Effects of the next fiscal Reform in Spain

On 20 June 2014, the Council of Ministers passed the Preliminary Law on Fiscal Reform aimed at improving business competition which will affect both self-employed workers and businesses.

Tax on companies (TC)

To bring the effective tax rates closer to the nominal rate, the general tax rate was lowered from 30% to 28% in 2015 and to 25% in 2016 (the current tax rate for small and medium businesses) with the resulting profit for businesses. On the other hand, the number of deductions is reduced, apart from those of I +D + i.

New measures are also incorporated that will permit small and medium businesses to create:

  • A levelling reserve, or reserve for future losses, on the five following tax periods, with a limit of one million euros and a 10% deduction of the taxable base. The tax on small and medium businesses that make up this reserve will be 22,5% instead of 25%.
  • A reserve of capitalisation that consists of affecting up to 10% of the profits of business capital to reduce the financial leverage and improve their capacity for auto financing. In this case, a deduction of 10% of the taxable base will also be applied.

The tax rate of small and medium businesses that constitute both reserves will be reduced to 20,25%. The objective of this measure is not so much the fiscal advantage but encouraging a business’s healthy management of financial resources.

Newly created companies will continue paying taxes of 15% on the first 300,000 euros and 20% on the remaining taxable base for the first year. This measure is extended to the second year.

Tax on the Income of Individuals (TII)

The tax on freelancers goes down from 21% to 19%. Incomes less than 12.000 will be taxed at a rate of 15% from July 2014.

Additionally, the reduction of 5% for expenditures that are difficult to substantiate is substituted for a maximum limit of 2.000 euros. Although the lowering of the tax rates favours freelancers, the effects of the modification of the deduction of expenditures that are difficult to substantiate will depend on the level of income of the freelancer.


It is worth pointing out that the units of the sectors that sell directly to the public (hotels and restaurateurs, farmers and cattle breeders, etc.) are limited.

Moreover, the law modifies the principle of territoriality of the VAT regarding e-commerce (electronic services, telecommunications and radio-television). The tax will be based on where the customer is located and not where the borrowing business is established.

Finally, we wish to underline that the Tax Agency will create and publish a list of delinquents with debts greater than one million euros.

For additional information regarding the fiscal reform in Spain,

Please note that this article is not intended to provide legal advice.

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