Contents
- Analysis of tax legislation for 2025
- What are the methods of tax optimization?
- From Theory to Practice: A Successful Tax Optimization Case
Spain's tax system has always been essential for entrepreneurs who aim to manage their finances efficiently and minimize their tax burden legally. This year, potential changes to tax legislation are being actively discussed, which could create new opportunities for small and medium-sized businesses. This article will explore how the proposed changes might affect corporate income tax and share accessible and, most importantly, legal tools for tax optimization.
Analysis of tax legislation for 2025
As mentioned earlier, the proposed tax reform in Spain for 2025 could significantly change the tax burden for small and medium-sized enterprises. Among the potential innovations are reduced corporate tax rates for micro and small businesses and other tax incentives.
For micro-enterprises with an annual turnover of less than €1 million, the corporate tax rate will be reduced to 21% for the first €50,000 of income. Beyond this amount, a 22% rate will apply. This rate will gradually decrease over the next three years until it reaches 17% for the first €50,000 of income and 20% for turnover in 2027.
Small and medium-sized enterprises with a turnover between €1 million and €10 million will also benefit from reduced corporate tax rates, decreasing from 24% in 2025 to 20% by 2029.
It is important to note that if the corporate tax rate is reduced in 2025, companies will not be able to feel the effects of this change until 2026 when they file their current year's tax return.
Currently, these potential changes in Spain's tax system are still under discussion, and no decisions have been made yet. We will monitor the situation and keep you updated with new developments.
What are the methods of tax optimization?
Tax optimization and planning are the processes of choosing the most efficient taxation methods for a business to reduce tax liabilities and improve the company's financial stability. Below, we will review key aspects that will help you organize tax processes correctly, avoid unnecessary expenses, and manage tax obligations effectively while ensuring compliance with all legal requirements.
Choosing the Optimal Tax System
First, it's important to note that you can choose the tax payment method that benefits you the most based on your company's size, industry, income, and expenses. In Spain, there are several tax systems available for different types of businesses.
For example, suppose your company is a small business or a startup. In that case, you can opt for a simplified taxation system that reduces administrative costs and makes the tax filing process more manageable. This system allows you to pay a single fixed tax on income or the difference between income and expenses instead of multiple taxes (such as VAT, income tax, or property tax).
If the business is growing, other options may be worth considering, such as those that allow for tax deductions or benefits for large companies. For example, if your company purchases goods or services with VAT, you can receive a VAT refund provided you pay VAT on your sales.
Tax Deductions and Deferrals for Capital Investments
Depreciation is an important element of tax planning, as it allows for a reduction in taxable profit. When a company buys something expensive—such as equipment or a vehicle for the business—it doesn't have to deduct the entire purchase amount immediately. Still, it can "spread" over several years.
Typically, depreciation allows for the deduction of part of the purchase cost each year, reducing taxable profit and lowering taxes. Accelerated depreciation is also possible, where the company can deduct a significant portion of the purchase cost in the first few years. This means that if you purchase expensive equipment, you can reduce taxes much more in the first few years than depreciating it evenly over a long period.
This benefits businesses that are actively growing and investing in equipment or other long-term assets. For example, if you purchase equipment for €100,000, instead of deducting €20,000 each year, accelerated depreciation allows you to deduct €50,000 in the first year, with the remaining amount deducted in subsequent years. This significantly reduces taxes in the first year and helps recover costs more quickly.
Transfer Pricing
Transfer pricing is the process of setting prices for goods or services transferred between different divisions of the same company in various countries or jurisdictions.
For instance, if one company division is in a high-tax country and another is in a low-tax country, prices can be set so that most of the profit is allocated to the "tax-advantageous" country. This approach can reduce the group's overall tax burden.
There is strict control over the proper setting of transfer prices in Spain. Suppose tax authorities find that a company is using improper pricing (such as inflating or deflating the prices for goods or services between divisions). In that case, it may lead to additional tax assessments, fines, and increased tax liabilities.
Therefore, the price for these transfers must align with the market value, i.e., the price at which similar goods or services are sold to external customers in the market.
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Investments in Research and Development (R&D)
Spain actively supports companies that invest in research and development. If your business is engaged in innovative activities, you can reduce your taxable income by deducting R&D expenses.
However, it is crucial to classify these expenses and maintain supporting documentation properly. This is especially beneficial for startups and tech companies, as these deductions can significantly lower taxes in the early stages of business development.
We recommend consulting the tax experts at Laduchi Consult to maximize these benefits and avoid errors in tax calculations.
Utilizing International Structures
For companies operating internationally, corporate tax optimization can also involve using international structures, such as establishing subsidiaries in jurisdictions with lower tax rates. Leveraging double taxation treaties can further reduce the overall tax burden on global operations. However, caution is essential, as tax authorities closely monitor such strategies to prevent tax evasion.
Tax Planning at the Group Level
This type of optimization involves utilizing tax benefits at the group level rather than just for an individual company. For instance, if one company within the group incurs losses, these can be offset against the profits of other entities, thereby reducing the overall tax liability.
Additionally, various profit redistribution strategies within the group can help minimize taxable income in high-tax jurisdictions. However, this approach requires careful analysis and consultation with tax experts to mitigate risks and avoid scrutiny from regulatory authorities.
From Theory to Practice: A Successful Tax Optimization Case
Small business owners in Spain often face a high tax burden that can significantly limit their growth. This was the case for a barbershop owner who turned to the experts at Laduchi Consult. After thoroughly analyzing his business’s financial model and tax structure, specialists recommended restructuring by switching from an SL (Sociedad Limitada) to an Autónomo status and adopting the Módulo system. This change significantly reduced taxes and simplified accounting procedures.
Operating as an SL, the business owner was subject to a 25% corporate tax and a 21% VAT rate, which became particularly burdensome as revenues grew. For example, with an annual profit of €50,000, his tax liability amounted to approximately €12,500 in corporate tax alone, not including VAT.
Switching to Autónomo status and the Módulo system transformed the taxation approach. Instead of being taxed based on actual profits, taxes were calculated using fixed parameters such as the size of the premises and the number of employees. This reduced the tax burden to just 7% for the same income level—around €3,500 per year—resulting in a 72% reduction in taxes.
Additionally, simplified reporting and predictable tax payments allowed the business owner to focus on growing his business rather than spending time and resources on complex calculations and interactions with tax authorities.
Conclusion
Proper tax optimization is the key to business growth and development. However, using this tool promptly and within the legal framework is essential to avoid the risks of tax audits and penalties.
The experts at Laduchi Consult will help you structure your tax processes to minimize costs while ensuring full compliance with the law.
Contact us, and we will safeguard your business’s success and financial security.
Please note that all materials contained on this site have been prepared for informational purposes only. This data does not constitute or replace professional financial, legal or tax advice. The information is general in nature and does not take into account your personal circumstances. Always seek professional advice from officially licensed professionals: financial advisors, accountants and lawyers.
