What is Corporate Tax?

Based on the Spanish Constitution, all citizens must contribute to the maintenance of public expenses based on our economic capacity. It is done through taxes and, fundamentally, through the Personal Income Tax and Corporate Tax.

A person’s economic capacity is manifested through the income he or she receives. If the income is received by a natural person, it is taxed with the Personal Income Tax, and if it is received by a legal entity, with the Corporate Tax. Therefore, this Tax is levied on companies’ income.

Definition of Corporate Tax

The IS can be defined as apersonal and direct tax that taxes income obtained by companies and other legal entities (associations, foundations) that have their domicile in Spanish territory.

The taxable event is obtaining income from the company or entity, regardless of the origin of that income. Therefore, the fundamental element to calculate the tax base of the Tax is the accounting of the companies.

The form 200 is the one that must be used for the Corporate Tax declaration. In the case of tax groups, all companies that are part of the group must submit Form 200. The declaration must be signed by the legal representative or representatives of the reporting company.

Who has to pay the IS?

The following taxpayers will have to pay the Corporate Tax when they reside in Spanish territory:

• Legal entities, except civil companies, that do not have a commercial purpose.
• Agrarian transformation societies.
• Investment funds.
• Temporary business unions.
• Venture capital funds and closed-end collective investment funds.
• All pension funds.
• The mortgage market regulation funds.
• The degree funds.
• Investment guarantee funds.
• Neighborhood communities holding neighbourhood forests in common hands.
• Bank asset funds.

To determine if an entity has its residence in Spain and, therefore, is subject to the Tax, it will have to meet a series of requirements that are as follows:

• Have been established by Spanish laws.
• Have its registered office in Spanish territory.
• Have its effective management headquarters in Spanish territory.

From the perspective of the self-employed, it is important to keep in mind that if has established a limited company it is essential to gather information about this Tax and consult with a personal tax advisor to carry out the preparation and processing.

Tax rate and IS tax period

Regarding the IS tax rate, we can distinguish the following:

• General rate of 25% in 2016.
• Reduced rate of 15% for entrepreneurs.
• Reduced rate of 25% for SMEs.
• Reduced rate of 20 and 25% for microenterprises.
• Reduced rate of 20% for cooperatives.

As regards the IS tax period, it coincides with the financial year of each company, except in some cases in which the tax period is concluded, such as the following:

• When the company or entity is extinguished.
• When the entity changes its residence from Spain to abroad.
• When the entity is transformed and is not subject to IS.
• When a transformation occurs in the form of a company or entity, the statutes or the legal regime are modified. This entails a change in the type of taxation or the application of a different tax regime.

The length of the tax period can be:

• Twelve months (cannot be longer) and may or may not coincide with the calendar year.
• Less than twelve months.

The tax accrual occurs on the last day of the tax period.

Corporate Tax News for 2017

In 2017, important tax developments mainly affected the Real Estate Tax (IBI) and the Corporate Tax. Regarding the latter, the most notable developments are the following:

• The regulation of the exemption for dividends has been changed, and the non-deductibility of losses realized in the transfer of shares in entities is established in cases in which they are participations with the right to the exemption in the positive income obtained.
• The compensation of negative tax bases from previous years is now limited for large companies. The limits are 25% for companies with a net turnover of more than 60 million and 50% when the turnover is between 20 and 60 million. Therefore, the possibility of one fiscal year’s profits being offset by previous years’ losses is limited.
• All entities must include in the tax base a minimum of one-fifth of the losses from years that began on or after January 1, 2016 and in the following four years. li>
• The tax obligations that must be met by the person obliged to make instalment payments of the IS may not be deferred or divided into instalments.