Taxation of my SME: tax liabilities and deductions

What is VAT and how is it applied?

VAT is the main indirect tax in our tax system. Its purpose is to tax the consumption of goods and the provision of services. For those who are considered entrepreneurs for VAT purposes, in principle this is a neutral tax, since they transfer and bear it but can deduct it. The consumer, on the other hand, can never make a deduction and therefore effectively endures it.

What tax deductions are available to SMEs?

Companies can reduce their tax burden through Corporation Tax deductions, for example by investing in R&D, employing disabled staff, purchasing electric vehicles or donating to non-profit organisations.

Additionally, all entrepreneurs and professionals (whether they are SMEs or not) can deduct this amount when they purchase goods or services subject to VAT in connection with their activities.

How can I reduce my tax burden?

Apart from exceptions or special regimes, entrepreneurs and professionals can deduct the VAT they incur due to their activities.

In addition, as of 2023, companies with a turnover of less than one million Euros and engaged in economic activity will be entitled to a 23% rate, two points lower than the anticipated 25%.

On the other hand, since the end of 2022, the “Startup Law” has been in force for emerging or newly established companies with a technological and innovative basis. Among other benefits, the legislation provides for deferral of taxes for the first years with rates of 15% or without guarantee.

What should I do if I receive a letter from the tax office?

“It is often important to answer this question, although it depends on the type of writing received,” explains Carmen Jover. In case of a legal entity, the notification will be made electronically and the notification will be deemed to have been made after ten days. That is why Jover recommends entering the Tax Office’s telematic mailbox every ten days. If you are a natural person and electronic notice has not been requested, we will receive a paper letter that can be answered in person or electronically. If in doubt, you can always contact the Tax Office offices or an expert for advice.

Do I need to declare the support and aid I receive to the Treasury?

In principle, yes, but there are also some benefits that the law deems tax-free, such as the benefits that La Palma island residents receive due to a volcano eruption. In the purely business field, there may be special assistance, for example, for repairing the office facade. Carmen Jover recommends examining the Companies or Revenue Code because, although this is normal from a tax perspective, there may be certain situations where the benefit in question is exempt. For example, she gives special exemptions in connection with a social or health-related business enterprise.

What are the most common tax mistakes?

Submit the draft Income Tax Return without checking it. Carmen Jover warns that if you are a businessman, you need to check that income and expenses are well declared, that is, expenses are directly related to the activities carried out. A classic mistake is cutting back on gas or buying a vehicle. In the case of SMEs, Jover reminds that “the expense is linked to the activity, route book, mileage etc. and it will be necessary to justify very well that this is appropriate.” Be careful, because if it is not deductible and you fall under a Treasury investigation, you will have to refund the deducted amount and pay a penalty of approximately 40% of the mistakenly deducted amount. If you have any doubts it is better to consult the Tax Office or a registered professional.

Is there a book or guide that will facilitate the organization and management of all these tax procedures?

Carmen Jover, President of the Tax Commission of the College of Economists of Catalonia, reminds that the Tax Office publishes fairly complete and free guides on the main taxes. They can be consulted free of charge at: https://sede.agenciatributaria.gob.es/Sede/manuales-practicos.html