Which country taxes your company when you manage it across borders?

Key rules

• Spanish SL: A company incorporated in Spain is Spanish tax resident even if managed from abroad, and is taxed on worldwide income.
• Foreign company: A foreign company managed from Spain can be treated as Spanish resident.
• Permanent establishment: An office, a long building site or an agent who habitually signs contracts for the company in Spain can make it taxable here.
• Treaty: If two countries both claim the company, the treaty between them decides.

A Spanish SL is always Spanish tax resident

If your company is an SL registered in Spain, Spain taxes it as resident, even if you run it from abroad. It is taxed on its worldwide income. Moving the management to another country does not change that.

A foreign company can still be Spanish resident

Registering a company abroad does not keep it out of Spain's tax net. A foreign company counts as Spanish resident if its place of effective management is in Spain. That means the place where its management and control are centralised. If you make the key decisions from your home in Spain, this is the risk.

Spain also presumes residence in two cases:

• the company's main assets are in Spain;
• the company is based in a tax haven and its main activity is in Spain.

A permanent establishment can arise without residence

Even if a foreign company is not Spanish resident, Spain can tax the profits tied to its Spanish activity. This happens when the company has a permanent establishment in Spain. It arises in two main ways:

• A fixed place of business where the activity is carried on: an office, a branch, a workplace, or a building site that lasts beyond a time threshold, usually 6 to 12 months.
• A dependent agent who habitually concludes contracts in Spain in the company's name.

You can create one yourself. If you live in Spain and regularly sign contracts for a foreign firm, that firm may have a permanent establishment here. Preparatory or auxiliary activities, such as storing goods or gathering information, do not create one.

When two countries both claim your company

Two countries can both treat the same company as resident. A tax treaty between them then decides.

• Older treaties give residence to the country of effective management.
• Newer treaties require the two tax authorities (in Spain, the AEAT) to agree. They weigh the place of effective management, the place of incorporation and other factors.
• If they do not agree, treaty benefits can be denied.

The wording differs by treaty, so read the treaty between Spain and the other country. Get advice from a Spanish tax adviser before you set up or move management of a cross-border company.

How to avoid surprises

• Decide where the company will really be managed, and keep your records consistent with that.
• Check whether your work in Spain involves signing contracts for a foreign firm.
• Check the treaty with the other country before you assume it protects you.

The choices and common questions are below.

Choosing between options

Which country is likely to tax your company when it is managed across borders?

• Spain taxes it as resident: The company is incorporated in Spain, or a foreign company has its effective management in Spain, or its main assets are in Spain.

• Spain taxes only its Spanish activity through a permanent establishment: A foreign company is run from abroad but has a fixed place of business in Spain, or someone habitually concludes contracts in Spain in its name.

• The treaty between the two countries decides: Two countries both treat the company as resident, so the treaty tie-breaker applies.

Start with where the company is incorporated, then where it is really managed. If two countries both claim it, an older treaty gives residence to the country of effective management, while a newer one sends it to the two tax authorities to agree.

Frequently asked questions

Can a foreign company be taxed as Spanish resident if I run it from Spain?

Yes, a foreign company is treated as Spanish tax resident if its place of effective management is in Spain, meaning where its management and control are centralised. Spain also presumes residence if its main assets or, for a tax-haven company, its main activity are in Spain.

Can I create a permanent establishment in Spain just by working for a foreign firm?

Yes, if you habitually conclude contracts in Spain in the foreign firm's name, you can create a permanent establishment for it.

How long can a building site run before it becomes a permanent establishment?

A building site usually becomes a permanent establishment after 6 to 12 months, depending on the treaty. An office, branch or workplace can create one from the start if business is carried on through it.

What happens if two countries both say my company is resident?

A tax treaty decides which country wins. Older treaties give residence to the country of effective management, while newer ones require both tax authorities to agree, and without agreement treaty benefits may be denied.