Inspections, Compliance, Litigation, VAT
Are you concerned about Corporation Tax in Spain? Setting up shop in the country is not necessarily difficult, and can effectively be done in a relatively short period of time. However, the way your firm is established and connected to your headquarters (whether in Britain or elsewhere) can have a strong impact your first couple of months. This key period is vital to guarantee the success of any business, large or small, and it is important to establish good practices from the start. This is particularly the case for Corporation Tax.
What Are the Key Taxes for Corporations in Spain?
Del Canto Chambers is specialised in financial affairs across borders. This is not just thanks to its excellent contacts in both Spain and the UK, but also because of our ability to act in both jurisdictions. That is, our lawyers are fully aware of the distinctions between both tax regimes and can advise on which arrangements are both fully compliant and most beneficial to your objectives. In particular, they can explain the differences between the different tax treatments for public companies, limited companies, and partnerships. All of them are taxed under the Corporate Income Tax.
This general Corporation Tax rate is 25%, but there are exceptions for newly formed companies and incentives for profit reserves; incentives for investments in innovation; and other regulations which are specifically designed by the 17 Autonomous Community governments. Many of these conditions will change depending on your business’ incorporation in Spain. Rules also differ depending on the corporate and capital structure of business groups. As a result, it can be hard to navigate all of these particularities.
Additionally, the Value Added Tax in Spain is 21%, but has reduced rates for goods and services. Certain lines of business and economic sectors can apply different regimes; others are exempted from VAT altogether. Territorial differences within Spain also impact this tax. The Canary Islands, and the Autonomous Cities of Ceuta and Melilla have special exemptions for various reasons and for different goods and services.
On top of all of these existing complexities, the many banking and accounting scandals during Spain’s recent crisis have resulted in stronger compliance; both through Spanish and European law. The Tax Authority in Spain conducts regular inspections to investigate individual and corporate citizens and assess their responsibilities under the current regime. However, there is a very specific path through which the outcome of these inspections can be claimed. A dedicated tribunal takes care of these issues, which can then be elevated to regular courts of law. Moreover, there are statutes of limitations for some claims on overpaid tax.
Del Canto Chambers has spent decades advising individual and corporate clients. Its lawyers have dealt with some of the most difficult cases in recent history, such as the claims against Spanish banks for unfair terms on mortgages. In the private sector, they have helped them kickstart operations and safeguard them against risk by carefully analysing their corporate, capital and other structures and aligning them with the most appropriate tax regime.
What is the Criteria for Calculating the Tax Base and Corporate Tax Rates?
First, there is a difference between companies which are resident in Spain and non-resident corporations. The former acquire the status if its incorporation has followed Spanish law, it has registered offices in the country (or its headquarters). This means they will be taxed both on global income and capital gains. On the other hand, non-resident corporations are only taxable for those incomes and capital gains accrued in Spain.
Taxable income is established through direct assessment: authorities examine financial results on company statements and apply corrections based different criteria. For instance, certain expenses incurred in business activities can be tax-deductible; and sometimes it is better to assign tax payments to different financial years. All in all, British and other foreign businesses that wish to operate in Spain will benefit from the experience of specialists like those at Del Canto Chambers. This is because they are used to the timings and priorities of the Spanish administration, and the particular issues they prioritise when dealing with non-Spanish investors.
Which Are the Most Important Corporation Tax Details to Take Into Account?
As mentioned, Corporation Tax collection works through self-assessment; later, the information is checked by authorities. Corporate taxation reports must be submitted six months after the end of the tax year. In terms of payments, there are four instances through the year when they should be made: April, October and December; and with the submission of the annual reports.
Income differences apply. Firms earning more than EUR 6 million must apply a 17% rate on taxable income for advance payments (for those companies taxed at the general rate). SMEs, on the other hand, can choose to do the same as larger companies or, instead, apply a selected rate on tax paid on their last advance. Finally, firms exceeding EUR 10 million make a minimum advance of 23%, excluding income originating in certain situations. There are other specific rates for companies operating in various sectors. Some types of firms in the financial and real state sector do not even have to submit tax returns. Royalties, distributed dividends and certain assets are exempt from Corporation Income Tax.
Which other Corporation Taxes Should my Company Be Concerned About?
Besides Corporation Income Tax, firms that wish to operate in Spain are liable for additional payments that also act as taxes.
- Payroll tax: The firm must make sure it secures income taxes from employees.
- Social security: Permanent contracts require that employers cover about a third of social security payments to complement the employees’ 6%. In particular sectors, the firm must also save a small percentage.
- Capital duty: Company liquidation or capital reductions that imply allocations to shareholders are charged 1% duty.
- Real estate tax:: This is managed by local authorities and is usually around 1% of the company property’s registered value. However, certain zones have higher taxes than others. There are additional charges depending on the residential status and tax structures of corporations and their owners.
- Stamp duty: Also known in Spanish as “AJD”, this refers to the cost of notarised documents and other files recognised by authorities. It varies across regions, but is never above 3%.
- Business activity tax: Different across sectors and sizes.
Manage complex Spanish Tax Laws with professionals
As you can see, the sectorial and geographical diversity of Spanish Corporate Taxation makes it quite risky to employ British or other international law advisors when establishing your activities in Spain. Rather, it is safer to hire lawyers like those working at Del Canto Chambers, who have expert knowledge and a successful track record across jurisdictions.