Corporate Tax

Tax Rates: Standard and Reduced

Corporate Tax (Impuesto de Sociedades, IS) levies the net profits of legal entities with tax residence in Spain. The main rates are:

• Standard rate: 25 % on the taxable base.
• Reduced rate of 23 %: applicable to entities with net turnover below 1 million euros in the prior tax period. This benefits the vast majority of small and medium-sized companies, including law firms incorporated as S.L.

Special rates also exist: 15 % for newly created entities (first period with a positive base and the following one), 10 % for non-profit entities under Law 49/2002, and 1 % for SICAVs and investment funds.

Taxable Base: From Accounting Profit to Tax Profit

The IS taxable base starts from the accounting result (profit or loss under the General Accounting Plan) and is adjusted through extra-accounting corrections.

Positive adjustments (increase the base)

• Expenses recorded in accounts that are not tax-deductible: fines and penalties, donations (except those under Law 49/2002), expenses from transactions with related parties exceeding market value.
• Article 15 of Law 27/2014 (LIS) expressly lists non-deductible expenses, including remuneration of equity, the company's own IS, and expenses from actions contrary to the legal system.

Negative adjustments (decrease the base)

• Tax-exempt accounting income: dividends from subsidiaries with significant participation (double-taxation exemption, Art. 21 LIS).
• Accelerated or free depreciation for certain assets.

Deductions: R&D and Job Creation

The LIS provides tax incentives relevant to firms that invest in technology or expand their workforce:

• R&D&I deduction: from 25 % to 42 % of expenditure on research, development, and technological innovation. For firms developing proprietary legaltech tools, this deduction can be significant.
• Job creation deduction: 3,000 euros for the first worker under 30 hired on a permanent contract. An additional 50 % deduction on the unemployment benefit the worker would otherwise have received.

Fractional Payments: Form 202

Companies make three fractional payments on account of IS during the fiscal year, using Form 202:

• Deadlines: April 1-20, October 1-20, and December 1-20.
• Two calculation methods exist: based on the full tax liability from the last IS filed (18 % of the liability), or based on the taxable base for the current period (variable percentage depending on the tax rate).
• Entities with net turnover above 6 million euros must use the second method.

Link to Accounting

IS is closely tied to accounting. The taxable base starts from the accounting result, so rigorous bookkeeping is not optional: it is a tax requirement. Accounting errors can create tax contingencies during an inspection. A law firm must ensure its accounts accurately reflect fee income, provisions for bad debts, and deductible expenses, paying special attention to the accrual of fees received in advance.