Owning a U.S. LLC While Tax-Resident in Spain: What to Know

A client we'll call BERMEO wrote to us in January 2025 with a very common, very dangerous idea: "I have the LLC in New Mexico, it invoices in dollars and the money lands in Mercury — this has nothing to do with the Spanish tax authority." He lived in Valencia, spent the whole year there, and ran the business from his living room. His LLC didn't take him out of Spain; what it did was give Spain more things to look at.

This is one of the costliest misunderstandings out there. Opening a U.S. LLC is legal and useful, but it doesn't change where you're a tax resident — and if that residency is in Spain, the Spanish tax authority (Hacienda) is in the equation whether you like it or not. Let's separate what the LLC actually does from what it doesn't, and why the "set up an American company so I don't pay tax in Spain" plan usually backfires.

The root mistake: thinking the LLC takes you out of Spain

The LLC is a tool to operate and invoice from the U.S. It is not a change of residency or a shield against your own country. The question that really decides your tax bill isn't "where is my company?" but "where am I a tax resident?". And that's decided by Spain under its own rules, not by the state where you registered the LLC.

If you're a tax resident in Spain, you're taxed on your worldwide income: it doesn't matter whether the income lands in a Delaware or a Wyoming account, it's still your income that Spain wants to see. The LLC doesn't switch off that rule; at most, it adds steps to report it properly.

When you're a tax resident in Spain

Broadly, Hacienda treats you as a Spanish tax resident if any of these apply:

• You spend more than 183 days in Spanish territory within the calendar year.
• You have in Spain the main hub of your activity or of your economic interests — this is where many LLC owners who "work for the U.S." but do so from their home in Spain end up.
• Your non-separated spouse and dependent minor children reside in Spain (a presumption that can be rebutted).

The second point is the one that catches people. You can invoice everything to clients abroad and get paid in dollars, but if your life and your work are in Spain, your tax residency is in Spain. Your company's nationality doesn't offset that.

How Hacienda sees your LLC (not the way the IRS does)

Here's the technical nuance that causes the most confusion. For the IRS, a single-member LLC is usually disregarded: transparent, as if it didn't exist, with the income seen through you. Hacienda isn't required to classify your LLC the same way the U.S. does. It runs its own analysis, and two main scenarios come out of it:

• Income attribution: if Hacienda treats the LLC as a transparent entity, the income is attributed to you and taxed in your personal income tax (IRPF) as one more type of earnings, year by year, whether or not you took the money out.
• Place of effective management in Spain: if the LLC is run and managed from Spain — by you, from your living room — Hacienda may argue the entity is a tax resident in Spain for corporate income tax purposes, even though it's registered in the U.S. It's the same economic substance principle that decides whether the structure actually holds up or is just paper with a borrowed address.

Which of the two applies depends on your specific case, and it's exactly the kind of thing worth nailing down with a Spanish tax advisor before you set anything up — not after a letter arrives. The key takeaway for this article: in neither scenario does the LLC "disappear" for Spain.

The LLC decides how you invoice from the U.S. Your residency decides who you answer to. If you live in Spain, that second question is answered by Hacienda — and it doesn't look at the Delaware paperwork, it looks at where you are.

Form 720: the part that hands out the most penalties

Even if you got the income taxation right, the informational leg remains — and that's where most people trip. Form 720 is the declaration of assets and rights located abroad, and a Spanish tax resident with an LLC usually has several things that may be in scope:

• Foreign bank accounts — for example the LLC's account — once they exceed the reporting thresholds.
• Holdings in foreign entities, depending on how your position in the LLC is classified.

It's a purely informational form — it pays no tax — but its penalty regime has historically been harsh, and filing late or not at all can cost far more than the income itself. There's also a sibling form, 721, for crypto held abroad. The practical rule: if you have assets outside Spain, the informational side gets planned in year one, not after three have piled up — the same mistake we see with the Form 5472 on the U.S. side. And if those assets include US real estate held through the LLC, the reporting gets even more involved.

Why we don't recommend using the LLC to "hide" income from Hacienda

The temptation is to set up the LLC precisely so Spain doesn't see the income. It doesn't work, for a very concrete reason: far from hiding you, the LLC generates more reporting obligations — the 720, the foreign accounts, the trail of payments — not fewer. It isn't a cloak of invisibility; it's one more layer of paperwork that Hacienda knows how to read.

And we don't recommend the other extreme either: giving up the LLC out of fear. The LLC is still a legitimate, useful structure for invoicing global clients; the problem is never having it, it's not declaring it. An LLC used well by a Spanish resident is perfectly compatible with being compliant — what's not compatible is pretending Spain doesn't exist. If what you actually want is to change your tax residency, that's another project, with its own requirements, and we cover it in tax residency for digital nomads, with territorial-tax destinations like living in Paraguay.

How it turned out for BERMEO

BERMEO had run the LLC for two years and had never declared anything in Spain: not the LLC's income in his IRPF, nor the LLC's account on a 720. He was convinced that, being "an American company," it sat outside Hacienda's radar. A Valencia resident 365 days a year, running everything from home: a textbook Spanish tax resident.

What we did on our side was tidy up the U.S. leg — his IRS obligations brought up to date — and, above all, send him to a Spanish tax advisor to come into compliance on the IRPF and the 720 for the open years before the silence turned into a penalty. We didn't touch his Spanish return ourselves: that's the work of a licensed professional in Spain, and we told him so.

What didn't go "perfectly": coming into compliance two years back always costs more — you have to reconstruct figures, justify the delay, and absorb surcharges — than doing it from the first year. It worked out and avoided a bigger problem, but the cost and stress would have been far lower with a clean start. Hence our insistence: the Spain–U.S. planning is reviewed before opening the LLC, not when the first notice arrives.

Checklist if you're a Spanish resident with an LLC

Before you assume your LLC "has nothing to do with Hacienda," run through this:

• Are you a tax resident in Spain? More than 183 days, or your hub of economic interests here: if so, you're taxed on worldwide income.
• The LLC's income isn't hidden by arriving in dollars: depending on the classification, it's taxed in your IRPF or via corporate tax — but it's taxed.
• Place of effective management: if you run the LLC from Spain, assess with an advisor whether Hacienda can deem it resident here.
• Form 720 (and 721): foreign accounts and holdings above the thresholds must be reported — the penalty for omitting it is the costliest part.
• Prior years undeclared: come into compliance on your own initiative with a Spanish advisor before Hacienda spots it.

The LLC is a great tool for invoicing the world from the U.S., but it's not a tax passport: if you live in Spain, Spain charges first on the question of where you're resident. We leave your U.S. side spotless and flag the Spanish leg in time so you handle it with a professional — not so you find out through a letter. And if you're still setting up the structure, it's worth being clear on what it really costs to keep it in order, which we cover in the real cost of an LLC.