# Running a UK based recruitment firm (with staff) in Barcelona, Spain. Tax situation?



## sunseekerlondon (Feb 20, 2014)

Hello all!

I run a limited company offering recruitment services registered in the UK with mainly UK based clients. I relocated to Spain 12 months ago.

Our work is 'remote' in that it is all telephone / internet based. I pay UK income tax and all the associated corporation tax, PAYE etc associated with being a UK registered business.

We have no clients in Spain, generate no income in Spain and do not pitch for any business in Spain.

Six months ago I took on my first employees and now have 4 full time staff plus myself. They have 'remote working' contracts in the UK but effectively work from a privately rented space (where 3 of us work and live and 2 commute into daily). Everyone prefers to be paid in pounds, pay UK tax and effectively live in Spain as an expat. 

Myself and one employee regularly fly to the UK on business. With the current business plan it is likely we will be between 8 and 10 in total by the end of this year.

Things moved very, very fast in six months and I now have serious concerns about my tax situation / whether I need to register a business in Spain (or if remote working contracts allowing global work from 'anywhere' would suffice?). From a client perspective, we appear to be UK based which is preferable - we all use UK landline numbers, UK mobile phone numbers and a UK registered company address.

I'd be very grateful to hear from anyone who has any experience at all in this space. 

Thank you!!


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## xabiaxica (Jun 23, 2009)

sunseekerlondon said:


> Hello all!
> 
> I run a limited company offering recruitment services registered in the UK with mainly UK based clients. I relocated to Spain 12 months ago.
> 
> ...


:welcome:

the employees are in Spain - so they will have to at the very least declare for tax in Spain

the premises are in Spain - so the company is not UK based at all - it's Spain based

you really need a tax expert for this

and fast


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## Chopera (Apr 22, 2013)

xabiachica said:


> ...
> 
> the premises are in Spain - so the company is not UK based at all - it's Spain based
> 
> ...


Are you sure about this?

I think the location of the premises are irrelevant as far as registering the company is concerned. If you are trading on an international level you can register your company wherever you like, and the UK is a popular option.

In fact somebody posted a link recently about how if your company traded on a European level then it made more sense for Spaniards to register it in the UK:

Crear una empresa en UK, una alternativa a la S.L. española

Of course the individuals employed by the company who are resident in Spain need to declare their income in Spain, but that's another matter.


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## sunseekerlondon (Feb 20, 2014)

Definitely need some expert tax advice on the pronto, does anyone know of any good contacts in this space?

The current set up is that all staff are British (they relocated) and we are all on standard PAYE pay. You're absolutely right in that the premises are in Spain (though this isn't commercial property - myself and 2 staff live there and it's a private rental agreement with a signed letter from the landlord and agency saying they are aware and agree that it will be used in the day as an office for expats).

Given that we pay tax in the UK and I am regularly back there (though only a few days at a time) I'd rather keep my income tax base there (and continue to have access to the NHS and everything I've always had). 

I imagine the income tax side of things is relatively easy to sort, but see the commercial / business side of things becoming very messy, very quickly. There are no commercial reasons for our office to be in Spain - we don't sell any services within Spain and have a UK centric business with UK clients (and globally across finance hubs)


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## sunseekerlondon (Feb 20, 2014)

Hello Chopera,

Thanks for the reply!

We do trade on an international level though 90% of our income is generated in the UK. Dubai, Singapore, New York, Hong Kong, Germany etc. also provide modest revenue. 

I would absolutely, 100% prefer to keep the entire legal structure of my business in the UK and continue to pay UK corporation tax only & channel all funds through that entity. If there is a way to avoid setting up a subsidiary business in Spain then I'll take it. All of my staff are British and paid in pounds, not euros.

As all my staff are paid in pounds (and have not become residents of Spain officially) - am I able to keep paying them an 'expat package' i.e. not paid in Euros and running through the UK PAYE system? We all have registered UK addresses, UK bank accounts etc.


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## xabiaxica (Jun 23, 2009)

Chopera said:


> Are you sure about this?
> 
> I think the location of the premises are irrelevant as far as registering the company is concerned. If you are trading on an international level you can register your company wherever you like, and the UK is a popular option.
> 
> ...



ah yes, I forgot about that


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## Pesky Wesky (May 10, 2009)

sunseekerlondon said:


> Hello Chopera,
> 
> Thanks for the reply!
> 
> ...


Hmmm.
All eu citizens have to go on the eu register after 90 days. Have you all done that? After 90 days you are considered resident whether or not you have gone through all the legal loopholes.
Spain is very good at letting you be responsible for you. Another case is traffic fines. You may receive notifaction by post or you may not, but it is your resposibility to check and see if you have any fines pending.


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## xabiaxica (Jun 23, 2009)

sunseekerlondon said:


> Hello Chopera,
> 
> Thanks for the reply!
> 
> ...


do they live & work here?


yes 

so they are _de facto _resident even if they haven't registered as such


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## sunseekerlondon (Feb 20, 2014)

OK so looks like we are all officially Spanish residents!

We will all continue to be paid in pounds into UK bank accounts. Will we still be paying UK income tax as well as Spanish income tax or if we declare ourselves as residents, will there effectively be £0 UK income tax among us? Would we have to pay Spanish income tax on dividends or just base salary and monthly commissions? 

I think I need some serious help from someone who is in the know with these matters.

Please excuse my ignorance on all of this!!


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## xabiaxica (Jun 23, 2009)

sunseekerlondon said:


> OK so looks like we are all officially Spanish residents!
> 
> We will all continue to be paid in pounds into UK bank accounts. Will we still be paying UK income tax as well as Spanish income tax or if we declare ourselves as residents, will there effectively be £0 UK income tax among us? Would we have to pay Spanish income tax on dividends or just base salary and monthly commissions?
> 
> ...



you really need expert help - I don't think any of us here are qualified to do so

we do have various members in Barcelona who might be able to recommend a good gestor


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## sunseekerlondon (Feb 20, 2014)

Agreed, thank you very much - you've been very helpful!

If there is anyone who anybody can recommend I'd be grateful for any ideas


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## DaveInSpain (Sep 21, 2013)

Hi,

Your UK business can stay exactly that irrespective of your location. My understaning is that there is no need to setup a Spanish subsidary. It is worth talking to a Tax Adviser as there is a rule called the "Beckham" rule which means if you do set up a Spanish Subsidary, you pay little tax on your worldwide assets and income (You'll need an accountant to confirm if it is beneficial).

Also you may have issues with reclaiming VAT on business expenses as having to pay VAT in only one country within the EU is beyond most people I have discussed this with.

However if you or your staff spend more than 183 days in Spain per year, then your personal taxation should be paid in Spain. You can still be paid via PAYE but would need to request a 'NT' Tax code (No Tax) from HMRC. There is also a HMRC form P85 which is to tell HMRC you are leaving the UK which should be completed.

I cant fully comment on National Insurance as I am still battling with HMRC but as far as I understand, you only should pay Social Security (NI) payments in one country within the EU and it should be in the country where you live. HMRC are currently telling me I have to continue paying NI for a year after leaving the UK but I am not convinced about this. If you do continue to pay NI, there is a form which they can send you (I cant remember what it is called) which you can give to the Spanish authorities so you can have access to Spanish healthcare.

Good Luck
Dave


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## NickZ (Jun 26, 2009)

tax residence control rules uk

Plug that into Google.

If it was the other way around. Spanish company operating out of the UK then UK taxman would label it UK resident.


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## Chopera (Apr 22, 2013)

NickZ said:


> tax residence control rules uk
> 
> Plug that into Google.
> 
> If it was the other way around. Spanish company operating out of the UK then UK taxman would label it UK resident.


Interesting.


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## Pesky Wesky (May 10, 2009)

Perhaps you'll find some info here.
This is a link to the tax agreement between Spain and the UK, signed in 2013, but not yet in force
http://www.hmrc.gov.uk/taxtreaties/signed/spain-uk-protocol.pdf
from
HM Revenue & Customs: Tax treaties signed/not in force

But on top of this as most people have said, you'll need a lawyer or gestor that specialises in this field.


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## NickZ (Jun 26, 2009)

He can't use the treaty until he figures out which country he's resident in.

One other thing. On VAT go to the EU website and search for cross border VAT. They changed the rules a few years back.


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## Pesky Wesky (May 10, 2009)

NickZ said:


> He can't use the treaty until he figures out which country he's resident in.
> 
> One other thing. On VAT go to the EU website and search for cross border VAT. They changed the rules a few years back.


He's resident in Spain - that's clear!


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## NickZ (Jun 26, 2009)

sunseekerlondon said:


> Given that we pay tax in the UK and I am regularly back there (though only a few days at a time) I'd rather keep my income tax base there (and continue to have access to the NHS and everything I've always had).
> hubs)





Pesky Wesky said:


> He's resident in Spain - that's clear!



Then he should be paying Spanish income tax. Collecting VAT based on his clients locations and remitting.

But he isn't. He also doesn't seem to want to.


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## snikpoh (Nov 19, 2007)

sunseekerlondon said:


> ...
> 
> Given that we pay tax in the UK and I am regularly back there (though only a few days at a time) I'd rather keep my income tax base there (and continue to have access to the NHS and everything I've always had).


You are clearly resident (both domicile and tax) in Spain. As such you are required to submit tax returns in Spain. Due to the double taxation agreement, you will never pay tax twice on the same income.

The bigger issues (IMO) are VAT (IVA) and NI (SS).


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## codex70 (Jun 24, 2012)

If you ever work out a solution to the social security payments I'd love to know. We're going to be working remotely for a UK company and living in Spain. Tax seems simple enough, social payments not so easy.


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## CapnBilly (Jun 7, 2011)

It seems to me there are two issues being mixed up in this thread. The first is from a company perspective. Although the company is UK registered, which is fine, it could be argued that you have a permanent establishment in Spain, and this materially affects firstly the taxation of profits, and secondly how you account for VAT/IVA. It doesn't matter that you have no spanish clients. Just to be clear, if you are considered to have a "permanent establishment", then a portion of the profits are also taxable in Spain 

This is from the DTA that is not yet in force, but gives a good explanation of what is considered a"permanent establishment" for taxation purposes. " 5. Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 6 applies - is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed " 

The second issue concerning employees is that, as others have said, it is more than likely that they are all Spanish tax residents, and should be declaring as such, and should also probably be paying social security in Spain. You need some serious advice, and fast.


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## brocher (Mar 21, 2011)

CapnBilly said:


> It seems to me there are two issues being mixed up in this thread. The first is from a company perspective. Although the company is UK registered, which is fine, it could be argued that you have a permanent establishment in Spain, and this materially affects firstly the taxation of profits, and secondly how you account for VAT/IVA. It doesn't matter that you have no spanish clients. Just to be clear, if you are considered to have a "permanent establishment", then a portion of the profits are also taxable in Spain
> 
> This is from the DTA that is not yet in force, but gives a good explanation of what is considered a"permanent establishment" for taxation purposes. " 5. Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 6 applies - is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed "
> 
> The second issue concerning employees is that, as others have said, it is more than likely that they are all Spanish tax residents, and should be declaring as such, and should also probably be paying social security in Spain. You need some serious advice, and fast.


I completely agree with the Capn's summing up. You have two completely separate issues to deal with - 1. the company and 2. The personal taxation and residence. 

Ican't even understand why you are so keen to keep everything UK, especially the personal side of things.

Why do you feel it an advantage to be able to access the UK NHS rather than the Spanish equivalent? Having to get on a plane to the UK for healthcare if you break a leg or have a heart attack isn't much of an option, is it. It's free access to Spanish healthcare you need if you are living in Spain. There will be other benefits to being properly resident and paying your dues in Spain, if that is where you are living.

Apart from being a legal requirement to contribute to Spain if you choose to live there, surely it is morally right, too. How would you feel if, say, some Polish immigrants chose to live in the UK and use all our services but paid nothing into our system, choosing instead to support their native country.


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## sunseekerlondon (Feb 20, 2014)

Hello again everyone,

Thanks for all of your replies. What is pretty clear is that I need a professional to help navigate the complexity of the current set up, can anyone recommend any experts within this space?

Coming back on a few points you guys have raised...

From a commercial perspective, for all intents and purposes, in financial recruitment the corporate image will be best if we are seen as a UK company. None of our Points of Sale (POS) happen in Spain. We charge clients (mainly UK based) on a high margin, low volume basis when a candidate we introduce starts employment with them. If we can keep operating without registering a business or subsidiary in Spain then that is absolutely preferable for a number of reasons, not least that corporation tax in England is 23% (and decreasing) whereas in Spain it is 30%.

Daveinspain - I had a quick look at the Beckham rule - unfortunately it seems (according to wikipedia) that this closed down in 2010.

Re. VAT, the vast majority of purchases made (phones, laptops, software services, IT support, website fees - pretty much everything) is done in the UK with UK VAT paid.

Re. income tax, after doing some more research I really, really do not want to be classed as a Spanish resident!! 47% tax over 25,000 euros, rising to over 53%? That is ludicrously high!! Income tax in Spain - Wikipedia, the free encyclopedia

As it stands, everyone who works for me is on a 'remote working contract' i.e. according to their employment contract they have no defined 'place of work'. All of our registered 'permanent addresses' along with banks registered details are in the UK.

Brocher... you've raised a couple of points:

Why do I want to keep everything in the UK? 
- The taxes seem a hell of a lot cheaper (from an initial bit of research - both corporation tax AND personal tax
- We don't use any Spanish services - education, healthcare, dental, public transport (taxis are so cheap here) etc. 
- I'm in London at least once a month anyway - I'd prefer to carry on using the same doctor I've had for 20 years etc. If something did happen, we all have travel insurance and EHIC (European Health Insurance Card). 
- We are all in our 20's so the likelihood of needing support services of any kind is low

I cannot see a single benefit of being a resident of Spain or having a company subsidiary in Spain - total avoidance works best for everyone involved, so my quest is to find someone who has the expertise to help us structure things as such. 

Do I have any moral concerns about 'not contributing' to Spain? Absolutely not. I employ people from England, supporting employment back home, pay all of my UK personal income taxes and corporation tax to support the services I actually do use, don't use any services in Spain but yet have five people (including myself) constantly using our spending power to help boost the Spanish economy.


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## Pesky Wesky (May 10, 2009)

sunseekerlondon said:


> Re. income tax, after doing some more research I really, really do not want to be classed as a Spanish resident!! 47% tax over 25,000 euros, rising to over 53%? That is ludicrously high!! Income tax in Spain - Wikipedia, the free encyclopedia
> 
> 
> I cannot see a single benefit of being a resident of Spain or having a company subsidiary in Spain - total avoidance works best for everyone involved, so my quest is to find someone who has the expertise to help us structure things as such.
> ...


You seem to have missed the posts that tell you that you _*are*_ resident in Spain whether you like it or not.
I think it's great that you have a business and that you give employment to people, but it seems you should have looked into this more before taking the plunge. As it is, you could end up in such a tax muddle that you'll end up having serious problems with your business, and that's a shame to say the least!
BTW, what's your health coverage?
And as far as contributing to Spain, don't you use roads, don't you generate rubbish that has to be taken away, don't you need street light when you go out?? Wow, better than Alan Sugar . 
Really, you can't just use a country for its sunshine, be a part of it.

As you say, you need professional advice and you need it now. What you get from the forum is going to be more of the same


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## brocher (Mar 21, 2011)

<<I cannot see a single benefit of being a resident of Spain or having a company subsidiary in Spain - total avoidance works best for everyone involved>>

If you can not see a benefit in being in Spain, then why are you there?

Total avoidance - it would be even better if you avoided contributing in the UK, too maybe. Why bother, it's not like you are using UK education, etc either. We'd all like total avoidance....... 

Get real, it doesn't matter if you don't personally need schools, etc. We all, be it in Spain or the UK, contribute jointly, to create the infrastructure needed to run a country. I guess you do use the roads and like street lights when you are out..... So you like the local council maintaining them, you like their being a government to build them.....maybe you even quite like their being police on the streets to keep you safe.....

It is probably possible to have your company registered in the UK but whether you like it or not, you are a Spanish resident. If you don't like that idea then don't stay there.

EHIC is for UK tourists, you are not even entitled to use it because you are not a UK resident. 

Read the T&C's of your travel insurance- it is almost certainly invalid if you are not a UK resident, it will only cover you for a limited amount of days abroad and won't won't cover you if you work whilst you are abroad. 

And don't rely on Wiki for your information, you're probably scaring yourself for no good reason re personal tax rates, etc. Just google "tax rates in Spain".....it's not 53% when you're earning just over £20k.


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## CapnBilly (Jun 7, 2011)

I have nothing to add to my previous comments, except to say that on the basis of your last comment, you would appear to have a permanent establishment here. 

With regard to the tax rates in the Wiki, whilst it's not the best source if information, they are correct, you have just read it wrong.


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## Pesky Wesky (May 10, 2009)

Jst to add...
You seem to think you can choose where you pay taxes, you may even imply that you choose whether you pay taxes or not.
That is just not the case. There are laws, regulations decrees that have to be followed.
And the onus is on you to find out about them, not for the authorities to sit you down and explain them. The fact that you're asking now, after having made the move makes me think there's a lack of planning? seriousness?? maturity??? business acumen????
These people have been recommended in the past. Why not give them a call, although someone based in Catalonia would be better suited as there may be differences in local laws
Spanish law tax and more | Spain lawyers accountants in English | ADVOCO


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## DaveInSpain (Sep 21, 2013)

Hi,

Just had an update from HMRC. I have a letter that tells me I can reclaim the NI I have paid while being in Spain but I need to join the Spanish Social security system. This is different to what I was told on the phone but more in line with my expectations. They quote Article 11.3 of EC Regulation 883/2004 for those that are interested.

One other thing to think about if you become Spanish Tax resident is the Modelo 720 form (assets register). How do you value a UK private company for this? I have spoken to two Spanish Accountants about this and neither had a clue so if anyone has the ear of the Spanish Tax authorities and can tell me that would be great!


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## Pesky Wesky (May 10, 2009)

DaveInSpain said:


> Hi,
> 
> Just had an update from HMRC. I have a letter that tells me I can reclaim the NI I have paid while being in Spain but I need to join the Spanish Social security system. This is different to what I was told on the phone but more in line with my expectations. They quote Article 11.3 of EC Regulation 883/2004 for those that are interested.
> 
> One other thing to think about if you become Spanish Tax resident is the Modelo 720 form (assets register). How do you value a UK private company for this? I have spoken to two Spanish Accountants about this and neither had a clue so if anyone has the ear of the Spanish Tax authorities and can tell me that would be great!


If you want to know about tax in Spain, go to your nearest tax office and ask them.
Get it in writing!


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## snikpoh (Nov 19, 2007)

DaveInSpain said:


> Hi,
> 
> Just had an update from HMRC. I have a letter that tells me I can reclaim the NI I have paid while being in Spain but I need to join the Spanish Social security system. This is different to what I was told on the phone but more in line with my expectations. They quote Article 11.3 of EC Regulation 883/2004 for those that are interested.
> 
> One other thing to think about if you become Spanish Tax resident is the Modelo 720 form (assets register). How do you value a UK private company for this? I have spoken to two Spanish Accountants about this and neither had a clue so if anyone has the ear of the Spanish Tax authorities and can tell me that would be great!



Isn't it as simple as the value of the shares allocated? In my case this was just £200 for a company that had an annual turnover in excess of several million.

Might sound strange but isn't this the only way to value a company without going to extraordinary measures? What does your UK accountant say?


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## Chopera (Apr 22, 2013)

sunseekerlondon said:


> ...
> 
> Re. income tax, after doing some more research I really, really do not want to be classed as a Spanish resident!! 47% tax over 25,000 euros, rising to over 53%? That is ludicrously high!! Income tax in Spain - Wikipedia, the free encyclopedia


No it's 47% between €53,407.20 and €120,000.20.

When you take into account that there is no separate, additional National Insurance contribution in Spain it seems better than the UK.



sunseekerlondon said:


> ...
> As it stands, everyone who works for me is on a 'remote working contract' i.e. according to their employment contract they have no defined 'place of work'. All of our registered 'permanent addresses' along with banks registered details are in the UK.
> 
> Brocher... you've raised a couple of points:
> ...


Forget about morals. Worry about you and your employees being prosecuted - the fines for not filling out the modulo 720 alone are punitive enough. You could all end up financially ruined. If your business is as flexible and non-reliant on Spanish services as you say then I think the first thing is to get everyone out of Spain and back to the UK now. Then you can sort out getting your business legal in Spain. You will need to employ a gestora to legalize your business and your tax affairs. You cannot do this alone, or by looking things up on wikipedia. I have worked in two companies where the police have simply knocked on the door of the offices and demanded relevant paperwork. The fines for not having them were in the region of €50k. The Directors paid. And that was 10 years ago. I've known of start-up pubs in Madrid be ruined by this. Your situation is even worse.


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## DaveInSpain (Sep 21, 2013)

Hi snikpoh

That is interesting about valuing a company by its share capital. That would be great if that is the case.

I havent spoken to our UK accountant yet but I hope they can come up with a conservative value for the company.


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## CapnBilly (Jun 7, 2011)

DaveInSpain said:


> Hi snikpoh
> 
> That is interesting about valuing a company by its share capital. That would be great if that is the case.
> 
> I havent spoken to our UK accountant yet but I hope they can come up with a conservative value for the company.


Thats not my understanding of how to value a share holding for the 720.

If its a quoted company, its the average trading value of the shares in the last quarter of the year being reported. 

In terms of non traded (i.e private) shareholdings, then its the value of the last audited accounts, so Equity per share. If there aren't any audited accounts, then its the higher of the nominal share value, the value of the last audited accounts, or 20% of the average profits of the last 3 years


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## DaveInSpain (Sep 21, 2013)

What do you mean by "the value of the last audited accounts"?

That formula would be a very unusual one to apply and would not be how a private company would be valued in the UK. It would more likely be a multiple of revenue or EBIT (or EBITDA) and dependent on industry sector the company was active in.


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## CapnBilly (Jun 7, 2011)

DaveInSpain said:


> What do you mean by "the value of the last audited accounts"? That formula would be a very unusual one to apply and would not be how a private company would be valued in the UK. It would more likely be a multiple of revenue or EBIT (or EBITDA) and dependent on industry sector the company was active in.


 Well, I am only telling you what it says in the law on how to value, but my interpretation is what I put, which is equity per share. In other words, if you sold all the assets, paid off all the liabilities and distributed the remaining assets to all shareholders. It may be a multiple of revenue, if that is higher, as I wrote. It's certainly not nominal share value, unless of course that's higher.


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## DaveInSpain (Sep 21, 2013)

Ok thanks. To be honest I still don't understand your method! 

For the bit where you say it is what is says in the law on how to value, is this information available on an official website somewhere or do you have a document reference so I can get hold of the document? I would like my accountant to interpret it

Thanks


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## CapnBilly (Jun 7, 2011)

DaveInSpain said:


> Ok thanks. To be honest I still don't understand your method! For the bit where you say it is what is says in the law on how to value, is this information available on an official website somewhere or do you have a document reference so I can get hold of the document? I would like my accountant to interpret it Thanks


 Not quite sure why you don't understand, it's a pretty simple principle. Assuming your balance sheet shows the value of the assets, then your net assets ( fixed and current assets less liabilities) have a value. This value is represented by the nominal share value and the retained equity. So if the net assets were all cash , and the company was closed down, the cash would distributed to shareholders as cash per share. It's effectively the net worth of the company. 

I must admit it made sense to me, as it's how I learnt to value balance sheets when lending money, when I worked in banking about a 100 years ago 

Anyway as far as the law is concerned it's Real Decree 19/1991, del Impuesto sobre el Patrimonio, which is the law covering wealth tax, and contains all sorts of information of how assets are to be valued.


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