At Employing In Spain, we understand the significance of tax and legal considerations for international companies with employees in Spain. This article provides an overview of the CFC rules (Controlled Foreign Corporations) in Spain, highlighting their application, implications, and recent updates.
As experts in tax and employment matters, we offer comprehensive assistance and guidance to ensure compliance and maximize your business’s potential.
The Controlled Foreign Corporations (CFC) rules in Spain have been aligned with the OECD’s guidelines to combat profit-shifting strategies involving CFCs in low-tax jurisdictions.
These rules aim to prevent the artificial allocation of income to foreign subsidiaries and ensure a fair tax base.
By understanding the scope and application of these rules, international companies can navigate tax obligations and minimize risks.
The CFC rules in Spain apply to companies that control 50% or more of a CFC’s voting rights, capital, assets, or profits, either individually or with related individuals/entities.
The control requirements encompass both legal and economic control. It’s important to note that partnerships and pass-through entities are exempt from these rules.
The CFC must be a corporation, and its income must meet the low-tax threshold for attribution.
Under the CFC rules, if a CFC fails to meet substance requirements, its full income is attributed to the Spanish parent company.
This prevents the artificial allocation of passive income and trading/services income to foreign subsidiaries. However, certain exemptions apply to holding companies, economically justified CFCs, and CFCs utilizing assets/employees of other group companies.
Passive income categories, such as dividends, interest, and royalties, may still be attributed to the Spanish parent company.
Holding companies generally face stricter rules under the CFC regime.
Dividends and capital gains from the sale of shares are considered passive income and attributable to the Spanish parent company.
However, exemptions exist when the CFC holds at least 5% of the share capital for a minimum of one year or when the dividends/capital gains originate from active income or securities trading. Substance requirements must be met at the group level.
The CFC rules also cover interest, insurance premiums, and income from intellectual property (IP).
Generally, interest and finance income are deemed passive income but may not be attributable under certain conditions. IP income and mobile income are considered attributable unless generated within the context of an active business.
It’s essential to consider tax treaties and nominal tax rates for specific income categories.
At Employing In Spain, we have extensive experience in providing tax services to international companies operating in Spain.
Our professionals are well-versed in the Controlled Foreign Corporations (CFC) rules and can assist you in navigating the complexities of tax compliance and maximizing your business’s potential.
Contact us today for expert advice and support on labor, employment, and tax matters. We are committed to helping you achieve your employment goals and objectives in Spain.