Most expatriates or those planning a move abroad are keenly aware that their tax liabilities will change, and families relocating to Spain will often be conscious of the variations in income tax rates, reliefs, and personal allowances.
These financial aspects are just as important for business owners, who need to understand, ideally before a move, whether their income arising from a business interest in the UK will attract Spanish taxation or whether transferring a business to Spain will have a marked impact on their net income and wealth.
This guide, compiled by the financial advisory and wealth management specialists at Chase Buchanan, examines how the Spanish tax regime works for expat business owners and clarifies the major taxes to incorporate into your plans.
An Overview of Spanish Taxation on Business Income
Let's start by looking at how the Spanish tax system works for business owners. Much like in the UK, a lot will depend on the nature and origin of business earnings because the taxes you will pay on your personal income will differ between, for example, salaries and bonuses, dividend earnings and capital gains.
It is also essential to verify the location of your business for tax purposes, alongside your position as a non-resident or tax resident, since this will have a direct effect on your tax status—we’ll take a look at this consideration shortly.
Business owners earn incomes from their commercial interests in varied ways, which means that even if the business and your stake in it hold a similar value to somebody else’s, the tax you pay won’t necessarily be identical.
For example, salary income and dividends are usually taxed according to the prevailing income tax bands and rates, whereas any capital gains you might make when selling shares, interests or commercial assets are taxed separately.
Corporation Taxes in Spain
In terms of the business itself, if you register a company in Spain or relocate an existing business, you’ll need to account for corporation tax, called cuota tributaria. The standard rate is 25%, although there are some variations depending on the company's structure and the nature of the business.
Residential or Spanish-registered businesses are subject to tax on their income worldwide, including revenues earned in the UK. Foreign companies can be exposed to non-resident income tax, which is charged at the same 25% rate but only on revenues arising in Spain.
Exemptions apply for newly formed companies, which may be very relevant for expats intending to set up a new business following their relocation.
A reduced 15% tax rate is claimable within the first tax period when the company makes a taxable profit and the following year. This excludes equity companies and those linked to nationwide or international groups—and businesses that have been transferred and were previously conducted by a related company or owner may be ineligible.
Tax Liabilities for Expatriate Owners of Businesses Based in Spain
As we've indicated, your tax obligations as a business owner will depend on the form of your income, the location of the business, and whether you are a Spanish tax resident.
In short, tax residency depends on whether you spend the majority of your time in Spain, have a permanent home there, have familial or economic ties in the country, including employment or a business, and whether you are considered a tax resident in another jurisdiction.
Tax residency can be far more complex than it appears, so this is a very rough overview.
However, if you live permanently and only in Spain and/or own all or some of a business located within Spain, you will most likely be subject to Spanish taxation on the arising income you receive as an individual taxpayer.
Salary Income From Business Ownership
In Spain, Personal Income Tax (PIT) applies to all categories of income classified as ‘gross employment income,’ which includes earnings like salaries, wages, allowances, bonuses, in-kind benefits, and director's salaries. These are all subject to income tax at the normal rates.
While tax rates differ between autonomous communities, with a consistent federal proportion and a variable localised element set by the municipalities, the general rates currently begin at 19% for incomes up to €12,450 and extend to 47% for earnings over €300,000.
Non-residents generally pay the standard rate of 24%, which is reduced to 19% for citizens of other EU or EEA countries.
Dividend Payments From Businesses
Dividends and other income from company interests are generally taxed according to the prevailing personal income tax rates, with a flat rate of 19% withholding tax for non-residents. Unlike the UK, there isn’t a specific tax allowance for dividends.
However, corporate incomes, including dividends earned by the company, are treated differently. If the business is registered in Spain and has held at least a 5% interest for a year or more, dividends could qualify for a 95% exemption, which translates to an actual taxable rate of just 1.25%.
Capital Gains Tax in Spain on Company Ownership
Spain taxes corporate capital gains at a standard 25% rate—the same as the corporation tax rate. Likewise, the exemptions discussed above may apply to some transferred company shares, with up to a 95% exemption and the remaining 5% taxed at the corresponding rate.
Personal capital gains for non-residents are taxed at a 19% flat rate or on a progressive scale from 19% to 28% for individual taxpayers, although tax residents can offset any capital losses against the tax liability.
Understanding Your Tax Obligations as an Expat Business Owner in Spain
As we've seen, much may depend on whether you are a non-resident or a tax resident and whether the company you own or have an interest in is located within Spain or in another country.
Alongside the taxes we've briefly covered here, expatriates must also consider the ramifications of business ownership in terms of wealth taxation. Again, residents are exposed to wealth tax calculated against the total value of their worldwide assets, and non-residents are potentially liable if their assets within Spain exceed the thresholds.
The key is to ensure you have independent, professional advice to understand your tax profile, the profitability of business ownership, and potential solutions to restructure your portfolio or shares to take advantage of all available tax efficiencies.
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About Chase Buchanan Private Wealth Management
Chase Buchanan is a highly regulated wealth management company that specialises in providing global finance solutions for those with a global lifestyle. We are global financial advisers, supporting expatriates around the world from our regulated European headquarters, and local offices across Belgium, Canada, Canary Islands, Cyprus, France, Malta, Portugal, Spain, UK and the USA.
Chase Buchanan Ltd is authorised and regulated by the Cyprus Securities and Exchange Commission with CIF Licence 287/15.
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