According to the Foreign Direct Investment Regulatory Restrictiveness Index of the OECD, Spain is the ninth country worldwide with more open regulations regarding international investment. The highly international profile of the Spanish economy has enabled our country to transform itself into a key platform for international business. In fact, Spain is the 13th country as recipient of foreign investments in the world, highlighting the major role of foreign investment in its economy.
The Spanish tax system is modern and pro-business. The tax burden in Spain (i.e. tax and social security contributions as a percentage of GDP) is almost seven points lower than the average ratio in neighboring countries (EU-27).
The main direct taxes applicable in Spain are:
- Corporate income tax
- Personal income tax
- Non-resident income tax
The main indirect taxes applicable in Spain are:
- Value added tax (VAT)
- Transfer and stamp tax
Focusing on Corporate Income Tax, it applies to entities that are tax resident in Spain. Tax-resident entities are taxed on their worldwide income, and an entity is considered resident in Spain for tax purposes if it has been formed in accordance with the laws of Spain, or if it has its registered office, or its effective place of management, in Spain.
In general, tax base is the accounting profit with certain non-accounting adjustments provided for in Corporate Income Tax Law. General corporate income tax rate is 25%. Reduced tax rates are applied in certain cases, for example, to newly formed entities engaging in economic activities or to some investment companies. Down below there is an overview of the Corporate Income Tax rates:
- General: 25 %
- Reduced for entrepreneurs: 15 % (during the first two years)
- Reduced for fiscally protected cooperatives: 20 %
- Reduced for associations (public entity) and foundations: 10 %
- Reduced for investment companies: 1 %
- Reduced for ZEC associations (Special Canary area): 4 %
- Exemption for pension funds: 0%
- Credit institutions (excluding credit unions): 30 %
- Credit unions: 25 %
- Entities dedicated to hydrocarbon exploitation: 30 %
Notwithstanding the above, according to the Spanish Tax Agency, effective tax rate for listed big companies is around 7%, thanks to their legal, fiscal advice and architecture.