Every year, many companies make their Corporate Income Tax prepayments almost
automatically, without stopping to consider whether the calculation method they are
using is still the most appropriate. However, choosing the right option can make a
significant difference to a company’s cash flow.
The Spanish Ley del Impuesto sobre Sociedades provides two different methods for
calculating these advance payments. One, regulated under Article 40.2, is based on
the results of the last filed financial year. The other, set out in Article 40.3, is based on
the actual performance of the current financial year. The difference is not minor: it can
mean paying more or less tax in advance throughout the year.
Imagine that your company closed last year with high profits due to a one-off
transaction or an exceptional peak in sales. However, the current year has started
more cautiously: the market has slowed down, new investments have been made, or
results are simply more moderate. If you keep the meth
od based on the previous year’s figures, your advance payments will be calculated on
a reality that no longer reflects your current situation. In practice, you could be
advancing tax on profits you are not actually generating this year.
By contrast, the method provided for in Article 40.3 allows payments to be aligned with
the company’s real-time performance. It is not about paying less tax overall, but about
matching advance payments to actual results and avoiding unnecessary pressure on
cash flow.
This decision should not be taken by default. The beginning of each financial year is an
ideal moment to review projections and assess which option best fits the expected
development of the business.
Making the right choice can help you protect cash flow during periods of lower
profitability, adjust advance payments to the current year’s economic reality, and avoid
excessive prepayments that may affect the company’s financial capacity.
In short, advance Corporate Tax payments are not just an administrative formality.
They are a tax planning tool. Taking the time to analyse which method to apply can
make the difference between overpaying in advance or keeping those resources
working within your business.
