What does tax compliance in Spain actually require from a foreign company?

Tax compliance in Spain involves complexity that goes well beyond filing returns on time. For a foreign company, the obligations depend on the form through which the Spanish presence is structured: operating through a Spanish subsidiary (a resident company), through a branch (permanent establishment) or invoicing from abroad with no local structure are three very different situations, each with distinct tax implications. Choosing the wrong structure can create unforeseen tax exposure.

Spanish subsidiary vs. permanent establishment: compliance implications

A Spanish subsidiary is a company resident in Spain, subject to Corporate Income Tax (IS) at the general rate of 25% on its taxable base. It has full legal personality and its compliance obligations are those of any Spanish company: CIT, VAT, withholdings, instalment payments and, where applicable, wealth tax if the structure requires it. The relationship with the foreign parent must be documented under transfer pricing rules.

A permanent establishment (PE) — a branch, a construction site, a dependent agent — generates obligations under the Non-Resident Income Tax (IRNR) on the income attributable to it, with the same formal obligations as a subsidiary in terms of filings and payments, but with a different regime for income attribution and deductions. Unintentional PE risk (activities carried out in Spain that the AEAT may characterise as a PE) is one of the most common and least managed risks in international companies.

The AEAT’s digitalisation: why compliance cannot be reactive

The AEAT is a European pioneer in using data for non-compliance detection. Through the Immediate Information Supply system (SII) — mandatory for companies with turnover above €6 million — the agency receives invoicing records in real time, within four days of each invoice being issued. This means that for companies in the SII, the AEAT has access to their VAT data practically at the same time as the transactions occur.

For other companies, the cross-referencing of Form 347 (transactions with third parties), VAT returns, withholdings and information received from financial institutions and registers allows the AEAT to detect inconsistencies with great precision. The margin to correct errors without consequences — through supplementary or rectifying returns — exists, but is significantly reduced once the AEAT has initiated inspection proceedings.

Tax compliance vs. tax planning in Spain: the distinction that matters

One of the most common confusions in international companies establishing in Spain is treating tax compliance and tax planning as if they were the same thing, or as if one substituted the other. They are complementary, but they have different natures, time horizons and objectives.

Tax compliance is the obligation: filing the correct returns, within the established deadlines, with the corresponding data. It is the minimum floor that every company must cover, and doing it well is a necessary condition for any planning strategy to make sense. A company that does not properly meet its tax obligations cannot benefit from the special regimes, deductions or efficiency structures that the Spanish system offers, because the AEAT will first limit access to those benefits.

Tax planning, by contrast, is the strategy: how to structure the Spanish presence to maximise tax efficiency within the legal framework. It includes decisions such as the choice of corporate vehicle, the applicable tax regime (general CIT, ETVE, fiscal consolidation regime, Beckham Law for executives), the transfer pricing policy with the parent, the management of instalment payments or the use of available tax deductions and incentives.

Which taxes must a non-resident company pay with a permanent establishment in Spain?

A non-resident company operating in Spain through a permanent establishment (PE) is subject to a set of tax obligations that, in practice, approximate those of a Spanish company, although with relevant nuances.

Non-Resident Income Tax (IRNR)

The PE is taxed under the IRNR on the income attributable to it, applying the same CIT rules for determining the taxable base. The general rate is 25%. The PE must file the same returns as a resident company (Forms 200, 202, 220 if part of a group) and has the same instalment payment obligations. The key difference lies in income attribution: only income generated through the PE is taxed in Spain, not all income of the non-resident entity.

VAT (Impuesto sobre el Valor Añadido)

If the PE carries out VAT-taxable operations in Spain, it must register in the Register of Intra-Community Operators (ROI) when conducting transactions with EU countries, file Form 303 quarterly or monthly depending on its turnover, and the annual summary Form 390. Input VAT on the PE’s acquisitions can be deductible insofar as it is linked to operations that generate the right to deduct.

Withholdings and payments on account

The PE has the same withholding obligations as a resident company: on the employment income of its employees (Form 111), on rentals of premises it uses (Form 115), on investment income it pays, and on professional fees subject to withholding. Failure to meet withholding obligations is one of the AEAT’s preferred audit focus areas for permanent establishments of foreign entities.

Transfer pricing with the head office

Transactions between the PE and its head office — allocation of general expenses, services provided by the parent, use of intangible assets — must be documented and valued at arm’s length prices in accordance with transfer pricing rules. The AEAT has intensified in recent years its inspection activities on the correct attribution of income and expenses to permanent establishments, particularly in technology and professional services sectors.

Annual tax compliance calendar in Spain

The most common planning mistake in international companies is not ignorance of the taxes: it is the absence of a global view of the compliance calendar and managing each return in isolation. The result is that individual returns are filed correctly but the overall picture is incoherent, or that instalment payments are not properly sized and generate surprises in July.

The following calendar sets out the main obligations of a Spanish company or active PE with a fiscal year coinciding with the calendar year:

Exact dates may vary according to annual AEAT instructions and the type of taxpayer. For companies with a fiscal year not coinciding with the calendar year, deadlines shift accordingly.

Most common failure points in tax compliance for international companies

Analysis of AEAT inspection proceedings involving international companies reveals recurring patterns of non-compliance that, in most cases, reflect not intent but insufficiently coordinated management between local teams and the parent. The most common are:

• Delay in registering for IRNR or VAT: Many companies begin operating in Spain before completing tax registrations, accumulating obligations that cannot be met retroactively without cost.
• Insufficient transfer pricing documentation: Spanish regulations require specific documentation for related-party transactions above certain thresholds. Absence of documentation not only exposes to penalties but reverses the burden of proof before the AEAT.
• Confusion between input VAT and deductible VAT: Not all input VAT is deductible. Restrictions on the right to deduct — particularly on mixed-use expenses, vehicles and entertainment — are a frequent source of adjustments in inspections.
• Undersized CIT instalment payments: CIT instalment payments (Form 202) can be calculated on the prior year’s tax liability or on the current year’s taxable base. Choosing the right method and correctly sizing the payments avoids both overpayment and underpayment, with their respective costs.
• Manual SII management: For companies subject to SII, manual submission of invoicing records — instead of automated integration between the ERP and the AEAT — is a constant source of errors, delays and inconsistencies that the agency detects almost immediately.

How we structure tax compliance at Seegman

At Seegman we approach tax compliance for our international clients as an integrated service, not as the sum of individual returns. Our proposal combines three dimensions:

1. Initial tax structure diagnosis

Before taking on the management of any obligation, we analyse the client’s structure of presence in Spain — subsidiary, PE, operation without establishment — and verify that the chosen vehicle is the most efficient from a tax and operational perspective. If there are structural gaps or inefficiencies, we identify them before they generate costs.

2. Ongoing management of all tax obligations

We take on the filing of all the client’s Spanish tax returns: CIT, VAT (with or without SII), withholdings, instalment payments, annual summaries and information returns. We use our own deadline calendar and an alerts system to ensure that no obligation falls outside of control.

3. Coordination with the global tax strategy

For clients with a presence in multiple jurisdictions, we coordinate Spanish compliance with the tax implications in the parent’s country — particularly regarding transfer pricing, double tax treaties, dividends and capital gains — so that the global tax strategy is coherent and documented.