Obligations of the Spanish company co-founders

In the previous legal post, we talked about who can be an administrator in your Spanish company, and what are the options in the case when the company starts doing business. 

There are other nuances of owning a company in Spain.

Namely – the concept of a Controlled Foreign Company (CFC), in which part of the shares are owned by tax residents of another country.

This tax structure was introduced to prevent tax evasion.

Of course, there is nothing criminal in the ownership of a foreign company, but the governments of many countries are obliged to inform about it and, accordingly, pay taxes.

For example in the Russian Federation, a CFC is a company in which a tax resident of the Russian Federation owns a share of more than 25% or more than 10% in the event that the share of participation of all persons recognized as tax residents of the Russian Federation in this organization is more than 50%.

The profit of a CFC is exempt from taxation on the territory of the Russian Federation if the CFC is a resident of a country with which the Russian Federation has concluded an agreement on avoidance of double taxation (as, for example, with Spain), and also if the CFC is a non-profit organization, or is established in an EAEU member state and some other criteria.

Obligations:

Tax residents of the Russian Federation, owners of CFCs are required to provide a number of notifications to the tax authorities:

– CFC notification.  The first time is provided since the opening of the company.

– Notification on participation in foreign organizations / on the establishment of foreign structures without forming a legal entity

In addition, foreign companies with real estate outside the Russian Federation must report on their members (respectively, the structure – on the founders, beneficiaries, managers).

Failure to provide this information will result in a fine in the amount of 100% of the property tax calculated in respect of the immovable property belonging to this foreign organization.

A CFC must be notified regardless of whether its profits are subject to taxation in the Russian Federation.