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Non-Resident Taxation Manual (July 2024)

Income from economic activities obtained through a permanent establishment

Internal regulations

Regulations: Article 13.1.a) Law IRNR

According to internal regulations, the income from economic activities carried out through a permanent establishment (PE) located in Spanish territory is understood to be obtained in Spanish territory.

According to Spanish internal regulations, a natural person or entity is considered to operate through a PE when it has in Spanish territory:

  • Headquarters of management
  • Branch offices
  • Offices
  • Factories
  • Workshops
  • Warehouses, shops or other establishments
  • The mines
  • Oil or gas wells
  • The pits
  • Agricultural, forestry, livestock farms or any other place of exploration or extraction of natural resources
  • Construction, installation or assembly works lasting more than six months

In short, when the non-resident has, for any reason, continuous or habitual use of facilities or workplaces of any kind in Spain where all or part of his/her activity is carried out, or when he/she acts in Spain through an agent authorised to contract in the name and on behalf of the non-resident person or entity, provided that he/she habitually exercises said powers, it will be considered that the non-resident acts in Spain through an EP.

Agreement

When a double taxation agreement is applicable, the definition of permanent establishment contained in the agreement must be taken into account, which will normally be more restricted than that of the internal regulations.

Furthermore, as a general rule, the agreements confirm the taxing power of the State in which the PE is located, providing that business profits, if obtained through a PE located in Spain, or income from professional activities, if obtained by means of or through a fixed base, may be subject to taxation in Spain, in which case they are taxed in accordance with Spanish internal law.

Taxation

Regulations: Chapter III IRNR Law, Chapter I IRNR Regulations and Additional Provision Ten of the IRNR Law

According to internal regulations, non-residents who obtain income through a PE in Spain will be taxed on all income attributable to said establishment, regardless of where it was obtained.

The attributable income is made up of the returns from the activities or economic operations carried out by said PE, those derived from elements assigned to the PE and the capital gains or losses derived from the assigned elements.

Assets are those functionally linked to the development of the activity that constitutes their object. Assets transferred within the three tax periods following the period of disassignment will be considered affected assets.

Assets representing participation in the equity of an entity will only be considered affected assets when the PE is a branch registered in the Commercial Registry, said assets are reflected in the PE's financial statements and, in the case of PEs that may be considered parent companies, said PE has, to direct and manage said participations, the corresponding organization of material and personal means.

The taxable base of the EP will be determined in accordance with the provisions of the general regime of the Corporate Tax, being applicable the regime of compensation of negative tax bases, with the following specialties:

  • Application of the rules of association for operations carried out by the EP with the head office, or with another EP of the same head office and with other persons or entities linked to the head office or its permanent establishments, whether located in Spanish territory or abroad.

  • Non-deductibility, as a general rule, of payments made by the EP to the head office in the form of fees, interest, commissions, technical assistance services and for the use or transfer of assets or rights. (See section “ estimated expenses and imputed income for internal operations of a PE“).

  • Deductibility of the portion of management and general administration expenses charged by the head office to the EP, provided that they are reflected in the EP's financial statements and are charged in a continuous and rational manner. In order to determine these expenses, taxpayers are expected to be able to submit to the tax authorities proposals for the valuation of the portion of management and general administration expenses that are deductible.

  • The difference between the market value and the book value of the following assets will be included in the tax base:

    1. Those who are attached to a permanent establishment located in Spanish territory that ceases its activity.

    2. Those who were previously assigned to a permanent establishment located in Spanish territory and are transferred abroad.

      The payment of the tax debt resulting from the application of letter b) above, in the case of assets transferred to a Member State of the European Union, or of the European Economic Area with which there is an effective exchange of tax information, will be deferred by the Tax Administration at the request of the taxpayer until the date of the transfer to third parties of the affected assets.

Estimated expenses and imputed income from internal operations of a permanent establishment

In cases where, pursuant to the provisions of an agreement to avoid international double taxation signed by Spain, the deduction of estimated expenses for internal operations carried out with its head office or with one of its permanent establishments located outside Spanish territory is permitted for the purposes of determining the income of a permanent establishment located in Spanish territory, the following shall be taken into account:

  1. The non-deductibility of payments made by the EP to the head office for fees, interest, commissions, technical assistance services and for the use or transfer of assets or rights will not apply in general.

  2. The income attributed to the head office or to any of the permanent establishments located outside of Spanish territory that correspond to the aforementioned estimated expenses will be considered income obtained in Spanish territory, without the mediation of a permanent establishment.

  3. The tax corresponding to imputed income will be accrued on December 31 of each year.

  4. The permanent establishment located in Spanish territory will be obliged to withhold and make payments on account for the imputed income.

  5. For internal operations carried out by a permanent establishment located in Spanish territory with its head office or with one of its permanent establishments located outside Spanish territory, to which this Additional Provision applies, the provisions of article 18 of the Corporate Income Tax Law will apply.

Tax rate

The corresponding tax rate will be applied from among those provided for in the Corporate Tax regulations.

The general tax rate is 25%.

Deductions and allowances

EPs may apply the same deductions and bonuses to their full quota as taxpayers for Corporate Tax, giving rise to the net quota of the tax, which, for tax periods beginning on or after January 1, 2022, may in no case be negative.

For tax periods beginning on or after 1 January 2022, in order to determine the tax liability, the minimum tax rate established in article 30 bis of the Corporate Income Tax Law will apply generally, 15 of the tax base) for those EPs with a net turnover equal to or greater than twenty million euros during the 12 months prior to the date on which the tax period begins. This means that, in general, as a result of the application of deductions and bonuses, the net rate cannot be reduced below this amount.

Tax period and accrued amount

Regulations: Article 20 of the IRNR Law

The tax period coincides with the fiscal year declared, and may not exceed twelve months. The tax is due on the last day of the tax period.

Permanent establishments are obliged to undertake the same accounting, register and formal obligations as resident entities.

Complementary taxation

Regulations: Article 19.2 IRNR Law

When EPs of non-resident entities (not individuals) transfer income abroad, they will be required to pay a supplementary tax of 19% on the amounts transferred.

However, this tax will not be applicable to those EP whose head office has its tax residence in another State of the EU ( Annex V ), unless it is a country or territory considered a tax haven, (with effect from July 11, 2021, references made to tax havens are understood to be made to the definition of non-cooperative jurisdiction . See Annex IV ) or in a State that has signed with Spain a Convention to avoid double taxation, in which nothing else is expressly established, provided that there is reciprocal treatment.

The additional tax is paid using form 210, in the first twenty days of the months of April, July, October or January, depending on whether the date of transfer of the income abroad is included in the previous calendar quarter.

Withholdings and payment on account

Regulations: Article 23 of the IRNR Law

PEs are subject to the same withholding regime as entities subject to Corporation Tax for the income they receive.

Payments in instalments

PEs are obliged to pay by instalments under the same terms as those subject to Corporation Tax. The formal obligations regarding instalment payment are the following:

  • Terms: Within the first twenty calendar days of the months of April, October and December.

  • Form: 202

    When instalment payment is not required, it will not be mandatory to file Form 202, except in the case of PEs that are considered Large Companies. In this case, Form 202 must be filed, even when no payment is required, which will result in negative self-assessments.

Declaration

Regulations: Article 21 of the IRNR Law

EPs must file their tax return using the same forms and within the same time periods as resident entities subject to Corporate Tax.

  • Term: 25 calendar days following the six months after the conclusion of the tax period.

  • Form: 200