Ukrainian entrepreneurs and sole proprietors (FOP) doing business in Spain have legal grounds to avoid double taxation. The key is to use effective tools for sound tax planning.
LFT Advisors is happy to explain the available reliefs and credits under the international treaties between Ukraine and Spain. This way you can create solid conditions for establishing and running a business abroad, in particular in line with Spanish legal rules.
What is double taxation?
Paying tax on income or property in two different jurisdictions, by the same entrepreneur or sole proprietor, is what double taxation means. In our case we are dealing with a business run by Ukrainian citizens in Spain. By paying taxes twice — while still having the option to avoid the double financial burden — entrepreneurs and sole proprietors risk seeing lower profitability and new administrative difficulties.
Despite the existing Double Taxation Treaty (the 1985 convention) between Ukraine and Spain, there are a number of nuances worth attention. For example, Hacienda (the Spanish tax authority) may treat business income earned by a Ukrainian sole proprietor as personal income.
What is the point of a double taxation treaty, then, if a sole proprietor remains unprotected? Let us look at this risk for Ukrainian sole proprietors in more detail as a case study:
- Spain treats the Ukrainian sole proprietor (FOP) model as a separate legal entity.
- At the same time, Spanish law requires the declaration of all worldwide income.
- Picture a Ukrainian citizen with an active sole proprietorship who does not go into the nuances of the convention and believes they are protected from double taxation in Spain.
- The Spanish tax authority, meanwhile, issues a demand for personal income tax (IRPF), where the progressive scale can range from 19% to 47%.
- Hacienda is confident that the Ukrainian sole proprietor model equals an Autónomo (the Spanish equivalent of a sole proprietor), so it will also require the Ukrainian citizen to pay local social security contributions.
It should be noted that a Ukrainian entrepreneur is more exposed to double taxation if they hold Spanish tax residency. Why? Let us look at the difference in taxation between residents of Ukraine and Spain.
Tax residency — why it matters for calculating taxes for Ukrainian entrepreneurs and sole proprietors in Spain
Residency in Spain matters a great deal when it comes to business taxes.
Tax residency in Spain. The main criteria are presence for more than 183 days during the calendar year, or the concentration of the person's main economic interests in Spain. Family ties can also affect the determination of status. As a rule, residents declare income from all countries.
Tax residency in Ukraine. Being present in Spain for fewer than 183 days does not by itself confirm Ukrainian residency. If a person remains a Ukrainian resident, their income from Spanish sources may be taxed in Spain. The statement that taxes are paid exclusively in Ukraine is therefore incorrect.
Double taxation does not arise automatically: the type of income and the provisions of the international tax treaty are taken into account.
Three effective ways to avoid double taxation in Spain
- Obtaining a Ukrainian tax residency certificate. Apply to the State Tax Service of Ukraine for the official document. The STS issues confirmation that you have paid taxes as a Ukrainian resident within 10 days. You can provide this certificate to the Spanish tax authority as proof that your business is taxed under Ukrainian law.
- Obtaining a certificate of taxes paid for applying the convention. The official document must be translated and submitted with an apostille to the Spanish tax authority in order to remove any tax claims. Relying on the treaty between Ukraine and Spain, you can expect Hacienda to recalculate and approve the additional amount due in line with the international convention between the two countries.
- Using a business legalisation route in Spain. Long-term residence and business activity in Spain require a constructive approach to the double taxation issue. Special visa programmes exist for such cases (for example, the Digital Nomad visa, popular with freelancers and people in digital business).
It is important to note that exceptions in taxation always exist, where income earned abroad is exempt from tax. Or where a tax credit applies, allowing Spanish residents to offset taxes paid at home (in Ukraine) and thereby reduce the tax burden.
It is important to declare your income correctly in order to avoid additional charges, and to keep track of legislative changes. Then the mechanisms for avoiding double taxation in Spain will work clearly, reducing the financial burden on your business.
However, the best advice for Ukrainian entrepreneurs and sole proprietors is to seek qualified help, or at least professional advice, from specialists. The LFT Advisors team is happy to help you delve into the finer points of the internal mechanisms and optimise the tax burden for your business.
