Corporate tax (CT) is a direct, personal and periodical tax, which is levied throughout all the country, though different autonomous regions may have their own legislation. There is a differentiated tax treatment depending on the size of the company: for example, companies billing less than five million euros (832 million pesetas) pay a Corporate Tax rate of 30% on the first 15 million euros of net profit, while for larger companies the rate is a flat 35%. This rule is one of the main innovations to come out of the recent corporate tax reform, which affects more than 90% of Spanish small and medium enterprises (SMEs).

Entrepreneurs should also be aware that since January 1, 2002, corporate capital gains (the difference between the purchase value and sale value of an asset) obtained from the sale of assets will be taxed at 18%, as opposed to the 35% levied in previous years. In order to be eligible for this tax break, the Government requires companies to reinvest the aforementioned gains in activities or assets which add value to the enterprise. This means that gains benefiting from the tax credit may not be used to pay out dividends to shareholders.

In recent months the Institute of Economic Studies has added fuel to the debate over Corporate Tax reform. This body has made a recommendation to the Government that they should take the opportunity afforded by the current ongoing income tax reform to reduce, by at least two percentage points, the basic corporate tax rate, presently standing at 35%, since it is out of step with the rest of the developed world. According to experts, this reform would enable Spanish companies to remain competitive with other EU countries.

 

How to get your corporate tax down
Current tax legislation offers a series of tax incentives for companies which invest in certain activities. However, the sum of all tax credits can never amount to more than 35% of the gross tax due.

- For research and development spending, 20% of eligible expenditure can be deducted. If spending is higher than the average of previous years, the difference can be deducted at a rate of 40%. A company�s total figure for R&D spending will be reduced by 65% of any subsidies received.

- For exporting: 25% of the investment made to set up branches abroad or to acquire stakes in foreign companies, provided that the stake is at least 25% of the foreign company�s share capital. If this investment spans several fiscal years, 25% of the investment is deductible in the last three years of the investment. 25% of expenditure on advertising, promotion and attending trade fairs.

Naturally, investments made in tax havens are not deductible. The base figure for the deduction will be reduced by 65% of any subsidies received. The tax credit cannot exceed 15% of the earnings or 4% of the revenue corresponding to all export activity.

- For spending on professional training: 5% of the expenses incurred in the tax year, having subtracted 65% of the subsidies obtained to carry out the training. If expenditure is higher than the average of the two previous years, the difference is eligible for a 10% tax credit.

- For investment in cultural assets: 10% of investment in property registered in the General Register of Property of Cultural Interest.

- For investment in new fixed assets: 5% of investment made