Corporate tax planning: pay less tax, legally

The difference between compliance and planning

The majority of Spanish companies comply punctually with their tax obligations. But very few actively plan their tax burden. The difference between these two approaches can mean tens of thousands of euros per year for mid-sized companies and hundreds of thousands for business groups.

The Spanish tax system, far from being a uniform monolith, is full of instruments designed to incentivise specific economic behaviours: investing, creating employment, retaining profits, researching and innovating. Companies that know and apply these instruments have real competitive advantages over those that do not.

Tax planning is not a year-end activity: it is a continuous process that begins in January and requires decisions throughout the year. Decisions taken in the last quarter have a limited impact; decisions taken in the first half of the year can radically change the fiscal outcome of the year.

Optimising the Impuesto sobre Sociedades: the main levers

Special regimes under the Impuesto de Sociedades

The Impuesto de Sociedades Law provides for several special regimes with significant tax advantages:

Small and medium-sized enterprises (Empresas de Reducida Dimensión, ERD). For companies with a turnover of less than 10 million euros in the immediately preceding year. Includes a reduced rate of 23% (compared with the standard 25%), accelerated depreciation and freedom of depreciation for job-creating investments, the levelling reserve and a deduction for investment in new assets. The ERD regime is the most relevant for the Spanish business fabric, as it covers the majority of SMEs and family-owned businesses.

Fiscal consolidation. Groups of companies with a participation of more than 75% may file on a consolidated basis, offsetting losses in some subsidiaries against profits in others within the same year. This is equivalent to being taxed on the consolidated result of the group, which can significantly reduce the aggregate taxable base when some subsidiaries are in an investment phase with losses and others are mature with profits.

Entidades de Tenencia de Valores Extranjeros (ETVE) regime. For holding companies with significant stakes in foreign companies. Allows exemption of dividends and capital gains from participations of 5% or more in foreign entities, provided they are subject to a minimum tax rate of 10% in the country of origin. This is the benchmark regime for international holding structures.

Patent Box. Income derived from the licensing of certain intangible assets (patents, utility models, registered software, know-how) is subject to a 60% reduction on the taxable base. For companies with significant intangible assets, such as technology, pharmaceutical or industrial companies with patents, the Patent Box can represent a tax saving of several percentage points on the effective rate.

R&D+i deductions: the most generous deduction in the system

The deduction for investigación, desarrollo e innovación tecnológica (Article 35 LIS) is the most powerful deduction in the Spanish tax system and the least used. The deduction percentages are:

• Research and development (I+D): 25% of expenditure in the year, plus an additional 17% on the excess above the average of the two preceding years. For companies with a growing R&D budget, the additional deduction can bring the effective percentage above 30%.
• Research personnel dedicated exclusively to I+D: an additional 17% on personnel costs.
• Technological innovation: 12% of expenditure on product or process innovation (a broader concept than R&D, which includes significant improvements to existing products or processes).

The deduction may be applied up to a limit of 25% of the full tax liability, but in the case of I+D the limit can be increased to 50% if applied with a 20% reduction on the amount. Unused amounts due to insufficient liability can be carried forward over the following 18 years.

The most common barrier to its application is not eligibility but lack of documentation. The AEAT may challenge whether activities qualify as I+D or technological innovation. To avoid uncertainty, it is possible to request motivated reports from the Ministry of Science and Innovation that bind the AEAT as to the classification of the projects.

Capitalisation reserve: reducing the taxable base through equity growth

The capitalisation reserve (Article 25 LIS) allows a reduction of the IS taxable base by 10% of the increase in equity in the year, capped at 10% of the prior taxable base. There is no specific investment requirement: it is sufficient to maintain the increase in equity for five years without distributing it as dividends.

For a company that systematically retains profits, the capitalisation reserve provides an automatic annual saving of 2.5% on retained profits (10% reduction multiplied by the 25% IS rate). Over five years of continuous retention, the accumulated saving can represent several percentage points of the effective rate.

Accelerated depreciation and freedom of depreciation

The ERD regime allows certain new assets to be fully depreciated in the year of acquisition, provided that employment is created during the year and the following year. Freedom of depreciation brings the tax expense, and therefore the tax saving, forward to the year of investment, improving the cash flow of the project.

In addition, the ERD regime allows accelerated depreciation (multiplying standard depreciation coefficients by 2) for new tangible fixed assets, intangibles with a defined useful life and investment property. This acceleration reduces the taxable base in the early years of the asset’s life in exchange for a higher base in the later years, but the net present value effect is always positive due to the time value of money.

IVA optimisation: pro-rata, regimes and recovery

IVA management has less visibility than the Impuesto de Sociedades, but can represent a comparably important economic impact, particularly for companies with mixed activities (subject to and exempt from IVA) or with high levels of investment.

Pro-rata and differentiated sectors

Companies that simultaneously carry out activities subject to and not exempt from IVA (with the right to deduct) and exempt activities (without the right to deduct) must apply the pro-rata rule to determine what percentage of input IVA is deductible. The general pro-rata divides taxable sales by total sales. The special pro-rata calculates the deduction by separate sector, which can be more favourable when activities have very different cost structures.

The choice of pro-rata regime (general or special) can make significant differences to the amount of deductible IVA. The special pro-rata is compulsory when the difference between the two results exceeds five percentage points. In other cases, it may be opted for if it produces a more favourable result.

Monthly refund regime (REDEME)

Companies with habitually positive IVA balances in their favour (for example, exporters, companies with high initial investment or businesses with reduced rates on sales and the standard rate on purchases) may opt to enrol in the REDEME, which allows the monthly IVA balance to be recovered rather than waiting until year-end. The cost is inclusion in the SII (Suministro Inmediato de Información) system, which requires invoicing records to be submitted within 4 working days. For companies already in SII by virtue of exceeding one million euros in turnover, joining REDEME carries virtually no additional cost.

Intra-community transactions and foreign IVA recovery

Companies that acquire goods or services in other EU countries and incur local IVA can recover it through the procedures established by Directive 2008/9/CE (for EU-established companies). The maximum claim period is 30 September of the year following the year to which the IVA relates. Companies with frequent overseas travel, international trade fair attendance or purchases of services abroad should systematically review the possibilities of recovery.

Quarterly tax checklist: specific actions by period

First quarter (January to March)

• Review the prior year close and identify return adjustments
• File the corporate income tax return for the prior year (if the year coincides with the calendar year, in July; but instalment payments begin in April)
• Verify the requirements for applying the ERD regime in the current year
• Design the investment and hiring plan for the year, scheduling those that generate tax benefits
• Review contracts with related parties (shareholders, directors, group companies) and adjust valuations to market price
• Update related-party transaction documentation if volume exceeds mandatory documentation thresholds

Second quarter (April to June)

• File the first IS instalment payment (Modelo 202, in April)
• Review the projected results for the year and adjust the instalment payment to the most favourable modality
• Assess whether there are R&D+i expenditures in the year that justify initiating a certification process
• Review the accrual of the capitalisation reserve: the increase in equity must be demonstrated as at 31 December, but decisions on dividend distributions that affect it are taken now
• Verify the status of unused deductions carried forward from prior years

Third quarter (July to September)

• File the second IS instalment payment (Modelo 202, in October, but based on the first-half result)
• Review asset investment projects and decide whether to bring forward or defer acquisitions based on their tax impact
• Quantify the potential appropriation of the levelling reserve and the capitalisation reserve based on the provisional result
• Review property lease agreements between the company and shareholders or directors: document the market-price valuation
• Assess whether the incorporation or liquidation of a subsidiary before year-end has consequences for the fiscal consolidation perimeter

Fourth quarter (October to December): year-end planning

The fourth quarter is the critical period for tax planning. Decisions taken between October and December have a direct impact on the IS return for the year:

• Review the projected tax result. With nine months of the year closed, it is possible to calculate the provisional taxable base and the IS payable with high precision.
• Appropriate the levelling reserve by the optimal amount (up to 10% of the taxable base, capped at 1 million euros).
• Adjust the capitalisation reserve based on the expected increase in equity as at 31 December.
• Bring forward or defer invoicing where possible, to optimise accrual in the most favourable year.
• Execute planned investments: if assets are planned for the following year, bringing them forward to December can improve the fiscal result of the current year.
• Regularise IVA balances with customers or suppliers, particularly bad debts that allow modification of the taxable base.
• Verify compliance with deduction requirements that will be applied in the IS return for the year (jobs created and maintained for job creation deductions, materialisation of the Reserva de Inversiones en Canarias where applicable, etc.).

Planning for small and medium-sized enterprises (ERD): the most relevant regime for SMEs

The small and medium-sized enterprise regime (Articles 101 et seq. of the LIS) is by far the most widely used special regime in Spain and the one with the greatest impact on the tax planning of SMEs and family businesses. It applies to any company with turnover of less than 10 million euros in the prior year, regardless of its legal form or sector.

Principal advantages of the ERD regime

Reduced rate of 23%. ERD companies are taxed at 23% on the full taxable base, compared with the standard 25%. The saving of two percentage points on the entirety of profits can represent thousands of euros per year for a mid-sized company.

Levelling reserve. Reduction of the taxable base of up to 10% (maximum 1 million euros), deferring payment for five years. If during that period the company has losses, the reserve absorbs them. If not, the deferred IS is paid without interest. It is interest-free tax financing for the company.

Accelerated depreciation of new tangible fixed assets. New fixed assets in ERD companies may be depreciated at the maximum depreciation coefficient multiplied by 2. Investment in assets subject to rapid technological obsolescence (servers, production equipment, vehicles) is recovered for tax purposes in half the standard time.

Freedom of depreciation with job creation. New assets acquired when there is a net increase in headcount may be depreciated freely (up to the full value in the year of acquisition), provided the jobs created are maintained for the following two years. For growing companies, this freedom of depreciation can convert capital expenditure into an immediate full deduction.

Deduction for investment in new assets. ERD companies have an additional deduction against the tax liability of 10% of investments in new tangible and intangible fixed assets used in the business, above ordinary depreciation.

Impairment losses on receivables. ERD companies may deduct bad debts as a tax loss when three months have elapsed since the due date, without needing to wait for the six months required under the standard regime.

The international dimension: transfer pricing and CFC rules

For companies operating in several countries or with foreign subsidiaries, tax planning has an additional dimension that requires particular attention.

Transfer pricing

Transactions between related entities within the same group (shareholder-company, between subsidiaries, between parent and subsidiary) must be carried out at market prices (arm’s length principle). The main related-party transactions subject to documentation requirements are:

• Provision of services between group companies (management fees, technical services, royalties)
• Intra-group financing (loans between group companies)
• Buying and selling of goods between group companies
• Licensing of intangible assets (trademarks, patents, know-how)

Transfer pricing documentation is mandatory when the volume of related-party transactions exceeds 250,000 euros per year with the same related person or entity. For groups with consolidated turnover above 45 million euros, the Country-by-Country Reporting requirement applies. Penalties for lack of documentation or incorrect valuation can reach 15% of the adjustment made.

Within the arm’s length framework, there is considerable scope to structure transactions so that the overall tax burden of the group is efficient. Management services, property leases, intangible licensing and intra-group loans are standard planning instruments, provided they are properly documented and valued.

Controlled foreign company (CFC) rules

Spain’s CFC rules, regulated in Article 100 of the LIS, allow the AEAT to attribute to the Spanish company the profits of certain foreign subsidiaries when certain conditions are met (control of 50% or more, tax rate below 75% of the Spanish rate, and certain categories of passive income such as dividends, interest, royalties and real estate income). International structure planning must take these rules into account to avoid unwanted attributions.

Common mistakes in corporate tax planning

Mistake 1: Planning only in December. Most tax-saving levers require decisions during the year. In December, the only real margin is the scheduling of investments and expenditure that can be brought forward or deferred to the next year.

Mistake 2: Failing to verify ongoing compliance with the requirements of deductions already applied. Some deductions have multi-year maintenance requirements (job creation, materialisation of the Reserva de Inversiones en Canarias, capitalisation reserve). Subsequent non-compliance requires regularisation with interest.

Mistake 3: Dismissing R&D+i deductions on the grounds of not having a laboratory. The concept of R&D+i is broader than many business owners realise: it includes the development of proprietary software, significant improvements to production processes and the application of new materials or technologies. Many service companies have eligible projects that are not claimed due to lack of analysis.

Mistake 4: Not exploiting subsidiary losses in groups without fiscal consolidation. If the company holds stakes in other companies generating losses, and it does not file on a consolidated basis, those losses do not offset the parent’s profits. Reviewing whether the consolidation perimeter can be extended is a mandatory prior step.

Mistake 5: Failing to document related-party transactions. The AEAT has intensified its review of transactions between shareholders and their companies (particularly loans and property leases at non-market prices). The absence of documentation not only creates the risk of an adjustment, but also prevents the deduction of the expense in the paying company.

Case study: technology services company, 3 million euros in turnover

A software development company with 3 million euros in turnover, 800,000 euros in pre-tax profit and no prior tax planning presents the following starting point:

• Current effective IS rate: 22.5% (applies the 23% ERD rate but with no additional deductions)
• IS paid: 180,000 euros

With structured tax planning in the first year:

1. Levelling reserve: 80,000 euros (10% of the taxable base of 800,000 euros). Reduction in tax liability: 18,400 euros.
2. Capitalisation reserve: the increase in equity versus the prior year is 600,000 euros (retained profit). Deduction of 10%: 60,000 euros off the taxable base. Reduction in tax liability: 13,800 euros.
3. R&D+i deduction: the company has a team of 5 developers working on a proprietary product. Qualifying I+D expenditure: 300,000 euros. Deduction at 25%: 75,000 euros applied against the tax liability (subject to the 25% of full liability cap).
4. Director remuneration optimisation: restructuring of the salary-dividend-company pension mix to reduce the total tax cost for the shareholder-company combination.

Result: effective IS after planning: approximately 93,000 euros, compared with the initial 180,000 euros. Saving in the first year: 87,000 euros. Real effective rate: 11.6%.

This example uses only standard LIS instruments, with no complex structures or low-tax territories. The difference is made entirely by the systematic analysis and application of available incentives.

Tax calendar: a tool for payment planning

Good tax planning not only reduces the amount of tax payable, it also optimises the timing of payments. Impuesto de Sociedades instalment payments (Modelo 202 in April, October and December) can be calculated using two modalities: based on the prior year IS liability (first modality) or based on the result of the period (second modality). Choosing the most favourable modality based on the company’s earnings trajectory can reduce provisional payments and improve cash flow.

For a complete view of all the relevant deadlines for your company’s tax planning, we recommend consulting our tax calendar tool, which integrates IS, IVA, shareholder IRPF and information return deadlines with personalised reminders by company type.

Why tax planning requires ongoing advisory support

Corporate tax planning is not a one-off service. It is an annual process requiring quarterly monitoring, continuous regulatory updates and a deep understanding of each company’s specific situation. Regulatory changes, including changes to rates, new deductions or modifications to the requirements of special regimes, affect plans in progress and require adjustments.

At BMC we design and execute annual tax plans for companies of all sectors and sizes, with quarterly reviews and proactive communication of relevant regulatory changes. Our team maintains up-to-date knowledge of the latest TEAC resolutions, DGT binding rulings and Supreme Court case law on tax matters.

The average outcome for our clients in the first year of structured planning is a reduction in the effective IS rate of between 5 and 12 percentage points, depending on the sector, profit level and degree of prior optimisation.