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Your American company in Spain: the right structure from day one

integrated advisory for US companies establishing or operating in Spain: entity structuring, transfer pricing, FATCA compliance, Beckham Law for US executives and US-Spain tax treaty optimisation.

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The problem

US companies expanding operations to Spain face a combination of complexities that makes them particularly vulnerable. The US citizen-based taxation system requires American citizens to report worldwide income regardless of where they live; FATCA requires reporting Spanish financial accounts to the IRS through Spanish authorities; and the IRS transfer pricing system (US GAAP, arm's length) must be coordinated with Spanish AEAT requirements. The American employment model — at-will employment, stock options as standard compensation, ease of dismissal — clashes directly with Spanish legislation that requires cause for dismissal, mandates minimum severance payments and extensively regulates working conditions. Legal teams at US headquarters frequently do not understand these differences and approve contracts, HR policies and structures that generate liabilities in Spain.

Our solution

BMC operates as a US Desk for American companies seeking to establish or consolidate operations in Spain. Our team works in English and Spanish, understands the US Tax Code and Spanish regulations, and has specific experience coordinating between IRS and AEAT requirements. We design the optimal entry structure (LLC vs SL, branch vs subsidiary), document transfer pricing in accordance with OECD guidelines and IRC Section 482, manage FATCA compliance, advise on the Beckham Law for US executives relocating to Spain, and structure compensation packages (including stock options and restricted stock units) to be efficient in both jurisdictions.

Process

How we do it

1

Entry analysis and optimal structure

We assess business objectives, the type of activity in Spain, the US corporate structure (LLC, C-Corp, S-Corp) and team composition to determine the best Spanish structure: SL, branch or agent. We analyse the implications of the US-Spain tax treaty and the Social Security Totalisation Agreement for the structure and for seconded personnel.

2

Incorporation, registrations and tax structure

We incorporate the Spanish entity, obtain the NIF, register for VAT and obtain sector-specific licences. We design the transfer pricing policy between the US entity and the Spanish subsidiary, with the Master File and Local File required by Spanish law and consistent with the US Transfer Pricing Study that the American group typically requires.

3

Employment management and employee secondment

We structure employment contracts under the Estatuto de los Trabajadores, advise on the applicable collective bargaining agreement, design variable compensation and stock option plans compatible with Spanish employment and tax law, and manage secondments of US employees: Certificate of Coverage under the Totalisation Agreement, visas, NIE and Beckham Law for qualifying executives.

4

Ongoing compliance, FATCA and dual reporting

We manage the full compliance cycle in Spain: VAT, corporate income tax, withholding taxes, Form 232 for related-party transactions and DAC6. We coordinate with the US CPA for FATCA reporting, preparation of IRS transfer pricing forms (Form 5471 where applicable) and reconciliation between Spanish accounts (PGC) and the group's US GAAP reporting.

30+
US companies advised in Spain
CDI
Active US-Spain double taxation convention
24%
Beckham Law rate for US executives
Bilingual
EN/ES team with US Tax Code expertise

Our software company opened an office in Madrid thinking it would be straightforward because we already had operations in other European cities. We were wrong: Spanish employment law is very different from what we were used to. BMC helped us structure the contracts correctly, design a stock option plan compatible with Spanish law and document the transfer pricing for both the IRS and the AEAT. We can now sleep soundly.

Sarah Mitchell General Counsel, Silicon Valley technology company (confidential)

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Why Spain is a strategic destination for US companies

Spain is attracting a growing share of US foreign direct investment, particularly in technology, professional services, media, hospitality and renewable energy. The reasons are compelling: access to the European market from a country with English widely used in business, a time zone convenient for coordination with the US East Coast, labour costs lower than those of Western Europe for equivalent profiles, and a quality of life that makes Madrid and Barcelona attractive destinations for US executives accepting international relocations.

However, establishing operations in Spain requires understanding that the legal, tax and employment environment is fundamentally different from the US one. The difference is not merely superficial — it is not simply “the same but in Spanish” — but reflects different legal principles: civil law vs common law, protective labour regulation vs at-will employment, territorial taxation vs citizen-based taxation.

The Spanish vs US tax system: fundamental differences

Citizen-based taxation vs fiscal residency

The US is one of the few countries in the world that uses citizenship as the criterion for tax obligation, rather than residency. A US citizen living in Spain remains obligated to report worldwide income to the IRS, even if they are also a tax resident in Spain and file there. The US-Spain tax treaty contains mechanisms to avoid effective double taxation (foreign tax credit), but their practical application is complex and requires coordinated advice in both jurisdictions.

FATCA and financial accounts in Spain

The Foreign Account Tax Compliance Act (FATCA) requires Spanish banks to identify and report the accounts of US citizens and tax residents to the IRS. For a Spanish subsidiary of a US company, this may mean the bank requests additional information on the corporate structure before opening the account. Correct structuring of the Spanish subsidiary and documentation of its operational independence facilitates account opening and avoids friction.

US GAAP vs Spanish General Accounting Plan

The financial statements of the Spanish subsidiary are prepared in accordance with the Spanish General Accounting Plan (PGC), which differs from US GAAP in several respects: revenue recognition (although Spain has partially harmonised with IFRS 15), lease treatment (IFRS 16 vs ASC 842), asset valuation and provisions. For consolidation with the US parent, the Spanish subsidiary must prepare a reporting package that reconciles the PGC with US GAAP — a task requiring knowledge of both systems.

Transfer pricing: the convergence between IRS and AEAT

For US groups with a Spanish subsidiary, transfer pricing documentation is probably the tax obligation with the greatest potential financial impact. Both the IRS (IRC Section 482) and the AEAT (Article 18 of the CIT Law) apply the arm’s length principle to value transactions between related entities, but documentation requirements, preferred methods and penalties for non-compliance differ.

The most frequent errors in US groups with Spanish subsidiaries are:

  • Intercompany service agreements without adequate documentation: the Spanish subsidiary pays a management fee or royalty to the US parent without a transfer pricing study justifying the amount. The AEAT can challenge the deduction and add adjustments with interest and penalties.
  • IP centralised in the US without a documented royalty: if the Spanish subsidiary uses the parent’s intellectual property (software, brand, patents), it must pay a market-rate royalty that is documented. If it does not exist or is too low, the AEAT can impute additional income to the parent and a correlative adjustment to the subsidiary.
  • Shared personnel between parent and subsidiary: when US employees spend time on the Spanish subsidiary without a documented cost charge, the AEAT may consider that there is an uncompensated value transfer.

Stock options and RSUs: efficient design for employees in Spain

US startups and scaleups that hire talent in Spain frequently want to include stock options or RSUs on US parent shares in compensation packages. The Spanish tax treatment differs from the US one:

Stock Options: the benefit (difference between market value and exercise price at the time of exercise) is taxed as employment income. Spain allows a 30% reduction for irregular income (more than two years between grant and exercise) and an exemption of up to EUR 50,000 per year for startups meeting certain requirements under the 2022 Startup Law.

Restricted Stock Units: the benefit (market value at vesting) is taxed as employment income in the year of vesting. There is no irregular income reduction because the income arises in the year the right is earned.

Social Security: both instruments generate a contribution base at the time of taxation, which can represent a significant additional cost for the Spanish entity (employer contribution) that the US parent may not have anticipated in its global HR budget.

The technology market in Spain: opportunity and talent

Madrid and Barcelona have established themselves as two of Europe’s leading technology hubs, with a growing base of highly qualified engineering and product talent. Salary costs, although they have increased in recent years, remain below those of London, Berlin or Amsterdam for equivalent profiles. For US companies seeking to establish European engineering or product centres, Spain offers a combination of cost, quality of life and access to the European market that is hard to match.

BMC has specific experience in structuring US technology hubs in Spain, from selecting the applicable collective bargaining agreement (which has a direct impact on labour costs) to designing competitive compensation plans that include variable components and equity without generating tax surprises.

ZEC in the Canary Islands: the 4% rate for international operations

For US companies considering Spain as a hub for international, Latin American or African operations, the Zona Especial Canaria (ZEC) offers a corporate income tax rate of 4% on profits from qualifying activities. The benefit is approved by the European Commission and is available until December 2031. For distribution, asset management, technology services or coordination centre activities, a US company can find in Las Palmas de Gran Canaria a location with a radically lower tax cost than any continental European city.

Why BMC is the right partner for US companies

BMC’s value as a US Desk for American companies lies in the ability to speak the language — both literally (English) and figuratively (understanding IRS requirements, the logic of US intercompany service agreements, the practical significance of the opinion letters and legal memoranda produced by US legal teams). Many Spanish advisors are excellent technicians in Spanish law but unfamiliar with the US context, and vice versa. BMC closes that gap, providing a single point of coordination between the US parent’s legal and tax teams and the Spanish regulatory reality.

FAQ

Frequently asked questions

The most common option for a US company entering Spain is the Sociedad de Responsabilidad Limitada (SL), the closest Spanish equivalent to an LLC with limited liability. If the US company is an LLC or C-Corp, the Spanish SL works well as a European subsidiary. However, the treatment of the SL under the US Tax Code must be analysed: if the Spanish SL is treated as an opaque entity (its default treatment), profits are not taxed in the US until dividends are distributed. If the US group prefers a check-the-box structure (pass-through treatment), it must be evaluated whether the Spanish SL is eligible for that classification for US purposes. This decision has significant implications for the tax treaty and for the profit repatriation strategy.
FATCA (Foreign Account Tax Compliance Act) requires foreign financial institutions, including Spanish banks, to report to the IRS (through the Spanish AEAT, under the intergovernmental FATCA agreement between the US and Spain) the financial accounts of US citizens and tax residents. For a Spanish subsidiary of a US company, FATCA may require the Spanish bank to request additional documentation on the ownership structure of the Spanish SL before opening an account. Proper structuring of the Spanish subsidiary and documentation of its operational independence facilitates account opening and avoids friction with the banking institution.
Spanish transfer pricing rules (Article 18 of the CIT Law) are based on OECD guidelines and are substantially equivalent to the US arm's length standard (IRC Section 482). However, there are differences in documentation thresholds, penalties and accepted methods. For US groups with a Spanish subsidiary, the standard practice is to prepare a coordinated Transfer Pricing Study that serves both the US requirements (contemporaneous documentation for IRS penalty protection) and the Spanish requirements (Master File and Local File for the AEAT). BMC coordinates this documentation with the group's transfer pricing team or with the Big Four firm managing the documentation.
Yes. The Beckham Law (special expatriate regime) is available to nationals of any country, including the US. It allows the US executive relocated to Spain to be taxed at the flat rate of 24% on employment income (up to EUR 600,000 of taxable base) for six years, instead of the general progressive scale which can reach 47%. However, for US citizens there is an additional complexity: the US applies citizen-based taxation, meaning the US executive remains obligated to report worldwide income to the IRS even while residing in Spain. The Beckham Law reduces Spanish tax liability but does not eliminate the US obligation. Optimisation requires coordinating both obligations and leveraging the US-Spain tax treaty to avoid effective double taxation.
The Totalisation Agreement between the US and Spain allows a worker temporarily seconded from the US to Spain (or vice versa) to pay Social Security contributions in only one country, avoiding dual contributions. For a US employee seconded to Spain, if the secondment is temporary (generally up to five years), they can continue contributing to the US system (Social Security and Medicare) and be exempt from contributing to the Spanish Social Security system. This requires a Certificate of Coverage issued by the US Social Security Administration. If the secondment exceeds the Agreement's coverage period, the worker must contribute in Spain.
The differences are significant and generate frequent friction. At-will employment — where the employer can dismiss the employee without cause or severance — does not exist in Spain: dismissal requires objective or disciplinary cause and generates minimum severance of 20 days per year of service (objective dismissal) or 33 days per year (dismissal declared unfair). Employment contracts in Spain must comply with the Estatuto de los Trabajadores and the applicable collective bargaining agreement, which set minimum conditions for salary, working hours, leave and other conditions that cannot be modified to the detriment of the employee. Stock options and restricted stock units have a specific tax treatment in Spain that differs from the US and must be carefully designed to be efficient in both jurisdictions.
If the US LLC owns the Spanish SL, dividends paid by the SL to the LLC are subject to Spanish withholding tax of 5% (under the US-Spain tax treaty, if the holding is 10% or more). In the US, if the LLC applies pass-through treatment and its income is taxed at the partner level (rather than being a C-Corp), it must be analysed how the Spanish SL's profits are reported in the US partners' returns. If the LLC is transparent for US purposes but the Spanish SL is opaque, asymmetries can arise that generate unintended double taxation. Coordinated US-Spain advisory is essential to optimise the structure.
Stock options on shares of the US parent company are a common compensation instrument with a specific tax treatment in Spain. Generally, the benefit (difference between market value and exercise price at the time of exercise) is taxed as employment income. Spain allows a 30% reduction for irregular income (more than two years between grant and exercise) and an exemption of up to EUR 50,000 per year for long-term options issued by startups meeting certain criteria (under the 2022 Startup Law). Restricted Stock Units are taxed when they vest (market value at vesting date) as employment income. Correct plan design, with the appropriate vesting clauses, modalities and timelines adapted to Spanish law, can significantly reduce the tax burden for employees in Spain without generating additional obligations for the US parent.

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