Non-Resident Permanent Establishment in Spain — Taxation Guide

Non-Resident Permanent Establishment (PE)

3. Non-Resident Betriebsstätte. The concept of a permanent establishment or of a group includes three assumptions:

• 1. A workplace is located in Spanish territory. It should be emphasized that the permanent establishment has no legal personality, unlike a subsidiary belonging to a parent company (a group of companies), which is a legal person.
• 2. An agent authorized to act and to contract on behalf of a 'head office' and acting in Spanish territory.
• 3. A construction or assembly project lasting more than 6 months (of course this can be more precisely defined and is uncommon).

Taxation Structure

Regarding the taxation structure, we can state:

• 1. The entire income attributable to the permanent establishment must be included in its tax base, regardless of the place where such income was produced.
• 2. Taxation is synthetic, that is, it does not distinguish between different classes of income.
• 3. It follows a fiscal year, i.e. the accounting period governs the tax year.

Determination of the Tax Base

To determine the tax base, as a general rule, the same rules apply as under the corporate income tax (IS). If a reasonable allocation is made for the administrative costs of the head office, fees, interest or charges that the permanent establishment pays to its head office are generally not deductible for the PE.

Tax Rate and Credits

The tax rate is 30%, and it operates in a complementary manner when income is transferred abroad. For the tax payable, the same tax credits that apply under the IS are applicable to the permanent establishment.

Installments and Filing Deadlines

The permanent establishment must make installment payments according to the same rules as under the IS. A tax return must be filed within the applicable deadline, typically between 25 days and up to 6 months from the date the tax obligation arises. The accrual is considered to be the last day of the fiscal year.

Disclosure Obligations

With regard to disclosure obligations, separate accounts must be maintained under the same rules that apply to non-resident entities.

Who Is the Taxpayer?

Who is the taxpayer? The taxpayer is the head office.

Example: FARMA-SPANIEN and American Pharmacy

For example, if 'FARMA-SPANIEN', a permanent establishment in Valencia, depends on 'American Pharmacy' (head office) in Chicago (USA), who is the taxpayer for the income earned by the permanent establishment in Spain?

Solution: The permanent establishment is not a legal person, so it is considered part of the head office to which it belongs. The taxpayer is 'American Pharmacy'; the permanent establishment does not have its own legal personality.

Tax Consolidation Regime

In the case of a permanent establishment acting as the parent or head of several subsidiaries based in Spain [Article 67.2.a) and f) TRLIS] for the tax consolidation regime, the entity subject to tax will be the consolidated tax group for corporate income tax purposes.

For example, in the previous case 'FARMA-SPANIEN' could be the head of other permanent establishments of 'American Pharmacy' in Spain: 'FARMA-SEVILLA', 'HOME-MOTHER' and 'CACERES-NATUR'.

Solution: The taxpayer will be the parent company within the IS consolidated group.