Corporate taxes in Spain

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When there is more than one country involved, tax planning requires a level of expertise that few firms can offer. Many of our clients pay personal taxes and business taxes in a foreign country, as well as personal and business taxes in Spain. Strong Abogados has expert advisors who can guide you regarding the proper distribution of assets, dividends and salaries, as well as where to determine residence in order to optimize your overall tax burden.

Articles:
NIE, CIF, VAT#: Understanding the terms
Corporate Taxes
Personal Taxes (residents and non-residents)

FAQs:
Can I save on personal income taxes by creating a company?
What tax forms need to be filed for a Spanish company?
What is a holding company?

Links:
Agencia Tributaria Spain's tax agency
See the Ministry of Industry's article on corporate taxes [English]

 

Can I save on personal income taxes by creating a company?

In some cases, yes. By creating a Spanish company, your earnings are then subject to the corporate tax rate, which is lower than the top personal tax rate. Maintaining a Spanish company, though, carries accounting and tax filing obligations, so there are costs involved. As a general rule, if you earn more than 50,000€ a year, it's time to start considering company formation as an option. Note that this option is only for those who are self-employed; if you are on payroll, then you will need to convince your company to hire you as a consultant.

Example: Stan is a resident of Spain and earns 100,000€ doing consulting work for an American company. Stan has two choices:

  • Pay personal income tax in Spain (if he's paying income tax elsewhere then this can be reduced). Stan is in the top income bracket, so he will pay around 40,000€.
  • Establish an SL, and the SL pays him. Stan's company initially pays a corporate tax of 25% (this later rises to 30%). However, corporate tax deductions are extensive in Spain. Stan deducts housing, car, and food for 50,000€. 25% of the remaining 50,000€ is 12,500€, so the savings are well worth the costs of SL creation and accounting. With an SL, there are more options: money that Stan doesn't plan to spend in the near future can be put in the company reserves, making it nontaxable.

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What is a holding company?

In Spain, these are companies whose main activity is directing and managing their ownership interests (direct or indirect holdings of at least 5%) in non-resident entities, and the financial resources directly related to such investments. Their business activity may also include the rendering of services (including financial services) to the companies in which they invest and to companies in the same corporate group. The main characteristics differentiating the special tax rules for holding companies from the general code are:

  • Capital gains on share transactions within the holding company are tax-exempt.
  • Dividends that the holding companies pay their non-resident investors are tax-exempt, as long as those investors are not based in so-called tax havens.
  • Spanish resident individuals who perceive dividend payments from holding companies will not be able to deduct all dividends but rather only those taxed abroad.

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NIE, CIF, VAT#: Understanding the terms in Spain

  • NIE (Número de Identificación de Extranjero): This is your identification number in Spain. It is needed in order to file taxes, buy property, establish a business, open a bank account, and for almost all other forms you fill out. Both EU citizens and non-EU citizens get issued a NIE. The NIE consists of an 'X' or 'Y' followed by 7 or 8 digits then another letter. See our NIE application guide.
  • DNI (Documento Nacional de Identidad): This is the ID number for Spanish citizens. The same number is used for one's driver's license.
  • NIF (Número de Identificación Fiscal): This is the generic term for the tax ID number for all individuals. For Spaniards, it's the DNI plus one letter; for foreigners, it is your NIE.
  • CIF (Certificado de Identificación Fiscal): This is the tax ID number for all companies. It consists of a letter followed by 8 digits. The letter represents the type of company, the most common being an 'A' for Sociedad Anónima or a 'B' for Sociedad Limitada. For companies nonresident in Spain, the letter is 'N'.
  • VAT number (Número IVA): This is 'ES' followed by the CIF. If you applied for intracommunitary VAT exemption and your company has been approved, then this number will be listed in the EU VAT registry.
  • Social Security Number: You apply for this number when you start your first job in Spain. This number then stays with you for all subsequent jobs. If you are self-employed, you apply yourself for this number.
  • CCC Number (Código de cuenta de cotización): This is the employer's social security number.

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Corporate Taxes in Spain

Corporate Income Tax (Impuesto de Sociedades): national
Spain's standard corporate income tax rate is 35%.
Companies with yearly sales of less than 8 million euros may qualify for certain tax incentives:

  • A tax rate of 25%, applicable to the first 120,000 euros of taxable income.
  • Accelerated depreciation of certain fixed assets.
  • A 10% tax credit for investments and expenses in internet, information technology, and communications.

VAT Tax (IVA): national
The purpose of VAT is as a tax on end-consumers; businesses are generally entitled to deduct VAT borne against VAT charged.

Tax on Business Activity (IAE): local
As of 2003, this tax is waived for businesses that have a profit of under one million euros. This is an annual tax paid by businesses operating in the municipality. This tax rate depends on many factors, such as size and location of the business, the type of business, and number of employees.

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