Understanding Corporate Tax and IAE in Spain

Corporate Tax and IAE: Key Aspects for Businesses in Spain

IAE: Tax on Economic Activities

The Impuesto sobre Actividades Económicas (IAE), or Tax on Economic Activities, is a local tax. The taxable event is constituted by the course of business, professional, or artistic activities. Business activities refer to livestock, mining, industrial, commercial, and service activities.

Taxpayers: The taxpayer is the individual or legal entity that carries out any of the activities included in the taxable event. Since 2003, taxpayers with a turnover below 1,000,000 per year are exempt.

Tax Rate: The tax rate is obtained from the application of the IAE rates. These rates group activities into sections, divisions, and groups, and the groups are classified into headings. There are minimum municipal, provincial, and national fees.

Calculation of Tax Payable: To calculate the tax payable, municipalities are based on the minimum municipal fees set for each activity and the local surface area. A scale of indices takes into account the local situation within the municipality.

Tax Period: The tax period is the calendar year, except when the activity begins after the start of the year. In this case, the fee is calculated by prorating the annual fee by quarters.

Establishment: The establishment occurs on the first day of the tax period, January 1st.

Corporate Tax

Corporate tax is a direct tax. The taxable event is the source of income for legal persons in the tax period, which coincides with the calendar year. The taxable event occurs on the last day of the tax period, December 31st.

Taxpayers: Taxpayers are legal persons that obtain income. All taxpayers will be companies.

Tax Calculation:

• The tax is determined through tax liquidation.
• First, the tax base is determined, which is the difference between computable income and deductible expenses according to the tax law.
• Most income and expenses are computable and deductible according to the law.
• The gross tax liability is calculated by applying the tax rate to the tax base.
• The net tax liability is calculated by subtracting deductions and credits from the gross tax liability.
• The tax payable is calculated by subtracting withholdings and payments on account from the net tax liability.

Tax Rate: A single rate applies to all profits, but not all are taxed at the same rate. Generally, it is 35%. For the first 15 million of small companies, it is 30%, and for cooperatives, it is 20%.