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Practical manual for Income Tax 2023.

Previous issue: small business concept

Regulations: Art. 101 LIS

In general

For the purposes of applying the tax benefits discussed in this section, companies in fiscal year 2023 are considered to be small companies in which the net amount of turnover in the immediately preceding tax period (fiscal year 2022) was less than 10 million euros, regardless of the net amount of turnover in the fiscal year itself.

Special rules

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

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

  • Group of companies: In the event that a natural person, alone or jointly with his or her spouse or other natural persons related by direct or collateral ties, by blood or marriage, up to the second degree inclusive, is related to the entities of which they 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 shall refer to the set of entities or companies belonging to said group, taking into account the eliminations and additions that correspond by application of the accounting regulations.

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

Examples

  1. Mrs. VGC has been the owner of a company since 1996 with a net turnover of:

    • Exercise 2020: 3,700,000 euros.
    • Exercises 2021 and 2022: 8,300,000 euros.
    • Exercise 2023: 10,045,000 euros.

  2. Mr. JLT is the owner of a company whose net turnover in 2022 was 10,100,000 euros.

  3. Mr. SMG has been the owner of a company since 1 July 2022 with a net turnover of 4,600,000 euros as of 31 December of that year.

  4. Mrs. ABM has been the owner of a company since 30 September 2023 with a net turnover of 60,000 euros as of 31 December of that year.

Determine the companies that are considered small companies in fiscal year 2023.

Solutions:

  1. The company described is of small size in the 2023 financial year, as its net turnover in 2022 is less than 10 million euros. Furthermore, even if the turnover exceeded 10 million euros in the 2023 financial year, the tax benefits of this special regime may continue to be applied in the 2024, 2025 and 2026 financial years since both in the 2022 financial year and in the two previous years, 2021 and 2020, it met the net turnover limits to be considered small (less than 10 million euros in 2022, 2021 and 2020).

  2.  The company described is not small in size in the year 2023, regardless of the net amount of its turnover in this year.

  3. The company described is of small size in the 2023 financial year, since the net amount of its turnover in the 2022 financial year raised to the year was 9,200,000 euros, so it does not exceed the established figure of 10 million euros.

  4. The company described is of small size in fiscal year 2023. It should also be noted that this tax classification will also be applicable in the 2024 financial year, because by increasing the net amount of the turnover to the 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 turnover is carried out in accordance with the comments made on this subject in this same Chapter.