.png)
For detailed information on the double taxation deduction, see the “Foreign Income” section in the part dedicated to Income Determination. Here we describe how income obtained abroad can be subject to a corporate tax deduction in Spain, thus avoiding international double taxation.
Spanish legislation does not provide specific tax breaks for foreign investors; both Spanish and foreign companies can access the available tax benefits. The tax breaks contemplated in the Corporate Tax regulations in Spain include:
Tax Exemption/Deduction to Avoid Internal and International Double Taxation: Key tools to prevent double income taxation both within Spain and internationally.
R&D Tax Credit: Tax incentives to encourage investment in research and development.
Tax Credit for Technological Innovation: Tax benefits aimed at promoting technological innovation within companies.
Under Spanish legislation, there are specific tax deductions for companies operating in Ceuta and Melilla, due to their special geographical location:
50% Entity Income Tax Deduction:
99% Entity Income Tax Deduction:
Spanish legislation offers several tax incentives to promote Research and Development (R&D) and technological innovation activities:
Tax Credit for R&D Expenses; a 25% tax credit is granted on expenses incurred in R&D activities. If the expenses exceed the average of the expenses of the previous two years, the tax credit is 42% of the excess amount.
Additional Tax Credit for Personnel Expenses in R&D; a 17% tax credit is granted on the expenses of personnel who carry out exclusively R&D activities and are qualified to do so.
Tax Credit for Investments in Fixed Assets; a tax credit of 8% is granted on investments in tangible (excluding buildings) and intangible assets intended exclusively for R&D activities.
Tax Credit for Technological Innovation; a 12% tax credit can be obtained for technological innovation activities.
Tax credits for R&D and technological innovation may be excluded from the tax credit limits applied to the tax quota. This means that, if certain requirements are met, up to 80% of tax credits for R&D and technological innovation can reduce the tax rate to zero, with the excess (up to 80%) subject to reimbursement by the Tax Administration. Where the requirements for the Exclusion of Limits are:
The deduction for technological innovation cannot exceed a total of 1 million euros per year.
The sum of the deductions for technological innovation and R&D cannot exceed 3 million euros per year.
If R&D expenses represent more than 10% of the turnover, an additional amount of up to 2 million euros per year can be applied in R&D tax credits, without limit and with a 20% discount.
For tax periods beginning on or after January 1, 2024, the regulations allow a reduction in the tax base of 15% of the increase in own funds made in the previous year, provided that such funds are kept for a period of three years (with the exception of losses). This reduction is subject to a limit of 10% of the previous period's positive tax base. If the tax base for that period is insufficient, unused amounts can be offset in future tax periods. To apply this deduction, a reserve equivalent to the amount of the reduction must be constituted, which cannot be distributed for a period of three years.
For tax periods beginning before January 1, 2024, the reduction is 10% and the maintenance period (both of the assets and the reserve) is five years. A transitional regime is established for the capitalization reserve applicable when the maintenance period has not ended in the tax periods beginning on or after January 1, 2024.
Investments in Spanish feature-length film productions and in the production of fictional, animated or documentary audiovisual series allow producers or taxpayers who finance such productions to obtain a tax deduction. The conditions are as follows:
For foreign productions, expenses incurred in Spain grant the following tax credits:
Taxpayers are entitled to a 20% tax credit for expenses incurred in producing and performing live performing arts and musical shows. This tax credit is limited to a maximum of 500,000 euros.
A tax credit is granted to companies that increase the number of disabled workers hired indefinitely and full-time during the year. The tax credit is:
This credit is calculated by comparing the company's average workforce of disabled workers in the current fiscal year with the average workforce in the previous fiscal year.
Small businesses can reduce their positive tax base by up to 10% by setting up a non-distributable reserve, known as a reserve for leveling negative tax bases. This reduction is limited to a maximum of 1 million euros and must be reversed based on the negative tax bases obtained by the company, with a time limit of five years.
Investment deductions cannot exceed 25% of the full amount, discounting international double taxation deductions and rebates for income obtained in Ceuta and Melilla, export activities and local public services. If deductions for R&D and technological innovation, together with deductions for film productions and live shows, represent more than 10% of the company's full share (reduced by the above-mentioned deductions and bonuses), the deduction limit is increased to 50%.
Royal Decree-Law 3/2016 established a limit of 50% of the full quota for double taxation deductions for entities with a net turnover exceeding 20 million euros in the 12 months prior to the start of the financial year. However, this measure was declared null and void by Constitutional Court ruling 11/2024, of January 18, published in the Official State Gazette on February 20, 2024. The Constitutional Court determined that Royal Decree-Law 3/2016 exceeds the material limits allowed for tax decree-laws, affecting the duty to contribute to the financing of public expenditures.
The judgment has no full retroactive effect. Therefore, accrued tax contributions that have been definitively determined by a final judgment, final administrative decision, uncontested liquidations or self-assessments whose rectification has not been requested before the publication of the judgment cannot be reviewed. Only companies that have appealed against liquidations or requested the rectification of self-assessments before the publication of the judgment in the Official State Gazette will be able to benefit from the repeal of the Royal Decree-Law.
Deductions not applied in a tax period due to insufficient quota can be used in tax periods that end in the following 15 years. However, deductions for R&D and technological innovation have a longer term and can be applied in tax periods that end in the following 18 years. Deductions to avoid double taxation, on the other hand, can be applied in successive tax periods without a time limit.
Special tax regimes apply in a variety of situations, including but not limited to:
Spanish Economic Interest Groups (EEIE) and European Economic Interest Groups (EEIE), under certain conditions, enjoy a special tax regime in Spain:
Not Subject to Corporate Tax: AEEs are not directly taxed on the part of the tax base that corresponds to their resident tax members in Spain. Instead, these benefits or losses are directly attributed to members, who must integrate them into their IS or personal income tax return as appropriate.
Allocation of Deductions and Account Payments: Tax resident members in Spain also receive their proportional share of deductions and on-account payments.
Distributed Dividends: Dividends that are distributed to Spanish members who have already been charged are not taxed again in terms of IS or personal income tax. Dividends distributed to non-resident members are taxed according to the rules of Non-Resident Income Tax or agreements to avoid double taxation.
EIEs are taxed in a similar way to Spanish EIEs, but with one key exception: EIEs are not subject to the CIT in Spain.
Tax resident members in Spain who are part of an AEIE who are not tax resident in Spain must integrate the group's profits or losses into their IS or personal income tax return, adjusting the figures according to Spanish tax rules.
If the activity of the AEIE generates a Permanent Establishment abroad, the rules of the Non-Resident Income Tax or the corresponding Double Taxation Agreement apply.
Non-resident members of Spanish AEIE are only subject to the IRNR if the activity through the group creates a permanent establishment in Spain.
Joint ventures are taxed under the same regime as HEIs. Members of a joint venture operating abroad can apply the double tax exemption on income obtained abroad through a permanent establishment, or use the international double tax deduction.
Losses obtained abroad by members of a joint venture are not tax-deductible in Spain.
The special tax regime for restructuring operations is a system of fiscal neutrality established in compliance with Directive 2009/133/EC of the European Union. This regime allows asset transfers carried out in the framework of certain transactions, such as mergers, demergers or asset contributions, to not generate immediate tax consequences, whether from a direct, indirect or any other Spanish fiscal perspective. These tax implications are deferred until a subsequent transmission takes place that is not covered by that regime.
Covered operations: Transactions that can benefit from this regime include mergers, spin-offs, global asset transfers, asset transfers, and exchange of securities, among others, provided that specific legal requirements are met.
Fiscal Neutrality: Under this regime, the parties involved in the transactions (transferor, beneficiary and shareholders) do not experience immediate tax burdens. Tax effects are suspended until there is a subsequent transfer not covered by this regime.
Relocation of residence: The transfer of the registered office of a company or cooperative within EU member states does not create tax burdens for members in relation to their income, profits or capital gains.
Transfer of tax credits: In the event of the dissolution of a company as a result of a tax-protected restructuring operation, the tax credits of that company are transferred in full to the beneficiary company under the principle of universal succession.
Negative tax bases: The negative tax bases of a company can be transferred in whole or in part to the beneficiary company, depending on whether the transferor company dissolves or if a specific line of business is transferred. These transfers are subject to certain restrictions.
Amortization of financial goodwill: The financial goodwill resulting from a merger transaction in which the acquiring company holds a significant share (minimum of 5%) in the capital of the transferor company can be amortized fiscally, at a maximum annual rate of 5%, provided that the shareholding was acquired before January 1, 2015. This benefit does not apply to shares acquired in fiscal years beginning after that date.
Anti-Abuse Clause: The special tax regime does not apply if the transaction is carried out for the purpose of fraud or tax evasion. In addition, Spanish legislation includes an additional anti-abuse clause, in line with EU regulations, which prevents the application of the regime when the transaction is not for valid economic or business reasons, but rather for obtaining a tax benefit.
Notification obligation: It is mandatory to notify the Tax Administration of the type of transaction carried out, and if you choose not to apply the special tax regime. The lack of this communication is considered a serious offence and may result in a fine of 10,000 euros.
Interest deduction: Interest derived from debts incurred for the acquisition of companies must be tax-deducted based on the operating profits of the acquirer, excluding the operating profits of any company with which it merges for the four years following the acquisition. These financial expenses are also subject to applicable general deductibility limits.
This special regime applies by default to restructuring operations, unless the taxpayer decides to opt out of its application and communicates it to the Administration.
Fiscal transparency, in accordance with international standards of Foreign Controlled Companies (CFC), is not applicable to companies resident in the European Union, provided that the taxpayer can demonstrate that the non-resident entity was incorporated and operates for legitimate economic or business reasons, and that it is involved in real business activity. This exception also extends to Collective Investment Institutions regulated under Directive 2009/65/EC, which are not covered by Article 54 of the Spanish Corporation Tax Act, provided that they have been created and are domiciled in an EU member state.
For more details, it is advisable to consult the section on Companies under a Tax Transparency Regime (SECs) in the Group Taxation section.
Venture capital companies and funds in Spain can access a favorable tax regime, provided that they meet certain requirements. This regimen includes the following benefits:
Collective Investment Institutions in Spain are subject to corporate tax at a reduced rate of 1%, provided that they meet certain specific requirements. However, despite this reduced rate, IICs cannot benefit from the tax exemption aimed at avoiding double taxation on dividends or from the exemption on capital gains generated by the sale of shares. In addition, they are also not entitled to apply deductions to avoid international double taxation.
Dividends distributed by Collective Investment Institutions are subject to the general withholding regime at source. For their part, the shareholders of these institutions must pay taxes both for the dividends they receive and for the capital gains obtained through the sale of shares in the IIC. It should be noted that, in these cases, shareholders are not entitled to tax exemption to avoid double taxation on dividends or capital gains, nor can they apply deductions for international double taxation.
Financial leasing contracts that include a purchase option at the end of the lease period can access a special tax regime in Spain, provided that they meet certain requirements. This regime allows the tenant to deduct the following items from their tax base:
Corresponding to the financial burden: This includes interest paid to the landlord as part of the lease.
Corresponding to the recovery of the cost of the leased asset: This amount, which refers to the amortization of the cost of the leased asset, may be tax-deductible. However, the deduction cannot exceed the result of applying twice the linear amortization coefficient established for the leased asset, according to the official amortization tables.
Companies resident in Spain whose corporate purpose is to hold and manage shares in foreign companies can benefit from a special tax regime, provided that they meet certain requirements established by law. These companies must demonstrate that they are not considered to be equity companies, that is, that they are not limited to a mere possession of assets without carrying out a business activity.
The application of the special tax regime must be notified to the Spanish tax authorities.
The profits distributed by the holding company to non-resident companies or to individual shareholders are not taxed in Spain under the following conditions:
Shareholders of companies resident in Spain are entitled to an internal tax credit on distributed dividends, in accordance with Spanish legislation.
This tax regime aims to encourage investment and management of foreign investments from Spain, providing a favorable tax environment for ETVES that meet established legal requirements.
Small and medium-sized businesses (SMEs) can take advantage of various tax breaks, such as accelerated amortization and more favorable treatment of insolvency provisions. To access these deductions, the turnover of the previous fiscal year must not exceed 10 million euros and the company must not be classified as a capital company. In the case of a business group, the consolidated turnover of all the companies in the group must be considered. If a company reaches 10 million euros in turnover and meets the requirements to be considered an SME during the year in question and in the two previous tax periods, it will be able to benefit from this bonus during the three tax periods immediately following the year in which that turnover was achieved.
The applicable general tax rate is 25%.
As of January 1, 2023, a reduced rate of 23% is introduced for companies whose turnover in the previous fiscal year was less than 1 million euros. This reduced rate does not apply to entities considered to be holding companies. In the case of groups of companies, the group's consolidated turnover must be considered. There are special rules for the first tax period in which an economic activity begins or for short tax periods.
Companies whose main corporate purpose is the leasing of homes located in Spain that have been built, promoted or acquired by these companies can opt for a special tax regime. This regime offers a significant reduction in the amount of Property Transfer Tax, subject to compliance with certain requirements.
In Spain, a special tax regime applies to listed companies dedicated to investments in the real estate market, known as Real Estate Investment Companies. These entities enjoy a 0% tax rate on their benefits, as long as they meet certain specific requirements, including strict benefit distribution obligations.
A new special tax regime is established for the Balearic Islands, applicable to tax periods starting between January 1, 2023 and December 31, 2028. This regime introduces specific measures designed to support and promote economic development in the archipelago, adjusting fiscal regulations to respond to the needs and particularities of the region.
Corporate Tax and Non-Resident Income Tax taxpayers with establishments in the Balearic Islands can reduce their tax base by a percentage equivalent to the amount allocated to a special reserve for specific investments in the region. This reduction is limited to 90% of the annual undistributed profits obtained in establishments located in the Balearic Islands.
This reduction cannot generate a negative tax base and is incompatible with other tax deductions or incentives applicable to the same assets and expenses, such as deductions for R&D, job creation or other measures that constitute State aid under European Union law, if the total accumulated amount exceeds the established thresholds.
The funds allocated to this reserve must be invested in qualified investments within a period of three years, including the year in which the reserve is constituted. Investments must meet certain maintenance requirements to be valid.
For tax purposes, benefits derived from establishments in the Balearic Islands include those derived from business activities, as well as from the transfer of assets related to those activities. Undistributed profits are not considered to be those obtained from the transfer of assets whose acquisition originated the reserve, nor those derived from shares in other entities, nor transfers of own capital to third parties.
In addition, personal income tax taxpayers who are taxed under the direct estimation regime can also apply a deduction for net operating income linked to the reserve that come from business activities carried out in the Balearic Islands. The investment in the reserve must be made in qualified investments within the same three-year period.
This regime is similar to the reserve regime for investments in the Canary Islands, although the tax incentive is more limited in the Balearic Islands. This is because the Canary Islands are considered an outermost region and their incentive is classified as an authorized form of state aid.
The scheme must comply with the provisions of Community law, especially with regard to the activities carried out and the limits of aid.
Taxpayers of Corporation Tax and Non-Resident Income Tax are entitled to a 10% tax discount on the full amount of personal income tax for the sale of tangible assets produced in the Balearic Islands, which come from industrial, agricultural, livestock or fishing activities.
This tax incentive is available to companies domiciled in the Balearic Islands or that have a permanent establishment in the region.
The application of the bonus is conditional on the maintenance of the workforce. In the event of an increase in the number of employees, the incentive can be increased up to 25%.
The regime also extends to taxpayers of personal income tax, under the same conditions as for taxpayers of Corporate Tax, provided that net income is determined by direct estimation.
This tax regime must comply with applicable Community regulations in relation to the activities carried out and the limits established for aid.
Due to their isolated geographical location, the Canary Islands benefit from a special economic and fiscal regime that provides significant advantages over the rest of Spain. This regime is not affected by the minimum effective tax rate established in the peninsula, which is 15% of the benefit. As a result, the tax advantages available in the Canary Islands can reduce the effective tax rate to approximately 4% or even less.
Tax Benefits for Companies and Companies in the Canary Islands.
Special Reserve for Investments: Up to 90% of undistributed annual accounting profits can be allocated to a special investment reserve, exempt from taxation, provided they are invested in eligible assets in the Canary Islands or in certain public debt securities or shares of companies operating in the region. The investment must be made within four years, including the year in which the benefits were obtained.
Increased Tax Credits: Tax credits in the Canary Islands are 80% higher than those applicable in the peninsula. For example, a tax credit of 5% in the rest of Spain is increased to 25% in the Canary Islands. The application limit for these credits is also 80% higher, allowing a reduction in the tax rate of up to 70%. This limit is applied individually and also in combination with other tax credits, establishing a minimum IS contribution of 30%.
Specific Tax Credits:
General Indirect Canary Islands Tax:
Customs Free Zones: There are customs free zones that offer additional benefits. However, at the request of the European Union, restrictions have been imposed on the application of certain tax breaks for certain industrial sectors, including shipbuilding, synthetic fibers, automotive, steel and coal.
As of January 2000, the European Union approved a special tax regime for the Canary Islands Special Zone, regulated by the Spanish Government. This regime offers significant tax benefits for companies that meet certain requirements and is designed to encourage investment and economic development in the Canary Islands. The main characteristics of this regime are the following:
Application Deadline: New companies and branches can benefit from this tax regime until December 31, 2026, with the possibility of extension by the European Union. The regime will be applicable until December 31, 2032.
Requirements for Eligibility to the Regime:
Additional Requirements:
Territory of Application: The ZEC tax regime applies to all Canary Islands. Companies can operate outside the Canary Islands through branches, as long as they keep separate accounting books.
Activities and Exclusions: The regime covers a wide range of industrial, commercial, service and operating activities, excluding credit institutions, insurance companies and stock exchanges.
Tax Fee and Tax Type: Companies that meet the employment requirement can apply the special tax regime on a tax quota of up to 1.8 million euros. The tax rate is increased by 500,000 euros for each additional job, up to a maximum of 50 positions. For more than 50 positions, the regime applies to the entire tax rate. In contrast, the general IS regime establishes a tax rate of 25%, while the rate applicable under the ZEC is 4%.
Tax Benefits:
Administrative Costs: To register as a company under this tax regime, a fee of 884.52 euros must be paid. The annual fees are 1,560.90 euros for companies in Tenerife and Gran Canaria and 1,352.78 euros for companies in other islands.
.png)
