American investors interested in setting up their business operations in Spain
should know that they can benefit of many tax deductions or exemptions, prescribed by the treaty for the avoidance of double taxation
, signed between Spain and United States of America (USA)
. The agreement related to the way in which income taxes
are applied to natural persons or legal entities in Spain and USA
was signed in Madrid
, in 1990, and became effective starting with 1st of January 1991. Businessmen who want to open a company in Spain
can find out more about the benefits they can receive under the Spain-USA agreement
from our team of Spanish company formation specialists
Taxes covered by the Spain – USA treaty
According to the stipulations of the treaty, Spanish authorities will refer to the following taxes:
• the income tax on individuals;
• the corporation tax.
USA will apply to Spanish residents the next taxes:
• the federal income tax;
• the excise tax.
Taxation of business profits under the Spain – USA treaty
It is important to know that, as a general rule, the business profits of a company will be taxed in the state where the business is a resident. However, the rule will no longer apply if the company will carry out its business operations in the other contracting state through a permanent establishment.
Article 5 of the agreement stipulates that a permanent establishment (PE) refers to a fixed place of business through which the foreign company is represented in the other contracting state. A PE can refer to an office, a branch, a factory, a workshop or a mine, but it can also refer to a building site, in which the operations are carried out for a period longer than six months.
If so, the company
must be taxed in this state, but only in accordance with the business profits resulted through the operations incurred in that country.
Dividends received by a Spanish resident from an American company can be taxed in Spain, but the agreement stipulates that the dividends can also be taxed in the company’s country of residency, in accordance with the rules and regulations of that state.