Tax Planning for Companies Establishing in Spain

The Impuesto sobre Sociedades (Corporate Income Tax or CIT), governed by Law 27/2014, taxes the worldwide income of entities resident in Spain at the standard rate of 25%. This rate falls below the OECD average (23.5% in 2025) and is competitive against major European economies: Germany (29.8% effective including Gewerbesteuer), France (25.83% including contribution sociale) and Italy (27.9% including IRAP).

Newly created entities that generate a positive tax base benefit from a reduced rate of 15% in the first profitable fiscal year and the following year (Article 29.1 LIS). This incentive is particularly relevant for subsidiaries of multinationals starting operations in Spain, as it allows reinvestment of a larger proportion of initial profits into local growth.

Spain offers a broad catalogue of deductions and tax incentives relevant to international companies. The R&D tax credit (Articles 35-36 LIS) provides deductions of between 25% and 42% of research and development expenditure, and 12% for technological innovation. The Patent Box (Article 23 LIS) allows a 60% reduction in the tax base of income from the transfer of patents and intangible assets. Additionally, employment creation deductions and deductions for investments in film production complement the incentive framework.

For the calculation of the tax base, the starting point is the accounting result under the Spanish General Accounting Plan (Plan General de Contabilidad, RD 1514/2007), with the extra-accounting adjustments provided for in the LIS. Differences between Spanish accounting standards (PGC, IFRS-adapted) and the group’s standards (IFRS, US GAAP, local GAAP) require a reconciliation process that Euroaccounts manages as part of its tax compliance service. With over 500 companies advised from Madrid, we have direct experience with the accounting particularities of each jurisdiction.

The ETVE regime (Entidades de Tenencia de Valores Extranjeros), regulated by Articles 107 and 108 of Law 27/2014, enables a Spanish holding company to apply exemption on dividends and capital gains from its foreign subsidiaries. This exemption makes Spain an attractive jurisdiction for the location of holding companies within multinational groups.

The requirements for applying the ETVE regime are: a direct or indirect participation of at least 5% in the capital of the non-resident entity (or an acquisition value exceeding EUR 20 million), held for an uninterrupted period of at least 12 months; that the subsidiary is subject to a tax analogous to Spanish CIT with a nominal rate of at least 10% (presumed to be met if a DTT with an information exchange clause exists); and that the distributed profits derive from business activities abroad (not from passive income generated in Spain).

The principal advantage of the ETVE regime compared to other European holding jurisdictions (Netherlands, Luxembourg, Ireland) is that Spain combines a network of 93 DTTs, a stable legal framework, competitive operating costs and the ability to endow the holding with real economic substance (an office in Madrid, employees, management functions). Following post-BEPS reforms and ATAD Directives, jurisdictions unable to demonstrate real substance are losing their appeal. Madrid, as an economic capital with direct access to both European and Latin American markets, offers an ideal environment for holdings with genuine operations.

The ETVE regime does not require prior authorisation: it is sufficient to notify the AEAT and comply with the requirements on an ongoing basis. The ETVE company is taxed at the standard CIT rate (25%) on its own income, but exempt dividends and capital gains are not included in the tax base. Dividends distributed by the ETVE to its non-resident shareholders are exempt from withholding on the portion corresponding to exempt income under the regime (Article 108 LIS), regardless of the shareholder’s jurisdiction.

Euroaccounts has advised dozens of international groups on the incorporation and management of ETVE holdings since 1996. Our team in Madrid manages both the entity formation and ongoing compliance, including transfer pricing documentation, AEAT reporting obligations and group reporting. Through INPACT Global, we coordinate with advisers in the jurisdictions where subsidiaries are located to ensure global tax consistency.