At BMC, we regularly see founders and executives with US C-Corps arriving in Spain convinced that Spain’s CFC rules do not apply to them because their corporation already pays 21% federal tax. The problem is that they are conflating two mechanisms that most advisors treat as interchangeable: income attribution and the Spanish CFC rule (transparencia fiscal internacional, or TFI). This article explains when Art. 91 LIRPF and Art. 100 LIS — both reformed by Ley 11/2021 to transpose ATAD II — can require you to report your C-Corp’s profits on your Spanish tax return even though you have not taken a single dollar in distributions, and how that obligation stacks on top of the US GILTI regime if you are also a US citizen.
Why CFC Rules Are Not the Same as Income Attribution — and the Difference Is Expensive
Before getting into the four conditions of Art. 91 LIRPF, I need to clear up a confusion that comes up repeatedly in Spanish tax commentary on US structures: transparencia fiscal internacional (TFI — Spain’s CFC regime) and income attribution are completely different mechanisms with opposite logic, and mixing them up has direct financial consequences.
Income attribution (Arts. 87–88 of Ley 35/2006, LIRPF) applies to entities that Spain considers fiscally transparent: if your LLC meets the three criteria of DGT Resolution BOE-A-2020-2108, all of its income — of any character — flows directly to you in the year the LLC earns it, regardless of whether you take a distribution, and it retains its original tax character. It is as if the LLC does not exist: its revenues are your revenues.
Spain’s CFC rule under Art. 91 LIRPF applies to entities that Spain considers opaque. Your US C-Corporation — or your LLC that Spain does not classify as transparent — retains its earnings without distributing them. In principle, Spain does not tax you on those earnings until you receive a dividend. The CFC rule breaks that logic: it is an anti-avoidance mechanism that forces recognition of passive income earned by the controlled entity even when there is no distribution and even though the entity is opaque.
The distinction matters most in the case of a check-the-box LLC elected to C-Corp status: the IRS treats that entity as opaque (a C-Corporation), so its income is not attributed to the shareholder in the US. On the Spanish side, Spain will evaluate that entity under its own criteria — Resolution BOE-A-2020-2108 — and will likely also treat it as opaque, since in its country of formation income is taxed at the entity level rather than being automatically attributed to members. The result: neither jurisdiction sees the entity as a flow-through, yet Spain’s CFC rule can still force imputation of passive income if the four conditions are met.
The Legal Framework: Art. 91 LIRPF (Individuals) and Art. 100 LIS (Companies) After Ley 11/2021
Spain’s CFC regime rests on two provisions that, following Ley 11/2021, de 9 de julio, de medidas de prevención y lucha contra el fraude fiscal (BOE-A-2021-11473), form a coherent and expanded system:
Art. 91 of Ley 35/2006 (LIRPF): applies when the taxpayer is an individual tax resident in Spain who controls a non-resident entity. If the four cumulative conditions are all met, the passive income earned by the foreign entity is imputed into the individual’s Spanish IRPF base even though it has not been distributed.
Art. 100 of Ley 27/2014 (LIS): applies when the controlling party is a Spanish legal entity — for example, a Spanish SL that is a shareholder of a US C-Corp. The conditions run in parallel: control ≥50%, effective rate below 75% of Spanish corporate tax, passive income above the threshold. The imputed income is added directly to the Spanish SL’s corporate tax base.
Ley 11/2021 incorporated into Spanish law the ATAD II Directive (EU Directive 2016/1164, Arts. 7 and 8), with three principal changes relative to the previous wording of Art. 91 LIRPF:
- The imputation is extended to income earned through foreign permanent establishments where the low-taxation condition is met, not only to foreign subsidiaries.
- The categories of imputable passive income are expanded to expressly include credit, financial, and insurance activities conducted with related parties resident in Spain, and low-value-added intragroup services.
- The exemption that had applied to holdings maintained for more than one year in entities with a high proportion of active income is eliminated.
The Four Cumulative Conditions After Ley 11/2021
Art. 91 LIRPF requires that every one of the following conditions be met simultaneously. If any single condition is absent, the CFC rule is not triggered:
Condition 1 — Control ≥ 50%
The taxpayer, alone or together with related entities or family members up to the second degree of consanguinity or affinity, holds an interest “equal to or greater than 50 percent in the capital, equity, profits, or voting rights” of the non-resident entity, as of the closing date of that entity’s fiscal year.
For the sole founder of a C-Corp or LLC, this condition is automatically met. The 50% threshold includes indirect ownership: if you control a Spanish holding company that in turn controls the US C-Corp, control is computed on a consolidated basis.
Condition 2 — Effective Tax Rate Below 75% of Spanish Corporate Tax
The tax paid by the non-resident entity, of a nature identical or analogous to Spanish corporate tax (IS), is “less than 75 percent of the taxation that would have applied” under Spanish IS rules. With the Spanish IS general rate at 25%, 75% equals 18.75%. That is the low-taxation threshold.
I analyze this condition in detail in the next section, given how misleading the comparison between the nominal US federal rate and this threshold can be.
Condition 3 — No Organizational Substance (Art. 91.2 LIRPF)
If the entity does not have “the corresponding organization of material and human resources to carry on its activity,” all of its income is imputed — not just passive income. This condition operates as an escalator: instead of imputing only the passive income categories in Art. 91.3, the shareholder reports the entity’s entire profit.
The digital nomad who holds a C-Corp or LLC with no US employees, no US office, no active US banking, and whose business consists of services personally rendered from Spain is at real risk of the AEAT applying this condition. Substance in the jurisdiction of incorporation is what drives the analysis.
Condition 4 — Passive Income Exceeding 15% of Total Revenues (Art. 91.3 LIRPF)
Where organizational substance does exist, the CFC rule imputes only the entity’s passive income — but only if that passive income represents more than 15% of the entity’s total revenues for the year. If the C-Corp has mixed income — active business revenues and passive items — but the passive portion does not clear that threshold, the CFC rule is not triggered through this channel (though it could still be triggered through Condition 3 if substance is lacking).
Effective Rate: Computing the 75% of Spanish Corporate Tax Against a US C-Corp
This is where most analyses go wrong — comparing the nominal 21% US federal rate with the 18.75% threshold and concluding that a US C-Corp can never trigger the Spanish CFC rule. Reality is more nuanced.
Art. 91.1.b LIRPF refers to the tax “paid” by the entity, not to its nominal rate. The test is the real effective rate on actual profits, not the nominal rate applied to accounting income.
Basic structure of US corporate taxation:
A C-Corp pays US tax at two main levels:
- Federal tax: a flat 21% rate on federal taxable income.
- State corporate income tax: varies by state. Delaware — where the vast majority of C-Corps are incorporated — applies a franchise tax based on authorized capital, not a profit-based income tax. California applies 8.84% (with a $800 minimum). Other states range from 0% (Nevada, Wyoming) to 11.5% (New Jersey).
The effective rate problem:
The real effective rate can fall below 18.75% for a number of reasons:
- IRC deductions and credits: bonus depreciation (IRC §168), Research & Experimentation credits (IRC §41), Net Operating Loss carryforwards (IRC §172), and other tax code mechanisms reduce taxable income and, with it, the tax actually paid.
- GILTI deduction: a C-Corp with GILTI income (if it has its own foreign subsidiaries) can deduct 50% of the GILTI amount under IRC §250, reducing the effective rate on that portion to 10.5%.
- Prior-year losses: if the C-Corp carries NOLs from prior years, it can offset them against current income and sharply reduce the current-year tax bill.
- States with no corporate income tax: a C-Corp operating exclusively from a no-income-tax state and fully utilizing federal deductions can end up with a real effective rate well below 18.75%.
The Spanish computation:
To apply Art. 91.1.b LIRPF, the AEAT compares the tax actually paid (federal + state) against the tax that would have applied if the entity had been subject to Spanish IS on the same income. This requires recomputing the tax base under Spanish IS rules — which can diverge from the US federal base — and applying the 25% rate. The test is whether the actual tax paid is less than 75% of that hypothetical Spanish figure.
Passive Income Categories: The Art. 91.3 LIRPF Catalog
When the C-Corp has sufficient organizational substance — employees, an office, active contracts — but its passive income exceeds 15% of total revenues, Art. 91.3 LIRPF imputes specifically those passive income items to the Spanish-resident shareholder’s IRPF. The categories are:
- Real property income: rents, gains on property disposals, royalties from land exploitation.
- Dividends, meeting attendance bonuses, and profit participations from any type of entity.
- Returns on loans of own capital to third parties: bond interest, deposit interest.
- Capitalization and insurance operations whose beneficiary is the non-resident entity itself.
- Intellectual and industrial property licensed to third parties: royalties on patents, trademarks, software, know-how — provided the entity did not develop those assets through its own economic activity.
- Lease of tangible personal property: machinery, vehicles, equipment.
- Image rights assignments: including name, voice, or likeness of a natural person.
- Capital gains on disposals of assets in the categories above.
- Financial derivatives: except those hedging a genuine business activity of the entity.
- Credit, financial, insurance, and leasing activities conducted with related parties resident in Spain (post-ATAD II).
- Low-value-added intragroup services: support functions — administration, IT, HR — provided to other group entities where no differential value is created (post-ATAD II).
A US C-Corp that charges royalties for licensing software to European clients, receives dividends from fund holdings, and collects interest on a loan extended to a related Spanish entity can easily accumulate passive income across multiple categories on this list — clearing the 15% threshold if the entity’s active business revenues are not substantially larger.
The EU/EEA Exception Does Not Apply to the US — A Point That Cannot Be Overlooked
Art. 91.14 LIRPF provides a material exception: the CFC rule does not apply when the non-resident entity is incorporated in an EU member state or in a state party to the European Economic Area agreement, provided the taxpayer can demonstrate that the entity carries on genuine economic activities and that its formation and operations are driven by valid economic reasons.
This is the provision that allows, for example, a Spanish tax resident who controls a Luxembourg holding company with financial income to fall outside the CFC rule by producing adequate substance evidence.
For US corporations, this exception simply does not exist. The United States is not an EU member state and is not part of the EEA. There is no equivalent mechanism anywhere in Art. 91 LIRPF that allows a taxpayer to block the CFC imputation by demonstrating real substance in the US. Against a US C-Corp with passive income and a low effective tax rate, if all four conditions of Art. 91 are met, the imputation is automatic.
GILTI + Spanish CFC Double Exposure: The US Citizen Tax Resident in Spain
This is the most technically complex scenario in the US entities × Spain cluster, and the one that produces the most unpleasant surprises in planning.
Picture a US citizen who moves their tax residency to Spain and controls a US C-Corp. This person has two concurrent tax obligations:
US side — GILTI (IRC §951A):
GILTI (Global Intangible Low-Taxed Income) is the US CFC rule introduced by the Tax Cuts and Jobs Act of 2017, codified at IRC §951A. It imputes to the US shareholder the low-taxed profits of their Controlled Foreign Corporations that exceed a routine return on tangible depreciable assets. A US citizen who controls a C-Corp operating in Spain — or that accumulates passive income from investments outside the US — may have GILTI income reported on their US federal return (Form 1040, with Form 5471).
Spanish side — CFC rule (Art. 91 LIRPF):
Simultaneously, if that US citizen is a Spanish tax resident and their C-Corp meets the four conditions of Art. 91 LIRPF, Spain imputes the same passive income items on their Spanish IRPF return for the same year.
The double imputation and how it is coordinated:
The Spain-US tax treaty (BOE-A-2019-15166, 2019 Protocol) and the double-taxation relief mechanisms in IRPF (Arts. 80 and 67 LIRPF) and in the IRC (§§901, 904) provide coordination tools, but with important limitations:
- US Foreign Tax Credit (IRC §904): Spanish tax paid on income imputed via the CFC rule may be creditable on the US federal return, reducing the GILTI liability. However, the FTC basket rules and the high-tax exclusion limitations under the 2022 final regulations — which raised the “high-tax” threshold under §954(b)(4) to 90% of the US corporate rate, or roughly 18.9% — complicate the credit.
- Spanish deduction for US tax paid: US tax effectively paid on income imputed by the Spanish CFC rule may be deducted from the Spanish IRPF under Art. 80 LIRPF (international double-taxation deduction), up to the amount of Spanish tax on those same items. Treaty Art. 23 (elimination of double taxation ) reinforces this mechanism.
Case Study: Founder with a Delaware C-Corp and $50,000 of Annual Passive Income
To make all of the above concrete, here is a worked example:
Profile: Alejandro, a Spanish national (not a US citizen), has been a Spanish tax resident for three years. He is the sole founder of a Delaware C-Corp incorporated in 2021. The C-Corp pays 21% federal tax; there is no state income tax because it operates from Delaware and all active clients are in Europe. In 2025, the C-Corp generates $200,000 in total revenues: $150,000 from active management consulting services (Alejandro personally performs the work for those clients) and $50,000 from interest on a loan extended to a related Spanish entity and dividends from a US investment fund. The C-Corp has no employees; Alejandro is the only person working in it.
Analysis of the four conditions:
Condition 1 — Control ≥50%: Met. Alejandro is the sole shareholder (100%).
Condition 2 — Effective rate below 18.75%: The C-Corp had $200,000 in gross revenues. On federal taxable income of approximately $180,000 (after deductions), federal tax is $37,800 (21%). Effective rate on total revenues: 18.9%. On paper, that exceeds the 18.75% threshold. However, if the C-Corp applied bonus depreciation on equipment or had R&D credits, the real tax bill could fall to $33,000 or below. At $33,000 of tax on $200,000 of revenues, the effective rate drops to 16.5%, below the 18.75% threshold.
For purposes of this analysis, assume the real effective rate is 17%, so Condition 2 is met.
Condition 3 — Organizational substance: The C-Corp has no employees; Alejandro is the only worker. There is no office and no tangible assets in the US beyond a bank account. The AEAT has solid grounds to apply Art. 91.2 LIRPF and conclude that the entity lacks adequate organizational substance, which would cause Alejandro to report the entire profit of the C-Corp on his Spanish return — not just the passive income items.
Condition 4 — Passive income >15%: The $50,000 of passive income represents 25% of $200,000 in total revenues, clearly clearing the 15% threshold.
Outcome: If the AEAT applies Art. 91.2 (no substance), Alejandro reports $180,000 of C-Corp profits on his Spanish IRPF return without having received a single dividend. If the AEAT applies Art. 91.3 (substance is present but passive income exceeds 15%), the $50,000 of passive income items are imputed.
FTC adjustment: US tax paid on the imputed income may be deducted against the Spanish IRPF liability under Art. 80 LIRPF, avoiding double taxation — but only up to the amount of Spanish tax attributable to the same items.
Takeaway: With this profile, Spain’s CFC rule represents a real exposure. The decisive factor is the C-Corp’s substance in the US. If Alejandro hires a US employee, establishes a real office in Delaware, and can document that operational decisions are made in the US, the Art. 91.2 argument loses force. Without that step, the exposure is high.
If you hold a US C-Corp and are a Spanish tax resident — or are considering becoming one — the analytical chain is always the same: classify the entity (opaque or transparent for Spain?), verify the four conditions of Art. 91 LIRPF, compute the real effective rate, analyze the passive income composition, and — if you are also a US citizen — coordinate the Spanish CFC rule with the US GILTI obligation.
BMC’s international tax team works routinely with US corporate structures and combines Spanish-side analysis with coordination with US CPAs when the client has obligations on both sides. If your C-Corp is accumulating passive income and you have been living in Spain for more than six months without reviewing your exposure under Art. 91 LIRPF, that review is already overdue.
See also our guide on how a US LLC is taxed for a Spanish tax resident for the income attribution analysis and the Art. 8 LIS risk.
