In order to be able to discuss the taxation of foreign companies, we must first distinguish between what actually constitutes a foreign company and what does not.
CONCEPT OF RESIDENCE IN SPAIN for paying taxes
In order to delineate the different situations that we will discuss, it is necessary to take into account the definition of residence established by law.
According to article 9 of Law 35/2006, it is understood that Spanish residents, for taxation purposes, are individuals:
- who spend more than 183 days during the calendar year in Spanish territory.
- whose main nucleus or base of their activities is located in Spain.
Generally, an entity is considered to be fiscally resident in Spain when it is incorporated in accordance with Spanish Law or it has its registered address in Spain and/or its effective management headquarters is located in Spain.
NON-RESIDENT COMPANIES IN SPAIN and taxes
These are companies that are not domiciled in Spain but that have some kind of link with the territory.
In this case, the payment of taxes will be focused on the taxation of income obtained in Spanish territory, paying the tax called TAX ON INCOME OF NON-RESIDENTS (IRNR). Therefore, the Royal Legislative Decree 5/2004 will be applicable to these companies.
As such, there are two possible situations that can arise:
- If the company has a permanent establishment in Spain, the company will be taxed for each total or partial accrual obtained in Spanish territory that is subject to tax, and the taxation will normally be set at 24%, in accordance with articles 13, 18 and the following articles of the Royal Legislative Decree 5/2004.
- If the company does not have a permanent establishment in Spain, it will be taxed on a single full amount obtained in the tax period and the taxation will normally be set at 24% (19% for EU entities/individuals) (articles 24 and those following of Royal Legislative Decree 5/2004).
At this stage, it is worth noting that Spain has many double taxation agreements which allow the company to avoid double taxation and, thus, promote foreign investment.
* It is highly advisable for foreign companies, and compulsory for non-EU companies, to have a representative, either an individual or a legal entity, to represent them before the Tax Administration. In certain cases, as established in article 10 of the Royal Legislative Decree 5/2004, there is a legal obligation to have one.
Ask our specialist corporate lawyer about representation:
The following article might also be of interest to you:
LEGAL AND FINANCIAL OBLIGATIONS OF COMPANIES IN SPAIN
taxes for NON-RESIDENT COMPANIES THAT are ALSO NOT receiving any INCOME FROM SPAIN
As teleworking becomes more and more commonplace in modern society, new situations have appeared that generate questions for companies. There are basically three main queries that come up in this respect:
- I have a worker in Spain, does my company have to pay taxes?
No, the fact that your company has a worker in Spain does not oblige you to pay taxes in Spanish territory. This fact alone does not create an element of foreignness that binds the company.
- Does the employee have to pay taxes in Spain?
It depends on the amount of time that he/she spends in Spanish territory. If he/she is considered to be resident according to the provisions of article 9 of the Royal Legislative Decree 35/2006, then he/she has to pay taxes.
- If the worker does not pay taxes, am I committing any infraction as a company?
No, it will be the worker's problem. There is not what is known as a 'stranger link' in international law and, for that reason, the company does not have any obligation in this respect and it is not committing the infraction which the worker could be committing according to article 52 paragraph c of the Organic Law 4/2020.
If you have any queries or need advice on taxation in Spain and you'd like that advice to come from a law firm with more than 20 years of experience in the sector, contact Conesa Legal.
