COMPANY TAXES: What you need to know when opening a company in Spain

Sociedad Limitada (Limited Liability Company) or S.L. is the most famous type of company and without a doubt one of the most common in Spain. But do you know what taxes the company has to pay in this case?

Impuesto de sociedades (Corporate Income Tax), also known as IS
This is a direct tax levied on the income of companies and legal entities located in Spain. It is calculated on the basis of the company’s profits, net of VAT and other taxes, and is paid at the end of the calendar year, deducting, where applicable, those paid during the year.

The tax rates are:
– 25%, this is the general rate applied to most companies
– 15% in the case of a new company for the first two years

In the case of newly formed companies, every April, October and December, form 202 (Pagos fraccionados IS) must be completed, as well as form 200 (Declaración Impuesto de Sociedades), which summarizes the annual profit for the year and deducts payments already made in periodic tax returns.

VAT or IVA
Value Added Tax or VAT is levied on the supply of goods and services and affects the economic activity of companies, albeit indirectly.

There are 2 types of VAT:
– output VAT, i.e. when selling a product or service and issuing an invoice;
– input VAT, which is paid to counterparties in transactions with suppliers, i.e. when paying invoices.

Every company must file and pay VAT to the tax authorities at the end of each quarter, although it is possible in some cases to file it monthly.

But not all transactions are subject to the same VAT rate:
— general (21%);
– reduced (10%), applied to basic goods and services, such as food or housing;
– super reduced (4%), which applies to essential goods;
– services exempt from VAT, such as certain medical services and education.

Economic activity tax or IAE
IAE – This tax is part of the Spanish tax system, administered by local councils.
It applies to both individual entrepreneurs and companies engaged in entrepreneurial and professional activities in Spain. Companies with a turnover of less than one million euros are exempt from paying this tax. In addition, during the first two years of operation, companies are also exempt from paying IAE.

However, even in these cases, the entity must register with the IAE by completing Form 036 or 037 with the Revenue Agency. The tax rate varies depending on the type of economic activity.

Personal Income Tax or IRPF
IRPF is levied on the income of every resident of Spain during the tax year, so companies withhold this amount from the salary of employees or contractors whose legal entity form is IP (Autónomo). This entails the obligation to pay this tax to the tax treasury.

Small companies must submit it quarterly, and large companies must submit it monthly:
111 – Withholding from income from employment, i.e. workers;
115 – Withholding when renting property, when the tenant uses it in favor of the lessor;
123 – Withholding from income from movable capital, for example, when a company distributes dividends.

In addition, these three forms have their equivalent in the form of annual forms, respectively, models 190, 180 and 193.

In addition to the main taxes, there are local taxes that are set by each region of Spain. For example, in Catalonia, some companies may face withholdings such as:
– Water tax (environmental tax paid by citizens and companies)
– Tax on carbon dioxide emissions from motor vehicles (The taxpayer is any individual or legal entity residing in Catalonia and owning vehicles that can travel on public roads and fall under the categories specified in the regulation itself. It applies to almost all vehicles, including those owned by companies)
– Tax on empty housing (paid by legal entities owning housing that has been empty for no good reason for more than two years) and so on.

Need help registering a company in Spain? Our specialists will help you at all stages: from opening a company to accounting and tax consulting.

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