Tax: the Taxation of Companies in Spain

In Spain, companies are taxed in a variety of ways. Understanding the system - and how it will work best for you - is essential if you want to do business in Spain via a company. This is an area where detailed professional advice is a must but it is still helpful to have a basic understanding of the system before you see your accountant.

This guide covers…

This guide deals only with the taxes payable by companies in Spain. For the taxation of real people – personas fisicas – see here.

It deals with the taxes of companies classed as tax-resident in Spain as well as the taxes of those not tax-resident in Spain. It should help you decide which group you fall into, what you will have to pay and when you will have to pay it.

Is will also help you understand whether you and your company will still have to pay any taxes ‘back home’ and how they will be calculated.

Finally, a warning. Spanish tax law, like the tax law in almost every country, is incredibly complicated. In this guide we can only give you a rough outline of its main provisions but there is an awful lot of “small print” that can apply to you and completely change your position. Always seek advice from a specialist tax adviser, whether that is an accountant or a tax lawyer.

Tax Identification Numbers in Spain

Before we start to look at the question of the taxes a company has to pay in Spain, it is worth saying something about tax identification numbers. At first sight, the position seems a little complicated but, on closer examination, it is more logical and straightforward than you might think.

Each company is likely to have several tax identification numbers and each individual working in it will have at least one.

The company’s tax ID numbers

  • CIF (Certificado de Identificación Fiscal): This is the tax Identification number for all companies in Spain. 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 non-resident in Spain, the letter is ‘N’.
  • VAT number (Número IVA): This is ‘ES’ followed by the CIF.
  • CCC Number (Código de cuenta de cotización): This is the employer’s social security number.

Individual’s tax ID numbers

  • NIE (Número de identificación de extranjero): This is the identification number for non-Spanish people with activities in Spain. It is needed for almost every interaction with the state or administration. See our Guide to Spanish Tax for Individuals for more details.
  • DNI (Documento Nacional de Identidad): This is the number on the ID card held by all Spanish citizens.
  • NIF (Número de Identificación Fiscal): This is the generic term for your tax ID number. For Spanish citizens, it’s their DNI number plus one letter; for foreigners, it is their NIE.
  • Social Security Number: You apply for this number when you start to work in Spain.

Introduction

In this guide we use the term “company” to mean any entity with a legal status distinct from that of its owners. This includes most types of corporations (SAs, SLs etc) and most partnerships. As to the types of company available in Spain, see our Guide to Starting a Company in Spain.

People running a business in their own name should see our Guide to the Taxation of Individuals in Spain.

The type and amount of tax that a company will pay in Spain depends upon the type of company and whether it is tax-resident in Spain.

Tax-residence for companies in Spain

All companies are classed as being either tax-resident in Spain or non tax-resident in Spain.

In addition, some companies that are not tax-resident in Spain are classed as being liable to tax in Spain if they have a permanent establishment in Spain.

Companies tax-resident in Spain

Spain’s definition of tax residence for companies is quite wide. A company is tax-resident if it:

  • Is incorporated in Spain
  • Has its registered office in Spain
  • Has its seat of effective management in Spain.

However, there is a catch. If your company is resident in a tax haven or in a place where no tax is payable, it may be presumed to be tax-resident in Spain if either:

  • Its assets consist manly of real estate or rights exercised in Spain
  • Its main business activity is carried out in Spain

Unless it can prove that its real, effective management and administration are carried out in the place where it is officially resident and that there is a real commercial reason (other than saving tax!) for establishing the company there.

Companies not tax-resident is Spain

All other companies are not tax-resident in Spain.

Companies with a permanent establishment in Spain

According to the Spanish tax agency (agencia tributaria):

. . . a person operates through permanent establishment in Spanish territory when he or she holds in any way installations or work premises of any kind, in which he or she carries out all or part of his or her activity, or acts in it through an agent authorised to hire, in the name and on account of the non-resident, using these powers regularly.

More specifically, the premises that constitute a permanent establishment are: executive headquarters, branch offices, offices, factories, workshops, warehouses, shops or other establishments, mines, petroleum or gas wells, quarries, farm, forest, livestock or other holdings or any other place used for the survey or extraction of natural resources, as well as construction, installation or assembly work with a duration of more than 6 months.

The general tax rule for companies in Spain

Companies tax-resident in Spain will pay Spanish Corporate Income Tax (Impuesto de Sociedades – IS) on their worldwide profits and capital gains.

Companies that are not tax-resident in Spain will pay Spanish corporate income tax on income and capital gains derived from Spain. This will be subject to the detailed provisions of any relevant double taxation treaty. See here for a full list of countries that have signed a double taxation treaty with Spain.

In almost all cases (but subject to some exceptions), the tax rate is 25% of operating profit. Newly created companies are taxed at 15% tax rate for both the first tax period in which they obtain a profit and the following tax period.

The tax year is the company’s accounting year.

Companies are required to make four payments of tax each year. The first three (in April, October & December) are based on previous earnings or actual earnings up to that point. The final payment is due when the annual tax return is filed. This must be done within six months plus 25 calendar days from the end of the company’s tax year.

Non-resident companies with a permanent establishment in Spain are subject to Non-Resident Income Tax (impuesto sobre la renta de no residentes – IRNR). That, too, is 25%.  As to the detailed arrangements for companies operating a branch office in Spain, see this article.

For all these taxes, there are (as always) lots of anti-avoidance measures.

Other taxes payable by companies in Spain

In Spain, taxes are usually classified into tasas, contribuciones and impuestos. They are collectively known as tributos.

Tributos are financial payments that citizens and others are obliged to make to the state.

Frankly, these days the distinction between the various types of tributos is somewhat artificial. They are, in essence, all taxes.

Tasas

Tasas are fees. Fees are paid by the citizens for the carrying out of an administrative action that benefits them individually, but which they are obliged to receive, such as garbage collection, the granting of a visa or the issuing of an identity document. They are generally quite small sums.

Contribuciones

Contribuciones (contributions) are paid when a public action aimed at satisfying a collective need produces a special benefit to certain individuals. For example, the local property tax (IBI) – previously known as contribucion unbana – is a contribution. Once again, the sums tend to be modest.

Impuestos

Impuestos are real taxes!  They generate the large majority of Spain’s revenue.

As far as companies are concerned, the main impuesto is the Corporate Income Tax (impuesto de sociedades – IS) or the Non-Resident Income Tax (impuesto sobre la renta de no residentes – IRNR). See above.

However, there is an additional tax, paid locally to the municipality within which the company is located. This is the Tax on Business Activity (Impuesto de Actividades Económicas – IAE). This tax is waived for businesses that have a profit of under one million euros. This tax rate depends on many factors, such as size and location of the business, the type of business, and number of employees.

VAT

Anyone from Europe will be familiar with VAT as it is collected throughout the European Union.

For the rest of you, VAT – in Spain the Impuesto sobre el Valor Añadido (IVA) – is a tax on the delivery of goods and services provided by businesses and professionals and also on imports within and from outside the European Union.  The taxpayers are the businesses that make, sell or import the goods but those who actually finally pay it, the true taxpayers, are the final consumers, who pay the tax within the price they pay for the goods or service.

The tax is charged every time goods change hands in the course of business. for example, the buyer of the raw materials needed to make the goods pays the seller the VAT on the price of those materials. Once the buyer has made something from the materials, it may sell them to a shop. The shop pays VAT on the price it has paid to the maker of the goods. When the shop sells the goods to a customer, the customer pays VAT on the sale price.  At each stage the businesses concerned can deduct the total VAT it has paid out from the total VAT it has charged before it sends the balance to the Government.

Registration for this tax is compulsory for companies or individuals selling products of services which fall within the scope of VAT. It is important to point out that, unlike in some countries, businesses supplying goods or services subject to VAT must register as soon as they start trading trading because there is no lower threshold for the payment of VAT.

The current normal rate is 21% (2018) which applies to all goods which do not qualify for a reduced rate or are exempt. There are two lower rates of 10% and 4%. The 10% rate is payable on most drinks, hotel services and cultural events. VAT raises huge amounts of money.

In the Canary Islands VAT is not applied but they have a similar tax called Canarian Indirect General Tax (IGIC). In Ceuta and Melilla, VAT is also not applied but they have another tax called Tax on Production, Services and Imports in Ceuta and Melilla (IPSI).

Customs duties

The Renta de Aduanas is not considered further here. See out Guide to Importing your Possessions and our Guide to Importing your Car.

Stamp duty

The Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados (ITP) is a tax that has a very broad application. It applies to the purchase and sale of all types of goods and rights (such as to rental contracts), to certain operations carried out by companies and to acts that must be officially documented (such as the deed transferring ownership of a secondhand house and other notarial documents).

The sale of a new house is not subject to ITP but is subject to VAT.

The rate of ITP varies from  0.5% to 7%, depending upon the type of transaction and in which region of Spain it is taking place. The rates are fixed by each region (autonomous community) in Spain and the tax goes to them.

The person who has to pay the tax is the buyer, not the seller.

Special taxes

There are various so-called special taxes. These include taxes on alcohol, petrol, tobacco and vehicle licencing.

Taxation of the owners of the company

Once the company has paid its taxes it will usually want to distribute some of its net profit to its owners.

These payments will be taxable. They may be taxed in Spain and/or they may be taxed in the country where you are tax-resident. See our Guide to the Taxation of Individuals in Spain for more details.

Taxation of employees

In Spain, employers withhold a percentage of the employee’s gross salary as a payment on account of the employee’s income tax liability.

There are slightly different rules for permanent and temporary contracts. Generally, for permanent contracts, the amount withheld will depend on the size of the employee’s salary and the employee’s personal circumstances. The amounts withheld should be very close to the actual tax liability of the employee. By doing this, you will minimise any additional payments or refunds should the employee have to file a tax return: which is only usually needed in the case of higher earners.

Other tax-like payments

Social security payments

As a general rule, all employers, their employees, self-employed workers and almost everybody else who resides and/or works in Spain are required to be registered with, and pay contributions to, the Spanish social security system. Even unemployed people (subject to certain conditions) must pay social security contributions.

There are a number of bilateral social security agreements between Spain and other countries, which regulate the effects on Spanish public benefits of periods of contribution to the social security systems of other States. These agreements also determine the State in which social security contributions are to be paid in cases of relocation and temporary or permanent assignments abroad. See the Spanish social security website (available in Spanish and in English) for more information.

See also our Guide to Social Security in Spain.

Opening licences

The Opening License (licencia de apertura) or Activity License (licencia de actividades) is required for business activities such as the opening of bars, restaurants and shops.

The different municipalities usually have their own municipal ordinances in which they define which activities require a licence and the cot of those licences.

Double Tax Treaties

Double Taxation Treaties – more accurately treaties for the avoidance of double taxation – are treaties designed to stop you having to pay tax on the same income or gain in both Spain and another country: typically the one where you live.

Spain has lots of them. The Agencia Tributaria maintains a list of countries with which Spain has a treaty. See it here. It links you through to the text of the treaties.

Each treaty is different but, in the main, they set out which country has the first right to tax each item covered by the treaty and the remaining rights of the other country. For example, that the primary right to be paid is in Spain but that if the amount that would have been due in the other country is higher you must pay the difference to that other country.

Conclusion

Tax is always complicated but the system in Spain is a lot less complicated that the systems in many other places.

It is well worth seeking some professional advice to make sure that your affairs in Spain are being set up properly and that your tax liabilities are minimised.

Further Information

Please contact the author if you would like any further information. See the sidebar for their contact details.

You might also want to read

The Spanish Tax Agency (Agencia Tributaria) also has a good website with lots of information. It is available in a number of languages, including English.

If you would like more background information, there is a good educational guide to the tax system in Spain, produced by the Spanish Tax Agency here. It is only available in Spanish but translates quite well via Google.

Deloitte have a pretty comprehensive guide to corporate tax.  Unfortunately, it is a little out of date – 2016 – but still well worth reading if you are looking for a little more detail than is contained in this guide.

 

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