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Appendix I. Table summarizing the tax treatment given to the various ways of investing in Spain

Appendix I

TABLE SUMMARIZING THE TAX TREATMENT GIVEN TO THE VARIOUS WAYS OF INVESTING IN SPAIN

WAYS OF INVESTING IN SPAIN TAX TREATMENT
Incorporation of a subsidiary (Corporation (S.A.) / Limited liability company (S.L.))

General corporate income tax rules pursuant to the Corporate Income Tax Law (See Chapter 3, section 2.1 for more detailed information).

Formation of a branch Nonresident income tax, with permanent establishment (See Chapter 3, section 2.3.1 for more detailed information).
Economic Interest Grouping (EIG), Temporary Business Alliance (UTE) and joint venture

Special rules for economic interest groupings, both Spanish and European, and temporary business alliances. In particular:

  • The part of the tax base attributable to members resident in Spain is not subject to corporate income tax.
  • The tax bases, tax credits and tax relief and the withholdings and prepayments of EIGs or UTEs are attributed to the resident members.
  • Dividends distributed to nonresident members of Spanish EIGs or UTEs will be taxed pursuant to the Nonresident Income Tax Law and to the tax treaties signed by Spain.

(See Chapter 3, sections 2.1.13 for more detailed information).

Distribution agreement

The tax treatment of nonresidents in Spain who contract with Spanish distributors will depend on whether or not said contracting gives rise to the existence of permanent establishment in Spain for the nonresidents:

  • If a permanent establishment exists, it will be taxed according to the rules on permanent establishments stipulated under the Nonresident Income Tax Law or in the applicable tax treaties (See Chapter 3, section 2.3.1 for more detailed information).
  • If a permanent establishment does not exist, it will be taxed pursuant to the same legislation, but in connection with taxpayers without a permanent establishment. In general, the income will be characterized as business profits, which are usually exempt where a tax treaty can be applied (See Chapter 3, section 2.3.2 for more detailed information).

Whether or not a permanent establishment exists will depend, in general, on whether the nonresident is deemed to be distributing in Spain through a fixed place of business or an independent agent.

Agency agreement

The tax treatment is similar to that stipulated for distribution agreements.
Whether or not a permanent establishment exists will depend, in general, on whether or not the agent has powers to bind the nonresident.

Commission agency agreement

The tax treatment is similar to that stipulated for distribution and agency agreements.
Whether or not a permanent establishment exists will depend, in general, on whether or not the commission agent has powers to bind the nonresident principal.

Franchising agreement

The payment made by the franchiser to the franchisee may be given the following treatments, depending on the services provided and rights granted:

  • it may be treated in part as a royalty and in part as business profits; or
  • it may be treated only as a royalty.

(See Chapter 2, section 7.11 for more detailed information).

Sale and purchase of business (assets and liabilities or global transfer of assets and liabilities)

The main tax implications in a sale and purchase of a business relate to VAT, transfer tax under the “transfers for consideration” heading and stamp tax. Accordingly:

  • If all of the transferred assets and liabilities can be considered an independent economic unit, the sale and purchase will not be subject to VAT. In this case, if the transferred assets include real estate, the transfer of these assets will be subject to transfer tax under the “transfers for consideration” heading.
  • If all of the transferred assets and liabilities cannot be considered an independent economic unit, the sale and purchase will be subject to VAT. In this case, an analysis will have to be performed as to whether the transferred assets qualify for any exemption. If any of the transferred assets can be registered and the transaction is recorded in a public deed, stamp tax will also be triggered.