In this article we refer to the Corporations Tax in Spain 2018 updated regulations. This is a brief guide to let you know the key aspects of the current regulations. For more a complete overview of the tax, we encourage you to read our article on the Corporations Tax in Spain.
In general terms, corporate taxes in Spain are based on the Profit & Loss account, which is based on the international accounting standards.
Effective 2017 a Spanish corporation will be subject to a corporation tax rate of 25 %. However, the tax rate is only 15 % during the first two profitable years of operations. Below we have listed the main tax rules to be taken into account.
- Undistributed profits are not taxable provided they are retained within the books for five years. This relief is limited to the 10 % of the taxable base.
- Domestic dividends and capital gains are tax exempt providing the parent company owns a minimum of 5% of the issued share capital of the underlying subsidiary. Dividends and capital gains from foreign Subs are tax exempt providing the Spanish parent company owns a minimum of 5% of the issued share capital of the underlying subsidiary and the latter is subject to a tax rate of, at least 10 %.
- Likewise, losses arising from the sale of qualifying subs (participation > 5 %) are disallowed for tax purposes. Nevertheless, losses incurred on the liquidation or winding up of a subsidiary are always deductible.
- 60 % of the royalties from self developed IP are exempt
- Losses on the sale of any asset to a company pertaining to the same group is deferred until the asset is subsequently sold to a third-party or the seller or buyer leave the group.
- Gifts and courtesies to suppliers, customers or employees are limited to the 1 % of the sales.
- The deduction of interest exceeding 1 Million Euro are subject to a limit of 30 % of the operating profit. If this limit is exceeded, the deduction in the taxable base of said interest can be carried forward and deducted within the same limits. Interest paid on participating loans from other group companies are treated as dividend distributions and therefore not allowed for deduction.
- Impairment losses are generally disallowed for tax purposes, except bad debts and inventory
- Spain follows OCDE transfer pricing guidelines for transaction between related companies
- A 0 % withholding tax will be imposed on distributions of dividends paid to other EU parent companies. Dividends pay out to foreign individuals would be taxed according to the Tax Treaty of the country of residence of the shareholder.