Business Taxation

Taxes are levied in Spain both at the national level (either by the central government or the regions) and at the municipal level (by the municipal authorities). The main national taxes are the corporate income tax and the value-added tax (VAT).

National taxes are administered by the Ministry of Economy and Finance and its regional equivalents.

In principle, all Spanish entities with separate legal status (that is, corporations, limited liability companies and partnerships) and foreign corporate entities are liable to Spanish corporate income tax.

Spanish resident companies are subject to corporation tax on worldwide profits and capital gains. A company is resident in Spain if it is incorporated in Spain, has its registered office in Spain or if its effective management is in Spain. Non-resident companies are taxed only on Spanish source income and gains, subject to the provisions of an applicable tax treaty.

Taxable Income and Rates

The basic 35% corporate tax rate applies to the worldwide profits of resident corporations. A reduced rate of 30% applies to the first €120,202 of taxable income for small and medium-sized enterprises (defined as companies with annual turnover of less than €8m). Taxable income exceeding €120,202 is taxed at the 35% rate.

Special rates apply to certain companies, such as listed collective investment institutions, including real estate investment funds (1% if they invest solely in residential rental buildings; otherwise 7%), certain co-operatives (20%), entities involved in hydrocarbons research and exploitation (40%) and asset-holding companies (40%). Special tax regimes also exist for Spanish and European economic interest groupings, “temporary business associations”, venture-capital companies and funds, and industrial and regional development companies.

Non-resident entities that derive income through a permanent establishment (PE) in Spain are taxed on income attributable to the PE. A PE is generally taxed on its net income at the same rate as Spanish companies (35%). However, royalties, financial interest and commissions (paid in consideration for technical assistance services or the use or transfer of assets or rights) paid to the head office may not be deducted in determining taxable income. A 25% branch profits tax is imposed on the remitted profits of non-residents doing business through a PE, although relief can be obtained under tax treaties.

Non-resident corporations without a PE in Spain are subject to various tax rates: capital gains are taxed at 35%; general payments (such as direct purchases) and income from services or technical assistance