How International LLCs are taxed in Spain for Spain tax residents

In this extensive article we will analyze how a foreign LLC works, in which countries it is usually incorporated (USA, Estonia, United Arab Emirates, etc.), its tax advantages and disadvantages, the compliance obligations with the Spanish Tax Agency and the risks of using an LLC solely for tax purposes. We will also explain the transparency requirements and how to correctly declare income in Spain derived from an LLC. Practical cases, common mistakes to avoid, valid legal strategies, and recommendations will be included. The objective is to provide a complete guide – at the level of an International Tax Lawyer in Spain – for Spanish tax residents considering this path of international tax planning.

What is a foreign LLC and why use it from Spain?

An LLC (Limited Liability Company) is a type of business entity characterized by offering limited liability to its owners (members), combining features of corporations and partnerships. Unlike a Spanish SL, the LLC is not a legal figure recognized under Spanish law, but belongs to foreign jurisdictions (USA, some European countries, etc.). In its country of origin, the LLC can operate with great flexibility: for example, in the United States an LLC can choose to be taxed as a separate entity (corporation) or as a pass-through (its profits taxed directly at member level). This versatility makes many professionals consider setting up an LLC outside of Spain to channel international income.

Why would a Spanish resident create a company abroad? Mainly for tax and operational optimization. Common reasons include:

• Deferring or reducing taxation: In Spain, self-employed individuals and individuals are taxed at high progressive rates (which can exceed 45% in IRPF). By using a foreign company, they hope to pay less tax or defer it until profits are repatriated. For example, a U.S. LLC controlled from Spain does not pay tax in the U.S. if income is not sourced there, allowing an initial zero tax rate at entity level.

• Ease of invoicing internationally: A foreign company can simplify invoicing global clients in different currencies, using platforms such as Stripe or PayPal, and generally provide a more international image. For instance, many digital nomads use a U.S. LLC or Estonian OÜ to invoice global clients.

• Fewer local administrative burdens: Some prefer to avoid Spanish bureaucracy (monthly contributions, local bookkeeping, etc.). With a properly structured foreign LLC, they may operate without registering as autónomo in some cases (explained later). This appeals especially to those working 100% online with foreign clients.

• Limited liability and asset protection: Like a Spanish SL, an LLC protects personal assets from business debts. Some jurisdictions also offer privacy: for example, in Wyoming (USA) you can form an anonymous LLC where the owner’s name does not appear in public records. This offers confidentiality, though it does not exempt one from Spanish tax obligations.

In summary, the foreign LLC is viewed as a tool for planning global income, providing flexibility and potential savings. However, “being legal to create it does not mean forgetting obligations in Spain.” The Tax Agency expects residents to declare worldwide income, including through foreign entities. Misuse of the structure may bring more risks than benefits. It is crucial to design the strategy carefully – preferably with guidance from an International Tax Lawyer in Spain or other expert – before operating an LLC while resident in Spain.

Popular Countries to Form an LLC (U.S., Estonia, UAE, and More)

Spanish entrepreneurs have several international jurisdictions they favor when forming an LLC or a holding company. Each country offers different legal and tax advantages. Below, we highlight the most common options and their characteristics.

United States: Delaware, Wyoming, and Other U.S. Jurisdictions

The United States is a top destination for non-residents looking to create an LLC. Its advantages include a fast formation process, low costs, and a flexible system. States like Delaware and Wyoming are particularly popular for their simple bureaucracy and, in Wyoming's case, for allowing owner anonymity. In Delaware, an LLC can be formed in one day without the need to travel and without a minimum capital requirement.

From a tax perspective, a U.S. LLC controlled by a non-resident can be fiscally neutral within the U.S.; if the LLC does not generate income in the U.S., it won't pay corporate tax there. Additionally, single-member LLCs are automatically considered "disregarded entities" by the IRS (the U.S. tax authority), meaning their profits are attributed to the owner. For a Spaniard, this implies the LLC does not pay taxes in the U.S. on foreign-sourced income, and since the owner is neither a U.S. resident nor a citizen, they don't pay taxes on that foreign income in the U.S. either. In practice, the LLC's profitability may remain untaxed in the U.S.

Now, what happens to those profits from Spain's perspective? This is where many people make mistakes. In principle, Spanish law distinguishes whether the foreign entity has its own legal personality or if it's fiscally transparent. The Spanish General Directorate of Taxes (DGT) has clarified that a U.S. LLC with an independent legal personality does not automatically attribute its income to the Spanish owner. This means that as long as the profits remain in the company and are not distributed, they are not taxed under the owner's personal income tax (IRPF) in Spain. The obligation to pay taxes in Spain only arises when money is withdrawn (as dividends, salary, etc.). This interpretation is based on a binding consultation (V3074-22) from 2022.

However, be careful: this general rule has important nuances. If the U.S. LLC is actually a "passthrough" entity (transparent) according to Spanish criteria—for example, by being a single-member LLC and lacking real substance—the Tax Agency could consider it a mere "pass-through entity" and require the Spanish owner to pay taxes on the profits even if they haven't been withdrawn. In fact, Spain's international fiscal transparency regulations state that if a resident controls more than 50% of a foreign low-tax entity that does not have its own material and human resources, its income is attributed to the Spanish owner even if the profits are not distributed (Article 91 of the IRPF Law). In the case of U.S. LLCs, they often have a 0% tax rate there, which Spain interprets as low taxation (less than 75% of the tax they would pay in Spain). Therefore, the Tax Agency can assume that the income earned must be declared in Spain if the resident has the economic right to those profits, even if they are kept in the company's account. We will delve deeper into these assumptions later.

Another aspect to consider is the Double Taxation Treaty (CDI) between Spain and the U.S. This treaty prevents double taxation by recognizing which country taxes certain income. But LLCs create some ambiguity in its application: the CDI assumes that a "company" is a resident of one of the countries and pays taxes there. If the LLC does not pay taxes in the U.S. (because it's transparent there), Spain could argue that the treaty does not protect the taxpayer, since there is no effective double taxation (they will only pay taxes in Spain). On the other hand, if the LLC chooses to be taxed as a C-Corp in the U.S., paying taxes there, then the tax credit for what was paid in the U.S. could be applied when filing the Spanish tax return. This technical distinction often requires advice from an International Tax Lawyer in Spain to decide on the most convenient tax structure for the LLC.

Estonia: e-Residency and the OÜ Company (Osauhing)

Estonia has positioned itself as another attractive destination through its e-Residency program. Any entrepreneur can obtain an Estonian electronic residency and form an OÜ company (the equivalent of a limited company) online in that country. The big advantage is its unique corporate tax system: Estonia applies a 0% Corporate Tax on undistributed profits. This means the company only pays taxes (20%) when it distributes dividends to the owners, but as long as it reinvests or retains the profits, there is no tax on them. This allows, in theory, for the tax burden to be indefinitely deferred if the profits are kept within the company, which sounds ideal for reinvestment and capitalization.

Furthermore, as Estonia is an EU member, operating with an Estonian company facilitates intra-community transactions (intra-community VAT registration, etc.) and offers the appearance of legality that comes from being in a serious European country. Many see Estonia as the modern alternative to a tax haven: low taxation but with the stamp of the EU.

However, from a Spanish perspective, having an Estonian OÜ while you reside in Spain is not the same as evading Spanish taxes. The Tax Agency has focused on these structures, increasing vigilance in sectors like e-commerce, online consulting, and freelancers who invoice through companies in Estonia or other low-tax countries. Let's look at the specific risks:

Effective Tax Residence: Although the company is registered in Estonia, the Tax Agency will examine where it is actually managed and directed from. If you, as the director/owner, make the decisions from Spain and perform the work here, they could consider the Estonian company to be a tax resident of Spain because its effective management is here. Indicators include: most directors are Spanish residents, there are no real employees or an office in Estonia, and the clients or market are primarily Spanish. If these conditions are met, the consequence would be that the OÜ would have to pay taxes in Spain like any other Spanish company (25% annual Corporate Tax on profits), nullifying the advantage of the Estonian deferment.

International Fiscal Transparency: Similar to the case of U.S. LLCs, if the Estonian company is a shell company without its own real economic activity (e.g., you are working alone from here, with no resources in Estonia) and it is controlled by ≥50% by Spanish residents, the Tax Agency can apply the international fiscal transparency regime. This means the income generated by the Estonian company is directly imputed to the Spanish owner's tax base, even if it does not distribute dividends. To apply this, in addition to the ≥50% control, the effective taxation in Estonia must be < 75% of what it would pay in Spain. Estonia is not on Spain's list of tax havens, but its 0% on retained profits amounts to de facto low taxation. If the company never distributes and pays no taxes, the Tax Agency can argue that it's appropriate to impute those profits to Spain each year (especially if there's no real structure in Estonia). There is some legal controversy on this point, since Estonia will tax when money is distributed, but from the Spanish anti-fraud perspective, as long as the profits are not taxed here or there, they will seek to tax them here to avoid a "lack of taxation." It's worth mentioning that Article 91 of the IRPF Law regulates this foreign income imputation regime in detail, including exemptions if it's proven that the entity's formation is for valid economic reasons or that it has material and human resources in its country.

Permanent Establishment in Spain: Even if the company is considered legitimately Estonian (with substance there), if part of the business activity is physically carried out in Spain, a permanent establishment of the company in Spanish territory can be declared. For example, if you serve clients from Spain, have a warehouse or employees here, the portion of profits attributable to that presence in Spain should be taxed here (Corporate Tax via the permanent establishment). In one of the official e-Residency examples, it's stated that if an e-resident entrepreneur lives in Germany and operates their Estonian company from there, they must register a permanent establishment in Germany and pay taxes on profits in that country, with the bilateral treaty applying to avoid double taxation. The same would apply to a Spanish resident with an Estonian company: the profits originating from their work from Spain would be taxed in Spain.

In conclusion, forming a company in Estonia while being a Spanish resident is legal, but not a passport to paying 0% taxes. The authorities will require that there be a real economic justification, with effective resources and operations in Estonia, beyond a postal address or a bank account there. Otherwise, we are facing a simple vehicle to defer taxes that the Tax Agency will treat as an interposed company, with the measures mentioned (effective residence, international transparency). In the risks section, we will delve deeper into the penalties for not declaring these structures. Many law firms strongly recommend consulting with experts (for example, an International Tax Lawyer in Spain knowledgeable about European tax law) before using an Estonian OÜ if you continue to reside in Spain.

United Arab Emirates and Other Low-Tax Countries

The United Arab Emirates (UAE) has gained fame as a destination for establishing companies due to its historic regime of null or very low taxation. The UAE (especially Dubai) offers free zones where foreign companies enjoy 0% Corporate Tax and 0% Personal Income Tax. This, along with the absence of a dividend tax, makes the UAE a magnet for entrepreneurs seeking to minimize their tax burden. If a Spanish tax resident forms a company in the UAE (or other zero-tax jurisdictions like certain Caribbean islands, Hong Kong in some cases, etc.), can they benefit?

In legal terms, Spain allows for having companies abroad, even in tax havens. It is not illegal to open a company in Dubai or the Virgin Islands. However, Spain's anti-avoidance rules come into play with force: it will be presumed that the main objective of that structure is tax evasion, unless there is proof of real activity abroad. With the Emirates, it's worth noting that it was traditionally on Spain's list of tax havens (until recent information exchange agreements). In any case, the UAE meets the two typical conditions of a tax haven: null taxation and information opacity. Thus, the Tax Agency will directly apply international fiscal transparency if the Spanish resident controls the company in the Emirates and it pays less than 75% of the taxes it would pay in Spain (which is 0%, clearly lower). The passive income obtained by said entity (for example, personal consulting profits without a local structure) will be imputed to the Spanish owner year by year.

Furthermore, the Administration could argue that the Emirates company has its effective management in Spain if it is really managed from here. Let's remember: if the director and owner live in Spain and the company has no employees or offices of its own in the UAE, the chances of the Tax Agency considering it a mere "front" are high.

It's worth mentioning that recently (starting in 2023) the UAE introduced a 9% Corporate Tax for certain local companies, seeking to align with international standards. However, many companies in free zones or with international activities can still effectively pay no taxes (or pay a low fixed rate). This means that for Spanish purposes, they continue to be "low-tax." Unless the company in the Emirates has a genuine activity there (e.g., offices, local employees, real business in the Gulf region), it will face the same scrutiny as any offshore structure: if the profits end up flowing to the Spanish resident, they must be declared here.

Other Jurisdictions: In addition to the U.S., Estonia, and the UAE, some professionals consider countries like Ireland or the Netherlands (for their startup environment, although their tax rates are not especially low), Portugal (which has an NHR regime for individuals, but not specifically for companies), Malta or Cyprus (lower taxation through tax refund systems), Hong Kong, Singapore (moderate taxes and good financial infrastructure), and even classic tax havens like Andorra or Switzerland for those who manage high net worths. Each case has its peculiarities and international treaties. For example, Cyprus offers a 12.5% Corporate Tax rate and is in the EU, but has been under the scrutiny of the Tax Agency just like Estonia due to Spanish entrepreneurs creating companies there. Andorra is no longer a tax haven for Spain and can be an option if one moves to live there; but if one resides in Spain and opens an Andorran company, the same anti-abuse rules apply.

In general, any country with low taxation will attract the attention of the Tax Agency if the ultimate beneficiary lives in Spain. Therefore, before setting up structures in exotic places, it's essential to evaluate: Is there a real business reason to operate from there (local market, infrastructure, investors)? If the only motivation is tax-related, the Tax Agency will know how to interpret it.

Tax (and Non-Tax) Advantages of Operating with a Foreign LLC

Despite the risks we will detail, properly used foreign LLCs offer several legitimate advantages for tax residents in Spain. We highlight the main ones:

Tax Deferment: One of the most cited advantages is being able to decide when to pay taxes in Spain. If the LLC has a separate legal personality, its profits are not taxed under the Spanish owner's IRPF until they are distributed. This allows for postponing the tax burden: the money can remain within the company without immediately paying IRPF. The owner chooses when to withdraw it (for example, in years when it is fiscally convenient). This contrasts with the self-employed or Spanish limited company (S.L.) model, where income is normally taxed every year. Example: A consultant could leave the profits from 2025 within their LLC and not be taxed on them that year in Spain, distributing dividends gradually in subsequent years to avoid jumping to a higher IRPF bracket. (Note: You must be cautious if international fiscal transparency applies, but in valid situations, deferment is possible.)

Optimization of the Total Tax Burden: By channeling income through a foreign company, it's possible that the income ultimately reaches the owner with a lower effective tax rate. For example, if structured well, withdrawals can be in the form of dividends, which in Spain are taxed in the savings base (19%-23% depending on the amount) instead of being taxed as employment or economic activity income (which is based on the general rate up to ~47%). Even by adding some corporate tax abroad, a lower tax burden can be achieved than if everything were taxed as pure IRPF. Likewise, while the funds remain in the LLC, they can be used for deductible business expenses (investment in equipment, marketing, training, business travel, etc.), reducing the net profit before a future distribution. This allows for international tax planning with the help of an International Tax Lawyer in Spain to "pay what is fair" legally.

Flexibility and Control Over Income: With an LLC, the professional has more freedom to organize their collections and payments. They can invoice clients all over the world under the entity, keeping income in different currencies, using banks outside Spain, etc. They can also choose how to pay themselves: via payroll, dividends, loans, etc., as convenient. This flexibility can also be useful for optimizing other aspects (for example, perhaps one year it's in their interest not to receive income so as not to lose a scholarship or aid, or to move down a bracket; with the LLC they could do this). As one consultancy pointed out: "you control the moment the income reaches your pocket," allowing for year-to-year planning.

Limitation of Liability and Asset Protection: Just like a limited company, the LLC protects your personal assets from commercial debts. This is important for any business. Additionally, separating personal activities from business activities through a foreign entity brings order: your contracts with clients, your collections and operational payments are made in the name of the LLC, which can simplify accounting and convey professionalism. For example, a freelance developer with clients in several countries can operate under their LLC (with their brand), instead of as an individual, which projects more confidence to certain corporate clients.

Lower Labor and Administrative Costs: If structuring the activity via an LLC means you don't have to register as a self-employed person in Spain, you save the self-employed contribution and certain formal obligations (local accounting, periodic withholdings, Spanish VAT, etc.). Many digital nomads who work online, without employees or an office in Spain, manage to operate only with the LLC and not contribute as self-employed here. This means a saving (the self-employed contribution in Spain in 2025 can be between €230 to more than €500 per month depending on income). However, you have to evaluate the pros and cons of being outside the Spanish Social Security system (for example, you don't contribute for a pension in the meantime). But in the short term, it's a relief from costs and paperwork.

VAT and International Invoicing Advantages: If you sell digital services or products abroad, doing so through a company not established in Spain can simplify VAT. For example, a U.S. LLC that provides digital services to clients anywhere generally does not have to charge European VAT, since the service is considered to be outside the EU. This avoids having to deal with Spanish VAT or the OSS regime. VAT would only come into play if part of the activity is carried out from Spain, or there are Spanish clients. In summary, a well-located foreign LLC can have fewer VAT obligations in its operations with international clients (although you have to be attentive to the thresholds in the EU if they sell physical products, etc., in which case another structure might be more convenient).

Privacy and Confidentiality: Some jurisdictions allow the identity of the LLC owners to be kept private. Without getting into opaque purposes, this can be a legitimate advantage to protect your privacy from competitors or clients. For example, a Wyoming LLC does not publish the names of its members, and bank accounts can be in the company's name alone. For an entrepreneur who values their online anonymity (e.g., income from websites, cryptocurrencies, etc.), operating under an anonymous entity adds a layer of privacy. Of course, anonymity is relative: it does not exempt you from declaring to the tax authorities when appropriate, and banks apply KYC rules, so your data is somewhere. But at least you're not as publicly exposed.

In summary, a foreign LLC can be a useful tool for those with international businesses, offering them tax planning, financial flexibility, and legal protection. Many of these benefits are only achieved if the structure is used correctly and within the legal framework. Otherwise, the same advantages can turn into disadvantages if the Tax Agency reinterprets the situation (for example, if you deduct expenses in the LLC but they are later rejected because they consider it your alter ego). For this reason, it is always advisable to outline the operation with specialized advice—ideally with an International Tax Lawyer in Spain familiar with offshore structures—to maximize the advantages without incurring infractions.

Tax Obligations in Spain: Compliance with the Tax Agency and Transparency

Being a tax resident in Spain means being subject to the principle of worldwide income: you must declare all your income in Spain, regardless of where it is generated or through what vehicle. This does not prohibit having companies abroad, but it does imply that the Tax Agency will demand transparency about them. Below, we list the main obligations and compliance requirements that a Spanish resident operating with an LLC or another foreign entity must meet:

1. Declare Personally Received Income (IRPF): If you get money from your LLC—whether in the form of dividends, salaries, or fees—you must include that income in your annual tax return (Form 100). For example, if in 2025 you transfer €30,000 from the LLC's account to your personal account as a profit distribution, you will have to pay taxes on it in your 2025 IRPF, typically as a return on movable capital (dividends) or labor income (if it were a salary). Spain will tax that income by applying its IRPF tables, although you could deduct some foreign tax paid on that income (for example, withholding tax at the source) thanks to treaties to avoid double taxation, if applicable. Important: Even if you call the transfer a "loan" or similar, if in practice it's for your personal use, the Tax Agency can re-characterize it as received income.

2. Declare the Existence of Assets or Goods Abroad (Form 720): Spanish regulations require reporting on certain assets abroad when they exceed a value of €50,000. Form 720 is filed annually (before March 31st) to declare assets in three categories: bank accounts, securities or shares, and real estate abroad. If your LLC has bank accounts abroad for which you are the holder (or authorized), or if you own significant shares in the entity, you could be obligated to report it. A nuance: the €50,000 limit refers to assets in your personal name; for example, if the bank account is in the name of the LLC and you are not an individual holder, technically that account is not declared on your Form 720. Nor is "the company" itself declared on Form 720, since this form does not contemplate reporting companies as such. However, be careful! This is not a free pass to hide funds in the LLC. If you are the true owner, you must be able to justify where those resources come from if the Tax Agency ever asks. In addition, shares in foreign entities can be considered "securities" to be declared on Form 720 if they exceed the threshold. It's advisable to analyze each case with your tax advisor. Not filing Form 720 when obligated carries significant fines, and although the EU struck down the disproportionate penalties, it is still mandatory to file it.

3. Informative Declaration of Attributed Income (Form 184): If the Tax Agency considers your LLC to act as an income-attribution entity, you might have to file Form 184. This is the form filed by entities under the attribution regime (such as property communities or civil partnerships) to report the income that "passes through" to the owners. In the international context, it is used when a foreign entity is equated to this regime. For example, if your LLC is single-member and does not have a recognized legal personality for Spanish tax purposes, they could require you to report the net profits on a Form 184, indicating that 100% is attributed to you as the owner. That same profit is then included in your IRPF. In contrast, if the LLC is treated as an independent company, there would be no Form 184 (only taxation when there is a distribution). In practice, the Tax Agency analyzes each case: a key criterion is the number of LLC members and the substance. With a single member, it is more likely that they will apply direct attribution (transparency); with several members and real operations, perhaps not. In any case, ignoring the profits under the pretext of "I didn't repatriate them" is dangerous: if they later inspect and decide that you should have declared them, they could penalize you for concealing income. The golden rule is: if you control the entity and it is not paying taxes abroad, assume that you must report its profits in Spain, for safety.

4. Corporate Tax or Permanent Establishment: In special circumstances, your LLC could be subject to Spanish Corporate Tax. This would happen if the company were considered a tax resident in Spain (by the criterion of the effective management headquarters, Article 8.1.a of the IS Law) or if a permanent establishment is configured here. For example, if your U.S. LLC opens an office in Spain or a warehouse without creating a local S.L., it should declare taxes as a PE. In most cases of digital nomads, there will be no formal PE; the risk is more that the entire entity is declared a resident. If that happens, you would have to file the annual Corporate Tax Form 200 for the company, paying 25% on profits, in addition to complying with Spanish accounting obligations. It's a scenario to avoid through proper planning of the company's substance (or simply by paying IRPF instead of risking being made to pay IS retroactively).

5. Obligation to Inform About Foreign Assets (Form D-6, ETE): In addition to the Tax Agency's Form 720, there are other informative declarations, for example, Form D-6 (annual declaration of Spanish investments abroad, for negotiable securities) and the Bank of Spain's ETE Form (for foreign transactions and balances exceeding €1 million). Depending on the magnitude of your operation with the LLC, it could require D-6 (for example, if you have shares in a listed LLC, which is uncommon) or ETE if you move large flows. These are less-known forms but they exist for capital control purposes.

6. Transactions Between Your LLC and Yourself or Your Spanish S.L.: If, in addition to the LLC, you maintain an S.L. in Spain or are simply a self-employed individual here, and you carry out cross-operations (the LLC invoices services to your S.L., or your S.L. pays the LLC), you must carefully document those operations. The Tax Agency, in an inspection of your Spanish company, will closely review payments to related entities abroad. They will demand to see contracts, detailed invoices, proof that the service was actually provided, and that the price is at market value. If you cannot justify it, they will deny the deduction of the expense in the Spanish company and recalculate taxes as if that payment to the LLC had never occurred (increasing the profit subject to Corporate Tax). They could even interpret it as a disguised way of taking money to a tax haven and apply penalties. Therefore, documentation and transfer pricing must be taken care of: a written contract between your S.L. and the LLC, describing the service; rates aligned with the market (do not artificially inflate expenses); evidence of deliverables (emails, reports, work done). This ensures that the operations are defensible. Likewise, if the LLC provides you with services as a self-employed person (less common case), in theory, they would also have to be at market value, although since it's the same person it's complicated—normally in such a case the LLC concentrates all the invoicing and you later take out the money, so this doesn't apply as much.

7. Maintain Clear and Coherent Accounting: Although your LLC is in a country where exhaustive accounting is not required (for example, in the U.S., many foreign LLCs only file minimum forms), from the Tax Agency's perspective, it is highly recommended to keep internal accounting books for the LLC's activity. If they investigate you one day, you will need to demonstrate how the profits were calculated, what expenses were deducted, etc. The Tax Agency could ask you for bank statements of the foreign company. Having the LLC's bank statements, balance sheets, and annual income statements is very useful to support your declarations. It is also advisable to keep the foreign tax forms you file (e.g., Form 5472 in the U.S. if applicable, e-Residency certificates, etc.). The lack of an orderly record can work against you if a discrepancy arises.

In summary, complying with the Tax Agency when you operate with international structures requires diligence and transparency. You must declare everything that is due in Spain: personal income from the LLC, information on foreign assets, and possibly undistributed profits if the CFC regulations apply. Skipping any of these obligations due to ignorance or bad advice can be very expensive. For example, not filing Form 720 when you have >€50k abroad could imply fines of €5,000 per omitted data (now limited after a European ruling), and not declaring LLC income in IRPF can lead to penalties of 50% to 150% of the defrauded amount. The good news is that, with the right guidance, these obligations can be met without major problems, and thus your planning will be legal and secure. It's better to invest time in paperwork than to face the Tax Agency later.

Next, we analyze the specific risks of setting up an LLC for tax reasons alone, to understand what practices to avoid and how to do it correctly.

Risks of Using an LLC for Tax Purposes Only (Interposed Company)

If the only motivation for establishing an LLC abroad is to "pay less taxes" without a real economic basis, you run the risk that the Spanish Tax Agency ("Hacienda") will classify the structure as a simulation or a legal fraud. Let's look at the main risks and how the Tax Agency addresses them:

1. Reclassification as concealed personal income

When a person uses a shell company to channel income that actually comes from their personal work, Hacienda can apply the "look-through" principle and consider that income to belong directly to the individual. In practice, they could re-liquidate the professional's Personal Income Tax (IRPF), imputing 100% of the company's income and expenses as if the entity never existed. This often happens with instrumental companies for professionals within Spain, and the same reasoning applies to foreign companies. For example, if you are a consultant who bills €200,000 a year through a Delaware LLC, but you are the one doing the work from your laptop in Madrid, Hacienda could say: "the LLC has no substance, all that income is actually the consultant's income in Spain" and will issue an IRPF settlement for those €200,000 (maybe deducting some justified expenses). With penalties and interest, of course.

2. Effective tax residence criterion of the company

As we mentioned in the Estonia section, Spanish law establishes that an entity incorporated abroad can be considered a resident in Spain if its effective management and direction are exercised from Spain (and it is not subject to a foreign tax analogous to the Corporate Tax for a minimum of 10%). Hacienda has been applying this criterion in recent inspections, so even if the company has a legal domicile abroad, it will subject it to Spanish tax if it sees that all signs point to Spain. Red flags include: key decisions made in Spain, administrators who are mostly residents in Spain, lack of own employees in the country of origin, lack of offices or activity there, a majority of non-local clients or suppliers, and profits that end up back in Spain. If several of these points are met, your LLC can "lose its foreign passport" in the eyes of Hacienda and be treated as a hidden Spanish company. The consequences: payment of the Corporate Tax in Spain for non-prescribed tax years (25% of profits), possibly surcharges for late filing of form 200, etc.

3. Application of the International Fiscal Transparency (TFI)

This anti-tax haven regime was designed precisely "to prevent a lack of taxation" when residents hide income in opaque offshore companies. If your LLC meets the conditions (control ≥50% by Spanish residents and an effective tax rate < 75% of the theoretical rate in Spain), Hacienda will force you to declare the entity's positive income each year. It doesn't matter if you haven't distributed a single cent; it is understood that you have a right to those profits and that they are only parked abroad to evade taxes. Especially if the company's activity is merely passive or does not require a structure (e.g., financial income, royalties, personal consulting), the imputation is total. Article 91 of the IRPF Law details that the entity's total income will be imputed if it does not have the corresponding organization of material and personal means. The only exception is if you can prove that the company has its own business with real assets or responds to valid economic reasons. Therefore, an LLC without employees, without an office, managed 100% by you from Spain, falls squarely into this category of an "instrumental company," and no dividend distribution is valid: you would have to pay taxes on its earnings in your annual IRPF. Ignoring this obligation exposes you to penalties for concealment when you are discovered.

4. Undisclosed permanent establishment

Another contingency is that, even if you do not consider that you have a presence in Spain, Hacienda may think otherwise. For example, if you bring merchandise to Spain to sell (even if it's through your LLC), or you have people working for the LLC from here, they could claim that there is a permanent establishment (PE). A PE means paying taxes in Spain on the profits attributable to that local operations base. Not declaring a PE when one exists constitutes a serious offense. It is true that in purely one-person online businesses, it is difficult to constitute a PE in the traditional sense (a PE normally requires facilities or dependent agents). But it's worth keeping in mind if the structure grows.

5. Administrative penalties and criminal liability

The most tangible risk of all is that of economic and even criminal penalties if it is considered that there has been fraud. Hacienda can impose fines ranging from 50% to 150% of the defrauded amount for not declaring income from foreign companies. For example, let's assume that in 3 years your LLC generated €100,000 in undeclared profit in Spain; the omitted IRPF amount could be around €45,000, and the penalty could be 100%, i.e., another ~€45,000 fine, plus late-payment interest. Furthermore, if the defrauded amount in a year exceeds €120,000 (the tax crime threshold), we would be facing a criminal tax offense, exposing you to a judicial process and possible prison sentences. It is not frequent to get to this point in nomad contexts (it would have to be very high hidden income), but it is a real risk. Even without reaching the criminal level, administrative penalties for unfiled forms (720, 184) or for poorly justified payments between related parties can add up. For example, not filing form 720 carries a fixed fine of €5,000 per piece of data (now limited by the new regulations to a smaller maximum, but there is still a penalty). And let's remember that Hacienda has 4 years (or more if there is a crime) to investigate backward.

6. Loss of future tax benefits

A collateral effect is that, if you are caught with an opaque structure, you will lose credibility with the Administration. You could be marked for subsequent inspections. In addition, you could be excluded from certain aid or special regimes. For example, you could not try to regularize your situation under the Beckham Law or another regime because the previous fraud would prevent it (the Beckham law is for expatriates, but as an analogy, a stained tax record closes doors). A serious penalty can even affect you in the eyes of third parties (banks, investors).

Common errors that lead to these risks:

Many of the problems arise from planning errors or false beliefs. Some common mistakes of those who set up an LLC from Spain are:

Thinking that anonymity solves everything: "Since my LLC is anonymous in Wyoming, Hacienda will never know it's mine." This is misleading, since Hacienda may not find out automatically, but as soon as there are suspicious bank movements, it can investigate and pull the thread. For example, if you regularly receive transfers from a U.S. account to your Spanish account, or if you buy a house and cannot justify income, the alarms will sound. Anonymity does not exempt you from declaring when the money reaches you.

Using the company account for personal expenses: Paying your own expenses from the LLC's card or account—such as the mortgage on your house in Spain, your children's school, etc.—is a serious mistake. Those "official" expenses in your name leave a very clear trail that you are using funds from an undeclared entity. In addition, they are difficult to justify in the LLC's accounting (they are not business expenses). The correct thing to do is to only charge the company for expenses related to its activity, and not to confuse the pockets.

"Not declaring until I exceed €50,000": Some believe that if the amount is small or as long as they do not reach the threshold of form 720, there is no obligation. This is false. All income must be declared, even if it is €5,000. Form 720 is for providing information about assets; it does not exempt you from paying taxes on income below anything. There are also those who think "as long as the money is outside and I don't bring it in, I don't pay." As we have explained, that is only partially true and with conditions; if you control the money outside, Hacienda can understand that you should pay taxes on it here even if you have not physically brought it in. There is no impunity for small amounts: in fact, Hacienda cross-references data and detects discrepancies even of a few thousand.

Lack of documentation and formality: Setting up the LLC and starting to invoice without even signing an Operating Agreement, without keeping separate accounts or service contracts, is a sure path to problems. In the event of an inspection, if everything was done verbally or improvised, it will be very difficult to defend the legitimacy. It is always advisable to formalize in writing the relationship between you (or your Spanish SL) and the LLC: a service contract, minutes of the LLC's decisions (even if you are the only one), etc. This shows that the structure had substance and rules, not that it is a simple alias of yours.

In conclusion, a purely instrumental LLC for evasion purposes is a house of cards that Hacienda can bring down with its legal tools. The Spanish Tax Agency is very aware of these practices and has intensified inspections in this area in recent years. If it detects irregularities, it will apply all possible avenues: declaring the company a resident in Spain, imputing undeclared income, settling past tax amounts, and imposing penalties. The economic and legal consequences can be very serious, ruining the supposed "savings" obtained and even compromising your financial situation.

The key to avoiding these risks is not to use the LLC only as a tax artifice, but to integrate it into a coherent and legal strategy. In the next section, we will see how an operation with an LLC can be validly structured, with practical cases of good use, and what strategies an International Tax Lawyer in Spain would recommend for navigating this terrain.

Legal strategies and practical cases of structuring with an LLC

Despite the risks mentioned, it is possible to use a foreign LLC legally and beneficially. The difference between legitimate tax planning and an infringement is in the details of the execution. We present below practical cases and valid strategies that serve as a guide:

Case 1: Digital nomad invoicing with a U.S. LLC (100% online activity)

Situation: María is a web developer, a tax resident in Spain, who works for international clients (U.S., UK, Australia). Instead of registering as a self-employed person in Spain, she decided to create an LLC in Florida (U.S.) to issue her invoices. All her services are provided online. She has no office or employees in Spain and works from her laptop while traveling. María keeps the profits in the LLC's bank account in the U.S. and only transfers what is necessary for her monthly expenses to her personal account.

Correct tax treatment: María does not pay taxes in Spain on the LLC's profits as long as she does not receive them personally, according to the general rule of the DGT (General Directorate of Taxes). In the U.S., her LLC, being a foreign one, does not pay taxes on that income. However, María does declare the amounts she transfers to herself personally in her IRPF (as dividends). Each month she pays herself a "salary" of €2,000 from the LLC; at the end of the year, she includes €24,000 in her Spanish income tax return as employment income (or dividends if she formally does it via distribution). By keeping most of the profits within the LLC, she defers taxation on that surplus.

Additional obligations: María checks each year if the LLC's account in her name exceeds €50,000; for now, it doesn't, so she does not file Form 720 (let's remember, the corporate account is not declared if she is not the personal holder). She also does not file Form 184 because, by giving the LLC a certain structure (it has a virtual office in the U.S., and the DGT would consider it to have a legal personality), its income is not automatically attributed. Of course, she keeps detailed accounting for the LLC and keeps expense invoices (hosting, software, etc.) to justify what profit remains inside.

Aspects to be careful with: María makes sure she has no "footprint" in Spain: she does not offer face-to-face services here, nor does she run ads aimed at the Spanish market, nor does she have local employees. This way she avoids her activity being considered localized in Spain for VAT or self-employment purposes. She also maintains a strict separation of expenses: the LLC pays for software, domains, and perhaps business trips to conferences; but María does not pay her rent in Spain with the LLC's card. Everything is well-documented. This structure, as it is, is legal and efficient: María reduces her taxable base in Spain (she only declares what she withdraws) and complies with the regulations. In case of an inspection, she could demonstrate with statements that she did not use LLC funds for hidden personal expenses and that when she did use them (transfers to Spain) she declared them.

Possible improvement: If over time María accumulates a lot of profit in the LLC, she plans to reinvest in her own business (for example, developing a SaaS) or even move out of Spain in the future to take advantage of those funds. That is another strategy: if in a few years she decides to reside in another country with lower taxation, she could distribute the profits then. This requires tax residence planning, where she would undoubtedly rely on an International Tax Lawyer in Spain to coordinate an orderly departure.

Case 2: International consultant with a company in Estonia and in Spain (mixed structure)

Situation: Pablo is a digital marketing consultant residing in Spain. He has some clients in Spain and others abroad. He wants to benefit from Estonia for his international clients, but at the same time he needs "justifiable" income in Spain (for example, for a mortgage). The solution he designs, with professional help, is to set up two companies: a Spanish SL and an Estonian OÜ. The Spanish SL is in charge of invoicing Spanish clients or projects that require local work; the Estonian OÜ invoices foreign clients and online projects.

Operation: Pablo is the administrator of both companies. When a client from outside arrives, he signs a contract with the Estonian company. When it is a project in Spanish territory (e.g., face-to-face consulting, local event), he does it via the SL. Pablo sets a modest salary for himself in the Spanish SL as an administrator, enough for his expenses and to contribute to Social Security (so he has coverage and can show a payslip). Meanwhile, he leaves most of the profits from abroad in the Estonian company without distributing them. Between the two companies, they establish a real service contract: sometimes the Estonian OÜ provides technical support to the Spanish SL on certain international projects, and the SL pays Estonia a fee (all justified with contracts and market prices).

Advantages: With this configuration, Pablo optimizes taxes legally. The local business part pays taxes in Spain (the SL pays its Corporate Tax of 25%, and his salary is subject to IRPF and contributions). The international part is taxed at 0% in Estonia as long as he does not distribute it. When he wants to distribute it, he could do so as a dividend to himself; thanks to the Spain-Estonia treaty, those dividends would be exempt from withholding tax at source and would be taxed only in Spain as a foreign source dividend (19-23% IRPF, with a 40% exemption if they came from a ≥5% stake and 1 year, but since he is a natural person that exemption does not apply, it is for companies). Even so, paying 20% on deferred dividends can be more advantageous than having paid up to 47% in IRPF if he had collected them directly as a consultant.

Controlled risks: To avoid problems, Pablo ensures that the Estonian OÜ has sufficient substance: he hires a virtual secretary in Tallinn who answers calls, rents a small shared office space where the company's servers are located, and occasionally holds meetings there (he travels a couple of times a year for meetings). He also tries to get some local clients in Estonia or the EU to demonstrate activity outside of Spain. All this so that, in case of an inspection, he can argue that the Estonian company really operates independently, and is not just an artifice. Even so, Hacienda could examine the effective residence; Pablo mitigated the risk by not having a majority of Spanish administrators (he has appointed a minority Estonian partner with 10% of the company who lives there as co-administrator). These are refined measures, usually suggested by tax lawyers, to strengthen the defense in case of a dispute.

Result: This mixed structure complies with the law and gives Pablo peace of mind. He declares all his income: that of the SL via payroll and Corporate Tax, and that of Estonia he will declare when he receives dividends. He files form 720 because his shares in the OÜ (90%) exceed €50,000 in value. He also files form 232 on related-party transactions in Spain, reporting the transactions between the SL and the OÜ (since they are >€250,000 annually summed, let's assume). Everything is transparent. Hacienda has no reason to penalize because Pablo hides nothing; in the worst case, it could try to apply international tax transparency to the OÜ if it estimated that there is passive income, but with the substance provided it would be debatable. And even if it had to impute something, Pablo has calculated not to accumulate excessive profits in Estonia to avoid entering the realm of crime.

This case illustrates a valid strategy: combining a foreign entity with a local presence to cover both bases. Of course, it entails more costs (maintaining two companies) and requires continuous advice, but for certain income levels, it is justified.

Case 3: A Spanish businessman who ignored declaring his LLC (what not to do)

Situation: Juan, a resident in Spain, created an LLC in Wyoming for his dropshipping business. For 3 years, he billed ~€80,000 annually through the LLC, selling products to clients in the EU. He did not file any declaration in Spain, thinking that by not bringing the money in, he was safe. He also did not file form 720 as the LLC's account was in the company's name. He paid for personal expenses with the company card from time to time.

What happened: Hacienda detected PayPal movements and a discrepancy: it saw that Juan declared almost no income, but had a comfortable lifestyle. It initiated an inspection, requesting proof of his income. As he could not justify it with declared income, they investigated his accounts and international connections. Finally, they found the structure: they discovered payments from the payment gateway to the LLC's account. With that evidence, they classified the LLC as an intermediary company. They applied international tax transparency retroactively: they imputed the LLC's profits for 3 years (approx. €240,000) in his corresponding IRPF, generating significant unpaid taxes. In addition, as he had not filed form 720 and there was evidence of voluntary concealment, they imposed penalties of 100% of the defrauded amount. Summing everything up, Juan faced a debt with Hacienda that exceeded €120,000, so he was accused of tax crime. He ended up negotiating a plea agreement to avoid prison, paying fines and interest that practically doubled the original undeclared amount. His name remained on lists of debtors and he had serious financial difficulties.

Lesson learned: This example (fictitious but based on real problems) shows that "I don't find out, I don't declare" is catastrophic. Juan could have structured his business efficiently (for example, via OSS for European sales VAT, and declaring his profits with planning) but the decision to hide everything was very expensive. Any International Tax Lawyer in Spain would have warned him that it was a matter of time before the data flowed: today, payment platforms and banks report information (via CRS, via specific requirements), and Hacienda cross-references a multitude of data.

What should Juan have done? If he wanted to keep the LLC, he should have regularized his situation by filing IRPF each year with that income or looking for alternatives (perhaps taking advantage of the new digital nomad visa to pay taxes as a non-resident at 24%, if he met the requirements). Or even change his tax residence outside of Spain if his life allowed it. The worst thing is the combination of staying in Spain and not declaring. This is the textbook case of what not to do.

Recommended strategies and final recommendations

After analyzing the above, let's list some valid legal strategies and key recommendations for anyone who wants to use a foreign LLC as part of their structure while in Spain:

Seek professional advice before acting: It seems obvious, but many set up structures by reading blogs or forums. Each personal case has its nuances (residence, type of income, applicable treaties). Therefore, consulting with an international tax expert (an International Tax Lawyer in Spain or a specialized advisor) is essential before incorporating the LLC. The expert can diagnose whether it really suits you, which jurisdiction is best according to your activity, and what obligations you will have. This initial planning prevents problems.

Have a genuine business reason for the LLC: The foreign company must be able to justify its economic purpose. Examples of legitimate reasons: getting closer to your international clients (a U.S. LLC to sell better in the U.S.), taking advantage of a business ecosystem (creating a company in Estonia to participate in its startup environment), diversifying country risk, etc. Even operational reasons such as facilitating collections in dollars or accessing certain suppliers. If tomorrow Hacienda asks, "why did you create this entity in X country?", having a credible answer beyond "to pay less taxes" will make a difference.

Provide substance to the foreign entity: As much as possible, give the LLC a life of its own: open a bank account in its name, a corporate website, a company email, a phone number, etc. Ideally, have staff or assets in its country: a part-time employee, a physical address (even a coworking space), some local clients. All this is meant to demonstrate that it is not a phantom entity. The more elements of substance you have, the less likely Hacienda is to treat it as transparent or resident here. This is especially important in low-tax jurisdictions to defend yourself against a possible adjustment.

Comply with all formal obligations in Spain: File your informative forms (720, 184, 232, etc.) punctually if they are due. Declare in your IRPF what you must declare. It is preferable to declare more (out of caution) than less. If it turns out that you didn't have to attribute a certain income to yourself and you did, Hacienda will not penalize you for overpaying (you could request a correction). On the other hand, if you did not declare and then they decide you should have, the penalty is certain. Also, keep all supporting documentation as we mentioned (invoices, contracts, statements). Proactive transparency reduces the suspicion of fraud.

Avoid improper mixing between person and company: Keep finances 100% separate. Do not use the company as a personal wallet. If you need money, formalize the act (a dividend with a partners' agreement, a salary with an employment contract if it fits, etc.) and declare it. Do not "mix" personal expenses in the LLC's accounting. This not only protects you financially, but it is also healthy for your business (financial clarity).

Transfer prices at market value: If your structure has several parts (e.g., the case of the SL and the LLC), any transfer of resources between them must be at market price. This implies perhaps obtaining comparable data or simple rate studies. For example, if your LLC provides a service to your SL, make sure to charge a reasonable price similar to what a third party would charge. This way, in an inspection, you will be able to defend that you were not artificially diverting profits from one place to another.

Strategically plan the repatriation of funds: If you have accumulated profits in the LLC, think about how and when you will bring them to Spain. You can take advantage of sabbatical years, or divide them over several years so as not to jump tax brackets, or perhaps reinvest in growth until the distribution is more efficient. Another option is to change your tax residence in the year you will repatriate (for example, moving to a country with a beneficial treaty or no tax on dividends, during that year). These maneuvers require advice to execute them legally (complying with residence tests, etc.), but they are feasible. The important thing is not to improvise large withdrawals without having analyzed them: there could be withholdings in the LLC's country, or implications for benefits (if you withdraw everything at once, you might lose some deductions).

Consider special regimes if they apply: For example, if you are a foreigner and you come to live in Spain, consider the Expatriate Tax Regime (Beckham Law) instead of setting up an opaque structure. With Beckham, you pay a fixed rate of 24% for 5 years on your salary and not on your foreign income (except for that obtained via permanent establishments). This could make it unnecessary to complicate things with an LLC (or vice versa, you could use the LLC and pay only 24% on what it pays you). This regime does not apply to Spaniards who have been recent residents, but for some, it is a solution. Likewise, Spain has recently launched the Digital Nomad Visa, which also allows foreigners to pay taxes as non-residents. These are legal optimization routes that should be considered before going to tax havens. A good International Tax Lawyer in Spain will be able to tell you if you qualify for any of these and if it is more convenient than the LLC route.

Maintain operational coherence and a consistent narrative: If you combine several things (for example, you live in Spain but your company is abroad), be very clear about the narrative of why this is the case. And be consistent: if you claim that your company operates entirely in the U.S., don't then show up advertising services at a Meetup in Madrid on behalf of that company. Coherence is something that Hacienda looks at: everything must have economic logic. As experts rightly summarize: "what is relevant is not only whether it is legal to have the company, but whether you can justify what you do with documentation and a coherent operation." If something sounds artificial even to you, it probably will in the eyes of an inspector.

Conclusion of strategies: Using a foreign LLC while residing in Spain is not about "not paying taxes," it is about paying at the optimal time, place, and manner within the law. With good planning and by complying with the rules, it is possible to reduce the tax burden and obtain competitive advantages (internationalization, flexibility) without incurring illegalities. If you have doubts, always prioritize legality over easy savings, as in the long run it is the most profitable decision.

Conclusion: How to take advantage of a foreign LLC without problems with Hacienda

In this article, we have explored in detail the interaction between a foreign LLC and the condition of a tax resident in Spain. It is clear that having an LLC while living in Spain is legal—Spanish law allows you to own companies abroad—and that, if well planned, it can offer legitimate benefits in flexibility, privacy, and tax planning. However, we have also seen that it is not a magic formula for evading taxes: errors in its use can lead to unexpected taxation, inspections, and severe penalties.

To remember the key points: as long as you are a Spanish resident, Hacienda will consider you taxable on your worldwide income. If your LLC earns money, even if you do not bring it in immediately, you may have to declare it if certain conditions are met (low taxation, control, lack of assets, etc.) under the international tax transparency regime. Even if transparency does not apply automatically, when you withdraw funds to Spain you must pay taxes on them. For this reason, the separation between the company's and the personal spheres is fundamental: keep separate accounts, clear contracts, and do not "mix" money without a plan. In colloquial terms, "problems arise when you mix spheres (company ↔ person) or withdraw funds without a strategy."

More and more global professionals are using international structures, and the Tax Agency knows it. In fact, Spain has reinforced surveillance of companies in low-tax jurisdictions used by Spanish residents. This does not mean that you cannot do it, it means that you must do it well. And doing it well means informing yourself, getting advice, and complying.

If you are a digital nomad or an international consultant attracted by the advantages of an LLC in the U.S., Estonia, Emirates, or another place, my advice is to rely on an expert—for example, an International Tax Lawyer in Spain with experience in international taxation. They will be able to design the most suitable structure with you, calibrating benefits versus obligations. Often, investing in good tax advice is equivalent to much greater savings in the future (avoiding fines or optimizing taxation within the law).

In short, a foreign LLC can be a useful tax tool for a Spanish resident, but it must be used with knowledge and caution. There is no risk-free tax haven when your home is in Spain; but with planning, you can achieve efficient taxation without having conflicts with Hacienda. Transparency, coherence, and compliance are your allies. By following the legal strategies outlined—from justifying the LLC's purpose, giving it substance, to correctly declaring income—you will be able to structure your international income in an optimized way and sleep soundly.

Final summary: Take advantage of the benefits of globalization and LLCs, but always within the Spanish legal framework. Pay what is due, no more and no less, and avoid illegal shortcuts. With good international tax planning (ideally with the help of an International Tax Lawyer in Spain), you will be able to enjoy the fruits of your global work without setbacks and with the security of doing things right.