The fact that an employee of a foreign company works in Barcelona, visits clients, and negotiates commercial terms does not automatically mean that a permanent establishment exists. However, simply reserving the formal signing of the contract for the foreign headquarters is not enough to eliminate the risk. A permanent establishment by a dependent agent in Spain can arise when the activity carried out locally falls within the scope of applicable domestic regulations or the applicable double taxation treaty.
At MGI Àmbit we specialize in analyzing the permanent establishments of foreign companies with sales staff in Spain. We review the employee's actual duties, their authority, how contracts are approved, the applicable tax treaty, and whether their operations may generate tax obligations in Spain.
Key summary: establishment by a dependent agent in Spain does not depend solely on who signs the contract. Spanish domestic law still considers the existence of an agent authorized to contract who habitually exercises those powers, while certain agreements, when amended or with broader wording, may extend to the person who habitually plays the principal role leading to contracts entered into without substantial modifications by the company.
Can a permanent establishment exist if the employee does not sign contracts?
Yes, it can exist, but not in all cases. The answer requires reviewing two levels: Spanish regulations and the double taxation treaty applicable to the country where the foreign company is based.
Does your company have employees who negotiate with clients in Spain without signing contracts? Determining whether a permanent establishment exists can make a significant difference to your tax bill. Contact us for a free consultation and avoid surprises with the tax authorities.
What does Spanish internal legislation say?
Article 13 of the Consolidated Text of the Non-Resident Income Tax Law considers that an entity operates through a permanent establishment when it has facilities or places of work in Spain, on a continuous or habitual basis, where it carries out all or part of its activity, or when it acts through an agent authorized to contract in the name and on behalf of the taxpayer who habitually exercises such powers.
“Furthermore, it should be noted that this concept of “authorized agent” can encompass broader situations than those that would arise from the application of a Double Taxation Convention, which normally refers to the figure of the “dependent agent”
What can change the double taxation agreement?
If there is an agreement between Spain and the State of residence of the company, you have to read its article 5 and check if it has been modified by the OECD Multilateral Instrument or by a bilateral protocol.
Some conventions maintain the classic formulation based on the habitual capacity to conclude contracts. Others incorporate the post-BEPS standard, which may encompass a person who habitually plays the principal role leading to the conclusion of contracts that the foreign company routinely enters into without material modification.
The OECD Model does not, by itself, modify all conventions
This point is fundamental. The OECD Model Convention and its Commentaries are an extremely important interpretative reference, but they do not automatically replace the specific text of the applicable convention.
The Multilateral Instrument can modify certain agreements when the conditions are met and the positions of both States coincide. Therefore, it cannot be generally stated that the "principal role" rule applies to all foreign companies operating in Spain.
What does “principal role” mean in the conclusion of contracts
When the applicable convention contains the extended standard, the analysis focuses not on the formal signature but on the actual business activity.
Negotiate virtually all the essential elements
There is a greater risk when the employee determines or negotiates price, scope of service, quantities, discounts, payment terms, duration or essential commercial conditions and the foreign headquarters subsequently limits itself to formalizing the agreement.
Contracts routinely approved without material changes
If the foreign headquarters formally has the final say but, in practice, systematically accepts what has been negotiated in Spain, the lack of a local signature loses strength as a defensive argument when the agreement contains the main paper rule.
Commercial acquisition versus decisive negotiation
Locating potential clients, presenting products, or arranging meetings is not the same as negotiating the conditions that ultimately define the transaction.
A purely promotional or lead generation activity presents a different profile from a sales function in which the employee leads the customer to a practically closed agreement.
Regularity of the activity
A single action does not carry the same weight as a stable and recurring role. The frequency of negotiations, the number of clients served, and the continuity of the sales role are all relevant factors.
Therefore, the permanent establishment by dependent agent in Spain requires studying the continuous operation and not just a specific contract.
Employee, dependent agent, and independent agent are not the same thing
The employee usually acts as part of the organization
An employee hired by a foreign company typically operates within its structure, following its instructions and without assuming any personal business risk. This makes it essential to carefully review their business capabilities.
When can an agent be independent?
An agent who carries out his own business activity and acts in the ordinary course of that activity may fall outside the dependent agent rule, according to the applicable convention.
Independence is not determined solely by the name of the contract. Autonomy, risks, instructions, client portfolio, and ties to the foreign company must be analyzed.
In the absence of a Double Taxation Agreement, situations of independence could also be included within the scope of the Permanent Establishment.
Working almost exclusively for affiliated companies increases the risk
Post-BEPS regulations limit the consideration of an independent agent when the person acts exclusively or almost exclusively for companies with which they are closely linked, provided that this rule has been incorporated into the applicable agreement.
Warning signs in a sales team located in Spain
There are situations that justify immediately reviewing the risk of permanent establishment by a dependent agent in Spain.
The employee decides prices or discounts
If you have commercial margins within which you can effectively close the terms with the client, your role can be substantial even if the signing takes place outside of Spain.
The foreign headquarters approves almost everything automatically
An internal approval procedure has little defensive value if there is never a real review or if the modifications from the parent company are merely formal.
The CRM identifies the employee as responsible for the closing
Internal sales systems, emails, business reports, and approval documents can reveal the employee's actual role better than the employment contract.
The employee is the customer's only point of contact
If the entire relationship, from the first meeting to the final negotiation, is developed from Spain, the analysis must be especially careful.
There is a sales target directly linked to closing contracts
Variable remuneration does not in itself create a permanent establishment, but it can be a relevant indicator when it confirms that the local function materially consists of securing contracts.
The existence of an office, coworking space, or home address can generate a different risk
The figure of the dependent agent is not the only way in which a permanent establishment can arise.
Fixed place of business
A permanent establishment may exist when the company has a sufficiently stable location in Spain from which it carries out all or part of its business.
A coworking space does not automatically generate EP (Early Percentages)
It is necessary to analyze whether there is a specific space available to the company, its degree of permanence, and the activity carried out from there.
Working remotely from the employee's home
The mere fact that an employee works from their home in Spain does not automatically create a permanent establishment.
The 2025 update of the OECD Model Tax Convention has incorporated new criteria for determining the existence of a Permanent Establishment in cross-border teleworking situations. This reform places particular emphasis on both the continuity of this work performed from the employee's home and the potential commercial interest of the employing company.
An employee can generate risk in more than one way
It may happen that the same situation must be analyzed simultaneously from the perspective of the fixed place of business and from the perspective of the dependent agent.
Auxiliary activities should not be analyzed automatically
Marketing and prospecting can be helpful in some models
Certain promotional, information gathering or commercial support activities may be preparatory or auxiliary depending on the agreement and the specific business model.
The line between a business presence and a permanent establishment is thinner than it seems. Our international tax experts analyze your company's actual situation and offer you a clear and secure roadmap.
The importance of the role within the business
The same activity can be auxiliary for one company and essential for another. If the commercial function carried out in Spain forms a substantial part of the business's value creation, it becomes more difficult to argue that it is merely a preparatory activity.
Anti-fragmentation rules
Some agreements modified by the Multilateral Instrument contain rules aimed at preventing an integrated business activity from being artificially divided among several persons or locations to present each part as an auxiliary.
Again, it must be verified that the relevant rule is effective in the specific convention.
What happens if the tax authorities consider that a permanent establishment exists?
The existence of a permanent establishment by a dependent agent in Spain may require the tax reconstruction of the activity carried out in Spanish territory.
Taxation of income attributable to the establishment
The permanent establishment is taxed in Spain on the income attributable to it. The taxable base is determined, with some specific provisions, following the rules of Corporate Income Tax.
The type should not be assumed without reviewing the case
The Non-Resident Income Tax Law refers to the applicable rate according to the Corporate Income Tax regulations. The general corporate tax rate is 25%, but the specific rate must be determined based on current regulations and the taxpayer's circumstances.
Additional taxation may exist in certain cases
Spanish law, with some exceptions, provides for additional taxation on certain income transferred abroad by permanent establishments. The applicable tax treaty and the company's tax residence may affect the outcome.
Adjustments to previous years
If the tax authorities conclude that the establishment existed previously, they can review the non-prescribed periods and demand the corresponding fees, late payment interest and, when the legal requirements are met, penalties.
VAT, withholdings and other obligations
The existence of a permanent establishment for direct tax purposes does not automatically lead to the same result for VAT purposes. VAT rules have their own criteria and must be analyzed separately.
Accounting, census, withholding and information obligations may also arise depending on the activity.
How are profits attributed to a permanent establishment?
Not all Spanish profit is automatically allocated to the EP
Once its existence has been determined, it is necessary to identify which functions, assets and risks actually correspond to the activity carried out in Spain.
Functional analysis
Attributing profit requires studying what work the Spanish team performs, what decisions it makes, what risks it manages, and how it contributes to generating income.
Relationship with transfer pricing
When there are subsidiaries, agents or related companies in Spain, the analysis of the permanent establishment can interact with the rules of related-party transactions and with the remuneration already recognized to the local entities.
MGI Àmbit: specialists in permanent establishments and international taxation
At MGI Àmbit we specialize in permanent establishments of foreign groups operating in Spain with employees, agents, subsidiaries, warehouses, or commercial structures. From our Barcelona office, we combine analysis of double taxation treaties, Spanish regulations, and the company's actual business activity to determine whether a permanent establishment exists in Spain through a dependent agent and what measures should be taken.
We also analyze the attribution of income and expenses, related-party transactions, opening of subsidiaries or branches, and defending the company's position in the event of a tax audit.
Conclusion
Reserving the signing of contracts to the foreign headquarters no longer allows one to assume that tax risk is controlled. But it is also incorrect to claim that any employee who negotiates with clients automatically creates a permanent establishment in Spain through a dependent agent.
The answer depends on internal regulations, the applicable double taxation agreement, whether that agreement incorporates the principal role rule, and, above all, the functions that the employee actually performs.
If staff located in Spain are increasingly involved in pricing, terms and closing deals, reviewing the structure before an inspection allows for correcting inconsistencies, properly documenting operations and deciding whether the current model remains fiscally sustainable.
Frequently asked questions about business employees and permanent establishment
Can an employee create a permanent establishment even if they don't sign a contract?
This can occur when the applicable convention contains a rule that applies to the party who habitually plays the principal role in leading to contracts concluded without substantial modifications. In other conventions, the wording may be more traditional. It is always necessary to review the specific treaty.
Don't let tax uncertainty hinder your expansion in Spain. At MGI Àmbit we help you structure your commercial presence efficiently and in compliance with current regulations, from day one.
Is it enough to state in the employment contract that the employee cannot close transactions?
No. That limitation is relevant, but the tax authorities and the courts can analyze the actual activity. If the employee effectively negotiates all the essential elements and the headquarters merely formalizes what has been agreed upon, the risk may remain.
Does an employee who only does marketing create a permanent establishment?
Not necessarily. It's necessary to analyze whether their duties are truly preparatory or auxiliary within the business and what the applicable collective bargaining agreement stipulates. The job title alone doesn't resolve the issue.
Does working remotely from Barcelona automatically create a permanent establishment?
No. Working from home must be analyzed according to the specific circumstances, including continuity, the availability of the location for the company, and the reasons for working remotely. The OECD's 2025 guidance has expanded on this analysis for cross-border work.
What should a foreign company check before hiring sales representatives in Spain?
The double taxation agreement, the team's actual functions, their negotiating powers, the contract approval process, the use of offices or addresses, and how sales are documented. With this information, a preventive risk analysis can be performed.
Do you have any questions about this topic?
Our team of expert advisors will help you resolve any issues related to our services.
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A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.
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