If your company is a small or medium entity (SME) or a micro-business, it is important to note that the Corporation Tax rate will gradually decrease over the next few years. With the publication of Law 7/2024 on December 20, significant changes have been introduced in the taxation of small businesses, presenting a potential opportunity for savings.
Below, we provide an in-depth analysis of the new tax rates, how they affect small entities and micro-businesses, and the conditions required to benefit from these reductions, along with other key tax measures for companies.
Gradual Reduction of Corporation Tax Rates for Micro-Businesses and SMEs
One of the most prominent changes is the progressive reduction in Corporation Tax rates for micro-Businesses and SMEs:
- For Small and Medium-Sized Businesses (Revenue between €1 million and €10 million):
- 2025: Standard rate of 24%
- 2026: 23%
- 2027: 22%
- 2028: 21%
- 2029: 20%
- For Micro-Businesses (Revenue under €1 million):
- 2025: 21% on the first €50,000, 22% on the remaining taxable base
- 2026: 19% on the first €50,000, 21% on the remaining taxable base
- 2027: 17% on the first €50,000, 20% on the remaining taxable base
These tax reductions make the Spanish Corporation Tax system more competitive, especially for small and medium-sized businesses. The gradual decrease in rates will ease the fiscal burden on small companies, providing them with increased capacity to invest in growth and job creation.
Minimum Tax Rate for Large Businesses and Multinationals
To ensure that large corporations contribute their fair share to the public finances, a minimum tax rate of 15% has been introduced for multinational corporations. This applies to companies with annual revenues over €750 million and includes:
- Parent companies based in Spain
- Foreign subsidiaries of Spanish companies
- Spanish subsidiaries of foreign companies
Other Key Tax Measures
In addition to changes in Corporation Tax rates, the Spanish government has introduced several other important fiscal measures:
- Cooperatives: Taxed at 20% on profits in 2025, with a reduction to 12% for newly created cooperatives.
- Donations and Sponsorship: Businesses can reduce up to 40% of donations to NGOs (Non-Governmental Organizations) or foundations, limited to 15% of the taxable base. If the donation is repeated for two consecutive years, the deduction can rise to 45%.
- Client Entertainment: Expenses related to client entertainment (travel, meals, accommodations) will be deductible up to 1% of the company’s revenue.
- New businesses: New companies can continue to benefit from a reduced tax rate in their first year with positive revenue and in the following one.
Conclusion
The reforms to Corporation Tax present a significant opportunity for small and medium-sized companies to reduce their tax burden in the coming years. With progressively decreasing tax rates, these changes are designed to make the Spanish tax system not only more competitive but also more equitable for businesses.
It is crucial for businesses to stay informed about these updates and seek advice from tax professionals to ensure they fully benefit from the new tax regulations. By doing so, they can optimize their tax filings and minimize liabilities in the long run. At Spence Clarke, we will continue to keep you updated with all the latest developments.
