Tax incentive schemes in Spain for R&D&I
According to the OECD, Spain is one of the most willing countries to promote RDI activities. Through Spain’s approach, the country gets to attract international companies and promote a favourable business environment. Spain maintains the corporate tax (impuesto de sociedades) rate at 23% for small and medium enterprises. That means it is possible to reduce the effective tax rate to approximately 20% through a series of specific incentives and tax exemptions.
Spain has some tax incentives to promote foreign investment and entrepreneurship. About tax incentives for RDI, foreign companies can benefit from:
– Up to 42% corporate income tax credit for RDI activities.
– In case of insufficient income tax liability, Spanish regulations allow unused tax credits to be carried forward to RDI investments.
– Spain has one of the most advantageous patent box regimes in the EU. Up favourable to a 60% exemption of net income resulting from the use of certain intangible assets transferred or licensed to another entity.
– There are a large number of aid and incentive programs from Spanish and European administrations, with an emphasis on research, development and technology and innovation (RDTI).
The Spanish and European administrations offer numerous aid and incentive programmes, with a particular emphasis on research, development, technology and innovation (R&D&I). These initiatives are aimed at stimulating investment in cutting-edge industries and promoting economic growth. Spain’s tax system is designed to attract international business and investment.
International companies benefit from favourable tax adjustments due to 94 double tax treaties in force on five continents. Also, the ‘participation exemption’ scheme exempts 95% tax on dividends and capital gains of non-resident subsidiaries in Spain. The special tax regime for holding companies (Empresas de Tenencia Españolas – ETVE) allows dividends and capital gains on shares of subsidiaries to obtain a 95% tax exemption.
Companies with large corporate income quotas can reduce this corporate income tax by up to 50%. If a company generates a deduction for R&D&I that it cannot apply due to insufficient or non-existent quota, it has the possibility of accumulating it and applying it for 18 years, and it also has the option of applying to the tax authorities for its payment or monetisation (Art. 39.2 LIS).
This option allows -with a 20% discount- to request the tax authorities to make the tax deduction effective, as it reduces the corporate income tax liability up to 100% and receives the remaining part as a credit.
The deduction is different depending on the classification of the project. If it is classified as Research and Development, the deduction will be between 42% and 25% of the R&D expenditure, with two additional deductions: 17% of the cost of qualified researchers dedicated exclusively to R&D, and 8% of investments in assets dedicated exclusively to R&D. In the first year, the deduction generated can therefore be more than 59% of the R&D expenditure. If the project receives technological innovation tax qualification, the deduction will be 12% of the expenditure incurred on these activities.
There is also the possibility of transferring the right to these deductions to third parties in exchange for a certain return, through operations known as Tax Lease (or Mecenazgo Tecnológico). These operations consist of carrying out the R&D&I project on behalf of an Economic Interest Grouping (EIG), thereby transferring the right to the tax deduction to third parties (investors) who finance part of the project in exchange for obtaining a financial-tax return, as the difference between their contribution to the project and the tax savings derived from the tax losses and the R&D&I deductions applicable to them in proportion to their participation in the EIG. The ownership of the project subsequently reverts to its executor, by means of a repurchase agreement.
The Patent Box (Art. 23 LIS), mentioned above, promotes the assignment or transfer to third parties (in this case, except between related entities) of the right to use and exploit certain Intangible Assets (IA) derived from R&D&I projects. It allows a reduction in the corporate income tax base of up to 60% of the income obtained in these licensing or transfer operations. The intangible assets on which this reduction can be applied to the corporate income taxable base are: patents, utility models, complementary protection certificates for medicines and phytosanitary products, legally protected designs and models deriving from research and development and technological innovation activities, and advanced registered software deriving from research and development activities.
