All questions

Tax residence and fiscal domicile

i Corporate residence

In general terms, an entity is deemed to be resident in Spain for tax purposes if at least one of the following requirements is met:

  1. it has been constituted under Spanish law;
  2. the registered office is located in the Spanish territory; and
  3. the effective management (direction and control of the activity) is located in the Spanish territory.

Under certain conditions, Spanish tax authorities can assume that an entity, located in a tax haven or a country with no taxation, is a tax resident in Spain. In order for this assumption to be applicable, the main assets and rights of the entity must be, directly or indirectly, located in Spain.

ii Branch or PE

Branches or PEs of foreign entities that are located in Spain are subject to CIT on their worldwide income.

However, a limitation in the deductibility of some of their expenses is imposed on PEs, such as payments (in the form of royalties, interests or commissions) made to its parent entity or any of its other branches as remuneration for technical assistance services or the transfer of goods and rights.

Nevertheless, administrative and management expenses derived from the parent entity might be deductible under certain conditions.

As regards the allocation of profits of PEs, reference is usually made to OECD guidelines and principles.

In practice, operating in Spain through a PE leads to uncertainty situations in terms of income allocation, as it is more difficult to be supported and sustained before the tax authorities than operating through a clearer frame (basically, resident subsidiary).