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A study of the best options for a foreign company entering the Spanish market
Tax advice in English and German
The traditional way of selling in the Spanish market through a sociedad limitada or “S.L.” – a limited liability company – is by no means the only option. There are alternative options that can be much more appealing to the foreign company, such as a branch, a representative office or even a storing facility or warehouse.
One option for making initial contact with the Spanish market is to establish a representative office in Spain. The foreign company would only need a Spanish tax number to withhold IRPF (Personal Income Tax) from their employees’ salaries in Spain, as well as a Spanish Social Security number to pay the social security contributions for these workers, where relevant. To make this possible, the foreign company must appoint a tax representative in Spain.
The foreign company must handle the accounting for the activity carried out in Spain. Spanish input VAT can be refunded through the specific procedure for non-resident taxable persons, although this also requires an in-depth examination, as it is a contentious issue.
The activity carried out by the representative office does not constitute a permanent establishment for either VAT or Corporate Tax purposes, as long as the work of the employees does not involve managerial autonomy and is not invoiced from Spain. In the event that these employees have the autonomy to contract and negotiate with clients directly, this would be considered a permanent establishment from a Corporate Tax point of view.
Another option to enter the Spanish market is to do so through a company – typically a limited liability company, an “S.L.” – or a branch office. These options have some similarities and differences, not so much from a tax perspective (both are subject to VAT and Corporate Tax), but from the perspective of how the profits and losses of the Spanish company are handled in the books of the foreign parent company. It should be noted that it is most important that losses can be accounted for, and the way to transfer them from the Spanish company to the foreign parent company depends on the national legislation applicable to the latter. Not the least, the financing of those two entities is governed by different principles.
On occasion, it can be useful to try to apply the Marks & Spencer doctrine, which arose from an EU Court ruling. This doctrine allows for the losses of European subsidiaries to be transferred to the parent company, although our experience in countries such as Germany and Great Britain has taught us that success cannot be taken for granted.
For more information on how to operate in Spain through a storage facility, click here.