Current and capital subsidies: distinction

Public aid gives rise to different tax treatment depending on the classification that should be granted to it: Current and capital grants.

Capital grants

Capital grants are those whose primary purpose is to promote the installation or start-up of the activity, as well as the realization of investments in fixed assets (buildings, machinery, installations, etc.), or multi-year projection expenses and are charged as income to the same extent as the investments or expenses incurred against them are amortized.

Therefore, the subsidy will have the character of a capital subsidy provided that its purpose is to finance the fixed assets or capital of the entrepreneur or professional. However, if its purpose is to guarantee, at the start of the activity, a minimum income or to offset expenses for the year, it must be treated as a current subsidy.

However, in those cases where the assets are not susceptible to amortization, the subsidy will be applied as full income for the year in which the sale or write-off in inventory of the asset financed with said subsidy occurs, applying the 30% reduction typical of returns obtained in a notoriously irregular manner over time .

Current grants

Current subsidies are those that are normally granted to guarantee a minimum profitability or compensate for losses caused by the activity and are computed in their entirety as additional income in the period in which they are accrued. That is, when the granting of the subsidy is firmly recognised and quantified, regardless of when it is received.

Notwithstanding the foregoing, if the taxpayer has opted for the collection and payment criterion, in accordance with the terms set forth in article 7.2 of the Personal Income Tax Regulations , which establishes the option of using the collection and payment criterion to temporarily allocate income and expenses derived from economic activity profits, the subsidy must be allocated in the tax period in which the corresponding collection thereof occurs.