International tax adviser in Spain — Cross-border planning, treaties and transnational taxation

International taxation in Spain: navigating a multi-jurisdictional world

The globalisation of the economy has transformed the taxation of individuals and businesses into a multi-jurisdictional matter. A Spanish entrepreneur with a startup selling services across Europe, a family with assets in Spain and abroad, a professional working remotely for a US company from Marbella, or a multinational group with subsidiaries in different countries: all face the same reality that their tax obligations extend across more than one jurisdiction.

International taxation is the body of rules, both domestic and international in origin, that govern the taxation of income and assets that cross national borders. In Spain, the main regulatory sources are:

• Ley del IRPF (Ley 35/2006): tax residency, worldwide income taxation, special regime Ley Beckham
• Ley del IS (Ley 27/2014): taxation of international groups, transfer pricing, TFI, ETVE
• LIRNR (RD Legislativo 5/2004): taxation of non-residents on their Spanish-source income
• Double taxation treaties (Convenios de Doble Imposicion): more than 90 bilateral treaties distributing taxing rights
• EU Directives: Parent-Subsidiary Directive, ATAD 1 and 2, DAC6, DAC7, BIIR Directive (Pillar 2)
• FATCA and CRS: automatic financial information exchange frameworks with the US and the OECD

BMC navigates this regulatory framework for each client, identifying the applicable rules, relevant treaties and legally efficient structures.

Spain’s double taxation treaty network

Spain has one of the most extensive double taxation treaty networks in Europe: more than 90 bilateral treaties in force, covering virtually all countries with which there is a significant cross-border income flow. The treaties follow the OECD Model Convention in most respects, though with important particularities in each individual treaty.

The most relevant treaties for BMC clients are:

With EU member states: Spain has a CDI (Convenio de Doble Imposicion, double taxation treaty) with every EU member state. The treaties with Germany, France, the Netherlands, Sweden and Belgium are particularly significant given the volume of cross-border flows of people and capital.

With the United Kingdom: the Spain-UK CDI of 2013 remains in force post-Brexit. Its rules on dividends, interest, pensions and real estate capital gains are fundamental for the many British nationals resident in Spain and Spanish nationals resident in the UK.

With the United States: the Spain-US CDI of 1990 (amended in 2013) has important features regarding the treatment of pensions, dividends and the limitation of benefits clause.

With the United Arab Emirates: the Spain-UAE CDI is particularly relevant given the flow of Spanish taxpayers relocating to Dubai or Abu Dhabi.

With Portugal: the Spain-Portugal CDI is important for cross-border workers and for those benefiting from the Portuguese NHR/IFICI regime.

With Latin American countries: Spain has CDIs with Mexico, Brazil, Argentina, Colombia, Chile, Venezuela, Uruguay and several Central American countries, relevant for business owners and professionals with activity across both continents.

What a CDI determines: standard rules by income type

CDIs distribute taxing rights over each type of income according to rules that vary by category:

Real estate income: taxed in the country where the property is located (always).

Dividends: the CDI typically establishes a maximum source withholding rate (generally 5-15%) and allows the country of residence to tax them as well, with double taxation eliminated through the exemption or credit method.

Interest: reduced maximum source withholding (typically 0-10%) with taxation in the country of residence.

Royalties (canones): maximum source withholding, with a trend towards reduced rates in modern CDIs.

Capital gains on real estate: taxed in the country where the property is located.

Capital gains on shares in companies with significant real estate assets: may be taxed in the source country under some CDIs, relevant for international real estate investors.

Employment income: normally taxed in the country where the work is performed, with exceptions for frontier workers and short-term secondments.

Pensions: the taxing country depends on the CDI; the CDIs with the US and Germany have specific rules on state versus private pensions.

Individuals: tax residency and its consequences

Tax residency is the criterion that determines whether an individual is taxed in Spain on worldwide income (unlimited tax liability) or only on Spanish-source income (limited liability, via the IRNR).

Individuals are tax residents in Spain if they meet any of the following criteria:

• They spend more than 183 days in Spain during the calendar year (counting sporadic absences)
• They have in Spain the principal core of their economic activities or economic interests
• Their spouse and minor children reside habitually in Spain (rebuttable presumption)

Tax residency determines the obligation to declare worldwide income in the Spanish IRPF. A person resident in Spain with bank accounts in Switzerland, property in Italy and dividends from US shares must include all such income in their Spanish IRPF return, subject to the applicable double taxation relief credits.

The tax residency certificate: a key instrument

To benefit from a CDI, including reduced withholding rates, exemptions and double taxation relief, the taxpayer generally must demonstrate their tax residency to the income payer. The tax residency certificate issued by the AEAT is the standard document for proving Spanish residency to foreign tax authorities. BMC manages the obtaining of AEAT tax residency certificates and their apostilisation when required for international use.

Ley Beckham: the special regime for inbound assignees

The special income tax regime for workers relocating to Spain, known as the Ley Beckham (reformed by the Ley de Startups, Ley 28/2022), is the best known instrument of Spanish international personal taxation. It allows taxpayers relocating their tax residency to Spain to pay IRPF at a flat rate of 24% on Spanish-source income up to EUR 600,000 per year (47% above that threshold), with non-Spanish-source income excluded from the taxable base.

The regime is available for employed workers, remote workers for foreign employers, entrepreneurs creating companies in Spain and highly qualified professionals. The application must be submitted within six months of registering with Social Security or with the AEAT census.

For inbound assignees under the Ley Beckham, BMC manages the regime application, the annual IRPF return under the special regime and the coordination with the client’s home country to ensure that Spanish and origin-country taxation are correctly aligned.

Companies with international operations: transfer pricing

Article 18 of the Ley del IS requires that transactions between entities in the same group (related parties) be valued at market prices (the arm’s length principle). Transactions subject to these rules include:

• Sales of goods and services between subsidiaries
• Intra-group loans (at market interest rates)
• Intellectual property licences (at market royalty rates)
• Intra-group management and back-office services
• Business restructuring transactions

For groups with related-party transactions above certain thresholds, Spanish regulations require transfer pricing documentation: a masterfile (group-level information) and a localfile (local entity and transaction information). The AEAT may adjust prices it considers non-market and assess additional tax with interest and penalties.

BMC prepares transfer pricing studies, compiles the mandatory documentation and defends adopted positions before the AEAT in audit proceedings.

The ETVE: the Spanish holding for international structures

The Entidad de Tenencia de Valores Extranjeros (ETVE) is a special Corporate Income Tax regime (Articles 107-108 of Ley 27/2014) designed for Spanish holding companies investing in foreign subsidiaries. Its main advantages are:

1. Dividend exemption: dividends received from foreign subsidiaries in which the Spanish company holds at least 5% and which have paid at least 10% tax at source are 95% exempt from Spanish Corporate Income Tax (or 100% absent the 5% exclusion)

2. Capital gains exemption: gains on sales of stakes in foreign entities meeting the same requirements are 95% exempt

3. Efficient distribution to non-resident shareholders: dividends distributed by the ETVE to non-resident shareholders in the EU or in treaty countries may be exempt from Spanish source withholding, creating an efficient holding structure for non-European investors

The ETVE is particularly useful as a vehicle for Latin American investors seeking to structure their European investments through a Spanish company, leveraging Spain’s treaty network and participation exemption regime.

The global minimum tax: Pillar 2 and its impact

Pillar 2 of the OECD (Global Minimum Tax) establishes a minimum effective rate of 15% for multinational groups with consolidated revenues above EUR 750 million. The BIIR Directive, transposed into Spanish law, ensures that these groups pay at least that minimum rate in each jurisdiction where they operate.

Pillar 2 significantly reduces the advantage of locating activities in jurisdictions with very low nominal rates (0% or 5%). However, jurisdictions with legitimate competitive advantages, a low nominal rate combined with genuine economic substance, remain efficient under the new framework.

For larger international groups, BMC analyses the impact of Pillar 2 on their tax structure, identifies the jurisdictions where a top-up tax may apply and evaluates whether restructuring the group architecture can reduce the impact of the minimum tax.

Coordinating with international advisers: the BMC model

International taxation requires, by definition, coordination between advisers in multiple jurisdictions. BMC acts as the lead tax adviser for the client and coordinates with local advisers in the home country or country of investment to ensure the coherence of the overall tax position.

Our international working methodology includes:

• Joint review of the client’s returns in relevant countries to detect inconsistencies
• Coordination of double taxation relief mechanisms across jurisdictions
• Management of mutual agreement procedures (MAP) where there is an interpretive conflict between two countries over the application of a CDI
• Tax due diligence participation in cross-border M&A transactions on the Spanish side
• Advisory on exit tax planning when leaving Spain and on arrival planning (Ley Beckham, IRNR)

The combination of deep expertise in Spanish tax law with knowledge of the tax systems of Spain’s principal partner countries makes BMC the natural point of contact for any taxpayer with a presence or interests in more than one jurisdiction.