From 2016 the new Law of the Corporate tax incorporates two tools to reduce the tax rate of the tax:

First, the capitalization reserve, which it is applicable to virtually all societies and is a reduction in the tax base of 10% of the increase of its own funds (excluding corporate transactions), if the following requirements are met:

  • The increase in equity is maintained over 5 years.
  • a restricted reserve 5 years for the amount of reduction dowry.

This reduction may not exceed 10% of pre-tax losses offset positive tax base. If the taxable year is insufficient reduction may be applied in the next two years.

This reduction can not be applied to installment payments, since not closed the exercise that determines the increase in equity.

Secondly, the reserve for the leveling of negative tax bases, which implies a reduction of the taxable base for the year (after having applied, where appropriate, the capitalization reserve) of up to 10% of its amount, provided that it is constituted an unavailable reserve, and with the maximum limit of 1 M €.

If tax losses do not occur in the next five years the company will add to its tax base the said reservation.

This regime applies to entities whose net turnover of the immediately preceding tax period is less than 10 M € and taxed at the general rate of 25% tax.

With the application of both reserves, a small-sized entity that is taxed at a nominal rate of 25% will be reduced its tax on corporate tax at an effective rate of 20,25%.

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Xavier Vales DiG barcelona Lawyers tax

Xavier Vales

DiG Lawyers