Questions on running a Ltd company as a Spanish resident
Jul 25th 2018, 11:16 am
#16
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Re: Questions on running a Ltd company as a Spanish resident
First, many thanks for your detailed reply.
I suppose I've become a bit fixated with avoiding being classified as an employee here in Spain to avoid employer's NI being levied against the UK LTD by the Hacienda.
Your making this sound like IR35 in the UK (when do you as a freelancer become technically employed by the client etc)
You can't become an employee in Spain if you are employed in the UK and the Spanish tax office is only interested in getting the income tax paid if you are a tax resident.
The confusion I have is that after I become tax resident in Spain, do I not then need to satisfy the 'Spanish equivalent' of maximum salary (or any salary) to avoid triggering the Hacienda seeking to levy employers NI on the UK LTD. Or is your view that they would not be interested in pursuing this as the company has no presence or clients here in Spain?
The UK company is a legal entity in the UK, over which the Hacienda has no control or interest and you are not a Spanish citizen! You are a foreigner, employed by a company in the UK, with the status of tax residency, paying tax on your earnings in Spain.
You need healthcare here as you are of working age, so for the first year you need private healthcare insurance (cover with NO Co Payments for the residency application!). After the first year you to pay into the system directly for healthcare - https://www.citizensadvice.org.es/fa...enio-especial/
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.
You probably would find it usefully being Autonomo as well (althought you don't need to be, as per the above). Then any Spanish business you get then gets put through your autonomo and you get automatic healthcare on application of the SIPP card. The questions above become irrelevant, as you are paying for social security via autonomo.
Your autonomo and your UK income needs to be treated separately - I mean that as autonomo, you are able to claim expenses on the business income in Spain and the autonomo payment itself is tax deductible against the Spain business. Then the UK income then gets added for tax purposes at the end of the year.
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.
I suppose I've become a bit fixated with avoiding being classified as an employee here in Spain to avoid employer's NI being levied against the UK LTD by the Hacienda.
Your making this sound like IR35 in the UK (when do you as a freelancer become technically employed by the client etc)
You can't become an employee in Spain if you are employed in the UK and the Spanish tax office is only interested in getting the income tax paid if you are a tax resident.
The confusion I have is that after I become tax resident in Spain, do I not then need to satisfy the 'Spanish equivalent' of maximum salary (or any salary) to avoid triggering the Hacienda seeking to levy employers NI on the UK LTD. Or is your view that they would not be interested in pursuing this as the company has no presence or clients here in Spain?
The UK company is a legal entity in the UK, over which the Hacienda has no control or interest and you are not a Spanish citizen! You are a foreigner, employed by a company in the UK, with the status of tax residency, paying tax on your earnings in Spain.
You need healthcare here as you are of working age, so for the first year you need private healthcare insurance (cover with NO Co Payments for the residency application!). After the first year you to pay into the system directly for healthcare - https://www.citizensadvice.org.es/fa...enio-especial/
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.
You probably would find it usefully being Autonomo as well (althought you don't need to be, as per the above). Then any Spanish business you get then gets put through your autonomo and you get automatic healthcare on application of the SIPP card. The questions above become irrelevant, as you are paying for social security via autonomo.
Your autonomo and your UK income needs to be treated separately - I mean that as autonomo, you are able to claim expenses on the business income in Spain and the autonomo payment itself is tax deductible against the Spain business. Then the UK income then gets added for tax purposes at the end of the year.
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.
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.
Last edited by Smithy73; Jul 25th 2018 at 11:20 am.
Jul 25th 2018, 12:32 pm
#17
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Joined: Feb 2018
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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.
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.
Aug 30th 2018, 7:15 pm
#18
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Posts: 5
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 :-)
Aug 30th 2018, 7:55 pm
#19
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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.
Aug 31st 2018, 12:40 pm
#20
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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.
Sep 25th 2018, 4:19 pm
#21
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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.
Sep 25th 2018, 4:29 pm
#22
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Joined: Mar 2018
Location: Gandia
Posts: 201
Re: Questions on running a Ltd company as a Spanish resident
The Spanish look at dividends in exactly the same way (ie tax rate as the salary part)
You will have to pay corporation tax on the dividends at 20% in the UK, as this is company profit and is not refundable if you are tax resident in Spain!
So I would guess, its salary all the way. Up to 700 pounds a month is tax free and NI free in the UK. If you take dividends for the rest of the money, you pay 20% corporation tax and then income tax in Spain.
You will have to pay corporation tax on the dividends at 20% in the UK, as this is company profit and is not refundable if you are tax resident in Spain!
So I would guess, its salary all the way. Up to 700 pounds a month is tax free and NI free in the UK. If you take dividends for the rest of the money, you pay 20% corporation tax and then income tax in Spain.
Sep 25th 2018, 4:35 pm
#23
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Re: Questions on running a Ltd company as a Spanish resident
The Spanish look at dividends in exactly the same way (ie tax rate as the salary part)
If you take dividends for the rest of the money, you pay 20% corporation tax and then income tax in Spain.
Sep 25th 2018, 4:49 pm
#24
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Joined: Mar 2018
Location: Gandia
Posts: 201
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.
If it was me, I would want to do this ASAP, because of the unknown situation with Brexit.
This of course all depends if you have a Spanish bank account and having been paying money into it > you need to show a balance and three months “income payments” in the account > So if you haven´t started you need to start thinking about this.
There were no concerns raised about receiving a salary from a UK company while living here, nor receiving dividends.
No one cares who you work for and where.... The tax office just wants you to pay the correct amount of tax if you are resident and tax resident here.
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.
The tax burden in Spain doesn´t change! They tax dividends at the same rate as the salary.
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.
If it was me, I would want to do this ASAP, because of the unknown situation with Brexit.
This of course all depends if you have a Spanish bank account and having been paying money into it > you need to show a balance and three months “income payments” in the account > So if you haven´t started you need to start thinking about this.
There were no concerns raised about receiving a salary from a UK company while living here, nor receiving dividends.
No one cares who you work for and where.... The tax office just wants you to pay the correct amount of tax if you are resident and tax resident here.
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.
The tax burden in Spain doesn´t change! They tax dividends at the same rate as the salary.
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.
Sep 25th 2018, 5:20 pm
#25
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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 ....
Sep 25th 2018, 6:05 pm
#26
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Posts: 377
Re: Questions on running a Ltd company as a Spanish resident
The Spanish look at dividends in exactly the same way (ie tax rate as the salary part)
You will have to pay corporation tax on the dividends at 20% in the UK, as this is company profit and is not refundable if you are tax resident in Spain!
So I would guess, its salary all the way. Up to 700 pounds a month is tax free and NI free in the UK. If you take dividends for the rest of the money, you pay 20% corporation tax and then income tax in Spain.
I
You will have to pay corporation tax on the dividends at 20% in the UK, as this is company profit and is not refundable if you are tax resident in Spain!
So I would guess, its salary all the way. Up to 700 pounds a month is tax free and NI free in the UK. If you take dividends for the rest of the money, you pay 20% corporation tax and then income tax in Spain.
I
The taxation of dividends in the UK changed in 2016, and are now paid gross. You receive an allowance and pay tax on the excess.
Dividends paid to a resident of Spain can be taxed at the rates set out in the Double Taxation Agreement (DTAj between Spain and the UK, and you can claim relief for the tax paid in the UK, against the tax payable in Spain (at savings rates) upto the amount of tax payable in Spain.
Meloncoton I also suggest you read Article 5 of the DTA with regard to a permanent establishment.
Last edited by CapnBilly; Sep 25th 2018 at 6:24 pm. Reason: Typo
Sep 26th 2018, 1:12 pm
#27
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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.
Regarding the rules that determine the permanent establishment of a company, yes I am aware of these.
Sep 26th 2018, 1:24 pm
#28
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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.
Regarding the rules that determine the permanent establishment of a company, yes I am aware of these.
Last edited by CapnBilly; Sep 26th 2018 at 1:46 pm.
Oct 3rd 2018, 11:39 pm
#29
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Posts: 201
Re: Questions on running a Ltd company as a Spanish resident
Dividends in Span are treated as savings not general income.
The taxation of dividends in the UK changed in 2016, and are now paid gross. You receive an allowance and pay tax on the excess.
Dividends paid to a resident of Spain can be taxed at the rates set out in the Double Taxation Agreement (DTAj between Spain and the UK, and you can claim relief for the tax paid in the UK, against the tax payable in Spain (at savings rates) upto the amount of tax payable in Spain.
Meloncoton I also suggest you read Article 5 of the DTA with regard to a permanent establishment.
The Spanish tax it the same as salary - ie it is just income earned.
We are not talking about dividends paid out from a investment portfolio of shares.
Corporation tax due on a UK Ltd company (incorporated in the UK) is paid in the UK, regardless of where the director lives.
Last edited by Smithy73; Oct 3rd 2018 at 11:46 pm.
Oct 4th 2018, 10:16 am
#30
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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?