Permanent establishments from a VAT perspective and differences with Corporate Tax

12.2013

Queries from clients who are not resident in Spain and who are interested in knowing whether the existence of a warehouse in Spain is considered a permanent establishment with regards to VAT and/or Corporate Tax are very frequent. Such warehouses are used to store goods that will later be sold and shipped to customers. The sales activity is performed directly from abroad.

Pursuant to Spanish tax regulations, a permanent establishment with regards to VAT only exists if the non-resident company rents a property and holds a lease agreement specifying with detail the space made available to the lessee. Otherwise, the non-resident company shall be required to issue invoices with a Spanish VAT number but no output VAT will be charged. Then, the Spanish customer will pay VAT in Spain applying the reverse charge mechanism. In our case, the foreign-based company had a permanent establishment in Spain and was required to issue invoices with Spanish VAT. With regards to Corporate Tax, the criterion by which a permanent establishment is deemed to exist is the presence of a fixed base from which business is conducted, i.e. whether sales and/or purchases are made from within Spanish territory, either directly or through agents. In our case, from the perspective of Corporate Tax, there is no permanent establishment, so the profits of the foreign-based company are not taxable in Spain.

++Published at the tax newsletter of the German Chamber of Commerce related to VAT news.++