Spain: An attractive country for investment
Setting up a business in Spain
Investment aid and incentives in Spain
Labor and social security regulations
Intellectual property law
Legal framework and tax implications of e-commerce in Spain
Company and Commercial Law
The Spanish financial system
Accounting and audit issues
- Central government taxes
- Corporate Income Tax
- Personal Income Tax
- Nonresident Income Tax
- Wealth Tax
- Inheritance and Gift Tax
- Spanish Value Added Tax
- Transfer and Stamp Tax
- Excise and Special Taxes
- Custom Duties on Imports
- Tax on Insurance Premiums
- Tax on Financial Transactions
- Tax on certain Digital Services
- Reporting obligations relating to Assets and Rights Abroad
- Tax on fluorinated greenhouse gases
- Excise tax on non-reusable plastic packaging
- Tax on waste sent to landfill, incineration and co-incineration
- Temporary taxes introduced by Law 38/2022 of December 27, 2022
- Special regime for startups
- Special Regimes of certain Autonomous Communities
- Local taxes
- Exhibit I - Corporate income tax incentives for investment
- Exhibit II - Treaty tax rates
- Exhibit III - Practical examples
- Exhibit IV - Case of Application of the Regime for foreign-securities holding companies (ETVE)...
- Exhibit V - Nonresident case study: Income obtained without a permanent establishment
- Exhibit VI - VAT case study
2Central government taxes
2.19 Special regimes of certain autonomous communities
2.19.1 Canary Islands tax regime (REF)
The Canary Islands enjoy tax benefits intended to compensate for the disadvantages brought about by insularity and distance from the Spanish mainland and the main goal of which is to attract investments to the Canary Islands. The set of such benefits is known as REF, from the Spanish acronym.
The REF was renewed for the period 2014 to 2020 through the approval of Royal Decree-Law 15/2014, of December 19, which included some improvements in relation to the former regime which mainly affect the regulation of the Canary Islands Investment Reserve (RIC) and the Canary Islands Special Zone (ZEC).
Royal Decree-Law 34/2020, of November 17, 2020, modified the time references contained in Law 19/1994, of July 6, 1994, amending the REF, affected by the extension of the Assistance Guidelines for regional purposes for 2014-2020; such references have been changed to December 31, 2021.
Furthermore, through Royal Decree-Law 39/2020, of December 29, 2020, the investment period for the 2016 RIC was extended for an additional year.
Accordingly, it will not be necessary to adjust the allowances corresponding to the years initiated in 2016 for which investment had not been made at December 31, 2020.
Likewise, subarticle 11 of the aforementioned article 27 of Law 19/1994 was amended on a transitional basis, whereby the period referred to in the first paragraph will be four years for advance investments made in 2017.
Subsequently, following Spain’s communication to the European Commission of its Map of regional state aid for 2022-2027, several references to time periods contained in Law 19/1994 of July 6, 1994 amending the Economic and tax regime for the Canary Islands (REF) have been changed, by means of Royal Decree-law 31/2021 of December 28, 2021:
- On the one hand, the regime applicable to advance investments of future appropriations to the Reserve for investment in the Canary Islands (RIC) has been amended in such a way that these investments can be applied to appropriations charged to profits obtained up to December 31, 2023 (the date was previously December 31, 2021).
- On the other hand, the authorization of registrations in the Official ZEC Register of Entities up to December 31, 2023 has been permitted (the limit was previously December 31, 2021).
Moreover, on March 17, 2022, the European Commission approved the map of regional state aid (which includes the REF tax incentives). It should be borne in mind in this respect that the effectiveness of the foregoing amendments was conditional on that authorization being obtained.
The REF incentives are basically as follows:
184.108.40.206 Direct taxation
- Reduction of 50% of the portion of gross tax payable that relates to income from the sale of tangible goods specific to agricultural, livestock farming, industrial or fishing activities, provided that they have been produced by the taxpayer itself in the archipelago.
- Tax credit for investment in fixed assets consisting of 25% of the investment up to a limit of 50% of tax payable net of tax reductions and double taxation credits.
- The tax credits rates for investments made in the Canary Islands are higher than those applicable to investments in the Spanish mainland.
- Reduction of the taxable amount (by up to 90% of undistributed income per books for the year) by amounts recorded to the RIC. This reserve must be invested within a period of up to three years, and can be invested in certain investments (to create or expand establishments, create jobs, acquire certain assets, including the subscription of shares or other securities, investments contributing to the improvement and protection of the environment); these investments must be related (according to the requirements which are expressly regulated) with activities or entities/establishments in the Canary Islands, and they must be maintained for 5 years.
- Specific tax credits for entities domiciled in the Canary Islands (with an average workforce of 50 employees and revenues below €10 million):
- Tax credit for investments in territories of western Africa (Morocco, Mauritania, Senegal, Gambia, Guinea-Bissau and Cape Verde).
This tax credit is 15% of the amounts invested in setting up subsidiaries or permanent establishments, with an increase in average workforce in the Canary Islands. In the case of subsidiaries, they must be owned by companies with registered office in the Canary Islands.
- Tax credit of 15% of expenses for advertising and publicity, product launches, opening and researching markets abroad and attending trade fairs and the like.
- Tax credit for investments in territories of western Africa (Morocco, Mauritania, Senegal, Gambia, Guinea-Bissau and Cape Verde).
- Increase from 32% to 45% in the tax credit for technological innovation through activities carried on in the Canary Islands.
Canary Islands legislation also regulates the special tax regime of the ZEC, authorized in January 2000 by the European Commission, due to considering its application compatible with the provisions regulating the Single Market. The renewal of this tax incentive was included in the negotiation process on the Directives 2007-2013, establishing that the ZEC would remain in force until December 31, 2019 for authorizations granted up to December 31, 2013, although with minor modifications. However, the application of this special regime has been extended until 2026, and the period for requesting authorization has been extended to December 31, 2023.
The regime is applicable to newly formed entities and branches domiciled in the Canary Islands that are registered on the Official Register of Entities in the ZEC. Registered entities and branches must meet certain requirements, such as (i) having their registered office and place of effective management in the Canary Islands (although permanent establishments may be used to perform their activities both within and outside the Canary Islands, which must first be communicated to the Governing Council of the ZEC); (ii) having at least one director residing in the Canary Islands; (iii) having as their corporate purposes the performance of the economic activities expressly established in the law (financial activities being excluded in all cases); (iv) creating a minimum number of jobs within the first six months following authorization, and keeping an annual average headcount of at least that number throughout the period in which the regime applies.
The regime also requires (v) making a minimum amount of investments in the first years, through the acquisition of tangible or intangible assets located or received in the geographical area of the ZEC and which are used and necessary to perform the activities carried out in that area; and (vi) filing with the authorities a descriptive report on the activities to be carried out which supports their feasibility, international competitiveness and their contribution to the economic and social development of the islands, the content of which will be binding for the entity.
Pursuant to the tax regime, the income obtained by the ZEC entities is subject to CIT at a single special tax rate of 4%. This reduced tax rate only applies up to a certain amount of tax base, depending on the activity carried out and the jobs created. Moreover:
- Since January 1, 2015, it is possible to take the tax credit for domestic double taxation on the dividends relating to holdings in ZEC entities coming from income that has been taxed at the reduced rate of 4%, and on the income obtained on the transfer of ZEC entities.
- The interest, capital gains and dividends obtained by nonresidents with holdings in ZEC entities are exempt from nonresident income tax in Spain on the same conditions as for residents in the EU and the EEA, where that income is paid by a ZEC entity and comes from transactions physically and effectively carried out in the geographical scope of the ZEC. These exemptions will not apply where the income and capital gains are obtained through countries or territories classed by regulations as tax havens, or where the parent has its tax residence in those territories.
The ZEC entities enjoy an exemption from transfer and stamp tax in relation to the acquisitions of assets and rights to be used by the taxpayer to perform its activity, provided they are located, can be exercised or must be met in the geographical scope of the ZEC.
Moreover, the supplies of goods and services carried out between ZEC entities, and imports of goods made by ZEC entities are exempt from Canary Islands general indirect tax.
- Incentive for Cinematographic Activities in the Canary Islands
Two tax credits are established for Cinematographic Activities in the Canary Islands:
- Tax credit for Spanish cinematographic productions and audiovisual series: A tax credit may be taken on the total costs of the production. That tax credit is 54% on the first million euros, and 45% to any excess over that amount, provided that certain requirements are met. The total tax credit may not exceed €36 million. In the case of audiovisual series specifically, this limit is to be determined by episode, and may not exceed €18 million per episode produced.
- Tax credit for expenses incurred in Spain for foreign productions of feature films or audiovisual works: A tax credit may be taken of 54% on the first million euros, and of 45% of any excess above that threshold, provided certain requirements are met. The tax credit is capped at €36 million. In the case of audiovisual series specifically, this limit is to be determined by episode, and may not exceed €18 million per episode produced.
- Control of incentives and limits on the accumulation of aid derived from the application of EU Law
As stated previously, the REF incentives are State aid. That aid is therefore subject to control measures, in accordance with the REF Regulations, and are grouped as follows pursuant to Community legislation:
- Regional aid for business operations.
- Regional aid to investment.
- Aid for small and medium-size enterprises.
- Aid for audiovisual works.
- It is established that the aid obtained by the beneficiaries of the REC shall be included in an informational return (form 282).
- Rules are established for computing the aid to determine the accumulation thereof, and limits on that accumulation are specified.
- The procedure is established for recovery of excess aid if those limits are exceeded.
- Lastly, the authority to monitor and control that accumulation of aid, no matter what kind of aid it is, pertains to the State Tax Agency, without prejudice to the authority attributed to other bodies of the public administration, in particular to the Central Government Controller’s Office.
220.127.116.11 Indirect taxation
For indirect tax purposes, rather than VAT, the Canary Islands General Indirect Tax (IGIC), which is similar to VAT, applies at the standard rate of 7% since January 1, 2020, (after the reduction to 6.5% in 2019). In addition, the increased tax rate was raised for 2020, going from 13.5% to 15%.
The tax on imports and supplies of goods in the Canary Islands (AIEM) also applies to the production and import in the Canary Islands of certain tangible goods.
Lastly, there are certain incentives in indirect taxation: for example, in transfer tax under the “transfers for a consideration” heading, an exemption applies to acquisitions of capital goods and of intangible assets (for 50% of the investment, except in the case of small and medium-size enterprises) which fall within the definition of initial investment mentioned previously according to the regulations established in the RIC, where certain requirements are met (article 25 of Law 19/1994).
2.19.2 Special regime applicable in the Basque Country
The Economic Accord with the Autonomous Community Government of the Basque Country recognizes the power of the institutions of the provinces of the Basque Country (Álava, Guipúzcoa and Vizcaya) to regulate taxes. In general, they have full or shared regulatory authority in the area of direct taxation, but far more limited authority in the indirect taxation area.
The institutions of the provinces of the Basque Country also have the power to levy, manage, assess, inspect, review and collect taxes, except with respect to import duties and excise taxes on imports.
The Economic Accord regulates the applicable connecting factors in order to determine which body of laws, namely, those pertaining to Spain (excluding the Basque Country and Navarra) or those pertaining to the provinces of the Basque Country and to Navarra, apply to taxpayers and the powers to collect and inspect each tax, with revenue-raising power being shared in some cases between various tax authorities.
The specific characteristics of the main taxes of each of the Historical Territories are contained in the following legislation.
- Corporate Income Tax:
- Álava: Provincial Corporate Income Tax Law 37/2013, of December 13, 2013; Provincial Law 20/2014, of June 18, 2014, making technical corrections in certain provincial tax laws of the Historical Territory of Álava; and Provincial Law 15/2015, of October 28, 2015, amending various tax provisions of the Historical Territory of Álava.
- Guipúzcoa: Provincial Corporate Income Tax Law 2/2014, of January 17, 2014, of the Historical Territory of Guipúzcoa; and Provincial Law 7/2015, of December 23, 2015, approving certain tax amendments.
- Vizcaya: Provincial Corporate Income Tax Law 11/2013, of December 5, 2013, and Provincial Law 3/2014, of June 11, 2014, making technical corrections in certain provincial tax laws of the Historical Territory of Vizkaya.
- Álava: Provincial Personal Income Tax Law 33/2013, of November 27, 2013; Provincial Law 20/2014, of June 18, 2014, making technical corrections in certain provincial tax laws of the Historical Territory of Álava; and Provincial Law 15/2015, of October 28, 2015, amending various tax provisions of the Historical Territory of Álava.
- Guipúzcoa: Provincial Personal Income Tax Law 3/2014, of January 17, 2014; and Provincial Law 7/2015, of December 23, 2015, approving certain tax amendments.
- Vizcaya: Provincial Personal Income Tax Law 13/2013, of December 5, 2013, and Provincial Law 3/2014, of June 11, 2014, making technical corrections in certain provincial tax laws of the Historical Territory of Vizcaya.
- Inheritance and Gift Tax:
- Álava: Provincial Inheritance and Gift Tax Law 11/2005, of May 16, 2005, and Provincial Law 20/2014, of June 18, 2013, making technical corrections in certain provincial tax laws of the Historical Territory of Álava.
- Guipúzcoa: Provincial Inheritance and Gift Tax Law 2/2022 of March 10, 2022 and Provincial Decree 1/2023 of January 17, 2023 approving the Inheritance and Gift Tax Regulations.
- Vizcaya: Provincial Inheritance and Gift Tax Law 4/2015, of March 25, 2015.
- Wealth Tax:
- Álava: Provincial Wealth Tax Law 9/2013, of March 11, 2013.
- Guipúzcoa: Provincial Law 2/2018, of June 11, 2018, of Tax on Wealth.
- Vizcaya: Provincial Wealth Tax Law 2/2013, of February 27, 2013.
- Wealth tax has been reinstated in the three Historical Territories only for fiscal years 2011 and 2012.
2.19.3 Special regime applicable in Navarra
Financial and tax dealings between Central Government and the Provincial Government of Navarra are governed by the Economic Agreement, with terms and conditions and powers similar to those under the Economic Accord. In this case, as in the case of the special regime in the Basque Country, the features of each tax are contained in their specific legislation:
- Corporate Income Tax: Provincial Corporate Income Tax Law 26/2016, of December 28.
- Personal Income Tax: Revised Provincial Personal Income Tax Law (Legislative Provincial Decree 4/2008, of June 2, 2008).
- Inheritance and Gift Tax: Revised provisions of the tax (Legislative Provincial Decree 250/2002, of December 16, 2002).
- Wealth Tax: Provincial Wealth Tax Law 13/1992, of November 19, 1992.