23 June 2023

Tax advisor: The contribution of the shareholders to the 118 Account of the General Accounting Plan: Recommended from a tax perspective?

The 118 Account is a useful accounting instrument for companies that need to solve financial or treasury problems when financing specific projects. However, it is common that shareholders choose this form of financing without understanding the true nature of this business. The purpose of this article is to clear up any doubts that may arise in relation to the 118 Account from a practical point of view.

Tax treatment of contributions to the 118 Account:

From the shareholder’s perspective, regardless of whether he/she is an individual or a legal entity, the contributions made by shareholders to the 118 Account increase the tax or acquisition value of their shareholding in the company. In addition, although they are subject to Transfer Tax and Stamp Duty, they are exempt.

From the perspective of the company receiving the contributions, such contributions will not generate any income and will be considered as a special reserve.

In this sense, the contributions to the 118 Account do not generate any tax cost for the partners or for the company and are, therefore, a very attractive alternative from the commercial and tax perspective to strengthen the financial position of the company.

Tax treatment of distributions the of contributions made by members to the 118 Account:

The distribution of the contributions made to the 118 Account, as stated by the Directorate General for Taxation, will correspond to the abstract right to the distribution of reserves (from profits or contributions of shareholders) agreed under the terms and with the requirements established for this purpose in the mercantile regulations, which corresponds to each shareholder by virtue of being a shareholder (and therefore, regardless of whether or not the funds corresponding to the reserves to be distributed had been contributed at the time).

The tax treatment of the distribution of the reserves corresponding to the shareholders’ contributions, from a tax perspective, is the same as that of the distribution of the share premium.

In this sense, the distribution of the contributions made by the shareholders will reduce the tax or acquisition value of the shareholding until it is cancelled and the excess will be considered as income for legal entities and as income from movable capital for individuals.

However, beforehand, it will be necessary to analyze whether, since the date of acquisition, the company has generated profits in excess of the equity to be distributed. Such amount will be considered as taxable income for the shareholder and the excess will receive the tax treatment mentioned in the preceding paragraph.

In addition, it should be noted that the distribution of these reserves is not subject to the ITPAJD in its Corporate Transactions modality, unlike what would happen in a capital reduction with return of contributions, which would be taxed at 1%.

Special cases to be taken into account: non-proportional contributions.

In the case of non-proportional contributions, i.e., those in which the contribution made by the shareholder is not related to its percentage of participation or those in which one of the shareholders does not make any contribution at all, the tax implications are different.

In these cases, from a tax perspective, the excess that does not correspond to the shareholder’s percentage of participation in the company will be considered as taxable income for corporate income tax purposes for the beneficiary and as a non-deductible expense or donation for the contributor, depending on whether the latter is a company or a natural person.


In conclusion, contributions to the 118 Account are a very attractive alternative from a business and tax perspective, since they are very simple to carry out and, provided they are proportional, they do not generate any tax cost.

**The following publication contains general information about tax matters and does not constitute tax
advice. This information is provided for informational purposes only and should not be construed as
specific tax advice for your particular situation. B Law & Tax We is not liable for any loss or damage
resulting from reliance on the information contained in this publication.

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