The Corporate Income Tax
What is a Corporate Income Tax?
The income obtained by companies located in Spain is subject to a tax: the Corporate Income Tax. This direct tax applies to profits obtained by both commercial companies and legal entities.
Who must file the Corporate Income Tax?
The following type of Companies must file the Corporate Income Tax before the Spanish Tax Agency:
- Trading companies: this includes Temporary Joint Ventures (UTE), public limited companies, limited companies.
- Civil companies that have a mercantile nature.
- Investment funds, pension funds, cooperatives
- Agricultural companies and economic interest groupings (“AIE`s”).
- Associations and foundations (NGOs, professional associations).
It is important to bear in mind that Corporate Income Tax must be filed even if no income was obtained in the previous year, or if the company is in the process of insolvency or liquidation.
How to calculate the Corporate Income Tax?
To calculate Corporate Income Tax, the following process must be applied:
- Once the accounting result has been obtained, adjustments are made to calculate the taxable base.
- It should be borne in mind that it is possible to reduce the taxable base or to offset tax losses from previous years.
- Once this has been done, the corresponding tax rate is applied in each case. It should be noted that there are deductions or allowances that affect the overall calculation of the tax liability.
On the other hand, Article 35 of the Corporate Income Tax Act establishes deductions to encourage the performance of certain activities, specifically the deduction for research and development and technological innovation activities. The carrying out of research and development activities will entitle the taxpayer to a deduction from the gross tax payable, under the conditions established in the aforementioned article.
When is Corporation Tax paid?
The tax period for corporate income tax is 12 months, and the corresponding payment is made between 1 and 25 July of the following year.
In the event that the company’s tax period does not coincide with the calendar year, the payment to be made is established in the 6 months following the end of the tax period.
How can a lawyer help me?
These systems require fast and continuous communication with the Spanish Tax Agency, so a consultant will allow you to comply with all the necessary requirements of this system and will release you from the responsibility of all this process of electronic communication with the Spanish Tax Agency. The client’s only function is to deliver on time the documentation (invoices received, invoices issued, bank statements and any other documentation that may be important for the client) related to the company.
Another benefit of having experts in the field is to avoid possible penalties for poor compliance with the requirements of this system.
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The Corporate Income Tax forms and filing deadlines
The most important forms for corporate income tax are as follows:
- Form 200: Most companies file between the 1st and 25th July of the year following the end of the tax period. Even if the company has not been in business, it is obligatory to file it. It is filed through the Tax Authorities’ electronic office.
- Form 202: Between 1 and 20 April, October and December, payments on account of Corporate Income Tax are made with Form 202. Unlike Form 200, Form 202 does not have to be filed if the result is zero or negative.
On the other hand, Form 220 is established for groups of entities or cooperative companies, with a filing period between 1 and 22 July.
The Corporate income tax rates
The general corporate income tax rate is 25%, although there are other rates applicable in the following cases:
- 15% to newly created entities during the first tax period in which the company makes profits and the following one.
- 20% for tax-sheltered cooperatives. In the event that there is extra-cooperative income, this will be taxed at the general rate.
- 10% to entities whose purpose is not for profit.
- 1% to collective investment fund entities.
- 0% to pension funds.
The Corporate Income Tax Law
In recent months there have been a number of important developments affecting the Corporate Income Tax Law. One of the aspects to be particularly emphasised is Royal Decree-Law 4/2021, of 9 March, which amends the Corporate Income Tax Act (LIS) and the revised text of the Non-Resident Income Tax Act (Ley del Impuesto sobre la Renta de no Residentes).
Among the main novelties of the last few months, the following stand out:
- Deductions are increased in the sector of film productions, performing arts shows and audiovisual series.
- With regard to corporate tax exemptions, port authorities have a framework, with a specific deduction for investments.
- Small companies, in the tax periods set in 2020 and 2021, will be able to deduct their credit impairment losses, once a period of three months has elapsed since the obligation has expired.
- The deductibility of financial expenses is limited.
- Modifications to the tax consolidation regimes, to increase international tax transparency.
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Frequently Asked Questions
Only if you trade through a Company you are obliged to file the Corporate Income Tax. Individuals who trade as individuals are required to report their profits or losses through their personal income tax returns.
If a Spanish company receives dividends from another participated company and the conditions are met that the former holds at least 5% ownership of the participated company and has held it for more than 1 year, then such dividends are exempt from taxation at 95% for the Corporate Income Tax.
When dividends are paid out, Company Reserves are being distributed which have already been taxed for Corporate Income Tax purposes. Only if the recipient of the dividends is an individual, the company may be required to make a withholding on account of his Personal Income Tax.
The Corporate Income Tax Act provides for a number of tax deductions for investments in technology and R&D. Whether these deductions can be applied must be assessed on a case-by-case basis. It should also be noted that newly created companies have a reduced rate of 15% (instead of 25%) for the first year that they make a profit and the following year.
Payment of Corporate Income Tax can be deferred if the taxpayer has cash flow problems. For amounts of less than 30.000€, payment can be deferred for up to 6 months without providing guarantees. For amounts over 30.000€, guarantees must be provided and the Tax Agency will assess the terms of the deferral in each case.
For companies, it is compulsory to file the Corporate Income Tax through the electronic office of the Spanish Tax Agency using the corresponding Digital Certificate.