Taxation of Foreign Companies in Spain

Updated on Wednesday 23rd August 2017

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The taxation system in Spain met several improvements and changes in January 2015, when the new tax reform came into force with the purpose of encouraging the foreign investments in the local economy which was affected in the years of the economic crisis. A new Corporate Income Tax Law was imposed by the Spanish government, alongside with a personal and non-resident income tax and VAT, the measures proving necessary in the foreign investment sector in Spain. For a better understanding of the new rules and regulations regarding the taxation of foreign companies, you can solicit legal support from our lawyers in Spain.

Important changes in the taxation system for foreign companies in Spain

The standard corporate tax was set at 30%, but with the new regulations in this matter, it was reduced to 28% in 2015 and to 25% in 2016 and 2017. One should know that the authorities in Spain decided to eliminate several tax credits, like the profit investment credit, environmental investment credit, and the reinvestment credit. In this matter, instead of the taxes mentioned above, the financial authorities have agreed and enforced a capitalization reserve which allows a tax deduction of 10% of the increase in net equity in a tax year, if particular requirements are considered.

The taxation for non-residents

A non-resident citizen who has a permanent establishment in Spain had to pay a standard income tax of 24.75%, but for certain types of incomes like dividends, interests and capital gains, the withholding tax rate was 21%. According to the tax reform, the standard income tax rate has decreased to 19%. These rates apply to foreign residents from the EU and EEA regions, but the other residents will pay the same rate - 24%. The withholding tax rate on dividends, interests and capital gains was reduced to 20% in 2015 and decreased to 19% in 2016. Other changes to the taxation system in Spain referred to the VAT, the taxation applied in the Canary Island, the environmental taxes, excise taxes etc.

The social security rate for foreign companies in Spain

The social security rate is a tax connected to the labor income which is enforced for both employers and employees. The government of Spain is the main beneficiary of such tax, as it is helpful in the overall economy in the country, where varied social programes related to health and welfare are paid, among many others. It is good to know that the social security rate is paid yearly and varies for each country, for instance, companies from France with establishments in Spain are enforced to pay a 40.63% social security tax rate.

Non-residents and taxes for property sale in Spain

Foreigners with properties for sale in Spain, whether natural persons or representatives of companies from abroad, need to consider that a 3% tax rate shall apply once the asset is sold which is an amount calculated from the sale price of the property. We remind that any sale or purchase of a property by a non-resident living in Spain must comply with the real estate rules and regulations, a matter where our Spanish lawyers can help.

If you need to find out more details about the changes of the taxation system in this country, you may contact our lawyers in Spain who can provide legal assistance and financial advice for foreign investors.