Your US LLC, your S corporation and the K-1 after you move to Spain

Nobody mentions it on the first call. We ask about pensions, the IRA, the brokerage account, the house in Sarasota. An hour in, almost as an aside, a client says: "Oh — and there's the LLC with my brother, the two rental units in Ohio. But that's nothing, it just files a K-1."

That sentence is the reason for this page. In the United States, a pass-through entity really is close to nothing: it pays no federal income tax, it hands you a Schedule K-1, and the numbers land on your 1040 as though the entity did not exist. Twenty years of that trains you to stop seeing it. But an entity is not invisible because it is small. It is invisible because a specific body of American law has agreed to look through it — and that agreement stops at the American border.

This page is for Americans who are Spanish tax residents, or about to become one, and who hold an interest in a US LLC, limited partnership, LLP or S corporation: the family rental LLC, the syndicated real-estate deal, the practice you sold but kept a fifth of, the operating company your daughter now runs. It is deliberately not a repeat of our neighbours. Our page on how US retirement income is taxed in Spain deals with money that comes out of a plan; our page on living on dividends deals with shares in companies that are unambiguously companies; our note on MLP K-1 distributions as proof of means deals with publicly traded partnership units where the visa evidence is cash distribution history, not a small private entity you manage; our Beckham page on foreign company owners and permanent establishment deals with the founder who is actively running a business from Spain. This page is about the awkward middle: an owner who is genuinely passive, an entity that is genuinely small, and a characterisation question that is genuinely open. If your question is instead whether that ownership income can carry a visa application at all, our page on business owner income and the non-lucrative visa covers the means-and-no-work test a founder's file has to pass.

"Clients tell us about the entity last, and they tell us about it apologetically, because in America it stopped being a thing years ago. That is exactly why it is dangerous. Everything else in the file arrives already labelled — a pension is a pension, a house is a house. The entity arrives with no label at all, and Spain has to decide what it is before it can decide what to do with it."

The asset nobody thinks to mention

Consider what makes a US pass-through so easy to forget.

It generates no cheque you have to bank. It produces no 1099 that arrives with a thud. Its one document, the K-1, shows up in March, gets forwarded to your accountant, and disappears into a return you sign without reading. If distributions come at all they come irregularly, often to cover the tax on income you never saw. There is no moment, in a normal American year, at which the entity presents itself to you as a thing you own.

Now put that same object in front of a Spanish tax system that has three questions to ask about every asset in the world you own, and no American context whatsoever:

What is it? Not what does it do, not how big is it — what kind of object is it. Is it a company, or is it a shared pot?

When does its income become yours? When the entity earns it, or when the entity pays it to you?

What kind of income is it when it arrives? Rent? A capital gain? A dividend? Business profit?

In America all three questions were answered decades ago and then forgotten. In Spain all three are live on the day you become resident, and the answers do not have to match. That is the whole subject.

Spain's test is not the one you were quoted

If you have researched this at all, you have almost certainly read a version of the following: your LLC has legal personality and limited liability, therefore Spain sees it as the equivalent of a Spanish SL, therefore it is opaque, therefore what you receive is a dividend. It is repeated on a great many advisory websites. It is worth understanding where it came from, because it is at best incomplete and it may well be wrong.

Spanish law says that entities constituted abroad are treated under the Spanish attribution-of-income regime — entidades en régimen de atribución de rentas — when their legal nature is identical or analogous to that of Spanish attribution entities. The Spanish members of that club are things like the comunidad de bienes, the herencia yacente, and civil partnerships without a commercial object. On a quick reading, "legal nature" invites exactly the comparison above: your LLC has personality and limited liability, a comunidad de bienes has neither, so the analogy fails.

The Directorate-General for Taxes closed that reading in a formal Resolution of 6 February 2020, published in the Boletín Oficial del Estado and issued under article 12.3 of the General Tax Law, which makes it binding on the bodies of the tax administration that apply the taxes. It was written precisely because the question had generated years of inconsistent rulings, and it deserves to be read for what it actually says.

Its central move is to abandon the legal-form comparison. The Resolution reasons that there is no common legal nature among Spanish attribution entities in the first place; that Spain has entities of identical legal nature of which the legislator classified only some as attribution entities; and that a foreign entity's characteristics will in any case only ever partly overlap. So the comparison cannot sensibly be run on legal form. It must instead be run on the defining characteristics of the fiscal regime. The Resolution then sets out three, and they are the whole test:

Notice what is not on that list. Legal personality is not on it. Limited liability is not on it. The Resolution's own account of the case law makes the point for us: it cites, approvingly, a ruling on a United Kingdom Limited Liability Partnership — an entity that has its own legal personality — as an attribution entity, precisely because it was not subject to tax on profits in its home State. The thing everybody quotes as decisive turns out to be the thing the doctrine expressly worked its way past.

So the honest position is the opposite of the common one: a US LLC taxed as a partnership does not fail Spain's test because it has limited liability. It has to be tested on the three questions above, one at a time.

What the test does to an LLC

Run the three questions against the ordinary case — a multi-member LLC that has not elected to be a corporation.

Is it a US taxpayer? No. It files an information return and pays no federal income tax on its profits.

Is income attributed regardless of distribution? Yes, and emphatically. This is the defining feature of American partnership taxation: your distributive share lands on your return whether or not a single dollar moved. It is the reason phantom income exists at all.

Does income keep its character? Yes. That is what the separately stated items on a K-1 are for. Rental income arrives as rental income, capital gain as capital gain, interest as interest. The whole architecture exists to stop the entity laundering the character of what it earned.

Three for three. On the Resolution's own criteria, an ordinary US LLC taxed as a partnership looks like a strong candidate for the Spanish attribution regime — which means Spain would look through it too, tax you annually on your share as it arises, and give each item of income the character it had inside the entity.

That is, in most respects, the good outcome. The two systems are then doing the same thing in the same year to the same money, which is the condition under which relief from double taxation has something to work with. What changes is not the timing but the destination: rental income from Ohio, attributed to you in Spain, is Spanish general-base income taxed on a progressive scale; a capital gain inside the entity is a savings-base gain. The entity's income has arrived in a Spanish-rate world.

The S corporation: transparent by election, not by nature

Now the case that ought to be the worst and, on the Resolution's logic, may not be.

An S corporation is a corporation. It was incorporated under state law, it has legal personality, it has shareholders and shares and limited liability, and if you were running the old legal-form comparison it would fail instantly: nothing about it resembles a comunidad de bienes. Clients who own S corp shares generally assume, if they think about it at all, that Spain will see a company.

But the Resolution does not ask what it looks like. It asks the three questions.

Is it a US taxpayer? As a general rule, no: subchapter S provides that an S corporation is not subject to the income taxes of the chapter, except as that subchapter itself provides — and it does provide some exceptions, notably an entity-level tax on built-in gains and one on excess net passive income. So the answer is "no, with named exceptions", not a clean no.

Is income attributed regardless of distribution? Yes, in terms that could have been drafted for the Spanish test: a shareholder takes into account their pro rata share of the corporation's items whether or not distributed.

Does income keep its character? Yes, expressly: the character of each item is determined at the level of the corporation and retains that character in the hands of the shareholder — a capital gain in the company is a capital gain to you, whatever you are.

Which leaves an S corporation looking, on the criteria that Spanish doctrine says are the ones that matter, considerably more like an attribution entity than its own corporate paperwork suggests. We want to be careful here, because this is the least settled part of the page and we would rather say so than sell you a certainty.

The trap: a US form decides your Spanish tax

Here is the point that we think matters most, and that we have not seen made anywhere else.

Read Spain's three questions again and notice what every one of them is about. Not about the entity. About how the United States treats the entity. Is it a US taxpayer? Does US law attribute? Does US law preserve character? Spain has not written a test about your company. Spain has written a test about American tax law's opinion of your company, and then agreed to follow it.

And American tax law's opinion of your company is not a fact about the company. It is an election.

An LLC's classification comes from the check-the-box regulations. An eligible entity with two or more members is a partnership by default and may elect to be an association taxable as a corporation; a single-owner entity is disregarded by default and may make the same election. The choice is exercised on a form. An S corporation's transparency comes from a different form, filed once, years ago, usually on an accountant's advice about payroll taxes.

So: file one form in America and, with nothing whatever changing in Spain — same assets, same members, same operating agreement, same building in Ohio — the Spanish characterisation of your income can flip from attributed-annually to dividend-when-paid. Your Spanish tax position is downstream of an American filing cabinet.

That would be merely elegant if the election were stable. It is not, and the way it breaks is the reason this section exists.

The same trap has quieter versions. A co-owner who moves abroad and expatriates can terminate the election for everybody. Shares passing at death to an heir who is not a US person can do it. An ineligible trust in the ownership chain can do it. In each case an American event that has nothing to do with you rewrites how Spain taxes your income — and you will find out in March, from a K-1 that stops arriving.

Phantom income, and the year that does not match

Regular readers of our pages on the Roth IRA and on US savings bonds know the shape of the trap we keep meeting: the two tax systems fail to line up, and relief that looks automatic turns out to have nothing to grip. That page on savings bonds made the general point — the trap has two doors. One is an asset the United States taxes at zero, so there is no credit to claim. The other is the two countries taxing the same money in different years, so there is nothing to match.

The pass-through entity is the cleanest example of the second door on this website, and it is worth being precise about why.

American law taxes you on your share whether or not distributed. That is phantom income: the partnership earns $90,000, reinvests it in a roof, distributes nothing, and you owe American tax on money you have never touched. Americans grumble about this but they are used to it.

Now suppose Spain reads your entity as opaque. Spain then taxes nothing at all in that year — there was no distribution, and an opaque company's profits are not its shareholder's income. Spain waits. Four years later the entity finally distributes the accumulated cash, and Spain taxes a dividend in the savings base.

Look at what has happened. The United States taxed year one. Spain taxed year five. Neither country did anything unusual. But the credit machinery on both sides is built to relieve tax on the same income in the same period, and there is no year in which both bills exist to be set against each other. The clash is not aggressive and not avoidable by being careful. It is structural, and it was created by a characterisation you did not know was being made.

We are deliberately not telling you that you will be double taxed. Whether relief can be salvaged depends on the entity, the income, the years, the treaty article in play and what your American adviser can do with foreign tax credit carryovers. What we are telling you is that the mismatch is real, that it is created at the moment of characterisation, and that it is very much cheaper to model before your first Spanish return than to discover on your fifth.

One entity, two readings, two different lives

The same LLC, the same members, the same building. Only the characterisation changes.

	Spain reads it as an attribution entity	Spain reads it as a company
When Spain taxes you	Each year, as the entity earns — distribution irrelevant	Only when it distributes
What Spain taxes	Your share of each item, keeping its own character	A dividend
Which Spanish base	Follows the source: rent and business profit general, gains savings	Savings base
Alignment with the US year	Aligned — both attribute in the same year	Misaligned — US taxes year 1, Spain taxes year 5
Relief from double taxation	Has something to grip	May have no matching year to grip
Phantom income	Taxed in both countries on cash you never saw	Taxed in the US only — for now
Modelo 720 heading	Arguably the underlying assets, by proportion	Shares in a foreign entity
Feels like	The harsh answer	The generous answer
Usually is	The safer answer	The expensive answer

The desk in Málaga, and the entity that follows you

Everything above assumes the entity stays American. There is a way to lose that, and the American retiree is unusually exposed to it because of how harmless the activity feels.

Spanish corporate tax law treats an entity as resident in Spain if any one of three things is true: it was incorporated under Spanish law, its registered office is in Spain, or its place of effective management is in Spanish territory — understood as where the management and control of the whole of its activities is located. The third limb is independent of the other two. Your Delaware LLC does not have to move, be re-registered or do anything at all. If the decisions are taken in Málaga, the criterion can be met where you are sitting.

And consider who takes the decisions in a small family LLC. You do. You approve the roof. You choose the property manager. You sign the refinance. You have always done it, it takes six hours a year, and nobody in your family would describe it as running a business. But "the management and control of its activities" is not a test of effort or of hours. It is a test of where the decisions happen, and the decisions now happen at a desk in Andalucía.

Why a K-1 is a poor thing to show a consulate

Clients arrive delighted with their K-1. It is an official American tax document, it has a large number on it, and they intend to hand it to the consulate as proof of income for the non-lucrative visa. We usually ask them to put it away.

Our page on proving income for the non-lucrative visa sets out what a consulate is reading for: funds that are sufficient, recurring, and available to you. Test the K-1 against those three words.

Sufficient? Perhaps — but the number on a K-1 is an allocation, not a payment. It can read $80,000 in a year in which you received nothing.

Recurring? Distributions from an LLC or an S corp are discretionary. They are decided by an operating agreement, a manager, or a board. Discretionary is the precise opposite of recurring, and a consular officer who understands the document understands that too.

Available? That is the question the K-1 cannot answer at all, because availability is exactly what it does not report.

There is a further problem, and it is the reason we treat this document with more suspicion than any other income paper on this website: the K-1 can be wrong in both directions at once. It can show a large profit in a year you were paid nothing, because the cash went into a roof. It can also show a loss, or nothing, in a year you received a substantial cheque, because the money came out as a return of capital. It is the only document in a typical file that can simultaneously overstate and understate what actually reached you.

Modelo 720 and wealth tax: which box?

The characterisation question does not stay in the income tax return. It reaches your reporting obligations too, and it reaches them earlier than most people expect.

If the entity is opaque, what you own is a participation in a foreign entity: securities-and-shares territory for Modelo 720, valued under the rules for unlisted holdings, which for an illiquid family LLC is its own small ordeal.

If the entity is transparent, there is a serious argument that you should be looking through to what sits inside it — that the Ohio building is US real estate you hold a share of, and the entity's bank account is an account you have an interest in. Different headings, different thresholds, different valuation rules, and each with its own penalty regime for getting it wrong.

Two things are worth saying plainly. First, this is genuinely unsettled ground in practice and we would want it confirmed for your facts rather than assumed; it is not a box we would tick on a Tuesday without advice. Second, and more importantly: the obligation starts in the year you become a Spanish tax resident, not the year the entity finally pays you something. The asset you forgot to mention because it "doesn't pay anything" may already be reportable, and its first deadline may already be running. The same applies to wealth tax, where an interest in a family entity is worth something to the Spanish balance sheet in every year you own it, including all the years it sends you no money at all.

Three documents, before anything else

Before any modelling, any planning and certainly any restructuring, we ask for three things. They are cheap, they already exist, and between them they settle most of this page.

1. The entity's US classification, in writing. Not what you think it is — what was actually filed. The check-the-box election if one was made; the S election if there is one; the default that applied if nothing was ever elected. This single fact drives Spain's first question and therefore everything after it.

2. The last three K-1s, next to the last three years of bank statements. Put the allocations beside the actual payments. The gap between the two columns is the phantom income, and it is also the honest answer to what the consulate is entitled to see.

3. The operating agreement or shareholders' agreement. We are reading it for two things: who is entitled to decide on distributions, and who is entitled to decide on everything else. The first tells us whether you have income. The second tells us whether the entity is about to follow you to Spain.

With those three documents on the table we can tell you which reading you are probably in, whether the year of your move is the wrong year to be inside this entity, and whether the entity — not the visa, not the pension — is the thing that needs work first. Very often it is, and almost always it is cheaper to deal with while you are still American-resident and holding all the levers.

Sources reviewed July 2026: Resolución de 6 de febrero de 2020, de la Dirección General de Tributos, sobre la consideración como entidades en régimen de atribución de rentas a determinadas entidades constituidas en el extranjero (BOE-A-2020-2108, BOE núm. 38 of 13 February 2020), issued under article 12.3 LGT and binding on the bodies of the tax administration responsible for applying taxes from the date of its publication — including its reasoning that, there being no common legal nature among Spanish attribution entities, the classification of foreign entities must attend to the defining characteristics of the fiscal attribution regime; the three resulting criteria (the entity is not a taxpayer of a personal income tax in its State of constitution; income is attributed to members under the law of that State by the mere fact of obtaining it, irrespective of distribution; and the income retains the nature of the activity or source it derives from); and its account of prior doctrine, including consulta vinculante V1319-05 on a UK Limited Liability Partnership with its own legal personality, V3557-15 and V2414-16. Articles 86, 87 and 88 LIRPF (Ley 35/2006) on the attribution of income regime, with article 8.3 LIRPF and article 35.4 LGT; article 6 of Ley 27/2014 del Impuesto sobre Sociedades; article 37 of the texto refundido de la Ley del IRNR (RDLeg 5/2004). Article 8.1 of Ley 27/2014 (an entity is resident in Spain where it is constituted under Spanish law, has its domicilio social in Spanish territory, or has its sede de dirección efectiva in Spanish territory, understood as where the management and control of all of its activities is located). IRC §1363(a) (an S corporation is not subject to the taxes imposed by the chapter, except as otherwise provided in subchapter S), §1374 (built-in gains) and §1375 (excess net passive income); §1366(a)(1) and Treas. Reg. §1.1366-1 (a shareholder takes into account their pro rata share, whether or not distributed) and §1366(b) (character determined at the corporation and retained in the shareholder's hands); §1361(b)(1)(C) (a small business corporation may not have a nonresident alien as a shareholder) and §1362(d)(2) (termination where the corporation ceases to be a small business corporation, effective on the date of the disqualifying event), with the 2018 change permitting a nonresident alien to be a potential current beneficiary of an ESBT; Treas. Reg. §301.7701-2 and §301.7701-3 (entity classification, default classifications and the election on Form 8832); IRC §§702 and 704 (partner's distributive share and its character). AEAT guidance on Spanish tax residence, the IRPF general and savings bases, Modelo 720 reportable categories and thresholds, and Ley 19/1991 del Impuesto sobre el Patrimonio. General information only, not legal, tax, immigration or US tax advice. In particular, the Spanish characterisation of any specific US LLC, limited partnership or S corporation depends on that entity's own US filings and facts and must be confirmed in writing before it is relied on; we have not seen the Directorate-General rule squarely on a US S corporation and present both readings as arguable; the Modelo 720 and wealth tax headings that follow from each characterisation, the availability and mechanics of foreign tax credits across mismatched years, the corporate residence analysis and the immigration consequences of managing an entity from Spain must all be confirmed for your own facts with Spanish and US advisers before you act on them.