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Practical Income Manual 2022.

Previous issue: small business concept

Regulations: Art. 101 LIS

In general

For the purposes of applying the tax benefits discussed in this section, small companies in 2022 are considered to be those in which the net amount of the turnover in the immediately preceding tax period (fiscal year 2021) was less than 10 million euros, whatever the net amount of the turnover in the fiscal year itself.

Special rules

  • When the company was newly created, the net amount of the turnover will refer to the first tax period in which the activity is actually carried out, said figure increasing proportionally to the year if the period of exercise had been less than 12 months.

  • If the immediately preceding tax period had lasted less than one year, or the activity had been carried out for a shorter period, the net amount of the turnover will increase proportionally to the year.

  • Group companies: in the event that a natural person, alone or jointly with the spouse or other natural persons united by ties of kinship in a direct or collateral line, consanguineous or by affinity, up to the second degree inclusive, is in relation to the entities of those who are partners in any of the cases referred to in article 42 of the Commercial Code, regardless of the residence of the entities and the obligation to prepare consolidated annual accounts, the net amount of the turnover will refer to all the entities or companies belonging to said group, taking into account the eliminations and incorporations that correspond by application of accounting regulations.

  • In the event that the same natural person carries out several economic activities, the net amount of the turnover will refer to all the activities carried out.

  • Entities under income allocation regime: The net amount of the turnover will be determined taking into account exclusively the set of economic activities carried out by said entities.

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 one, provided that have met the conditions to be considered as small in size both in that period (in which it reaches or exceeds the limit of 10 million) and in the two tax periods prior to the latter.

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 entities involved that have carried out such an 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.

Examples

  1. Mrs. VGC Since 1996, he has owned a company whose net turnover has been:

    • Fiscal year 2019: 3,700,000 euros.
    • Fiscal years 2020 and 2021: 8,300,000 euros.
    • Fiscal year 2022: 10,045,000 euros.

  2. Don JLT He is the owner of a company whose net turnover in 2021 was 10,100,000 euros.

  3. Don SMG Since July 1, 2021, he has been the owner of a company whose net turnover until December 31 of that year was 4,600,000 euros.

  4. Mrs. ABM Since September 30, 2022, he has been the owner of a company whose net turnover until December 31 of that year was 60,000 euros.

Determine the companies that in fiscal year 2022 are considered small companies.

Solutions:

  1. The company described is small in size in 2022, since the net amount of its turnover in 2021 is less than 10 million euros. In addition, although in fiscal year 2022 the turnover exceeded 10 million euros, the tax benefits of this special regime may continue to be applied in fiscal years 2023, 2024 and 2025 since both in fiscal year 2021 and in the previous two , 2020 and 2019, met the limits of net turnover to be considered small (less than 10 million euros in 2021, 2020 and 2019).

  2.  The company described is not small in fiscal year 2022, regardless of the net amount of its turnover in this fiscal year.

  3. The company described is small in size in 2022, since the net amount of its turnover in 2021 per year was 9,200,000 euros, which is why it does not exceed the established figure of 10 million euros.

  4. The company described is small in size in fiscal year 2022. Likewise, it should be noted that this tax classification will also be applicable in the year 2023, because by increasing the net amount of the turnover per year, the resulting amount (240,000 euros) does not exceed the maximum amount set of 10 million euros.

Note: The determination of the net amount of the turnover is carried out in accordance with what is discussed in this regard in this Chapter.