Corporate income tax applies to entities that are tax resident in Spain. Tax-resident entities are taxed on their worldwide income, and 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 Corporate Income Tax Law 27/2014, of November 27, 2014.
The tax principles governing the recognition of revenues and expenses generally coincide with accounting principles, although special tax rules do exist. For example, the recent tax reform has introduced a number of deadlines on the tax deductibility of losses on transfers of assets between group entities (until the assets are transferred to a third party outside the group, until the assets are removed or until either entity (transferee or transferor) leaves the group) or, in general, on the deductibility of the impairment for the depreciation of assets, until their transfer or removal.
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.
It is also 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). Market value between related parties is determined by applying the OECD methods. There is a possibility of executing Advance Pricing Agreements (APAs) with the tax authorities.
Notwithstanding the above, the tax authorities can value at normal market value, for corporate income tax purposes, transactions between related persons or entities, even if the value agreed by the parties did not lead to lower taxation in Spain than that which would have resulted from application or the normal market value, or to deferral of such taxation.
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).
On the other hand, in place of the traditional thin capitalization rule, there is currently a general limitation on the deductibility of net finance costs (regardless of whether or not the debt is with related parties) that exceed the limit of 30% of operating income (EBITDA) of the year. However, in any case, net finance costs of the tax period of up to €1,000,000 will be deductible. The amount exceeding said 30% limit of operating income can be deducted in following years, without a deadline, up to the overall limit of 30% of the operating income of the period.
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), it 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 and are taxed at the rate applicable to such other income. For 2015 and the following years, the tax credit on gains obtained on transfers of tangible fixed assets, intangible assets or long-term investments (which, on general terms, limited the taxation to 18%) has been eliminated.
If the resulting tax base is positive, it can be offset against the tax losses incurred in previous tax periods (from years commencing in 2015, without a deadline). There is a quantitative limit, however, according to which the amount offset cannot exceed a percentage of the positive tax base prior to offset (60% in years commencing in 2016 and 70% for years commencing in 2017), it being possible in any case to offset up to a limit of €1 million. For 2015 (as occurred from 2012 through 2014) the limit on the amount offset only applies to entities whose turnover during the 12 months preceding the beginning of the tax period exceeds €6,010,121.04, as follows:
Between €20 million and €60 million
More than €60 million
In Spain, the general corporate income tax rate is 25% (28% in 2015). Reduced tax rates are applied in certain cases, for example, to newly formed entities engaging in economic activities or to open-end investment companies.
There are also tax credits for certain activities, including those relating to R&D and technological innovation.
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. In fact, the new Corporate Income Tax Law includes a general exemption system for significant holdings, applicable both domestically and internationally.
Consolidated tax regime
Certain groups of companies may be taxed under the consolidated tax regime. For tax purposes, a consolidated tax group is the group of entities resident in Spain in the capital stock of which either a resident or a nonresident entity owns a direct or indirect holding of at least 75% and holds the majority of the voting rights in one or more other entities treated as dependent entities on the first day of the tax period in which this tax regime is to be applied.
Other specific incentives and special tax regimes that investors may find attractive
1.- 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.
2.- Tax neutrality regime for restructuring transactions, along the same lines as in the other EU Member States.
3.- 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%).
4.- Reduction in revenues from certain intangible assets: only 40 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.
Last updated: 19|06|2015