Corporate taxes in Spain

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 Law and Compliance 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. As of January 1, 2023 a reduced tax rate of 23% was introduced for entities whose net turnover for the immediately preceding tax period is less than 1 million euros.

Corporate Income Tax (Impuesto de Sociedades): national

Spain's standard corporate income tax rate is 25%, except for a few exceptions (such as ZEC entities in the Canary Islands). New entities get a tax rate of 15% in the first year where a profit is posted, as well as the year after that.

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. Read more at VAT tax in Spain.

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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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 60,000€ 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.

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.