Accountancy in Spain

>> Taxation in Spain

Direct taxation

Companies

Spanish resident companies must pay Corporate Income Tax on their worldwide profits.

The standard rate of Spanish corporate income tax for 2016 is 25%. However, small companies (turnover less than  10 million Euro as a whole group) benefit from some tax relief mainly in accelerated depreciation and other expenses.

Taxable profits

Taxable income is defined as the amount of income obtained in the tax period. This taxable income is determined from the accounting records, as the difference between computable revenues and deductible expenses.

The thin-capitalisation rules are no longer applicable when the parent company is resident in another EU Member Estate, so the repayments in respect of a loan capital will not be considered as a covert distribution of profits.

Calculation of liability

The tax period is the economic period, or a fiscal year. The tax period cannot exceed twelve months, but can be shorter.

Due Dates for payment of corporate tax

There are three payments: the first for until the 20th April, the second for until the 20th October and the third for until the 20th December. The Corporate tax should be paid within 25 days of 6 months after the end of the financial year. For example, if the financial year finishes on 31st December, the Tax return should be filed during the 25 first days of July of the next year.

Relief for losses

The Spanish corporate income tax law permits companies to carry forward the losses from prior years with no limit in time, but there is a limit of negative bases that can be compensated each year as a percentage of the tax profit for the year. While negative basis is pending, the prescription period is still open. Tax losses below €1 million can be fully compensated.

Administration

The system which operates in Spain is the self-assessment system. If it is not presented on time or if there are some irregularities, there will be a penalty.

Individuals

Individuals who are tax residents of Spain must pay income tax on their worldwide income and capital gains.

An individual is understood to be a tax resident in Spain when any of the following circumstances arise:

  • Living in Spain for more than 183 days during the calendar year.
  • Basing the core business or base for activities or economic interests in Spain, directly or indirectly.

Nonetheless, individuals who become Spanish residents because they have moved to Spain for work with a labour contract since the 1st of January 2004, have the possibility to choose between these two tax regimes:

  • Tax system for Spanish residents (tax rate calculated from the application of progressive scales ranging from 24.75% to 52%)
  • Tax system for non-residents (fixed tax rate of 24.75% just applicable for income obtained in Spain)

The tax period coincides with the calendar year: from January 1st to December 31st of each year.

The tax return must be presented to the

Spanish Tax Administration between April 1st and June 30th of the year following that in which it was accrued.

Sole traders

Those self-employed pay Personal Income Tax on their worldwide income.

The Law refers to this income as income obtained from “economic activities”, whereby production means or human resources (or both) are used for the production or distribution of goods  or services.

Partnerships

Partnerships are taxed in the same way as corporations. Moreover, they also can be on the top of a holding structure.

Taxation of employees

Employees must pay Spanish Personal Income Tax. Their taxable liability is determined according to their salary.

Employer

The employer has two main obligations:

  • To pay the social security each month.
  • To present the tax return and to realize the payment regarding the withholding tax applied over the salary of its employees. This must be done each quarter (for small companies) or each month (big companies).

Strict sanctions are applicable if these duties are not attended to.

Taxation of saving income

Savings income is taxed at the fixed tax rate of 21%. For savings income derived from the participation in a company (e.g. dividends), the same tax rate is applicable.

Capital gains

Capital gains are taxed at a fixed tax rate of

21%. However, goods acquired before the 31st of December 1994 have a reduction when calculating the capital gain derived from their selling, and up to 100% of the capital gain could be exempt of taxation. This reduction rule does not apply for goods related to business activities or  sale amounts higher than Euro 400.000.

Non-Residents

Non-Residents Corporation Tax

Non-resident companies in Spain are subject to Company Income Tax for the revenues and capital increases generated in Spain, and the revenues paid to them  by residents.

Taxation of non-residents in Spain varies considerably according to the existence or not of a permanent establishment in Spanish territory.

When the non-resident has facilities or places of work in Spain, in which all or part of his activity is performed, or when acting in Spain through an agent authorised to enter into contracts in name and on behalf of the non-resident, they are considered to act in Spain through a permanent establishment.

Corporations with a Permanent Establishment

Non-residents who obtain revenue through a permanent establishment in Spain shall be taxed on all the revenue  that may be imputed to that establishment, whatever the source  from which it is obtained.

Taxable Basis

The taxable basis of the permanent establishment is determined according to the provisions of the general regime of the Corporate Income Tax and the tax losses regime, with the following features:

  • Application of the linking rules for transactions between the permanent establishment and parent firm, or with another permanent establishment of the same parent firm.
  • No deduction of the payments the permanent establishments makes to the main firm of fees, interests, commissions, technical assistance services and for use or cession of goods or rights.
  • Deduction of part of the management and general administration expenses imputed by the main firm to the permanent establishment, as long as these are recorded in the accounting record of the permanent establishment and imputed in a continued, rational manner.

The presentation period is the same as for Spanish resident companies.
Profits are taxable at the same rate of Spanish resident companies. Moreover, permanent establishments may apply the deductions and rebates with a tax quota on the same terms established for Corporate Income Tax.

The permanent establishments are obliged to fulfil the same obligations of an accounting, registry or formal nature as required of resident firms.

Complementary Taxation

When a permanent establishment of non-resident firms transfer revenue abroad, they shall be required to pay complementary taxation of 21% of the amounts drafted. However, this tax shall not be applicable to permanent establishments which have their tax residence in another State of the EU.

Complementary tax must be declared within one month from the date of  drafting the revenue abroad.

Other Taxes

The permanent establishments are subject to the same regime of withholdings as firms subject to Corporate Income Tax on the revenue they receive. The permanent establishments are also obliged to pay this tax on the same terms as Spanish firms.

Corporations without a Permanent Establishment

The income obtained when not acting through a permanent establishment must be taxed separately for each partial accrual.

Taxation must be operation by operation, so there may be no compensation between capital gains and losses.

In general terms, the taxable base is formed by the full sum accrued without deduction of any expense.

The most common taxation rates for income obtained by non-residents without a permanent establishment are:

  • Income earnt through work performed in Spain by non-residents shall be taxed at the general tax rate of 24,75%.
  • Income from economic activities (rendering services, technical assistance, installation or assembly works, etc.), the taxable base shall be determined by the difference between full income and the following expenses:
    1. personnel expenses;
    2. procurement expenses;
  • The general taxation rate of 24.75% will be applied to the taxable base obtained.
  • Income from real estate: the taxable base is calculated from the annual amount received from the tenant, without deducting expenses. If the real estate is not leased, the non-resident company would not be subject to any Spanish tax. However, if the company’s shareholders or directors use the real estate, income will be subject to tax. In that case, the taxable income is calculated from the rent amounts, which would be paid as if the real estate was leased (at its market value). The tax rate is then 24.75%.
  • Income received from dividends or interests: a non-resident of Spain who receives dividends or interests paid by a person or public or private entity in Spanish territory must pay taxes in Spain. The taxable base is the full amount received. The tax rate is 21%.
  • Capital gains are determined by valuing the contribution or initial cost at the rate of exchange prevailing at the time of the transaction. The tax rate is 21%.

In all cases there are Double Tax Treaties with certain countries, which detail if the tax rate could be reduced, or if they are exempt of taxation in Spain.

Corporations without a permanent establishment must have a representative in Spain before the Ministry of Finance.

Non-Residents Individual Tax

Income Tax

Non-resident individuals who obtain profits in Spain, from properties or any activity, must present an Income Tax Declaration. The tax rate is 24.75%.

These rates may be reduced or eliminated under an existing tax treaty.

Net Worth

Non-resident individuals who have properties in Spain, whatever their value, must present a Net Worth Tax Return. There are no deductions for non-residents.

Again, there are Double Tax Treaties with certain countries.

Indirect taxes

Value added tax (vat)

VAT is chargeable on all sales of goods in

Spain, all services given by businesses in Spain, acquisitions of goods in the EU, and imports.

It is chargeable at three positive rates, the lower rate of 4%, the reduced rate of 10% and the standard rate of 21%.

Companies owing VAT to the authorities must submit returns as follows:

  • Businesses with less than €6,010,121.04 turnover must file returns within 20 days of the end of the calendar quarter.
  • Other businesses must file monthly returns, submitted within 20 days of the end of the month.

Customs duty

Imports are subject to VAT and customs duties. However, ‘import’ only refers to merchandise coming from non-EU Member Countries, as within the EU the principle of free circulation of goods prevails, and there is a uniform system  for taxing imports on the Community Customs Code.


Latest version updated 11th October 2017

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