Pros and cons of companies in Spain vs companies in the UK

Pros and cons of companies in Spain vs companies in the UK, what do you need to take into consideration? The business environment is a fundamental part of the global economy, and decisions about where to set up a business can be critical to its success. The UK and Spain are two popular destinations for entrepreneurs. However, there are significant differences in the legal, tax and operating systems of the two countries. In this article we will compare the key aspects of setting up a business in the UK versus Spain, considering factors such as taxation, business structure, labour market and regulatory requirements.

1- Legal structure and types of companies

In both the UK and Spain, there are different types of company structures that entrepreneurs can choose from. These options vary slightly in terms of requirements and names.

United Kingdom: In the UK the most common structure is the Limited Company (Ltd). This is a company with limited liability, which means that shareholders are not personally liable for the debts of the company beyond their investment in shares. Sole traders and partnerships are other options available, although Limited Companies are the most common due to their tax advantages and limited liability.
Spain: In Spain, the most common types of company are the Sociedad Limitada (SL) and the Sociedad Anónima (SA). As in the UK, the SL is the most popular choice for entrepreneurs. This is, again, due to its simplicity and limited liability. There are also autónomos (sole traders), where the entrepreneur has unlimited liability.

In both countries, limited liability is a common feature among larger companies, which protects the personal assets of entrepreneurs.

2- Taxation

Taxation is a crucial aspect when deciding where to set up a company. Although both countries have well-established tax systems, tax rates and structures can influence entrepreneurs’ decisions.

United Kingdom: In the UK, Corporation Tax is the main tax for companies. From 2023, the standard rate of corporation tax is 25% for companies with profits over £250,000. Smaller companies can benefit from a reduced rate of 19% for profits up to £50,000. This system allows small and medium-sized companies to enjoy a relatively low tax burden. In addition, the UK has several tax incentives for technology and innovation companies, such as the R&D Tax Credit, which offers tax relief to companies that invest in research and development.
Spain: In Spain the corporate tax rate is 25%. Alternatively, there are reduced rates for companies with a turnover of less than 1 million euros or for new companies during the first years of activity. However, the Spanish tax system is more complex and subject to frequent changes, which can be more difficult for entrepreneurs to manage without good advice. In addition to corporate taxes, companies in Spain must also pay VAT, which is 21% in most cases, and social security contributions. These social security contributions are higher than in the UK, especially for the self-employed.

3- Ease of entrepreneurship

Both countries have systems that are somewhat conducive to business start-ups, but with some key differences.

United Kingdom: The UK is known for its ease of doing business. Registering a company is easy and straightforward, and the online incorporation process can be completed within hours. Bureaucracy is much more streamlined, and the system is very efficient compared to other countries. In addition, its policies have fostered a favourable environment for entrepreneurs, especially in sectors such as technology and finance.
Spain: In Spain, business start-ups can be slower due to its bureaucratic system. Although they are trying to simplify processes, there are still numerous administrative steps, especially for obtaining licences and permits.