Income Tax in Spain

Personal Income Tax:

Tax Return:

The due date for filing the tax return and making a payment for tax residents and individuals taxed under the special expatriate regime is normally from 6 April to 30 June of each year for the income obtained in the previous year.

Specific filing deadlines apply to non-residents and, as a general rule, non-residents must report income and pay taxes on a quarterly basis (First 20 days of April, July, October and January for that income the accrual date of which is the previous quarter). Non-Resident returns related to deemed-income from the holding of real estate must be submitted until 31 December of the following year.

There is no possibility of claiming for filing extensions, hence, if the tax return is not filed on time, penalties will be imposed. These penalties will vary depending on whether the tax return is filed after the deadline on a voluntary basis or whether it is as a result of a tax inspection.

The tax year is calendar year.

Tax Rate:

Savings taxable income is taxed at the following rates:

· 19% for the first EUR 6,000 of taxable income.

· 21% for the following EUR 6,000 to EUR 50,000 of taxable income.

· 23% for any amounts over EUR 50,000.

For general taxable income, progressive tax rates are applied (which are the sum of the applicable rate approved by the state and the applicable rate approved by each autonomous region of Spain in their progressive tax rate scales). For this reason, tax liability may differ from one autonomous region to another.

The following tables show the tax scale for withholdings approved by the state. This scale can be used as a guideline of the progressive tax rates applicable for the general taxable base. For the reasons stated above, the scale applicable in the corresponding autonomous region of Spain should always be consulted to calculate the total progressive tax rate.

Tax scale for withholdings applicable in 2017:

Taxable Base	Tax Liability	Excess of taxable base	Tax Rate
0	0	12,450	19
12,450	2,365.50	7,750	24
20,200	4,225.50	15,000	30
35,200	8,725.50	24,800	37
60,000	17,901.50	Remainder	45

Non-resident income tax (NRIT) rates:

For non-residents, income obtained without a PE is taxed at the following rates:

· General rate: 24%. For residents in other EU member states or European Economic Area (EEA) countries with which there is an effective exchange of tax information, the rate is 19% from 2016.

· Capital gains generated from transfers of assets: 19% from 2016.

· Interest: 19% from 2016. Interest is tax exempt for EU residents. Double taxation treaties (DTTs) normally establish lower rates.

·  Dividends: 19% from 2016 (DTTs normally establish lower rates).

·  Royalties: 24% (DTTs normally establish lower rates).

·  Pensions are taxed at progressive rates (between 8% and 40%).

Residency Rule:

Individuals are resident in Spain for tax purposes if they meet at least one of the following criteria:

·  Spend more than 183 days in Spain during a calendar year. In determining the period of stay, temporary absences are included in the count, except when the tax residence in another country can be proven. Special anti-avoidance rules are established for tax havens. Temporary visits to Spain to comply with contractual obligations under cultural and humanitarian collaboration agreements with the Spanish authorities which are not remunerated are not included when calculating the 183-day residence period.

· Have Spain as their main base or centre of activities or economic interests. It is presumed, unless proven otherwise, that a taxpayer’s habitual place of residence is Spain when, on the basis of the foregoing criteria, the spouse (not legally separated) and underage dependent children permanently reside in Spain. Spanish PIT law contains specific anti-avoidance rules regarding this matter.

Persons who do not meet any of the foregoing criteria are not resident in Spain for tax purposes. In such cases, Spanish-source income and capital gains in Spain are subject to NRIT.

Under Spanish law, the concept of part-year resident does not exist. An individual is either resident or non-resident and is taxed as such for the entire tax year.

However, in certain situations, a person may be resident for tax purposes in two different countries. This could be the case, for instance, of expatriates working in Spain who are resident in both Spain and their home country. A person who is resident in another country may qualify for a relief or exemption of Spanish tax under DTTs between the home country and Spain.

In such situations, the relevant DTT should be consulted to determine the country where they are resident.

Most tax treaties signed by Spain consider the following to be relevant when determining place of residence:

· Permanent home.

· Personal and economic relations (centre of vital interests).

· Habitual dwelling.

·  Nationality.

Exempt Income:

Reimbursement of actual expenses related to relocating an employee should not be considered as income, provided they cover travel expenses, or living allowance for the taxpayer and his/her family during the move, and they are documented through the corresponding invoice. In addition, expenses connected with moving personal goods, provided that they are duly justified through the corresponding invoice, should not be considered as income.

Certain benefits in kind provided by the company to the employee, such as meal vouchers up to a daily amount of EUR 11, nursery vouchers, public transport vouchers within certain limits, medical insurance premiums up to a maximum annual amount of EUR 500 per family member covered, etc. can be exempt from taxation under certain conditions.

Under certain circumstances and provided certain formal procedures are followed, indemnities paid for dismissal or termination of the employment contract will be exempt from taxation up to the maximum amounts prescribed by the applicable labor rules.

Free use of a company car is not considered taxable income for the employee if it is only available for professional activities and not for personal use. Otherwise, it should be regarded as taxable income for the employee in the percentage available for private use according to certain specific valuation rules (20% of the car’s value as if it was new). Up to a 30% reduction could be applicable for those cars regarded as energetically efficient (the reduction could be of 15%, 20% or 30% depending on certain parameters referred to the level of emissions of the car, whether it is a hybrid, an electric car etc.)

The grant of company shares to active employees can be exempt up to an annual limit of EUR12,000 provided certain requirements are met (required holding period of the shares of at least three years and holding no more than 5 percent participation in the shareholding) and the offer is made within the same conditions to all the employees of the company, Group or subgroup of entities (it will be possible to exclude from the offer to certain population of the employees based on a minimum seniority in the company of at least two years)

Deductions from Income:

· Social security contributions paid by the employee will be deductible from his/her gross work income provided that they are compulsory and directly connected to the work performed in Spain.

· Personal and family minimum.

·  Personal Minimum: EUR5,550 (increased if the taxpayer is older than 65 or disabled).

· Family minimum: EUR1,150 for each ascendant older than 65 that lives with the taxpayer subject to certain requirements (increased to EUR2,550 in case the ascendant is older than 75); EUR2,400 for the first descendant that lives with the taxpayer, EUR2,700 for the second, EUR4,000 for the third, and EUR4,500 for the fourth and each additional child. An additional minimum of EUR2,800 appliesd of the descendant is younger than 3.

· The deductible amount for personal and family minimums is calculated applying the PIT progressive scale to the above mentioned amounts, in practice, for many occasions, a tax credit of 19 percent of that amount.

Taxable Income:

Employment income:

For the purposes of PIT, all remunerations, regardless of their name or nature, whether they are in cash or in kind, generated directly or indirectly from personal work or from an employment or statutory relationship, and which are not business earnings, are employment income.

Amongst others, the following income is regarded as gross employment income:

·  Salaries or wages.

· Living allowances.

· Housing allowances.

· Bonuses.

· Tax reimbursements

· Remunerations in kind (e.g. schooling and rent-free housing).

· Pension income.

· Amounts paid to deputies, senators, councillors and the like for the performance of their work.

· Remunerations of directors and members of boards of directors.

· Income from literary, artistic, or scientific works when the trading rights for such works have been transferred.

· Income generated from providing courses, conferences, seminars, etc.

· Income from involvement in humanitarian or welfare activities organised by non-profit organisations.

· Alimony received from an ex-spouse and non-exempt annuities for food.

· Non-exempt grants.

PIT is levied on severance pays awarded for dismissals over the limit established in Spanish employment law. The part of the awarded severance pay under the limit that exceeds EUR 180,000 is also subject to and not exempt from PIT.

Employment income is included in the PIT general base and taxed at progressive tax rates, which vary depending on the autonomous region where the taxpayer is situated.

Withholdings and advance tax payments are payable on salaries and wages and on benefits.

Non-residents obtaining employment income in Spain are taxed at the general NRIT rate of 24%. For residents of other EU member states or EEA countries with which there is an effective exchange of tax information, the rate is 19% in or after 2016. Pensions are taxed at special rates.

Equity compensation:

Shares granted to employees are generally regarded as employment income and are considered to be remuneration in kind at their market value at granting.

However, under PIT regulations, company or group shares awarded to employees free of charge or for a price that is lower than the market price are not benefits in kind, up to the limit of EUR 12,000, provided that the terms and conditions of the offer are the same for all employees.

Business income:

For the purpose of PIT, business income is income generated by an individual from a combination of personal work and capital, or only one of these factors, for the production or distribution of goods or services as a result of the person’s organisation on his own behalf of the means of production and/or human resources of the business.

In particular, income generated from extraction, manufacturing, trade or service activities, including income obtained from handicraft activities, agriculture, forestry, livestock farming, fishing, building, mining and the practice of liberal, artistic, or sporting professions is considered as business income.

Leases of properties are only considered to be a business activity when at least one person is employed on a full-time basis to organise the lease activity.

Net business income is calculated in accordance with Spanish CIT laws with the application of some specific regulations.

Business income is included in the PIT general income and is taxed at the progressive tax rates applicable in each autonomous region.

Self-employed persons who are resident in Spain for tax purposes and who carry out an economic or business activity are required to make advance payments of PIT during the year (in April, July, October, and January). The tax base and percentage of these advance payments will depend on the evaluation method which is applicable.

· If the person applies the direct evaluation method (normal or simplified), the tax base is determined in accordance with CIT regulations with certain specific differences and the percentage of the advance payment is 20%.

·  If the taxpayer applies the objective evaluation method, the tax base for the advance payment is determined in accordance with income indicators established by the Spanish law (signs, indexes, and modules). In this case, the percentage of the advance payment is generally 4%.

Business income obtained in Spain by Spanish non-tax residents acting without a PE is taxed at the general NRIT rate of 24%. For residents of other EU member states or EEA countries with which there is an effective exchange of tax information, the rate is 19% from 2016.

Capital gains:

Capital gains and losses are variations in the value of a person’s wealth which are generated when there is an alteration in its composition and which are not considered to be income under Spanish PIT law.

It is important to note that capital gains can arise on all inter vivos transfers, but not on mortis causa transfers.

When the capital gain or loss is generated from the transfer of an asset, it is calculated by deducting the previous acquisition value from its transfer value, otherwise, the capital gain or loss is the market value of the asset.

Capital gains arising from transfers of assets are included in savings income and are taxed at the corresponding progressive tax rates between 19% and 23%.

A transitory tax regime may be applied for transfers of assets or rights which are not used to carry out an economic activity and which were initially acquired before 31 December 1994. In accordance with this regime, reduction coefficients (of 14.28%, 25%, or 11.11% per year, depending on the type of assets, for each year the assets or rights have been held between the acquisition date and 31 December 1996) may be applied on the proportional part of the capital gain generated from the date of acquisition up to 19 January 2006. Therefore, if the transitory regime is applicable, the total capital gain should be divided into two parts:

· Part of the capital gain generated from the acquisition date up to 19 January 2006, on which the reduction coefficients is applied. The rest of the capital gain is taxed at a progressive tax rate of between 19% and 23%.

· Part of the capital gain generated from 20 January 2006 up to the date of the transfer. This part is taxed at a progressive tax rate of between 19% and 23% and no reduction coefficients apply.

With effect from 1 January 2015, this transitory regime is applied when the value of the transfer does not reach EUR 400,000 per taxpayer. For this purpose, the transfer values of all assets transferred from 1 January 2015 on which this transitory regime may be applied should be added together, and if the total amount exceeds the threshold, the transitory regime is applied proportionally to the part of the transfer value that does not exceed the threshold.

The capital gain generated from the sale of a person’s home is tax exempt for the same proportion as the amount that is reinvested in a new home, provided that the new home is purchased within two years.

Capital gains not generated from transfers of goods (such as some lottery prizes) are included in the general tax base and are taxed at the progressive tax rates, which are different for each autonomous region.

Capital gains obtained in Spain by non-residents without a PE are taxed at a rate of 19% when they are generated from transfers of assets otherwise they are taxed at the general NRIT rate of 24% (for residents of other EU member states or EEA countries with which there is an effective exchange of tax information, the rate is 19% from 2016).

The transitory regime for transfers of assets and rights which are not used to carry out an economic activity and which were initially acquired before 31 December 1994 is also applicable for capital gains obtained in Spain by non-residents without a PE.

Capital gains arising from transfers of assets by PIT payers over the age of 65 are tax exempt if the total amount of income obtained from the transfer is used within six months to establish an assured life annuity for the taxpayer. A maximum of EUR 240,000 may be used to establish an assured life annuity. For partial reinvestments, only the part of the capital gain obtained that corresponds to the reinvested amount will be tax exempt.

For transfers of properties located in Spain by non-residents without a PE (individuals), the purchaser is required to deduct and pay to the local tax authorities 3% of the price of the transfer. This withholding is treated as an advance payment of capital gains tax for the seller. The non-resident seller must be formally represented in the transaction by a lawyer or legal representative.

Dividend income:

Dividends and other income generated from holding interests in companies are included in PIT savings income, which is taxed at a 19% tax rate up to the first EUR 6,000 of income, a 21% tax rate for the following EUR 6,000 to EUR 50,000 of income, and a 23% tax rate on any remaining income.

Dividend income obtained by Spanish non-resident individuals without a PE is taxed by Spanish withholding tax (WHT) at the flat rate of 19% from 2016 (DTTs normally establish lower rates).

Interest income:

Interest and other income generated from transferring a person’s own capital to third parties are included in PIT savings income and are taxed at a 19% tax rate up to the first EUR 6,000 of income, a 21% tax rate for the following EUR 6,000 to EUR 50,000 of income, and at a 23% tax rate on any remaining income.

As an exception, when capital transferred to an associated company exceeds three times the latter company’s equity, the interest corresponding to the excess will be included in general taxable income and taxed at the progressive tax rates which are different for each autonomous region.

Interest income received by non-residents without a PE is taxed by Spanish WHT at a flat rate of 19% from 2016. An exemption is applicable for EU residents. DTTs normally establish lower rates.

Lease income:

Income generated from leases of properties by the taxpayer is included in PIT general taxable income and taxed at progressive tax rates which are different for each autonomous region.

PIT is levied on any residential properties owned by the taxpayer (excluding the taxpayer’s habitual residential property) that have not been leased out. An income allocation of 1.1% or 2% of the property’s rateable value is included in PIT general taxable income and taxed at progressive tax rates. A 24% tax on 1.1% or 2% of the property’s rateable value is also levied on non-resident taxpayers (individuals) without a PE with properties in Spain that are not leased out. For residents of other EU member states or EEA countries with which there is an effective exchange of tax information, the rate is 19% from 2016.

WHT is levied on rent payments received by non-residents from leases and sub-leases of property at the flat rate of 24%. For residents of other EU member states or EEA countries with which there is an effective exchange of tax information, the WHT is 19% from 2016.

EU citizens may deduct all costs incurred for the maintenance of property from taxable income. Non-EU residents cannot deduct any costs.

Exempt income:

The following incomes are specifically exempt from PIT (usually subject to certain limits on the amounts involved):

·  Certain literary, artistic and scientific awards.

· Severance pay for dismissals, up to the limit established in Spanish employment law. The tax exemption is limited to EUR 180,000.

· Benefits awarded to the taxpayer by the social security or by any other authorities which replace it as a result of his total permanent disability or serious disability.

· Child support received by a parent following a court decision.

· Employment income earned for work carried out abroad if this income is subject to an identical or similar tax to Spanish PIT, subject to certain limits and conditions.

Corporate Income Tax:

Corporate income tax. Corporate tax is imposed on the income of companies and other entities and organizations that have a separate legal status. Resident entities are taxable on their worldwide income. The following entities are considered to be resident entities:

·  An entity incorporated under Spanish law

·  An entity having its legal headquarters in Spain or its effective place of management in Spain

In addition, the tax authorities may presume that an entity resident in a tax haven or in a country with no income taxation is tax resident in Spain if any of the following circumstances exist:

· The majority of its assets is directly or indirectly located in Spain.

· A majority of its rights may be exercised in Spain.

· The principal activity of the entity is carried out in Spain.

The above measure does not apply if business reasons justify the effective performance of operations and exercise of management in such foreign jurisdiction.

Nonresident entities are taxable only on Spanish-source income, which includes income from any kind of business activity conducted in Spain through a branch, office or other permanent establishment. Nonresident companies or individuals must appoint a fiscal representative if they are conducting business activities in Spain through a permanent establishment (exceptions apply) or if certain other specified circumstances occur.

Tax rates:

The general tax rate for residents and nonresidents that conduct business activities in Spain through a permanent establishment is 25%.

Newly incorporated entities carrying out business activities are taxed at a rate of 15% in the first fiscal year in which the entity has a positive tax base and in the following year, regardless of the amount of the tax base. However, this special tax rate does not apply in certain cases, such as the following:

·  Newly incorporated entities carrying out economic activities previously carried out by related entities

·  Newly incorporated companies belonging to a group of companies

· Entities qualifying as passive entities (sociedades patrimoniales), which are entities that have more than 50% of their assets constituted by shares or other assets not linked to a business activity

In addition to other tax benefits, companies licensed to operate in the Canary Islands Special Zone (Zona Especial Canaria, or ZEC) are subject to a reduced tax rate of 4% if certain conditions are satisfied. This reduced rate applies up to a maximum amount of taxable income, equaling the lesser of the following:

·  The ratio of income derived from qualified ZEC transactions with respect to total income

·        The amount resulting from the sum of the following amounts:

o   EUR1, 800,000 for those entities within the ZEC that fulfill the minimum job creation requisites (that is creation of three or five jobs annually, depending on the island)

o   An additional EUR500,000 for each job created exceeding the minimum job creation requirements, up to 50 jobs

The tax reduction resulting from the application of the above rule (this reduction is calculated by comparing the corporate income tax paid to the tax that would have been due under the general corporate income tax rate) cannot be greater than the following:

· 17.5% of the ZEC entity’s turnover for an entity in the industrial sector

· 10% of the ZEC’s entity’s turnover for an entity in a different sector

Specific tax rates apply to, among others, non-governmental organizations, charities, certain cooperatives, investment fund entities meeting certain requirements and financial institutions.

In general, nonresidents operating in Spain without a permanent establishment are taxable at a rate of 24%. This tax rate is reduced to 19% for income derived by European Union (EU) or European Economic Area tax residents in a jurisdiction with which an effective exchange of tax information agreement is in place. Nonresidents without a permanent establishment that operate in Spain may deduct any expense allowed by the Personal Income Tax Law, as provided in Law 36/2006, 28 November (this law also refers to the Corporate Income Tax Law to determine the net tax base in the case of economic activities), if the taxpayer is resident in an EU member state and can prove that these expenses are directly linked to their Spanish-source income and have a “direct and fully inseparable nexus” with the activity performed in Spain.

Dividends and interest received by nonresidents are subject to a final withholding tax of 19%. As a result of a change in the Spanish Personal Income Tax Law, share premium distributions made to non-Spanish resident shareholders may be treated as dividend distributions instead of a return of basis and therefore subject to withholding tax under the general rules.

The tax rate applicable to income from reinsurance operations is 1.5%. A 4% tax rate applies to Spanish-source income generated by companies resident abroad operating ships and aircraft in Spain.

Interest income is exempt from tax if the recipient is resident in an EU member state (or if the recipient is an EU permanent establishment of a resident in another EU member state) that is not on the Spanish tax haven list. Interest paid to nonresidents on Spanish Treasury obligations is exempt from tax. Income derived by nonresidents without a permanent establishment in Spain from bonds issued in Spain by nonresidents without a permanent establishment in Spain and from bank accounts is exempt from tax in Spain.

Distributions by Spanish subsidiaries to parent companies in EU member states that are not on the Spanish tax haven list are exempt from withholding tax if the parent company owns directly or indirectly at least 5% of the subsidiary for an uninterrupted period of at least one year and if certain other requirements are met. The one-year holding period requirement may be satisfied at the date of the distribution or subsequent to such date. An anti-avoidance provision applies in situations in which the ultimate shareholder is not an EU resident.

Royalties paid to associated EU resident companies or permanent establishments are exempt from tax in Spain if specific conditions are met.

In addition to nonresident income tax at a rate of 25%, nonresidents operating in Spain through a permanent establishment are subject to a branch remittance tax at a rate of 19%, unless one of the following exemptions applies:

·  Branches of EU resident entities, other than tax-haven residents, are exempt from the tax.

·  A branch can be exempt from tax if Spain and the country of residence of its head office have entered into a double tax treaty that does not provide otherwise and grants reciprocal treatment.

Patent Box Regime:

 Under the Patent Box Regime, a 60% exemption is granted for income derived from the licensing of certain qualifying intellectual property (IP). Such income is considered only in the proportion of the amount resulting from the application of a specified ratio. The following are the rules for calculating the ratio:

· The numerator consists of the expenses incurred by the licensing entity that are directly related to the creation or development of the IP, including those incurred from outsourcing to third parties in this regard. These expenses are increased by 30%, subject to the limit of the amount included in the denominator.

·  The denominator consists of the expenses incurred by the licensing entity that are related to the creation of the IP, including those related to the outsourcing and, if applicable, the acquisition of the IP.

Under the regime, expenses with respect to works related to the development of the IP that are subcontracted to related parties are included in the denominator, but not the numerator. Therefore, to the extent that the works related to the development of the IP are subcontracted to related parties, the reduction is less than 60% (that is, the lower the numerator in comparison with the denominator, the lower the percentage of reduction).

This exemption also applies to the income from the transfer of the qualifying IP.

· To qualify for the exemption, the following requirements must be met.

· The licensee must use the licensed IP assets in an economic activity. This use cannot result in the sale of goods or provision of services to the licensor that generates deductible expenses for the licensor if the licensor and the licensee are related parties.

· The licensed entity must not be resident in a no-tax or black-listed jurisdiction.

·  If any additional services are included in the licensing agreement, the consideration for such services must be included separately in the agreement.

· Accounting books for determining the income and direct expenses with respect to the licensed assets must be maintained. Income to be reduced is considered net of depreciation and of expenses directly related to such asset in the relevant period.

Transitory regime:

 The regulation provides for a transitory regime for pre-July 2016 licensing agreements. The taxpayer needs to select the option on the tax form corresponding to the 2016 fiscal year.

For licensing agreements entered into before 29 September 2013, the licensing entities may opt to continue applying the original Spanish Patent Box Regime, which entered into force on 1 January 2008.

For licensing agreements entered into from 30 September 2013 to 30 June 2016, the licensing entities may opt for applying the Spanish Patent Box Regime in accordance with the law in force from 1 January 2015.

These transitory regimes will remain applicable until 30 June 2021. After this date, the amended Spanish Patent Box Regime will be the only applicable regime.

In addition, gains derived from the sale of the IP assets made from 1 July 2016 to 30 June 2021 may also benefit from the application of the reduction in according with the law in force as of 1 January 2015. The option should be made in the tax form corresponding to the period in which the assets are sold.

Capital gains:

Spanish law generally treats capital gains as ordinary income taxable at the regular corporate tax rate.

Capital gains realized by nonresidents without a permanent establishment in Spain are taxed at a rate of 19%. Capital gains on movable property, including shares, are exempt from tax if the recipient is resident in an EU country that is not on the Spanish tax haven list, unless the gains are derived from the transfer of shares and any of the following circumstances exists:

· The company’s assets directly or indirectly consist primarily of Spanish real estate.

· For an EU shareholder who is an individual, he or she has held at least a 25% interest in the Spanish company at any time during the prior 12 months

· For an EU shareholder that is a legal person, it has not held a minimum ownership percentage of 5% or its acquisition cost was less than EUR20 million and a one-year minimum holding period in the subsidiary has not been met.

If a nonresident that does not have a permanent establishment in Spain disposes of Spanish real estate, a 3% tax is withheld by the buyer from the sale price, with certain exceptions. The tax withheld constitutes an advance payment on the final tax liability of the seller.

Capital gains derived by nonresidents without a permanent establishment in Spain from the reimbursement of units in Spanish investment funds or from the sale of shares traded on a Spanish stock exchange are exempt from tax in Spain if the seller is resident in a jurisdiction that has entered into a tax treaty with Spain containing an exchange of information clause.

Administration:

 The tax year is the same as the accounting period, which may be other than a calendar year. The tax year may not exceed 12 months. The tax return must be filed within 25 days after six months following the end of the tax year. In April, October and December of each calendar year, companies and permanent establishments of nonresident entities or individuals must make payments on account of corporate income tax or nonresidents income tax, respectively, equal to one of the following:

· Eighteen percent of the tax liability for the preceding tax year.

· An amount calculated by applying 19/20 of the corporate income tax rate (that is, 24% if the corporate tax rate is the general rate of 25%) to the profits for the year as of the end of the month preceding the date of the payment and then subtracting from the result tax withheld from payments to the company and advance payments of tax previously made. This alternative is compulsory for companies with turnover of more than EUR6 million in the immediately preceding tax year.

· For taxpayers with net turnover of more than EUR10 million in the immediately preceding tax year, a minimum interim payment of 23% of the taxpayer’s accounting result after taxes (regardless of eventual applicable book-to-tax adjustments and the pending application of a tax-loss carryforward), reduced by the amount of previous payments on account corresponding to the same fiscal year. As a result, for taxpayers with net turnover of more than EUR10 million, the interim payment is the higher of the following:

o   24% to the profits (tax base) for the year as of the end of the month preceding the date of the payment, reduced by the tax withheld from payments to the company and advance payments of tax previously made

o   23% of the positive accounting profit for the year as of the end of the month preceding the date of the payment, reduced by tax withheld from payments to the company and advance payments of tax previously made

Statute of limitations:

Although the Spanish tax law provides that the statute of limitations period is four years, the Corporate Income Tax Act provides that tax losses and tax credits may be subject to tax audit for a period of 10 years from the tax year of generation. It also contains provisions enabling the tax auditors to review transactions implemented in statute-barred years if they produce effects in non-statute barred periods.

Participation exemption regime and foreign tax relief:

 The exemption method may be used to avoid double taxation on dividends received from Spanish-resident and non-Spanish resident subsidiaries and on capital gains derived from transfers of shares issued by such companies if the following requirements are met:

·  At the time of the distribution of the dividend or the generation of the capital gain, the Spanish company has owned, directly or indirectly, at least 5% of the share capital of the resident or nonresident company for an uninterrupted period of at least one year or the acquisition cost of the subsidiary exceeds EUR20 million. Up to 2014, for a foreign portfolio holding company (entidades de tenencia de valores extranjeros or ETVE; see Foreign portfolio holding company regime), investments over EUR6 million qualified for the participation exemption rules. Under a transitional regime, investments made by ETVEs before 1 January 2015 that meet the EUR6 million threshold but do not meet the EUR20 million requirement qualify for the participation exemption regime. For dividends, the one-year period can be completed after the distribution. In addition, the time period in which the participation is held by other group entities is taken into account for purposes of the computation of the one-year period.

·  For foreign companies only, a minimum level of (nominal) taxation of 10% is required under a foreign corporate tax system similar to Spain’s corporate tax system. This requirement is considered to be met if the subsidiary is resident in a country that has entered into a double tax treaty with Spain containing an exchange-of-information clause.

· The foreign company is not resident in a country identified by the Spanish tax authorities as a tax haven.

The new Spanish Corporate Income Tax Act eliminates the so-called “business activity test,” commonly referred to as the 85/15 rule. However, the potential impact of the new controlled foreign company (CFC) rules (see Section E) need to be taken into account because capital gains derived from the transfer of shares may not benefit from the participation exemption regime if the subsidiary has registered CFC income in excess of certain thresholds. In addition, a new anti-hybrid measure prevents the application of the participation exemption if the dividend constitutes a deductible expense for the payer.

If the exemption method does not apply, a tax credit is allowed for underlying foreign taxes paid by a subsidiary on the profits out of which dividends are paid and for foreign withholding taxes paid on dividends.

For medium-size and large taxpayers (with revenue exceeding EUR20 million in the immediately preceding year), the tax credit is limited to 50% of the gross tax liability, but the unused credit may be carried forward indefinitely.

The credit method (see below) and exemption method cannot be used with respect to the same income. Tax credits granted under the credit method may be carried forward indefinitely.

A tax credit is available for resident entities deriving foreign-source income that is effectively taxed abroad. Such credit is equal to the lesser of the following:

· The Spanish corporate tax payable in Spain if the foreign income had been obtained in Spain

· The tax effectively paid abroad on the foreign-source income (in accordance with applicable double tax treaty provisions)

Foreign portfolio holding company regime:

 A special tax regime applies to companies that have foreign portfolio holding company (entidades de tenencia de valores extranjeros or ETVE) status. ETVEs are ordinary Spanish companies engaged in the administration and management of participations in the equity of nonresident entities. ETVEs may also be engaged in other activities. In addition to the general exemption for dividends and capital gains derived from shares in qualifying foreign companies as described in Participation exemption regime and foreign tax relief, an ETVE benefits from certain other tax advantages, including the following:

· No withholding tax is imposed on distributions made by ETVEs out of reserves derived from tax-exempt foreign-source dividends and capital gains to nonresident shareholders who are not tax-haven residents.

· Capital gains derived by foreign shareholders of ETVEs from transfers of shares in ETVEs are not taxed to the extent that the capital gain corresponds to qualifying exempt dividends and gains (realized or unrealized) derived at the ETVE level if the shareholder is not resident in a tax haven.

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Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.