Corporate tax, also known as Corporate Income Tax (IS), applies to companies and other entities that are tax residents in Spain and are taxed on their worldwide income. A company is considered resident in Spain for tax purposes if it has been formed under Spanish law, has its registered office or its effective management office in Spain.
In Spain, EBT (Earnings Before Taxes) are generally taxed by a fixed % that can vary for companies under certain requisites. However, there are also various tax incentives in place for businesses that invest in research and development and technological innovation or other activities encouraged by the government. Additionally, there are tax credits available to avoid domestic and international double taxation, as well as an exemption system for dividends and capital gains from foreign sources. The Spanish Kingdom has around 100 DTAs (Double Taxation Agreements) with different countries in place.
Expenses incurred by a business are generally deductible for tax purposes, with some exceptions. These include dividends, gratuities and fines or sanctions. Amortization and depreciation of fixed assets is also a tax-deductible expense as long as it is effective and accountable. Capital gains, or income derived from the transfer of assets, is considered income and taxed at the rate applied to other income. If the resulting tax base is positive, it can be offset by negative tax bases from previous tax periods. The law imposes time limits on the allocation of certain types of losses.
Spanish tax law envisages the possibility of certain corporate groups being taxed on a consolidated basis. The filing of a consolidated return has certain advantages, most notably the fact that the losses obtained by some group companies can be offset against the profits of the others. Also, since inter-company profits are eliminated in calculating consolidated income, test being applied in the valuation of inter-company transactions could be irrelevant.
Lastly, Foreign Securities Holding Companies, also known as ETVEs or “Spanish holding companies,” have a particularly competitive tax regime in place. Under certain circumstances, not only is the holding company’s income from foreign sources not taxed (95%), but neither is the income it distributes to its partner or the income it declares when the partner transfers its stake in the holding company.
In conclusion, the corporate tax landscape in Spain is complex and ever-changing, but with a tax planning and strategy set up, businesses can minimize their tax liabilities and ensure compliance with tax laws and regulations.
