When there is more than one country involved, tax planning requires a level of expertise that few firms can offer. Many of our clients pay personal taxes and business taxes in a foreign country, as well as personal and business taxes in Spain. Strong Abogados has expert advisors who can guide you regarding the proper distribution of assets, dividends and salaries, as well as where to determine residence in order to optimize your overall tax burden.Can I save on personal income taxes by creating a company? In some cases, yes. By creating a Spanish company, your earnings are then subject to the corporate tax rate, which is lower than the top personal tax rate. Maintaining a Spanish company, though, carries accounting and tax filing obligations, so there are costs involved. As a general rule, if you earn more than 50,000€ a year, it's time to start considering company formation as an option. Note that this option is only for those who are self-employed; if you are on payroll, then you will need to convince your company to hire you as a consultant.
Example: Stan is a resident of Spain and earns 100,000€ doing consulting work for an American company. Stan has two choices:
Corporate Income Tax (Impuesto de Sociedades): national
Spain's standard corporate income tax rate is 35%.
Companies with yearly sales of less than 8 million euros may qualify for certain tax incentives:
VAT Tax (IVA): national
The purpose of VAT is as a tax on end-consumers; businesses are generally entitled to deduct VAT borne against VAT charged.
Tax on Business Activity (IAE): local
As of 2003, this tax is waived for businesses that have a profit of under one million euros. This is an annual tax paid by businesses operating in the municipality. This tax rate depends on many factors, such as size and location of the business, the type of business, and number of employees.