Corporate Income Tax: Optimise Your Corporate Tax Burden

Spanish Corporate Income Tax (Impuesto sobre Sociedades, IS) is governed by Law 27/2014 (LIS) and applies to the worldwide profits of entities resident in Spain at a standard rate of 25%, reduced to 23% for entities with net turnover below EUR 1 million (from FY 2023) and to 15% for newly incorporated entities in their first two profitable years. The taxable base — accounting profit adjusted by book-to-tax entries — may be reduced through mechanisms including the capitalisation reserve (Art. 25 bis LIS, 15% reduction), the equalisation reserve for SMEs (Art. 105 LIS), and the carryforward of tax losses (Art. 26 LIS), making effective rates substantially lower than the nominal rate for companies that plan proactively.

We manage corporate income tax for over 250 businesses of all sizes, from SMEs benefiting from the 23% reduced rate to consolidated groups with taxable bases running into several million euros. Our engagement combines rigorous compliance with active pursuit of every saving opportunity available under Law 27/2014.

Why Most Companies in Spain Pay More Corporate Tax Than They Should

The corporate income tax nominal rate is 25%, but the actual taxable base on which that rate is applied can be reduced significantly through the mechanisms Law 27/2014 (LIS) makes available to businesses. The problem is that most of these mechanisms are not automatic: they require proactive planning, adequate documentation, and in some cases decisions that must be made before the year end.

The capitalisation reserve under Art. 25 bis LIS allows the taxable base to be reduced by 15% of the equity increase in the period. It is a self-financing incentive that very few companies apply correctly, in many cases because they are unaware of it or because they have not established the required indisposable reserve. The equalisation reserve under Art. 105 LIS is available exclusively to SMEs with turnover below EUR 10 million and allows up to 10% of the taxable base to be deferred for five years: it is essentially an interest-free state loan to the company. The carryforward of tax losses under Art. 26 LIS is unlimited in time, but subject to the 70% cap where the base exceeds EUR 1 million, and requires an optimal application strategy when multiple loss years coexist.

Our Corporate Income Tax Planning and Compliance Process

The annual IS cycle starts several months before the year end. In September or October, we carry out the closing projection: we estimate the expected taxable base and plan the decisions that can be made before 31 December to reduce it. This includes the decision on the capitalisation reserve appropriation, accelerated depreciation of specific assets, the timing of deductible expenses, the activation of R&D deductions, and whether to use the equalisation reserve.

In the early months of the following year, we manage the Form 202 instalment payments. The choice between the Art. 40.2 LIS method (percentage of the last filed return’s tax liability) and the Art. 40.3 LIS method (percentage of the accumulated taxable base for the current period) can result in significant differences in the payment schedule. Companies with turnover exceeding EUR 10 million are required to use the Art. 40.3 method, but for all others the optimal choice depends on the earnings trend for the year.

Regulatory Framework: Law 27/2014 (LIS) and Key Provisions

Corporate income tax is governed by Law 27/2014 of 27 November (LIS), implemented by Royal Decree 634/2015 (RIS). The key provisions are: Art. 7 (taxable event: income obtained by the entity), Art. 10 (taxable base: accounting profit adjusted by book-to-tax entries), Art. 26 (carryforward of tax losses, with the 70% cap and EUR 1 million minimum offset), Art. 25 bis (capitalisation reserve, 15% reduction), Art. 29 (tax rates: 25% standard, 23% for SMEs with turnover below EUR 1 million, 15% for newly formed entities), Arts. 35-36 (R&D&I and production deductions), Art. 40 (instalment payments) and Art. 105 (equalisation reserve for small enterprises).

Law 31/2022 (Budget Law) introduced the reduced rate of 23% for entities with net turnover below EUR 1 million in the prior period, applicable from FY 2023. This reduction represents a real saving of 8% relative to the standard rate. For a company with a taxable base of EUR 200,000, the annual saving is EUR 4,000.

Real Results in Corporate Income Tax Optimisation

• Effective reduction of the average corporate tax rate by 3 to 8 percentage points through the combined use of the capitalisation reserve, equalisation reserve and available deductions.
• Recovery of unused R&D&I deductions from prior years (18-year application window) through amended returns where the limitation period allows.
• Optimal tax loss offset strategy, prioritising compensation in years with the highest effective rates and ensuring the 70% cap does not generate unnecessary payments.
• Instalment payments reduced to the legal minimum, releasing working capital during the year without incurring late payment interest.
• Favourable outcome in 96% of corporate tax audit proceedings managed in the last five years.

Corporate income tax is, together with VAT, the tax that has the greatest impact on a company’s profit and loss account. However, unlike VAT, which is in theory neutral for the business, corporate tax directly charges the company’s profit, and its optimisation has a direct effect on the net return on the business and on its capacity for self-financing. Every euro saved in corporate tax is a euro that remains in the company and can be used for investment, distribution or reserves.

Tax planning for corporate tax is not something to be addressed solely at year end. Investment decisions, financing structure, dividend policy, restructuring transactions, and the management of related-party relationships all have corporate tax implications that must be assessed at the time the decisions are made. A company that plans its corporate tax position proactively can reduce its effective rate by several points compared with one that merely complies with the annual return.

The R&D&I deductions under Arts. 35-36 LIS deserve particular attention. Many technology, industrial and service companies generate R&D or technological innovation expenditure without realising it, because the legal definition of these activities is broader than what is typically associated with basic scientific research. The development of bespoke software, process improvement projects, and prototype creation are activities that may qualify for the 25% deduction on qualifying expenditure. Where the tax liability is insufficient to absorb the deductions in the year they arise, monetisation through assignment of the tax credit to the AEAT in exchange for a cash refund is possible. We coordinate this strategy with our R&D and Patent Box service to maximise the economic impact.

Corporate tax management within groups of companies adds an additional layer of complexity. Tax consolidation (Arts. 55-75 LIS) can be advantageous when the group has entities with positive and negative results, but requires meeting ownership and domicile requirements. Related-party transactions between group entities must be valued at arm’s length (Art. 18 LIS), with the corresponding documentation when thresholds are exceeded. The presence of entities in other jurisdictions introduces the transfer pricing dimension, which we coordinate with our international tax and transfer pricing practices.

Impuesto de Sociedades: the structural framework

Corporate tax in Spain (Impuesto sobre Sociedades, IS) is governed by Ley 27/2014 and its subsequent modifications, most recently the significant changes introduced for FY 2024 and FY 2025. The general IS rate is 25%, with reduced rates of 23% for small companies (net turnover below EUR 1 million) and 15% for newly incorporated qualifying companies in their first two profitable years under the general IS law — extended to four years under the Startup Law for qualifying entities.

The IS base is calculated by adjusting pre-tax accounting profit for permanent and temporary differences arising from the divergence between PGC accounting standards and IS tax law. The most common adjustments involve: depreciation (the IS allows accelerated depreciation for qualifying assets; accounting depreciation may be lower), provisions (many accounting provisions — for doubtful debts, warranties, and restructuring — are only deductible for IS when specific conditions are met), and deductions (the R&D&I deduction, patent box, and international double taxation relief generate tax credits that reduce the IS liability below the headline rate).

Deductions and incentives: the IS planning landscape

The Spanish IS system offers a rich set of deductions and incentives that, when properly planned and documented, can materially reduce the effective IS rate:

R&D&I deduction (Deducción I+D+i, Article 35 LIS): companies investing in qualifying R&D (35% deduction) or technological innovation (12% deduction) can reduce their IS liability by up to 50% of the gross IS quota. With the additional 20% enhancement where R&D expenditure increases year-on-year, and the ability to request cash refunds for unused credits (subject to a 20% haircut), this is one of the most valuable IS incentives available. Our R&D incentives team manages the qualification assessment and documentation process.

Patent box (Article 23 LIS): a 60% reduction on net income from qualifying intangible assets (patents, software, know-how, product designs) held and exploited by Spanish entities. The UK Nexus approach has influenced the Spanish rules, requiring a link between the IP development activity and the IP exploitation. When combined with R&D&I deductions, the effective IS rate on IP income can be reduced to below 10%.

International dividends and capital gains exemption (Art. 21 LIS): dividends and capital gains from Spanish holdings of qualifying participations (at least 5% ownership, held for at least 1 year) are effectively 95% exempt from IS. This provision is the basis of the Spanish holding company (ETVE — Entidad de Tenencia de Valores Extranjeros) structure, which is one of the most tax-efficient holding regimes in Europe.

Tax consolidation group (Grupo fiscal): Spanish companies that form part of a domestic corporate group can elect to be taxed as a consolidated group, allowing loss offsetting within the group and simplifying intra-group transactions.

IS compliance: Modelo 200 and related obligations

Annual IS compliance requires filing Modelo 200 within 25 days of the six-month mark following the end of the fiscal year (for December fiscal year companies: 1-25 July). Advance payments (Modelo 202) are due three times per year. Large taxpayers (with turnover above EUR 6 million) face enhanced compliance obligations and more intensive AEAT scrutiny.

Our tax compliance team manages IS filings as part of an integrated tax advisory relationship, ensuring that deductions are maximised and positions are properly documented for any subsequent AEAT review.

Contact our corporate tax team for a review of your IS position and deduction opportunities.