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Setting up a business in Spain: must you pay the Income Tax for Non-Residents?

Setting up a business in Spain: must you pay the Income Tax for Non-Residents?Thinking of setting up a business in Spain, but ignore everything about tax legislation?

Do you need a supporting tax representative? The Income Tax for Non-Residents is one of the taxes you will have to analyze in order to know whether you have to pay it or not.

Nowadays, mercantile operations between people or companies coming from different countries are very common, so the Income Tax for Non-Residents (IRNR) was created in Spain in order to keep control on income earning in our country.

The IRNR is a direct tax charged on the incomes earned within the Spanish territory by natural persons and entities which do not reside in Spain.

The IRNR is charged in all the Spanish territory, without prejudice of the provincial laws of the Basque Country and Navarra, the special features of Canary Islands, Ceuta and Melilla and the international agreements concerning double taxation subscribed by Spain with other countries.

Who must pay the Income Tax for Non-Residents (IRNR)

The law which regulates the IRNR establishes that the taxpayers for this tax are the following:

  • Natural persons or entities which are not residing in Spain and earn incomes in Spain, except those which pay the IRPF.
  • Foreign natural persons who reside in Spain because of their charge or job, such as members of diplomatic missions, consular posts, active public workers who exercise their function in Spain.
  • Income-attribution entities which have been constituted abroad but are present in Spain.

The residence in Spain is established according the IRPF and Corporate Tax (IS) Law, which means that if a person or entity is not considered a taxpayer of the IRPF or IS, then they can be a taxpayer of the IRNR.

Why do you have to pay the IRNR when setting up a business in Spain?

Now that you know what the IRNR is and who has to pay it, it is time to see why it has to be paid: the chargeable event.

The chargeable event of the IRNR, that is, what it charges, is the income earned (in money or in kind) by the taxpayers in the Spanish territory after setting up a business in Spain or for other reasons.

The incomes considered earned in Spain are the following:

  • Incomes from commercial activities or uses carried out through a permanent establishment in Spain.
  • Incomes from commercial activities or uses carried out without a permanent establishment when:
    • The commercial activity is carried out in Spain.
    • Correspond to service deliveries used in Spain.
    • Derive from the activities of artists or sportspersons in Spain.
    • Constitute employment income derived from an activity developed in Spain, payments from the Public Administration or payments made by natural persons who carry out commercial activities on a ship or an aircraft.
  • Pensions and similar benefits.
  • Payments to managers or members of the management board of a company residing in Spain.
  • Certain property capital gains.
  • Capital gains derived from properties located in Spain.
  • Income charged to natural persons who own urban properties located in Spain.
  • Capital gains derived, for instance, from securities issued by persons or entities residing in Spain.

In addition to the above, we must consider that some incomes (such as grants or scholarships received by natural persons) are exempt from paying this tax.

Why do you need a tax representative?

The IRNR taxpayer resides out of Spain so it is difficult to be controlled by the Spanish Tax Agency. This is why all IRNR taxpayers must appoint a tax representative who can be a natural or legal person (company) and will have to reside in Spain.

The tax representative will have to represent the taxpayer in different occasions:

  • When he or she makes business in Spain through a permanent establishment.
  • When he or she carries out activities in Spain without a permanent establishment.
  • When they are income-attribution entities which have been constituted abroad and carry out a commercial activity.
  • When ordered by the Tax Administration.
  • When the investor comes from a country with which there is no active exchange of tax information.

From the moment when you appoint your tax representative in Spain, you will have a period of two months to communicate the appointment to the Tax Administration.

When and how must the IRNR be filled in?

The deadline for submitting this tax will depend on the incomes to be declared:

  • Incomes derived from conveyance of properties: 3 months after one month has passed since the conveyance.
  • Incomes derived from urban properties: during the calendar year following accrual date (December 31st each year).
  • Rest of incomes:
    • Self assessment to be paid: 20 first calendar days in April, July, October and January for incomes accrued in the previous quarter.
    • Self assessments with income of zero: from January1st 20th of the year following the income accrual.
    • Self assessments to be refunded: they will have to be filed from February 1st of the year following the income accrual and within a maximum period of 4 years.

The tax must be filed for by filling in models 210, 211, 213, 216 and 247, either electronically or printed, once the Tax Agency form has been filled in online.

What happens if you default on payment?

The law which regulates the IRNR (article 10.3 of LIRNR) establishes the application of a sanction of 2.000 €, as the non-compliance is considered a serious tax violation. The same article points out that if the tax violation is carried out by a non-resident from a country that does not have an effectiva tax information exchange with Spain, the penalty would be increased to 6.000 €.

How can LEIALTA help you in setting up a business in Spain?

If you are setting up a business in Spain, you will need to hire a business consultancy service which will help you with the procedures and advise you about how to comply with tax and law commitments in Spain.

In order to help you with the procedures we offer you the following services:

  • Study previous to the setting op of the business in Spain to analyze the most favorable regulations for your company from a labor, tax or mercantile point of view (among others).
  • Legal and tax representative. As stated before, in order to keep control the Spanish Tax Agency requires the appointment of a tax representative. You can also give him/her/them legal powers. With our legal and tax representative you will be able to:
    • Start out your business in Spain and carry out all the required procedures.
    • Buy and sell in our company.
    • Have a contact person to deal with the Spanish Tax Agency.
    • Benefit from a team of experts in different fields who will carry out all the procedures and will keep you informed in English.
  • Cash Handling service. If you have any difficulties when opening an account in a Spanish bank entity, we provide you with this service that will enable you to collect and make payments to providers, pay taxes, pay staff payrolls and pay the Social Security costs. We will just put an account at your disposal, agree a payment schedule with your company, keep you informed of the payments to be made and make them in a legal and transparent way.

As you can see, investing and setting up a business in Spain can be simple if you are properly advised by experts who know well the Spanish regulations and can help you when in doubt. Do you need advice to set up a business in Spain? Do not hesitate to contact us.

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