Good news if you plan to set up your activities in Spain: corporate taxation is generally lighter there than in France! However, to benefit from this relatively favorable tax system, you need to understand how it works.
At first glance, the French and Spanish tax regimes may seem similar, but there are notable differences. It is essential to know these differences and take them into account when establishing your business as well as in daily management. Iter Advisors helps you assess this in this article.
Corporate taxation: what are the differences between France and Spain?
Corporate tax
In France, the corporate tax is based on a fixed rate of 25%. In Spain, the Impuesto de Sociedades (IS) is calculated based on tiers and ranges from 15% to 30% depending on the company’s turnover:
| New companies | 15% for the first two years |
| Annual turnover < 5 million euros | 20% on the first 300,000€ then 25% |
| Annual turnover < 10 million euros | 25% on the first 300,000€ then 30% |
| Annual turnover > 10 million euros | 30% |
Companies established after January 1, 2013, can apply a reduced tax rate of 15% on taxable income from €0 to €300,000 and 20% on the remaining amount. There are also some exceptions; for example, registered public utility associations are taxed at a rate of 10%.
Training tax
This does not exist in Spain.
Professional tax
Similarly, this does not exist in Spain.
Annual flat rate tax
Likewise, this does not exist in Spain.
VAT
The Impuesto sobre el Valor Añadido (IVA), the equivalent of VAT in Spain, is governed by three types of rates:
| General VAT rate: 21% | Almost all products and services |
| Reduced VAT rate: 10% | Certain goods and services such as health, entertainment or sports products, catering, housing construction, etc. |
| Super-reduced VAT rate: 4% | Essential goods, such as basic foodstuffs, medicines or other medical products |
We observe that the general rate of 21% is slightly higher than the general rate in France, which stands at 20%, but remains below the European average of 21.13%.
Social security contributions
In Spain, social security contributions are calculated at about 36% of the employee’s gross salary, according to the following scale:
| Category | Employer | Employee | Total |
|---|---|---|---|
| General Contribution | 23.60% | 4.70% | 28.30% |
| Unemployment: CDI | 5.50% | 1.55% | 7.05% |
| Unemployment: CDD | 6.70% | 1.60% | 8.30% |
| Work Accidents and Occupational Diseases | Determined according to a rate set by the government, considering the risk associated with each activity | ||
| Salary Guarantee Fund (FOGASA) | 0.20% | – | 0.20% |
| Professional Training | 0.60% | 0.10% | 0.70% |
For a permanent contract, employee social contributions are 6.35% and employer social contributions are 29.90%. In France, employee contributions are much higher, ranging from 21% to 23% of gross salary, and employer contributions range from 25% to 42% of gross salary.
Tax on economic activities
In Spain, companies are subject to the Impuesto sobre Actividades Económicas (IAE), a tax managed by municipal councils. The rates vary depending on the municipality, as well as the activity performed or the number of employees. Only companies that bill more than one million euros are liable for this tax, and all companies are exempt during the first two years.
What about tax deductions and tax credits for businesses?
In Spain, as in France, certain investments or expenses qualify for tax credits and deductions. For example: investments in R&D, Patent Box, investment for technological innovations, film productions, audiovisual series, and certain performances, job creation, and job creation for disabled individuals.
It is worth noting that the Spanish government is working on a new regulation, the “Startup Law,” aimed at fostering innovation and entrepreneurship within its territory. Specific tax advantages for start-ups, investors, and employees should emerge by the end of 2022, particularly concerning stock option benefits.
Individual taxation in spain: basic principles of income tax
The Impuesto de la Renta sobre las Personas FÃsicas (IRPF), equivalent to income tax, is withheld at the source by the employer. Workers must also file an annual tax return to adjust the amount paid if necessary. The calculation is done in brackets, and deductions apply. Here’s a comparison of the scales used in France and Spain:
| France – Tranches | France – Taux d’imposition | Espagne – Tranches | Espagne – Taux d’imposition |
|---|---|---|---|
| Up to 10 225€ | 0% | De 0 à 12 450€ | 19% |
| From 10 226 € to 26 070€ | 11% | From 12 451€ to 20 200€ | 24% |
| From 26 071 € to 74 545€ | 30% | From 20 201€ to 34 000€ | 30% |
| From 74 546€ to 160 336€ | 41% | From 34 001€ to 60 000€ | 37% |
| Over de 160 336€ | 45% | From 60 001€ to 300 000€ | 45% |
| – | – | Over de 300 000€ | 47% |
There is also a specific tax regime for foreigners moving to work in Spain: the Beckham Law. This very advantageous scheme allows expatriates to pay a fixed income tax rate of 24% on their Spanish income for the first five years, starting from a certain income threshold.
Conclusion
The French and Spanish tax systems share many common principles, but Spanish taxation is somewhat more flexible than French taxation. Most importantly, the two systems almost systematically differ in terms of applied rates and calculation methods. Do not overlook these differences, and when making decisions, seek support from administrative and financial experts!