The Tax Regime of Newly created companies in Spain
Updated: Dec 21, 2021
Taxation in Spain can not only meet the needs of companies and groups of companies that operate in different markets and that intend to invest in specific sectors, such as research and development, at economically advantageous conditions, but they can also be interesting for those who want to start a new business there.
In fact, if a comparison is made with the tax regime of other countries, the tax burden in Spain towards companies can be advantageous especially for some types of activities. As is known, there are many economic measures that can make some areas of Spain particularly attractive for some companies operating in these areas, just think about Canary Islands and the cultural facilities in Navarre, or the simple fact that Spain, among all the countries of the European Union, is the one that signed more bilateral conventions with Latin American countries to avoid double taxation.
In this note we want to briefly illustrate some aspects of interest in this sense, namely:
The reduced rate of corporate income tax (Impuesto sobre sociedades, or IS), which was set at 15% for newly created companies, applicable for two years, unless a lower rate is applied.
The correlative tax deductions in the individual income tax (IRPEF) in favor of the shareholders for the contributions made.
I. REDUCTION OF TAXATION AGAINST NEWLY CREATED COMPANIES IN SPAIN
Duration: Pursuant to Article 29 of Spanish Law 27/2014, of November 27, on corporate income tax, the reduced rate is applicable in the first tax period in which the tax base is positive, as well as in the following tax period.
Therefore: "15% for newly created companies and for the first two years from when they obtain benefits"
Requirements: The essential requirements for applying the reduced rate to newly created companies are the following:
Newly created entities: the law does not expressly refer to companies, but to "entities". The latter must be resident in Spain (1).
The entity must carry out an economic activity (therefore it does not apply to equity funds)
The economic activity must have not been previously carried out by third parties or by "linked persons or entities" (2) and then transmitted, for any legal reason, to the newly created company.
The economic activity must not have been carried out, during the year prior to the establishment, by a natural person who has the ownership of a share capital exceeding 50% of the newly created company (ie a direct or indirect participation , in the capital or in the funds of the new company).
Finally, it is necessary to take into account that companies that are part of a group of companies are excluded.
II. TAX DEDUCTIONS IN THE IRPEF IN FAVOR OF SHAREHOLDERS FOR THE CONTRIBUTIONS MADE.
In addition to the concessions listed above, the shareholders of the newly - or recently - established company may also benefit in their personal income tax return, of a deduction of 20% of the value of the amount conferred in the tax period for the subscription of shares or stakes in the aforementioned companies, both at the time of incorporation and in subsequent capital increases (in the following three years), with a limit of € 50,000 per year.
Notwithstanding this, said deduction applies to shareholders who have not previously carried out the activity that constitutes the corporate purpose of the newly created entity, and that their stake do not exceed 40% of the share capital of the company or that the correlative direct and indirect voting power does not exceed this percentage.
1.Entities resident in Spain are those that a) have been established in accordance with Spanish law or; b) have their registered office in Spanish territory or; c) have their effective headquarters in Spanish territory.
2.Shareholders, persons linked by family ties, entities that are part of the same group or owned more than 25% by the same person (or by persons linked by a family ties up to the third degree) are considered as "linked persons or entities".
Abogado Gonzalo Lopez Cobo Zurita and Abogada Eugenia Ravagnan Venezze
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