Specialist tax advisory for SMEs

More than compliance: tax optimisation

Most SMEs settle for meeting their tax obligations on time. But compliance and optimisation are very different things. Every year, Spanish SMEs leave thousands of euros in deductions, reliefs, and tax incentives unclaimed — incentives that the legislation itself makes available — simply because nobody tells them they exist or how to apply them correctly.

Our approach goes beyond filing forms. We work with each client to build a tax strategy that minimises the tax burden within the legal framework, anticipating payments and avoiding the surprises that destabilise cash flow.

Services included

• Filing of all quarterly and annual returns (VAT, corporate tax, withholdings, informative declarations)
• Annual tax planning with estimated instalment payment projections
• Proactive quarterly review with optimisation proposals
• Advisory on one-off transactions (asset disposals, restructurings, dividend distributions)
• Shareholder-director remuneration planning (salary vs. dividends vs. service fees)
• Representation before the Tax Agency and management of information requests
• Full support during tax audits
• Alerts on regulatory changes relevant to your sector

What kind of SMEs we serve

Our tax advisory service is designed for SMEs with 2 to 50 employees and annual revenues from 300,000 euros to 10 million. Within this segment, we serve professional services firms, retail, distribution, technology, hospitality, construction, and manufacturing companies. The sectoral diversity of our portfolio allows us to apply cross-industry knowledge and spot opportunities that an advisor limited to a single sector would miss.

Corporate tax incentives that most SMEs underutilise

The Spanish Corporate Tax Act (Ley 27/2014, LIS) contains a suite of incentives specifically designed for small and medium enterprises that are systematically underused because most companies do not have an advisor whose role is to identify them proactively.

Reduced tax rate for newly formed companies (Art. 29.1 LIS). Companies that began their activity after 1 January 2013 pay a reduced corporate tax rate of 15% on the first €300,000 of taxable base in the first two years in which they generate positive taxable income. This applies regardless of whether the company is profitable from day one of its existence — the clock only starts on the first profitable year.

Capitalisation reserve (reserva de capitalización, Art. 25 LIS). Companies can deduct 10% of the increase in their net equity in a financial year, provided the increase is maintained for five years and a restricted reserve is created. For an SME that retains €200,000 in profits, this means a €20,000 deduction on the taxable base — reducing the effective tax rate by over 5 percentage points.

Equalisation reserve (reserva de nivelación, Art. 105 LIS). Available exclusively to SMEs (empresas de reducida dimensión with turnover below €10 million), this measure allows a deduction of up to 10% of taxable income (maximum €1 million) to create a reserve that compensates future tax losses. If no loss arises within five years, the reserve is reversed and added back to the taxable base. The benefit is a 5-year tax deferral at no interest cost.

Free depreciation (Art. 102 LIS). Tangible and intangible assets acquired by SMEs can be freely depreciated (amortización libre) in the year of purchase, provided the company maintains or increases its average headcount over the following 24 months. This allows an SME that invests in machinery, vehicles, or computer equipment to accelerate the tax deduction by several years.

R&D deductions (Art. 35 LIS). Qualifying research and development expenditure generates a tax credit of 25% of the qualifying amount (42% for expenditure exceeding the average of the two previous years). Technological innovation expenditure qualifies at 12%. These credits can be applied against the full tax liability or, under certain conditions, refunded in cash — making them valuable even in low-profit years.

Director and shareholder remuneration planning

For an SME owner-managed by a sole director or family shareholders, the split between salary, dividends, and service fees to related entities is the single most impactful tax planning decision of the year. The choices made here determine the effective personal income tax rate, Social Security contributions, and the deductibility of the remuneration at company level.

Salary paid to a director with management functions is deductible at company level and taxable as employment income (rendimientos del trabajo) at the personal level, subject to IRPF rates up to 47% and Social Security on the basis of the actual salary. Since 2023, all directors with management functions exercising real labour activity must be registered in the general Social Security scheme (Régimen General) — the autónomo option that existed before was largely closed.

Dividends are not deductible at company level but are taxed as capital income (rendimientos del capital mobiliario) in the hands of the recipient at savings rates (19%-28%), making them attractive for shareholders with high marginal income tax rates on employment income.

Intercompany service fees — for example, a director providing professional services to their company through a personal-activity entity — are deductible at company level if the services are genuine, properly documented, and priced at arm’s length. AEAT scrutiny of these arrangements has intensified: documentation of the service provided, time allocation records, and comparable market pricing are essential.

The optimal split depends on the company’s profitability, the director’s personal income, the Social Security regime, and whether the director has other income sources. Annual modelling of all three components is standard practice in our service.

VAT regime selection and management

Spanish VAT (IVA) offers several regime options for SMEs beyond the standard monthly or quarterly Modelo 303 filing. The right choice can significantly affect cash flow and administrative burden.

Standard regime (régimen general): VAT charged to customers is offset against VAT paid to suppliers quarterly; the net difference is paid to or recovered from AEAT. Most service businesses operate in this regime.

Cash accounting (criterio de caja, Art. 163 quinquies LIVA): VAT is accrued when payment is received (rather than when invoiced), eliminating the cash flow cost of financing VAT before clients pay. Available to SMEs with turnover below €2 million. A frequently overlooked option for businesses with slow-paying clients.

Simplified regime (régimen simplificado): Available to businesses in specific sectors (agriculture, hospitality, retail of certain goods) with turnover below €250,000. VAT is calculated using objective modules (índices y módulos) rather than actual transactions, simplifying record-keeping substantially.

Monthly refund scheme (Régimen de Devolución Mensual, REDEME): Companies with systematic VAT credit positions — exporters, intra-community suppliers, businesses with large VAT-intensive purchases — can apply for monthly refunds instead of waiting for the annual settlement. The trade-off is inclusion in the Immediate Supply of Information system (SII), which requires real-time VAT ledger reporting.

AEAT inspection risk for SMEs: what triggers a review

AEAT’s risk selection models for SME inspections focus on three areas that appear frequently in our pre-inspection diagnostic reviews:

Mixed-use assets. Vehicles, mobile phones, and office equipment used partly for business and partly for personal purposes are subject to VAT deductibility limits. AEAT applies a rebuttable presumption of 50% business use for vehicles unless the company can demonstrate higher business use through vehicle use logs. Deducting 100% of VAT on a vehicle used partly personally is the most common audit finding in SME inspections.

Related-party transactions. Loans between a company and its sole shareholder, rent paid to a shareholder-landlord, and management fees between related entities are all scrutinised for arm’s-length pricing. AEAT has access to cadastral values and market comparables and routinely adjusts rental income to market rates when below-market rents are found.

The capital expenditure vs. repair boundary. Expenditure that improves or extends the life of an asset must be capitalised; expenditure that merely maintains it in working order is deductible immediately. AEAT frequently reclassifies expenditure claimed as repairs (deductible in the year) as improvements (capitalisable), triggering a reduction in the current year’s deductions and an increase in the asset’s book value (with future depreciation permitted).

The SME tax calendar: managing cash flow through quarterly planning

For an SME, the tax calendar is not just a compliance schedule — it is a cash flow planning framework. Quarterly tax payments (IVA settlements, IRPF withholding payments, and corporate tax instalments) are the largest discretionary outflows that a business can forecast and manage. The difference between reactive compliance and proactive planning is the difference between surprise cash calls and managed outflows.

Corporate tax instalments (Modelo 202) are calculated either at 18% of the prior year’s tax liability or, for companies exceeding €6 million in turnover, at 17% of the current year’s annualised taxable base. Choosing between these two methods requires projecting the full year’s profitability: if the current year will be significantly better than the prior year, the prior-year method underpays (with potential interest); if it will be worse, the current-year method overpays. Our quarterly review process models both options and recommends the optimal method before the April instalment.

VAT cash flow management is equally important. Companies with systematic VAT credit positions — those whose input VAT consistently exceeds output VAT due to export activity or high capital investment — should assess whether REDEME (monthly VAT refund registration) improves cash flow sufficiently to justify the associated SII (Immediate Supply of Information) reporting obligation. BMC performs this analysis as part of the annual tax planning review for all export-active clients.