Detailed below are very important questions that persons who are thinking of setting up their own business, or that already have their own business, must bear in mind.

It is very important not to overlook any of the following points in order to avoid fines imposed by the Government.

In Spain a business may be set up either as an individual or as a company (normally a limited company must be formed with a minimum of 500.000 pesetas). In order to set up a company there are a series of steps which must be carried out, for example to apply for the company name, do the articles of association, to sign the constitution in a public Notary, to obtain the Fiscal Identification Number (CIF), to register the company in the Commercial Registry, etc.

No business can establish itself in Spain without being registered with the Tax Authorities via what is known as Fiscal Licence Tax (IAE Impuesto sobre Actividades Economicas) This tax is paid each year and the amount depends on the type of business in question, the characteristics and on the location of the business premises, etc.

The IGIC is the same as Value Added Tax in Europe but with certain important differences. The general rate of this tax is 5% which is very different compared to 17.5% in England and 16% in Germany. Therefore, in this aspect, we could say that we have less taxes. The tax returns for the IGIC, must be completed every three months and every year a summary must be done and presented in January.

This is a licence which is granted by the Town Hall in order that a business may establish itself in that particular municipality. The procedure depends on the type of business that is being set up. In some businesses, for example bars, restaurants, discos etc. it is necessary to present a plan that has been drawn up by Quantity Surveyor, without which you can not open the business.

All company employees must be registered with the Social Security, they must also have a legal work contract and their corresponding monthly quotas must be paid for them in the Social Security. Furthermore resident Administrators of Spanish companies are obliged to register with the Social Security and make monthly self employment payments, which are brought up to date each year, in 2002 it is 205,53 Euros.

If the premises from where the business is going to be carried out is rented, 15% of the montly rental payment must be retained from the owner. This retention must be paid to the Tax Authorities every three months and at the end of the year the tenant should give a certificate to the landlord so that he can deduct the retained taxes.

If the business has been formed as an individual, then he is obliged to carry out quarterly tax returns as well as the annual income tax return which is a type of annual summary of the business. Family and personal circumstances must alos be taken into account, for example, if the individual is married, if he has children, if he is paying a mortgage, if he is paying into any private pension plans, if he has profits from shares. etc…

Companies must draw-up their accounts in line with the what is known as the General Accountancy Plan (PGC). The accounts books must be authenticated every year in case of possible inspections that may be carried out by the Tax Authorities.

This is a tax which companies are obliged to declare every year what is known as Impuesto de Sociedades. (Corporate Tax). This takes place in the month of July and is a type of annual summary of profits, expenses and investments made in the previous year. It is important to mention that the Canary Islands probably has the lowest taxes of the European Union. Basically the main advantages of setting up a business in the Canary Islands are:

The possibility to reinvest profits (what is known as the RIC, Canary Islands Investment Reserve, a system aimed at stimulating self-financed investment).

The exemption of taxes on any building investment carried out in order to develop the business activity, etc, etc.

However to obtain these lower taxes there determined requirements that must be met and failure to do so may result in considerable fines. Along with this obligation, the accounts, signed by the Administrators, must be deposited in the Mercantile Registry along with a certification that the annual meeting of all shareholders has taken place to examine the accounts.