Guide to Corporate Tax Law in Spain

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CORPORATE TAX LAW

4. Spanish Tax Law


The taxes in Spain can be classified as follows:

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a) Direct state taxes:

» Taxes on Income

  • Individual Income tax (Impuesto sobre la Renta de las Personas Físicas).
  • Non-resident Income tax (Impuesto sobre la Renta de No Residentes).
  • Corporate tax (Impuesto sobre Sociedades).

» Wealth taxes (only for individuals)

  • Wealth tax (Impuesto sobre el Patrimonio).
  • Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones).

Corporate Tax Law Spain


b) Indirect state taxes

» Value added Tax (IVA).

» Estate Duty (Impuesto sobre Transmisiones Patrimoniales y Actos jurídicos Documentados).

» Special Taxes (Impuestos especiales): alcohol, hydrocarbon and tobacco.

» Import Taxes (Derechos arancelarios a la importación).

» Insurance Premium Taxes (Impuesto sobre las Primas de Seguros).

Corporate Tax Law Spain


c) Regional Taxes (tasas y contribuciones especiales).

d) Town council taxes:.

» Real Estate Tax (Impuesto sobre Bienes Inmuebles).

» Economic Activities Tax (Impuesto sobre Actividades Económicas)

» Tax on Mechanic Traction Vehicles (Impuesto sobre los Vehículos de Tracción Mecánica).

» Tax on Constructions, Installations and Works (Impuesto sobre Construcciones, Instalaciones y Obras).

» Local capital gain (Impuesto sobre el Incremento de Valor de Bienes de Naturaleza Urbana). This Tax is accrued at the time transfer of the Real Estate is produced.

The most important are:

Corporate Tax Law Spain


4.1. Taxes on Income

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4.1.1. Individual Income tax

Taxable persons: Residents

An individual is resident in Spain for tax purposes if:

  • He stays in Spain for more than 183 days in any calendar year.
  • His centre of vital interests, i.e. his economic interest or business or professional activities, is in Spain.
  • In the absence of proof of the contrary, a married individual is deemed to be a resident of Spain if the permanent home of his spouse and dependent minor children is in Spain.

Spanish nationals who move their residence to a tax haven country remain taxable on the worldwide income in the year of emigration and the subsequent four years.

Individuals who move their residence into Spain with a labour contract can opt to be taxed under this tax or under Non Residents Income Tax (see Non-Residents income Tax) for the period which exercises the option and 5 the following Tax periods.

The individual is considered Spanish resident for Double Tax Treaty purposes but only pays taxes in Spain for the assets located here.

UE residents and non residents in Spain can opt to pay as residents in Spain without losing their non resident status if at least 75% of their income comes from Spanish labor or economics activities.

Taxable income:

Residents are taxed on their worldwide income. Non-residents are liable to NonResidents Income Tax only on their Spanish-source income (see 4.1.2).

The taxable income is classified into the following five categories:

  1. Employment income.
  2. Savings income (income from movable or immovable property, e.g. dividends, royalties, interest, real estate,…).
  3. Business income.
  4. Imputed income.
  5. Capital gains.

Exempt income:

The most important are:

  • Dividends up to 1.500 €.
  • Salaries earnings from work performed in a foreign country with an income tax similar to the Spanish income tax are exempt up to EUR 60.100.

Rates

a) The general taxable base, reduced with some personal and family allowances, is taxed in accordance with the following progressive rate table (year 2011):

In addition, for 2012 and 2013, the following surcharges (introduced by Royal Decree-Law 20/2011) are applicable:

b) Savings income and capital gains: Generally the taxable base of savings income and capital gains are subject to tax at a flat rate of 19%.

But for 2012 and 2013 is subject to tax at the following progressive rates (introduced by Royal Decree-Law 20/2011):

Withholding taxes:

Corporate Tax Law Spain


4.1.2. Non Resident Income Tax (applicable to individuals and corporations)

4.1.2.1. Non-resident acting through a permanent establishment (PE).

Non-residents are subject to the entire income from Spanish or foreign source attributable to such establishment if they operate through a PE in Spain.

Rates

Generally, the PE is subject to tax on Spanish-source income and capital gains at the general rate of Corporate Tax (see 4.1.3).

In addition, a 19% branch profits tax applies to any after-tax profits paid by Spanish PE to its foreign head office. However, by way of Royal Decree-Law 20/2011, the rate is increased to 21% for 2012 and 2013. The effective rate on branch profits remitted to the head office is 43.3% (30% + 13.3%). For tax years 2012 and 2013, the effective rate is 44.7% (30% + 14.7%). The remittance abroad must be reported to the local tax office in a tax return filed within 1 month of the remittance. The branch profits tax is not levied on permanent establishments of companies resident in other EU Member States (except Cyprus). With respect to residents of countries with which Spain has a tax treaty, this tax may be applied only where expressly allowed in the treaty, and as long as the other country also levies a similar tax on remittances to Spain.

In computing taxable profits of a branch in Spain, payments to a foreign head office of passive income (e.g. royalties, interest and rents), payments for technical assistance, for the use of property or for the use of rights may not be deducted.

4.1.2.2. Non-resident acting without permanent establishment (PE).

Non-residents are subject on their Spanish-source income and capital gains.

Exemptions

The most important are:

  • Interest obtained by non-residents without PE from their bank deposits in Spain.
  • Interests and capital gains from public bonds.
  • Interest and capital gains from movable property (excluding: capital gains from substantial (25%) shareholdings and shares and similar rights in real estate companies; or obtained through Tax Haven country) obtained by EU residents.
  • Capital gains from the sale of the shares quoted and transferred on a Spanish stock exchange derived by non-residents without PE if the taxpayer is a resident of a country with which Spain has an income tax treaty including an exchange of information clause (all of Spanish Treaties).

Withholding taxes:

There is a withholding tax concerning sales of real estate, under which purchasers of Spanish real estates from non-residents owners without permanent establishment must withhold 3% of the price.

4.1.2.3. Special real estate Tax

A non-resident company holding Spanish real estate or usufruct must pay annually the 3% of the cadastral value.

However, the tax is exempted if:

  • Companies resident in a country with which Spain has a Tax Treaty including an exchange information clause.
  • Individual last beneficial owners resident in Spain or in a country with which Spain has a Tax Treaty including an exchange of information clause.
  • Companies quoted on officially recognized stock exchanges.
  • Companies which habitually carry out economic activities in Spain different than portfolio or renting real estate.

Corporate Tax Law Spain


4.1.3. Corporate Income Tax

Taxable corporations: Residents

A company is resident in Spain if it meets one of the following conditions:

  • It is incorporated under Spanish law.
  • Its legal seat is located in the territory of Spain.
  • Its place of effective management is in Spain.

Taxable income:

Resident companies are taxed on their worldwide income and capital gains. The taxable income is generally calculated using a direct method of computation based on taxpayer’s accounting records.

Deductions

Business-related expenses are deductible. Non-deductible items include dividends and similar distributions, the Corporate tax itself, penalties and fines, certain expenses paid to residents in listed tax havens and all gifts except those qualifying beneficiaries (e.g. Foundations).

Rates

  1. The general tax rate is 30% from 2.008.
  2. Companies with an annual turnover not exceeding EUR 10 million, (EUR 8 million before 1 January 2011) are taxed at a rate of 25% on the first slice of EUR 300,000 (EUR 120,202.41 before 1 January 2011) of annual profits. Any excess is taxed at 30%.
  3. For tax periods beginning in 2009, 2010, 2011 and, by way of Royal Decree-Law 20/2011, 2012, the tax rate applicable to small and medium-sized enterprises is reduced to 20% (from 25%) for annual profits not exceeding EUR 300,000 (EUR 120,202.41 before 1 January 2011), and to 25% (from 30%) for annual profits in excess of EUR 300,000. The reduced rates apply, provided that the following requirements are met:

To qualify for the reduced rate, in the 12 months following the beginning of each of the tax periods in question, the enterprise’s average employment may not be less than one employee or lower than the average employment in the 12 months before the beginning of the first tax period starting on or after 1 January 2009.

Holding companies (ETVE)

Entities whose business purpose includes the supervision and the management of participations in non-resident entities may benefit from the participation exemption regime. Under this regime, dividends and other profit distributions and capital gains from non-resident companies are exempted from corporate tax (please note that certain conditions have to be met). Also, the distribution of profits from holding company to non-resident shareholders is exempted, unless the beneficiary is resident in a listed tax haven.

Double taxation relief

There are two methods to avoid double taxation of foreign-source income: the exemption and ordinary tax credit methods.

Corporate Tax Law Spain


4.1.4. Anti-Avoidance Rules

Some specific rules may be applied in transactions between a Spanish company and a resident in tax haven country or low taxation territory:

  1. The tax haven company may be considered resident in Spain if its main assets are, directly or indirectly, located in Spain and its main activity is performed in Spanish territory with some exceptions.
  2. The expenses related to services rendered are not deductible (except if it is possible to prove that the service is real and necessary).
  3. Operations are valued at market price although both companies are not related parties.
  4. Non application of the exemption to avoid international double taxation.
  5. Strict money laundering prevention rules.

Transfer pricing

➢ In Spain it is applied the same EU and OCDE criteria: Operations between related companies must be performed at market prices (arms length). The main methods to determine the market price are:

  • Comparable free price
  • Increased cost.
  • Resale price
  • Distribution of results
  • Net margin of the set operations

➢ Management fees: For the correct application of the costs the companies

involved have to:

  • Describe the services provided
  • Analyze the costs incurred
  • Justify the mark-up to be applied
  • Comparison between the cost applied and the market value.

➢ Cost sharing: Similar to management fees taking into account the share in the risks and the results of the participants.

Thin-capitalization rules

  • Spanish companies can not deduct the interest accrued on the part of the debt with non resident related companies exceeding the ratio of 3 times the equity amount.
  • A different ratio may be applied if the taxpayer so requests to the Tax Administration.
  • This rule is not applicable when the non resident company is located in another EU Estate, except if it is considered a tax haven.

Controlled foreign company (CFC)

Spanish companies or individuals shall include as income certain passive benefits obtained by non-resident company (except UE Estate members) if:

  • Spanish company or the individual hold, directly or indirectly, stake of at least 50% and
  • non-resident company pays taxes under 75% of the taxes it would be charged in Spain on the same revenue.

Corporate Tax Law Spain


4.2. Value Added Tax

4.2.1 Value Added Tax (IVA)

The Spanish tax is levied on:

  • The supply of taxable goods and services in Spain by an entrepreneur within the scope of this business.
  • The intra-Community acquisition of goods.
  • The importation of taxable goods into Spain by any person. The taxable persons are individuals or corporate entrepreneurs making taxable supplies of goods or services.

Exemptions

The most important are:

  • Medical and social services.
  • Educational and sports services.
  • Financial operations and insurance contracts.
  • Lease of certain types of immovable property.
  • Some real estate purchases.

Rates

The rates of IVA in mainland Spain and the Balearic Islands are:

Different rates are levied in the Canary Islands.

Non-residents

Non-resident entrepreneurs, except EU residents, are required to appoint a tax representative before the tax authorities.

Corporate Tax Law Spain


4.3. Other Taxes

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4.3.1. Wealth Tax (Impuesto sobre el Patrimonio)

From exercises 2.008 to 2010 wealth tax was abolished. However, temporarily during years 2011 and 2012 was restituted with a general exemption of 700,000 euros and 300.000 for habitual home.


4.3.2. Inheritance and Gift Tax (Impuesto sobre Sucesiones y Donaciones)

This tax is levied on property, assets and rights transferred between individuals by gift or on death. Gratuitous transfers to Corporations are not subject to this tax.

Individual who is resident in Spain is liable to this tax with regard to property in Spain or abroad, acquired through a gratuitous transfer.

Non-resident individuals are subject to this tax:

  • With regard to any assets or rights placed in Spain.
  • With regard life insurance policies with a Spanish insurance company.

Taxable income:

Transferred assets are valued at their real market value (in some cases may be different form the fair market value). For inheritance tax purposes, the value of the deceased’s household furnishing is assumed to be 3% of the heritable mass.

For inheritances, the taxable base is reduced for family allowances provided by law. There is also a deduction of 95% of the value of the family business, qualified holdings and the permanent residence of the deceased.

For gifts, the family allowances and the deduction of the 95% of the permanent residence are not applied. And the deduction of 95% of the value of the family business and qualified holdings only are applied if, besides other conditions, the transferor is older than 65 years old.

Rates:

The autonomous regions of Spain are authorized to set their own tax rates within certain limits. If a region fails to set its own rates or the taxpayer or the deceased is non-resident, the progressive rates are:

In several autonomous regions (Comunidades Autónomas) the effective rate after reductions is very low (less than 1%).

Net wealth-related surcharge

The final tax liability of the beneficiary is the amount resulting from applying fixed surcharges on the basic tax due by reference to the beneficiary's net wealth before receipt of the inheritance or gift in question and his family relationship with the deceased or the transferor.

Corporate Tax Law Spain


4.3.3. Estate Duty

a) Capital Duty: is generally levied on the contribution of capital to a company or a branch (constitution, increase or decrease of capital, liquidation of companies,…). Generally the duty is 1% on the value of the assets contributed/refunded. Merger and acquisition operation are not subject. In some autonomous regions the constitution and the increase of capital are not taxed.

b) Transfer tax:

  • 6% (7%-8% in most autonomous regions) on the second and subsequent transfers of immovable property and rights thereon. No transfer tax is levied when the transaction is subject to VAT.
  • 6% (7%-8% in most autonomous regions) of the transfer of qualifying real estate shares.
  • 4% on the constitution and transfer of rights on movable property and on granting of any administrative concession.

c) Stamp duty: Generally 0.5% on officially documented acts which are formalized in Spain. Stamp duty is levied compatible with VAT.

Corporate Tax Law Spain


4.3.4. Real State Tax

This tax is levied annually on the possession of a real estate. The general tax rates are 0.4% on the cadastral value for urban property and 0.3% for rural property, but higher rates may be applied depending on the municipality.

Corporate Tax Law Spain



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