Running a UK Ltd While Living in Spain, Portugal or France: the Effective-Management Trap

If you move to Spain, Portugal or France and keep running your UK limited company from your laptop there, the company can become tax-resident in your new country, not just you. UK law treats a company as UK-resident because it was incorporated in the UK or, for some companies, because its "central management and control" (CMC) sits in the UK (HMRC INTM120060; De Beers v Howe). That is not the end of it: section 18 of the Corporation Tax Act 2009 lets a UK-incorporated company be treated as non-UK-resident when a double-tax treaty awards residence somewhere else.

And your new home country runs its own test. Spain, Portugal and France all look at the place of effective management, meaning where the real management and commercial decisions are actually made. When two countries each claim the company, the treaty tie-breaker decides, and the three treaties do not behave the same way: the 2025 UK-Portugal convention sends the question to a negotiation between tax authorities, while the UK-Spain and UK-France treaties still award residence automatically to the state of effective management. Spain and France are the harder cases, not the easier ones.

Separately, even a company that stays UK-resident can create a permanent establishment (PE) where you live, so profits earned through that activity get taxed locally anyway. None of this is automatic, but "my company is British, so it's only taxed in Britain" is the assumption that gets founders a surprise corporate-tax bill. The cleaner route for most relocating founders is to stop treating the UK Ltd as your income engine and take a salary through a local employer-of-record or payroll arrangement instead. Confirm your structure with a cross-border tax adviser before you move.

"My company is British, so it's taxed in Britain": why that breaks when you move

The logic feels airtight: the company is registered at Companies House, files UK accounts and has a UK bank account, so surely it is a UK taxpayer and nothing else. Incorporation does make a UK company UK-resident. What the reasoning misses is that residence is not exclusive. Your new country runs its own independent test, and that test looks at where the business is actually run, not where it is registered.

The trigger is usually you. When you sign the contracts, decide what the company does, approve the spending and direct the work, and you now do all of that from an apartment in Lisbon, Madrid or Paris, the company's real decision-making has moved with you. The paperwork still says London; the substance says somewhere else. That gap is what the local residence test and the permanent-establishment rules are built to catch.

Three things founders confuse: CMC, effective management and PE

Most formation-agent pages collapse three different concepts into one vague idea of "where the company is taxed." The distinctions are where the money is.

Two clarifications carry most of the weight. First, incorporation is a strong domestic rule but not an unconditional one: a UK-incorporated company that a treaty tie-breaker sends abroad is treated as non-UK-resident for corporation tax under CTA 2009 s.18. That statute is the machinery behind everything below. Second, HMRC's manual (INTM120070) states that effective management "will normally be located in the same country as central management and control but may be located" elsewhere. So the treaty question can bite even where a pure UK CMC argument would not succeed.

How Spain, Portugal and France claim the company

None of the three waits for the UK to concede. Each has a domestic rule that pulls the company into its own tax net if the management substance is local.

Spain

Spain treats a company as resident if any one of three triggers is met: incorporation under Spanish law, a registered office in Spain, or a place of effective management in Spain. PwC's summary puts it plainly: a company's effective head office is in Spain when its business activities are "managed and controlled from Spain." You need no Spanish company and no Spanish office for the third trigger to bite, only real management happening on Spanish soil.

Portugal

Portugal treats a company as resident if either its registered seat or its place of effective management is in Portugal, and a resident company is taxed on worldwide income. So a UK Ltd found to be effectively managed from Portugal is not taxed only on what it earns in Portugal; the whole company can be dragged into Portuguese corporate tax.

France

France gets there by a different road. France taxes companies on a territorial basis: under Article 209 of the Code général des impôts, French corporation tax reaches the profits of enterprises operated in France plus whatever a treaty attributes to France, rather than the worldwide profits of a resident company. That sounds like good news, and for a genuinely UK-run company it is. The catch is that a UK Ltd whose real direction sits in France (its siège de direction effective) is normally treated as carrying on a business in France, so the French-attributable profits become taxable there. And if both states claim the company, the UK-France treaty hands residence to the state of effective management outright. France is not the soft option.

The corporate rates you would be swapping into are close enough that the choice rarely turns on the headline number:

Read the Portuguese line twice. The 19% is a national rate, and the two surtaxes sit on top of it: nearly every municipality levies a derrama, and a profitable company crosses the derrama estadual threshold faster than founders expect. A founder comparing "UK 25%" against "Portugal 19%" is comparing the wrong two numbers.

The cost of getting this wrong is not usually a higher rate anyway. It is filing in two systems, paying twice while relief is argued out, and fees that dwarf the tax.

The tie-breaker is not the same in Spain, Portugal and France

This is where most write-ups go wrong and the risk ranking gets inverted. The post-2017 OECD shift away from the automatic effective-management tie-breaker toward competent-authority agreement is real, and it has reached the UK-Portugal relationship. It has not reached the UK-Spain or UK-France ones.

Portugal (the new treaty). The 2025 UK-Portugal Double Taxation Convention was signed in London on 15 September 2025 and entered into force on 29 December 2025. It has effect from 1 January 2026 for Portuguese withholding taxes and other Portuguese taxes and for UK taxes withheld at source, from 1 April 2026 for UK Corporation Tax, and from 6 April 2026 for UK Income Tax and Capital Gains Tax. Article 4(3) does not switch residence automatically. Where a company is resident in both states, the competent authorities "shall endeavour to determine by mutual agreement" its residence, having regard to place of effective management, place of incorporation, place of head office and other relevant factors. So being effectively managed in Portugal does not instantly make the company Portuguese under the treaty; it opens a mutual agreement procedure (MAP).

Read the final sentence of that paragraph before you relax. If the authorities do not reach agreement, the company is not entitled to any benefit of the convention except those provided by Articles 21, 22 and 23: elimination of double taxation, non-discrimination and the mutual agreement procedure itself. That is worth stating precisely, because both the optimistic and the apocalyptic versions of this are wrong. Credit relief under Article 21 survives, so a failed MAP is not raw unrelieved double taxation. What you lose is everything that decides how much tax there is to credit in the first place: the allocation rules that say which state may tax what, the reduced withholding rates in Articles 10 and 11, and the Article 7 business-profits protection that keeps a state out of your trading profits unless there is a permanent establishment there.

And nothing forces the conversation to end. The convention's arbitration Protocol applies only to issues arising under Articles 5, 7 and 9, on a three-year trigger. A residence dispute under Article 4 sits outside that scope entirely, so there is no binding arbitration backstop. The procedure can simply stop, unresolved, with both revenue authorities still holding their own view of where your company lives.

Spain and France (the old tie-breaker). Neither treaty has this softening. The UK-Spain 2013 convention and the UK-France 2008 convention both resolve dual corporate residence with the pre-2017 formula: a company resident in both states "shall be deemed to be a resident only of the State in which its place of effective management is situated." No negotiation, no fallback. The Multilateral Instrument could have replaced those clauses with a MAP procedure and did not: HMRC's own synthesised texts for both treaties show Article 4 unchanged on this point. So the Spanish or French tax authority does not need to persuade HMRC of anything. It needs to establish that effective management is in Madrid or Paris, and the treaty does the rest.

The practical ranking is therefore the opposite of the one founders assume, though not for the reason usually given. Portugal, with the newest treaty, gives you a process. Spain and France give you a result. A result you dislike is still a result: you know which state has the company, the rest of the treaty keeps working, and the relief machinery runs normally around the answer. A process that deadlocks strips the treaty down to credit relief and leaves it there, with no arbitration available to break the tie and no deadline by which anyone must decide.

The new treaty also caps withholding on the Portugal side. Dividends are capped at 10% generally, with 15% for certain real-estate investment vehicles. The full exemption sits in Article 10(3), which makes the dividend taxable only in the recipient's state, and it is tightly conditioned: the beneficial owner must be a company holding directly at least 10% of the paying company's capital for an uninterrupted period of at least 12 months containing the payment date, and each company must be liable to corporate income tax without enjoying a general exemption from it. Interest is capped at 10%, with 5% for regulated banks and 0% for government entities and central banks. Note what that means for you personally: Article 10(3) is written company-to-company, so an individual founder holding UK Ltd shares in their own name never reaches it, and the 12-month holding condition and the liable-to-tax condition are the two most summaries drop. For a fuller walkthrough of what British founders actually pay under this convention, see our guide to the UK-Portugal tax treaty for founders.

Permanent establishment after the OECD's November 2025 update

Residence is not the only route in. Even if the UK Ltd stays UK-resident, running it from abroad can create a permanent establishment where you live, and the profits attributable to that activity get taxed there.

A PE, in treaty terms (Article 5), is "a fixed place of business through which the business of an enterprise is wholly or partly carried on." Until recently the guidance on whether a home office counted was two thin paragraphs written for occasional remote work. The OECD Council approved the 2025 Update to the Model Tax Convention on 18 November 2025, after the Committee on Fiscal Affairs signed it off on 13 October 2025, and it expands that Commentary considerably. The OECD is careful to frame the change as an evolution of existing principles that clarifies the circumstances in which a home office is a fixed place of business, not a new rule, and it turns on two tests.

The first is a working-time benchmark: if an individual works from home for less than 50% of total working time over a 12-month period, the home is generally not treated as a place of business. Cross that line and the question moves on to the overall facts. The second is a commercial-reason test: the location must be justified by a commercial reason for the enterprise, such as being where the local customers or suppliers are. The Commentary is explicit that employee convenience, talent retention, saving on office rent and paying for someone's home-office kit are not valid commercial reasons on their own.

Two things follow. The 50% benchmark is a floor, not a shelter: a solo founder-operator working full-time from a Lisbon flat clears it on day one. And the commercial-reason test is where the argument actually happens, because a founder who moved for personal reasons and serves the same UK clients has an arguable position that the enterprise had no commercial reason to be there.

There is a third element that most summaries of the update skip, and for a founder it is the most useful part of it. Article 5(4) still exempts activities that are merely preparatory or auxiliary, and the expanded Commentary leaves that carve-out standing. Clearing the time benchmark and having a commercial reason to be in the country does not by itself create a permanent establishment if what actually happens at the home office is preparatory or auxiliary to the enterprise's business as a whole. For a solo founder doing the core revenue-generating work from the kitchen table, that argument is thin. For someone whose home activity is genuinely support work while the business is carried on elsewhere, it is the escape hatch, and it is the first thing to document.

The Commentary is interpretive guidance rather than treaty law, and countries adopt it at different speeds, so local practice still matters. Spain was already there before the update: binding ruling V0066-22 from the Dirección General de Tributos dealt with a UK employer and a worker performing duties from a Spanish home, and held that mere physical presence in Spain is not enough. The analysis turns on regularity and on whether the employer effectively has that home at its disposal through the control it exercises. That is a narrower test than "someone worked from Spain", and it is the framing a Spanish inspector will start from.

Treat residence and PE as separate exposures. Residence is a whole-company question decided by the tie-breaker. PE taxes local profits locally even though the company stays UK-resident. You can hit either, both or neither.

Where do you pay social security?

None of the above decides your social security position. That runs on a separate instrument: the Protocol on Social Security Coordination in the UK-EU Trade and Cooperation Agreement. The base rule is single-state: you are covered where you actually work, not where your employer is registered. A detached-worker rule lets a UK employer keep someone on UK National Insurance for a posting of up to 24 months, evidenced by an A1 certificate; every EU Member State opted into it, but unlike the pre-Brexit regime there is no extension beyond 24 months. A posting is not what most relocating founders are doing: if you have genuinely moved and now work from Lisbon, Madrid or Paris indefinitely, you ordinarily join the local system, and the UK Ltd may have to register as a foreign employer there. If you split time across states, the multi-state rules look at whether a substantial part of your activity (conventionally 25%) happens in your country of residence. This gets missed because nothing bounces: contributions go unpaid, then surface as arrears with penalties.

What the dividend route actually costs

Founders reach for dividends because the UK charges no withholding tax on dividends paid by a UK company, so the money leaves Britain clean. True, and also where the analysis stops. Once you are tax-resident in your new country the dividend is your income there, on top of the corporation tax already paid.

Spain taxes it on the savings scale: 19% on the first EUR 6,000, then 21% to EUR 50,000, 23% to EUR 200,000, 27% to EUR 300,000 and 30% above that. Spain has its own shelter here, and it is the mirror image of Portugal's. A founder taxed under the Beckham regime keeps foreign-source passive income, a UK Ltd dividend included, outside the Spanish base entirely for the six years it runs, while a dividend out of a Spanish company stays on that savings scale. Which door you qualify through decides whether you get that, and we work the doors through for a British founder in the Beckham Law for British founders.

Portugal applies a flat 28%. If you hold IFICI status the picture is usually better than that, not worse: under Article 58-A of the Estatuto dos Benefícios Fiscais, IFICI beneficiaries are exempt on most foreign-source income, foreign dividends included, on an exemption-with-progression basis, provided the source state may tax the income under the applicable treaty and the payer is not established in a blacklisted jurisdiction. Foreign pensions are the notable exception and stay on the progressive scale. So an IFICI-eligible founder drawing a UK Ltd dividend is usually not paying 28% on it, though the exemption is conditional and worth confirming against your own registration.

One Portuguese detail runs the other way, and most write-ups get it backwards. If you elect to aggregate the dividend into your progressive IRS return rather than take the 28% flat rate, only 50% of it is taxable, but that 50% exclusion applies where the paying company is EU-resident and meets the Parent-Subsidiary Directive conditions. A UK Ltd fails that test after Brexit, so aggregation is a worse deal on UK dividends than the general guidance implies.

France applies the prélèvement forfaitaire unique, a flat 31.4% from 2026 (12.8% income tax plus 18.6% social levies, after the 2026 social security financing law raised CSG on capital income from 9.2% to 10.6%), unless you elect for the progressive scale.

Price all of that against a local salary before assuming dividends are cheaper, because for many founders they are not.

The UK does not let go quietly

Moving abroad does not switch off the UK side of the structure.

Losing UK residence has a price of its own. Everything above treats the residence shift as a compliance problem. It is also a bill. When a UK-incorporated company stops being within the charge to UK corporation tax in respect of its trade, the trade is treated as ceasing (CTA 2009 s.41), which ends the accounting period and can strand losses and allowances. On top of that, TCGA 1992 s.185 deems the company to have disposed of its assets at market value immediately before it leaves and immediately reacquired them at that value, so latent gains on goodwill, intellectual property and investments crystallise at the moment of departure. Assets kept in a UK permanent establishment through which the company keeps trading are excepted. If the company's value sits in an asset you built cheaply and now carry at a high valuation, this exit charge, not the ongoing rate difference, is the number that decides whether the whole exercise is worth doing.

Director's loans. If you take money out as a loan rather than salary or dividend and it is still outstanding nine months and one day after the year end, the company pays a section 455 charge on the balance: 33.75% for loans made before 6 April 2026, 35.75% on or after. It is refundable once the loan is repaid, and your residence has nothing to do with it.

PAYE on a non-resident director. HMRC treats a directorship as a UK office, so payments for duties actually performed in the UK stay within PAYE even when you live abroad. All three treaties here put directors' fees in the company's state of residence rather than the director's, so the usual employment-income relief does not rescue that slice. Be precise about what counts: the directors' article covers remuneration you receive in your capacity as a board member. Your executive salary for running the business is tested under the employment-income article instead, which normally follows where the work is physically performed. Founders who are both director and chief executive have income on both sides of that line.

National Insurance. Whether NIC follows the PAYE answer is decided by the Protocol above, not by the tax rules, so the two can point in opposite directions in the same month. That is also why a UK-only accountant and a local-only accountant each give you half an answer.

And the CFC footnote. The Controlled Foreign Companies rules (TIOPA 2010 Part 9A; HMRC INTM194500) get raised in this conversation constantly, usually described wrongly. They run the other way, and they do not charge you personally. The charge falls on UK resident companies: a chargeable company is caught where its share of the foreign company's chargeable profits, taken together with those of connected persons, is at least 25%. An individual founder is not a chargeable company under Part 9A at all. The regime aimed at individuals who move income into a foreign entity is the transfer-of-assets-abroad code, a different set of rules with different defences. Either way, the target is someone who stays UK-connected and sets up a new low-tax foreign entity, not someone who moved abroad and kept an existing UK Ltd.

The clean alternative: draw a salary via a local entity (EOR/payroll)

For a large share of relocating founders, the cleanest structure is to stop treating the UK Ltd as the engine that pays you and take employment income through a local entity where you live. If you are employed and paid in Portugal, the income tax on your salary sits in Portugal by design, your social security sits there too, and you are no longer routing trading profits through a UK company you personally run from abroad. Relovisa's own Portuguese entity is built for exactly this, acting as the employer-of-record so the arrangement is real and compliant, not a paper shell. Our Portuguese employer-of-record setup explains how that works, the D3 versus D8 freelancer comparison walks through the routes, and the IFICI versus Beckham Law comparison covers how Portugal and Spain treat incoming founders differently.

State the limits plainly. Moving to a local salary does not retroactively fix a residence or PE problem you created by managing the UK Ltd from abroad; it changes the going-forward picture, not the past. It is not right for every business, particularly where the company has genuine substance, real UK-based directors and profits that need to stay inside it. And if the endgame is selling the company after you leave, the exit has a timer of its own: the UK's temporary non-residence rule can pull a gain back into UK tax if you return too soon, which we cover in the guide to temporary non-residence and CGT for founders.

Who this matters for (and who can relax)

The exposure is a matter of facts and degree, so it lands differently depending on how your company is actually run.

Highest exposure: the solo founder-operator who is the company, making every decision, signing every contract and doing the work, now doing all of it from Spain, Portugal or France. Effective management and the PE both point squarely at where you now live, and in Spain and France the treaty will not slow the claim down.

Lower exposure: the passive shareholder of a company with a functioning UK board, real UK substance (staff, office, decisions taken in the UK by people other than you) and directors who actually direct. If you are not the one running it from abroad, both arguments are much weaker.

Most relocating founders sit closer to the first profile than they would like to admit. Wherever you sit, this is a "check my facts with a cross-border or dual-qualified tax adviser before I move" situation, not a DIY call. The cost of getting it wrong is a corporate-tax bill in a country you did not expect to owe one, plus an exit charge on the way out of the one you did.

Frequently asked questions

If I move to Portugal, Spain or France and keep my UK Ltd, does my company become tax-resident there? It can, but not automatically. All three claim a company whose place of effective management is on their soil. What happens next depends on the treaty: the 2025 UK-Portugal convention sends dual residence to a negotiation, while the UK-Spain and UK-France treaties award it automatically to the state of effective management.

What is place of effective management, and how is it different from where my company is registered? Registration is a formality; effective management is where the real decisions necessary to run the business are made. A company registered in London but genuinely run from Lisbon can be treated as effectively managed in Portugal.

Is central management and control the same as place of effective management? Related, not identical. HMRC's manual says the two normally sit in the same place but may diverge, and a UK-incorporated company that loses a treaty tie-breaker stops being UK-resident under CTA 2009 s.18.

Can my UK company be taxed abroad even if it stays UK-resident? Yes, through a permanent establishment. The OECD's expanded Article 5 Commentary, approved on 18 November 2025, asks whether you work from home for more than half your working time over 12 months, and whether there is a commercial reason for the enterprise to be there. Convenience, retention and rent savings do not count. The Article 5(4) exemption for preparatory or auxiliary activity still applies on top.

Does France work the same way as Spain and Portugal? The mechanics differ, the outcome often does not. France taxes on a territorial basis under CGI Article 209, but a UK Ltd genuinely directed from France is normally treated as carrying on business there, and the treaty gives residence to the state of effective management outright.

What happens if the UK and Portugal cannot agree on residence? Article 4(3) ends by stripping the company of every benefit of the convention except Articles 21, 22 and 23: elimination of double taxation, non-discrimination and the mutual agreement procedure. Credit relief survives, so this is not raw double taxation, but the allocation rules, the reduced withholding rates and the business-profits protection all fall away. And the convention's arbitration Protocol covers only Articles 5, 7 and 9, so an Article 4 dispute has no binding backstop and nothing forces a conclusion.

Where do I pay social security if I run a UK Ltd from Spain, Portugal or France? Under the UK-EU Trade and Cooperation Agreement Protocol, normally where you actually work. A genuine posting can stay on UK National Insurance for up to 24 months with an A1 certificate; a founder who has simply moved joins the local system.

Is it simpler to just pay myself a salary through a local company instead? For many founders, yes: it puts income tax and social security where you live and stops you routing trading profits through a UK Ltd you run from abroad. It does not retroactively cure an existing residence or PE issue.

Do UK CFC rules affect me if I move abroad and keep my Ltd? Mostly not, and the usual description of them is wrong. Under TIOPA 2010 Part 9A the charge falls on UK resident companies, where a chargeable company's share of the foreign company's chargeable profits together with connected persons is at least 25%. An individual is not a chargeable company; the individual-facing regime is the transfer-of-assets-abroad code. Either way the target is a new low-tax offshore entity, not an existing UK Ltd whose owner emigrated.

Relovisa specialises in exactly this handoff: founders who need to be paid where they now live, through a compliant local structure rather than a company left running across a border by accident. If you are moving to Portugal, talk to us about the Portuguese payroll and employer-of-record setup or the D3 route.