Bookkeeping for US LLC Owners Living in Spain

The reasoning is understandable. The company is American, the bank account is American, the clients are American. So the income must be American. Spanish law starts from somewhere else: where you live and where the work is done. A person who spends more than 183 days a year in Spain is taxed there on worldwide income, and services performed from a flat in Málaga are performed in Spain whoever sends the invoice.

There is no single Spanish rule for US LLCs. The tax authorities classify each one on its features, sometimes as a company and sometimes as an entity whose income belongs directly to its member. Around that question sit three others that an inspector will ask:

• Where is the company run from? If every decision is taken in Spain, the LLC may be treated as resident in Spain.
• Is the member paid at market value? Dealings between you and your own company must be priced as if you were strangers.
• What happened to the profit? Money left in the LLC while the member lives on undocumented transfers is the hardest position to defend.

The method we apply is deliberately conservative. You register as self-employed in Spain. Each month you invoice the LLC for 100 % of its result: what it took in, less its own running costs. Not a salary you consider reasonable, and not a percentage. All of it.

The consequence is that the whole income is taxed in Spain as your professional income, nothing is left in the LLC to argue about, and the classification question loses most of its practical weight.

Those invoices carry no Spanish VAT because the customer is a business established outside the European Union. They are still reported on the quarterly VAT return, and the income tax instalment is paid on the profit each quarter.

• Your monthly invoice to the LLC, generated from two figures you enter in your client area, or worked out by us from the LLC statement you upload.
• A monthly reconciliation sheet: LLC income, LLC expenses, result and invoice, month by month. It is the evidence that everything was invoiced.
• Forms 130 and 303 each quarter and form 390 in January, with a draft before each filing.
• Your statutory registers.
• A year-end pack your US preparer can use: profit and loss in euros, Spanish tax paid, and the twelve invoices.

We ask for more than a normal freelancer provides: the LLC formation documents, its bank statements, its own books and its US filings. Without them the monthly figure is a guess, and a guess is exactly what this method is designed to avoid.

What it does not do

It does not repair earlier years in which nothing was declared in Spain: those are studied separately. It does not replace your US preparer, since we do not file US returns. And no method guarantees the outcome of an audit. What this one does is leave you in the position that is simplest to explain.

• Formation documents: articles of organization, the operating agreement if there is one, and the EIN letter.
• How the LLC is treated for US tax: whether it is disregarded, or has elected to be taxed as a corporation. It changes the US side and it is relevant evidence in Spain.
• Bank and payment platform statements of the LLC, monthly.
• The LLC's own books, however simple: income by client, expenses by type.
• US filings: the returns and information forms filed for the LLC and for you in recent years.
• Contracts with the main clients, which show who contracts, who performs and where.

It is more than a local adviser would ask a freelancer for. The reason is simple: the Spanish invoice is calculated from the LLC's result, so the LLC's accounts are the supporting evidence for your own.

• A round monthly figure. "I pay myself 3,000" leaves profit inside the LLC and reopens every question the method was meant to close.
• Personal spending on the LLC card. Groceries and rent are not company costs. Mixed spending makes the monthly result unreliable and looks like undeclared income.
• Transfers with no invoice behind them. Money moving from the LLC to you should be the payment of an invoice, for the invoiced amount.
• Treating the LLC's bank balance as savings. If twelve invoices cover twelve results, there is no accumulated profit to leave there.
• Forgetting the other filings. An interest in a foreign company and its accounts can be reportable in Spain even when no tax is due on them.

Many people reach this page after two or three years in Spain during which the LLC collected the income and nothing was declared locally. The monthly service starts from today. The past is a separate piece of work, and it should be looked at before it is disturbed.

The usual route is a voluntary regularisation: filing the missing income tax returns for the years still open, with the surcharge for late filing, before the tax agency asks. It costs far less than an assessment with penalties, and it removes the risk that today's correct filings draw attention to yesterday's absent ones. How it is done, and for which years, depends on the facts. It is covered under voluntary disclosure.

The 100 % method fits a single person selling their own services through a company with no substance of its own. It needs rethinking when:

• The LLC has employees or contractors who produce the income. Then part of the profit is not the product of your personal work.
• The LLC sells products or software licences with their own margin, stock or intellectual property.
• There are other members, who are entitled to their share of the result.
• The LLC holds investments or real estate.

In those cases the questions of where the company is resident, whether it has a permanent establishment in Spain and how dealings with the member are priced need a proper opinion first. We will tell you at the outset if your case is one of them.