Moving your self-employed (autónomo) business into a company

Terms used

• Plusvalía — The plusvalía is the local tax on the rise in value of urban land when a property is sold or inherited.
• RETA — RETA is the social security scheme for self-employed workers in Spain.
• SL — An SL is a Spanish limited company, the usual form for small businesses.
• IRPF — IRPF is Spain's personal income tax.
• IVA — IVA is Spain's value-added tax (VAT).
• ITP — ITP is the transfer tax charged on some asset transfers.
• AJD — AJD is the stamp duty charged on certain legal documents.
• Plusvalía municipal — Plusvalía municipal is a town hall tax on the rise in land value when property is transferred.

Key rules

• Deferral: Contribute a branch of activity, not loose assets, to defer the gain; individual assets are taxed as normal sales.
• Contracts: Client contracts, leases and licences do not transfer automatically; each needs consent, notice or a change of holder.
• RETA baja: Request your RETA cancellation within 3 days of stopping.
• Autónomo societario: If you manage the SL and hold at least 25% as administrator, or control it, you must register in RETA.

The short version

Moving your business into an SL needs a plan for three things: the tax on what you contribute, the contracts that must move, and your RETA status. Do them in that order. The tax choice is the one you cannot easily undo, so settle it before you sign the deed.

Tax on what you contribute

Contributing your business to the SL in exchange for shares counts as a sale for income tax (IRPF), so a capital gain can arise. You can defer that gain if you contribute a branch of activity: a business unit able to operate independently. The shares you receive then keep the original tax value of what you handed over.

If you contribute only individual assets, each one is taxed as a normal sale. Pick the whole-business route if your business qualifies. Ask a tax adviser whether it does, and have them notify the tax agency that you are using the deferral. The decision below compares the options.

Other taxes are lighter:

• IVA does not apply to the transfer of a business as a going concern.
• The contribution is exempt from ITP, and the incorporation is exempt from AJD.
• Plusvalía municipal on property may be deferred under the same regime.
• Notary and registry fees still apply.

Contracts, leases, licences and staff

Nothing moves automatically.

• Clients: each client must agree to transfer the contract to the SL. The alternative is a new contract signed with the SL. New contracts are often simpler.
• Leases: you need the landlord's consent. A business lease can be assigned under certain conditions, with notice to the landlord.
• Licences and declaraciones responsables: ask your town hall to change the holder. Sector permits may need re-registering.
• Employees: they pass to the SL with their seniority and conditions. You must inform their representatives. The SL and you stay jointly liable for earlier debts for three years.

Your RETA status

Being a plain shareholder or an employee of the SL does not require RETA. You must register as an autónomo societario if you manage the company and either:

• hold at least 25% of the capital and are also the administrator, or
• have effective control, for example through family members or combined holdings.

If you keep an autónomo activity and also control the SL, you pay one set of contributions, not two. If you are employed elsewhere too, you are in pluriactividad.

When you stop the old activity, request your baja in RETA within 3 days. If you will run the SL, expect to register again as an autónomo societario.

Order and paperwork

Incorporate first, then register the SL's activity and cancel your own. Cancel your IAE registration and register the SL. The SL is generally exempt from IAE if turnover is under 1 million euros, but it must still register. File your final quarterly returns for the period up to cancellation, then invoice in the SL's name from the start date. The timeline, documents and checklist below give the dates and forms.

Choosing between options

How should you move your business into the company?

• Contribute the whole business: Your business is a unit able to operate independently. The capital gain is deferred, the shares keep the original tax value, VAT does not apply, and the contribution is exempt from transfer tax.

• Contribute individual assets: Your activity is not an independent business unit. Each asset is taxed as a normal sale, so a gain is taxed straight away.

• Sign new contracts with the company instead of transferring the old ones: A client will not agree to transfer. The client signs a new contract with the company, since contracts do not move without the client's consent.

• Keep your autónomo registration alongside the company: You manage the company and hold at least 25% of the capital or control it.

If your business can operate independently, contribute it whole to defer the tax; otherwise each asset is taxed as a sale. Whatever you choose, each client must agree to any transfer of their contract.

Timeline and deadlines

• Incorporate the company: sign the deed, get the NIF, register it and make the contribution: before you stop trading as an autónomo

• Register the company's activity with the tax agency (Modelo 036): when the company starts

• Cancel your self-employed activity with the tax agency (Modelo 036 or 037): within 1 month of stopping

• Request your RETA cancellation (baja); if you will run the company, register again as a company-linked autónomo: within 3 days of stopping

• Cancel your IAE (business activity tax) registration and register the company: after you stop trading

• File the final quarterly VAT (Modelo 303) and income tax (Modelo 130 or 131) returns, plus 111, 115 and 190 if they apply, and issue your last invoices: for the period up to cancellation

• Invoice in the company's name and move employees, bank accounts and licences to it: from the start date

Documents you need

• Deed of incorporation of the company, signed before a notary and registered in the commercial registry (Registro Mercantil). The notary and the registry issue it.

• Tax ID (NIF) for the new company, issued by the tax agency (AEAT) after incorporation.

• Registration form (Modelo 036) for the company's activity, filed with the tax agency.

• Form to cancel your self-employed activity (Modelo 036 or 037), filed with the tax agency.

• Written agreement from each client to transfer the contract to the company, or a new contract signed with the company.

• Landlord's consent to assign a lease, or a notice to the landlord when you assign a business lease.

• Change of holder for licences and declaraciones responsables (responsible declarations), filed with your town hall.

Checklist

• Ask a tax adviser whether your business counts as a branch of activity able to operate independently

• Decide whether to contribute the whole business or only individual assets, which are taxed as normal sales

• Notify the tax agency that you are using the deferral regime for the contribution

• Incorporate the company and make the contribution in exchange for shares

• Cancel your self-employed activity with the tax agency within 1 month of stopping

• Request your RETA cancellation within 3 days of stopping

• Check whether you must register again as a company-linked autónomo because you manage the company

• Cancel your IAE registration and register the company

• File your final VAT and income tax returns and issue your last invoices

Frequently asked questions

Do my clients' contracts move to the company automatically?

No, client contracts do not move to your company automatically, because each client must agree to the change. Ask every client to agree to transfer the contract, or sign a new contract with the company.

What happens to my employees when the business moves into the company?

Your employees pass to the company and keep their seniority and conditions. You must inform the workers' representatives. The company is jointly liable with you for earlier debts to the workers for three years.

Will I still pay autónomo contributions if I own and run the company?

Yes, you must register in RETA (the self-employed social security scheme) as a company-linked autónomo if you manage the company and hold at least 25% of the capital or effectively control it. A mere shareholder or employee of the company does not need to register.

Do I pay tax if I contribute individual assets instead of the whole business?

Yes, contributing individual assets rather than a whole branch of activity is taxed as a normal sale of each asset. The deferral only works when you contribute a business unit able to operate independently. A tax adviser can confirm whether your business qualifies.