Running a Business in Spain as a Non-Resident: Your Essential Tax Obligations

Spain's dynamic market and strategic location make it an attractive place to do business. For non-residents, the opportunity to tap into this market—whether by setting up a branch, providing services, or running a small enterprise—is immense. However, engaging in any form of economic activity on Spanish soil immediately triggers a set of complex tax obligations. Unlike passive investment, actively running a business requires a much deeper level of engagement with the Spanish tax system, and the Agencia Tributaria scrutinizes these operations closely.

Understanding your responsibilities from day one is not just good practice; it's fundamental to the survival and legality of your venture. Many foreign entrepreneurs fall into preventable traps, facing penalties and legal issues that could have been avoided with proper planning. This article will outline the core tax obligations for non residents with a business or economic activity in Spain, highlighting the critical concept of "permanent establishment" and the taxes you'll need to manage.

The Central Concept: Permanent Establishment (PE)

This is the most critical concept you need to understand. If you are a non-resident individual or company, your tax liability in Spain hinges on whether you are deemed to have a "permanent establishment" (PE) in the country.

A PE is defined as any fixed place of business through which the economic activity of a non-resident is wholly or partly carried on. This includes, but is not limited to:

• A branch office

• A factory, workshop, or warehouse

• A mine, oil or gas well, or quarry

• A construction or installation project lasting more than 12 months

• An agent who has, and habitually exercises, the authority to conclude contracts in the name of your enterprise.

If you have a PE in Spain: Your business profits attributed to that PE will be taxed in Spain under the Corporate Income Tax (Impuesto sobre Sociedades). The general rate is 25%. You will have the same accounting and filing obligations as a Spanish resident company. This means keeping full Spanish-style accounts, filing quarterly corporate tax prepayments, and submitting an annual corporate tax return.

If you do NOT have a PE in Spain: You will be taxed under the Non-Resident Income Tax (NRIT, or IRNR) on any Spanish-source income you generate. This is typically done on a transaction-by-transaction basis or filed quarterly using Form 210. For example, if you provide a one-off consulting service to a Spanish client without having a fixed base in Spain, the income would be taxed under NRIT.

Determining whether your activity creates a PE is a legal and factual minefield. A seemingly minor detail in how you operate could tip the scales. This is the first and most important question you must resolve with a lawyer in Spain before starting any business activity.

Key Tax Obligations to Manage

Once you're operating, several key taxes will be on your radar:

1. Income or Corporate Tax: As explained above, you'll either pay Corporate Tax (with a PE) or NRIT (without a PE). The compliance burden for a PE is significantly higher. It requires meticulous bookkeeping according to Spanish accounting standards and regular, complex filings.

2. Value Added Tax (VAT or IVA): If you are supplying goods or services in Spain, you will almost certainly need to register for Spanish VAT. This means:

• Charging your clients the appropriate VAT rate (21%, 10%, or 4%).

• Filing regular VAT returns (usually quarterly, using Form 303) where you declare the VAT you've collected (output VAT) and deduct the VAT you've paid on your business expenses (input VAT).

• Paying the difference to the tax authorities.

VAT compliance is notoriously strict in Spain. Late filings or errors can lead to immediate penalties. For non-resident businesses, managing VAT often requires appointing a fiscal representative in Spain.

3. Social Security Contributions: If you hire employees in Spain to work in your branch or business, you must register with the Spanish Social Security system. You will be responsible for withholding the employee's contribution from their salary and paying the employer's contribution. These are significant costs (often over 30% of the employee's salary) and a major legal responsibility.

If you are a self-employed individual (autónomo) operating in Spain, even as a non-resident with a PE, you will likely need to register and pay monthly autónomo social security fees yourself.

Choosing the Right Business Structure

For a serious business venture, operating without a formal structure is risky. You have several options, each with different legal and tax implications:

• Sole Trader (Autónomo): Simple to set up, but you have unlimited personal liability.

• Branch Office (Sucursal): Not a separate legal entity from the parent company, which remains fully liable. Subject to Corporate Tax as a PE.

• Spanish Limited Company (Sociedad Limitada - S.L.): A separate legal entity that limits your liability to your investment. This is the most common and often the safest structure for running a business in Spain. The S.L. is a Spanish resident entity and will be subject to all Spanish tax and accounting rules.

Making this choice requires careful consideration of liability, administrative costs, and your long-term strategy. Consulting with a tax lawyer in Spain is essential to choose the structure that best protects your interests and aligns with your business goals.

The bottom line is that doing business in Spain is not a casual affair. It requires a professional approach to legal structure and tax compliance. Trying to "wing it" as a non-resident is a recipe for disaster. Professional advice is not an expense—it's a foundational investment in your business's future success.

Are you planning to start or are you already running a business in Spain as a non-resident? Don't leave your tax and legal compliance to chance. Book an appointment with our corporate and tax law experts today.