Corporate Taxes In Spain
One of the main taxes to be paid by local as well as foreign investors that establish businesses within Spain is the corporate tax which is imposed at a national level. There are also lesser substantial taxes imposed by local councils in the country.
Therefore, entrepreneurs from abroad must be aware of the rules of both levels of taxation, both at the federal level and at the regional level.
If you are here it’s because you are thinking about starting your own business and want to know your tax obligations in depth or perhaps you already have one in place and would like to make sure you maximize your tax returns.
Well, in this article we will be providing you with details regarding all the possible business taxes in Spain that are imposed on a corporate. Without any further delay, let’s understand the corporate taxes in Spain.
What is all about Corporate taxes in Spain?
The Spain corporate taxes are imposed on businesses that operate in Spain on the profit they earn. Eventually, it is the equivalent of the tax on income that is paid by self-employed people or employees, apparently, it is for firms or legal entities.
The corporate tax rate in Spain has been specifically designed for firms or businesses that are residents of Spain. If non-residents are involved the tax rate will be calculated at an alternative rate.
The standard corporate tax rate in Spain is 25%. In 2022, newly formed companies will have to pay 10% of their earnings for the first two years of their business and 15% in 2021. A tax reduction of 10% can be granted to earnings that are deposited into a fund for five consecutive years.
Although, the firms are required to make installments during April, October, and December, with each installment typically being 18% of the tax obligation.
Who is responsible for paying Spain Corporate Taxes?
1. Spain Corporate tax rate on residents
If you are you are a Spanish citizen, you are required to file the Spain corporate tax rate and be paid Spanish taxes on your income from all over the world in the following situations:
- Your income per year from work is greater than EUR22,000.
- If you’re working for yourself and live in Spain or you run your own company.
- You can earn rental income that is more than $1000 per year.
- You can earn capital gains as well as savings income of over 1600 EUR per year.
- It’s your first year declaring residency tax-free in Spain.
Additionally, you need to declare all assets in foreign countries with a value of more than the amount of EUR50,000. The tax-deductible income is the amount left without deductions to pay for the social insurance system in Spain’s retirement, allowance for personal and professional expenses. The corporate tax rate in Spain can be progressive.
2. Spain Corporate Tax Rate for non-residents
If you reside within Spain for less than 6 months during an entire calendar year, then you are considered a non-resident. You only have to pay taxes on income earned from business taxes in Spain. Taxes are applied to your income at a flat rate, with no exemptions, or deducts.
If you’re a non-resident and have a residence in Spain regardless of whether or not you lease it out, you’ll be required to file taxes to be responsible for Spanish properties taxes to non-residents (or imputed tax on income from your property) and taxes on local Spanish tax on property.
3. Double taxation agreements
Spain has signed several agreements with other nations to prevent double taxation. The Spanish tax authority maintains an up-to-date list of treaties.
4. Taxation on income in Spain
Spanish taxes on income are divided between the regions and the state. The 17 regions of autonomous Spain have the power to decide on their tax rates and obligations.
Therefore, even though the state is reducing taxes as well as simplifying tax bands The tax system across Spain remains a complex system.
Corporate taxes in Spain for foreigners
The standard corporate tax rate in Spain for income tax that applies to non-residents of the United States is 24% and 19% if an individual citizen of a nation that is part of the European Union or the European Economic Area.
All other incomes are subject to business taxes in Spain for non-resident tax according to the rates below:
- Capital gains that result from the transfer of assets are taxed at 19%.
- Dividends and investment interest is taxed at 19% but are generally lower under Double taxation arrangements. Interest tax is exempted for EU citizens.
- Taxes on royalties are 24%.
- Pensions are taxed at a progressive rate between 8% and 40%.
Special Corporate tax rate in Spain on foreigners who work on assignments
There is a tax-free system for foreigners who wish to work on assignment bases within Spain under an agreement of employment with a Spanish company.
The Spanish government has modified the tax system to be applicable for the tax year 2021. Employers working on work in Spain pay an additional tax rate of 24% for incomes up to EUR600,000.
The rules introduced in 2021 saw the government raise the tax rate for earnings that exceed EUR600,000 to 47%. Furthermore, employees who are employed pay tax at 3% on earnings above EUR200,000 which is derived from dividends, interest, and capital gains.
If you’re a Spanish tax resident of Spain for the past 10 years, then you are eligible to apply for taxation in this manner up to six months from settling in Spain. In turn, you will be able to reduce the Spain corporate tax rate for a period of up to five years.
Spanish tax allowances and deductions
Taxpayers who live in Spain get tax deductions in certain cases. The minimum personal allowance for anyone younger than 65 is EUR5,550 or EUR6,700 at age 65 and EUR8,100 after age 75.
When you’ve children who are younger than 25 who live with you then you are entitled to an additional allowance in the amount of:
- For the first child, EUR 2,400.
- EUR 2,700 for the 2nd
- Euro 4000 for the 3rd
- For the 4th quarter, EUR 4,500.
- The second allowance of EUR 2,800 for each child who is less than three years of age
If you are a grandparent or parent living with you, and your annual amount of income falls below EUR8,000 you may receive an allowance amount of 1,150 euros for those who are older than 65, and EUR2,550 when they’re over 75.
You can take taxes deductions from Spain to:
- In the Spanish social security system.
- Spanish retirement contributions
- The expense of buying and renovating your primary home
- Charitable donations
The 2021 reforms brought in by the government reduced the pension contribution of taxpayers for tax-related reasons to EUR2,000 instead of EUR8,000. The limit is set at EUR8,000 if the increase comes from the contributions of companies.
In addition, the increase must not surpass 30% of the amount of the net earnings from economic or employment sources that the person earns during the tax year.
Various capital gains on business taxes in Spain
The capital gains on business taxes in Spain (the tax on profits made from selling properties or other investments) are as the following:
- The first Euro 6,000: 19%
- EUR6,000-EUR50,000: 21%
- EUR50,000-EUR200,000: 23%
- more than EUR200,000: 26%
If you purchased a home before 1994, you could be required to pay more tax than you did before since the capital gains tax taper tax has been eliminated. It is possible that you are qualified for the exemption if you are older than 65 and selling your primary residence or younger than 65 and selling your home to purchase a second residence in Spain.
VAT in Spain
Spain is home to three different levels of tax on value (VAT).
- General VAT rate is 21% of products and services
- Reduced VAT rate is 10% on road tolls and amateur sports events, fairs, and health products, as well as food items that are not essential, garbage collection as well as pest control.
- Super reduced VAT rate is 4% off the most essential food items, medicines books, and newspapers
For 2021 the federal government raised IVA from 20% to 21% on alcohol-based drinks as well as drinks that contain natural sweeteners and/or sweetening substances. The tax hike did not apply to beverages for babies and infants that were deemed as food supplements to meet particular dietary needs.
All IVA payees (primarily freelancers) are required to submit their invoices online within 4 days from the date of the invoice’s issuance and not later than the sixteenth day that follows the date of its issue.
Benefits of corporate taxes in Spain
- The primary benefit of corporate taxes is it isn’t progressive. This means that in difference to the taxes paid by self-employed people when it comes to the case of corporations there is a traditional rate that doesn’t change as the growth in turnover.
- If you are planning that you will earn over 60,000 euros in a year, don’t hesitate and begin immediately with the business path.
- However, there are some expenditures and investments you can take deductions for which is what makes this a good option.
Spain’s corporate tax rate applies to businesses as well as other organizations that reside in Spain that are taxed on income globally.
A company is considered to be resident in Spain to the tax point when it was established under Spanish laws, has its registered office, or has its managing office in Spain. Spain’s corporate tax rate offers a variety of incentives to invest specifically in R&D and technological advancement.
If you are looking to open a business in Spain then you must be aware of all the distinct corporate taxes in Spain imposed on businesses. However, it is recommended to seek assistance from a professional expert from Odint consultant, they will assist in all the possible manner.
According to the official, Spain is a country that has a tax burden, similar to Germany, France, and Italy. But, Spain has always been a tax haven that was not officially recognized.
When you’re a citizen of Spain and you have to pay Spanish tax on all of your global income. If you’re a non-resident in Spain, you pay taxes on your income in Spain on Spanish earnings, generally with a flat amount.
In Spain, you pay tax on every single item. However, there are many allowances you can use to decrease the total tax you pay.
Taxpayers who are not residents of the country are generally taxed at a single rate for earnings made in Spain or from Spanish sources which are 24% on wages and income, and 19% for investment income and capital gains.