Understanding Corporate Income Tax: Key Concepts and Management
Understanding Corporate Income Tax
Corporate income tax is determined primarily by the direct estimation method when prescribed by law, and secondarily by indirect estimation.
In the direct estimation method, the taxable amount is calculated by correcting the accounting profit.
In the objective assessment method, the taxable amount can be determined using signs, indices, or modules specific to the sectors of activity as defined by tax law.
Tax Period and Tax Accruals
The tax period typically coincides with the entity’s fiscal year, not exceeding twelve months.
For financial entities with fiscal years exceeding twelve months, the tax period for corporate income tax purposes must not exceed those months. These entities must separate their financial year for tax purposes to accurately file their corporate income tax declaration.
In some situations, the tax period may be shorter than the fiscal year, such as when a company starts its business during the year and its fiscal year matches the calendar year.
The establishment of this tax occurs on the last day of the tax period, i.e., the last day of the company or entity’s year.
Corporate Income Tax Management
Statement
Taxable persons are obliged to file a return for this tax within 25 days to 6 months after the conclusion of the tax period, which generally coincides with the calendar year.
The taxable amount of this tax is based on the company’s profit, calculated from the accounts maintained by the company.
The Corporations Act requires that within 6 months from the end of the financial year, members meet in a General Meeting to approve the company’s accounts. These accounts are considered final upon adoption.
Therefore, there is no single deadline; it depends on when the company or organization closes its financial year.
Depreciation According to Digits
Buildings, furniture, and fixtures cannot be amortized for tax purposes using this method.
Corporate Income Tax Basics
Legal entities are required to file a corporate income tax declaration and pay the tax levied on profits or income earned.
A legal person demonstrates their economic capacity by obtaining income, and is therefore required to contribute to public expenditure through corporate income tax.
Nature and Scope
Corporate income tax is a direct levy on all income received by a legal person. It is personal in nature, taking into account the specific circumstances of each taxpayer when determining tax liability.
Taxable Event
The taxable event consists of obtaining income, regardless of its source or origin, by any entity subject to this tax.
Taxpayers
All entities with legal personality are subject to corporation tax, regardless of their form or designation. This includes corporations, limited liability companies, state societies, cooperatives, associations, and foundations. Some entities without legal personality, such as investment funds, temporary mergers of companies, and pension funds, are also taxpayers.
If any of these requirements are met, the entity is considered a resident in Spanish territory and must contribute personal liability, regardless of where the income was produced.
Exemptions
Exemptions include the State, autonomous regions and local authorities, the Bank of Spain, investment guarantee funds, and public agencies responsible for managing Social Security.
Some entities that are partially exempt from this tax include non-profit entities and institutions, professional associations, chambers of commerce, labor unions, and political parties.
Taxable Income
Taxable income consists of the amount of income earned in the tax period, reduced where appropriate by the compensation of tax losses from previous periods.