Corporate taxation in a start-up company in Spain
Corporate Taxation is one of the compulsory taxes for Spanish companies, however, there are different brackets that apply beyond the general rate. We are going to analyse the Corporate Taxation in a start-up company and how it is applied to companies whose activity has recently started.
What is Corporation Tax
Corporate taxation is a tax levied on the profits made by companies and legal entities in a given tax period. This tax is levied at national level in many countries and is intended to raise funds to finance public expenditure. Companies must calculate their net profits, which are total income minus deductible expenses, and a tax rate set by the government is applied on that basis.
Corporate income tax is of obvious importance for public finances, as it contributes significantly to state revenues. Companies usually file annual tax returns and must comply with specific tax regulations to ensure compliance with their tax obligations.
It is important to note that the corporate income tax has several rates depending on the conditions of the company, including a special rate for newly established companies.
The applicable corporate tax rate for a newly created company
Corporate taxation in a start-up company offers tax advantages that encourage entrepreneurship and business development. In Spain there is a general rate of 23% or 25%, depending on the company’s annual turnover. However, for start-ups, reduced rates apply.
If a start-up company has a turnover of up to €300,000, the tax rate can be 15%, meaning that it would only have to pay 15% of its net profits as corporate tax. This rate can be a significant advantage for startups and small businesses in their first years of operation, as it allows them to retain more income to reinvest in growing their business.
On the other hand, if the turnover of the start-up exceeds €300,000, the tax rate would rise to 20%, even lower than the general rate.
Corporate taxation for start-ups has reduced rates in Spain, which can help stimulate business activity and economic development for new companies.
How long corporate income tax is applicable to start-up companies?
The period during which the preferential corporate tax rate for start-ups applies is two years.
For many start-up companies, the possibility of paying a reduced CIT means a lower tax burden, the resources saved can be used for investments that have an impact on the company itself.
Exceptions to the reduced rate of CIT for new companies
In Spain, there are corporate tax exemptions for star-up companies. These exemptions include:
- Transfer of previous related activity: if the new company acquires an economic activity that had previously been carried out by related entities under Article 18 of the Corporate Income Tax Law in Spain, it does not benefit from the reduced rate of 15%. This avoids the misuse of tax benefits in cases of internal business transfers.
- Previous activity exercised by a person holding more than 50%: If a natural person holding more than 50% of the capital or equity of the new entity had exercised economic activity in the year prior to its creation, it is also excluded from the reduced rate.
- Companies in groups according to Article 42 of the Commercial Code: Entities that are part of a group, as defined in Article 42 of the Commercial Code, are not considered newly created companies, regardless of their residence or the obligation to file consolidated accounts.
- Wealth-holding entities: The 15% tax rate does not apply to entities that are considered as wealth-holding entities according to Article 5(2) of this Law. This refers to companies whose main activity is wealth management or financial investments.
How to apply for CIT tax relief in Spain
In order to apply for a reduction in the corporate tax rate for a newly created company in Spain, you must follow these steps:
- Incorporate the company: First, you must legally set up and register your company in Spain.
File the tax return: In the first year in which you make a profit, you must file the corporate income tax return and tick the appropriate box to indicate that you are a newly created company. - Comply with the requirements: Make sure you comply with the requirements set out in the legislation. Please note the exceptions above.
- Keep proper records: Keep accurate accounting records and documentation to support your status as a new company.
- Consult a tax advisor: It can be useful to have the advice of a tax professional to ensure you meet all the requirements and claim the relief correctly.
At Asesoría Orihuela Costa we provide you with the best tax team, we specialise in the creation of new companies, so we guarantee solutions tailored to your activity.
