Non-Deductible Expenses under Spain’s Corporate Income Tax Law 2025
Practical Analysis Focused on the Year-End Accounting and Tax Close of Non-Deductible Expenses under Spanish Corporate Income Tax 2025.
In this article, we analyze, through a practical case study, the expenses that the Spanish Corporate Income Tax Law (LIS) identifies as non-deductible. These are mainly regulated under Articles 15 and 15 bis of the LIS. However, it is important to note that not all non-deductible expenses are confined to these two articles; they also appear in Articles 13, 14, and 16.
The central characteristic of the list provided in Article 15 is that, in general, all expenses listed there—if booked in the accounting records—must be added back to the tax base through a positive adjustment when preparing the corporate tax return. In most cases, this is treated as a permanent difference for accounting purposes.
According to Article 15 of the LIS, the following expenses are not considered tax deductible:
a. Expenses representing a remuneration of equity capital.
This includes any payments derived from equity instruments or shares, regardless of their accounting treatment. Also included are participative loans granted by entities in the same group as defined in Article 42 of the Spanish Commercial Code, regardless of their residency or the obligation to prepare consolidated financial statements.
b. Corporate Income Tax charges themselves.
The tax itself is not deductible, nor are entries accounting for it considered income.
c. Penalties and surcharges.
This includes criminal and administrative fines, surcharges from the enforcement period, and surcharges for late filings without prior notice.
d. Gambling losses.
e. Donations and gratuitous expenses.
Exceptions include:
- Client or supplier entertainment expenses (within 1% of annual turnover).
- Expenses customary for staff (e.g., Christmas hampers).
- Marketing and promotional expenses directly or indirectly related to sales.
- Management salaries if tied to employment or executive functions.
f. Expenses related to unlawful actions.
g. Expenses for services involving entities in tax havens, unless the taxpayer proves that the transaction was genuine and properly documented.
h. Financial expenses related to intra-group acquisitions of shares or capital contributions, unless the taxpayer can demonstrate valid economic reasons.
i. Severance payments exceeding either 1,000,000 euros or the mandatory compensation under labor law.
j. Impairment losses of equity instruments in certain cases where exemptions under Article 21 apply.
k. Fair value losses on equity instruments if not previously included in taxable income as a gain.
l. Stamp duty on certain notarial deeds.
Case Study: Monde SA’s Fiscal Year 2X21
Monde SA reported the following expenses with €20,000,000 in net annual turnover:
1. Use of a company-owned apartment by a majority shareholder for opening a branch office are:
The shareholder, not working for the company, used a beachfront apartment purchased for €200,000 (25% land). Expenses:
- €15,000 mortgage interest.
- €5,000 maintenance.
- €3,000 depreciation
Total: €23,000
These are considered a form of dividend in kind and not deductible. Adjustment required: €23,000. In addition, a withholding tax of €1,842 must be applied under Article 90 of the Spanish Personal Income Tax Law.
2. Corporate tax and penalties recorded in account 631.
- €452,000 Corporate Income Tax for 2X20: not deductible.
- €2,000 surcharge for late VAT payment: not deductible.
- €50,000 tax penalty: not deductible.
- €20,000 interest for late payment (from 2X17 inspection): deductible under recent Supreme Court rulings.
Adjustment required: €504,000.
3. Public relations expenses: €10,000.
Deductible, as they relate to customer engagement and fall within the 1% turnover limit.
4. €5,000 advertising donation to a sports club.
Deductible if supported by an invoice, as it qualifies as advertising, not a gratuitous donation.
5. Donation of a commercial unit.
The unit had a book value of €10,000 and a market value of €30,000.
- €10,000 is not deductible under Article 15.e.
- A taxable gain of €20,000 must be reported under Article 17.
Total adjustment: €30,000.
6. €400,000 in undocumented commissions.
These are treated as illegal and therefore not deductible under Article 15.f.
Adjustment: €400,000.
7. Severance payment of €1,300,000 to an executive.
Only €1,000,000 is deductible. The excess of €300,000 must be added back.
Adjustment: €300,000.
8. Client entertainment expenses: €250,000
Only 1% of turnover is deductible, i.e., €200,000. €10,000 already used elsewhere, so only €190,000 deductible here. The rest, €60,000, must be adjusted.
Adjustment: €60,000.
9. Donations to a political party: €50,000
Not deductible. However, under Law 8/2007 and Law 49/2002, a tax credit of 35% or 40% may apply if requirements are met.
Adjustment: €50,000.
Summary of Adjustments to Tax Base
- Apartment use: +€23,000.
- Tax and penalties: +€504,000.
- Donation of premises: +€30,000.
- Severance payment: +€300,000.
- Excess client entertainment: +€60,000.
- Political donations: +€50,000.
Total tax base increase due to non-deductible expenses: €1,367,000
Conclusion
This case demonstrates the importance of understanding which expenses qualify as deductible and which must be excluded from the tax base under Spanish Corporate Income Tax rules. Strong Law incwell can help your company correctly classify and justify all expenses in compliance with Spanish tax law. Our bilingual team offers precise guidance for international businesses operating in Spain.