When a company is set up, the general Corporate Tax rate isn't always the one that applies from day one: there are reduced rates designed to encourage business creation and ease the tax burden on SMEs in their early years.
The general Corporate Tax rate
The general rate applicable to most companies on their taxable base (the fiscal profit for the year) serves as a reference point, although reduced rates apply in certain cases that are worth knowing before planning your company's taxation.
The reduced rate for newly created companies
Newly created companies can apply a reduced rate during the first tax period in which they obtain a positive taxable base (that is, the first year with profits) and the following one, provided the activity hadn't previously been carried out by other related individuals or entities, among other requirements designed to prevent fraudulent use of this benefit through the simple reconstitution of already-existing businesses.
The reduced rate for SMEs based on turnover
In addition to the benefit for newly created companies, there's a reduced rate applicable to companies whose turnover didn't exceed a certain threshold in the prior tax period, applied to the first brackets of the taxable base, with a different rate for the remaining taxable base above that first bracket.
Why it's worth planning the timing of setting up the company
The timeline for applying these reduced rates (the "first period with a positive taxable base") makes the moment you start generating real profits relevant to your tax planning, since the reduced rate benefit for new companies applies to the first profitable years, not necessarily to the first years of the company's legal existence if those were loss-making.
Other tax incentives for SMEs
Beyond the reduced rate, there are other specific tax incentives for SMEs in Corporate Tax, such as free depreciation for certain investments, or leveling reserves that allow part of the taxation to be deferred to future years, subject to the requirements and limits set by the regulations.
Always check your specific case with a tax advisor
Correctly applying these reduced rates depends on multiple specific requirements that should be verified case by case with a tax advisor before filing the return, since an incorrect application can lead to later adjustments with surcharges.
Compare your situation as a freelancer against the company route
Our net salary calculator can help you get a rough comparison between the taxation of compensation via salary and the taxation of a company.