Corporate tax rates in Spain are set to drop five points

On 28 November, Spain's Official State Gazette announced a tax law reform under which the government is determined to boost financial growth, create employment and encourage business competitiveness. This reform entails changes in company tax regulations, which will make Spain a more attractive destination for foreign investment.

In fact, a general reduction in corporate tax rates has been approved which involves a drop from 30% to 28% as from 1 January, with it set to drop still further to 25% over the course of the year. Another novelty is the so-called 'compounding reserve', which spares companies from paying tax on up to 10% of taxable items, provided that percentage is put aside in an unaccessible reserve. This encourages company capitalization in the form of an increase in their own funds, as well as keeping companies more financially healthy and boosting competitiveness.

This measure is introduced to replace the concept of benefit reinvestment, giving rise to a reduction in the requirements and formal obligations that the latter entailed and making procedures more simple. Indeed, one of the goals of the new tax regulations was to reorganize deductions. Deductions that encourage job creation remain, while deductions intended to promote investment in R&D are boosted. 

According to the Spanish Tax Office, the entry into force of this tax reduction will help draw in foreign investment in Spain and create employment. On the one hand, Spain will become more attractive to businesses in search of new horizons for their international expansion projects. Spain offers them highly qualified labor, tax duties that will now be much lower, and competitive prices. On the other hand, foreign companies will be interested in a country that has successfully pulled through the recent recession and has shown high growth rates over the last few years.

In June last year, when the regulations governing this tax reduction were still in process, the Spanish government estimated that the tax reform would have a positive impact on Spain's GDP of a further 0.55%.

In addition the above, the new tax reform on the whole will provide taxpayers with greater revenue, which in turn will help to improve figures linked to consumption and financial growth.

Last updated: 09|12|2015

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