Corporate Income Tax Notes
Main features of CIT
CIT → tax on legal entities' income (vs. PIT: individuals' income).
Applies to legal entities: companies, NGOs, etc.
Direct, personal tax on profits of tax-resident entities.
Generally taxes worldwide income.
Flat rates (e.g., Spain: 25%).
Lower rates:
New entities w/ business activity: 15%
Non-profits: 10%
Capital investment companies: 1%
Higher rates: credit institutions/banks (30%).
Ruled at domestic level; tax treaties cover international issues (e.g., residency, double taxation, profits, establishments).
Trend: harmonize CIT systems → avoid base erosion, profit shifting, minimize loopholes.
EU Directive “Pillar Two”: minimum global 15% CIT rate.
Spain: minimum corporate tax rule → 15% of taxable income (for entities w/ net turnover ≥ EUR 20M or under tax consolidation).
Credit institutions/banks: 18%.
Tax residence of companies
Key → determines CIT liability on worldwide income.
Spanish resident companies: tax on worldwide income.
Non-resident companies: tax only on Spanish-sourced income or income from permanent establishment in Spain.
Rules vary by country. In Spain:
Incorporated in Spain.
Registered office in Spain.
Place of effective management in Spain.
Place where central management and control of company takes place.
Taxable base
Definition: amount of income subject to tax, after deductions and exemptions (difference between assets, rights, and liabilities at start and end of period).
Starting point: accounting profit under accounting rules.
Then, several adjustments to align accounting income with tax law (permanent and temporary differences).
Common adjustments:
Depreciation:
Accounting: reflects asset wear and tear.
Tax: uses depreciation tables (maximum amounts, linear/declining-balance).
Provisions:
Accounting: for future expenses/liabilities.
Tax: deductible when expense occurs (fulfills accrual principle).
Valuation differences:
Accounting: reflect market value changes.
Tax: recognized upon asset transfer.
Tax incentives: encourage specific activities (R&D, training, etc.).
Increase taxable base (reverse effect, add back into taxable income).
Tax rate and tax liability
General tax rate in Spain: 25%.
Taxable base * tax rate = gross tax liability.
Gross tax liability - tax credits = net tax liability.
Tax credits: reduce tax liability (e.g., double taxation, investments).
Tax period and payment
Tax period: usually calendar year.
Payment:
File CIT return within 6 months and 25 days after tax period end.
E.g., December 31, 2023 →