Your company abroad and Spain's controlled foreign company rules

Andrés has lived in Málaga since 2024 and is tax resident in Spain. Before moving he set up a company outside the European Economic Area with his sister Lucía and a long-standing partner, Pieter: Andrés holds 40%, Lucía 20% and Pieter 40%. Lucía also lives in Spain. The company provides consultancy services from an office with three employees, but over the years it has built up a share portfolio, a deposit and a rented flat. In 2025 it paid no dividend at all. Andrés assumes that if he receives nothing, he has nothing to declare on his Spanish return. Under article 91 of the Spanish Personal Income Tax Act (Law 35/2006), that assumption may be wrong.

Spain's international tax transparency regime, its version of controlled foreign company (CFC) rules, makes a resident pay income tax on income earned by a foreign company that he and his family control, even if that income stays inside the company. It does not penalise owning a business abroad: it targets companies that pay little tax where they are and, above all, hold passive income.

The two conditions that trigger attribution

Article 91(1) requires two circumstances at the same time. The first is control: the taxpayer, alone or together with related entities or with other Spanish taxpayers linked by kinship (including the spouse, in the direct or collateral line, by blood or by marriage, up to the second degree), must hold 50% or more of the capital, equity, profits or voting rights of the entity on the closing date of its financial year. The second is low taxation: the tax paid by the entity on the income concerned, under a tax identical or similar to Spanish corporation tax, must be less than 75% of what Spanish corporation tax rules would have required.

Requirement	What the law says	In Andrés's case
Control	50% or more, adding related entities and relatives who are Spanish taxpayers up to the second degree, at the entity's year end	His 40% plus 20% held by his sister, also resident = 60%
Low taxation	Tax paid abroad on that income is below 75% of what would be due in Spain	Checked with the figures in the example
Income caught	Total income if there are no resources; if there are, only certain income, mostly passive	It has an office and staff: only the income in section 3

The unrelated partner does not count. Pieter is not a relative, so his 40% is ignored for the threshold; a cousin, being a fourth-degree relative, would not count either. Lucía counts because she is also a Spanish income taxpayer: if she lived in another country, her 20% would drop out of the sum and Andrés, with 40%, would fail the first test.

Total income, or only passive income

The article separates two situations, and the first takes priority. If the entity lacks the appropriate organisation of material and human resources to earn its income, the total income is attributed: its tax base computed under Spanish corporation tax rules. This is the letterbox company: an address, a nominee director and a bank account. That full attribution does not apply if the taxpayer shows that the operations are carried out with the resources of another non-resident entity in the same group, or that the company's formation and operation respond to valid economic reasons.

If the entity does have resources, only the positive income from the sources listed in section 3 is attributed. The most common ones in family wealth structures are:

• Ownership of real estate or rights over it, unless used in a business activity.
• Holdings in the equity of other entities and lending capital to third parties: dividends and interest, with exceptions for assets tied to business activities.
• Capitalisation and insurance operations where the entity itself is the beneficiary.
• Industrial and intellectual property, technical assistance, movable property and image rights, as defined in article 25(4) of the Act.
• Gains on disposing of the assets above, and derivatives that do not hedge a business risk.
• Services, credit or insurance provided to related persons resident in Spain that give them deductible expenses, unless at least two thirds of that income comes from unrelated parties.

There is a floor. Section 3 income is not attributed if it adds up to less than 15% of the total income of the entity, with one exception: income from services to related parties in Spain is always attributed.

Andrés's case, figure by figure

The company's year ends on 31 December. Recomputed under Spanish corporation tax rules, its 2025 tax base is €250,000: €150,000 from consultancy, €60,000 of dividends from the portfolio, €25,000 of deposit interest and €15,000 of rent from the flat. We assume none of that income would be exempt under Spanish corporation tax, and that the tax paid abroad, €6,000 on the passive income, is certified by the company's adviser in its own country.

1. Control. 40% + 20% = 60%, above 50%. Met.
2. Which income. The company has an office and staff, so total income is not attributed, only section 3 income: 60,000 + 25,000 + 15,000 = €100,000.
3. The 15% floor. 100,000 / 250,000 = 40%, above 15%. No escape there.
4. Tax comparison. At the general Spanish corporation tax rate of 25%, that income would have paid €25,000 in Spain. 75% of that is €18,750. The company paid €6,000, less than 18,750. Met.
5. Andrés's share. Attribution follows the share in profits: 40% of 100,000 = €40,000.
6. Tax paid abroad. The law excludes from the attributed amount the tax actually paid by the company on that income: 40% of 6,000 = €2,400. That leaves 40,000 − 2,400 = €37,600.
7. Where and when. The €37,600 goes into the general tax base, not the savings base, in the tax year that includes the company's year-end date: the 2025 return, filed in spring 2026. If the company keeps its books in another currency, the exchange rate at its year end is used.

Lucía does the same with her 20%: 20,000 − 1,200 = €18,800. Pieter, who is outside the control group and not a Spanish taxpayer, attributes nothing.

Step 7 is the painful one: dividends and interest received directly would go into the savings base; attributed this way, they bear the full progressive general scale.

When the real dividend arrives

Suppose that in 2026 the company distributes and Andrés receives €30,000 out of those 2025 profits. It is not taxed again: section 8 excludes dividends from the tax base to the extent they relate to income already attributed, and the same income can only be attributed once. If the company's country withholds tax on that dividend, the withholding can be credited against the Spanish tax due, for the part relating to income previously attributed, even in a different year, and capped at the Spanish tax that income bore. No credit is allowed for tax paid in a non-cooperative jurisdiction.

On a sale of the holding, income already attributed is also taken into account so it is not taxed twice. That is why the detail of each year's attribution is worth keeping.

What must be filed with the return

A taxpayer who attributes income under this regime must file, together with the income tax return, certain data on the company: its name and registered office, the list of directors and their tax addresses, the balance sheet, profit and loss account and notes, the amount of income attributed and evidence of the tax paid on it. If the accounts are approved in summer, they need to be requested earlier from the director or the adviser abroad.

The holding in the foreign company must also be reported in the securities block of Modelo 720 if its thresholds are exceeded; see the three blocks of Modelo 720 and our Modelo 720 page.

The way out for companies in the European Union

Section 14 excludes from the regime an entity resident in another European Union or European Economic Area state, provided the taxpayer proves that it carries on business activities (or that it is a harmonised collective investment undertaking set up and domiciled in the Union). It is not an automatic exemption based on the registered office: an Irish or Luxembourg company that merely holds a portfolio and carries on no business can still fall within article 91. And the burden of proving the activity lies with the shareholder resident in Spain, not with the tax authority.

The "valid economic reasons" often associated with this exemption appear elsewhere in article 91: as a way out of attributing total income under section 2. In practice both tests are won with facts: contracts, employees, clients, premises, decisions taken there.

If the company is a US LLC, the prior question is how Spain classifies it: depending on how it is set up, it may be treated as a pass-through entity whose income is allocated to its members rather than a company, and then the analysis is different.

Questions to ask before your next return

• Which other relatives resident in Spain hold shares? The threshold is added up across relatives to the second degree.
• Does the company have real material and human resources, or just an address?
• What share of its total income is passive, and does it exceed 15%?
• How much tax did it pay on that income, and how can it be proved? The foreign figure is confirmed by its adviser in that country: we do not give opinions on foreign law.
• If there is any doubt about the shareholder's own residence, that comes first: see the guide on dual residence conflicts.

Anyone who has let years pass without attributing can regularise before receiving a formal request, with a surcharge and without a penalty, and it often makes sense to do so together with Modelo 720 if that was also missing.

Having your structure reviewed

With each shareholder's percentage, the company's accounts and the tax it paid, we can check whether the article 91 requirements are met, calculate the income to attribute and see whether any of the statutory exits applies. The starting point is the international freelancers and business owners form. We flag every risk we see, but what the Spanish tax agency decides in an audit is not in our hands and we do not guarantee the outcome.

It often goes hand in hand with the exit tax when you leave Spain, the exemption for work done abroad, relief for tax already paid abroad and how Spain looks at a trust.