Corporate income tax applies to entities that are tax resident in Spain. Tax-resident entities are taxed on their worldwide income.

An entity is considered resident in Spain for tax purposes if it has been formed in accordance with the laws of Spain, or if it has its registered office, or its effective place of management, in Spain.

In general: Tax base = income/loss per books ± certain non-accounting adjustments provided for in the Corporate Income Tax Law.

In Spain the corporate income tax rate is 30%. Lower tax rates apply in certain cases, such as in the case of enterprises of a reduced size.

The tax principles governing the recognition of revenues and expenses generally coincide with accounting principles.

As a general rule, assets must be valued under the methods provided in the Commercial Code. Despite this fact, any variations in their value caused by applying the fair value method will have no effect for tax purposes if they do not have to be taken to income.

Notwithstanding the above, in certain cases, market valuation (i.e. valuation on an arm’s-length basis) must be applied for tax purposes.

The tax authorities may value for corporate income tax purposes transactions between related entities at their normal market value regardless the fact that the value agreed on by the parties leads or not to lower taxation in Spain than that which would have been the case had the normal market value been used, or to deferral of such taxation.

Market value between related entities is determined by applying OECD methods. Advance pricing arrangements (APAs) can be reached with the tax authorities.

It is an obligation for the taxpayer to value its transactions with related parties at their normal market value, being compulsory to keep at the tax authorities disposal certain relevant documentation supporting the valuation made and other documents relating to their transactions with related parties in general (although the regulation establishes exceptions to this obligation).

The tax deductibility of expenses depends on the fulfillment of certain requirements. Expenses that are not deductible include dividends, expenses from accounting for corporate income tax, gratuities, fines or penalties, and expenses incurred in transactions with persons or entities resident in tax havens (unless the payer can prove that the expense arose from a transaction effectively performed).

The thin capitalization ratio in Spain is 3 to 1. It will not apply where the related entity is resident in another EU Member State, unless it resides in a territory classed by regulations as a tax haven.

In general, amortization/depreciation is only a tax-deductible expense if there is an actual decline in value and it is recorded for accounting purposes. If the taxpayer uses the amortization/depreciation rates established in the official tables (or in other regulated methods), he does not need to prove that there is an actual decline in value.

As for capital gains , gains on transfers of assets are treated as any other item of income. If certain requirements are met, a 12% tax credit can be taken on gains obtained on transfers of tangible fixed assets, intangible assets or long-term investments, effectively reducing the final tax rate to 18%.

There are also tax credits for certain activities, including those relating to R&D and technological innovation.

Starting on January 1, 2012, the application of the tax credit for training expenses has been extended for fiscal years 2011 and 2012 in respect of expenses derived from investments made to encourage employees to use new communication and information technologies. (Change introduced by Royal Decree-Law 20/2011, of December 30, 2011, on urgent tax and financial budgetary measures to redress the public deficit.)

Tax credit applies for investments made in tangible assets used to protect the environment, consisting of facilities that prevent air or noise pollution from industrial facilities, or pollution of surface, ground or sea water, or that are used to reduce, recover or treat the investor’s own industrial waste has been kept. (Change introduced by Sustainable Economy Law 2/2011, of March 4, 2011, effective for tax periods commencing on or after the entry into force of this Law, that is, March 6, 2011.. The Directorate-General of Taxes has clarified that for tax periods commencing between January 1 and March 5, 2011, a tax credit of 2% will apply, which is the rate for this tax credit that applied before the new legislation was enacted.)

Spain also offers tax credits to avoid domestic and international double taxation, as well as a highly attractive dividend and foreign-source capital gains exemption system.

As a general rule and effective starting in the fiscal year commencing in 2012, enterprises can offset their tax losses against income obtained by them in the tax periods ending in the following 18 years.

This 18-year period for offsetting tax losses will also apply to losses that were outstanding at the beginning of the first tax period commencing on or after January 1, 2012.

Royal Decree-Law 9/2011, applicable for tax periods commencing in 2011, 2012 and 2013, has limited the offset in those years of tax losses generated in previous years by entities whose turnover in the twelve months preceding the start of the tax period exceeds €20 million:

• If the entity’s turnover in those twelve months is at least €20 million, but below €60 million, the offsettable losses will be limited to 75% of the tax base prior to that offset.
• If the entity’s turnover in those twelve months is at least €60 million, the offsettable losses will be limited to 50% of the tax base prior to that offset.

Consolidated tax regime

Certain groups of companies may be taxed under the consolidated tax regime. To qualify for the regime, the parent company must have a holding in its subsidiaries of at least 75% . (Law 11/2009, of 26 october 2009, that regulates the legal and tax regime of real estate investment listed corporations, introduced a reduction of the minimum participation from 75% to 70% for a parent in its subsidiaries in respect of the consolidation of accounts if the subsidiary is a listed company. This change applies for taxable periods starting 1 January 2010.)

Other specific incentives and special tax regimes that investors may find attractive

• Foreign-securities holding entities (ETVEs), which are also known as "Spanish holding companies": the regime governing these entities is one of the most competitive in the EU, since, unlike other regimes, under certain circumstances, not only is a Spanish holding company not taxed on its foreign-source income and/or gains, but also it is not taxed on the income it distributes to its shareholder, or on the gains arising when the shareholder sells its stake in the holding company.
• Tax neutrality regime for restructuring transactions, along the same lines as in the other EU Member States.
• The Canary Islands tax regime: the Canary Islands offer a number of tax benefits aimed at compensating for the disadvantages caused by insularity and distance from mainland Spain (e.g. certain reductions in the tax base, substantial tax credits, and a special zone in which the tax rate for companies is 4%).
• Reduction in revenues from certain intangible assets: only 50 percent of the revenues from licenses to use or work patents, designs or models, plans, secret formulas or processes, or information concerning industrial, commercial or scientific experience, shall be included in the tax base subject to the fulfillment of certain requirements.
• Accelerated depreciation will be allowed for investments in new property, plant and equipment and investment properties used for economic activities, received by the taxpayer in the tax periods commenced in 2011, 2012, 2013, 2014 and 2015 (Additional Provision No. 11 regulating the unrestricted depreciation of new fixed assets has been amended by Royal Decree-Law 13/2010, of December 3, 2010, on procedures in the area of tax, labor and deregulation to promote investment and job creation, effective for tax periods commencing on or after January 1, 2011, removing the employment maintenance requirement) without needing to maintain employment. The deduction will not be conditional upon whether it has been recognized in income.

 

For further information, visit the extended version of our online Guide to Business:

Tax system

Legal framework and tax implications of E-commerce in Spain

 

Prepared by Garrigues

 

Last updated: 09|03|2012