UK Companies in Spain After Brexit: SL Setup, Treaty Rates and Permanent Establishment Risk

Before January 2021, a UK company could sell services to clients across the EU under a single legal framework, invoice in any EU currency within a unified VAT system, passport financial services into EU member states, and operate through a branch or subsidiary with legal recognition across all 27 member states.

That framework ended with Brexit.

A UK company operating in Europe today is a third-country entity. It does not benefit from EU single market freedoms, cannot rely on EU-wide licensing or passporting, and must navigate the regulatory requirements of each member state individually. For businesses with European clients, European suppliers or European ambitions, the practical consequence is that a UK company alone is no longer a sufficient operational vehicle for the European market.

The response, for most British businesses that have continued to grow their European exposure, has been the same: establish an EU legal entity. The question is where.

The UK–Spain Double Taxation Agreement remains fully in force post-Brexit. Brexit changed the UK's relationship with EU law and the single market — it did not affect the bilateral tax treaty, which is a separate instrument between the two governments.
The treaty rates for payments between UK and Spanish entities are exceptional:

The zero withholding on interest and royalties is the headline. Under the treaty, royalties paid from a Spanish subsidiary to a UK parent — for IP licensing, software, patents, trademarks or know-how — are not subject to Spanish withholding tax. Interest on intercompany loans between a UK parent and Spanish subsidiary is similarly exempt from withholding. These are not reduced rates: they are full exemptions.

For the dividend flow, a UK company owning 10% or more of the capital of a Spanish SL pays zero Spanish withholding on dividends — the most common corporate structure for British businesses establishing a Spanish subsidiary. The general 10% rate applies only where the corporate ownership threshold is not met.

This treaty framework means that a UK company and its Spanish SL can move income between the two entities — through service fees, IP licensing, intercompany loans and dividends — with no Spanish withholding layer on any of those flows for a qualifying corporate structure. In terms of bilateral treaty efficiency, this is among the best available to a UK-based business entering any EU jurisdiction.

For a UK company with European clients, the Spanish SL solves the structural problem Brexit created. The Spanish entity is an EU-registered company, can invoice EU clients under an EU VAT number, operates within the SEPA payment system, holds an EU-issued NIF that is recognised across all member states, and can register in the ROI for zero-VAT intra-EU trade.

The Spanish SL is not merely a compliance workaround. For UK businesses with Spanish-speaking clients — whether in Spain itself or across Latin America — Spain is the natural operational base. For UK businesses whose European clients are concentrated in Southern Europe, the Iberian market provides the right combination of size, regulatory familiarity and bilateral connectivity.

The SL structure is also straightforward for British founders to operate. The English-language professional ecosystem in Madrid and Barcelona is developed. Accounting and legal services for internationally-owned companies are widely available. The Spanish legal system, while civil law rather than common law, is well-documented in English, and the basic corporate framework — governance, director obligations, shareholder rights — is familiar in substance if not in precise form.

Permanent establishment — PE — is the tax concept that determines when a UK company's activity in Spain becomes taxable in Spain, even without a formal Spanish legal entity. A UK company that creates a PE in Spain is subject to Spanish corporate income tax on the profits attributable to the Spanish activity, regardless of whether it has incorporated a Spanish company.

For UK-owned Spanish companies, the banking process is among the more manageable of any non-EU founder profile. UK source of funds documentation is well-understood and accepted by Spanish banks. UK banking records, company accounts and HMRC filings are recognised as reliable evidence of financial history. There are no FATF complications and no elevated country-risk signals.

The specific consideration for UK-owned companies is the post-Brexit regulatory gap in financial services. UK companies that previously held EU financial services licences or operated under EU passporting can no longer rely on those arrangements for their Spanish operations. A UK-regulated financial services business establishing a Spanish entity needs to assess whether its activities in Spain require a Spanish regulatory license — and the answer depends on the specific activities being conducted, not on the UK regulatory status.

For non-financial businesses — consulting, technology, professional services, trading, digital — no Spanish regulatory license is required, and the banking process follows the standard framework: KYC documentation, source of funds, business model clarity and UBO declaration.

In May 2025, the UK and EU concluded a broad bilateral reset agreement — the most significant development in UK-EU relations since Brexit itself — which included enhanced provisions on mutual recognition, regulatory cooperation and trade facilitation across multiple sectors. Spain, as one of the UK's largest EU bilateral relationships, is a direct beneficiary of this reset.

The Spanish Chamber of Commerce in the UK described the reset as opening a new chapter for UK-Spain commercial relationships. While the reset does not restore single market membership or passporting rights, it removes friction in several specific areas — including data adequacy, professional qualifications recognition and certain regulatory alignment provisions — that directly affect how UK businesses operate through Spanish entities.

For UK founders evaluating whether to establish a Spanish presence, the political and commercial context in 2025 is more favourable than it has been at any point since January 2021. The bilateral relationship is actively strengthening, the investment flows are at record levels, and the treaty framework remains fully operational.

The first is structural: whether the Spanish SL is a wholly-owned subsidiary of the UK parent, a joint venture, or a standalone entity. The 0% dividend withholding under the treaty applies to a UK company holding 10% or more of the Spanish SL's capital — which covers most subsidiary structures — but the specific ownership arrangement affects how intercompany flows are treated and documented.

The second is PE mapping: identifying whether any current activity in Spain — through employees, agents, projects or regular commercial presence — already creates PE exposure, and either resolving it or formalising it through the Spanish entity.

The third is treaty documentation: ensuring that the UK parent obtains a valid certificate of tax residence from HMRC to present to the Spanish tax authority when claiming treaty-reduced or treaty-exempt rates on cross-border payments. Without this certificate, Spanish withholding at domestic rates may apply regardless of the treaty entitlement.

The fourth is banking: preparing the full KYC file with the UK parent's corporate documents, the Spanish SL's registration and a clear narrative of the intercompany relationship and expected transaction flows.

Getting these four decisions right before incorporation — rather than addressing them sequentially after problems arise — is what defines a UK-Spain structure that works operationally from day one.