Spain has its own set of corporate tax laws and owns corporate tax rates, which are different to other countries. Whether you are already running or still need to form a company in Spain, knowing what corporate income tax you will need to pay is essential. In this article, you can read everything you need to know. Keep in mind that this article is not professional advice and can contain outdated information. Always do your due diligence or contact an accountant in Spain for advice on your specific situation.
Corporate Income Tax Rate in Spain
Generally, the corporate tax rate in Spain is 25%. However, the tax rate can vary depending on the type of company and industry. For instance, if you are an entrepreneur, your newly incorporated company will pay the corporate tax rate at 15% during its first two years of operating.
It’s important to know that, unlike personal income tax, the corporation tax is not based on various income thresholds but is a fixed rate to be paid. In addition to a general corporation tax, companies must pay trade tax and municipal business tax, among others.
Corporate Income Tax (CIT) in Spanish is “Impuesto Sobre Sociedades”. It is the direct tax based on the profits made by companies and legal entities residing in Spain and its territories. The worldwide income and accounting profit are the main factors used to determine the tax base and amount paid by the corporation.
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Due dates for corporate income tax in Spain
The corporate income tax filings have to be done after 6 months ending the financial year, within 25 days. So usually between July 1st and July 25th of the following calendar year. There are also two advance payments to be made during the first six months of the company’s tax year and the second before the end of the year.
Types of companies that have to pay corporate tax
Companies that have been required to file corporate income tax and pay corporate tax are:
- Limited liability entities (such as the SL in Spain and SA in Spain)
- Civil companies
- Investment funds, pensions, venture capital, etc.
- Non-resident entities with a permanent establishment
- Non-resident entities that carry out business activities through a branch or dependent agent in Spain.
Corporate Income Tax Rates exemptions
As it has already been mentioned, while the general corporate tax rate in Spain is 25%, other rates may apply based on the type of company or the sort of business it conducts. Under certain circumstances and requirements, the following entities can be granted a different taxation rate under Spanish law:
- Listed collective investment institutions inclusive of real estate investment funds (1%)
- Certain cooperatives fiscally protected (20%)
- Entities engaging in oil and gas research and activities (30%)
- Listed corporations for investment in the real estate market (19%)
Resident companies pay corporate tax on worldwide income
Companies that reside in Spain are taxed on their worldwide profits. In other words, if a company is resident in Spain, the corporate tax rate will be on all of its income whether that may be from within or outside of the country.
Permanent establishments in Spain
A permanent establishment in Spain is a fixed place through which the business is wholly or partly carried out; an example would be if a company had its own branch in Spain. In other words, it is a workplace from which the company runs its operations.
If a non-resident company has a permanent establishment in Spain, it will pay corporation tax on its income derived from this establishment and profits attributed to the permanent establishment.
However, suppose a permanent establishment in Spain is considered a dependent agent. In that case, the Spanish tax authorities will consider that income as attributed to its parent company and thus not taxable in Spain. In this case, the dependent agent is completely dependent on another company and has complete control. In other words, if the company isn’t legally and economically independent from its principal foreign company, it won’t be taxable in Spain.
Spanish tax treaties with other countries
If you have business interests in another country, your country has likely signed a double taxation agreement (DTA) or an exchange of information agreement with Spain. These agreements aim to avoid the company being taxed twice on the same income – once by its domestic state and again by another state.
To avoid double taxation on your income or assets, a company must file the taxes correctly. Depending on your specific circumstances, you may be required to submit an income tax return in both countries. But while you may be required to file two tax returns twice, you won’t be charged twice for the same earnings.
Spain has many different tax treaties with other countries. You can find the double taxation agreements signed by Spain (in Spanish) on the website of the Agencia Tributaria.
The tax rate on branch offices in Spain
A branch office is an establishment through which the company performs its activities in Spain. The branch office will be flagged as a corporate entity. With this, the branch office will be treated as a separate legal corporate entity for tax purposes. It needs to be incorporated in Spain and apply for its own taxpayer reference number to declare taxes on the income derived from its activities in Spain.
The branch profits tax is not charged on corporations established in other EE.U.Member States/countries with which Spain has a tax treaty. However, if the branch office carries out activities independently of its parent company, or at least 50% of that income originates in Spain, then it is likely the company needs to pay income tax in Spain. Consult with a professional tax accountant to get more information on your particular situation.
Resident companies in Spain
Resident companies in Spain must pay capital gains tax in Spain. A resident company must:
- Be established in compliance with the laws in Spain.
- Have the company’s headquarters in Spain.
- Have management and overall control in Spain
Company residence in tax havens
Companies located in tax havens or zero-tax jurisdictions may be deemed Spanish tax residents under the CIT Law. The Spanish tax authorities deem this when
- Most of their assets are located in Spain.
- Most of their assets are used in Spain.
- Most of their activity is undertaken within the Spanish territory.
This may be overcome when the business is incorporated in a tax haven, and the domicile and effective management are there. There are compelling commercial reasons for having the company incorporated in the tax haven.
Corporations owning subsidiaries via intermediary companies
If corporations own subsidiaries or any form of indirect shareholdings in other companies, the tax rule is that they must pay corporate tax on all or part of such profits. The corporate tax rate payable will depend on the percentage held and whether it is a resident or non-resident company.
Spain corporate tax rate on newly-formed companies
Newly incorporated businesses are taxed at a 15% rate for both the first and following tax periods, regardless of whether they make a profit in either. It’s important to note that there are a few exemptions from this lowered rate, such as:
- Equity companies: Companies not engaging in business activity
- National or International groups: Newly created companies that are a part of larger groups or organizations
- Previous activity: Companies whose business was previously carried out by a related company or individual
What is the taxation period in Spain?
The corporate tax period aligns with the fiscal year of each entity or company and cannot exceed twelve months. The end date of the tax year should be identified in the by-laws of the company in question. If not, the closing date will be considered December 31st of each year. It’s important to note that the corporate income tax is accrued on the final day of the tax period.
In some cases, although the standard fiscal year may not have ended, the tax period is considered to have concluded. Early completion of a tax year will happen in the following situations:
- In case the entity or company is disbanded.
- When the legal residence of an entity or company is changed from a Spanish territory to a foreign territory.
- When the legal classification of an entity or company is changed, it would result in it no longer being subjected to a corporate income tax.
- If there are modifications or restructuring made to the company or entity that would result in a different corporate income tax rate or the application of a different tax regime.
What forms are required?
There are four primary forms used to file corporate tax reports in Spain:
Form 200: This form is used by companies and entities with residence in the Spanish territory subject to standard tax legislation, regardless of the size or activity.
Form 220: It is very similar to form 220. Only this type of return is mandatory for tax groups. The parent company of the group in question must file this return; however, it’s still required for each entity under this group to file individual returns using form 200.
Form 202: If your corporation had a positive tax result in the previous Form 200 submitted, then you are required to file this additional form. This form is considered an advance payment for your following Form 200 and is made in instalments in the months of April, October, and December. These instalment payments will subsequently be deductible from the amount to be paid of the Corporation Tax.
Form 222: Similar to Form 202, another mandatory payment instalment form for company tax groups.
Regarding forms 202 and 222, please note that if your tax result is negative in July (or the six months following your company’s fiscal year), you’re entitled to a refund of the amounts you prepaid. Additionally, you won’t be required to pay the total amount when your result is positive since you would have already partially paid in advance. All of these forms should be filed electronically.
All companies and entities liable for the corporate income tax are also required to maintain all of their accounting books in compliance with the Code of Commerce. Some of the documentation required includes:
- A journal is used to record all of the operations carried out for activities regarding business development. These must be listed in chronological order.
- An inventory book and annual account to be opened with a detailed initial balance sheet of the company. This book should be transcribed with all sums and balances and trial balances (the second accounting statement) at a quarterly minimum. The inventory at the end of the year (the third accounting statement) along with the annual accounts (the last accounting statement) is also required to be recorded there annually.
- Corporate books, including minute books, registered shares in joint-stock companies and limited liability companies, and the registration books of partners involved in limited liability companies.
The last accounting statement contains the annual accounts, including the balance sheet, profit and loss reports, statements of any changes in equity, all cash flow statements, and any notes regarding these financial statements. This last accounting statement is crucial for determining the company or entity’s tax base and all of the subsequent taxes owed.
It’s also imperative that these accounting ledgers are kept for at least six years following the last entry. In situations where the company in question is disbanded, it’s the responsibility of the liquidators to safeguard them for the remainder of the time necessary.
Additional Information: Spanish Tax Groups
There are several advantages to setting up a tax group in Spain. By doing so, multiple companies can apply a special tax consolidation regime for purposes related to the corporate income tax. With the possibility to offset profits and losses throughout the different companies in the group, it’s a beneficial structure that shouldn’t be ignored.
When a group’s parent company holds at least 75% of both the voting rights and the share capital of the subsidiaries it isn’t required to be a resident of the country for tax purposes. Thus, opening the door for multinational groups to utilize this structure.
Frequently asked questions
What are the penalties?
The tax authorities in Spain are rigorous on corporate income tax, and there are severe penalties for late tax filing or undisclosed assets. For example, suppose you neglect to disclose company assets such as accounts, shares, or real estate located overseas. In that case, fines of a minimum of 10.000 euros are subjected to you.
Additionally, assets that are not disclosed within the established time constraints will be considered unreported income. In this case, fines of 150% of the gross tax liability will be enforced.
Which companies and entities are exempt from the Corporate Income Tax?
There are two categories of exemption from the corporate income tax: total exemption and partial exemption.
Entities who can benefit from total CIT exemption include:
- The State
- Autonomous communities
- Local entities and their autonomous bodies
- Social Security management entities
- The Bank of Spain
These entities are all granted a total exemption, meaning they are not required to file tax settlement declarations, comply with registration or accounting requirements, and so on.
Some of the entities that are allowed partial exemption are as follows:
- Non-profit organizations
- Charitable or public utility entities and institutions
- Non-governmental organizations (NGOs)
- Professional or business associations
- Official chambers
- Political parties
A partial exemption means that these entities are still obligated to declare the income they obtained in a given financial year.
How are the tax base and corporate income tax calculated?
There are three methods used to determine a company or entity’s taxable income: the direct assessment method, the indirect assessment method, and the objective assessment method.
The direct assessment method applies to most corporations and is determined by evaluating the difference between the revenue and expenses of the entity during a given tax period. Thus, the taxable income is primarily based on the income disclosed in the company’s financial statements. However, in some cases, the income outlined in the accounting books may not be entirely representative of a corporation’s actual contribution capacity. In these situations, various corrections or accounting adjustments will be made by applying the tax principles established outlined in the legislation.
Therefore, the tax base (the amount to which the tax percentage should be applied) is determined through the overall income, expenses, deductions and any adjustments made in a company’s fiscal year.
It’s worth noting that in instances where the resulting tax base is positive, negative tax bases from previous years can be offset.
What other taxes need to be paid by corporations in Spain?
Revenue tax also has to be paid. This VAT tax in Spain will have to be paid quarterly, monthly, and yearly depending on the amount of revenue the company makes.
Is there a tax incentive to incorporate a company in Spain?
While the Canary Islands within Spain are considered a tax haven, Spain is not. However, there are many tax incentives, including the following:
- There is a lower tax rate for newly formed companies, 15% instead of 25%.
- Tax credits are available for research and development.
- There is a tax credit available for technological progress.
- There is a tax exemption/deduction to protect you from double taxation on both an internal and international level.
- There is a tax credit for investments in Spanish feature-length film productions.
- There is a special tax regime for listed real estate companies in Spain that make investments, called SOCIMIs. SOCIMIs enjoy certain tax breaks, including the exemption of both taxes on dividends and CIT.
There are also other tax incentives in Spain. When you work with us, we will make sure you are in compliance with all Spanish laws and regulations and we will reduce your tax rate when possible.
How does the Spain corporate tax rate relate to other countries tax rates?
The corporation tax rate in Spain is 25%. As of writing, above the EU average. The United Kingdom has a corporation tax rate of 19%, while Germany’s corporate income tax rate is 15%. France’s corporate income tax rate is 28.41%, and Ireland’s rate is 12.5%.
Guidance on your corporate income taxes in Spain
The procedures to file corporate income taxes are complex and require a deep understanding of Spanish taxation law. Suppose you’re unsure how to file your company’s taxes or would like advice on the process. We can help. Our team of experienced accountants are ready to assist you through the many challenges of corporation tax.
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Disclaimer: Information on this page may be incomplete or outdated. Under no circumstances should the information listed be considered professional legal advice. We highly recommend seeking guidance from a legal expert if you lack extensive knowledge or experience dealing with any of the procedures outlined in these articles.