This scenario is one which has cropped up on a number of occasions and one which can be difficult to clarify without the correct information. The thread was started by someone who works for themselves in the UK under the ltd company laws but is looking to move to Spain on a permanent basis. Where does the company pay its corporation tax? Where does the individual pay their income tax?
There is a fair amount of comment on the exact situation of the person asking the questions, which again highlights the fact that it is impossible to give informed advice unless all of the facts are known. After some discussion its seems as though it is quite feasible for a company to be registered in the UK and employ someone in Spain, but it looks as though the individual will pay Spanish tax on their income and UK corporation tax on the company’s profits.
Other issues which arise include the double taxation agreement between Spain and the UK which means that nobody will be taxed twice on their income (the matter of company profits and employee income is different because in the eyes of the law a company is a separate legal entity), the 183/90 day rule and health cover regulations.
There does not seem to be any way of avoiding Spanish tax on your personal income if you are resident in the country and while you could take your income as a salary or dividends from your own limited company, professional advice should be sought to clarify the situation.
This post not only takes in the tax obligations of a limited company and an employee / owner taking income from the company but it also covers cross border tax regulations. While there is a double taxation treaty between the UK and Spain this does not really come into affect in this situation because the employee will be resident in Spain and therefore eligible to Spanish income tax. The situation for the limited company is different as this is still under UK regulations and will incur UK corporation tax charges.
As more and more people look to move from places such as the UK to Spain the subject of income tax, local health cover and the like will come to the fore. In this instance it is unclear whether working for a limited company, which is then taxed in the UK, and then being taxed for taking out income is the most efficient use of the tax regulations. However, it does confirm that legal and professional advice should be obtained at a very early stage.
It is also worthwhile reviewing the tax implications of such an arrangement on a regular basis to ensure that the correct route is being taken. While the UK and Spain have a double taxation agreement in place, a limited company and an employee are two separate entities in the eyes of the law. The worst thing which you can do is fall foul of local tax laws as soon as you have moved overseas and possibly land yourself in trouble with the authorities. Seek the best advice and seek it as soon as possible.
Read more about Ex-pat tax issues.