Spanish corporate tax
Corporate tax, also known as Impuesto sobre Sociedades (company tax), is a tax on income. If a company makes a profit, it has to pay tax, but if it doesn’t, it doesn’t have to pay tax.
The corporate tax rate is a fixed 25%. The taxable base is the company’s net income, i.e., gross income minus deductible expenses. For example, a company with a gross income of 100,000 Euros a year and a deductible expense of 70,000 Euros would have a net income of 30,000 Euros. Then it would have to pay €7,500 in tax.
It is important to note that not all expenses are deductible.
Related article: Company tax in Spain explained
General conditions for deducting expenses
-The expenses must be related to the company’s scope of business.
-Invoices are required as proof.
-The company accounts must record this expense.
-The expenses should be registered in the year in which they are incurred.
What expenses are deductible?
By default, expenses are deductible as long as they meet the above conditions and are not specifically excluded by law. Common deductible items are:
-Business related expenses in general.
-Purchases from suppliers, products, services, etc.
-Expenses related to vehicles provided to employees or legal representatives, including wear and tear on the vehicle itself, insurance, rent, repairs, etc.
The company may also deduct the expenses if the vehicle is not used exclusively for work purposes, but is allowed for personal use. Only the law considers this situation as a benefit granted by the company to the worker or legal representative, for which the worker is subject to personal income tax.
Whether a vehicle is used for private purposes is controversial in practice. For example, ambulances, cabs, trucks, tractors and other vehicles with special purposes are not controversial. On the contrary, if it is an ordinary car, it is not easy to define, and it is even harder to prove.
-Wages, bonuses and social security.
-Salary of legal representative.
-Rent for office space.
-Catering costs for inviting clients to talk to suppliers. Up to 1% of the business amount can be deducted.
-Staff travel, meals, accommodation, transportation and other expenses.
What expenses are not deductible?
Some common non-deductible expenses are:
-Penalties and late payment fees. For example, a company with a gross income of 100€, a purchase of 60€ and a fine of 30€ for an administrative violation. Since the fine is not deductible, the taxable base is 100€ – 60€ = 40€.
-Distributions to shareholders. For example, if the company has a gross income of 100€, a purchase overhead of 60€ and a dividend of 30€ to the shareholders. Since the dividends are not deductible, the taxable base is 100€ – 60€ = 40€.
-The amount of the betting loss. Let’s say the company has a gross income of €100, incoming expenses of €60, and a loss of €30 due to gambling. Since gambling losses are not deductible, the taxable base is 100€ – 60€ = 40€.
-Illegal overhead. For example, the company has a gross income of €100, expenses of €60 for buying goods and €30 for bribes. Since the bribe expenses are not deductible, the taxable base is 100€ – 60€ = 40€.
-Donations. Let’s say the company has a gross income of 100€, incoming expenses of 60€, and bribes cost 30€.
