What counts as a deductible company expense in Spain

Key rules

• Core test: An expense counts only if it is in the accounts, documented, and linked to the company's activity and income.
• Vehicles: A car is deductible only if used exclusively for the business, apart from activities where the vehicle is central.
• Gifts: Gifts to customers or suppliers are deductible up to 1% of net turnover, and you must record who received each one.
• Director pay: Owner-director pay is deductible only if the bylaws provide for paid directors and state the pay system.
• Never deductible: Fines, penalties, corporate tax itself, gambling losses and dividends are never deductible.

The test every expense must pass

An expense reduces your company's corporate tax (Impuesto sobre Sociedades) only if it meets all of these conditions:

• It is recorded in the company's accounts.
• It is backed by an invoice or an equivalent document.
• It belongs to the right tax year, the year it was incurred, not necessarily the year you paid it.
• It is linked to the company's activity and to the income it earns.
• It is not on the list of expenses the law refuses.
• You can show the service or goods were real, for example with a contract, delivery note or emails.

Deals with related parties, such as a shareholder or another group company, must be valued at market price. A deal at an odd price can fail the test.

The documents and the checklist below show what to keep.

Expenses with limits

Some expenses are allowed, but only in part or only under strict conditions.

Vehicles

Vehicle costs are the expense the tax office challenges most. A vehicle is deductible for corporate tax only if you use it exclusively for the business, and the tax office reads "exclusively" strictly. Exceptions exist where the vehicle is central to the activity: sales representatives, passenger transport, driving schools, rental and security.

Some businesses claim a partial deduction when they can prove business use. That is accepted in many cases but is risky. Limits also apply to depreciation on cars.

For VAT, a vehicle used for business is presumed to be 50% business use. You can raise this to 100% with proof, for example in the exception cases above. Self-employed people follow separate income tax rules. Because "exclusive use" is judged case by case, get specific advice before claiming a car.

Client meals and entertainment

Restaurant and entertainment costs for customers are deductible if they are properly invoiced, linked to income, and you can show the business purpose. Disputes usually come down to that last point, so write it down at the time.

Gifts

Gifts to customers or suppliers are deductible up to 1% of the company's net turnover (importe neto de la cifra de negocios) for the year. Record each gift and who received it. For VAT, you cannot recover the input VAT on gifts above 50 euros per recipient per year.

Some gifts have no such cap: gifts to employees as pay in kind, properly documented business meals and events, and sales-promotion items such as samples.

Pay for an owner-director

Pay to a director who is also an owner is deductible only if it is legal and documented. In an SL or SA:

• The bylaws (estatutos) must say the post is paid and state the pay system. If the post is unpaid in the bylaws, no pay is deductible.
• If it is paid, the general meeting approves the maximum annual amount and the board sets each person's pay.
• A director with executive duties needs a contract approved by the board. Courts also require that this pay follows the bylaws.
• Social security and withholding apply to the pay.

Unusual cases depend on the exact bylaws wording and on court rulings, so have an adviser read yours.

Loan interest

Net interest above 30% of operating profit is limited, and the limit is capped at 1 million euros.

Expenses that are never deductible

The law refuses these outright:

• Corporate tax itself.
• Fines and penalties.
• Gambling losses.
• Donations and gifts, other than gifts within the 1% limit and donations to non-profits under their tax-incentive regime.
• Payments for services with tax havens, unless the service was real.
• Hybrid-mismatch expenses.
• Some impairment items and losses on fixed assets.
• Dividends paid to shareholders.

An expense that is not in the accounts also fails, however genuine it is.

Documents you need

• A proper invoice or equivalent document for each expense, issued by the supplier to the company.

• Proof that the service was real, such as a contract, delivery note or emails.

• For client meals and entertainment, a proper invoice plus a written note of the business purpose and the income it relates to.

• For gifts, a record of each gift with the recipient identified.

• For an owner-director's pay, the company bylaws stating the pay system and the general meeting's approval of the maximum annual amount.

• For a director with executive duties, a contract approved by the board.

Checklist to keep a company expense deductible

Keep a company expense deductible

• Get a full invoice in the company's name for every expense, or an equivalent document that proves the purchase.

• Pay by bank transfer, card or another traceable method, and keep the proof of payment.

• Keep proof that the service or goods were real, such as a contract, delivery note or emails.

• Enter the expense in the company's accounts in the year it was incurred, not the year you paid it.

• Check the expense is not one the law refuses outright, such as corporate tax itself, fines and penalties, gambling losses, dividends paid to shareholders, or most donations and gifts.

• Avoid paying 1,000 euros or more in cash to another business or professional: the expense is not deductible and the VAT on it cannot be claimed either.

What to watch out for

• Vehicle costs are often challenged: The tax agency accepts vehicle costs only when the vehicle is used exclusively for the business. A partial deduction is sometimes accepted if you prove the use, but it is risky. Keep proof of business use, and ask an adviser before deducting a car used for both business and private trips.

• Some items are never deductible: Corporate tax itself, fines and penalties, gambling losses, most donations, dividends and expenses missing from the accounts are refused, so deducting them leads to a corrected return. Leave them out of your deductible expenses from the start.

• Related-party deals at odd prices fail: Expenses from deals with related parties at non-market values are refused for the difference. Price these deals at market value and keep the evidence.

Frequently asked questions

How much can my company deduct for gifts to customers?

Gifts to customers or suppliers are deductible up to 1% of the company's net turnover for the year. Record each gift and identify the recipient. Gifts to employees as pay in kind and sales samples are not subject to that limit.

Can my company deduct the cost of a car?

Yes, but only if the car is used exclusively for the business, which the tax agency reads strictly. Exceptions cover sales representatives, passenger transport, driving schools, rental and security. For VAT, business use is presumed to be 50% unless you prove more.

Is the pay of an owner-director deductible for the company?

Yes, but only if the company's bylaws (estatutos) say the director's post is paid and state the pay system. The general meeting must approve the maximum annual amount.

Is there a cap on deducting loan interest?

Yes, excess interest above 30% of operating profit is limited, and the cap is 1 million euros. Dividends paid to shareholders are never deductible.