Our previous post reported about the possibility to reduce tax risk when expanding our business to foreign countries via: representative offices. If we have decided to work in a certain territory, then we should consider the full scope of suitable alternatives. The same thought is applicable in case we are a foreign company that has decided to work in Spain. Following option, in order of less complexity and perhaps tax risk, describes a structure of permanent establishment.
What is a permanent establishment?
This structure, which is defined on the Tax Agency’s website, has no legal personality. This implies:
Less costs of incorporation.
No responsibility of its own, as it is then absorbed by the "mother" company.
Common sense applies; if there are workplaces, then acting through a permanent establishment will be the case; also in those circumstances, where the main activity of the company is executed in another territory. This will not be the case, if auxiliary activities of a representative office are being performed. This scenario is then monitored by double taxation agreements signed between Spain and other countries.
Tax obligations of a permanent establishment
Being of no legal personality does not mean exemption from certain obligations. The request for a TAX ID at the relative Tax Authority, the liquidation of the non-resident tax for profits, those corresponding to its workers regarding the Social Security of each country... The benefits obtained by permanent establishments will be taxed in the country of the parent company. "Double taxation" may be eliminated, depending on mechanisms existing between countries (if non-resident taxes have been paid in the country where the permanent establishment operates, those taxes may be deducted from the corporate tax of the "parent" company, with certain limits and requirements).
In fact, these limits and requirements are one of the issues that should be analysed before operating with a permanent establishment. Of course, the facility to deduct these amounts is not at "sole discretion", but performances may be optimized.
Carrillo Asesores will be delighted to support you in establishing yourself in any country, worldwide by means of studying the specific features of your business. We will also be pleased to assist in case your Company is a part of a foreign entity that wants to establish in Spain.