Dual tax residence: Estonia vs Spain
An entrepreneur has established an Estonian OÜ to provide digital marketing services. The company is legally incorporated in Estonia, but the founder has been living in Spain for the last three years. All business decisions, client interactions, and financial transactions are conducted from Spain. The founder believes that Estonian corporate tax regulations solely apply, assuming that not having a physical presence in Spain exempts them from Spanish tax obligations.
Input Data
- Company type: Estonian private limited company (OÜ)
- Country of incorporation: Estonia
- Management location: Resides and operates from Spain
Jurisdiction Conflict
Country of registration — The company is formally registered in Estonia and complies with Estonian legal requirements for incorporation and e-Residency filings.
Country of effective activity — The real business operations, including strategic decision-making and client management, are conducted from Spain, where the founder resides.
Conflict — The divergence between the registered location and the actual management activities creates a risk of the company being deemed to have a permanent establishment in Spain, potentially subjecting it to Spanish corporate taxation. This conflict arises from the interpretation of the place of effective management under international tax principles.
AI Analysis
Scenario A — Estonian Taxation Only
- Estonian tax authorities view the company as solely subject to Estonian corporate tax due to its registration.
- The company benefits from Estonia's favorable tax regime.
- Risk: Potential challenge from Spanish authorities if they assess management activities occur in Spain.
Scenario B — Spanish Permanent Establishment
- Spanish tax authorities determine the company has a permanent establishment in Spain due to management activities.
- The company becomes liable for Spanish corporate taxes and potential penalties.
- Risk: Double taxation if the Estonian-Spain tax treaty is not properly applied.
Scenario C — Dual Taxation Resolution
- Application of the Estonia-Spain tax treaty resolves dual taxation issues.
- The company pays taxes in the country of effective management, with credits for taxes paid in the other jurisdiction.
- Risk: Complexity in proving the center of vital interests and aligning treaty applications.
Key risk indicators
- Frequent travel and prolonged stay in Spain by the founder
- All client interactions and invoicing managed from Spain
Output of Richys AI Analysis
- AI assesses a high exposure to Spanish tax claims due to management activities.
- AI matches the facts with typical indicators of a permanent establishment.
- AI highlights the necessity for expert escalation to navigate cross-border tax complexities.
Expert Boundary
Involvement of a verified EU expert is required for:
- country-specific interpretation of the center of vital interests
- application of the Estonia–Spain tax treaty to concrete facts
- selection of a defensible filing position
- preparation for potential tax authority inquiries
Case Conclusion
Spanish tax authorities may observe management and control activities from Spain. The assumption that no physical office in Spain exempts the company from Spanish taxes is exposed as false. The mismatch between legal registration in Estonia and effective management in Spain is identified. Risk becomes material if Spanish authorities assert taxing rights based on effective management.
Start case analysisThis case is for illustration purposes only. Real outcomes depend on residence, income structure, documents and timing. For your specific situation, use structured case analysis with AI and verified EU experts.
Sophie Bizelle
AI assistant – Business Setup