Are you a European company considering expanding into Spain?
Understanding the process of creating a permanent establishment is essential to operate legally and to optimize your fiscal and commercial strategy. At Lexcam, we explain everything you need to know to do so successfully and in compliance with Spanish regulations.
What is a Permanent Establishment?
According to Article 5 of the OECD Model Convention and Article 6 of the Spanish Corporate Income Tax Act, a permanent establishment is any fixed place of business through which a foreign company carries out its economic activity, wholly or partially. Common examples include:
• Branches
• Offices
• Workshops
Understanding this concept is crucial, as it determines the tax and accounting obligations of your company within Spanish territory.
Main Formal Obligations When Establishing in Spain
1. Tax Declarations
• Obtain a Non-Resident Tax Identification Number (NIF) in accordance with the Regulation on the Application of Taxes (Royal Decree 1065/2007).
• Register with the Census of Entrepreneurs, Professionals, and Withholders using Form 036, declaring the operation through a permanent establishment.
2. Accounting Obligations
• Maintain separate accounting records in accordance with the Spanish Commercial Code and the General Accounting Plan.
• Prepare and file annual accounts with the Commercial Registry if a branch is constituted.
3. Employment and Social Security Obligations
• Register employees with the Spanish Social Security system (Articles 13 et seq. of the General Social Security Law).
• Comply with Spanish labour regulations, including the Workers’ Statute.
4. Registration Obligations
• Register the branch with the Commercial Registry, submitting documentation from the parent company, such as articles of association and appointment certificates.
Risks of Non-Compliance
Failure to comply with these obligations may result in:
• Tax penalties under the General Tax Law.
• Loss of tax benefits or limitations on the deduction of expenses.
• Commercial and labour liabilities towards third parties.
Proper management mitigates risks and protects your investment.
Relevant Case Law.
The Spanish Supreme Court, in rulings such as that of 25 March 2010 (Appeal 3342/2005), has clarified that a permanent establishment does not require full autonomy from the parent company, but it must have a sufficient presence to generate income in Spain.
Applicable Legislation
• Law 27/2014 on Corporate Income Tax.
• Royal Decree 1065/2007 (Regulation on the Application of Taxes).
• Spanish Commercial Code.
• Commercial Registry Regulations (Royal Decree 1784/1996).
• General Social Security Law (Legislative Royal Decree 8/2015).
• Spain-Germany Double Taxation Treaty (protocol updated in 2011).
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Do You Need Assistance Establishing Your Company in Spain?
At Lexcam, we have a team of experts in international taxation, commercial law, and labour law who can advise you at every step of the process. Contact us for personalised consultancy and ensure the success of your expansion.