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Non-Resident Taxation Manual (January 2023)

Income from economic activities obtained through a permanent establishment

Internal regulations

Regulations:article 13.1.a) Law IRNR

According to Spanish law, income from economic activity through permanent establishment in Spanish territory is understood to be obtained in Spanish territory.

In accordance with Spanish domestic legislation, a natural person or entity is considered to operate through a PE when it has in Spanish territory:

  • Head office
  • Branch offices
  • Offices
  • Factories
  • Workshops
  • Warehouses, shops or other establishments
  • Mines
  • Oil or gas wells
  • Quarries
  • Farming, forestry, livestock operations or any other place of exploration or extraction of natural resources.
  • Construction, installation or assembly works whose duration exceeds six months.

In short, when a non-resident has available in Spain, in any capacity, facilities or places of work of any type in which they usually perform all or some of their business or when they act in Spain through an agent authorised to contract on behalf of and for the account of the non-resident person or organisation, provided they habitually exercise these powers, they are considered to be non-residents acting through permanent establishment.

Agreement

Where a double taxation treaty is applicable, the definition of permanent establishment contained in the treaty should be taken into account, which will normally be narrower than under domestic law.

Also, as a general rule agreements confirm the authority of the State where the permanent establishment is located to levy tax, ruling that business profits, if obtained through permanent establishment situated in Spain, or income from professional activity, if obtained through a fixed base, can be subject to taxation in Spain, in which case they will be taxed according to domestic Spanish law.

Taxation

Regulations:Chapter III IRNR Law, Chapter I IRNR Regulation and Tenth Additional Provision IRNR Law.

According to Spanish law, non-residents who obtain income through permanent establishment in Spain will pay tax on the totality of the income attributable to this establishment, wherever the income is obtained.

Attributable income comprises earnings from the economic activities or operations undertaken by this permanent establishment, those derived from elements related to the permanent establishment and the liable capital gains or losses derived from the related elements.

Liable capital gains or losses are those linked functionally to the undertaking of the activity.Liable capital gains or losses are considered to be those reassigned within the three tax periods following the time when they were made.

The assets representative of holdings in the capital of an organisation are only considered liable capital gains or losses when the permanent organisation is a branch office registered in the Companies Register, these assets are reflected in the accounts of the permanent organisation and, being a permanent organisation that can be considered to be parent organisation, this permanent organisation has a corresponding organisation of material resources and staff available to direct and manage these shares.

The taxable income of the PE will be determined in accordance with the provisions of the general corporate income tax system, with the following special features:

  • Application of the binding rules for operations performed by the permanent establishment with the head office, or with another permanent establishment of the same head office and with other individuals or organisations connected to the head office or its permanent establishments, either those situated in Spanish territory or abroad.

  • Generally, non-deductibility of the payments that the permanent establishment makes to the head office for fees, interest, commissions, technical assistance services and for the use or assignment of assets or rights.(See section "estimated expenses and imputed income for internal operations of a PE").

  • Deductibility of part of the management general administration expenses charged by the head office to the permanent establishment, as long as they are reflected in the accounts of the permanent establishment and are charged continually and rationally.For the determination of these expenses, it is foreseen that the taxpayers can submit proposals to the Tax Administration for the valuation of the part of the management general administration expenses that will be deductible.

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

    1. Those attached to a permanent establishment located in Spanish territory which ceases its activity.

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

      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, shall be deferred by the Tax Administration at the request of the taxpayer until the date of transfer to third parties of the affected assets.

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

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

  1. The general non-deductibility of payments made by the PE to the head office for royalties, interest, commissions, technical assistance services and for the use or transfer of goods or rights is not applicable.

  2. Income attributed to the head office or to any of the permanent establishments located outside Spanish territory which corresponds to the aforementioned estimated expenses will be considered as income obtained in Spanish territory, without the intermediary of a permanent establishment.

  3. Tax on imputed income shall be due on 31 December of each year.

  4. The permanent establishment located in Spanish territory is obliged to make withholding and payment on account for the income imputed.

  5. The provisions of Article 18 of the Corporate Income Tax Act shall apply to internal transactions carried out by a permanent establishment located in Spanish territory with its head office or with any of its permanent establishments located outside Spanish territory to which this additional provision applies.

Tax rate

The corresponding rate of taxation shall be applied from among those provided for in the corporate income tax regulations.

The general tax rate is 25%.

Deductions and allowances

PEs may apply the same deductions and allowances to their gross tax liability as corporate income taxpayers, giving rise to the net tax liability, which, for tax periods beginning on or after 1 January 2022, may in no case be negative.

For tax periods commencing on or after 1 January 2022, the minimum tax rate established in Article 30 bis of the Corporate Income Tax Act (generally 15% of the tax base) will apply for those PEs 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 commences, in order to determine the tax liability.This means that, as a general rule, as a result of the application of deductions and allowances, the net tax liability cannot be reduced below this amount.

Tax period and accrued amount

Regulations:article 20 Non-Resident Income Tax Law)

The tax period coincides with the financial year declared, without exceeding twelve months.The tax is accrued on the last day of the taxable period.

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

Supplementary taxation

Regulations:article 19.2 Non-Resident Income Tax Law)

Where PEs of entities non-resident entities (not individuals) transfer income abroad, they will be liable to 19% top-up taxation on the amounts transferred.

However, this tax will not apply to PEs whose head office is tax resident in another state of the EU (Annex V), unless it is a country or territory considered to be a tax haven, (with effect from 11 July 2021, references to tax havens are understood as references to the definition of a non-cooperative jurisdiction).See Annex IV) or in a State that has signed a Double Taxation Avoidance Agreement with Spain, which does not expressly provide otherwise, provided that there is reciprocal treatment.

The supplementary tax will be deposited using form 210 in the first twenty days of the months of April, July, October or January; the payment deadline is that immediately following the close of the natural quarter in which the income was transferred abroad..

Tax withheld (retenciones) and account deposits (ingresos a cuenta)

Regulations:article 23 Non-Resident Income Tax Law)

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

Payments in instalments

Permanent establishments are obliged to make staged payments on account of the tax under the same conditions as organisations subject to Corporation Tax.The formal obligations relating to staged payments are:

  • Deadlines:20 first calendar days of the months of April, October and December.

  • Model: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 Non-Resident Income Tax Law)

PEs must file tax returns on the same forms and within the same deadlines as resident entities subject to corporate income tax.

  • Deadline:25 calendar days following the six months after the end of the tax period.

  • Model:200