- 1Spain: An attractive country for investment
- 2Setting up a business in Spain
- 3 Tax System
- 4 Investment aid and incentives in Spain
- 5 Labor and social security regulations
- 6 Intellectual property law
- 7Legal framework and tax implications of e-commerce in Spain
- AI Annex I Company and Commercial Law
- AIIAnnex II The Spanish financial system
- AIIIAnnex IIIAccounting 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
- 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
Exhibit III Practical examples
A Limited Liability Company tax resident in Spain (Teleco, S.L.) is engaged in the supply of telecommunications services. According to the 2022 financial statements, the company obtained a profit per books of €7,225,000. The company has recorded in its accounts the following transactions which may give rise to the need to make the relevant tax adjustments to the income per books:
- Teleco, S.L. has its offices in a rented building, and pays to the owner of that building an annual amount in this respect of €200,000. In addition, the company owns a building, which has been rented to a third party. The rental income obtained by Teleco, S.L. amounted to €100,000, and the withholding taxes borne by it amounted to €20,000.
- The company has recorded a CIT expense amounting to €2,167,500.
- The company recorded a provision for impairment losses in relation to foreseeable bad debts amounting to €170,000. Of that amount, €125,000 relate to accounts receivable less than six months past-due on the date on which the CIT relating to that year fell due.
- Teleco, S.L. purchased certain software on July 1 of the previous year, for €600,000. This tax period it recorded an amortization expense for that software amounting to €300,000.
- In the previous tax period the company recorded a provision for impairment losses in relation to foreseeable bad debts amounting to €350,000, relating to accounts receivable two months past-due at the date on which the CIT relating to that year accrued.
- The company recorded a provision for other expenses (provision for incentives to be paid after 3 years) in the amount of €225,000 to cover the expense to be incurred in relation to the bonus payable to employees.
- In 2013 and 2014, it made adjustments in relation to the limit on the deductibility of amortization, for the amount of €20,000.
- The company purchased some computers on October 1, 2017 amounting to €60,000. In this tax period it recorded a depreciation expenses totaling €20,000 in relation to those computers.
- The company incurred expenses on scientific R&D in the amount of €620,000 during the year. The average expenses incurred in the previous two years amounted to €120,000.
- The company purchased shares in certain companies. In this connection, the company obtained dividends in a gross amount of €105,000, and bore withholding taxes in the amount of €21,000. Such shares were acquired by February 15 and transferred by the end of March.
- According to the information furnished by the company, tax installment payments were made during the tax period in the amount of €2,400,000.
|Income for the year||7,225,000|
|Corporate income tax expense 2020||2,167,50057|
|Provision for impairment losses on receivables||125,00058|
|Excess amortization of software||102,00059|
|Excess depreciation of computers||5,00060|
|Provision for incentives||225,00061|
|Provision for impairment losses on receivables recorded in the previous tax year||<350,000>62|
|Reversal of 30% adjustment to amortization/depreciation||<2,000>63|
|Gross tax payable||2,374,375|
|Investments in R&D||<240, 000>64|
|Deduction of reversal of adjustment to amort/depr.||<100>65|
|Net tax payable||2,134,275|
|Minimum net tax payable66||1,424,625|
|Withholdings and prepayments|
|Withholdings on dividends||<21,000>|
|Withholdings on rental income||<20,000>|
|Tax installments payments||<2,400,000>|
|Net amount refundable||<306,725>|
57 As stated previously, the CIT expense is nondeductible.
58 As this amount is less than 6 months old on the date when the tax falls due, it is deemed a nondeductible expense.
59 The maximum depreciation of software is €198,000 per year (33% of the acquisition cost). Consequently, as the depreciation for accounting purposes is higher than for tax purposes, a positive adjustment must be made for the difference (€102,000).
60 The maximum depreciation of data processing equipment is €15,000 per year (25% of the acquisition cost). Consequently, as the depreciation for accounting purposes is higher than for tax purposes, a positive adjustment must be made for the difference (€5,000).
61 The provision for long-term incentives for personnel who will presumably leave the company is a nondeductible expense.
62 This expense becomes deductible once it is more than 6 months old.
63 The tax provision permits reversing the adjustments made in fiscal years 2013 and 2014 due to the limitation on the deductibility of the amortization/depreciation recorded. Given that the total positive adjustment for this item amounted to €20,000, and the period for reversing it is 10 years, a negative adjustment must be made to the book income for one-tenth of the positive adjustment made in the past, that is, €2,000 (20,000 x 10%).
64 As the R&D expense of the year is higher than the average incurred in the last two years, the deduction rate applicable is 42%, the deduction totaling €240,000 (120,000 x 25% + 500,000 x 42%). It is necessary to verify that this deduction does not exceed 25% of the gross tax payable reduced by domestic and international double taxation tax credits and reductions. However, this limit goes up to 50% when the amount of the R&D tax credit, relating to expenses and investments made in the same tax period, exceeds 10% of the gross tax payable, reduced by domestic and international double taxation tax credits and reductions. In this case, the limit is €1,434,510 (the limit is 50% because the R&D expenses of the year exceed 10% of the gross tax payable), and thus the tax credit can be taken in full.
65 The current CIT Law has establishes, for taxpayers to which the 70% limit on the tax deductibility of accounting amortization/depreciation applied, the right to take an additional deduction of 2% in fiscal year 2015 (5% starting in 2016) of the amount included in the tax base (2,000 x 5%).
66 Effective for tax periods starting on or after January 1, 2022, the net tax payable cannot be less than the minimum net tax, that is, 15% of the tax base, reduced or increased by the amounts derived from the levelling reserve and/or reduced by the Canary Island investment reserve, as appropriate.