Corporate taxes in Spain

Articles:
ID Numbers
Corporate Taxes
Personal Taxes (residents and non-residents)

FAQs:
Can I save on 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 [Spanish] Spain's tax agency
Ministry of Industry article on corporate taxes [English]

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 tax forms need to be filed for a Spanish company?

The more common forms (modelos) that need to be filed for an SL are:

• Form 110 (quarterly): Withholding tax (IRPF) due for the company's employees and for any invoices received that have withholding tax retained. These are generally invoices from self-employed people (autónomos), including notaries. See sample Modelo 110.
• Form 190 (annual): Annual summary of withholding tax.
• Form 115 (quarterly): Withholding tax from rental of business premises.
• Form 180 (annual): Annual summary of withholding tax from rent.
• Form 300 (quarterly): Net VAT tax due. This is usually equal to the VAT tax received minus the VAT tax paid. If you have received more than you have paid, then you need to pay the difference. If you have paid more than you have received, then at the end of the year, you can carry it over to the next year (compensar), or have it returned (devolver). See sample Modelo 300.
• Form 390 (annual): Annual summary of VAT tax.
• Form 347 (annual): Annual summary of operations with other companies. A report listing all companies that you do business with, where the total invoicing is over 3000€.
• Form 349 (quarterly): Declaration of intracommunitary tax.
• Form 200 or 201 (annual): Corporate tax form.
• Form 202 (3 times per year): Estimated tax payments for the current year, based on corporate taxes paid last year.

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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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ID Numbers in Spain

• NIE (Número de Identidad de Extranjero): The immigration service issues this number to you once you have made your application in person at your nearest office. 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' followed by 7 or 8 digits then another letter.
• 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.
• European VAT number (Número IVA): This is 'ES' followed by the CIF.
• Social Security Number: Your employer applies 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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