What taxes does a company pay in Spain?
What taxes does a company pay in Spain? In our country, a company must face numerous tax obligations, it is essential to carry out adequate management that is in line with current legislation, and also takes into account the changes introduced by the Administration.
Below, we will analyse what taxes pay a company in Spain and the particular characteristics of each tax.
Current business taxes in Spain
Business tax
The Economic Activities Tax (IAE) in Spain is a tax levied on the exercise of economic activities in Spanish territory. It applies to activities carried out by both individuals and entities, whether or not they are of a business nature. These are its basic characteristics.
- Nature of the tax: IAE is a direct tax, of a real nature, and is considered a periodic tax payable annually.
- Activities subject to the tax: The tax applies to all professional, artistic and business activities, regardless of their purpose, place of performance or the legal form of the person carrying them out.
- Exemptions: In Spain, taxpayers whose turnover does not exceed 1 million euros are exempt from paying IAE. Non-profit entities and new entrepreneurs are also exempt during the first two years of activity.
- Calculation of the tax: The calculation of the IAE depends on the nature of the economic activity carried out. It is based on the classification of economic activities and can vary depending on various factors such as the yield, the surface area of the premises or the number of staff employed, among others.
- Competence: The IAE is a local tax. This means that it is managed and collected by local councils.
In short, the IAE is a compulsory tax for those who carry out economic activities in Spain and whose turnover exceeds the established threshold.
Corporate tax
Corporate Income Tax (IS) in Spain is a tax on the income of companies and other legal entities. These are the key aspects of IS:
- Nature of the tax: IS is a direct tax on profits earned by companies and other entities during a tax period.
- Taxpayers: Companies, associations, institutions, foundations and other entities with their own legal personality are subject to IS. Individuals are not subject to IS, but to Personal Income Tax (IRPF).
- Taxable base and tax rate: The taxable base for IS is, in general terms, the profit of the entity, which is calculated on the basis of the difference between income and expenses. The general IS tax rate is 25%, but can vary depending on the entity’s characteristics. For example, newly created entities have a reduced rate of 15% for the first two tax periods in which they make a profit.
- Companies that as less than 1 million euros turnover pay 23%
- Deductions and allowances: There are various deductions and allowances that can reduce the amount of IS tax payable. These depend on many factors, such as the performance of specific activities, investment in R&D, promotion of employment, etc.
- Tax period and filing: The IS tax period usually coincides with the calendar year, although it may be different if the entity’s statute so determines. The IS return must be filed within six months of the end of the tax period.
In summary, IS is the central tax levied on the profits of companies and other entities in Spain. These entities need to be aware of the IS rules to comply with their tax obligations.
VAT
Value Added Tax (VAT) is an indirect tax levied on the consumption of goods and services in Spain, and is collected by businesses at the time of sale of the good or service.
- Taxable persons: Businesses that sell goods or provide services are obliged to collect. VAT from their customers and to remit this tax to the Tax Agency.
- VAT rates: In Spain, there are three VAT rates: general (21%), reduced (10%) and super-reduced (4%). The applicable rate depends on the nature of the good or service. For example, basic foodstuffs are taxed at the super-reduced rate, while hotel and catering services are taxed at the reduced rate.
- Payment of VAT: Businesses must submit quarterly VAT returns to the tax office. In these returns, they must indicate the output VAT (the VAT they have charged to their customers) and the input VAT (the VAT they have paid on their purchases). The amount payable is the difference between output VAT and input VAT.
- Intra-Community VAT: For transactions between companies in different EU countries, a special VAT regime called intra-Community VAT applies. In these transactions, it is generally the purchaser who is responsible for self-assessment of VAT.
- ROI: in order for your company not to pay intra-Community VAT, it must be registered in the ROI, the register of intra-Community operators.
- Deductions and refunds: If a company has borne more VAT than it has charged, it is entitled to a refund of the excess.
VAT is a fundamental tax in the operations of companies in Spain, and they must be aware of the rules in order to comply with their tax obligations and take advantage of their rights.
Personal income tax for the self-employed
Personal Income Tax (IRPF) is a tax on the income of individuals resident in Spain. Self-employed persons are subject to IRPF on their professional income.
- Estimation of income: The self-employed can calculate their taxable income using two methods the direct estimation or the objective estimation (modules). In the direct estimation, taxable income is the difference between income and deductible expenses. In the objective estimation, the taxable income is calculated according to indicators such as the surface area of the premises, the contracted electrical power, the number of employees, etc.
- Instalments: The self-employed are obliged to make instalments of their personal income tax throughout the year. These payments are made quarterly using forms 130 (direct assessment) or 131 (objective assessment).
- Annual return: In addition to the instalments, the self-employed must file an annual personal income tax return (form D-100). This return includes all income obtained during the year, both income derived from economic activity and other income (e.g. rental income or income from capital). The annual return is filed between April and June of the year following the year in which it is declared.
- Deductible expenses: Self-employed persons can deduct expenses necessary for the development of their economic activity, as long as they are duly justified and registered. Some examples of deductible expenses are expenses for supplies, rent, material, insurance, training, etc.
- Deductions: Some freelancers, such as professionals, must apply withholdings to their invoices, which are subsequently paid to the Tax Agency and deducted from the IRPF payable.
In addition to the above, companies in Spain are also sometimes obliged to pay local taxes, regional taxes, taxes related to the environment, Social Security contributions and special taxes.
At Asesoría Orihuela Costa, we have the best team at your disposal, so that you can optimise the payment of your business taxes.
