A Guide to Non-Resident Company Formation in Spain
If you’re a business owner or an investor that wants to sell to Spanish consumers, but you do not wish to go through the formalities of setting up a company in Spain, then an option you have is to operate as a non-resident company.
In this article, we’ll explore whether setting up as a non-resident company in Spain is the best choice for your business, and how to go about doing so.
When is a Company Tax Resident in Spain?For a company to be resident in Spain, and therefore subject to Spanish corporate tax on its worldwide income, it needs to meet any of the following criteria:
- The company must have been established in accordance with Spanish law
- The company must have its registered office in Spanish territory
- The company must have its effective management headquarters in Spanish territory. (Under Spanish law, a company’s ‘effective’ head office is considered to be in Spain when its business activities are managed and controlled from there.)
Interestingly, a company that is established either in a territory where no tax is imposed or in a tax haven may also be considered to be a tax resident in Spain. This can occur when the company’s main assets are located in Spain, or their core business activity is performed here.
Thus, if a business does not meet any of the above criteria, it may carry out its activities in Spain as a non-resident company.
How to Get Started as a Non-Resident Company
Any business that conducts for-profit activity in Spain is required to register for VAT (IVA). This covers a wide range of activities, such as holding a conference, importing goods, or providing telecommunications services.
The general rate of Spanish VAT is 21%. However, certain products and services, such as health products or hotel stays, benefit from a reduced rate of 10%. A super-reduced rate of 4% is applied to items considered to be basic necessities, like food or books.
How to Register for VAT in Spain
To complete VAT registration, the company, or their representative, must obtain a tax code for the business from Spain’s Tax Agency (Agencia Tributaria). This is done by completing Modelo 036. As part of this process, the applicable VAT regime should be indicated on the form. The VAT code for all non-resident companies will coincide with the tax code with the prefix ‘N’ added.
If this legal or physical person does not already have their own tax code (Número de Identificación Fiscal or NIF), they must first apply for this using Modelo 030.
Depending on the situation of the foreign corporations or individuals, supporting documents will need to be submitted to the Tax Agency before these tax codes can be issued. Details of these, along with further information on the process of Spanish VAT registration for non-resident companies, are provided by the Agencia Tributaria.
Other Applicable Taxes for Non-Resident Companies in Spain
In addition to VAT, a non-resident company that carries out its activity in Spanish territory will be taxed non-resident income tax (Impuesto sobre la Renta de no residentes or IRNR) on business profits obtained in Spain. A list of the various forms related to non-resident income tax are provided by the Agencia Tributaria. The mechanics of this tax rate and the information declared will depend on whether or not the company has a permanent Spanish establishment.
If a company hires workers in Spain, they will be required to pay the Spanish personal income tax (Impuesto sobre la Renta de las Personas Físicas or IRPF). This also means the company will be obliged to withhold tax on the income of each employee that is then paid to the Agencia Tributaria on behalf of the worker.
Non-Resident Companies with a Permanent Establishment
If a business has a permanent establishment in Spain, then it will generally be taxed in Spain. In legal terms, this is a place where the company carries out continuous or habitual work, or when they act through an agent in Spain on a regular basis. Examples of permanent establishments include factories, offices, stores, warehouses, farms, and mines.
The rate of IRNR that a permanent establishment needs to pay is currently 25%, which is the same as the rate of Spanish corporate tax. This is liable to be paid on profits from all activity attributed to the permanent establishment. Additionally, the business will be required to withhold taxes or make tax prepayments under the same conditions as resident individuals or corporations, with the current rate being 19%.
Non-Resident Companies without a Permanent EstablishmentIf there is no permanent establishment in Spain, then usually a company will be taxed separately on each total or partial aspect of its Spanish income. The Nonresident Income Tax Law mentions the following sources of income:
- Profits from economic activities in Spain
- Profits from the provision of services that are used in Spanish territories, such as studies, projects, and technical or support services
- Salary income - either directly or indirectly derived from work carried out in Spain
- Interest or royalties from movable capital from Spanish residents or permanent establishments
- Income from property located in Spain
- Income from marketable securities issued by Spanish resident companies
- Capital gains from the sale of assets or securities issued by residents in Spain
The general rate of taxation is 24% unless the taxpayer resides in an EU or EEA Member State with which there is an effective exchange of tax information. In the case of the latter, the rate is 19%. Dividends, interest, and income from securities are also taxed at 19%.
With regards to withholding rates, information on the double taxation agreements signed by Spain relative to other countries is available from the Agencia Tributaria.
Designation of a Legal and Tax RepresentativeA non-resident taxpayer may be required to have a representative in Spain as a point of contact for the tax office under the following circumstances:
- Those operating in Spain through a permanent establishment
- Those conducting economic activity without a permanent establishment but that permit the deduction of certain expenses
- Entities that are subject to ‘pass-through’ taxation that have been formed elsewhere but do business in Spain
- Those required to by Spanish tax authorities due to the nature or level of income
- Entities or persons resident in countries with which there is no effective system of information exchange and are owners of property situated in Spain
Representation in Spain
If you need legal or fiscal representation in Spain, or you’re looking for help to register for non-resident tax in Spain, contact us below and one of our specialist business lawyers at Strong Abogados will be in touch to arrange a consultation.