Opening a company in Spain
Spanish law states that anyone who engages in business activities can do so either as an individual or in the name of a company.
The Spanish Companies Act provides for many types of companies, the common ones being limited liability companies (SL) or companies limited by shares (SA). Today we will explain the common taxes that a company in Spain pays.
Related article: How to set up a company in Spain?
Corporate tax
Corporate tax is a tax on income. A short terms, the taxable base for corporate tax is the company’s net income, i.e., gross income minus deductible expenses. The tax rate is a fixed 25%, regardless of the amount of income.
Note: In order to promote entrepreneurship, a tax rate of only 15% is applied to newly formed companies for the first two years that they have a profitable business.
For example, a company with a gross income of €100,000 a year, with expenses of €70,000 and a net income of €30,000. Then there is a tax of €7,500.
Corporate tax returns should to be filed 3 times a year for quarterly tax and 1 time for annual tax, for a total of 4 times.
Three quarterly tax returns are filed in April, October and the first 20 days of December each year.
In July of the following year, you will have to file an annual tax return for the entire previous year’s income. For example, for the year 2022, the annual tax return must be filed by July 25, 2023.
Related article: Corporate Tax: advance payment tax return (Modelo 202)
Value Added Tax (VAT)
The VAT is called IVA in Spanish, is payable on both the purchase of goods and services. When a consumer buys goods and services from a company, he or she pays VAT to the seller. The IVA collected from the consumer by the compnay is submitted to the tax office.
In general terms, VAT is included in the price of the product or service the consumer pays to the company. The law requires that the VAT charged to the consumer wil be paid by the company to the tax office. VAT tax returns are filed quarterly.
It is for this reason that the distinction between tax payment and tax refund arises:
-Tax payment: If the company receives more IVA from the consumer than the IVA paid to the supplier, it has to pay the difference to the tax office.
-Refund: If the IVA received from the consumer is less than the IVA paid to the supplier, the company can apply to the tax office for a refund of the difference.
Related article: Introduction to Spanish VAT tax
Tax retention on rent
If a company rents an office or premises, it needs to declare the tax rentention on rents every 3 months.
In simple terms, the landlord receives rent every month, which is taxable as income ( personal income tax if the landlord is an individual). The law, in order to prevent landlords from concealing unreported income, requires tenants to withhold a portion of the rent when they pay it each month, and then pay the withheld amount to the tax office.
The last three months of the year, January, April, July and October, are required to be declared as withholding amounts.
The tax retention rate is 19%.
Tax retention on employees salary
The tax retention rate of workers’ salary varies on each employee situation and the amount of salary. The retention rate may start from 0% to 47%.
The tax retention tax has to be filed every three months in January, April, July and October.
