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The most important advances that Spain has made in recent years in terms of corporate taxation are the following:
Royal Decree Law 4/2024, approved on June 26 and published in the Official State Gazette on June 27, 2024, extends certain measures to address the economic and social consequences of conflicts in Ukraine and the Middle East. It also introduces urgent measures in the tax, energy and social fields. The following are the main tax provisions included:
Free Depreciation Incentive: The accelerated amortization incentive of Corporation Tax for investments in new vehicles classified as FCV, FCHV, BEV, REEV, or PHEV, as well as for new charging infrastructures for electric vehicles for professional use, is replaced by a free amortization incentive. This measure applies to assets that come into operation in tax periods beginning in 2024 and 2025.
Modification of the Capital Reserve: For tax periods beginning on or after January 1, 2024, the reduction percentage is increased from 10% to 15%. In addition, the period of maintenance of net worth and the period during which the reserve cannot be distributed are reduced from five to three years. A transitional regime is established that applies the three-year period to incentives whose maintenance period has not expired.
Extension of Tax Incentives in La Palma: During 2024, the tax incentives of the Municipal Property Tax and the Tax on Economic Activities on the Island of La Palma are extended.
Reduction of VAT: Until September 30, 2024, the reduced Value Added Tax (VAT) rates of 5% (and 0.62% of sales compensation tax) are maintained for seed oils and pasta, and 0% for certain staple foods. Starting October 1, 2024 and ending December 31, 2024, rates will increase to 7.5% (and 1% of sales compensation tax) for seed oils and pasta, and to 2% for certain staple foods (and to 0.26% of sales compensation tax).
VAT on Olive Oil: From January 1, 2025, with no time limit, a reduced VAT rate of 4% will be applied to olive oil.
Constitutional Court Judgment 11/2024, of January 18, published in the Official State Gazette on February 20, 2024, considers the question of unconstitutionality number 2577-2023. This ruling declares certain precepts of Law 27/2014, of November 27, on Corporation Tax (LIS) null and void and unconstitutional, which were incorporated through article 3.1, sections One and Two, of Royal Decree-Law 3/2016, of December 2 (RDL 3/2016). The specific measures that have been rescinded are the following:
Maximum Compensation Limits for Negative Taxable Bases: The introduction of stricter limits for the compensation of negative tax bases for taxpayers whose net turnover in the 12 months prior to the start of the financial year exceeds 20 million euros.
Additional Limit on the Application of Tax Credits: The imposition of an additional limit for these same taxpayers in the application of tax credits designed to avoid double taxation, both international and domestic, so that the sum of both tax credits cannot exceed 50% of the taxpayer's full contribution.
Minimum Annual Reversion of Stock Impairment: The obligation of all taxpayers to automatically include in the corporate tax base for the years 2016 to 2020 a minimum annual reversion of the impairment of the previously deducted stock value.
However, this ruling does not have full retroactive effect. Therefore, tax debts accrued for Corporate Tax purposes that have been definitively determined by a final judgment with the effect of res judicata or final administrative decision, liquidations that have not been challenged and self-assessments whose rectification has not been requested before the date of the judgment may not be subject to review. This implies that only companies that have appealed to liquidations or requested the rectification of self-assessments before the publication of the judgment in the Official State Gazette can benefit from the repeal of the Royal Decree-Law.
Although a Royal Decree-Law may serve to establish, modify or repeal taxes in emergency situations, the Constitutional Court considers that Royal Decree-Law 3/2016 exceeds the material limit provided for Royal Decree-Laws in tax matters. According to the Court, the amendments introduced significantly affect essential elements of Corporation Tax, such as the tax base and the fee, significantly affecting the determination of the tax burden and altering a fundamental part of the tax system.
In addition, it should be recalled that this Royal Decree-Law is related to Royal Decree-Law 2/2016, which was already declared unconstitutional by Judgment 78/2020 of the Constitutional Court because it increased corporate tax payments for large companies.
Royal Decree-Law 8/2023, which establishes measures to address the economic and social repercussions derived from conflicts in Ukraine and the Middle East, as well as to mitigate the effects of the drought, was approved on December 27, 2023 and published in the Official State Gazette on December 28, 2023.
Some of the most important changes affecting corporate taxation include the following:
Extension of Measures to Mitigate the Economic Impact of the War in Ukraine: Certain provisions are being expanded to counteract the economic and social effects of the war in Ukraine. In order to contribute to the reduction of final prices, the reduced rates of Value Added Tax (VAT) of 5% for olive and seed oils, as well as for pasta, and 0% for certain basic foods, are extended until June 30, 2024.
Support in the Energy Field: To contain prices and support the most vulnerable sectors in the energy field, the application of reduced VAT is extended to certain supplies of electricity and natural gas. Thus, the VAT rate applicable to intra-community deliveries, imports and purchases of electrical energy will be 10% during 2024, instead of the 5% that was in effect until December 31, 2023. The same percentage will apply to natural gas until March 31, 2024, and to biomass briquettes and pellets, as well as wood for firewood, until June 30, 2024.
Amendment to the Value of Electricity Tax: The suspension of the electricity value tax, extended as an exceptional measure until December 31, 2023, is adjusted due to the recent decline in the price of electricity. By 2024, the tax base will consist of the total amount that the producer must receive for the production and incorporation of electrical energy to the system, measured in power plant bars, for each installation, reduced by 50% of the remuneration corresponding to the energy incorporated into the system during the first calendar quarter, and by 25% during the second calendar quarter.
Adjustment of the Special Tax on Electricity: The exceptional reduction in the Special Electricity Tax tax rate (which was 0.5% as of December 31, 2023) is also adjusted. During the first quarter of 2024, the tax rate will be 2.5%, increasing to 3.8% during the second quarter.
Reduction of Coefficients in the Tax on the Increase in the Value of Urban Land: During 2024, the coefficients of this tax will be reduced depending on the period in which the increase in value was generated.
Extension of the Corporate Tax Freedom of Redemption Incentive: The freedom of amortization incentive is extended during 2024 for investments in electrical self-consumption facilities and in installations that use energy from renewable sources, provided that certain requirements are met.
Temporary Tax Extension: The application of temporary taxes on the energy sector and on credit institutions and financial credit institutions is extended to 2024.
Amendments to the Economic and Fiscal Regime of the Canary Islands: Changes are introduced in the Economic and Fiscal Regime of the Canary Islands, with effect from January 1, 2024, affecting, among other aspects, early investments and the validity of tax incentives for entities in the Canary Islands Special Zone.
On December 20, 2023, Royal Decree-Law 6/2023, of December 19, was published in the Official State Gazette, which introduces urgent measures for the execution of the Recovery, Transformation and Resilience Plan, with regard to the public service of justice, public service, local system and patronage. The most important changes included in these regulations, all effective as of January 1, 2024, are the following:
Increase in Donation Deduction Percentages: The deduction rates for donations applicable to both individuals and legal entities, as well as to non-residents without a permanent establishment (PE) in Spain, are increased as follows:
Reducing the Term to Benefit from Increased Deductions: The period during which a donor must make donations to the same entity to be entitled to increased deduction rates is reduced from four to three years. If donations were made to the same entity in the previous two years, the amount of the donation for this year and the previous year being equal to or greater than that of the immediately preceding year, the deduction percentage will be 45% for individuals (currently 40%) and 50% for legal entities (currently 40%).
Extension of the Limit for Non-Residents: Non-residents who operate in Spain without PE may continue to apply the deduction provided for taxpayers from personal income tax, but the limit applicable to the base of the deduction is increased by 5 percentage points.
Extension of Types of Donations Entitled to Tax Relief: The types of donations that grant the right to tax relief are expanded, including the transfer of the use of a movable or immovable property for a specified period of time and without consideration.
Allowed Symbolic Commodity: The donor or taxpayer is allowed to receive goods or services from the donee or beneficiary without losing the right to the deduction, provided that the value of those goods or services does not exceed 15% of the value of the donation or contribution and, in any case, does not exceed 25,000 EUR.
Corporate Tax (IS) Exemptions for Sponsoring Entities: Social and occupational integration activities for people at risk of social exclusion and those related to the education of gifted people are added to the list of economic operations exempt from IS for entities benefiting from sponsorship that apply the special regime of Law 49/2002.
Extension of the Exemption for R&D and Innovation Activities: The exemption extends to a wider range of research and development (R&D) activities, including all those defined in article 35 of the Corporation Tax Act, and for the first time, innovation activities are included.
Clarification on Civil Liability Insurance: To ensure the proper functioning of these entities, it is specified that the payment of civil liability insurance contracted by the non-profit entity in favor of businessmen, statutory representatives and members of government bodies shall not be considered remuneration, provided that they cover only risks derived from the performance of their functions.
Expansion of Business Collaboration Agreements: Business collaboration agreements in activities of general interest allow entities that benefit from sponsorship to receive financial aid in exchange for spreading the participation of employees. The possibility of this aid being in kind is included, giving greater legal certainty to this mechanism. In addition, aid is allowed to be provided in the form of services within the employee's activity, allowing the deductibility of the expense incurred. It is clarified that the positive income derived from this aid is exempt from taxation for employees.
Dissemination of Employee Participation: It is accepted that the dissemination of collaborators' participation can be carried out both by the collaborator himself and by the entities benefiting from the sponsorship, expanding flexibility in the promotion of these collaborations.
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