Questions on running a Ltd company as a Spanish resident
 

Hi,

First post here, but I've read plenty.

I've been back and forth between Spain and the UK for 7 years and am planning to go for residencia before March next year. I'll be based in Tenerife, where my partner lives.

My conundrum is how to set up my business, which is online proofreading and editing through 2 businesses currently declared through self assessment to HMRC as a sole trader. At present I do no trade with Spanish companies or individuals.

I've spoken with a gestor about running these same businesses from Tenerife, which would mean quarterly declarations, end-of-year declarations and becoming autónomo. The main problem with that is that I'd have to charge IGIC (IVA for the Canaries) at 7% and my invoices would need to state that I am based in Tenerife. As my clients are mostly international postgrad students and UK businesses, I may lose some of these as they would prefer the 'prestige' of a UK-based service. Plus, I'd need to take the hit for IGIC as I couldn't pass that on to the non-business clients.

So, what I'd like to do is to form a limited company in the UK this year, which will have a registered office, phone answering service, etc. I would be the sole shareholder, and the sole director. I currently carry out about 80% of the work, and do all the administration (manning the emails), with freelance editors carrying out the rest of the work (20%) remotely from the UK and US. I would register autónomo, work for the company and declare my income quarterly, as well as any income from dividends on my annual declaration. The benefits of this would be that I wouldn't need to charge IGIC to my clients and could keep my English-language-related business in the UK. I might also work for some existing Polish clients I have from the Spanish side, so I would have some other income aside from this company. I also read that I might need to sign an autónomo TRADE contract with the company.

My concerns if I go down the LTD route are whether:

a) I could justify the company being based in the UK and liable for corporation tax if I am the sole non-resident director, and also whether this would be queried when I declare my shareholding during the residencia process.
b) I would need to charge IGIC to the company for my work
c) the Hacienda would demand employer's social security payments from the company.

If anyone has any experiences or advice to share it would be really welcome as my head is starting to spin with the permutations.

Re: Questions on running a Ltd company as a Spanish resident
 

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Re: Questions on running a Ltd company as a Spanish resident
 

Thanks for the welcome Rosemary.

Re: Questions on running a Ltd company as a Spanish resident
 

After more digging I have found a list of conditions that a Spanish autónomo must or must not meet:

He or she:

1. Must carry out the activity with own assets and productive structure. Additionally, takes the inherent risks of the business activity.
2. Must organise the work according to own criteria, though can follow preferences or technical indications of the client. If the client has other employees, there must be a clear distinction between them in the way they carry out the tasks.
3. Must be paid in relation to the results of his/her activity.
4. Must not have commercial or industrial premises or office open to the public.
5. Must not be part of a limited company (SL) or civil company (SC).
6. Must contribute to work accidents in the autónomo fee.

It looks like my case would fail at #5, and I would be deemed a falso autónomo.

Re: Questions on running a Ltd company as a Spanish resident
 

Suggest you take professional advice from qualified solicitors/tax advisors. I would agree you would not be autonomo.

Re: Questions on running a Ltd company as a Spanish resident
 

Thanks Rob. I appreciate your advice and opinion.

Re: Questions on running a Ltd company as a Spanish resident
 

You can move to set up a UK Ltd company to move your business from the current self employed in the UK stage to being a company of one director and one employee etc

You should apply for residency after 90days of living in Spain and you become a tax resident six months after being here once you have residency.
You could just pay the tax due - this will be the difference of what you paid in the UK on your salary and dividends and what the Spanish tax would be - as world wide income.

Becoming autonomo can be useful - as a vehicle to paying the difference due above etc and for the healthcare

I found this link to illustrate - Guide to Spain's autonomo system

Re: Questions on running a Ltd company as a Spanish resident
 

Becoming autonomo can be useful - as a vehicle to paying the difference due above etc and for the healthcare
but you would not use your autonomo status to invoice your UK Ltd company - this is a missconception
It becomes a portal for you to pay the tax difference only and for you to gain access to the Spanish healthcare system.
You do not need to register for IGIC either.
Please get yourself a good Gestor that has a little experience with doing the above.

Of course things could change after Brexit... but for now get on with your residency application and worry about your Spanish tax situation later in the year or early next year

Re: Questions on running a Ltd company as a Spanish resident
 

Hi, did you come up with a solution to this? I'm having exactly the same dilemma. Thanks

Re: Questions on running a Ltd company as a Spanish resident
 

Hi PH79,
Sorry for the delay in getting back. The company is now incorporated in the UK. Next step is to go for Spanish residency.

Re: Questions on running a Ltd company as a Spanish resident
 

'4. Must not have commercial or industrial premises or office open to the public.'

Yes, of course, autonomos can have business premises open to the public! But they must be licensed and only used for the stated business and conform to all relevant legislation

Re: Questions on running a Ltd company as a Spanish resident
 

@spainrico Thanks for your reply. Those 6 criteria are missing a little context. They are used to determine employee vs autonomo status - I think the article was steps to avoid being deemed a false autonomo. So, #4 would be fine as you point out, provided the premises are licensed to the automo's business interests, rather than the company/business the autonomo does work for.

Re: Questions on running a Ltd company as a Spanish resident
 

Re: Questions on running a Ltd company as a Spanish resident
 

Why would you be invoicing the company?

The requirement is that if you are living in Spain, you become a tax resident and pay taxes here.... The are no requirements on how you are employed!

I don't know how much you wish the Ltd company to pay you - re earnings

In Spain, salary or dividends are treated the same.

In the UK the tax is different for salary and dividends - You pay corporation tax of 20% on dividends - Then you used to be able to get £5000 in dividends personal tax free, but that changed this tax year. The allowance is now £2000 and then you pay a dividends tax of 7.5% on anything above, until the higher rate of tax.

The most tax efficient way of doing this, is that you would pay yourself and a partner/spouse a small salary each and a small amount of dividends.
For example if you pay yourself £700 (£701max) in salary a month. This is the upper limit of getting the NI stamp without contributions - remember as a LTD company you pay the employers and the employees NI which when added up becomes really expensive.
You can pay yourself a higher salary, but the NI employers contribution is 13.8% and the employees is 12%

So on a salary of £700 each to yourself and your partner - There is no tax to pay or NI in the UK
Your UK accountant on producing your real time PAYE will produce you a basic pay slip, all of which you give to the Gestor as proof of earnings for them to work out the tax calculation.
I make the assumption that your partner has a NI number in the UK - if not take the rest of the money that you need as a dividend.

Dividends are seen as the same as salary here in Spain. You could pay yourself a dividend - the company pays the corporation tax and you would claim back the personal tax on the dividend in the UK, as you are a tax resident in Spain. You then pay the tax due on whatever dividend you decide to take.

My accountant here in Valencia calculated that if I wanted to receive €25000 in a salary and dividend from the UK, there was something in the region of €2200 in tax to pay

Re: Questions on running a Ltd company as a Spanish resident
 

First, many thanks for your detailed reply.

That is a much lower calculation of tax due than I had estimated - probably why I'm not an accountant. Along with the autonomo contributions that's only around 20% of total income.

Is it allowed to ask for recommendations for accountants through these forums? I'd happy use a peninsular-based accountant or gestor who is familiar with dealing with UK clients + their LTD, as I'm drawing a blank on that front in Tenerife.

Re: Questions on running a Ltd company as a Spanish resident
 

Man we went up and down this, trying to find a firm that was familiar with expat tax questions. We have a Ltd company in the UK and I am autonomo here in Spain and we wanted a firm that was used to expats.
I contacted every well know company on the Costa Blanca, who advertise this service and two were only interested if we were able invest €100000 with them.
Although these firms say on there advertising they will deal with your tax situation and advise you in the best way... There only really interested if you able to transfer your pension or other investments to them!
We were expecting to pay €100-1000s for specific tax advice for our situation and in the end I asked for an appointment at our very helpful local Gandia gestor to have time with the accountant.
The Spanish are not very sophisticated at minimising the tax liability, so we had to make a couple of suggestions. The appointment was very straightforward, the accountant told us that in Valencia salary and dividends are treated the same (tax can change per region) and it was cheaper for us to both receive €785 (£700) salary from the UK, than one person getting a salary and large dividends etc.
All she needed was the UK payslips - which your UK accountant should be providing you on a monthly basis
The gestoria required €20 for our half an hour appointment.

Re: Questions on running a Ltd company as a Spanish resident
 

Your experiences in this area are really very reassuring. I'm feeling emboldened to return to the gestoria with my payslips and see how they respond, armed with suggestions if necessary. Thank you!

Re: Questions on running a Ltd company as a Spanish resident
 

Hi, did you make any headway with this? Or did you find an accountant/gestor with relevant experience? I also run a UK limited company as the sole director, and will be moving to Spain at the end of this year. At the moment, I have no idea how the taxation would work, what the salary/dividend weighting should be, etc. I'm aware that I would pay tax in Spain on my worldwide earnings. But would I also have to pay UK corporation tax in addition? Any advice would be greatly appreciated - thanks :-)

Re: Questions on running a Ltd company as a Spanish resident
 

Hi. Once I receive my third payslip in September I'm going to visit a local gestor and see what he says. I'll present my payslips, approximate other annual income, and an estimate of the dividend. I'm hoping, as in Smithy73's case, that I will be given an estimate of my annual tax bill, without any complications being raised. In terms of corporation tax, after your company has paid your salary and accounted for any other business expenses, then the remaining profit would be liable for corporation tax, and you would be able to draw what is left as a dividend, which would be taxed accordingly on your annual declaration. I'm not sure yet what an ideal salary for tax purposes would be in Spain. Hope that helps.

Re: Questions on running a Ltd company as a Spanish resident
 

Thanks for the reply! I'd be grateful for any updates :-)

Re: Questions on running a Ltd company as a Spanish resident
 

As an update to this thread, I've just returned from the asesoria after another meeting to discuss my case. I explained that I am receiving a salary from a UK company, and also dividends as I am a shareholder, as well as a few other unrelated income streams. She advised me that once I apply for the residencia I will come on the radar to the Spanish tax authorities (Hacienda), and that 183 days after that I would become liable for income tax in Spain (from the day of residencia application onward). She said that if I applied for the residencia in early 2019, then I would need to submit one annual tax declaration (Decleración de la Renta) for the 2019 tax year by June 2020. There were no concerns raised about receiving a salary from a UK company while living here, nor receiving dividends. Merely that I would need to submit my annual figures and she would do the calculation. Obligatory social security payments linked to my employee status were not mentioned. I am going to ask her to run two predictions of my tax burden based on my 2018 income: a) with my £700 salary and the rest in dividends, and b) with a higher salary and lower dividends. This seems to be relevant as if I am no longer tax resident in the UK, and the NI threshold no longer applies, then it may be more sensible to draw a larger (but still reasonable) salary. I have to say that this unfolded pretty much as Smithy73 reported. This forum and the advice flowing through it has been immensely helpful.

Re: Questions on running a Ltd company as a Spanish resident
 

Re: Questions on running a Ltd company as a Spanish resident
 

Interesting. Income is income then. Another argument from drawing a larger salary.

Yes, this dawned on me in the meeting. Salary much more economical in that case

Re: Questions on running a Ltd company as a Spanish resident
 

Re: Questions on running a Ltd company as a Spanish resident
 

Indeed. Brexit looks more of shambles by the day. We went to our local estrangeria here in Tenerife a few weeks ago to see the requirements for residency. They require 1) either proof of permanent contract with an employer (translated and certified) or €5,350 in a Spanish bank account, with the balance certified by the bank the day you apply for the residencia, 2) full health insurance for 12 months, and 3) to be registered on the empadronamiento. No need to see the monthly salary deposited, so that must differ depending on the office? Next step is to open the bank account, and really then I'm ready. I had a moment when I read a recent headline that non-UK residents may no longer be eligible to hold UK bank accounts if the UK crashes out with no deal. All I can do there is pray that sanity prevails and some agreement is reached ....

Re: Questions on running a Ltd company as a Spanish resident
 

Re: Questions on running a Ltd company as a Spanish resident
 

CapnBilly. Thanks for that information. When you state that you can claim relief for the tax paid in the UK, do you mean against the corporation tax paid by the company? If not then I'm not sure I understand as as fair as I am aware, once I become a Spanish resident and tax resident, any dividend income would be paid gross to me here in Spain, declared on the Renta, and then taxed at the appropriate rate by the Hacienda.
Regarding the rules that determine the permanent establishment of a company, yes I am aware of these.

Re: Questions on running a Ltd company as a Spanish resident
 

Re: Questions on running a Ltd company as a Spanish resident
 

Re: Questions on running a Ltd company as a Spanish resident
 

Thanks for the updates. So the best approach would be to pay all the company profits as a salary (in order to avoid UK corporation tax) and to then pay income tax on this salary in Spain? Does anyone know if the company would still be liable for UK employer's NI on this salary if the director is permanently based abroad?

Re: Questions on running a Ltd company as a Spanish resident
 

No that I can´t answer - You would need to speak to your UK accountant for that.

I make sure that we each take a salary of 700pounds a month, so I can´t comment on the UK NI side of things from our situation.
It really depends on how much you wish to earn. From my point of view, we have a Spanish business as well - a salary of €25000 each is very cost effective and on balence less tax is paid here than the UK. Once you go over this figure the tax balence starts to change.
We prefer to pay the corperation tax and have the money in the UK company account to drip feed the UK salary for years.

Re: Questions on running a Ltd company as a Spanish resident
 

If you are married or have a partner - it is really more cost effective to use your company to pay you both a salary

I think all this depends on your work profile, how much the company makes and does this change from one year to the next.
The recent Tory government have made it much more expensive to take say 25K in dividends, which would have been the norm a few years ago to make up the salary in the most cost effective way.
So I would say you need to be creative - If you are single can you employ a relative?

Re: Questions on running a Ltd company as a Spanish resident
 

Ok, thanks a lot for the advice.

Re: Questions on running a Ltd company as a Spanish resident
 

Hi Melocoton and Smithy73, I am in a similar situation to you. This is my first post here! I am soon incorporating from a sole trader into a UK ltd and planning to move to Spain in Autumn this year with my family. My small business has a physical presence in a commercial space in the UK offering a self-service to local customers and I hire a caretaker for any maintenance of the facility and do all admin work remotely.

I've recently paid for some financial advise from an accountant in Barcelona who advised the same conclusions you have drawn above and to take salary in full rather than any dividends to avoid the uk corporation tax. I am to file a tax return in Spain declaring the income as a salary of a foreign company in order to pay the correct tax. He said that setting up a spanish branch or SL was too expensive and complex for my case. He said the only way for me to start contributing to the social security in Spain would be to also register as self-employed, even if I wasn't doing any additional work, just as a means to get healthcare and pension.

I was just wondering how you've been getting on Melocoton? Any updates on the social securities side of things? I had read elsewhere on the internet that foreign employers should register with Tesoreria General (The agency where you apply for a social security contribution account number) as an employer and pay social securities. But I did bring this up with my adviser at the time and he didn't shed any light on this and said I simply need to file the tax return and pay the tax.

I do plan on either finding part-time employment or working as autonomo in Spain once settled there so will eventually start paying into the social security system that way. Just want to make sure that there's no obligation to pay social securities on the UK ltd income also.

Thanks

Re: Questions on running a Ltd company as a Spanish resident
 

You will be receiving a salary from a UK company, since you will be residing in Spain and a Spanish tax payer, the Spanish authorities will just want you to declare the salary and pay tax on it in Spain. Why would you be paying social security on an income derived from the UK?You will find being Autonomo useful as it gives you and your family access to healthcare and a pension after 15years of paying in.Let’s hope that that Britain doesn’t drop out of Europe in March and scupper your plans

Re: Questions on running a Ltd company as a Spanish resident
 

Just to add to Smithy73's advice above, I spoke to HMRC last year about my existing pension contributions and how these would be affected if I became a Spanish resident. I was told that there would still be an option for me to continue making annual NI contributions towards my UK pension, but that the amount would depend on my circumstances (he gave the example of someone taking early retirement in Spain and thus not working (high NI contributions required) vs someone working in Spain (lower contributions)). Of course, if you start paying the Autonomo in Spain then you are contributing into the Spanish SS system and may opt for those years accumulating + the years you have already accumulated already in the UK.

The runes seem to suggest that the cliff-edge Brexit in March may well be diminishing. Let's hope sanity prevails and you can proceed with your plans. Good luck!

Re: Questions on running a Ltd company as a Spanish resident
 

Thank you to both of you for your replies. I was thinking that I would have to pay spanish social security for the same reasons that I'd have to pay my taxes in spain (after 183 days). I thought you had to pay social securities to the country where you are legally resident. Just wasn't sure if you had to pay the social security to Spain from income derived from another country.

I've only accrued 8 years of UK pensions (I am 30 yrs old!) so will need to look at whether its worth doing the whole voluntary UK National Insurance thing. The Autonomo seems like a good plan in terms of healthcare in Spain and Pension if we are to be there long term. I should have mentioned that my wife is actually Spanish so that should help with settling in Spain no matter what the Brexit situation. Brexit just makes things tricky for my wife returning to the UK if we're in spain longer than 5 years.

However I do hope that Brexit doesn't get in the way of me remunerating myself from the UK ltd. Fingers crossed for us all!

Re: Questions on running a Ltd company as a Spanish resident
 

Hey guys

This is a very interesting topic and one I'd love to hear from you melocoton and Smithy73 if you're still ok with this arrangement? I am very similar, have a UK Ltd company and have recently moved to Spain, going Residencia (with the initial 1 year private healthcare and opening spanish account showing some money in there). This will be the 'self supporting' visa initially and we just assumed that after 6months I would have to go Autonomo and start paying the eye watering costs per month etc.

Since hearing about this double taxation treaty between Spain and the UK (plus others)...(currently)... can I confirm I understand what is being said on it? I must still pay my Corporation tax on the UK Ltd Co. I have been taking a very small salary for me and my husband monthly, to keep below the NI threshold/tax of £500 per month. Should I stay in this arrangement and continue to pay myself and my husband this small amount as a salary and I would not be taxed on it in spain? or I would still be taxed on it in spain? The dividends bit I dont fully understand as it sounds like you'd have to pay the same rate as a salary anyway in spain?

If I'd gone Autonomo, I assumed I'd have to register as self employed in Spain, close my Ltd Co. Sounds like a nightmare to open an SSL (?) in Spain anyway. I'd have monthly costs with Autonomo of (after 18months), Euro 330 a month, Plus Gestor of Euro 60, plus some tax due too. Wouldnt have any Spanish activity or customers so no IVA due. Assumed Id have to get the European Tax Number as 90% of customers are in the UK. But by my calculations, it worked out to be something like 26% overall tax (autonomo and tax) here in Spain.

Surely if im keeping the company in the UK and paying 20% corporation tax, if I then pay myself and my wife a small salary/dividends here in Spain, I'd still have to pay tax on it? And furthermore, to access the healthcare here in Spain, i'd still either have to be Autonomo Euro330 per month and pay a Gestor...so it wouldnt make any difference? Or indeed, pay for a private healthcare annually, which in my case is EUR 1200 per year, or about EUR 100 per month for my family?

Re: Questions on running a Ltd company as a Spanish resident
 

Hi Smithy,
This is so helpful, thanks so much for posting. I have a very similar situation. Would you be able to give me the contact details of your accountant? This is exactly what I would like to do and I would like to discuss my case with him/her.
Thank you,
Jana

Re: Questions on running a Ltd company as a Spanish resident
 

See my comments in red above