Taxes in Spain: Corporate Tax (IS) (Impuesto sobre Sociedades)

There are different taxes in Spain that you should take into account if you are thinking of establishing your company in this country. In this article we will be talking about Corporate Tax (IS), known as Impuesto sobre Sociedades is Spain.

What is Corporate Tax?

Corporate tax (also known by its Spanish acronym IS) is one of the most important direct taxes in Spain paid by companies and other legal entities on the profits obtained from their activity in Spain.

It applies to companies and other entities that are tax residents in Spain and are taxed on their income worldwide. A company is considered resident in Spain for tax purposes if it has been formed under Spanish law, has its registered office or its effective management office in Spain. (ICEX – Invest in Spain)

How Corporation Tax is calculated

Corporation tax is calculated on the basis of the company’s accounting results, the difference between the income received and the expenses incurred during the year. If necessary, off-balance-sheet adjustments or corrections are made to these results in accordance with the tax criteria established by the tax authorities, which may be due to differences in classification, valuation or allocation, whether positive or negative, temporary or permanent.

The amount obtained may be offset against tax losses from previous years and the result will give the taxable income for the year.

Keys about Corporate Tax

  • In Spain, the general corporate tax rate is 25%.
  • Corporate Tax includes different tax incentives for investingparticularly in R&D and technological innovation.  There are also tax credits to avoid domestic and international double taxation and an exemption system for dividends and capital gains from foreign sources.
  • Accountable expenses are deductible, with some exceptions. Non-deductible expenses include dividends, gratuities and fines or sanctions.
  • Amortization of fixed assets is a tax-deductible expense as long as it is effective and accountable.
  • Capital gains, income derived from the transfer of assets, is considered income and taxed at the rate applied to other income.
  • If the resulting tax base is positive, it can be offset by negative tax bases from previous tax periods.

Corporate tax is a fundamental part of the tax landscape for companies in Spain. Its correct understanding and management not only ensures legal compliance, but can also have a significant impact on the financial health of the company. Given the complexity of this tax and the constant evolution of the legal framework, we strongly recommend that you place yourself in the hands of professional tax and accounting advisors.

If you are thinking of setting up your business in Spain and need more information about taxes in Spain, do not hesitate to contact us.

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