B Law & Tax
21 July 2023

Tax advisor: Tax benefits that small companies can use in the Corporate Income Tax

In this corporate tax filing season, it is important to remember that small companies are entitled to attractive tax incentives, such as the freedom of depreciation for job creation or double depreciation. Below we will explain what these incentives are and the requirements that must be met.

It is essential to bear in mind that in order for a company to be considered a small company (ERD) and to be able to take advantage of the tax incentives applicable in the Corporate Income Tax, its turnover in the previous year must have been less than ten million euros. In the case of being part of a group, the consolidated data of the group must be taken into account to calculate this figure. However, even if in one year the turnover exceeds EUR 10 million and the company ceases to be considered an SME in the following year, it can still continue to benefit from these incentives for a further three years. This is possible if in the year in which this figure is exceeded and in the two previous years the requirements to be considered an SME have been met.

Tax advantages

– Freedom of depreciation is allowed for investments in tangible fixed assets and real estate investments that generate employment. If the average workforce of the company increases in the 24 months following the acquisition of the assets and is maintained for another 24 months, it can be freely depreciated up to a limit calculated on the basis of the increase in the workforce. This benefit also applies to assets ordered under construction contracts and to assets constructed by the company itself.

– Accelerated depreciation of property, plant and equipment, real estate investments and intangible assets is allowed without the need to maintain employment. New assets assigned to economic activities can be depreciated by multiplying by 2 the maximum straight-line depreciation coefficient established in the official tables. In the case of intangible assets with indefinite useful lives and goodwill, 150% of the maximum tax depreciation of 5% can be deducted.

– In order for credit impairment losses to be deductible, the following requirements must be met: the entity must be considered small, the amount provided for may not exceed 1% of the balance of debtors, and the balance of the allowance may not exceed 1% of debtors at the end of the period. In addition, there is a special condition for the 2020 and 2021 tax periods related to the debtors’ delinquency period.

– Small companies can apply the taxable income equalization reserve. It consists of reducing the taxable income for the year up to a maximum of 10% of its amount, with a limit of €1,000,000. If tax losses are generated in the following 5 years, they must be used to reduce the reserve. If after 5 years it has not been used in full, the remainder is added to the taxable income. In addition, a restricted reserve must be created from the profits of the year of reduction. If there are insufficient profits, it must be provided for in the following years. The reserve becomes available in specific cases, such as separation of the partner or elimination due to business restructuring. If the reserve was used in 2016 and there is still an outstanding balance, a positive adjustment must be made this year, since the 5 years established by law to return the tax incentive have passed.

B Law & Tax International Tax & Legal Advisors.

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