Payroll and VAT in Spain for Foreign Companies

Running Spanish payroll as a foreign company

Once your Spanish entity hires its first employee, whether that employee is Spanish, relocated from your home country, or a third-country national on a sponsored visa, a set of recurring obligations starts on day one. The company itself needs to be registered as an employer with Social Security (Tesoreria General de la Seguridad Social), a separate registration from the company’s own incorporation and tax ID. Each employee then needs a formal employment contract that matches the actual working arrangement, registered with Social Security before they start.

From there, payroll runs on a monthly cycle: the nomina itself, the payslip that documents gross pay, Social Security contributions, and IRPF withholding for that employee, has to be calculated and issued correctly every month, and the corresponding Social Security contributions paid on time. IRPF withholding rates depend on the employee’s personal circumstances (income level, family situation, and in some cases special regimes such as Beckham Law for qualifying relocating executives) rather than a single flat percentage, so getting the withholding table right per employee matters both for compliance and for the employee’s own year-end position.

None of this scales down for a small headcount. A foreign company hiring a single Spain-based employee takes on the same registration and monthly filing obligations, in kind, as one hiring twenty; only the processing volume differs. Founders who assume a first hire is simple because it is small are usually the ones who miss the first Social Security payment deadline.

Sistema RED, and who can actually file on your behalf

Sistema RED is the Social Security system’s electronic channel for filing contributions and employment movements, and in practice almost every Spanish employer files through an authorised third party rather than dealing with the TGSS directly. A reasonable assumption is that this authorisation is reserved to a specific regulated profession, a graduado social or a colegiado gestor administrativo. It is not: under Orden ESS/484/2013, eligibility to act as an authorised RED agent (autorizado RED) is an administrative criterion set by the TGSS itself, not a credential tied to a specific colegiado title.

In practical terms, this means a properly registered advisory firm, ours included, can act as your authorised Sistema RED agent, filing contributions and employment movements on your behalf as part of an ongoing payroll retainer rather than requiring you to maintain a separate direct relationship with the TGSS. This is one of the more useful, less-advertised facts in Spanish payroll administration, since a lot of foreign founders assume they need a narrowly credentialed specialist for every step of Spanish employment compliance when several of the recurring filing functions are genuinely open.

VAT for foreign companies operating in Spain

VAT registration in Spain becomes relevant the moment your company has a taxable presence, whether through a subsidiary, a branch, or activity that creates a Spanish VAT obligation even without a full entity. Once registered, VAT runs on a quarterly filing cycle (Modelo 303) with an annual summary return, and correctly handling input VAT recovery, output VAT charged, and any exempt or reverse-charge transactions is where most of the ongoing bookkeeping effort actually sits.

Cross-border e-commerce changes the calculation. A company selling goods or digital services to consumers across multiple EU member states does not necessarily need to register for VAT in each one separately. The EU’s One Stop Shop (OSS) scheme covers intra-EU distance sales and qualifying services to consumers, letting you report VAT for multiple member states through a single return; the Import One Stop Shop (IOSS) covers low-value goods imported from outside the EU and sold to EU consumers. Which scheme, or combination, fits depends on where your goods are held, who your customers are, and your sales volume by country, and getting this wrong either means paying VAT you did not need to register for separately, or under-declaring and creating exposure across several jurisdictions at once.

Reverse charge, and the basics that trip up new entrants

Reverse charge VAT shifts the reporting obligation from seller to buyer on qualifying cross-border B2B transactions: the seller does not charge Spanish VAT on the invoice, and the business customer self-assesses the VAT instead, typically declaring both the output and the corresponding input VAT on their own return. It commonly applies to intra-EU B2B services and certain goods movements, and it is one of the most common places we see foreign-owned companies get their invoicing wrong in the first year, either charging VAT that should have been reverse-charged, or failing to self-assess VAT they owed as the buyer.

Getting the invoice treatment right on both sides of a transaction, and keeping the documentation that supports why a given invoice was or was not reverse-charged, matters more than it might seem: it is a frequent focus in VAT audits precisely because it is a frequent source of genuine, unintentional error.

The compliance calendar: what actually comes due, and when

Spread across the year, a trading, hiring Spanish company is managing several recurring filings that run on different cycles. Building an entity-specific calendar, rather than relying on a generic checklist, is where a lot of the practical value of an ongoing retainer actually sits.

Obligation	Filing	Frequency
VAT return	Modelo 303	Quarterly
VAT annual summary	Modelo 390	Annual
Withholding on payroll and certain payments	Modelo 111	Quarterly
Withholding annual summary	Modelo 190	Annual
Corporate tax fractional payments	Modelo 202	Three times a year
Corporate tax return	Modelo 200	Annual
Social Security contributions and nomina processing	Sistema RED	Monthly
Annual accounts deposit	Mercantile Registry	Annual

A company that also crosses the EU’s Intrastat reporting threshold for goods movements, or files OSS/IOSS returns for cross-border sales, adds those cycles on top of the calendar above. We confirm which rows actually apply to your business in the first consultation rather than handing over the full generic table and leaving you to work out which lines matter.

What missing a filing actually costs

Missed VAT, withholding, or Social Security filings carry surcharges and interest that increase the longer a filing goes uncorrected, and there is a materially sharper jump between correcting a filing voluntarily, before AEAT or the TGSS notices, and having it flagged after the fact. The exact surcharge schedule depends on which specific filing is late and by how much, which is precisely why we build a calendar tailored to your entity rather than let you find out the schedule by testing it. A dormant entity with no activity still carries minimum filing obligations in several of these categories; “we’re not really trading yet” is not, on its own, an exemption.

If you are also weighing whether a Spanish entity is the right vehicle at all versus an EOR arrangement, our EOR vs entity Spain guide covers that decision directly, since payroll obligations are one of the clearest places the two options diverge. And if relocating a director or key employee to Spain is part of the same project, our work visa Spain and Beckham Law guides cover the personal side that runs alongside the company’s own payroll registration.