Tax agreed under state regulations that taxes income obtained in Spanish territory by non-resident entities or individuals.

The tax regulation distinguishes between income obtained without or through permanent establishment:

Non-resident income obtained through permanent establishment:

1. For any reason, the entity has facilities or workplaces of any kind in the Spanish territory on a continuousor habitual basis, in which it carries out all or part of its activity (management headquarters, branch offices, construction work, etc.)
2. It acts in Spain through an authorised agent to contract, in the name and on behalf of the non-resident person or entity, that habitually exercises these powers.

It is important to note that permanent establishments do not have a separate legal personality from their parent company.

Permanent establishments are subject to the same formal, registration and accounting obligations as resident entities.

In general, they determine their income as if they were a resident company, applying the rules for determining the base, tax rate and deductions established for provincial Corporation Tax.

The tax rate will be the same as that applied to resident companies (24%/20%).

There are certain characteristics that should be highlighted:

• Non-deductibility of payments made to the parent company, royalties, interest, fees, technical assistance or assignment and use of assets.
• Deductibility of payments made for management and general administrative expenses.
• Special rules are established to determine the tax base for certain cases:
• Permanent establishments whose activity consists of construction, installation or assembly work with a duration of over six months, or temporary or seasonal economic operations, or natural resource exploration activities.
• If the permanent establishment does not complete a business cycle that leads to income in Spain and the business cycle is completed by a non-resident entity.

Taxpayers who obtain income without a permanent establishment are taxed separately for each total or partial accrual of income obtained in Spanish territory.

Income obtained in Spanish territory without a permanent establishment includes:

• Income from economic activities or operations carried out in Spanish territory.
• Earnings from services used in Spanish territory (i.e. carrying out studies, projects, providing technical assistance or management support).
• Earnings from work when they are derived directly or indirectly from a personal activity carried out in Spanish territory.
• Interest, royalties or other capital gains paid by persons or entities resident in Spanish territory or by permanent establishments located therein.
• Earnings from property located in Spain or from rights related to this property.
• Capital gains derived from movable or immovable property located in Spanish territory or from securities issued by resident entities.

Notwithstanding the foregoing, among others, the rule provides for certain tax exemptions:

• Interest and other income derived from the transfer to third parties of own capital, as well as capital gains derived from movable property, obtained without a permanent establishment, obtained by residents of the European Union.
• Dividends distributed by a resident subsidiary to its parent company resident in the European Union when certain requirements are met, such as having a 5% holding or an acquisition value of the holding of more than 20 million euros for one year.
• Royalties paid by a resident company to a company resident in another EU member state when a number of requirements are met.

Tax rates for non-residents without a permanent establishment are lower than those for resident individuals and entities.

• Agreements to avoid double taxation: Bilateral agreements signed by Spain with other countries to avoid double taxation and facilitate the exchange of information are applied as a matter of priority with respect to the internal regulations of non-resident income tax.
  Spain has signed bilateral agreements with more than 100 countries, which regulate the maximum tax rates on income generated that the signatory countries must respect. Therefore, it will be necessary to agree to the provisions of these agreements, which take precedence over the internal regulation when determining the applicable taxation.
• Tax representative: Non-resident taxpayers will, in certain cases, be obliged to appoint a representative in Spain (an individual or legal entity resident in Spain).

Representatives of permanent establishments are considered to be those who appear as such in the Mercantile Register or, failing that, those who have the power to contract on their behalf.

Tax representatives have a very important degree of responsibility, insofar as they are jointly and severally liable for the income from the debts of non-resident taxpayers.