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All assets, except land, are amortizable for tax purposes. The tax amortization guidelines establish the maximum annual percentages and the maximum years of useful life for each type of asset, classified by sector of activity.
Below are the maximum annual percentages and the maximum years of useful life, according to the guidelines:
Generally, the linear amortization method, calculated over the useful life of the asset and applied to the cost of the asset or the amortized value, is used if such amortization is acceptable for tax purposes. If the accounting depreciation/amortization exceeds the tax depreciation/amortization, extracontable adjustments must be included in tax liquidations.
Assets with a useful life of more than one year can also be amortized using decreasing amortization methods. However, buildings, furniture and equipment cannot benefit from these methods and must be amortized linearly.
For fiscal years beginning in 2013 and 2014, the tax deduction for the recorded amortization of tangible fixed assets and real estate investments was limited to 70% of the maximum amortization allowed by the applicable regulations under the Spanish Corporation Tax Act. This limitation did not apply to small and medium-sized businesses. The recorded amortization not deducted due to this limitation could be carried over to subsequent years, being deductible linearly for ten years or over the useful life of the asset starting with the first fiscal year beginning in 2015.
Starting in 2015, a tax credit may be applied to the full amount of the tax of 5% on the amounts included in the tax base derived from amortizations not deducted in the 2013 and 2014 fiscal years. This tax credit compensates for the reduction in corporate tax rates, ensuring that the 70% tax amortization limit has only a financial effect.
Mining assets and those used for research and development (R&D), among others, but excluding buildings, can be freely amortized for tax purposes.
The freedom of amortization for investments in new items of tangible fixed assets and in real estate investments was regulated for the tax periods that began in 2011, 2012, 2013, 2014 and 2015. It was also available for periods beginning in 2009 and 2010, although in those cases it was necessary to maintain or increase the taxpayer's workforce to benefit from this relief.
However, the tax reform introduced by Royal Decree-Law 12/2012 repealed this relief as of March 31, 2012.
For investments made before this date, a transitional regime was established that allows tax relief to be applied for free amortization, although with certain limits.
A free amortization incentive has been introduced in Corporate Tax for investments in new vehicles that are classified as FCV (Fuel Cell Vehicles), FCHV (Fuel Cell Hybrid Vehicles), BEV (Battery Electric Vehicles), REEV (Range Extended Electric Vehicles) or PHEV (Plug-in Hybrid Electric Vehicles).
Also included in this incentive is investment in new charging infrastructures for normal and high-power electric vehicles, provided that these assets are used for business purposes and come into operation during tax periods beginning in 2024 and 2025.
Starting with fiscal years beginning in 2016, goodwill is amortized in accordance with the Spanish Generally Accepted Accounting Principles during its useful life, estimated at ten years, unless proven otherwise. However, for tax purposes, the amortization of goodwill can be up to 5% per year, regardless of whether or not the asset was purchased from a company in the same business group. It should be noted that goodwill acquired from another company in the group in fiscal periods prior to January 1, 2015 is not tax-deductible.
Intangible assets can be amortized for accounting purposes over their useful life. If the useful life cannot be reliably estimated, a standard ten-year period will apply for accounting amortization, unless otherwise established by regulations. This amortization is tax-deductible, regardless of whether or not the assets were acquired within the group. When the useful life cannot be reliably estimated, the tax deduction is limited to 5%.
For tax periods beginning in 2015, taxpayers who were subject to the 70% tax-deductible amortization limit in 2013 and 2014 can deduct from their full contribution the amounts corresponding to the amortization not deducted in those periods. This deduction is 5% for tax periods beginning in 2016. The deduction compensates for the reduction in corporate tax rates and ensures that the 70% limit on deductible amortization has only a financial effect.
Depletion is allowed for mining companies and companies engaged in the exploration/research of natural petroleum resources, as established in applicable legislation.
In 2002, a regulation was introduced in Spain to promote the internationalization of companies, allowing the tax amortization of financial goodwill derived from the acquisition of shares in non-resident companies. In this context, “financial goodwill” refers to the excess of the price paid for the acquisition of a business over its net book value, which cannot be attributed to the assets of the foreign company.
This amortization, which could be applied up to a maximum of 5% per year, was subject to certain requirements:
However, decisions of the European Commission in 2009 and 2011 determined that this tax relief constituted illegal state aid. According to these decisions, only acquisitions of shares in non-resident companies made before December 21, 2007 (or before May 21, 2011 in specific cases) could continue to benefit from this amortization until the financial goodwill was fully amortized.
The Corporate Tax Act was amended in 2011 to reflect these decisions, and the tax relief ceased to apply to acquisitions made after the above-mentioned dates. Later, in 2013, the European Commission asked Spain to suspend the tax deduction for financial goodwill related to second- or last-level non-resident companies.
The General Court of the EU initially annulled the Commission's decisions in 2014, but in 2016, the Court of Justice of the EU overturned that annulment, concluding that the Commission must have demonstrated the discriminatory nature of the measure. Finally, in 2021, the High Court of Justice of the EU ratified that the Spanish tax regime for the amortization of financial goodwill in direct acquisitions of shares in entities resident in the EU and third countries constituted State aid incompatible with the internal market, thus closing a long legal dispute, although the question of indirect acquisitions through foreign holding companies is still pending.
According to the Generally Accepted Accounting Principles (GAAP) in Spain, start-up expenses are considered expenses for the year in which they are incurred. In the absence of specific regulations for tax purposes, these expenses are deductible from Corporation Tax in the same year in which they are incurred.
In general terms, the deduction of net financial expenses in a tax period is limited to 30% of operating income (assimilated to EBITDA). However, it is allowed to deduct financial expenses of less than 1 million euros (or the proportional part for shorter periods), regardless of the 30% limit, so 1 million or 30%, whichever is more profitable. Net financial expenses refer to the excess of financial expenses over the income derived from the transfer of capital to third parties generated during the tax period.
Adjusted operating income currently includes dividends subject to the capital exemption rule. However, for tax periods beginning on or after January 1, 2024, income, or expenses that have not been included in the corporate tax base (such as dividends exempt under the participation exemption regime) will no longer be considered in determining operating income.
For companies under a fiscal consolidation regime, the deduction limit will apply at the tax group level, but deductions from net financial expenses will be allowed available at the time a company is included in the group, with a limit of 30% of its operating income. If a company leaves the group or the group is disbanded, net deductible financial expenses will follow a rule similar to that of the attribution of negative tax bases.
Exceptions to these limits apply to dissolved companies, except for dissolutions due to restructuring, as well as to insurance companies and credit institutions. Financial expenses not deducted due to this limit may be carried over and deducted in subsequent tax periods without a time limit.
A specific limit is established for the deduction of financial expenses generated by debts incurred to acquire shares in the capital or equity of any type of company. These expenses are deductible up to 30% of the acquiring company's business profits, excluding the business profits of any company that merges with the acquirer or joins its tax group within four years of the acquisition. In addition to this specific limit, financial expenses are also subject to the general tax deductibility limit.
This specific limit does not apply when the debt related to the acquisition of the equity does not exceed 70% and is reduced proportionately every year, from the time of the acquisition, until it reaches a level of 30% of the acquisition price.
Exceptions to this limit apply to restructuring operations carried out before June 20, 2014, as well as to restructuring operations carried out after that date between companies that were already part of a fiscal consolidation group before June 20, 2014.
Financial expenses that are not deducted due to this limit can be carried over and deducted in future tax periods without a time limit.
A specific limit has been established for the deduction of financial expenses derived from debts to companies in the same group, generated by the acquisition of shares in other companies in the group or by contributions to capital or own funds of those companies. Under this standard, these financial expenses will not be deductible unless it can be demonstrated that there are valid economic reasons justifying the transactions that give rise to them.
The interest on equity loans contracted by companies in the group as of June 20, 2014 is income from movable capital and is not tax-deductible. In the income tax return of the recipient (if he is a Spanish taxpayer of the IS), they must be treated as dividends and the recipient can benefit, where appropriate, from a tax exemption to avoid double taxation of dividends.
Provisions intended to cover the risk of possible bad receivables are tax-deductible when, at the time the tax is accrued, the following circumstances arise:
However, provisions for the following types of credits are not tax-deductible:
In addition, special rules apply to banking institutions.
Positive adjustments derived from endowments to insolvency provisions or the social security system, which are not deductible according to Corporate Tax, must be reversed in the corresponding year. This reversion can be made up to 70% of the tax base prior to the regularization of the capitalization reserve and the compensation of negative tax bases.
Royal Decree-Law 3/2016 introduced stricter restrictions for the reversion of these provisions in companies with a net turnover exceeding 20 million euros in the 12 months prior to the start of the financial year. However, Constitutional Court ruling 11/2024, published in the Official State Gazette on February 20, 2024, declared this measure null and void. The Court concluded that Royal Decree-Law 3/2016 exceeded the material limits allowed for tax decree-laws, affecting the duty to contribute to the financing of public expenditures.
However, the ruling does not have full retroactive effects, implying that firm or uncontested tax debts cannot be reviewed. Only companies that have appealed against liquidations or requested the rectification of self-assessments before the publication of the judgment can benefit from the repeal.
Regardless of the context, positive adjustments to these provisions may be reversed up to a maximum of 1 million euros. Any excess may be deferred to subsequent years, with the same limits, provided that a deferred tax asset has been recognized.
In general, the depreciation or loss of value of shares in corporate capital is not deductible from Corporation Tax. However, there is an exception to this rule:
Shares Less than 5%: If the shareholding is less than 5% and the investee company is non-resident, the impairment will be deductible at the time of transfer or alienation, provided that the investee company has been subject and not exempt from a foreign tax similar to IS with a nominal rate of at least 10%, or if you are resident in a country with a Double Taxation Agreement with Spain that includes an information exchange clause. These requirements must be met during the year prior to the transfer or disposal.
Pre-2013 Deterioration Reversal: For impairment of value deducted before 2013, reversion is established in the following cases:
El Royal Decree-Law 3/2016 imposed the obligation to reverse annually, between 2016 and 2020, losses due to impairment of shares that were previously deducted. However, this measure was declared null and void by Constitutional Court ruling 11/2024, published in the Official State Gazette on February 20, 2024. The Court considered that the Decree-Law exceeded the material limits allowed for these tax regulations.
The ruling of the Constitutional Court does not have full retroactive effect. Therefore, it will not be possible to review tax contributions accrued for the purposes of the IS that have been definitively determined by a final judgment or final administrative decision, nor uncontested liquidations or self-assessments whose rectification has not been requested before the publication of the judgment. This implies that only companies that appealed the liquidations or requested the rectification of their 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.
Compensation for dismissal is tax-deductible from Corporation Tax as long as they do not exceed, for each recipient, the largest of the following amounts:
This means that companies can deduct severance payments from the IS, as long as these limits are respected, ensuring that payments meet established legal requirements.
Donations are considered non-deductible expenses for corporate income tax purposes. However, companies can benefit from a tax credit when they make donations to non-profit organizations that meet certain requirements. The applicable tax credit is 40% of the amount donated.
If in the previous two years a donation has been made to the same entity, and the amount of the donation this year and the previous year is equal to or greater than that of the immediately preceding year, the deduction percentage is increased to 50%.
In addition, this tax credit is not subject to the limit of 25% of the donor entity's full contribution, which is applicable to other deductions.
Limits and conditions:
Donations to priority sponsorship activities:
Penalties imposed for non-payment of taxes, as well as surcharges for returns or payments filed late or other tax violations, are not tax deductible for corporate tax purposes.
Taxes other than Corporation Tax, which are recorded as an expense due to their nature, such as the tax on business and professional activities, are tax-deductible expenses for the purposes of IS. However, this does not include withholding.
In certain cases, indirect taxes, such as non-deductible VAT or property transfer tax, can be incorporated into the value of assets for amortization purposes. This allows these indirect taxes to be amortized together with the asset to which they are associated.
Tax losses in Spain can be carried over to future years for an unlimited period of time. However, generally speaking, these losses cannot be automatically compensated. In addition, there is no distinction between “baskets” of tax losses, such as operating or capital losses.
Exceptions:
Leveling reserves: Companies with a turnover of less than 10 million euros in the previous tax period can reduce their positive tax base by up to 10% by creating a non-distributable reserve equivalent to the reduction (negative tax base equalization reserve). This reduction has a limit of 1 million euros and must be reversed within five years, depending on the tax losses generated by the company.
Compensation for losses: The negative tax bases of any company can be offset by positive income of up to 70% of the tax base, prior to the capitalization reserve and its compensation. In any case, it is possible to compensate for up to 1 million euros in losses without restrictions.
Royal Decree-Law 3/2016 had established stricter limits for the compensation of tax losses for taxpayers with a 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, which considered that the decree exceeded the material limits provided for tax decree-laws, affecting the duty to contribute to the financing of public expenditures.
The judgment has no full retroactive effect. This means that tax contributions accrued by Corporation Tax, which have been determined by a final judgment or final administrative decision, or that have not been challenged, 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 can benefit from the repeal of the Royal Decree-Law.
Exceptions to the limits:
In addition, there are complex rules that can limit the use of tax losses in situations of restructuring or when there is a change in the company's shareholders.
In Spanish taxation, payments made by a Spanish company to foreign subsidiaries for the supply of goods or services must be valued at market price. If recorded expenses exceed this price, the tax deductibility of excess amounts could be questioned during a tax inspection. In addition, expenses derived from transactions with entities located in tax havens are totally prohibited as tax deductions, unless there is adequate evidence that the service was actually provided and that it was valued at market prices.
Documentation and agreements:
For management support services received from outside of Spain, although it is not mandatory to have a prior written agreement to ensure tax deductibility of expenses, it is advisable to have one.
For other services, although the agreement is not required to be formalized before a notary, it is also recommended to have adequate documentation to support transactions.
Withholding and taxation:
In Spanish tax legislation, there are specific restrictions on the deductibility of losses related to operations and activities abroad.
Losses from Permanent Establishments located outside of Spain are not tax-deductible. In addition, negative income derived from the transmission of an EP is not deductible either.
Losses generated by shares in joint ventures that carry out business activities outside of Spain cannot be tax-deducted in Spain.
Negative income generated due to the cessation of the activity of an EP is tax-deductible. However, these negative incomes must be reduced by the amount of the net positive income previously obtained by the EP, which have enjoyed exemption or deduction for double taxation
These rules highlight the restrictive approach of the Spanish tax system to the deduction of losses associated with international activities, limiting the ability of companies to use these losses to reduce their tax burden in Spain.
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