Small vs Large Company in Spain. Tax and Mercantile

Paul Urrutia SubinasPartner, LEIALTA

Taxation for large companies pay in Spain

A company is an entity with an independent corporation type that carries out economic activities (for example, a limited liability company that sells real estate). The business activity is the sale of products or services.

In order to decide which size category each company fits into, three criteria are taken into consideration: the number of employees, the annual turnover and the annual balance sheet totals. Commission Regulation (EU) No 651/2014 of 17 June 2014 defines the different types of enterprises as follows:

 MEDIUM-SIZED ENTERPRISES

    • Employ less than 250 persons
    • Annual turnover not exceeding EUR 50 million.
    • Annual balance sheet total not exceeding EUR 43 million

 SMALL ENTERPRISES

    • Employ less than 50 persons
    • Annual turnover not exceeding EUR 10 million
    • Annual balance sheet not exceeding EUR 10 million.

MICROENTERPRISES

    • Employ less than 10 persons
    • Annual turnover not exceeding EUR 2 million
    • Annual balance sheet not exceeding EUR 2 million

Therefore, large enterprises are those that meet the following criteria:

    • Employ more than 250 persons
    • Annual turnover above EUR 50 million
    • Annual balance sheet above EUR 43 million

In order for a company to move from one size category to another, it must meet the figures described in the category it wishes to move into for two consecutive years.

Advantages of large enterprises and SMEs

The size of the enterprise provides certain advantages, such as:

  • SMEs

    • The ease in which decisions can be made. Their structure is small and therefore decision-making is easier.
    • Customer confidence. Smaller companies have a closer relationship with customers, which leads to greater trust.
    • Adapting to change. Reacting to market fluctuations is quicker in SMEs.

  • Large enterprises

    • Talent acquisition. Large enterprises have more resources and thus can attract high quality talent.
    • Obtaining financing. Large enterprises have greater capital which allows them to access financial backing with greater ease and under better conditions (terms and interests, for example).
    • Accessing technology. Having bigger resources allows them to access cutting edge technology and, thus, move forwards in the market.

What corporate taxes apply?

One of the most important aspects of running a business is paying taxes. The differences between large enterprises and SMEs when it comes to taxation are as follows:

Large enterprise taxation

  • Tax returns such as VAT and withholding taxes, among others, are issued on a monthly rather than a quarterly basis.
  • Corporate Income tax is regulated in accordance with article 40.3 of the corresponding law (Impuesto sobre Sociedades) which states that it is calculated using up-to-date results.
  • The largest enterprises should use the online Immediate Supply of Information (SII) system provided by the Treasury. This is an electronic accounting system for VAT.

SME taxation

  • VAT and Income tax self-assessment forms are submitted on a quarterly basis.
  • The Immediate Supply of Information (SII) system is available for use by SMEs but is not obligatory.

Other differences with regards to corporate taxation in accordance with size category are the following:

  • Summary Annual Reports. In order to file abbreviated annual reports, the enterprise must meet the following standards during two consecutive tax periods:
    • that total amount of assets on the balance sheet not exceeding EUR 4 million
    • that total net turnover does not exceed EUR 8 million.
    • that the average number of persons employed in the tax period is no greater than 50.
  • Tax incentives.  Smaller enterprises are entitled to tax incentives, specifically in relation to Corporate Income Tax. Smaller enterprises are those that do not exceed EUR 10 million in turnover

It is clear that the size of the enterprise has important implications in many areas, especially in relation to corporate taxation. That is why receiving specialised advice from Spanish business advisors is recommended, so as to learn the pros and cons of each size category and the corresponding requirements.

Leialta website: https://www.leialta.com/en/

Blog for doing business in Spain: https://www.leialta.com/en/blog-for-doing-business-in-spain/

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