If you are the Director – no matter if it is just one sole one, two joint or separate or a broad of Directors – of a Spanish Mercantile Company, normally a Limited Liability Company “Sociedad Limitada”, you must know that in order to deduct from the taxable base of the corporate tax the fees paid by the Company to you, it must be expressly established in the by-laws that the activity of the Director is remunerated. The by-laws must also express the way of said retribution: if it is a salary on monthly or yearly basis, participation on benefits, or any other type of getting paid.
That means, in case you incorporate the Company – as it is often the case – declaring that the charge of Director should be carried for free you would have to go again to the Notary to change the by-laws and record said changes also in the Mercantile Registry, otherwise in case of tax inspection the deductibility of said expense in the corporate tax could be challenged.
Further to this, the shareholders´ meeting of the company has the obligation to agree the limit of the retribution of the yearly fees of the Director bearing in that said decision shall be in accordance to the size and turnover of the company and the market uses.
The taxation on the fees of the Directors of a company are subject to withholding tax according to the following rates for 2016:
- General withholding tax rate of 19% (last years was 20%) if the turnover of the company was less than 100.000, -€ in the year before
- General withholding tax rate 35% (last year 42%) if the turnover of the company was over 100.000,-€ in the year before
Another way of retribution is dividends, but we will see this in the next chapter.
