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Form 100. 2020 Personal Income Tax Return Declaration

7,4,1,5. Small businesses

A company is considered to be small when its net turnover for the previous year was less than 10 million euros.

If the immediately preceding tax period had a duration of less than one year, or the activity had been carried out over a shorter period, the net amount of the turnover will be increased to one year.

If the company is newly created, the net amount of the turnover must refer to the first tax period in which the activity is actually carried out, raising the figure to one year if the period of exercise has been less than 12 months,

To determine the net amount of the turnover, all economic activities carried out by the taxpayer will be taken into account.

When a natural person, alone or jointly with a spouse or other natural persons related by direct or collateral kinship, by blood or affinity, up to the second degree inclusive, are related to other entities of which they are partners in any of the cases referred to in article 42 of the Commercial Code, the net amount of the turnover will refer to the set of persons and entities belonging to the group.

Temporal scope of application of tax incentives when the small company exceeds 10 million euros in turnover

Small companies that reach or exceed a turnover of 10 million euros in a tax period may, however, continue to apply the tax incentives of their special tax regime during the three tax periods immediately following that period, provided that they have met the conditions to be considered as small in that period (in which they reach or exceed the limit of 10 million) and in the two tax periods prior to that last period.

This measure also applies to the event in which said limit is exceeded as a result of a business restructuring under the tax regime established in Chapter VII of Title VII of the LIS, provided that the participating entities that have carried out such operation meet the conditions to be considered as small in size both in the tax period in which the operation is carried out and in the two tax periods prior to the latter.

Tax benefits

Small companies can benefit from a special amortization regime for certain elements:

  1. Freedom to depreciate

    1. For job-generating investments , in the manner and conditions established in article 102 of the Corporate Income Tax Law.

    2. For low-value investments the freedom of depreciation for low-value investments that the previous consolidated text of the Corporate Income Tax Law regulated in its article 110 only for small-sized entities has been replaced in the new LIS by a similar benefit applicable to all taxpayers of the aforementioned tax and applies to new tangible fixed assets, the unit value of which does not exceed 300 euros, up to the limit of 25,000 euros referring to the tax period. If the tax period is less than one year, the limit indicated will be the result of multiplying 25,000 euros by the proportion between the duration of the tax period and the year (article 12.3 LIS).

  2. Accelerated depreciation

    1. The new elements of tangible fixed assets and real estate investments, as well as the elements of intangible fixed assets , may be amortized by multiplying by 2 the maximum linear amortization coefficient provided for in the officially approved amortization tables.

    2. The elements of intangible fixed assets whose useful life cannot be reliably estimated and the goodwill may apply the percentage of 150% to the amount that is deductible from applying for them the provisions of article 12.2 of the LIS. According to the provisions of said article, the amortization will be deductible with the maximum annual limit of one twentieth of its amount (5%).

    3. Transitory rules: for assets to which the transitional regime provided for in the thirteenth transitional provision of the LIS is applicable, that is, for those to which, in tax periods beginning before 1 January 2015, a different depreciation coefficient was being applied to that which corresponded to them by application of the depreciation table provided for in article 12.1 of the LIS, the new useful life of the item must be determined based on the maximum linear coefficient provided for in the table established in the LIS, in order to, once determined, multiply by 2 the coefficient by which it must be depreciated during the tax periods remaining to complete its new useful life, on the tax net value existing at the beginning of the first tax period beginning on or after 1 January 2015.

  3. Financial leasing

    In relation to assets acquired under the special financial leasing regime, the portion of the installments corresponding to the recovery of the cost of the amortizable assets is considered a deductible expense, with a limit of three times the linear amortization coefficient according to officially approved amortization tables. The excess will be deductible in successive tax periods, respecting the same limit.

  4. Losses due to impairment of credits due to possible insolvency of debtors (art. 104 Corporate Income Tax Law)

    Taxpayers who determine the performance of their activity under the direct assessment system may deduct the loss due to impairment of credits to cover the risk arising from possible insolvencies up to a limit of 1% of the debtors existing at the end of the tax period. For these purposes, those debtors for which the impairment loss on bad debts has been individually recognised and those debtors whose impairment losses are not deductible in accordance with article 13.1 of the LIS will not be included.

  5. Transitory rules: Amortization of assets subject to reinvestment by small companies

    Holders of economic activities that determine net income by the direct estimation method and were applying, prior to January 1, 2015, the amortization of assets subject to reinvestment that was regulated for small companies by article 113 of the consolidated text of the LIS, approved by Royal Legislative Decree 4/2004, of March 5, may continue to apply it, with the requirements and conditions established in that article. For these purposes, the aforementioned article allowed the amortization of the elements of tangible fixed assets and real estate investments assigned to economic exploitation in which the reinvestment of the total amount obtained in the onerous transfer of elements of tangible fixed assets and real estate investments also assigned had been materialized, based on the coefficient resulting from multiplying by 3 the maximum linear amortization coefficient provided for in the officially approved amortization tables.