When you set up a Spanish Limited Company (Sociedad Limitada, or SL) from scratch, the law gives you a tax break precisely when you need it most. Article 29.1 of the Corporate Tax Law lets newly-created companies pay 15% -instead of the standard 25%- in the first tax period with a positive taxable base, and the following one. In other words, it doesn’t apply automatically from incorporation, but from the point the company starts turning a profit, and it holds for that year and the next.
For a company just getting off the ground, this can make a real difference to the cash available to reinvest at exactly the moment it’s needed most: in the early years, while the business is still finding its feet.
The requirements you need to meet to keep the benefit
Not every newly-created company qualifies automatically. The law requires the entity to carry out a genuine economic activity – so-called “sociedades patrimoniales” under Article 5.2 of the Corporate Tax Law (companies whose assets are mostly unrelated to any business activity) are excluded. There are also three situations that block the reduced rate, and they’re worth keeping firmly in mind before incorporating:
First, if the activity the new company will carry out was already being run by a related entity and simply gets transferred over. Second, if a shareholder holding, directly or indirectly, more than 50% was already carrying out that same activity individually in the year before incorporation. Third, if the company becomes part of a corporate group under Article 42 of the Commercial Code, regardless of tax residency. In any of these three cases, the company pays the standard rate from day one.
What this means for your project
If you’re thinking about starting a business – whether a brand-new venture or moving from sole trader to a company – it’s worth checking from the outset whether your case fits the reduced rate, because the order things happen in matters: incorporating before you start invoicing, avoiding simply transferring an existing activity, and structuring shareholdings properly are all decisions that can determine whether you access this benefit.
At EBF we help structure the incorporation from day one so the project starts off correctly positioned for tax purposes, rather than fixing it afterwards. If you’re considering setting up your Spanish Limited Company, let’s talk before you take the first step.