Spain's 15% Reduced CIT Rate for Newly Incorporated Companies: Requirements and How to Claim It

The Standard CIT Rate in Spain and the Case for the Reduced Rate

The standard Corporate Income Tax (CIT) rate in Spain is 25% (Impuesto sobre Sociedades). For companies engaged in genuine economic activity, however, the Spanish CIT law provides a significantly more favourable rate of 15% for newly created entities — applicable during the first year in which the company generates a positive tax base, and the year immediately following.

For a growing real estate developer, tech startup, or family company that starts generating taxable profits in its early years, the difference between 25% and 15% can represent a very significant cash saving. Yet many companies either miss this benefit entirely or believe they have lost it by filing at the standard rate in their early years.

This guide explains who qualifies, what the conditions are, and — critically — whether you can still claim the reduced rate if you did not apply it originally.

Qualifying Conditions for the 15% Reduced CIT Rate

Spanish CIT regulations set out three cumulative conditions that must be met:

Condition 1: Newly Created Entity

The company must qualify as a newly created entity. This means it must not have been pre-existing under a different form, must not have been created as part of a restructuring of existing activities, and must not be part of a group of companies that was already carrying out the same or a related economic activity.

The "newly created" condition is the one most frequently disputed. The Spanish Tax Administration (STA) and the courts have developed case law indicating that this condition is not met when:

• The company is a spin-off or continuation of an activity previously carried out by a related party;
• The same shareholders previously operated an identical business through another entity;
• The company was acquired as a shell and then used to carry on an existing business.

However, a company genuinely initiated to pursue a new commercial activity — even if the shareholders had other business interests — can qualify. The STA has accepted cases where the company's activity is new in scope, market, or nature.

Condition 2: Genuine Economic Activity

The entity must carry out a genuine economic activity. Mere asset-holding entities — companies that simply hold shares, real estate, or financial assets without active management — do not qualify.

In practice, this condition is generally not contentious for companies with real employees or management activity, construction projects, active development, or trading operations. Passive holding vehicles (SICAVs, family holding companies without economic substance) will not qualify.

Condition 3: Activity Initiated Ex Novo

The economic activity must be initiated ex novo — that is, the company must not have been created to continue an activity that was previously carried out by another entity or by the same individual as a sole trader (autónomo).

This condition is particularly relevant when an individual changes their business structure — for example, transitioning from a sole trader to a company. If the company simply takes over the same clients, contracts, and activities that the individual was previously providing, the "ex novo" condition will not be met.

When Does the Reduced Rate Apply?

The 15% rate applies in:

• The first year in which the company obtains a positive tax base (i.e., makes a taxable profit). This is not necessarily the first year of incorporation — it is the first profitable year, which may come several years into the company's life.
• The immediately following year (regardless of whether that year is also profitable).

After these two years, the standard 25% rate applies from the third year onwards.

Can You Claim the Reduced Rate Retrospectively?

This is perhaps the most commercially important question: what happens if a company that qualified for the reduced rate filed its CIT returns at the standard 25% rate in its first profitable years? Can it go back and claim the 15% rate?

The answer, under Spanish law, is yes — subject to the limitation period.

This conclusion is grounded in the legal characterisation of the 15% rate. The CIT regulations state that "newly created companies... shall be taxed, in the first period in which it obtains a positive tax base and the following one, at 15%." The Spanish Supreme Court has held that a tax benefit is a tax option (which requires an explicit election and cannot be modified after filing) only when it is offered as an alternative between incompatible tax regimes and requires an explicit election by the taxpayer.

The reduced CIT rate does not meet this definition. It is expressed as a mandatory provision, not as an alternative to the standard rate — the law says the company "shall be taxed" at 15%, not that it may elect to be taxed at 15%. Accordingly, it is characterised as an unconditional right, not a tax option. This means the company can amend its prior CIT returns within the four-year general limitation period to apply the correct rate and claim a refund of the over-paid tax.

Case Study: A Spanish Real Estate Developer

To illustrate, consider a company incorporated in 2012 to develop residential villas in Mallorca. The company made substantial losses in its first years of activity (as construction activity ramped up) and first generated a positive tax base in 2018. From 2018 onwards, it filed CIT returns at the standard 25% rate.

In 2023, the company sought legal advice on its tax position and it was identified that the company had likely always qualified for the 15% reduced rate for its first two profitable years (2018 and 2019). Key considerations:

• Was it newly created? Yes — it was incorporated in 2012 for the purpose of this specific development project, not as a continuation of any prior activity.
• Was it engaged in economic activity? Yes — construction supervision, project management, and sales of properties were all active economic activities.
• Was the activity initiated ex novo? Yes — no equivalent activity had been conducted before by the shareholders or related parties through another entity.

Given that the 2018 and 2019 tax years were within the four-year limitation period for amendment in 2023, the company was able to file rectification requests (solicitudes de rectificación de autoliquidación) for those years and obtain a refund of the excess CIT paid — a meaningful sum given the taxable profits involved.

Planning Points

For advice on Spanish CIT, reduced rates, and corporate tax compliance, consult internationaltaxlegalspain.com.