A foreign investor who is doing business in Spain, and comes from a country that Spain has signed a double tax treaty with, can benefit from the avoidance of double taxation. This is very important, especially on a long term basis for a business, because the investor can save a lot of money if he/she knows the local and international regulations related to taxation.
Double tax treaties are signed by a large number of countries all around the world and they allow a foreign investor to pay taxes in only one country and not in both – his/her residence country and the other one in which he/she opened a company. The only condition is that a double tax treaty to be signed between the two countries.
Spain has signed double tax treaties with 90 countries all over the world and, according to these treaties, certain types of incomes, such as dividends, capital gains and royalties, are exempt from taxation or benefit from low rates of taxes. Our team of lawyers in Spain can assist foreign businessmen with in-depth information on the provisions of the double tax treaties signed by the local authorities. Our lawyers can provide advice on the main benefits a company has if it is a tax resident of a country with which Spain has signed such an agreement.
The following video offers a short presentation on the double taxation treaties available in Spain:
The content of Spanish double tax agreements
All Spain’s double tax treaties establish the methods used to avoid double taxation. Among the most employed methods are tax credits against the taxes paid in the other contracting state or deductions. The agreements also contain special clauses related to permanent establishments and associated enterprises of foreign companies operating in Spain, taxable for their operations in the home country, as well as here. Most the Spain’s double taxation conventions cover the income and corporate taxes levied in the contracting states, as well as different components of the income, such as:
- • income derived from immovable property or parts of income obtained from immovable property;
- • income derived from the employment of citizens of one state in the other;
- • income obtained from capital gains and the manner in which such income is taxed;
- • income derived from air and maritime transportation activities.
Our lawyers in Spain can provide you with more information about the taxation of income under the country’s double tax agreements. Businessmen can request advice on the tax benefits that are available for the tax residents of the countries with which Spain signed double tax treaties. We can also advise on other taxes, such as the corporate tax or the VAT, or on how to receive the EORI in Spain.
Treaties signed by Spain
The double taxation treaties were signed by Spain with the following partner countries: Albania, Algeria, Andorra, Argentina, Armenia, Barbados, Australia, Austria, Cyprus, Belgium, Bolivia, Bosnia, Brazil, Bulgaria, Canada, Chile, China, Columbia, Costa Rica, Croatia, Cuba, Cyprus, Czech Republic, Dominican Republic, East Timor, Germany, Denmark, Kyrgyzstan, Ecuador, Egypt, El Salvador, Estonia, Finland, Romania, France, Georgia, Greece, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Kazakhstan, Korea, Latvia, Lithuania and Luxembourg.
Spain also signed treaties for the avoidance of double taxation with Macedonia, Malaysia, Malta, New Zealand, Mexico, Moldova, Morocco, the Netherlands, Norway, Pakistan, Panama, Philippines, Poland, Portugal, Russia, Saudi Arabia, Serbia, Slovakia, Slovenia, South Africa, Sweden, Switzerland, Tajikistan, Thailand, Trinidad & Tobago, Tunisia, Turkey, Turkmenistan, United Arab Emirates, United Kingdom, USA, Uruguay, Uzbekistan, Venezuela and Vietnam.
Such treaties are generally amended, by including new provisions regarding the avoidance of double taxation. For example, in 2018, Spain updated its double tax agreements with countries such as China, Japan, Taiwan or Finland. Our law firm in Spain can provide legal assistance to foreign investors on the latest provisions of the Spanish double tax treaties.
For example, under the revised version of the Spain – Finland double tax treaty, new provisions are now stating that Spanish tax residents are liable to the payment of the capital gains obtained from immovable property. At the same time, the new treaty stipulates that Spanish residents obtaining income from immovable property in Finland can also be taxed for the rental income obtained when renting a Finnish property.
What is a permanent establishment in Spain?
The term permanent establishment is included in all the Spanish double tax treaties as this is important for the place where the taxation of a corporate body is done. As a general rule, a permanent establishment is defined under the Spanish law following the model provided by the Organization for Economic Cooperation and Development (OECD).
The term is stipulated under the OECD’s Model Tax Convention, Article 5, which defines the permanent establishment as a fixed place of business where a company carries out all its business operations or a part of its business activities. The Article 5 also defines the exact types of places that can be considered permanent establishments of a foreign company operating in another jurisdiction.
This definition is included when defining the permanent establishment under most of the Spanish tax treaties and it refers to fixed places of business such as: a place of management, a branch office, a factory or a mine and places that are set up with the purpose of exploiting natural resources, but it also refers to a place where a construction is built.
Regarding the permanent establishment in the form of a construction site, the respective place of business will be generally considered a permanent establishment (and taxed accordingly), provided that it carries out a continuous activity for a period of minimum one year (most of the double tax treaties stipulate this period of time, but variations can appear).
What are the rules for the taxation of business profits in Spain?
The double tax treaties signed by Spain will prescribe compulsory provisions regarding the taxation of business profits obtained by a foreign company when operating here. As a general rule, the profits of a foreign company are to be taxed in the country where the business is registered as a tax resident.
However, the company can become liable for taxation in Spain when carrying business activities on the local market through a permanent establishment; the taxation of the company’s business profits obtained in Spain will be charged only for the profit obtained through the local permanent establishment.
What is the OECD double tax treaty model?
Double tax treaties signed in Spain follow the OECD model, as we presented earlier. This means that all the agreements have to respect a certain structure. Thus, in a given Spanish double tax agreement, investors will find the rules established between two countries on specific tax matters, as follows:
- • the scope of the double tax treaty and the taxes applicable in the two contracting states;
- • the types of entities to which the respective double tax treaty is applicable (both natural persons and legal entities);
- • the general definitions, describing what a permanent establishment is, what is a tax resident and others;
- • the taxation of income, which can refer to income obtained from immovable property, from business activities, dividends, interest, royalties, employment, pensions and other types of income;
- • the main legal methods through which the contracting states participate in eliminating double taxation;
- • the obligations of each country in providing up-to-date information on any modifications of the national tax law.
In the next years, other double tax treaties are expected to be signed by Spain with other countries. If you come from a country that is not listed above, you should check if a treaty has been signed meanwhile. For details on the procedure of avoiding double taxation, you may contact our law firm in Spain. Our Spanish attorneys will also offer you advice about how you can benefit from the minimization of the taxes you must pay and they can also help you with VAT registration.
Foreigners who want to relocate to Barcelona for the purpose of developing a business activities and those who will relocate here for employment purposes or other personal reasons are invited to address to our team for advice on the tax benefits they are entitled to.
Our lawyers in Barcelona can assist foreigners who can obtain various tax deductions as per the rules of the double tax treaties signed here.
Please mind that the double tax treaties signed by the Spanish authorities are applicable at a national level, so if you live in Madrid or you own a business in this city, you can contact our lawyers in Madridfor the same services.
Our law firm can offer in-depth information concerning the taxation of your income, obtained from various activities developed on the Spanish territory.
We can advise our clients on the procedures regarding all types of incomes. Thus, you can rely on our property lawyers in Spain in the case in which you obtain a taxable income from renting a property in this country.
The income is taxed regardless if you rent a property that is designed for residential purposes or for commercial purposes (renting an office space, a factory, etc.).