• Which are the main taxes that apply to companies in Spain?
• When is Corporate Tax applied and what rates and deductibles does it have?
• How will VAT affect my business if I set up in Spain?
• What are the ETVE, Spanish holding companies, and how are they taxed?

Which are the main taxes that apply to companies in Spain?

According to the timeline of the business venture certain of the following taxes are more relevant, as well as others:

• Establishment. Since coming into force last December, 3rd, 2010, the Article 3 of the Royal Decree-Law 13/2010 of actions in the tax, labour field and liberalizing actions to promote the investment and the creation of employment, has left exempt from taxes for the modality of Company Operations of the Transfer Tax and Stamp Duty all those operations aimed to create, capitalize and maintain the companies (further information).
• Activity. In this phase, VAT as an indirect tax, as well as the Corporate Tax and Income Tax for Non Residents as direct taxes are the most significant. It is important to point out the following:

Impuesto sobre la Renta de los No Residentes (Non Residents Income Tax). This tax is levied on Spanish source income derived by a non resident person or legal entity. Taxation will be different according to the activity in question through an EP (further information) or without the participation of an EP (further information).

Impuesto sobre la Renta de las Personas Físicas (Personal Income Tax). This tax is levied on worldwide income obtained by individuals with tax residence in Spain. In the case of workers companies have to withhold tax on the amount paid out to their employees (further information). The scale of taxation ranges between 24% and 45%. However, these percentages do not apply to 100% of incomes, because there are deductible expenses, discounts and minimum thresholds per person and family that, in practice, imply that the average taxation rate is lower than these. Furthermore, there are a series of deductibles -- such as the investment in a principal household, company savings plans, etc. -- that can further reduce the taxation rate. And lastly, there is no need to declare income tax if certain annual minimum limits are not reached, such as an income of €22,000 from a single employer.

Also, income derived from certain financial investments (savings income) is taxed at a rate of 19% on the first €6,000 a year, and at 21% for income over said amount.

Local Taxes. There are certain taxes levied by local authorities that could be of greater or lesser importance depending on the nature of the business activity (further information).

Liquidation. The most significant fiscal costs will be those derived from the Capital Transfer Tax and Stamp Duty, under company transactions (further information)

When is Corporate Tax applied and what rates and deductibles does it have?

The company will have to pay corporation tax in Spain when it has a tax “residence” in the country, which occurs in cases in which the company:

a) Has been constituted according to Spanish law
b) Has a registered office in Spain
c) Has its actual management headquarters in Spain.

In case of a conflict of registered address, the regulations governing agreements to avoid double taxation signed by Spain with other countries are applicable (further information)


The general tax rate for taxpayers is 30%.

The taxable base on Corporate Tax is calculated according to the accountable earnings income and applying all the adjustment foreseen in Tax legislation.

The general tax rate on taxpayers is 30% and 25% for SMEs (Smes) (other tax rates). These percentages will be 20 and 25 % respectively when certain requirements on employment upkeep and turnover are met.

The legislation on Corporate Tax allows for a series of deductions, in particular those that would lead to avoiding double taxation and to foment investment and research and development activities.

The fixed establishment of non-resident entities will be taxed at the same rate as resident entities, with certain exceptions (further information).

How will VAT affect my business if I set up in Spain?

VAT is an excise tax on consumption and, saving certain exemptions, as a rule will not translate into a major cost for business owners or professionals.

However, it is important to point out that certain administrative costs will be derived from complying with the formal obligations given that businesses have the obligation to collect the tax from final consumers and transfer it to the tax agency.

Therefore, businesses carry the burden of VAT, in this case input VAT, for any purchases made. Businesses can regain or reduce this tax through the VAT charged to their customers for goods or services delivered, output VAT. In this sense, input VAT is reduced by the output VAT and it can incur financial costs.

The general taxation rate is 18%, but there are some reduced rates (further information).

What are the ETVE, Spanish holding companies, and how are they taxed?

The Spanish parent companies are known as ETVE (entities holding foreign securities). There is a special tax regime for these holding companies aimed at balancing the taxation of revenues derived from investments by foreign bodies, nevertheless the transaction must be notified to the Ministry of Economy and Finance (Ministerio de Economía y Finanzas) (further information).

 

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