Spanish Corporate Tax
Corporate tax (Impuesto de Sociedades) is a direct tax on corporate profits obtained within the taxation period, which normally coincides with the calendar year, unless a different period is stated in the company's articles of association. In any case, the tax period cannot exceed 12 months.
Spanish resident companies (considered Spanish resident if it fulfils any of the following conditions):
- If the company was incorporated under Spanish law.
- If the company's registered office is in Spain.
- If the company's management and head-office are located in Spain.
Tax Year and Filing
The time for making Corporate Tax returns depends upon when the financial year of the company begins. Under Spanish Tax regulations, the yearly tax returns must be made within 25 natural (i.e. uninterrupted) days following the 6 month period after the end of the financial year.
So, for example, a company that has its financial year end in Dec 31 must present its tax returns in the first 25 days of July of the following year. The tax return should be made even though the company did not carry out any activity and even though there is no income for the relevant period.
While it is possible to delay tax payments (up to certain limits) where the company finds itself in difficulties, such delays come at the cost of high interest. Failure to make the tax return will result in a fine.
All companies resident in Spain are subject to the tax. This includes all limited liability companies, Cooperative Societies, Public Companies etc. Also liable are all sorts of pensions funds, Capital Risk funds, Guaranteed investment funds etc even though they may not have legal personality. Not included are Civil Societies. Non-resident Branch offices with a permanent establishment in Spain are generally liable for corporate tax on their profits directly generated in Spain.
|Type of Company||Tax Rate Applicable|
|Less than 5 million Euro turnover;||25% during 3 years|
|Maximum of 25 employees;|
|Maintain employee numbers at same level as previous year|
|Less than 10 million Euro turnover;||25% on first 300,000 Euro, 30% remaining|
|All other Companies||30% flat rate|
A flat rate of 30% applies to all profits made by a company.
However, a special rate of 25% will apply on the first 300,000 Euro profit of those companies that have less than 10 million Euro turnover.
In May 2009 the Spanish Prime Minister also extended a lower tax regime of 20% on the first 300,000 and 25% on the rest of all income over a period of three years to all existing companies that meet the following requirements:
- Income of less than 5m Euros per annum.
- Less than 25 persons working.
- The workforce is maintained at the same level as in the previous year.
Since 2013 new start-ups are taxed only in the first period showing a positive taxable base. The first 300,000 Euros of taxable income will be taxed at 15% and the excess taxed at 20%.
These rates apply on the Company's net taxable base for the year as disclosed in the filing of company's tax returns. Before reaching that point it is of course necessary to consider any adjustments and discounts or deductions that may be applied to the company's net profit to lower the tax base.
It is useful to consider those expenses that may not be considered:
The following expenses may not be deducted from the company's taxable base:
- Gambling losses.
- Donations or gifts.
- Accounting expenses to compile corporate taxes.
- Fines and penalties.
Discounts and Deductions
So now on to those deductions that can be made to the taxable base. It is imperative to understand the types of discounts and credits that can be applied to reduce the taxable base however it should be noted that this is only a list of potential discounts and credits that may be applied depending on the circumstances.
Depreciation of assets. Ordinarily based on coefficients set out in table form in the relevant legislation
Discounts for double taxation both internally and internationally. Maximum discount is 100% for receipt of dividends from companies in which there is a 5% or greater participation.
Discounts and Deductions to Encourage Specific Economic Activity
Various tax incentives are available to encourage economic development in certain areas as well as encouraging certain activities considered to be of benefit to the community. While these tax breaks can be generous it should be pointed out that in the annex to the Law of Corporate Taxation (Texto Refundido de la Ley del Impuesto sobre Sociedades) that the total combined deduction may not exceed 35% of the taxable base. If for this reason it is not possible to apply any deduction, it may be carried forward to future tax periods.
Research and Development:
A discount of 25% may be applied to expenses incurred in the carrying out of R & D (if higher than previous two year, 42% on excess amount). Staff costs may also be reduced by 17% for the employment of qualified research employees. Individual projects have to be specifically identified. An 8% tax credit is available for investment in assets (excl buildings) exclusively assigned for R & D. The total of these tax discounts are capped at 3 million euros.
A 12% deduction may be applied to expenses incurred towards developing innovations in technology. A number of preconditions are specified including compliance with ISO 9000 and specifically mentions technological innovations for the improvement of industrial and engineering processes in the footwear, textile, toy and furniture industries. This cannot surpass 1 million euros.
Investment in environmental protection:
A deduction of 8% may be made for investments in projects that have as their objective the development of technologies that permit a reduction in industrial and marine pollution as well as regeneration of forests.
Every company that invests in training of its employees where such training provides retraining or updating of its employees may apply a discount of 10% to such costs. This applies not only to the actual training but also to the provision of materials and means such as equipment and internet connections to facilitate the training even outside of the workplace. The discount increases to 15% on increases in expenses over the average spent in the previous two years.
Film and audiovisual production:
Any company investing in the production of Spanish feature films, animated productions or documentaries may apply a discount of 25% on the costs of production. The costs must first be reduced by the amount of any government grant and also any other funds made available to the producer. The deduction is available until 2012.
Hiring of disabled employees:
A flat rate reduction of 9,000€ is available to those companies that increase the average number of disabled employees among their workforce with a 33-65% disability, and 12,000€ for employees with more than 65% disability.
Updated March 2014