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Practical guide for completing census form 036

Permanent establishment modality

The fact that the non-resident person or entity operates through a permanent establishment or without the mediation of one conditions the procedures for determining the tax debt of non-residents, for income obtained in Spanish territory. Without prejudice to the fact that the taxpayer is a tax resident in a country with which Spain has signed an agreement to avoid double taxation, which also has a preferential impact.

Under domestic tax legislation, in the absence of a Double Taxation Agreement in force that is applicable to the taxpayer of IRNR , in accordance with the provisions of the consolidated text of the Non-Resident Income Tax Law (Royal Legislative Decree 5/2004, of March 5), an entity operates through a permanent establishment in Spanish territory when, by any title, it has therein, on a continuous or habitual basis, facilities or workplaces of any kind, in which it carries out all or part of its activity, or acts therein through an agent authorized to contract, in the name and on behalf of the taxpayer, who habitually exercises such powers.

In particular, permanent establishments shall be deemed to include management headquarters, branches, offices, factories, workshops, warehouses, shops or other establishments, mines, oil or gas wells, quarries, agricultural, forestry or livestock farms or any other place of exploitation or extraction of natural resources and construction, installation or assembly works lasting more than six months.

For the determination of the tax base of permanent establishments, the following modalities or regimes are established:

  • General Regime (box 630) when the taxable base of the permanent establishment is determined in accordance with the provisions of the general Corporate Tax regime, regardless of whether the owner of the permanent establishment is an entity or a natural person, and without prejudice to the specific peculiarities when dealing with a non-resident.
  • Permanent establishment in which the operations carried out (activities in article 18.3 of the consolidated text of Law IRNR , box 631) do not close a complete business cycle determining income in Spain, ending this cycle at the head office or at one or more of its permanent establishments without any consideration being produced, apart from the coverage of the expenses originated by the permanent establishment, and without all or part of the products or services being allocated to third parties other than the taxpayer himself. The following rules apply:
    1. The income and expenses of the permanent establishment shall be valued according to the rules of article 16 of the Revised Text of the Corporate Tax Law, approved by Royal Legislative Decree 4/2004, of March 5, with determination of the tax debt according to the rules applicable in the general regime of the Corporate Tax and in the provisions of the previous sections of this article.
    2. Subsidiarily, the following rules shall apply:

      • 1 The taxable base will be determined by applying the percentage that the Minister of Economy and Finance indicates for these purposes on the total expenses incurred in the development of the activity that constitutes the object of the permanent establishment. The full amount of ancillary income, such as interest or royalties, which do not constitute the business's purpose, as well as capital gains and losses derived from assets assigned to the establishment, will be added to this amount.

        For the purposes of this Rule, the expenses of the permanent establishment shall be computed at their full amount, without any reduction or offset being admissible.

      • 2 The total amount will be determined by applying the general tax rate to the taxable base, without the deductions and bonuses regulated in the aforementioned general regime being applicable to it.

  • Permanent establishments whose activity in Spanish territory consists of construction, installation or assembly works whose duration exceeds six months, seasonal or seasonal economic activities or operations, or natural resource exploration activities (activities in article 18.4 consolidated text of Law IRNR , box 632) . In this modality, the Non-Resident Income Tax will be required according to the following rules :
    • As provided for income from activities or economic operations obtained in Spanish territory without the mediation of a permanent establishment, certain special rules are applicable for these purposes. In any case, the application of this system will be mandatory when the permanent establishment does not have separate accounting for the income obtained in Spanish territory. In no case will the rules established in the agreements to avoid double taxation for cases of income obtained without the mediation of a permanent establishment be applicable to taxpayers who follow this system.
    • However, the taxpayer may opt for the application of the general regime (box 633 “High”) . The option must be expressed at the time of submitting the census declaration of commencement of activity (box for option for the general regime, in accordance with the terms of article 18.4 of the Revised Text of the Law of IRNR ). This option will be effective for the entire duration of the construction, installation or assembly or the activity that constitutes the permanent establishment.