100% owned HK company - how to pay taxes in Spain

[SWinja]

I'm Spanish tax resident and going to open HK offshore company 100% owned by me. It will have income outside HK-source, so I hope to get 0% taxes for the company.
Next, I'm going to issue dividends in HK and send them to Spain bank with purpose of payment "dividends".
Some advisors told me to issue dividends once a year or once a quarter, not monthly.
1. When I pay taxes in Spain, would it be personal income tax or dividend tax?

The difference is signifant in case of Spain because the personal income tax has progressive scale, and goes up to 45%.
In case of tax from dividends it's about 23%.

2. Does this schema even work?
Or would Spain IRS treat my HK company as Spain tax resident company and it will need to pay tax on company's income?

 

[Jerry1911]

Or would Spain IRS treat my HK company as Spain tax resident company and it will need to pay tax on company's income?

They would

 

[SWinja]

Ok, interesting.
Would if it would be incorporated by 3 people, 33% shares to each, 2 people in Spain, 1 is in Czech.
1. What the tax residency would a company have in that case?

2. If I incorporate it as 100% owner, and will not pay dividends to myself, should a HK-company itself still pay taxes in Spain?

 

[Jerry1911]

Ok, interesting.
Would if it would be incorporated by 3 people, 33% shares to each, 2 people in Spain, 1 is in Czech.
1. What the tax residency would a company have in that case?

No idea, maybe someone else knows.

2. If I incorporate it as 100% owner, and will not pay dividends to myself, should a HK-company itself still pay taxes in Spain?

From what I know - yes, the fact that you're not paying out dividends makes no difference

 

[Sols]

Ok, interesting.
Would if it would be incorporated by 3 people, 33% shares to each, 2 people in Spain, 1 is in Czech.
1. What the tax residency would a company have in that case?

It's first and foremost about where the company is controlled and managed. Ownership is not that important.

If you are running the company from Spain while the Czech person is just a shareholder, the company is probably tax resident in Spain only. If the person in Czechia is involved in running the business (as a director or equivalent), you might end up with the company being tax resident in both Czechia and Spain. Then you need to look into tax treaties between the two countries and work with local tax advisers to figure out how much tax is payable where.

2. If I incorporate it as 100% owner, and will not pay dividends to myself, should a HK-company itself still pay taxes in Spain?

The company is Spanish for tax purposes. It has to comply with the exact same tax laws as a locally incorporated Spanish company.

 

[SWinja]

Thanks!

What if I run US-based LLC in Delaware and it's treated as disregarded entity in US.
Would Spainish authorities consider it also as sole proprietorship as well?
So no corporate taxes in that case, just personal ones.

 

[Sols]

What if I run US-based LLC in Delaware and it's treated as disregarded entity in US.
Would Spainish authorities consider it also as sole proprietorship as well?

As far as I know, that hasn't been tested specifically in Spain. Different jurisdictions make different interpretations about US LLCs. Some accept them as transparent, while others insist they should be taxed as corporations. In some cases, it depends on how exactly the LLC is setup (i.e. what the Operating Agreement says).

 

[SWinja]

Or would Spain IRS treat my HK company as Spain tax resident company and it will need to pay tax on company's income?

How would it happen, by the way, for whose who did not read this forum?
For example, you are running with HK company for a year, decided to pay taxes in Spain and then boom, you will receive a letter from Spanish IRS about admitting you HK company as spain company?
If you receive it in 4 years after company setup, will they ask to pay to previous 3 years?

 

[Mike Forman]

If you live most of the time in Spain you will pay full taxes as a normal Spanish entity. Only when you can provide solid proof you live most of the time in Hong Kong and your business has substance there (own office space (not a shared and definitely not a shelf company office), staff,... ) as well you can proof you pay onshore taxes in Hong Kong, you can use the Hong Kong tax regime. If you do business with Spain and have another entity there, transfer pricing will be applicable and they will still come after you.

You will need a lawyer specialised in international tax law to assist in this case.

The tax authorities can (and will) go back 7 financial years and ask to pay the tax + fines + interest of 7 years before last financial year, so that would be of 8 years ago. If the amounts are significant you may also face legal consequences for tax evasion, money laundering,..

This is 2022, so unless you are physically living somewhere else (and can proof that with utility bills, rental contracts, spending, personal tax bills) the chance they will figure out is significant, especially now you have to declare the UBO of any related companies.

Nominee shareholder and director could be a solution, but in the end you will need a plan to secure money withdraw as dividends to a non crs account or an account opened as a local resident (e.g. Hong Kong resident). Since in HK you can only get after 8 years permanent residence there is a high chance banks will send also your personal bank info to your country of citizenship.

 

[saintjohnny]

As far as I know, that hasn't been tested specifically in Spain. Different jurisdictions make different interpretations about US LLCs. Some accept them as transparent, while others insist they should be taxed as corporations. In some cases, it depends on how exactly the LLC is setup (i.e. what the Operating Agreement says).

A USA LLC in Spain is considered a "Comunidad de Bienes" and reportable with modelo 100. He's going to be taxed at 47% if above 300k. I would look elsewhere.

 

[TheCryptoAnt]

[...]
For example, you are running with HK company for a year, decided to pay taxes in Spain and then boom, you will receive a letter from Spanish IRS about admitting you HK company as spain company?
If you receive it in 4 years after company setup, will they ask to pay to previous 3 years?

Most likely not unless you draw attention to yourself, for example by receiving intermediate amounts of money.

The Spanish Hacienda is quite disorganized and usually easy to circumvent, but keep this in mind; if they somehow get their claws into you they will go full steam.

It's your obligation to declare that company as resident (or transparent, no idea how it works with HK but you can call them and ask).
Now you can decide to not do it and it might work but you will be breaking the law.