Corporate Income Tax in Spain: What You Need to Know as a Foreign Company

If you are considering investing or opening a subsidiary in Spain, understanding how Corporate Income Tax (IS) works is essential. This tax is levied on the profits obtained by companies and other legal entities resident in Spain, and is part of the tax framework that will condition the real profitability of your project.

In this article we explain the key aspects of Corporate Income Tax for foreign companies: tax rate, tax base, tax incentives, treatment of subsidiaries, formal obligations and a comparison with other countries in the European Union.

Legal framework of Corporate Income Tax in Spain

Corporate Income Tax in Spain is regulated by Law 27/2014, of 27 November, known as the Corporate Income Tax Law (LIS). This regulation defines who is obliged to pay tax, what income is subject to the tax, how the taxable base is determined and what are the applicable deductions or incentives.

All entities resident in Spanish territory, including subsidiaries of foreign companies, are subject to Corporate Income Tax. Non-resident entities with a permanent establishment in Spain are also taxed, although under specific rules.

General tax rate and reduced rates

The general corporate income tax rate is 25%, applicable to most commercial companies.

However, there are reduced rates relevant to foreign companies that are established for the first time in Spain:

• 15% during the first two years with a positive tax base, for newly created companies.
• 1% for Collective Investment Schemes.
• 30% for credit institutions and the hydrocarbons sector.

This tax structure seeks to stimulate entrepreneurship and initial investment, while maintaining competitiveness against other European countries.

How the taxable base is determined

The taxable base is calculated based on the company's accounting result, adjusted by tax rules. In other words, not all accounting income or expenses automatically have a tax effect.

Key elements:

• Deductible expenses: those necessary for the economic activity and duly justified.
• Depreciation: periodic deductions for wear and tear of tangible and intangible assets, with tax-established coefficients.
• Provisions: Only deductible if they meet specific requirements. Many accounting provisions do not have immediate tax effect.
• Off-the-books adjustments: to eliminate non-tax-admitted income or expenses or to apply tax incentives.

Tax incentives for foreign companies in Spain

The Spanish tax system incorporates several incentives that can be strategic for international groups:

• Deduction for R+D+i: up to 42% in technological innovation or development activities.
• Canary Islands Special Zone (ZEC): reduced effective rate (4%) for qualified activities in the Canary Islands.
• ETVE regime: allows holding companies with foreign holdings to benefit from exemptions on dividends and capital gains.
• Deductions for job creation, vocational training or green economy.

These benefits are applicable under strict conditions, so pre-investment tax planning is advisable.

Taxation of subsidiaries and cross-border transactions

Spain applies the principle of tax residence: a company is resident if it is incorporated under Spanish law, has a registered office or effective address in Spain.

Resident entities are taxed on their worldwide income; non-residents, only for income obtained in Spanish territory.

To avoid double taxation, Spain has signed more than 90 international agreements, including with key countries such as Italy, Portugal, Brazil, France and Germany. These treaties allow:

• Avoid double taxation through tax exemption or credit.
• Apply reduced withholdings on dividends, interest and royalties (generally 5%-15%).

In addition, the conventions define criteria for resolving tax residence conflicts and assigning taxing rights between countries.

Tax and formal obligations in Spain

Foreign companies operating in Spain must comply with certain key tax obligations:

• Annual Corporate Income Tax return (form 200): within 25 calendar days following six months after the end of the financial year.
• Instalment payments (form 202): in April, October and December.
• Transfer pricing documentation: required if there are transactions with related parties, according to OECD standards.

Compliance with these obligations is critical to avoid economic penalties or limitations on tax deductions and compensations.

Comparison with countries of the European Union

To assess Spain's taxation compared to other European countries, it is useful to compare the nominal corporate income tax rate:

Why planning corporate tax correctly is key for foreign companies

The Corporate Income Tax system in Spain offers attractive tax opportunities, but also complex regulations that require expert interpretation. The differences between accounting and taxation, the documentary requirements and the interaction with international regulations make it necessary to design a tax strategy from the outset.

At Miñana Beltrán Tax & Legal we accompany foreign companies in all steps of the process: from initial structuring to continuous tax optimization. Our experience in international taxation, multinational groups and double taxation agreements is your best guarantee.

Are you going to establish a company in Spain or expand your activity? Contact our team and find out how we can help you operate with legal certainty and tax efficiency.

Author

Tomás Miñana
MANAGING PARTNER | M&A MANAGER | INTERNATIONAL MANAGER