CFC and Spain

[Brianthedog]

Online travel agent, focusing on USA clients for Caribbean vacations.

current setup is a usa llc but we’re looking at incorporating a Corp in a tax free jurisdiction to avoid the us litigation culture.

3 partners, one is Spanish, and two none Spanish citizens, but 1 is resident in Spain along with the Spaniard, and wants to stay there. one none Spanish looking to relocate to panama or 0%tax country

what would be the best setup regarding CFC to be taxed in Panama or another tax free jurisdiction. The Spaniard doesn’t do any sales, but the other 2 do. We also have a freelancer who sells on our behalf located in Spain.

 

[JustAnotherNomad]

You probably won’t have to worry about CFC rules as Spain doesn’t seem (quick Google search) to apply them to operative businesses. This is quite typical and I don’t know where this obsession with CFC rules comes from.
Does that mean you won’t have to worry? No, of course not:
https://taxsummaries.pwc.com/spain/corporate/corporate-residence
What you need to worry about instead is corporate tax residency and permanent establishment. CFC rules are probably not important for your case.
Read the above article, then think about how you can avoid that.
Your best option might be to have a Spanish company in addition to the offshore company, then bill the offshore company from the Spanish one, keeping most of the profits offshore. The Spanish residents could probably still own shares in the offshore company.

You could also lend money from the offshore company to the Spanish company to reduce its profits through interest payments - but that could indeed trigger CFC rules, as it would be passive income.

You should probably talk to a Spanish accountant.

 

[Btraveler]

You probably won’t have to worry about CFC rules as Spain doesn’t seem (quick Google search) to apply them to operative businesses. This is quite typical and I don’t know where this obsession with CFC rules comes from.
Does that mean you won’t have to worry? No, of course not:
https://taxsummaries.pwc.com/spain/corporate/corporate-residence
What you need to worry about instead is corporate tax residency and permanent establishment. CFC rules are probably not important for your case.
Read the above article, then think about how you can avoid that.
Your best option might be to have a Spanish company in addition to the offshore company, then bill the offshore company from the Spanish one, keeping most of the profits offshore. The Spanish residents could probably still own shares in the offshore company.

You could also lend money from the offshore company to the Spanish company to reduce its profits through interest payments - but that could indeed trigger CFC rules, as it would be passive income.

You should probably talk to a Spanish accountant.

Very interesting for Spanish, French and German users of this forum. However, invocing from the spanish company to the offshore one important sums couldn't also trigger spanish tax authorities? (I suppose the case you invoice from a spanish company to a USA LLC or PANAMA one)

 

[JustAnotherNomad]

Very interesting for Spanish, French and German users of this forum.

Probably not, since the effect is the same. It’s just a different rule ruining it for you.

However, invocing from the spanish company to the offshore one important sums couldn't also trigger spanish tax authorities? (I suppose the case you invoice from a spanish company to a USA LLC or PANAMA one)

Yes, terrible idea. But in his case, they actually have proper partners in the other country, so it should be possible to prove that the work is actually done in the other country.