“Clearing the bureaucratic hurdles to start a business requires 47 days as compared with seven or eight days in France or Portugal, respectively. The World Bank recently ranked Spain 147th of 183 countries for ease of starting a business. The Democratic Republic of Congo was ranked 146th”
The Spanish government tightly regulates the labor market and makes hiring and firing almost prohibitively expensive. Social security taxes paid by a company to the government on behalf of an employee can come close to matching the gross salary of that worker. Firing employees is expensive because businesses often must give the departing workers big severance checks or must continue to pay their salary for many months. Naturally, under these conditions, employers are unwilling to hire new workers.
Paying workers in stock options is also expensive in Spain. According to Joseph Haslam, a professor at the IE Business School in Madrid, setting up a stock option plan can cost more than $200,000 in legal fees and will incur additional red tape.
The legal and tax systems, according to Haslam, strongly discourage friends and family from investing — the lifeblood of early-stage start-ups.
Should an entrepreneur be lucky enough to actually launch a company, he or she had better pray to make it, because the U.S. concept of limited liability does not exist in Spain. So, debts incurred by a company — including social security debts owed to employees — transfer back to the founders of the company if the company goes belly up. This makes employees that much more costly, because the debt they can incur becomes an albatross preventing the founder from moving on and launching another company. Not surprisingly, Spanish start-ups that should have closed sometimes try to stay open even if they are not growing — all in an attempt to avoid dumping a tax burden on the business owner.