What Is a Conduit Company?
A conduit company is a legal entity that acts as a screen between an individual’s real economic activity and their personal tax liability. Formally the company exists, issues invoices and receives income; in substance, the true owner of the activity and the income is the shareholder or director who controls it.
In the context of tax planning for inbound workers, the structure most closely monitored by the Spanish Tax Agency (AEAT) is one in which a professional relocating to Spain — with a view to accessing the Beckham Law special regime — sets up or uses a sole-shareholder SL to bill their services to a foreign employer or client, thereby seeking an additional tax advantage beyond that already provided by the Beckham regime itself.
The Sham Transaction Doctrine: Article 16 of the General Tax Act
The legal tool used by the AEAT to challenge these structures is simulation under Article 16 of the General Tax Act (Ley General Tributaria). When the Tax Administration concludes that a legal transaction — the interposition of the company — is simulated, it can disregard it for tax purposes and reconstitute the taxation on the underlying real transaction.
Simulation may be:
- Absolute: the apparent transaction does not exist at all (the SL has no real activity).
- Relative: a real transaction exists (the provision of services by the professional) but is concealed under a different legal form (billing through the SL).
In most relevant tax cases the issue is relative simulation: the activity exists, but the interposition of the company lacks economic substance and its sole purpose is to redirect income towards a more favourable tax treatment.
Risk Indicators: When an SL Is Vulnerable
The AEAT and Spanish courts have identified a series of indicators that increase the risk of an SL being classified as a conduit company:
- Sole or majority shareholder who exercises full control.
- Single client or primary foreign client representing virtually all revenue.
- Business purpose coinciding with the shareholder’s previous activity as an individual.
- No independent resources: no employees, no infrastructure, no productive assets beyond the shareholder’s personal work.
- Director remuneration well below the SL’s revenue, concentrating the tax burden at the corporate level or deferring income into dividends taxed at lower rates.
- No genuine business risk: the SL does not negotiate price independently, does not assume its own liability, does not build client relationships independently of the shareholder.
The more of these indicators are present, the greater the likelihood that the AEAT will open an investigation and declare simulation.
What Makes a Structure Defensible
A structure that interposes an SL between a professional and their clients can be legitimate if it has genuine economic substance. Strengthening factors include:
- Multiple clients and projects without dominant dependence on a single one.
- Independent resources: employees, collaborators, infrastructure, supplier contracts.
- Diversified business purpose that goes beyond the shareholder’s personal activity.
- Market-rate remuneration for the director, consistent with the functions and responsibilities performed.
- Documentation: client contracts, service delivery records, management meeting minutes.
- Genuine business risk assumed by the company (client liability, warranties, investments).
- Prior binding DGT ruling (consulta vinculante) confirming the admissibility of the structure where doubts exist.
The most sensitive point is director remuneration. A sole-shareholder SL billing significant amounts while paying its director well below market rate for their services is the pattern that most frequently triggers an inspection.
The Director Route Under the Beckham Law
It is important to distinguish the conduit company concept from the director route provided in Article 93 LIRPF. Since Law 28/2022, appointment as a director (administrador) of a Spanish company is an expressly valid qualifying ground for the Beckham regime, provided the company is not a wealth-holding entity. For a certified start-up (empresa emergente), any shareholding percentage is accepted without further qualification. For an ordinary operating company, a shareholding of 25% or more brings the director within the related-party definition of Article 18 LIS (entidad vinculada), which is an additional complication — and since Route B typically involves close to 100% ownership, this threshold is invariably crossed. This is a further reason why the director route through one’s own company should only be pursued after obtaining a binding tax ruling (consulta vinculante).
This route is legitimate and expressly provided for by the legislator. The difference with the conduit company structure is that under the director route income is received directly from the Spanish company (as director remuneration or salary), whereas in a conduit structure the professional receives income through an SL they own, which invoices the foreign client.
For a detailed analysis of the available structuring routes — including the director route and the role of the permanent establishment concept — see our flagship article on relocating employees to Spain under the Beckham Law.
How BMC Can Help
Designing a corporate structure for an inbound worker requires analysis of the genuine substance of the activity, the links with the foreign employer or client, and the transfer pricing implications for related-party transactions. Our Beckham Law team assesses the structure before it is put in place and, where appropriate, co-ordinates the submission of a binding ruling request to the DGT to provide legal certainty for the arrangement.