The Corporation Tax (IS) is a tax levied on the income of corporations and other entities throughout the Spanish territory.
As a general rule, all companies must file a Corporation Tax return even if they have not carried out activities during the tax period or have not obtained income subject to the tax. Attention if you have an inactive company.
How do I know if my company is resident?
Residents in Spanish territory are entities that meet any of the following requirements:
- That they had been constituted under Spanish law.
- That they have their registered office in Spanish part.
- They have an effective management headquarters in the Spanish region.
In the Foral Community of Navarra and the Basque Country, Corporation Tax has applied according to the Economic Agreement and Economic Agreement regime.
Is the Corporation Tax for all entities?
Legal persons (except civil companies that do not have a commercial purpose) and certain entities, even if they do not have legal personality, are taxpayers of Corporation Tax.
Corporation Tax has taxed civil companies with commercial purposes since 2016.
This post tells you how non-profit associations are taxed in Corporation Tax.
What regulations regulate the Corporation Tax?
The primary regulation that must be taken into account is the corporate tax law, in addition to the rule that regulates it:
Corporate Tax Law
Corporate Tax Regulations.
How much is corporate tax paid?
To determine the installment to pay, we start from the accounting result of the company through which the tax base on which we apply the tax rate is determined.
Before explaining the tax scheme, let’s see the applicable tax rates.
- General rate: 25%.
- Reduced rate of 15% for entrepreneurs. Newly created companies may apply this reduced rate if they meet requirements (patrimonial companies are excluded, and they must have started a new economic activity).
- It will be used in the first tax period in which the tax base is positive (that is, there is a profit and we have to pay corporate tax) and in the following one.
- Reduced rate of 20% for cooperatives: applicable to tax-protected cooperatives, except non-cooperative results, which are taxed at the general rate of 25%.
How is corporate tax calculated?
Corporation tax is calculated from the accounting profit of the company, that is, income minus expenses.
It is essential that the accounting is correct and reflects the actual image of the company.
It is essential to make a good accounting closing and ensure that all deductible expenses are included.
Ok, I get it. Income minus expenses, and I multiply it by 25%
It is not so simple because it will be necessary to make corrections or adjustments generated by different calculation criteria applied in accounting concerning those allowed by the Tax Agency.
One thing is the accounting criterion, and another is the fiscal criterion. That is why when we, as advisers, take care of preparing the corporate tax, we speak of the accounting and budgetary closing of the financial year.
These corrections or adjustments can be both positive and negative and be caused by differences of a temporary or permanent nature.
As an example, there are expenses that we record in accounting because they have been paid by the company but are not tax-deductible, such as a traffic ticket.
The permanent differences between the accounting and tax profit must be added and subtracted from the accounting profit.
Keep in mind that to pay less corporate tax, tax benefits such as capitalization and leveling reserves can be applied.
If we have negative tax bases from losses from previous years, they can be offset, and now these amounts no longer expire. They can be applied even if they come from distant years.
The corresponding tax rate is applied to the result we obtain, and the deductions or bonuses to which they are entitled are subtracted.
Corporation Tax Settlement Scheme
ACCOUNTING INCOME BEFORE TAXES
(+/-) Off-account adjustments:
permanent differences
Temporary differences (due to the different accounting and tax valuation of an asset, liability, or own equity instrument, if they have an impact on the future tax burden)
= PREVIOUS TAXABLE BASE
(- or +) Reductions in prior BI due to capitalization reserve
(-) Negative tax base compensation from previous years
= TAXABLE BASE
+ Increase per leveling reserve
– Reduction for leveling reserve
TAXABLE BASE AFTER LEVELING RESERVE
(X) Type of lien
= FULL FEE
(-) Deductions for double taxation
(-) Bonuses
= POSITIVE ADJUSTED FULL QUOTA
(-) Deductions for investments and job creation
= POSITIVE NET QUOTA
(-) Withholdings and payments on account
= QUOTA FOR THE YEAR TO BE PAID OR RETURNED
(-) Installment payments
= DIFFERENTIAL QUOTA
(+) Increase due to loss of tax benefits from previous years
(+) Default interest
(+) Payment of R&D&i deductions due to insufficient quota
= LIQUID TO ENTER OR RETURN
Once calculated, we will make the accounting entry for Corporation Tax on December 31 of the corresponding year.
What declarations are presented before the Treasury?
Once we have seen the calculation, we have to take that data to a tax return; these are the forms and filing deadlines.
- Model 200: Annual Corporate Tax Return. It is presented between July 1 and 25 for companies whose financial year coincides with the calendar year. It must also be offered if the company is inactive.
- Form 202: Declaration of Fractional Payment of Companies. It must be presented if a benefit has been obtained in the previous year, the Treasury wants to collect in advance for everything we do. We tell you how installment payments work, which we call charges on account of Corporation Tax. They occur in the first 20 days of April, October, and December.
- Form 220: This form is used for groups of companies.
If you have a company, you are interested in knowing how the Corporate Tax works. Not only does it affect companies, but its rules are also applied to the calculation of the income from economic activities of the self-employed who pay personal income tax.
- At Afiris, we specialize in accounting and tax advice for companies and startups. We advise our clients to save taxes while complying with all legal, accounting, tax, and labor obligations.
As you can see, the advantages of paying taxes in a timely manner are many, from meeting your tax obligations, contributing to the growth and development of the country, as well as being clear about the status of your personal finances.
