The legal concept of trusts does not exist in Spanish law and so it is not recognised by the Spanish tax authorities or the Spanish courts. Therefore, the tax treatment of trusts may vary on a case-by-case basis and the Spanish tax authorities usually consider that the economic reality of the trust should be analysed rather than its legal nature. A trust should always take the form of a legal entity recognised by Spanish law.
As Spanish tax law does not specifically regulate the taxation of trusts, the tax treatment of the legal relationships involved in trusts should be determined abstractly based on the general guiding principles of the Spanish tax system. This task is further complicated by the fact that scientific and administrative doctrine on the subject is scarce and not based on any clearly defined criteria. In practice, this means that the economic relationships between the members of a trust should be regarded as held directly between them and the tax implications of this should be analysed accordingly.
Treatment of flow-through business entities
Under Spanish law, there are several types of partnerships, and it is important to distinguish between business entities, which are CIT payers, and partnerships, which are flow-through business entities. As a general rule, business entities with separate legal personality are treated as CIT payers and business entities without separate legal personality are treated as flow-through business entities. Spanish law establishes a specific tax regime called the ‘income allocation regime’ for income generated by business entities without separate legal personality. As from 2003, under Spanish law, business entities set up outside Spain that have the same or a similar legal nature to that of a Spanish business entity taxed under the income allocation regime also fall within the scope of this regime.
On 6 February 2020, the Spanish General Directorate for Taxes issued a binding resolution, setting out the following basic requirements that a foreign entity must meet for it to be considered to have the same or a similar legal nature to that of a Spanish business entity taxed under the income allocation regime:
- The entity must not be subject to PIT in the country of its establishment.
- The income generated by the entity should be fiscally allocated to its partners or participants in accordance with the legislation of its country of establishment. The partners or participants should be the ones subject to taxation for this income in their PIT. This allocation should occur simply because the income is obtained by the entity, regardless of whether the income has been distributed effectively to the partners or participants.
- The income obtained by the entity through the allocation of income and allocated to the partners or participants should retain, in accordance with the legislation of its country of establishment, the nature of the activity or source from which it arises for each partner or participant.
Mainly, there are two types of situations where non-residents may be liable to tax in Spain in connection with partnerships: (i) non-residents who are members of a Spanish partnership; or (ii) foreign business entities which, on complying with certain conditions, may be considered to be a partnership for Spanish tax purposes and either the foreign partnership or their members may be subject to tax in Spain if they have any kind of interests in Spain.
Under Spanish NRIT law, the legal features of a foreign partnership are the main factor to determine whether it is a flow-through business entity for Spanish tax purposes. Nevertheless, rulings of the Spanish tax authorities are taking the simpler view that a foreign partnership is a flow-through business entity when it is not liable to tax in its country of residence.
In addition, as previously stated, Spanish NRIT law distinguishes between non-resident flow-through business entities with a presence in Spain and non-resident flow-through business entities without that presence.
If the Spanish/non-resident entity carries on a business activity in Spain, its non-resident members operate in Spain through a PE. That means that the income generated by the entity is directly taxable at the level of the entity. The mechanisms used to tax these entities are similar to those used to tax non-resident taxpayers with a PE in Spain, although other regulations also apply.
If the Spanish/non-resident entity does not carry on a business activity, its non-resident members are taxed under Spanish NRIT law and therefore there is no taxation at the level of the entity. Instead, in accordance with Spanish tax law the income is allocated to the entity’s members as if the entity had not existed. Whilst Spanish resident members would include their share of the income in their return for direct taxes (PIT or CIT), non-resident members would be taxed by NRIT.
Work and residence permits for Spain
International assignees from EU countries do not need to obtain a work and residence permit. If the assignee plans to stay in Spain for more than three months, they should register in the Central Registry of Foreigners (Registro Central de Extranjeros) with the local authorities to obtain a foreigner’s ID number in Spain.
Please note that after Brexit, United Kingdom (UK) citizens are no longer considered EU citizens. Only those UK citizens registered as living in Spain before 2021 are beneficiaries of the withdrawal agreement and can maintain their status.
On the other hand, international assignees from outside the European Union wishing to engage in technical or professional profit-making activities in Spain, either as employees or as self-employed persons, should obtain a work and residence permit before they commence their employment activity.
As a general rule, if the assignee is an employee and, due to the characteristics of their job, the assignee must comply with the provisions of the National Employment Situation (Situación Nacional de Empleo), applications for work and residence permits in Spain are made in three stages:
- The employer publishes the job offer on the national employment system and needs to prove that there is not a suitable candidate for the position in the Spanish labour market. This process takes about a month.
- The employer applies for the work and residence permit in Spain. If all the required documents are filed with the application, the immigration office will issue a letter approving the work and residence permit, which can take between three and six months.
- The international assignee will have to apply for an entry visa at the Spanish consulate in their home country within a period of 30 days after receiving the letter from the Spanish immigration office, which can take up to one month. Once in Spain, the assignee needs to request their residence card with the first 30 days.
Work and residence permits are issued for a maximum period of one year and an application can be made for their renewal within two months prior to their date of expiry and in some cases within three months of their expiry. It is more advisable to file the application before the expiry of the permit.
Work and residence permits in Spain for highly qualified workers, entrepreneurs, and investors
With effect from 29 September 2013, immigration procedures for certain individuals have been streamlined for reasons of economic interest in the following cases:
- Capital investors. The investment may be either: (i) EUR 500,000 in real estate, (ii) EUR 2 million in Spanish public debt, or (iii) EUR 1 million in Spanish companies’ shares or bank deposits in Spanish entities.
- Intra-corporate transferees/Persons on international assignments (*).
- Highly qualified professionals (**).
Under this law, work and residence permits may be issued for a maximum period of two years and can be renewed.
With the publication of Law 28/2022, of 21 December 2022, for the promotion of the ecosystem of emerging companies, the possibility arises for non-resident foreigners in Spain, who intend to reside in Spanish territory in order to work remotely, to request an international residence visa for teleworking. Its validity is for a maximum of one year, and the remote worker must request (if they want to remain in Spain) its transformation into a residence permit for international remote workers, which is valid for a maximum of three years.
(*) In May 2014, a Directive on Intra-Corporate Transferees was adopted by the European Union, which introduced a common set of rules to make it easier for companies outside the European Union to send key staff to their branches in the European Union.
Under the new Directive, once foreign nationals are granted an intra-corporate transfer (ICT) permit to work in an EU member state, they can be transferred within the European Union almost freely, provided that they work for the same company or group of companies. Under the Directive, they will have the same protection as EU-posted workers and are required to receive the same remuneration as local hires.
The main benefits for intra-corporate transferees and highly qualified professionals are that the position does not need to be published on the national employment system and that the issuance of the letter approving the work and residence permit will take between one and three months.
(**) Law 28/2022, of 21 December 2022, for the promotion of the ecosystem of emerging companies modified last December the requirements for companies to be considered ‘large companies’ for the purpose of being able to request permits for highly qualified workers before the Large Companies Unit (UGE). The new requirements must be published before 31 March 2023.
Exchange control regulations
Under the exchange control regulations established in Spain, a Spanish non-resident can open a bank account in euros or any other currency in Spain. To open the account, and in accordance with anti-money laundering regulations, the non-resident should provide at least one's passport and, if possible, a document issued by the Spanish Home Office certifying Spanish non-resident status. A Foreigners’ Identity Number (NIE) might also be requested.
Spanish residents opening bank accounts abroad or transferring funds into or out of a non-resident’s bank account are required to make some notifications to the Statistics Department of the Bank of Spain, as indicated below.
A Spanish resident who carries out bank transactions with non-residents or has financial assets and liabilities abroad amounting to more than EUR 1 million should notify the Statistics Department of the Bank of Spain of the details of the bank account where the transaction is made and its holder, amongst other matters. This notification is not required for transactions under EUR 1 million unless the Bank of Spain asks for this information, which should be made available within two months of the date of the request.
These notifications are regulated in the Bank of Spain Circular 4/2012, which establishes the notifications that should be made at different time intervals (monthly, quarterly, or annually) when the total amount of the bank transactions carried out or financial assets and liabilities existing abroad in a year is over EUR 1 million and depending on their total amount in the year. In addition, the Spanish General Tax Act 58/2003, of 17 December 2003, establishes an obligation to disclose accounts located overseas for resident individuals and companies, PEs in Spain of non-resident companies, and the entities indicated in Section 35.4 of the Spanish General Tax Act (estate of deceased persons, community estate, and other entities without legal personality that constitute a taxable economic unit or assets).
Similarly, under EU and Spanish law, any persons entering or leaving Spain with payment means amounting to EUR 10,000 or more (or the equivalent value in foreign currency) should declare them at the border (Customs services).
Finally, regarding transactions carried out in the European Union, as of 1 February 2014, the current regulations on euro credit transfers and direct debits are the SEPA (Single Euro Payments Area) rules. There is a new case of retail payments as a result of the SEPA instruments, which are currently the same for all the countries in SEPA.
Special expatriate tax regime
Prior to the implementation of the recently approved Law to promote the Spanish ecosystem for emerging companies (‘Start-up Law‘; Law 28/2022), only the taxpayers acquiring tax residence in Spain as a result of an employment contract (with the exception of the special employment relationship of professional sportspeople) or as a result of acquiring the condition of director in a company (with certain requirements) may opt to be taxed under Spanish NRIT law instead of Spanish PIT law in the year when the option is exercised and in the following five years.
With effect from 1 January 2023, the abovementioned Start-up Law has introduced new scenarios, apart from the three explained above, to opt to be taxed under Spanish NRIT law instead of Spanish PIT law for taxpayers acquiring tax residence in Spain, as follows:
- To work remotely from Spain (remote work scenario). This requirement will be deemed fulfilled by employees who have a visa for international remote working.
- To carry out in Spain an economic activity that qualifies as an entrepreneurial activity.
- To be a highly qualified professional who provides services in Spain to start-ups or who carries out training, research, development, and innovation activities in return for remuneration that represents more than 40% of the total income that the taxpayer earns.
In addition, the Start-up Law has eliminated for the taxpayers coming to Spain as a result of acquiring company director status the previous requirement that such a taxpayer and the company cannot be related parties but only keeping such a requirement when the company consists of assets not linked to the company’s activity of more than 50%.
Furthermore, the Start-up Law has extended the application of this Special Tax Regime to the taxpayer’s spouse and children under the age of 25 (or those of any age if they are legally considered disabled) when certain requirements are met, as follows:
- That they come to Spain along with the main taxpayer or prior to the end of the first fiscal year of application of the Special Tax Regime.
- They become a Spanish Tax Resident.
- They have not been Spanish Tax Residents in Spain in the previous five fiscal years prior to arrival in Spain and that they do not obtain income qualified as income obtained through a PE in Spain.
- The sum of the taxable base of the spouse and children is not lower than the main taxpayer’s (the taxpayer applying for this Special Tax Regime).
For family members moving to Spain together with the main taxpayer, the regime will apply until the last year of application for the main taxpayer. Family members must apply for this regime within 6 months of their arrival in Spain or after the date of registration of the main taxpayer with the Social Security
Finally, the last amendment that the Start-up Law has introduced in this Special Tax Regime refers to benefit-in-kind income obtained by these taxpayers, extending the tax exemptions provided in article 42.3 of the Spanish PIT Law (applicable to regular tax resident taxpayers) under the Special Tax Regime. These tax exemptions on certain benefit-in-kind income are related to the supply of products at discounted prices in canteens to employees, to contributions to insurance companies for sickness cover for the employees, beyond others.
In such cases, taxpayers are taxed on their Spanish-source income and capital gains. As an exception, taxpayers will be taxed on their employment income obtained worldwide. The applicable tax rate is 24% for the first EUR 600,000 of taxable income and 47% on any excess, except for income from non-resident accounts, at a 19% tax rate up to the first EUR 6,000 of income, a 21% tax rate for the following EUR 6,000 to EUR 50,000 of income, a 23% tax rate for the following EUR 50,000 to EUR 200,000, a 27% tax rate for the following EUR 200,000 to EUR 300,000, and a 28% tax rate on any remaining income over EUR 300,000.
To opt for this special tax regime, taxpayers cannot have been tax resident in Spain for a period of five years prior to the tax year in which they move to Spain.
An application to be taxed under the special expatriate tax regime should be filed within six months following the date when the person starts working in Spain (i.e. the date of registration with the Spanish social security authorities or the date indicated in the documents that allows the person to continue applying the home country’s social security regime).
The taxpayer should not obtain income through a PE in Spain, unless the Special tax regime has been granted due to an economic activity.
If any of the requirements stated above are not met, taxpayers forfeit their entitlement to avail themselves of this special tax regime.
By virtue of Royal Decree 1008/2023, it has been established that if there is an economic activity, only professionals applying this special tax regime will be subject to withholding tax. Also, it is stated that invoices issued while the regime is applicable will include the corresponding withholding tax. The Royal Decree also provides that taxpayers obtaining income due to their economic activities must fulfil certain formal obligations such as keeping books of income and expenses and records of invoices issued.
Tax equalisation policies
Certain companies apply tax equalisation policies to guarantee that assigned employees do not have any kind of advantage or disadvantage in either their net income or social security contributions in the host country with respect to their home country.
These policies also ensure that the assigned employee’s tax burden is similar to the tax that would have been paid in the home country. For this purpose, the company assumes the payment of the employee’s personal income taxes in the host country, and the employee pays the tax that would have been paid in the home country based on the employee's personal circumstances.