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Questions on running a Ltd company as a Spanish resident

Questions on running a Ltd company as a Spanish resident

Old Apr 24th 2019, 10:27 am
  #46  
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Default Re: Questions on running a Ltd company as a Spanish resident

Originally Posted by mash7
Hey JanaP

I have been following this thread over the last few months and have found it super helpful, did you ever get the name of Smithy73 's accountant? I'm in the Valencia region and I'm at the point where I could do with speaking to one now.

Thanks!
The name of the accountant is Monica at CRISTINA JUAN SELFA CORREDURIA DE SEGUROS SL, Calle Barcelona, 1 de Gandia 46702 (Valencia)If you speak to Pedro on the front desk, he speaks good English.If you tell her the kind of income you wish to take, they can help you with scenarios. Unlike my UK accountant the Spanish won’t automatically tell you the best way to pay less tax.
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Old Apr 24th 2019, 11:00 am
  #47  
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Default Re: Questions on running a Ltd company as a Spanish resident

Originally Posted by LukeP123
Hi all,

Fantastic thread, really informative.

I am just hoping if someone would be able to clear up a few things for me. I have just set up a UK company where I invoice my clients in the UK also. I moved here 18 months ago and have recently set up as Autonomo to avail of the social security services. Great

From reading above it appears that I will be liable to corporation tax at 20% on all profits in the UK company. Any LTD company pays corporation tax at 20% on profits in a year.
I am wondering if it is better to take a salary or dividend from the company being a Spanish resident? The Spanish see both salary and dividends paid to a company director as the same and tax it as income at the same rate.

Don't forget that in the UK the LTD company pays corporation tax, before you pay yourself the dividend, as the dividend payment can only be made once there is a profit... there is then an tax on dividends -


It is possible to elect for dividends income to be deemed as ‘Excluded Income or Disregarded Income ’ (similar to some investment income such as interest) which will mean that although the dividends is subject to UK income tax, the amount of tax a non-UK resident pays upon receipt of a UK dividends is NIL. This does however lead you to lose your eligibility to the UK personal allowance so you need to talk this over with your tax advisor.

The company will still pay 20% on the profits and you will need to declare the dividend as income in Spain


And what would be the most tax efficient way to do it? You need to speak to your UK accountant

I have read that it may not be possible to take a salary from the company as an Autonomo as I am meant to be classified as a freelancer and I am worried that I may be classified as a false Autonomo? Is this correct? You can take a salary from your UK company and just declare this as income, which is what we both do. I also have a business here in Spain and all of this goes through the Autonomo.

If this is the case I presume I will have to extract dividends from the company and pay the Spanish income tax on this? Am I liable to any UK tax on the dividend? Are Autonomos allowed to receive dividends? You can take a UK dividend on the money and just declare the income on this... Has nothing to do with your self employed status.
I have also read that if I as an Autonomo only invoice one company I could be deemed as an employee or false Autonomo also?
This is only true if you are working with one Spanish company. Similar in the UK with IR35
.




Last edited by Smithy73; Apr 24th 2019 at 11:02 am.
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Old Apr 24th 2019, 11:31 am
  #48  
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Default Re: Questions on running a Ltd company as a Spanish resident

Originally Posted by LukeP123

I am wondering if it is better to take a salary or dividend from the company being a Spanish resident? And what would be the most tax efficient way to do it?
I make the assumption that you are a UK LTD company of 1 director and 1 employee - that the salary is paid to you - both the same person - As far as I am aware, if you take salary from a UK company this salary is taxable in the UK - unless you can show that the work was done outside of the UK - which is your problem as you are the only employee.
.
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Old Apr 24th 2019, 9:21 pm
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Default Re: Questions on running a Ltd company as a Spanish resident

Fantastic, thanks Smithy73 ! I'll call in to see them next week.
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Old Apr 24th 2019, 10:19 pm
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Default Re: Questions on running a Ltd company as a Spanish resident

I thought I'd share my experience as I have found it a tad more complex.

Sole Directorship is tricky! It could be seen that 'top level decision making' is taking place in Spain. Under Corporate Residencia tax laws this forces Spanish incorporation (very expensive) or Autonomo. Having at least 2 Directors, one of which is a UK resident negates this.

Shares in your company must be declared on the annual M720. My UK accountant said they were worth £100. However I then found out in Spain they seens as average pfts past 3 years x 5. This massively over values the company. While no initial tax is paid on this, if the company later is sold/closed in profit then Spanish CGT will be due.

You also have to declare the balances of any account you are signatory to if they total more than €50,000...this includes any business/corporate ones (mad). I am told this is often missed and people think they are below the declaration threshold based on their personal accounts only - you have to add up all accounts you are signatory too. Again, no tax is to pay, however there are big fines to pay if caught not declaring properly.

In my experience there is a Spain there is a real muddling of personal and business affairs, which is much more clear cut in the UK.

I have actually found having a UK ltd company and being a Spanish Resident a bit of a mine field and am in the process of getting rid!

I hope this helps others.


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Old Apr 30th 2019, 10:55 am
  #51  
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Default Re: Questions on running a Ltd company as a Spanish resident

Originally Posted by Dazbear
I thought I'd share my experience as I have found it a tad more complex.

Sole Directorship is tricky! It could be seen that 'top level decision making' is taking place in Spain. Under Corporate Residencia tax laws this forces Spanish incorporation (very expensive) or Autonomo. Having at least 2 Directors, one of which is a UK resident negates this.

Shares in your company must be declared on the annual M720. My UK accountant said they were worth £100. However I then found out in Spain they seens as average pfts past 3 years x 5. This massively over values the company. While no initial tax is paid on this, if the company later is sold/closed in profit then Spanish CGT will be due.

CGT tax would be due in the UK too!

You also have to declare the balances of any account you are signatory to if they total more than €50,000...this includes any business/corporate ones (mad). I am told this is often missed and people think they are below the declaration threshold based on their personal accounts only - you have to add up all accounts you are signatory too. Again, no tax is to pay, however there are big fines to pay if caught not declaring properly.

In my experience there is a Spain there is a real muddling of personal and business affairs, which is much more clear cut in the UK.

I have actually found having a UK ltd company and being a Spanish Resident a bit of a mine field and am in the process of getting rid!

I hope this helps others.
OK let’s look at the common reporting standard (Automatic Exchange of Information) - if you give your UK bank your Spanish address (or your bank has reason to think that you are residing in Spain) every May your bank(s) sends your financial details to HMRC. This includes your balance on the 31st of December, the details of the sales of assets (like a house sale), name/address and tax ID number etc. HMRC then transmits this data along with details of any assets they have on record of you owning to the Spanish tax office - This happens every September now since 2017.

It´s not a Spanish thing... this is a global sharing of tax information. Currently this only happens if you are a foreign citizen in the UK or that your financial institutions know that you are living abroad etc

I have made the assumption that most of the people chatting on this post have small limited companies in the UK with one or two directors.
Now if you don´t own property in the UK and you are a Spanish tax resident you DO NOT want to be caught up in Modelo 720 for the sake of having a little bit too much cash in a business or personal account in the UK!
You have to make a declaration on M720 once you have €50000 or more outside of Spain, at the end of the Spanish tax year.

So the fines for not reporting/late reporting/or incorrectly reporting on the Modelo 720 can run into the thousands to tens of thousands of Euros!!! So I repeat, if you don´t own UK property… you don´t want to be holding more than €50K in combined UK bank accounts, ISAs etc including a business account on any December the 31st reporting period - when you have a perfectly good Spanish bank account!

If your company shares are valued in the UK at £100, then for reporting purposes that is all they are worth. Remember that most of our companies above have no sale value, because they are used purely as a vehicle for us – the one or two directors and only employee(s) to get paid.
We don´t employ staff and if we leave there is no business, no value and these businesses couldn´t be sold.
What we are talking about here, the Spanish would call Autonomo!

Obviously if you own a LTD company that employs staff and that could function without much input from you, then that is different and the Spanish criteria for working out its value would be correct!

Ultimately if you can leave everything registered at a UK address that will be best for you




Last edited by Smithy73; Apr 30th 2019 at 11:07 am.
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Old Apr 30th 2019, 7:44 pm
  #52  
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Default Re: Questions on running a Ltd company as a Spanish resident

Information from the Hacienda on valuing shares in your own company for M720.

"The value of shares is calculated by taking the greatest of the following:
  1. Nominal value of the shares
  2. The shareholders’ funds (share capital plus reserves and retained earnings)
  3. The result of multiplying by 5 the average of the profits during the last 3 years."

I would imagine C will be the most relevent for most people, triggering an M720 return.

​I am the only employee and was told the rules still apply.

​​​​​​Apparently it's the most common and costly mistake by directors of UK ltd companies here in Spain.

As I say, I can only share my experience and what I was told by my tax office. As we know that seems to vary from place to place


​​​​​

Last edited by Dazbear; Apr 30th 2019 at 7:49 pm.
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Old Apr 30th 2019, 11:05 pm
  #53  
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Default Re: Questions on running a Ltd company as a Spanish resident

Originally Posted by Dazbear
Information from the Hacienda on valuing shares in your own company for M720.

"The value of shares is calculated by taking the greatest of the following:
  1. Nominal value of the shares
  2. The shareholders’ funds (share capital plus reserves and retained earnings)
  3. The result of multiplying by 5 the average of the profits during the last 3 years.

As I say, I can only share my experience and what I was told by my tax office. As we know that seems to vary from place to place



See below - most of us should have audited accounts

https://www.agenciatributaria.es/AEA...uridica_.shtml

This is what the Spanish Tax office states on their question and answer page for Modelo720 in relation to owership of shares in companies abroad that aren´t traded on markets/stock exchanges and have audited accounts

In the case of securities representing investment in the corporate capital or equity of a company not traded on regulated markets, they will be assessed at the theoretical value resulting from the last approved balance sheet, provided that this, in either an obligatory or voluntary manner, has been subjected to review and verification and the audit report was favourable.

https://jeangalea.com/modelo-720-spain/

Question: How is the value of a foreign company determined, given that it is not quoted on any stock exchange and is hence a private company.


The valuation will be calculated with the rules established in the Spanish Law 19/1991 regarding Wealth Tax. Insofar as it is not a company with representative securities traded on organized markets or other specific features, it is necessary to refer to article 16 on other securities that represent the participation in equity of any type of entity.

“En el caso de que el balance no haya sido auditado o el informe de auditoría no resultase favorable, la valoración se realizará por el mayor valor de los tres siguientes: el valor nominal, el valor teórico resultante del último balance aprobado o el que resulte de capitalizar al tipo del 20 por 100 el promedio de los beneficios de los tres ejercicios sociales cerrados con anterioridad a la fecha del devengo del Impuesto”.

This article indicates that the valuation of this type of shares will be carried out at the theoretical value resulting from the last approved balance, provided that it has been submitted to review by auditors.
If this is the case of the company, the valuation must be made in accordance with the last approved and audited balance sheet available.

The theoretical value is obtained by dividing the net equity figure by the number of shares, by performing the following operation: Theoretical value = Net equity / Number of shares in which the share capital is divided.

However, in case the last approved balance has not been audited, the valuation should be made for the greater value of the following three:
  1. The nominal value.
  2. The theoretical value resulting from the last approved balance.
  3. The result of capitalizing at a rate of 20% the average of the net profits of the three fiscal years closed prior to the date of accrual of the tax.
This is a simplified way of valuing a company, when compared to more complex methods used by investors, but it’s the one we need to use to calculate the value for the modelo 720 form.





Last edited by Smithy73; Apr 30th 2019 at 11:08 pm.
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Old May 19th 2019, 4:18 am
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Default Re: Questions on running a Ltd company as a Spanish resident

Hi. I have just joined the board as I am in the same position as many other posters here. I am sole director of a small UK Ltd company. My wife and I each own 50% of the shares. The company sells digital products and all the work related to the company can be carried out online.
I take no salary. My wife and I take dividends. There are no employees.
We are trying to work out the implications of us becoming tax resident in Spain where we are currently living. We have spoken to a number of accounts / tax advisers etc and get conflicting advice. We have been told:
1. The company will be regarded as resident in Spain and will have to conform to Spanish corporate legislation and will be subject to Spanish corporate taxation.
2. One adviser told us that provided we maintain an office in the UK it will not be regarded as resident in Spain.
3. Another said that provided board meetings (me!) are held in the UK it will not be regarded as resident in Spain. (I find that hard to believe as I am sole director).
4. Another said that provided there was another director who was UK based the company would not be regarded as resident in Spain

I would be grateful to hear from anyone with experience or who has received reliable advice which, if any, of the above is true.

Many thanks in advance.
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Old Jul 25th 2019, 11:43 pm
  #55  
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Default Re: Questions on running a Ltd company as a Spanish resident

Originally Posted by Smithy73


Dividends paid to a company director who is a tax resident in Spain = the tax is paid in Spain!
If I am tax resident in Spain, do I still need to do the Self-Assessment in the UK? If so, would I have to pay the 7.5% tax on dividends in the UK?
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.

.
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Old Apr 14th 2020, 11:16 am
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Default Re: Questions on running a Ltd company as a Spanish resident

Originally Posted by Layne
Hi. I have just joined the board as I am in the same position as many other posters here. I am sole director of a small UK Ltd company. My wife and I each own 50% of the shares. The company sells digital products and all the work related to the company can be carried out online.
I take no salary. My wife and I take dividends. There are no employees.
We are trying to work out the implications of us becoming tax resident in Spain where we are currently living. We have spoken to a number of accounts / tax advisers etc and get conflicting advice. We have been told:
1. The company will be regarded as resident in Spain and will have to conform to Spanish corporate legislation and will be subject to Spanish corporate taxation.
2. One adviser told us that provided we maintain an office in the UK it will not be regarded as resident in Spain.
3. Another said that provided board meetings (me!) are held in the UK it will not be regarded as resident in Spain. (I find that hard to believe as I am sole director).
4. Another said that provided there was another director who was UK based the company would not be regarded as resident in Spain

I would be grateful to hear from anyone with experience or who has received reliable advice which, if any, of the above is true.

Many thanks in advance.
Hi Layne

​​​ I'm in a similar position too.

Did you ever get a definitive answer to the different information you wrote above? I would like to incorporate a UK Ltd but don't want to get the company declared as resident in Spain

Thanks
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Old Jun 17th 2020, 7:14 am
  #57  
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Default Re: Questions on running a Ltd company as a Spanish resident

Originally Posted by Layne
Hi. I have just joined the board as I am in the same position as many other posters here. I am sole director of a small UK Ltd company. My wife and I each own 50% of the shares. The company sells digital products and all the work related to the company can be carried out online.
I take no salary. My wife and I take dividends. There are no employees.
We are trying to work out the implications of us becoming tax resident in Spain where we are currently living. We have spoken to a number of accounts / tax advisers etc and get conflicting advice. We have been told:
1. The company will be regarded as resident in Spain and will have to conform to Spanish corporate legislation and will be subject to Spanish corporate taxation.
2. One adviser told us that provided we maintain an office in the UK it will not be regarded as resident in Spain.
3. Another said that provided board meetings (me!) are held in the UK it will not be regarded as resident in Spain. (I find that hard to believe as I am sole director).
4. Another said that provided there was another director who was UK based the company would not be regarded as resident in Spain

I would be grateful to hear from anyone with experience or who has received reliable advice which, if any, of the above is true.

Many thanks in advance.
Hi Layne,

Did you get a definitive answer on the advice you were given above?

Thanks
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Old Jun 17th 2020, 7:51 pm
  #58  
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Default Re: Questions on running a Ltd company as a Spanish resident

I have no idea about how Spain regards this but I know far more than I ever wanted to know about how it works in France. In fact all the information is there in the UK France treaty so probably the same applies to Spain? But you need to read it very carefully and not just see what you want to see.
For France, which might or not be similar, it is true that if a company is established in the UK and its meetings take place exclusively in the UK then it is a UK company.
However, if a director or an employee of that company lives and works in France they they must be registered with France as an employee, and paying full French social security. Registering self employed won't do.
If a UK company operates or trades in France, which apparently includes having a phone number, a permanent office, a warehouse or any other kind of premises, French utilities bills in its name, etc, the French taxman can ask to see full accounts going back years to show what percentage of its business is done in France and what percentage in the UK (and what percentage in other countries if applicable). If the company has no employees and no company equipment or assets in the UK but it does have employees and assets in France, France will say the UK company should have set up a subsidiary registered and paying tax in France. It can fine you for not having registered a subsidiary and calculate the proportion of tax due in France over the years and fine you for not paying that as well. It can freeze your bank accounts and turn up with at your home with a search warrant and take a copy of your computer hard drive and the nightmare will start, but that's another story.
Spain is probably less draconian but be aware that even if you have a bona fide UK company, that is not necessarily the end of the story. If that company has a stake in another country then that other country might look at it an apply their own rules.

Last edited by EuroTrash; Jun 17th 2020 at 8:32 pm.
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Old Aug 11th 2020, 8:45 pm
  #59  
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Default Re: Questions on running a Ltd company as a Spanish resident

Hello,

I've been reading this thread as I am in a similar situation to all the above (UK Ltd but moving to spain).

From what I can gather, it is not possible to draw a salary from the UK company whilst living in Spain as most people seem to assume. To be paid a salary in Spain the UK company MUST register with the Spanish Social Security and pay spanish tax. There is no way around it. Similarly you can not be on PAYE in the UK if you are not living in the UK. This is very basic stuff, so I'm a bit surprised by the amount of people that think/have been adviced it's possible to pay yourself a salary whilst in Spain from your UK Ltd.

Other than that, like all the others I'm also scratching my head as to how to go about it all. It's an absolute minefield. The advice that the Ltd company could be deemed to be Spanish unless it has a director and business place in the UK is also correct.

Has anyone has had problems or been investigated by the Spanish authorities in relation to all of this?
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Old Aug 12th 2020, 12:15 am
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Default Re: Questions on running a Ltd company as a Spanish resident

It is indeed a minefield.

I spoke to HMRC twice last week (regarding self-assessment and NI), and they advised me both times that unless I am self-employed in Spain and submitting invoices to the UK company, then I must be on the payroll of the UK company. Regardless of whether I am non-resident and living in Spain. UK Tax and NI are paid on all UK earnings under self-assessment, and a double taxation 'certificate' is required so it can be used when the annual declaration is made in Spain.
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