In recent years, there has been growing interest among entrepreneurs, professionals, and businesses in Spain in establishing an LLC (Limited Liability Company) in the United States. This interest is often based on appealing but incomplete information, frequently spread by offshore company formation specialists, social media, or acquaintances who claim to be “saving a lot on taxes.”
At Lullius Partners, a leading tax advisory firm specializing in private wealth and international taxation, we frequently analyze whether structuring a business through a U.S. LLC is truly advantageous for Spanish tax residents.
It is important to clarify that setting up an LLC from Spain is entirely legal and, in certain cases, may offer global tax advantages. However, in my experience, these cases are quite limited.
Most taxpayers with whom we have analyzed this option find that an LLC is not suitable in terms of risk vs. savings and ends up being fiscally inefficient.
In this brief commentary we will outline some key tax considerations that should be carefully evaluated.
Case Study: LLC without real presence in the U.S. – A paradigmatic example
A common scenario involves a tax resident in Spain who plans to establish an LLC in the U.S. without having any material or human resources in that country while exercising effective management from Spain. In such cases, the LLC is not taxed in the U.S., but it is subject to taxation in Spain under the tax attribution regime. However, the analysis should not be limited to the tax jurisdiction of origin alone.
Spanish tax regulations stipulate that these entities must be taxed under the Personal Income Tax (IRPF) regime as pass-through entities. This means that the LLC’s profits are directly attributed to the Spanish tax resident shareholder, integrating into the general taxable base of the IRPF (with rates that, as we well know, can exceed 50%)—similar to how income is attributed in a partnership or an economic interest group.
Administrative criteria of the Spanish Tax Authority (Dirección General de Tributos)
The Spanish Tax Authority has established three fundamental criteria to classify a foreign entity as a pass-through entity:
- The entity is not considered a taxpayer in the country where it was incorporated. In the case of a U.S. LLC, this criterion is met since the Internal Revenue Code (IRC) treats it as a fiscally transparent entity.
- Income is fiscally attributed to the members or partners according to the laws of the country of incorporation. In an LLC, profits are directly allocated to members based on their ownership percentage.
- The income obtained by the entity and the income attributed to its members retain the same nature as their original activity or source. This means that if the LLC generates business income or capital gains, those earnings maintain their original nature when attributed to the members.
Based on these criteria, it is clear that a U.S. LLC without real presence in the country does not pay taxes in the U.S. on its profits but is fully taxable in Spain under the tax attribution regime. In other words, Spanish tax residents must declare the LLC’s profits in their IRPF according to their ownership share, regardless of whether those profits have been distributed.
Conclusion: An LLC is not the right vehicle for most taxpayers in Spain seeking tax optimization
Despite the widespread information and advice promoting U.S. LLCs as an attractive tax solution, the reality is that for most Spanish tax residents, these structures tend to be ineffective. Not only do they fail to achieve the expected tax optimization, but they can also result in a higher tax burden than that of a properly structured entity in Spain.
Of course, there are exceptions that require a more detailed analysis, as mentioned at the beginning of this commentary:
- Sufficient business structure that allows the LLC to establish material and human resources in the U.S. (thus avoiding pass-through taxation).
- Combining an LLC with tax residency in a third country that enables the optimization of LLC profits (e.g., dividends, tax exemption due to territorial taxation regimes).
- Opacity considerations, FATCA vs. CRS (international financial information exchange regimes).
- Legal security of the assets allocated to the LLC.
If you are considering setting up an LLC in the U.S. as a Spanish tax resident or are a U.S. expat relocating to Spain, particularly under the Beckham Law regime, it is crucial to conduct a comprehensive tax analysis before making any decisions. The tax implications of an LLC can vary significantly depending on your residency status, applicable tax treaties, and Spain’s attribution regime.
At Lullius Partners, we specialize in international tax advisory for high-net-worth individuals, entrepreneurs, and expatriates. Whether you are a Spanish resident exploring U.S. corporate structures or a U.S. expat navigating Spanish taxation, we ensure that your business and personal wealth are structured efficiently, fully compliant, and aligned with your long-term financial and legal strategy.
Contact us to receive expert guidance on optimizing your tax position and making the most of Spain’s tax regimes for expatriates, including the Beckham Law.
