First, I want to clarify that my intentions are not aggressive in any way, but merely inquisitive. If my responses seemed otherwise, I'm sorry and I am actually grateful that you spend time answering my queries.
No, you didn't come off as aggressive in any way, just terribly misinformed.
1. My understanding is that the C-corporation tax structure is more applicable to the U.S segment of operations
I'll explain how it works in general. I don't know anything about Spain in particular, this is just general information. Please talk to a tax professional who has experience in international taxation about this, ideally both in the US and in Spain.
A company can be taxed as an entity of its own (opaque), as a corporation. Or it can be transparent for tax purposes (like a partnership), which means that the tax authorities "look through"/disregard the company and tax the owners of the company as if they had done the work under their own personal name.
A US LLC can either be transparent (taxed as a partnership/disregarded entity), or it can be taxed as a corporation, as a thing of its own.
When taxed as a corporation, there are some restrictions for how much money you can invoice (transfer pricing restrictions). You typically can't just take out 100% of the profits, especially when you move the profits to another country. They will say you were trying to avoid US taxes.
That's the US side.
Then you have the Spanish side: Any foreign company doing business in Spain (or pretty much any other developed country for that matter) has to pay taxes in that country.
Yes, the company itself.
So your US company has to register in Spain (as a branch or something similar) because you manage the company from Spain and then pay taxes in Spain, because that's the law in Spain.
Even if there's no profit, the company will likely still have to be registered in Spain. You will then also receive a Spanish VAT ID for the US company and apply VAT to your invoices like for a Spanish company (but your VAT ID will be Spanish, so your clients will know you're in Spain).
On top of that, in Spain, the Spanish authorities may rule that you cannot invoice a company that is owned by yourself as autonomo.
Instead, you would probably have to either make yourself an employee, or pay yourself through dividends, or a combination of both.
Long story short, you may very soon find yourself in a situation where you have to deal with both US and Spanish bureaucracy.
Your company may have to pay taxes in both countries. There's a tax treaty to avoid this, but it will likely be a lot of paperwork to get a refund or credit for taxes paid in the US.
If you choose for your US LLC to be taxed as a disregarded entity (not sure if that's still possible if you chose earlier that it should be taxed as a corporation), then at least in the US, there probably won't be any tax, if you don't work in the US and don't have employees or clients there.
But then it would still be unclear how Spain would view the company: They could either say it should be taxed as a corporation in Spain regardless (likely), or they could say it's transparent in Spain as well, in which case you'd probably be taxed as autonomo (I doubt that would happen, though).
In any case, this is really complex stuff if you want to make sure you're really compliant with all laws in both countries.
There's a good chance you'll just fly under the radar, and maybe that's what the advisors were thinking about (lax enforcement in Spain if there's no profit to be taxed anyway), but if it's discovered after five years that your setup was violating regulations, fixing your mistakes can quickly get expensive.
Ideally you should find a Spanish tax advisor that has a lot of experience with US taxes.
You could start with this list:
Acceptance Agents - Spain
www.irs.gov
But it's not a recommendation, they may suck and there may be better ones out there.
3. As per my current knowledge, the U.S incorporated company wouldn't be filing a Spanish
tax return. (I would like to mention that this arrangement is not operational yet since my relocation to Spain is still pending.)
Not correct, if the company has permanent establishment in Spain/is managed from Spain, it will be just like a Spanish company for the Spanish tax authorities, so it has to submit Spanish tax returns.
4. I have consulted several Spanish CPAs who I believe were (seemed to be) professionals. They have suggested this approach where the company profits are transferred to Spain, thus making them taxable in Spain.
You should ask them about corporate tax residency, permanent establishment and CFC rules in Spain. And also about regulations about social security - I doubt you can be autonomo with a company owned by yourself as your only client.
My company has been operational for some time now, and my clients have grown accustomed to it. I believe that maintaining this continuity is important and hence, I've chosen not to transition the company to Spain, despite my personal relocation.
Sure, you can do that. You should just know that there will be a lot of paperwork required to do this by the book.
