New Corporate Income Tax Rates from 2025

1. Introduction: a progressive tax cut for companies

Ley 7/2024, de 20 de diciembre (Law 7/2024 of 20 December), amended Ley 27/2014, de 27 de noviembre, del Impuesto sobre Sociedades (Corporate Income Tax Act, LIS), introducing a progressive reduction of the tax rates that will start to apply to tax periods beginning on or after 1 January 2025.

This measure is implemented through the Forty-Fourth Transitional Provision (DT 44), which governs the transitional regime for 2025 and 2026, and will culminate in 2029 with the full application of article 29.1 of the LIS, which sets out the definitive rates.

The aim is to align the tax with the real economic capacity of companies, improve the liquidity of SMEs and encourage productive reinvestment.

2. Applicable tax rates under the new rules

The new tax rates apply according to turnover and the bracket of the taxable base. A distinction is made between micro-enterprises (net turnover of less than €1 million), small-sized companies (empresas de reducida dimensión, ERD) (net turnover of less than €10 million) and all other entities.

Under article 42 of the Código de Comercio (Commercial Code), where an entity forms part of a commercial group, the turnover limits are determined on a consolidated basis.

The reduced rates do not apply to asset-holding entities (entidades patrimoniales), in accordance with article 5.2 of the LIS, nor to those lacking an effective economic activity.

3. Rationale and scope of the reform

Article 29 of the LIS sets up a progressive tax system that distinguishes between brackets of taxable base, allowing the first profits to be taxed at a lower rate. This design reflects the principle of ability to pay (article 31 of the Spanish Constitution) and seeks to strengthen the competitiveness of small companies.

With Law 7/2024, the legislator consolidates a taxation model adapted to business realities, with a clear timetable for rate reductions between 2025 and 2029.

At regional level, the Reserva para Inversiones en las Illes Balears (Balearic Investment Reserve, RIB), introduced by Ley 31/2022, de 23 de diciembre, de Presupuestos Generales del Estado para el año 2023 (Law 31/2022 of 23 December on the 2023 General State Budget), reinforces this environment of lower taxation.

4. The Balearic tax regime: a strategic complement

The RIB is already part of the tax strategy we apply with many of our clients, as a key instrument to reduce the tax burden and channel productive reinvestment into the local economy. The RIB allows the taxable base of Corporate Income Tax or Personal Income Tax (IRPF) to be reduced by up to 90% of undistributed profits, provided they are allocated to productive investments made in the archipelago.

These investments may consist of:

• The acquisition or improvement of new fixed assets used in the business activity.

• Innovation, digitalisation or energy-efficiency projects.

• Job creation or the expansion of facilities.

• Investments in the ecological transition and business modernisation.

The reserve must be set up out of accounting profit and be materialised within a maximum of three years, and maintained for at least five years. There are also a number of commercial-law and accounting requirements that must be met.

Its compatibility with the reduced Corporate Income Tax rates makes the Balearic Islands one of the territories with the lowest effective taxation in Spain, encouraging companies that reinvest their profits in the archipelago.

5. Other complementary tax incentives

In addition to the RIB, there are numerous State mechanisms provided for in the Corporate Income Tax Act that can be combined to reduce companies’ effective tax burden.

For example:

• The capitalisation reserve (art. 25 LIS), which encourages the reinvestment of profits by strengthening equity.

• The levelling reserve (art. 105 LIS), applicable to small-sized companies to offset future negative taxable bases.

• Deductions for investments in sustainability, innovation or R&D&I (arts. 35 et seq. LIS), which directly reduce the gross tax liability.

However, the suitability of each instrument depends on the company’s profile, its economic activity, the planned level of investment and its asset and financial structure.

Proper tax planning makes it possible to combine these instruments and achieve an effective tax burden significantly lower than the nominal rate.

6. Conclusion: a favourable tax environment that requires planning

The new Corporate Income Tax rates and the Balearic tax regime make up a favourable tax landscape for companies with real economic activity in the Balearic Islands. The combination of the reduced State rates and the regional RIB allows for a sound, lawful and sustainable tax optimisation, especially in the industrial, tourism and services sectors.

At Vicens Advisors, we design a tailor-made tax strategy with our clients, applying the RIB and the various tax incentives in a coordinated way to maximise savings and strengthen business competitiveness.

Author: Virginia Vicens Monserrat, Partner at Vicens Advisors

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