Spain

Tax residency – A company is tax resident in Spain if it is incorporated under Spanish law, it has its registered office in Spain or its effective management is in Spain.

Basis – Tax resident entities are taxed on their worldwide income.

Tax rate – The general corporate income tax rate is 25%. Other tax rates may apply for certain industries (e.g. banks are taxed at 30%). Certain newly created companiesand start ups are taxed at a 15% tax rate for both the first tax period in which they obtain a profit and the following tax period (three tax periods for startups).

Capital gains – Capital gains are treated as ordinary income and subject to the standard rates. Capital gains arising on the transfer of Spanish companies in which at least a 5% interest (or an acquisition value of over EUR 20 million) has been held for at least one year may be exempt from taxation.

Foreign-source capital gains may be tax exempt if:

• The Spanish company has at least 5% interest (or acquisition value of over EUR 20m).
• The subsidiary has been subject to a tax rate of at least 10%.

The exemption is not applicable when the subsidiary is resident in a tax haven unless it is an EU member state and the company can prove that it has been incorporated and operates for valid business reasons and that it carries on business activities.

Dividends – Dividends are treated as ordinary income. However, there may be a 95% exemption on dividends received from Spanish and foreign companies, in which at least a 5% interest (or an acquisition value of over EUR 20 million) has been held for at least one year.

Foreign-source dividends may be 95% tax-exempt if:

• The Spanish company has at least 5% interest.
• The distributor has been subject to a tax rate of at least 10%.
• Dividend distributions have not generated a tax-deductible expense in the distributor.

The exemption is not applicable when the subsidiary is resident in a tax haven unless it is an EU member state and the company can prove that it has been incorporated and operates for valid business reasons and that it carries on business activities.

Interests – Interests received is included in taxable income.

Royalties – Royalties received is included in taxable income. However, certain royalties generated from assigning the use of certain intangible assets (originated from R&D activities) may be eligible for a reduction in the taxable base of the percentage resulting from multiplying by 60% a coefficient that may not be greater than one (i.e. the maximum reduction will be 60%).

Withholding Taxes – Dividends paid to non-residents are subject to a 19% withholding tax unless a tax treaty provides a reduced rate or the EU parent-subsidiary applies.

Interests paid abroad are subject to a 19% withholding tax (15% on deposit and bonds), unless the rate is reduced under a tax treaty or the interest is paid to an EU resident, in which case it is exempt.

Royalties and technical service fees paid to non-residents are subject to a 24% withholding tax unless reduced due to a tax treaty. Royalties and technical service fees paid to EU/EEA individuals or entities are usually taxed at 19% unless it applies the EU interest and royalties directives.

Foreign-source income – Foreign-source income is generally subject to corporate income tax. However, a total or partial tax relief in the form of tax credits or exemptions is available for foreign tax paid.

Losses – Only up to 70% of company taxable income may be offset by net operating losses, which may be carried forward indefinitely. Carryback of losses is not permitted.

Inventory – Accounting results have to be calculated in accordance with Spanish Generally Accepted Accounting Principles (GAAP). Inventory is valued at acquisition price or production cost under the average cost and first in first out (FIFO) valuation methods.

Anti-avoidance rules – Transfer pricing legislation is applicable to all types of transactions between related persons, which must be conducted following OECD’s transfer guidelines and supported by relevant documentation.  Transfer pricing methods allowed are comparable uncontrolled price, resale price, cost plus, profit split and transactional net margin.

There are no thin capitalization rules, although there are some restrictions on the deductibility of interest expenses.

There are controlled foreign company rules that require Spanish entities to include in its taxable base any income obtained by a CFC where there are no material and personnel resources in the CFC. Passive income is usually subject to CFC rules even if there are material and personnel resources.

Tax credits and incentives – Spanish resident companies whose purpose is exclusively the holding and management of foreign companies’ shares (ETVE) may enjoy several tax exemptions from corporate tax and withholding tax, provided that profits are not distributed to a tax haven.

Real Estate Investment Trust (SOCIMI) listed companies may be exempted from corporate tax subject to certain conditions.

Collective Investment Institutions (SICAV) are subject to a reduced corporate tax rate of 1%, however, dividends distributed are subject to the common withholding tax regime.

Venture Capital companies and funds may benefit from an advantageous tax regime, in which dividends may be exempted, capital gains may be 99% exempted (if shares have been held between 2 and 15 years), and profits distributions may be also tax exempt (unless distributed to a tax haven).

There are certain tax reliefs available for small and medium-sized companies, such as accelerated depreciation/amortization or more favourable bad debt provision treatment, subject to certain conditions.

There are tax credits available for R&D and technological innovation, film production and live performing arts activities.

Special Economic and Tax Regime of the Canary Islands

Companies registered in the Canary Islands are eligible for several tax benefits:

90% of annual undistributed profits can be allocated to a special investment reserve and not taxed but must be invested within 4 years.

Corporate income tax deductions are 80% higher than in the rest of the Spanish territory.

There is a 25% tax credit for investments in tangible fixed assets, subject to certain conditions.

There is a tax credit of 90% of corporate income tax for profits of shipping companies generated from ships registered in the Canary Islands, among other tax benefits.

A 15% tax credit for companies investing in certain African countries.

A 15% tax credit for advertising expenses.

In addition to be subject to IGIC (7%) instead of VAT (21%), certain transfers are exempted from IGIC.

Canary Islands Special Zone Tax Regime (ZEC)

Subject to the approval of the authorities, companies may be registered in the ZEC up to 31 December 2020 (applying the tax regime up to 31 December 2026).

Qualifying companies may be taxed at a 4% tax rate on a tax liability of EUR 1.8m (which can be increased by EUR 500,000 for each job created, and will apply to the full profits amount if more than 50 jobs are created). In addition, subject to certain conditions, dividends, capital gains and transfer of assets may be exempted from taxation.

To qualify, the company must:

• Make an investment in fixed assets of at least EUR 100,000 in Gran Canaria or Tenerife, or EUR 50,000 in Fuerteventura, Lanzarote, La Palma, El Hierro, or La Gomera, within the first two years of their business activity.
• Create at least 5 new jobs in Gran Canaria or Tenerife, or three in other islands.
• Demonstrate a contribution to the economic and social development of the Canary Islands.
• Have a registered office and place of effective management in the ZEC
• Have at least 1 director residing in the Canary Islands.
• Conduct a qualifying activity, which includes a wide range of industrial and commercial activities, most services and holdings.

Labor taxes – Employers are required to pay social security contributions at a fixed rate of 29.9% plus a variable rate for occupational accidents on employees’ gross salaries.

Employees are also required to pay social security contributions at a 6.35%.

The minimum monthly contribution base is of between EUR 858.60 and EUR 1,199.10, and the maximum monthly contribution base is EUR 3,751.20. Both employer and employee contribution must be withheld by the employer and paid to the Agencia Tributaria.

Personal income tax – A person is tax resident in Spain if he or she spends  more than 183 days in the country during a calendar year or have his or her centre of economic activities in Spain, if it is not stated otherwise in a tax treaty.

Tax-residents are subject to Personal Income Tax on their worldwide income.

PIT is levied at progressive rates by the state and each autonomous region. The maximum marginal tax rate is 52%.

Savings income is taxed at progressive rates between 19% and 23%, savings income includes capital gains and investment income such as dividends and interests. Rental income is taxed at personal income tax general rates.

Non-residents are subject to Non-resident income tax at a flat rate of 24% on income from Spanish-source. If non-resident is a resident within the EEA that has concluded a tax exchange of information agreement, he or she will be subject to a reduced rate of 19%. Regarding dividends, capital gains and interests, they are subject to a 19% tax, unless tax rate is reduced under a tax treaty.

Other taxes – Municipalities levy a real property tax up to 1.3% on the cadastral value of the property. Transfer of real properties, which are not subject to V.A.T., may be taxed between 5% and 11% according to the autonomous region in which the transfer takes place. Transfers of securities may be exempt from both transfer tax and VAT, with some exceptions.

Inheritance and gift tax ranges from 7.65% to 34%, although it may be higher in some autonomous regions.

Net worth tax is levied at progressive rates between 0.2% to 2.5%, each autonomous region sets its own minimum amount exempt and its own scale rates. Madrid does not levy net worth tax.

The V.A.T. standard rate is 21%. Certain goods and services are taxed at 10%, 4%, 0% or exempt.