The aim of this report is to provide a summary of the legal requirements and benefits of the Spanish patent box. For this purpose, the fundamentals of the patent box will be discussed below, in addition to a brief outline of the conditions required for establishing a respective company in Spain.
The purpose of the patent box
The purpose of the so-called Spanish patent box is favourable tax treatment to income arising from certain types of intellectual property. In this case, only 40% of revenue is subject to taxation.
The aim of the patent box
The aim is to promote economic growth in Spain, the internationalization of the Spanish economy and to promote Spain as an attractive business location for innovative companies.
The patent box is a privileged form of investment for Spanish companies
The patent box is not a Spanish company form, but rather a privileged form of investment for Spanish companies. The usual form of company is the Public Liability Company (S.A. corresponds to a German AG) or the Limited Liability Company (S.R.L. or S.L. corresponds to a German GmbH).
Legal basis of the patent box
The legal basis is Article 23 of the Corporate Income Tax Law, such as that only 40% of the profits resulting from the use of intellectual property and, consequently, from granting licenses are subject to taxation. This is based however, on the grounds that the intellectual property is accounted for. If this is not the case, the tax on profits increases to 80%.
The following are understood as intellectual property in Article 23, Section 1 of the Corporate Income Tax Law: Patents, designs, models, plans, secret formulas or processes, knowledge relating to industrial, commercial or scientific experience.
For specified enterprises, included within this form of investment is not only income from licensing, but also from license sales.
However, Article 23 para.5 of the Corporate Income Tax Law covers revenue from the provision of intellectual property that is excluded from this privilege. Covered by this exemption are revenues derived from the assignment of rights to software. Before starting a business, a confirmation of the privileges of certain income to the tax authorities can be requested and therefore the classification of revenues is protected in the patent box.
Conditions for the use of the Spanish patent box
- The ceding company must have borne at least 25% of the cost in the creation of intellectual property
- The assignee, that is the company which is left with the intellectual property, must use the intellectual property for its own independent economic activity. The transfer may not be relied upon if the assignee generates goods or services due to the grant of use, which is later sold to the assignor
- The assignee may not originate from a country where there exists no taxation as such, which is regarded as a so-called Tax haven. An exception applies to European tax havens; to the extent a justified economic interest is given
- When additional benefits are determined in a licensing agreement, the compensation must also be determined
- The ceding company must have sufficient accounting records to prove the direct and indirect income derived from the intellectual property.
Tax privileges for the patent box
The advantage of the patent box is that the above mentioned revenue of the company is not subject to regular taxation in Spain. Thus, the company enjoys a significant tax exemption on a portion of their revenue, without the need for complicated corporate structures. As a result, rather than subjecting the regular 80% of revenue from intellectual property to the Spanish corporate tax, merely 40% of the revenue is subject to the tax.
Requirements for the establishment of a company in Spain
Exemption certificate with the Commercial Registry
Before establishing a company, it is necessary to apply for an exemption certificate for the proposed company name with the Spanish Commercial Registry. The partners/shareholders must sign the company’s establishment contract before a notary.
Tax identification number
After the establishment of the company, a tax identification number must be requested from the Spanish Tax Agency and the company should be registered in the Spanish Commercial Registry.
Spanish Social Security
In the event that the company employs workers, it is obliged to join the Spanish Social Security system.
Books and financial statements
The company is obliged to keep records. The record books must include the revenues which are supplied to the patent box. The financial statements must be approved by the shareholder or shareholders’ meeting and be deposited in the Commercial Registry.
Partners and shareholders
Shareholders in the company can be both domestic and foreign individuals and legal entities. This may also include a single shareholder or sole proprietor. A legal limit on members or shareholders does not exist.
Management of the company
A Spanish holding company can be managed both as a single agent or with multiple representatives in individual or collective power in addition to a Management Board. For practical reasons, we advise that the manager or managers be established in Spain or that a power of attorney granting the necessary administrative powers be issued to a resident of Spain.
The minimum deposit required for establishing a S.L. is 3,000€ and for the establishment of an S.A. €60,000.
Conclusion: the patent box is an attractive form of investment for Spanish companies
The patent box is thus an attractive form of investment for Spanish companies that generate revenues based on intellectual property.
Through the reduced use of profit taxation, the tax burden can be reduced considerably, without which a major expense would have to be carried out.
Alexander Rames & Karl H. Lincke
This article is not considered as legal advice