cost you between 250€  and 350€ per month. Again this numbers are for a small company, let’s say 10 employees or less.

It’s a pain so far, but here comes the fun part.

Last we have the variable costs, most of them taxes, which work as follow. Let’s say you sell something for 100€ to your customers, like in most of the countries other than the US and a few others you never give prices without taxes, so from those 100€ 21% are actually taxes and you are left with 82,64€. You will then need to pay 25% from your profit on that sale. Let’s assume you have a cost of manufacturing (pray you do, otherwise the outcome is much worse) of 50%, meaning you spend 41,32€ from production to delivery of the product, being left with 41,32€ of sales revenue which you will then need to pay 25% for, being left with 30,99€ net profit. This calculation is for the company itself, if you want to then spend that money in let’s say, dinner, you’ll have to pay yourself a salary and pay the correspondent taxes there too, but I won’t get into that today. So basically the equation will end up looking something like this:

((sale price – 21%) – production cost) – 25% = Net profit
((100€ – 21%) – 41,32€) – 25% = 30,99€
Cost of running a company = 27,69% of sales revenue + fixed costs.

Let’s now take a look at the same equation applied to an internet company, were no products are being manufactured and your main costs are servers (and people of course, but since this is an extreme scenario we are looking at let’s assume you are a solo company). It’s not crazy (not at all) to assume that a simple website than could perfectly run on a dedicated server easily could generate thousands of dollars per month just in advertising and referral fees, or if you were selling an e-book or audiobook. Let’s assume for this example you are making 5000€ per month with your niche website (or even blog). Then the equation will look something like this:

((5000€ – 21%) – 150€) – 25% = 2986,67€
Cost of running a company = 37,26% of sales revenue + fixed costs.

Some may argue I shouldn’t be counting taxes into the sale price, and for a while I didn’t, but hey, you have to convince the client your product is worth its price including taxes or the sale won’t happen, so I don’t care if they are taxes or not, it’s still your client’s money and your job to convince them they should give it to your company, so I’m counting it in the equation.

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