General information on Corporate Income Tax

Procedures for setting up a company

When setting up a company, the following procedures must be completed:

• Apply for registration in the Register of entrepreneurs, professionals and withholders ( Form 036 )
• Keep accounting documentation. In the following links you will find information for individual and professional entrepreneurs , and for companies .

• Submit the corporate tax return. For more information, please consult the following link .
   

Law 18/2022 of 28 September 2022 (BOE (Official State Gazette) of 29 September 2022), on companies, has recently been passed. Its aim is to facilitate the setting up of new companies and to reduce the obstacles they face in their growth, whether of a regulatory or financial nature, in order to increase competition for the benefit of consumers, Spanish manufacturing productivity, the resilience of Spanish companies and the ability to create quality jobs.

To achieve this, the Law amends the existing legislation to make it possible to set up a limited liability company with a share capital of one euro and has introduced reforms to facilitate and promote the setting up of such companies by means of a fast, streamlined online process, via the Information Centre and Business Creation Network. Removing the requirement for a EUR 3 000 minimum share capital, which has existed to date, is intended to promote the creation of companies by lowering incorporation costs and to give founding shareholders more choice over the share capital they wish to subscribe according to their needs and preferences.

The amendment also removes the option for a company to opt for incorporation on a ‘successive formation’ basis.

In other words, this law aims to promote the creation of companies quickly, flexibly and at the lowest possible cost. Secondly, the use of the Information Centre and Business Creation Network (CIRCE) online processing system and the Single Electronic Document (DUE) is being promoted as a single point of contact that has been managed and developed since 2003 by the Ministry of Industry, Trade and Tourism’s Directorate General for Industry and SMEs.

Notaries and intermediaries involved in setting up limited liability companies must inform their founders of the advantages of using the Entrepreneur Service Points (PAE) and the Information Centre and Business Creation Network (CIRCE), for their incorporation and the completion of other formalities linked to the start-up of their activity. BOE 29/09//2022:  Disposición 15818 del BOE núm. 234 de 2022

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Definitions and taxpayers

Corporate income tax (hereinafter ‘IS’) is a direct and personal tax on the income of companies and other legal entities in accordance with the provisions of this Law.

Legal personality, in general, determines whether IS needs to be paid or not. In other words, in principle, IS taxes the income received by legal entities. However, a number of entities are IS taxpayers even if they do not have legal personality, meaning that two types of taxpayers can be distinguished:

• Taxpayers with legal personality. According to Article 35 of the Civil Code , legal entities are classified into two main groups:

  In addition, the following are considered IS taxpayers: agricultural transformation companies, labour companies, public business entities, state agencies, mutual and mutual social security companies, mutual insurance companies for accidents at work and professional accidents, consortiums, fishermen’s associations, compensation boards, irrigation communities, water and inheritance communities of the Canary Islands, and banking foundations.

  1. Of public interest: corporations, associations and foundations.

  2. Of private interest: commercial companies, civil companies with a commercial purpose (agricultural, livestock, forestry, mining, fishing and professional activities are not subject to the Law 2/2007 on Professional Companies ).

• Taxpayers without legal personality. The following are considered IS taxpayers, even if they do not have legal personality: Investment funds, joint ventures, venture capital funds and closed-end collective investment funds, pension funds, mortgage market regulation funds, securitisation funds, investment guarantee funds, joint venture communities, and banking asset funds (BAF).

As a general rule, entities under the income allocation system pay personal income tax (IRPF); exceptionally, certain entities under the income allocation system located in Spanish territory pay corporate income tax. To avoid giving rise to a hybrid mismatch, some entities under the income allocation system are converted into corporate income tax payers under certain conditions and with regard to certain types of income that could cause a hybrid mismatch with third countries.

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Corporate Income Tax Return

The obtaining of income by the taxpayer, whatever its source or origin, will be considered a taxable event.

The taxable amount for IS purposes will be the amount of income obtained in the tax period by the taxpayer, regardless of its source or origin, less the offsetting of tax losses from previous tax periods and, where appropriate, the capitalisation or equalisation reserve, to which the tax rate is applied to obtain the full tax liability. In other words, the taxable amount will be determined by the difference in income and expenses with certain adjustments.

The capitalisation or equalisation reserve are benefits to favour the capitalisation of the company, as opposed to its indebtedness.

How the taxable amount is determined

• By the direct assessment method, or
• objective assessment method when the Corporate Income Tax Law (LIS) determines its application, or
• the indirect assessment, in accordance with the provisions of the General Tax Law.

Under the direct assessment method, the taxable amount will be calculated by correcting –through the application of the provisions established in the Tax Law– the accounting profit determined in accordance with the rules set out in the Commercial Code, in the other laws relating to such determination, and in the provisions issued in implementation of the aforementioned rules.

The taxable amount will be the accounting profit corrected in accordance with the provisions of the Tax Law.

Under the objective assessment method, the taxable amount may be determined in whole or in part by applying the signs, indices or modules to the sectors of activity determined by the tax law.

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Tax rate

The general tax rate for taxpayers of this tax will be 25 percent.

However, for the first tax period in which the taxable amount is positive and in the next, newly created entities that carry out economic activities will be taxed at the rate of 15 percent, unless they are required to pay tax at a lower rate.

For this purpose, no economic activity shall be deemed to have been initiated in the following cases:

• When the economic activity has been previously carried out by other related persons or entities within the meaning of Article 18 of Law 27/2014 of 27 November on Corporate Income Tax and transferred, by any legal title, to the newly created entity.
• When the economic activity has been carried out, during the year prior to the constitution of the entity, by a natural person who holds a direct or indirect participation in the capital or in the equity of the newly created entity of more than 50 percent.

Those that are part of a group under the terms established in Article 42 of Royal Decree of 22 August 1885 publishing the Commercial Code willnot be considered newly created entities, regardless of residence and the obligation to prepare consolidated annual accounts.

The tax rate of 15 percent will not apply to those entities that are considered to be asset-holding entities, understood as those that do not carry out an economic activity, in the sense that more than half of their assets consist of securities.

On 1 January 2023, a reduced tax rate of 23 per cent was introduced for entities whose net turnover in the immediate preceding tax period is less than EUR 1 million.

The following companies and entities will be taxed at other rates:

• Cooperative societies that are fiscally protected will be taxed at 20 percent, except for extra-cooperative profits, which will be taxed at the general rate.
• Credit unions and rural banks will be taxed at the general rate, except for extra-cooperative results, which will be taxed at the rate of 30 percent.
• The entities to which the tax regime established in Law 49/2002, of 23 December, on the tax regime of non-profit entities and tax incentives for patronage applies, will be taxed at 10 percent
• The following will be taxed at the rate of 1 percent:
  1. Investment companies with variable capital regulated by Law 35/2003, of 4 November, on Collective Investment Institutions , provided that the number of shareholders required is at least that provided for in Article 9.4 .
  2. Investment funds of a financial nature , provided that the number of participants required is at least that provided for in Article 5.4 of Law 35/2003 of 4 November .
  3. Real estate investment companies and real estate investment funds regulated by Law 35/2003, of 4 November, on Collective Investment Institutions , other than those provided for in letter d) below (Real estate investment companies that exclusively develop housing to allocate it for letting on lease), provided that the number of shareholders or participants required is at least that provided for in Articles 5.4 and 9.4 of Law 35/2003 of 4 November on Collective Investment Institutions and which, as non-financial collective investment institutions, have the exclusive purpose of investing in any type of urban property for letting on lease.

     The application of the tax rates provided for in this section shall require that the real estate comprising the assets of collective investment undertakings is not disposed of until at least three years have elapsed since its acquisition.

  4. Real estate investment companies and real estate investment funds regulated by Law 35/2003, of 4 November, on Collective Investment Institutions which, in addition to meeting the requirements set forth in point c) above, exclusively develop housing to allocate it for letting on lease, and meet certain conditions.
  5. The mortgage market regulation fund, established in Article 25 of Law 2/1981 of 25 March on the regulation of the mortgage market .
• The pension funds regulated in the revised text of the Law on the Regulation of Pension Plans and Funds, approved by Royal Legislative Decree 1/2002, of 29 November , will be taxed at a rate of zero percent
• Credit institutions, as well as institutions engaged in the exploration, research and exploitation of hydrocarbon deposits and underground storage facilities under the terms established in Law 34/1998, of 7 October, on the hydrocarbon sector , will be taxed at the rate of 30 percent
• Canary Islands Special Zone Entities shall be taxed at the special tax rate resulting from the provisions of Article 43 of Law 19/1994 , of 6 July, amending the Canary Islands Economic and Fiscal Regime, on the part of the taxable amount corresponding to the operations effectively and materially carried out within the geographical area of the Canary Islands Special Zone.

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Minimum Taxation In Corporate Income Tax

With effect for the taxation periods beginning from 1 January 2022, for certain taxpayers (those with net turnover of at least EUR 20 million or that pay tax in the tax consolidation system), the net rate cannot be less than the result of applying 15 per cent to the taxable amount, reduced or raised, corresponding and as appropriate, by the equalisation reserve, this rate being the minimum net rate.

Newly created entities

For taxpayers paying the rate of 15 per cent as newly created entities, the minimum net rate is 10 per cent of the taxable amount.

The minimum rate is not applied to the following taxpayers

The minimum rate will not be applied to taxpayers who pay at the tax rates provided for in paragraphs (3), (4) and (5) of Article 29 of Law 27/2014, nor to institutions covered by Law 11/2009 of 26 October regulating listed real estate investment companies.

Credit institutions

For credit institutions, as well as institutions engaged in the exploration, research and exploitation of underground hydrocarbon fields and deposits, the minimum net rate is 18 per cent of the taxable amount.

Cooperative institutions

For cooperative institutions, the minimum net rate cannot be less than the result of applying 60 per cent of the total tax liability calculated in accordance with the provisions of Law 20/1990 of 19 December, on the Tax Regime for Cooperatives.

Canary Islands Special Zone

For Canary Islands Special Zone entities, the positive taxable amount to which the percentage is applied will not include any part of it that corresponds to operations materially and effectively undertaken within the geographical scope of that Zone, which pays tax at the special rate regulated in Article 43 of Law 19/1994 of 6 July amending the Economic and Fiscal Regime of the Canary Islands.

Rules for determining the minimum net rate

There are rules for determining the minimum net rate for Corporate Income Tax; if, as a result of applying them, the deductions to incentivise certain activities are wholly or partially prevented, the amounts not deducted can be deducted in the following tax periods in accordance with the applicable regulatory framework in each case.

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Tax period

The tax period to which the corporate income tax return must refer coincides with the financial year of each entity.

Particular rules:

Even if the financial year has not ended, the tax period is deemed to have ended in the following cases:

• When the entity is terminated. Termination is understood to have occurred when the company’s cancellation entry is made in the Commercial Register, and it is therefore obliged to present its return within 25 calendar days following the six months following the cancellation entry.
• When there is a change of residence of the entity resident in Spanish territory abroad.
• When the transformation of the legal form of the entity takes place and this determines that the resulting entity is not subject to corporate income tax.
• When the transformation of the legal form of the entity takes place and this determines the modification of its tax rate or the application of a special tax regime.

In short:

• In no case may the tax period exceed twelve months.
• The duration of the tax period may or may not coincide with the calendar year or be less than twelve months.
• In any case, corporate income taxpayers must file a separate return for each tax period.

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Accrual and reporting period

Corporate income tax is due on the last day of the tax period.

Filing and payment of the tax return:

• File the tax return within the time limit: The IS tax return must be filed within 25 calendar days following the 6 months after the end of the tax period. It must be filed via the internet with an electronic certificate. Thus, in general, for taxpayers whose fiscal year coincides with the calendar year, the deadline is the first 25 calendar days of July.
• Timely payment of the Tax: Taxpayers whose tax period coincides with the calendar year must file their corporate income tax return via the internet with an electronic certificate; they can pay by direct debit from 1 to 20 July.

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