With and without permanent establishment
Non-resident income tax (IRNR) is not only a tax payable by individuals who are not resident in Spain, but also by companies. The basis is similar: only if a company has economic interests in Spain – i.e. receives income in Spain – will it be subject to filing and paying the tax. These economic interests may include the purchase of a home or office, but also the sale of products in Spain from abroad.
In order to correctly determine the application of IRNR, it is very important to monitor the rules established in the Double Taxation Agreements signed with Spain. Almost all European countries have their own agreement with Spain. In this article, we will focus solely on Spanish law, so I recommend that you review the specific agreement applicable before applying what I am about to explain below.
Permanent establishment or not
There is a big difference between the tax paid by a company with a permanent establishment and one without. That is why it is important to first establish the difference between having a permanent establishment and not having one.
When you have a company abroad and want to carry out activities in Spain, you can decide to operate directly from your foreign company, without further ado. However, if you want to go further and have someone in Spain to carry out your operations or to have a point of contact in Spain, you can also open what is called a permanent establishment.
It is an agent or office of the foreign company, which remains linked to it. It is not a Spanish version of your company, but an extension of it. Through this fixed location, you can carry out part or all of your activities in Spain.
Non-resident income for companies without a permanent establishment
These companies without a permanent establishment will be treated as non-residents in all their activities within Spain. They must file the corresponding income tax return according to the type of income and applicable model and will have to pay the full income tax.
In principle, there is no possibility of deducting expenses, except for the exceptions established by law. This means that you pay 19% (EU) or 24% (non-EU) on all income obtained in Spain, such as:
– Dividends
– Rental income from property in Spain
– Capital gains from the sale of homes in Spain
– Income from owning homes in Spain, for which an estimated amount will be used
At this time, expenses can only be deducted by non-European resident companies when they are provided for in Spanish Corporation Tax and it can be proven that the expenses are directly related to the income obtained in Spain and to the activity carried out by the non-resident company.
Non-resident income for permanent establishments
On the other hand, when a foreign company has a permanent establishment in Spain, regulations similar to those for corporation tax apply, as is the case for European companies without a permanent establishment. In other words, you file your tax return under similar conditions to a Spanish company for corporation tax, with the difference that you use a different form.
Please note that this only applies to income obtained through the permanent establishment. Any income obtained through the foreign company without the intermediation of the permanent establishment will be taxed by the IRNR for external companies without a permanent establishment, as explained above.
Is it worth opening a permanent establishment?
In terms of taxation, it may be beneficial to open a permanent establishment due to the ease and equivalence to Spanish companies. But is it really worth it?
If you would like us to analyse this, please contact us and we will review your specific situation and the applicable agreement rules.
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