If you have always dreamed of starting a business in Southern Europe, Italy and Spain will probably stand out as two strong contenders. Both countries are known for their ideal locations with access to European markets, but are very different when it comes to factors like the cost of living and workplace culture.
The Startup Culture In Italy And Spain
99% of businesses in Italy are small to medium size (SMEs) and are famous for being family-run that usually span multiple generations. Startups are still thought of as a developing sector, but with 4.4 million registered companies, the country does embrace an entrepreneurial spirit.
On the other hand, Spain has gained a startup-friendly reputation especially in cities like Barcelona and Madrid. In 2022, the country announced their Startup Law, which is aimed at supporting entrepreneurs through various ways, including tax benefits for the first three years.
Before choosing where to set up your business, here are a few things to consider first.
Language
One of the first aspects to take into account before choosing Italy or Spain as the location for your business, are their native languages, especially if you are an English-speaker.
Italy: English is becoming more widely spoken in some business circles, especially in Milan and Rome, but Italian is the primary language for all official and government documentation. English is also less prevalent in more traditional areas, so those who aren’t able to speak it comfortably may struggle.
Spain: Similarly to Italy, Spanish is the main language for most business dealings, but some sectors such as technology and tourism are using English more frequently. Each area may also have their own dialect, which is something to take note of.
Overall, Spain may be slightly more accommodating for English-speaking entrepreneurs, but it is possible to use translators or local business consultants in both countries to navigate any language barriers.
Taxes
Italy: The taxation process in Italy is known to be more complicated with high-income personal tax brackets. Currently, the corporate income tax is 24% while VAT is set at 22%. Certain sectors and services can enjoy reduced VAT rates.
Spain: In contrast, Spain’s tax structure is a bit more straightforward. While the corporate tax rate is 25%, startups will pay a reduced rate of 15% for the first three years after their business has been established. Spain’s VAT is also slightly lower than that of Italy’s, coming in at 21%.
Work Culture
Before opening a business anywhere, it’s paramount to familiarise yourself with the location’s work culture. This will impact your company’s productivity, your employees’ expectations and the day-to-day running of your business.
Italy: Italian businesses are deeply rooted in tradition, and the nation appreciates conducting business meetings face-to-face to connect on a personal level. If you choose to have your business here, you will need to value your business-related relationships.
Spain: Likewise, Spain also emphasises the importance of relationships and authentic connections. You may find that the work culture is slightly more relaxed overall, and the Spanish appreciate flexible working hours.
Cost Of Living
This is usually one of the main deciding factors before setting up shop. Not only will it impact your own living circumstances, but your employees’ as well. If transport, rent or healthcare is more costly, this will need to be taken into account for employee salaries. Moreover, it will also bump the cost of your operating expenses.
Italy: The cost of living in Italy is largely dependant on the region in which you are in. Typically, the northern areas are more expensive as opposed to those in the south, or smaller towns. While factors such as eating out or grocery expenses are generally affordable, it is the rent and utilities that tend to cost more.
Spain: You will find that it is much the same in Spain as it is in Italy, where some cities are more expensive than others. Madrid and Barcelona will cost you more, but cities such as Seville or Valencia are more reasonable. The country does have more affordable healthcare and transport options, which can lower your overall cost of living expenses.
The Process Of Setting Up A Business
The procedure for setting up a business in either Italy or Spain is fairly straightforward, depending on the nature of your business activities.
Italy: The first step is to compile your business plan, after which you can register the company with the Italian Business Register. After this has been completed, you will receive a VAT number and you can complete the relevant forms for insurance and social security.
Spain: To establish your business in Spain, you will need to apply for your Tax Identification Number first, and then register with the Commercial Registry. Thereafter, you can open up your Spanish bank account and register with the tax authorities.
Where Should You Start Your Business?
Deciding between Italy or Spain to set up your business will largely depend on the industry of your business and your own long-term goals that you wish to achieve.
Italy is ideal for niche, high-end markets due to its established reputation across Europe, and would be beneficial if your business is in the automotive or fashion industry.
Alternatively, Spain may be the better option if you plan to operate in the tech or tourism industries. The lower cost of living can support the sustainability of your startup while you get off the ground, offering more financial stability.
