Expenses of an SL

Optimising the tax burden is a crucial aspect for owners of a Sociedad Limitada (SL) in Spain.

Knowing the deductible expenses allows the company to maximise its profits, reduce the taxable base and, consequently, reduce the amount payable in corporate income tax.

A proper tax strategy not only helps the company to maintain good financial health, but also ensures compliance with regulations, avoiding future problems with the tax authorities.

This article is of interest to you if…

• You want to reduce the tax burden of your SL as much as possible.
• You need to know the requirements to deduct expenses correctly.
• You are looking for the most common types of deductible expenses in an SL.
• You are interested in taking advantage of specific deductions such as R&D&I or environment.
• You want to avoid non-deductible expenses and tax problems.
• You want to keep clear and orderly tax records for your company.
• You consider hiring a tax advisor to optimise deductions.
• You have frequent questions about deductions, allowances, salaries, and more.

Deductible expenses in an SL

General requirements

For an expense to be deductible for corporate income tax purposes, it must meet certain requirements. These are the four basic principles that ensure that the expense complies with current tax regulations:

1. Link to the company’s economic activity (Necessity)

To be deductible, the expense must be directly related to the economic activity of the company. This means that the expense must be necessary for the development of the company’s activity, contributing directly or indirectly to the generation of income.

For example, expenditures on office rents, supplies or staff salaries are essential for day-to-day operations and therefore meet the linkage requirement.

2. Justification by means of invoices or other valid documents (Justification)

The deductibility of an expense requires that it is properly substantiated with official documents, such as full invoices issued in the name of the SL or, in certain cases, receipts. These documents must meet all the formal requirements required by the Tax Agency, including the correct tax details of both parties, a breakdown of VAT (if applicable) and a detailed description of the service or product purchased. Failure to provide adequate justification may prevent the expense from being considered deductible and may cause problems in the event of a tax audit.

3. Proper recording in the company’s accounts (book-keeping)

Any expense to be deducted must be duly recorded in the company’s accounts. This means that the expense must be reflected in the accounting books for the year in which it was incurred, in accordance with accounting principles. A lack of accounting records or an incorrect record may render the expense non-deductible and may lead to penalties in the event of an inspection. This accounting record enables the company to maintain a clear and accurate view of its financial situation and facilitates compliance with its tax obligations.

4. Imputation in the appropriate tax period (Imputation)

Finally, a deductible expense must be correctly attributed to the tax year in which it is incurred. This means that the expense must be attributed to the accounting period in which it was incurred, regardless of whether the payment was made at that time or at a later date. Correct allocation is essential to ensure that expenses accurately reflect the economic reality of each period. Any expense that is not allocated to the correct tax period may be subject to tax adjustments, adversely affecting the tax base and the amount of corporate income tax.

These requirements ensure that deductible expenses in an SL are consistent, transparent and in line with current regulations.

Complying with these principles not only allows the company to benefit from an optimised tax burden, but also protects owners and managers from possible penalties or tax adjustments in case of inspection.

Types of deductible expenses

A limited company in Spain can optimise its tax burden by deducting a number of expenses necessary for its operation. The main types of deductible expenses that meet the general requirements are detailed below.

1. Staff costs. Wage and salary expenses, together with social security contributions, are deductible, as they form an essential part of a company’s operating costs. In particular, when it comes to the remuneration of the company’s directors, it is important to approve such remuneration at a general meeting and to ensure that the Articles of Association provide that this position is remunerated (and not free of charge). Although the courts have recently relaxed the requirements for deductibility of directors‘ remuneration expenses, it is advisable to continue to do so to avoid deductibility problems with the tax authorities, which require clarity in the treatment of directors’ remuneration.
2. Rentals of premises and offices. Rental payments for real estate used for the business activity are deductible, provided that a direct link to the activity of the limited liability company can be demonstrated. It is important that the lease contract and payment invoices are kept and that the rent is properly recorded in the accounts.
3. Supplies (water, electricity, telephone, internet). These expenses are also deductible, but only to the extent of the business activity. In cases where the business activity is carried out from the owner’s home, it is necessary to apply a proportion that reflects the use of the space for the business. This allows only the proportional part of the supply related to the activity to be considered deductible, avoiding problems in the event of a review by the Tax Agency.
4. Purchases of raw materials and goods. Expenses associated with the purchase of raw materials and merchandise that the SL needs for its business activity are deductible. These costs are considered essential to the operation and must be properly documented, clearly reflecting their link to the company’s activity.
5. Services of independent professionals. Fees paid to advisors, lawyers, consultants and other external professionals are deductible, provided that the services rendered are directly related to the activity of the SL. Detailed invoices specifying the service and the link to the economic activity of the company are crucial.
6. Repairs and maintenance. Expenses for the maintenance and repair of the company’s assets are deductible, as they preserve the value and functionality of the assets necessary for the activity. It is important to distinguish these expenses from those for improvements or extensions to assets, as investments of this type are treated differently for tax purposes and are usually deducted as depreciation.
7. Financial expenses (interest on loans). Interest derived from loans acquired to finance the activity of the SL is deductible. This includes loans for the acquisition of assets or for operational financing. It is necessary to keep documentation of the loans and to record the interest payments in the company’s accounts to justify their deductibility.
8. Depreciation of assets. Depreciation is an accounting process that allows the cost of fixed assets to be deducted over their useful life. Assets that an SL uses for its activity, such as machinery, vehicles or technology, can be deducted in the form of annual depreciation. This process must be carried out according to the depreciation coefficients established by tax regulations, which ensures a gradual deduction adjusted to the depreciation of the asset.
9. Insurance. Insurance taken out to protect the business activity, such as liability insurance or insurance for the company’s assets, is deductible. These expenses reduce risks and are directly linked to the protection of the SL’s activity, and therefore meet the requirements for deductibility.
10. Advertising and public relations. Expenditure on advertising, marketing and public relations campaigns is deductible, provided that it is aimed at promoting the company’s products or services. These expenses must be well documented, specifying the promotional purpose and the benefit for the economic activity.
11. Staff training expenses. Investment in staff training and education is deductible, as it contributes to the development and improvement of employees’ skills, favouring the competitiveness of the company. The training must be related to the functions of the staff within the SL and contribute to their performance in the work environment.
12. Travel and subsistence expenses. Travel and subsistence expenses associated with business activity are deductible as long as they are duly justified. This includes expenses for transport, accommodation and subsistence on business trips. It is necessary to keep receipts for each expense and to properly record the reason for the trip and the relationship with the company’s activity, which avoids problems in the event of a tax audit.

These types of expenses allow an SL to reduce its corporate tax base, thus optimising its tax burden. However, it is essential to comply with the general deduction requirements (necessity, justification, accounting and imputation) to avoid problems in case of inspection and to maximise tax benefits in an ethical and compliant manner.

Specific deductible expenses

In addition to general expenses, there are certain tax deductions aimed at incentivising strategic activities for economic and social development. These specific deductions are particularly beneficial for companies seeking to contribute to innovation, sustainability and labour inclusion. Some of the most relevant ones are presented below:

1. Expenditure on Research, Development and Innovation (R&D&I). Companies that invest in research and development activities can benefit from tax deductions aimed at promoting technological and scientific innovation in Spain. This type of deduction is applicable to expenses associated with R&D&I projects, as long as they are duly documented and comply with current regulations on research and development activities.
2. Investments in film productions. With the aim of supporting the cultural industry, the law allows deductions for expenses related to investments in film productions, series and other audiovisual works. This deduction applies to both production companies and the companies that finance these projects, thus contributing to the growth and promotion of culture and art in Spain.
3. Expenditure on vocational training. Companies that invest in training their employees to improve their skills can benefit from specific tax deductions. These deductions are intended to encourage the training and professional development of employees, which in turn improves the company’s productivity and competitiveness.
4. Investments for environmental protection. To promote sustainability and environmental protection, tax deductions are available for companies that invest in green technologies and practices. This includes spending on renewable energy systems, emissions reduction, recycling and waste management. In addition to improving the company’s image, this deduction helps to reduce the environmental impact of its activities.
5. Job creation, especially for people with disabilities. Companies that promote inclusion in the labour market, especially by hiring people with disabilities, can benefit from specific deductions in corporate income tax. This incentive is designed to promote a more inclusive and diverse work environment, facilitating the incorporation of people with diverse abilities into the labour market.

Non-deductible expenses

Despite the wide range of allowable deductions, some expenses are not deductible due to their nature or their impact on accounting. These expenses should be managed with caution to avoid errors in tax deductions. The main non-deductible expenses include:

1. Fines and penalties. Administrative or tax fines and penalties are not deductible, as they are not considered to contribute to the development of the business activity and reflect non-compliance with regulations.
2. Donations and gifts (with some exceptions). Although there are exceptions for donations to entities recognised as being in the public interest, most donations and gifts are not deductible, as they are not directly linked to the economic activity of the company.
3. Costs arising from the accounting of corporate income tax. Costs arising from the actual settlement and filing of corporate income tax are not considered deductible, as they are not part of the company’s operating activity.
4. Gambling losses. Losses from gambling activities are not deductible as they are considered to be personal expenses or not related to the business purpose.
5. Impairment losses on listed portfolios (unrealised losses). Impairment losses on financial investments in listed portfolios are not deductible until they are actually realised. This prevents companies from using unrealised losses to reduce their tax base.

It is essential that SL owners and managers keep a detailed record of all expenses and keep the corresponding documentation to facilitate tax compliance. The advice of a tax professional is particularly useful to optimise the deduction strategy and avoid problems with the tax authorities.

Conclusion

Optimising the tax burden through appropriate deductions is a key strategy for any limited company in Spain. Knowing the types of deductible expenses and the requirements they must meet allows companies to reduce their tax costs in an ethical and compliant manner. In addition, taking advantage of specific deductions available in areas such as research, sustainability and labour inclusion not only benefits the company, but also contributes to economic and social development goals. To avoid problems and maximise tax benefits, the guidance of a specialised tax advisor is highly recommended.

Frequently asked questions

1. Can I deduct the cost of supplies if I work from home?
Yes, but only in proportion to the amount of the living space used for the business activity. It is important to apply a reasonable criterion and to justify this expense with invoices and appropriate documentation.
2. Is it possible to deduct expenditure on the salary of the SL administrator?
Yes, but to avoid problems with the tax authorities, the director’s remuneration must be approved at a general meeting and the Articles of Association must specify that the position is remunerated and not free of charge.
3. What types of staff training expenses are deductible?
Expenses for courses, seminars, and training programmes related to the employee’s functions in the company are deductible. Training should be aimed at improving the skills and competencies of the employee in his or her role within the SL.
4. Are traffic fines deductible for a company using commercial vehicles?
No, fines, including traffic fines, are not deductible as they are considered penalties and do not add direct value to the economic activity of the company.
5. When is it advisable to have a tax advisor?
A tax advisor is advisable for any business, but especially for those who want to maximise their deductions and ensure compliance with current tax regulations. An advisor can help optimise tax strategy and avoid mistakes that could result in penalties or tax adjustments.