Trusteeship

In Spanish legislation, there is no explicit legal recognition for the concept of trust, which implies that tax authorities and courts in Spain do not consider it a valid legal figure. Because of this lack of recognition, the tax treatment of trusts may differ depending on the specific circumstances of each case. Generally, Spanish tax authorities tend to evaluate the economic reality of a trust rather than its legal form. For this reason, a trust must be configured in accordance with one of the legal entities recognized by Spanish legislation.

Since there is no specific regulation on the taxation of trusts in Spanish tax regulations, the determination of the tax treatment of the legal relationships involved in them must be carried out in an abstract manner, based on the general principles that govern the Spanish tax system. This situation is even more complicated due to the scarce scientific and administrative doctrine in this area, which lacks clearly defined criteria. In practice, this implies that the economic relations between the participants of a trust must be considered as if they were maintained directly between them, and the tax consequences of these relationships must be evaluated accordingly.

Treatment of Business Entities

Within the framework of Spanish legislation, it is essential to distinguish between the various types of companies, especially between commercial entities that are taxed under corporate tax and corporate corporations, considered as distribution business entities.

Generally, commercial entities with their own legal personality are considered to be taxpayers of corporate income tax, while commercial entities without their own legal personality are classified as channeling entities. For the latter, Spanish legislation establishes a specific tax regime known as the “income attribution regime”, which applies to revenues generated by business entities that do not have their own legal personality. Since 2003, this regime also covers commercial entities incorporated outside of Spain that have a similar or identical legal nature to that of a Spanish commercial entity subject to the income attribution regime.

On February 6, 2020, the Directorate General of Taxation issued a binding resolution specifying the requirements that a foreign entity must meet in order to be considered to have the same or similar legal nature as a Spanish commercial entity under the income attribution regime:

• The entity should not be subject to personal income tax in the country where it is established.
• The income generated by the entity must be fiscally attributed to its partners or shareholders in accordance with the regulations of the country of establishment, these partners being the ones who pay taxes on such income in their personal income tax. This attribution must occur automatically when income is generated, without it being relevant if the income has actually been distributed to the partners or participants.
• The income allocated to partners or participants must remain, in accordance with the legislation of the country of establishment, the same nature as the activity or source from which they originate for each member or participant.

There are mainly two scenarios in which non-residents may be subject to taxation in Spain in relation to personal corporations:

• When non-residents are members of a Spanish personalist society
• When foreign business entities, under certain conditions, can be considered a personalist company for tax purposes in Spain, implying that both the foreign personalist company and its members may be subject to taxes in Spain if they have interests in the country.

In accordance with Spanish regulations on non-residents, the legal characteristics of a foreign company are decisive in establishing whether it is considered a business entity with a continuous flow from a Spanish tax perspective. However, Spanish tax authorities are taking a more simplified view, considering a foreign company as a business entity with a continuous flow when it is not subject to taxation in its country of residence.

In addition, Spanish legislation on Spanish regulations for non-residents distinguishes between non-resident working capital entities with a presence in Spain and those without such a presence.

If an entity, whether Spanish or non-resident, carries out a business activity in Spain, its non-resident partners operate through a permanent establishment in the country. This implies that the income generated by the entity is taxed directly at the level of the entity, using mechanisms similar to those applied to non-resident taxpayers with a permanent establishment in Spain, although other additional rules also apply.

On the other hand, if the entity, whether Spanish or non-resident, does not carry out a business activity in Spain, its non-resident members are taxed in accordance with Spanish legislation on income tax for non-residents, and therefore, taxation does not apply at the level of the entity. Instead, income is allocated to members of the entity as if it didn't exist.

Thus, members resident in Spain would include their share of income in their direct tax return (IRPF or IS), while non-resident members would be taxed by Non-Resident Income Tax.

Work and Residence Permits

International workers from European Union countries do not need to apply for a work and residence permit to perform their duties in Spain. However, if their stay in Spain is longer than three months, they are required to register in the Central Register of Foreigners, in order to obtain a foreign identification number.

It should be noted that, after Brexit, UK citizens are no longer considered EU citizens. Only British people who registered as residents in Spain before 2021 are covered by the withdrawal agreement and can therefore maintain their residence status.

On the other hand, international workers from outside the European Union who wish to carry out paid work or professional activities in Spain, both for employment and self-employment, must obtain work and residence authorization before starting their work activity in the country.

In general terms, if the worker is employed and the characteristics of their position require compliance with the National Employment Situation, the application for a work and residence permit in Spain is carried out in three stages:

1. Publication of the job offer: The employer must publish the job offer in the national employment system and demonstrate that there is no suitable candidate available in the Spanish labor market. This process usually takes about a month.
2. Application for a work and residence permit: The employer submits the application for the work and residence permit in Spain. If all of the required documents are properly submitted, the immigration office will issue a letter of approval for the permit, a process that can take between three and six months.
3. Application for an entry visa: Once the approval letter has been received from the Spanish immigration office, the international worker must apply for an entry visa at the Spanish consulate in their country of origin within 30 days. This process can take up to one month. After arriving in Spain, the worker must apply for their residence card within the first 30 days of their stay.

It is important to note that there are circumstances in which it is not necessary to comply with the first step related to the National Employment Situation. These exceptions are as follows:

• When the occupation is included in the catalog of occupations that are difficult to cover published quarterly by the Public Employment Service.
• In situations where, even if the occupation is not classified as difficult to cover, the employer demonstrates to the Foreign Office the difficulty of finding suitable candidates in the domestic labor market. In these cases, the Foreign Office will take into account the report submitted by the Public Employment Services on the lack of jobseekers to fill the vacancy, as well as the urgency of hiring accredited by the company.
• When hiring is aimed at nationals of countries with which Spain has specific international agreements (such as Chile and Peru).
• When an assumption provided for in said regulations applies.

Work and residence permits are granted for a maximum period of one year and can be renewed in the two months prior to their expiration. In some cases, it is possible to request renewal within three months of the expiration date, although this may result in penalties.

Work and Residence Permits in Spain for Highly Qualified Workers, Entrepreneurs and Investors

As of September 29, 2013, Spain has simplified immigration procedures for certain individuals for reasons of economic interest, in the following cases:

Capital Investors: Eligible investments may include:

• 500,000 euros in real estate
• 2 million euros in Spanish public debt
• 1 million euros in shares of Spanish companies or bank deposits in Spanish entities
• 1 million euros in investment funds, closed investment funds or venture capital funds established in Spain
• A business project that is developed in Spain and is recognized as being of general interest or that contributes significantly to scientific and/or technological innovation.

Intra-Business Transfers/People on International Mission: This category allows the mobility of employees of multinational companies between their branches within the European Union. The EU Intra-Business Transfer Directive, adopted in May 2014, facilitates the movement of key personnel within the EU, as long as they work for the same company or group of companies. Workers with an intra-company transfer permit (TTI) are entitled to the same protection and compensation as local workers.

Entrepreneurs: This category is designed for those looking to start new companies in Spain, thus encouraging economic development and innovation.

Highly Qualified Professionals: Spain's Law 11/2023, which amends Law 14/2013, provides a specific framework for highly qualified professionals, based on the 2011 National Occupation Classification (CNO-11). This law distinguishes between two types of authorizations:

• Residence Authorization for Highly Qualified Professionals with EU Blue Card: Applies to those who will perform functions that require qualifications derived from higher education of at least three years or a minimum professional experience of five years in relevant areas.
• National Residence Authorization for Highly Qualified Professionals: Aimed at those whose professional activity in Spain requires a qualification equivalent to at least level 1 of the Spanish Qualifications Framework for Higher Education, or a minimum professional experience of three years.

Researchers: This category covers those who wish to carry out research in Spain, supporting scientific and technological progress in the country.

International Remote Workers: This category allows workers who carry out their professional activity remotely from Spain. Holders of this authorization can work for a company located in Spain, provided that this work does not exceed 20% of their total professional activity. The visa for remote work is valid for a maximum of one year, unless the working period is shorter. In that case, the visa is adjusted to that period and can be transformed into a residence authorization for international remote workers with a maximum validity of three years.

In general, work and residence permits under these regulations are issued for a maximum period of three years, with the possibility of renewal for two additional years.

Change Control Regulations

According to current exchange control regulations in Spain, a non-resident can open a bank account in euros or in any other currency with a Spanish financial institution. To proceed with the opening of such an account, and in compliance with anti-money laundering regulations, the non-resident must present their passport and, preferably, a document issued by the Spanish Ministry of the Interior confirming their status as a non-resident. Additionally, a Foreigner's Identity Number (NIE) may be required.

As for Spanish residents, if they decide to open bank accounts abroad or make fund transfers to or from non-resident bank accounts, they are required to notify the Statistics Department of the Bank of Spain, according to the following criteria:

Banking with Non-Residents: Residents in Spain who carry out financial transactions with non-residents or who hold financial assets and liabilities abroad worth more than 1 million euros, must inform the Statistics Department of the Bank of Spain about the details of the bank accounts involved and their holders, among other things. This communication obligation does not apply to transactions of less than 1 million euros, unless requested by the Banco de España, in which case the information must be provided within two months from the date of the request.

Periodicity of Communications: Notifications to the Banco de España are regulated by Circular 4/2012, which establishes the frequency of reports (monthly, quarterly or annual) based on the total amount of banking transactions or financial assets and liabilities held abroad during the year, provided that they exceed 1 million euros.

Tax Obligations: Law 58/2003, of December 17, General Tax Law, imposes the obligation to declare bank accounts located abroad for individuals and legal entities resident in Spain, permanent establishments in Spain of non-resident companies, and other entities mentioned in article 35.4 of that law, such as inheritances, communities of assets and other entities without legal personality that constitute an economic unit or assets susceptible to taxation.

Declaration of Means of Payment: In accordance with Spanish and Community regulations, anyone who enters or leaves Spain with payment methods totaling 10,000 euros or more (or their equivalent in foreign currency) is required to declare them at the border, to the Customs services.

Regulation of Transfers in the EU: As of February 1, 2014, all transfers and debits transactions domiciled in euros in the European Union are governed by the SEPA (Single Zone for Payments in Euros) regulations. This system harmonizes retail payment instruments in euros for all countries that are part of the SEPA.

Special tax regime for expatriates

It allows certain individuals who move to Spain to opt for favorable tax treatment when taxing as non-residents, even if they are tax residents in Spain. This option can be beneficial since it involves taxing only income from a Spanish source, with some exceptions, and applies to a fixed rate of 24% for the first 600,000 euros of taxable income and 47% for any excess.

Changes Introduced by the Start-up Act (Law 28/2022)

With the entry into force of the Spanish Emerging Business Ecosystem Promotion Act (Start-up Act) on January 1, 2023, several changes and expansions have been introduced to this special tax regime:

New Application Assumptions: New categories of individuals who can opt for this regime have been added, in addition to those who move to Spain under an employment contract or to act as directors of a company. These new assumptions are:

• Remote Workers: Those who work remotely from Spain with an international remote work visa.
• Entrepreneurs: Individuals who carry out an economic activity considered to be a business in Spain.
• Highly Qualified Professionals: People who provide services to start-ups or who are engaged in training, research, development and innovation activities, provided that these activities represent more than 40% of their income.

Elimination of Requirements for Administrators: The restriction that prevented taxpayers who become directors of a company from benefiting from the regime if the company and the taxpayer were related parties has been removed. Now, this restriction only applies if the company has assets not affected by business activity greater than 50%.

Extension to Family Members: The regime can now also apply to the spouse and children under 25 (or of any age if they are disabled) of the main taxpayer, under certain conditions:

• They must be transferred to Spain together with the main taxpayer or before the end of the first exercise of application of the regime.
• They must acquire the status of tax resident in Spain.
• They must not have been tax residents in Spain in the previous five years.
• Your tax bases must not be lower than those of the primary taxpayer.

Expansion of Exemptions for Income in Kind: Exemptions for certain incomes in kind that previously only applied to regular tax residents, such as discounts on dining and health insurance, have been extended to the special tax regime.

Conditions and Application of the Regime

Taxes: Taxpayers under this regime are taxed for:

• Income and Capital Gains from Spanish Sources: At the applicable tax rates.
• Global Labor Income: At the fixed rate of 24% for the first 600,000 EUR and 47% for any excess.

Prior Residency Requirements: Not having been a tax resident in Spain for the five years prior to the transfer.

Request: Must be submitted within six months of the start of work in Spain (date of registration with Spanish Social Security or the date on equivalent documents).

Limitations: You cannot obtain income through a permanent establishment in Spain, unless the regime has been granted specifically for an economic activity.

Formal Obligations and Loss of the Regime

Under Royal Decree 1008/2023, certain formal obligations are established for taxpayers covered by this regime, such as maintaining income and expense books and issuing invoices with the corresponding withholding. If the established requirements are not met, the taxpayer will lose the right to benefit from this special tax regime.

Tax Equalization Policies

Some companies implement tax equalization policies to ensure that transferred employees experience neither advantages nor disadvantages in their net income or in their Social Security contributions in the host country compared to their country of origin. These policies ensure that the tax burden of the transferred employee is equivalent to what they would have borne in their country of origin. To achieve this, the company assumes the payment of the employee's personal income taxes in the host country, while the employee pays the tax that would have been applicable in their country of origin, according to their personal circumstances.