Commercial and Tax Law in Spain: Key Concepts

Commercial and Tax Law

Commercial Law

Commercial Law is the body of law that regulates economic activity related to businesses. This area of law covers issues such as the company's legal form, accounting, and advertising. The Commercial Code is the main legislative framework for commercial transactions in Spain. The Commercial Register is a state agency under the Ministry of Justice. The Register is divided into Territorial Registries, one in each provincial capital, and a Central Registry.

Tax Law

Tax law arises from the state's need to raise revenue to cover public expenditure.

Taxes and Their Classification

Taxes are an important source of revenue for the state budget. They have a binding character for taxpayers. Taxes can be classified as:

• Fees: Payments made to a public entity in consideration of a public service or the execution of an activity that provides a direct benefit to the user. For example, tuition at a public university.
• Contributions: Taxes paid to a public entity for a specific reason, where the benefit from the invested money is not only for the taxpayer but for the whole community. For example, street lighting.
• Taxes: Payments required by the government without a direct return to the taxpayer. For example, Personal Income Tax, Corporate Tax, etc.

Types of Taxes

Taxes can be divided into direct and indirect taxes:

Direct Taxes

These taxes fall directly on individuals or businesses. The most important are:

• Personal Income Tax (IRPF): Imposed on individuals who have earned income from their work, capital, or other sources.
• Corporate Income Tax (IS): Paid by corporations on their profits. The amount paid is proportional to the profit. The general tax rate is 30%. SMEs with a turnover of less than 8 million euros a year have a tax rate of 25%.
• Tax on Economic Activities (IAE): Paid by individuals involved in business, professional, or artistic activities. Until 2002, it was imperative for companies to pay this tax to start their activity. Since that year, a new law allows all businesses with a turnover of less than one million euros per year to be exempt from this tax.

Indirect Taxes

These taxes are levied on the acquisition of goods or services. The most important are:

• Property Transfer Tax (ITP): Paid by individuals who purchase goods from other individuals.
• Value Added Tax (VAT): Paid in most economic transactions. The amount to be paid is a percentage of the value of the goods or services purchased. Not all transactions involve the payment of VAT; some are exempt, such as education or health services, and some financial operations like insurance contracts.

VAT rates vary depending on the type of goods or services:

• Super-reduced rate (4%): Applies to basic necessities such as vegetables, milk, bread, and fruit.
• Reduced rate (10%): Applies to food in general, passenger transport, and housing.
• General rate (21%): Applies to other goods and services.

Excise Duties

These are special taxes on specific goods:

• Excise duties on alcohol and alcoholic beverages.
• Tax on oil.
• Tax on manufactured tobacco.
• Tax on electricity.