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Do you need a VAT number in Spain?
Entry into the Spanish market through a representative office and the implications for VAT and Corporate Tax
Our firm often deals with consultations on the effects of VAT for a foreign company developing an activity in Spain through a representative office. This is one of the easiest ways of entering into the Spanish market. In the scenario described, the foreign company does not need to incorporate any companies in Spain nor create a branch. It is enough to have one or more employees devoted to introducing the products or services of the foreign company into the country, and these employees may be Spanish or foreign.
The advantage of this is that the foreign parent company will continue to bill directly to Spanish clients, with no changes, through the same parent company. The refund of input VAT in Spain accrued by the foreign company for operations in Spain shall be obtained via the procedure established for non-domiciled companies (Directive 2008/9), if the parent company is in the EU, as the foreign company is not a taxable person in Spain as there is no output VAT (as no sales are made in Spain.) By way of example, we can mention the tax agency consultations dated 27-02-2002 and 22-12-2005.
Noteworthy is the fact that, from the viewpoint of Corporate Tax, the relevant issue is that the foreign company carries out the most significant part of the business (e.g. executing contracts) directly from its country, and that employees only perform tasks limited to finding clients. This avoids the company having a permanent establishment in Spain from the point of view of Corporate Tax (under the provisions of Art. 25 of the OECD model on Double Taxation Agreements). If the company had a permanent establishment in Spain, the profits gained in Spain would be taxed at 25% or even 30%, which are the rates applicable to Spanish Corporate Tax.
In any event, establishing a representative office requires the compliance with certain formal requirements, such having a tax representative, in addition to appropriate preliminary planning of the operations to be undertaken by the company in Spain. This system is also applicable to Spanish companies wishing to enter foreign markets.