Companies
Corporate income tax applies to entities that are tax resident in Spain. Tax-resident entities
are taxed on their worldwide income.
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 = income/loss per books ± certain non-accounting
adjustments provided for in the Corporate Income Tax Law.
In Spain the corporate income tax rate is 30%, (32,5% for tax periods beginning during
2007). Lower tax rates apply in certain cases, such as in the case of enterprises of a reduced
size.
The tax principles governing the recognition of revenues and expenses generally
coincide with accounting principles.
As a general rule, assets must be valued under the methods provided in the Commercial
Code. Despite this fact, any variations in their value caused by applying the fair value
method will have no effect for tax purposes if they do not have to be taken to income.
Notwithstanding the above, in certain cases, market valuation (i.e. valuation on an arm’slength basis) must be applied for tax purposes.
The tax authorities may value for corporate income tax purposes transactions between
related entities at their normal market value regardless the fact that the value agreed on by
the parties leads or not to lower taxation in Spain than that which would have been the case
had the normal market value been used, or to deferral of such taxation.
Market value between related entities is determined by applying OECD methods. Advance
pricing arrangements (APAs) can be reached with the tax authorities.
It is an obligation for the taxpayer to value its transactions with related parties at their
normal market value, being compulsory to keep at the tax authorities disposal certain
relevant documentation supporting the valuation made.
The tax deductibility of expenses depends on the fulfillment of certain requirements.
Expenses that are not deductible include dividends, expenses from accounting for corporate
income tax, gratuities, fines or penalties, and expenses incurred in transactions with persons
or entities resident in tax havens.
The thin capitalization ratio in Spain is 3 to 1. It will not apply where the related entity is
resident in another EU Member State, unless it resides in a territory classed by regulations as
a tax haven.
In general, amortization/depreciation is only a tax-deductible expense if there is an
actual decline in value and it is recorded for accounting purposes. If the taxpayer uses the
amortization/depreciation rates established in the official tables, he does not need to prove
that there is an actual decline in value.
As for capital gains , gains on transfers of assets are treated as any other item of income.
If certain requirements are met, a 12% tax credit can be taken on gains obtained on
transfers of tangible fixed assets, intangible assets or long-term investments, effectively
reducing the final tax rate to 18% (for tax periods beginning during 2007, this tax credit will
be 14,5, effectively reducing the final tax rate to 18%.
There are also tax credits for certain activities, including those relating to R&D and for
exporting, environmentally-friendly investments, and activities encouraging employee access
to new technologies. Spain also offers tax credits to avoid domestic and international double
taxation, as well as a highly attractive dividend and foreign-source capital gains exemption
system.
In general, enterprises can offset their tax losses against income obtained by them in the
tax periods ending in the following 15 years.
Consolidated tax regime
Certain groups of companies may be taxed under the consolidated tax regime. To qualify for
the regime, the parent company must have a holding in its subsidiaries of at least 75%.
Other specific incentives and special tax regimes that investors may find attractive

Foreign-securities holding entities (ETVEs), which are also known
as "Spanish holding companies": the regime governing these
entities is one of the most competitive in the EU, since, unlike
other regimes, under certain circumstances, not only is a Spanish
holding company not taxed on its foreign-source income and/or
gains, but also it is not taxed on the income it distributes to its
shareholder, or on the gains arising when the shareholder sells its
stake in the holding company.

Tax neutrality regime for restructuring transactions, along the
same lines as in the other EU Member States.

The Canary Islands tax regime: the Canary Islands offer a number
of tax benefits aimed at compensating for the disadvantages
caused by insularity and distance from mainland Spain (e.g.
certain reductions in the tax base, substantial tax credits, and a
special zone in which the tax rate for companies is 4%).