Business in Spain: Corporate Tax

Introduction

Corporate Tax

The general rate of corporate tax in Spain for 2024 is 23% for companies with income below €1.000.000 and 25% for companies with income over this amount. Newly started companies pay 15% for the first two profitable years, and the law for newly created innovative companies allows eledgible companies to enjoy the reduced corporate tax rate of 15% for four years instead of the normal two. A reduction of 10 percent tax may be granted to profits locked into a special reserve for five years.

Company tax returns must be filed in the month of July for the previous year. Advance payment by instalments is obligatory in April, October and December, each instalment usually being 18 percent of the estimated tax liability. These advance payments are later deducted in the annual company tax declaration.

Understanding tax benefits and strategies can significantly impact your bottom line and there are various avenues to explore. In this guide, we’ll look into leveraging tax benefits, timing income and expenses, making provisions and asset write-offs, and reducing your corporate tax base.

Strategic Tax Benefits and Bonifications

Maximizing tax benefits is crucial for optimizing your company’s financial performance.
If your limited company hasn’t yet generated a profit but expects to, strategically planning your first profitable year can leverage the reduced 15% corporate tax rate for up to four years if your company qualifies as an innovative startup. It’s often more beneficial to book a small loss in the current year to maximize the tax base eligible for reduced rates in subsequent profitable years.

Explore available bonifications:

• Employment Creation: Incentives for creating jobs.
• Hiring Disadvantaged Employees: Benefits for hiring individuals with reduced capabilities.
• Research and Development (R&D): Tax credits for R&D activities.
• Technological Innovation: Support for companies investing in new technologies.

For companies classified as “reduced dimensions” (generally, those with net turnover below €10 million), additional deductions are available. Beyond regular business expenses, you can deduct private health insurance fees for yourself and your family, up to €500 per person (€1,500 for individuals with disabilities).

We have compiled below some considerations that can be implemented before the fiscal year closes:

Use Tax Benefits and Bonifications

If your limited company has not generated a profit yet, but might do so this year, consider that the two years counted from the first profitable year have a reduced corporate tax rate of 15% instead of the normal 23% or 25%. If your company is considered an innovative start-ip, these benefits can be extended to 4 years.

It is therefore interesting to make sure that you profit as much as possible of both years and to apply the reduced rate over a maximum tax base. To this effect, rather book a small loss this year instead of a small profit and maximize the tax base elegible for reduced tax rates next year.

Check if you are entitled to any bonifications for the creation of employment, hiring less capacitated employees, research and development, technological innovation and other bonifications that may apply.

If you are a company of reduced dimensions, you can also deduct (apart from regular business expenses) private health insurance fees for you and your family up to €500 per person or €1.500 per person in the case of discapacitated persons.

Time your Income and Expenses

Postpone invoicing of sales of services or goods delivered. This will decrease your taxes in the current year but will increase them the following year for the same amount. However, it is always interesting to defer payments to improve your short-term cash flow and inflation will make the real value of postponed taxes less in the future.

Ask your providers to advance invoicing of current or future services or goods received. As before, this will decrease your taxes in the current year but will increase them the following year. In this case however you can and should negotiate payment terms in order not to have a negative cash flow effect and make sure that the goods or services will actually be delivered.

If there are any bonuses or other variable remuneration to be paid to your employees based on results, check if objectives have been reached already and payment can be justified before the end of the year. Alternatively, you can create a provision for these costs as pertaining to this fiscal year but to be paid next year.

If there are any employment regulations or dismissals to be made, it is also interesting to do this before the end of the year to take advantage of the holiday period to reorganize and to be able to deduct dismissal costs and indemnizations this fiscal year.

Make Provisions and Write Off Assets

If there are any other expenses or investments started or realized in this fiscal year but have not been invoiced to you yet, make sure to create the appropriate provisions to lower this year’s tax base. Make sure that you can demonstrate that these costs have been incurred in the current fiscal year through contracts or other valid documentation.

Have a look at your amortizations, some may be liable for accelerated write off that can be taken advantage of to adjust the year end’s result. Alternatively, these can also be delayed for showing a better result if there is a particular for doing this. This is perfectly legal within the amortization bands applicable to the asset and your company’s characteristics.

Fixed asset purchases up to €300 can be written of freely, up to 100%, with a limit of €25.000 in total for the year. Second-hand assets can be written off with the double of the maximum allowed limit and if your company has a reduced dimension (net turnover below €10 Million), any fixed assets can be written off at double the normal rate as well.

If there are any new assets to be bought or investments to be made on the short term, this is also a good moment to consider doing this still in this fiscal year or to postpone it to the next one.

Reducing Your Corporate Tax Base

Proactive measures can help identify and address factors that might unnecessarily inflate your tax base.

• Missing Documentation: Address non-deductible expenses due to missing documentation. If there’s a chance to collect invoices, do so immediately. Otherwise, these expenses will be added to your taxable base.
• Bad Debt Write-offs: Identify and book bad debt write-offs for customer accounts before year-end to reduce income and your taxable base. Issue credit notes to cancel any unfulfilled sales invoices.
• Inventory Management: Accurately record missing, stolen, or damaged inventory. Adjusting stock levels through purchases or sales can influence expenses and results for the fiscal year.
• Intangible Assets and Investments: Compare the current value of intangible assets and investments on your balance sheet with their acquisition value. Consider if the effect of a possible transmission would be beneficial for optimizing this year’s results. For details on investing through a Spanish limited company, see our guide.

Increase Capitalization and Compensate Losses

If you improve the capitalization of a limited company by increasing the capitalization reserves, it is possible to reduce the taxable base of the company by 10% of the additional reserves provided. These must be clearly identified in the accounts and must be maintained for a minimum of 5 years.

Companies can compensate losses of previous years to reduce their taxable base of this year. Up to €1.000.000 can be compensated without limits, above this amount 70% of the taxable base can be compensated, 50% for companies with a turnover above €20.000.000 and 25% for companies with a turnover above €60.000.000.

Newly created companies that have a reduced corporate tax rate can compensate losses without limits during the first 3 profitable fiscal years. However, it might be fiscally more interesting to wait and compensate losses when the full tax rate applies.

Companies of reduced dimensions con further create a so-called levelling reserve. 10% of this reserve up to a maximum of €1.000.000 can be applied annually to reduce the corporate tax base.

Conclusion

Numerous perfectly legal strategies exist to reduce your corporate tax burden in Spain. Take advantage of the tax optimization possibilities relevant to your situation, and ensure you act promptly to gather all necessary documentation.

At Accompany, we are ready to provide further guidance tailored to your specific needs on a one-to-one basis! To learn more about our support for businesses in Spain, visit our Business Services page and explore our extensive FAQ section.