The general corporate income tax rate is 25%, but if certain requirements are met, the reduced rate can be applied in newly created entities, according to Article 29.1 of Law 27/2014.

Requirements to apply the reduced rate for new creation

Article 29 of the Corporate Income Tax is not very strict when it comes to setting conditions to be able to apply this reduced rate, as it only establishes two requirements:

  • That the entity be newly created
  • It must carry out economic activities.

There is no requirement regarding a possible maximum turnover or a minimum number of employees, i.e. the company that is going to benefit from this incentive does not have to be considered a small company.

Newly created entities will have a reduced tax rate of 15% in the first tax period in which their taxable income is positive, and in the following one.

The reduced rate cannot be applied to newly created entities:

  • When the company has no activity or even if it has one it is considered to be a patrimonial company
  • If the economic activity of the company had already been previously carried out by other persons or related entities, and has been transferred, by any legal title, to the newly created entity
  • When the economic activity had been carried out during the year prior to the incorporation of the entity by an individual holding more than 50% of the capital of the company
  • In those that are part of a group, according to article 42 of the Code of Commerce, regardless of the residence.

Tax Incentives for Small Companies

Newly created entities will comply with the requirements established to be considered as small companies, which means that they can apply the tax incentives provided for in Chapter XI of the Corporate Income Tax Law.

What is a small-sized entity (ERD)?

Those whose net turnover in the immediately preceding tax period is less than 10 million euros. When the entity is newly created, the amount of the turnover will refer to the first tax period in which the activity is effectively developed. If the immediately preceding tax period has lasted less than one year, or the activity has been carried out for a shorter period, the net amount of the turnover will be increased to one year.

What are the tax advantages that they can take advantage of?

  • Freedom of depreciation of new tangible fixed assets and real estate investments with the requirement of job creation
  • Accelerated depreciation by multiplying by two the maximum depreciation coefficient according to the tax tables for new tangible fixed assets and real estate investments
  • Deduction of the expense allocated to credit impairment losses due to customer insolvencies
  • Allocation of the equalization reserve, which reduces the taxable income for the year by 10% of its amount.

If you have any questions about corporate income tax for newly created entities, do not hesitate to contact Arintass.

Ramón Sánchez

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