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Practical manual for Income Tax 2023.

Losses due to credit impairment due to possible insolvencies of debtors

Regulations: Art. 104 LIS

Requirements

In addition to the individualized due to impairment of credits due to debtor insolvency referred to in article 13.1 of the LIS , the holders of economic activities whose net income is determined by the direct estimation method, in any of its two modalities, may deduct the impairment loss on the balance of debtors not affected by the individualized provision in accordance with the following requirements:

  1. That the taxpayer is considered a small company for tax purposes in the year in which the loss is deducted.

  2. That the loss due to impairment of credits due to possible debtor insolvencies does not exceed the limit of 1% of those existing at the end of the tax period.

For these purposes, the following debtors will not be included:

  1. Debtors for whom the loss due to impairment of credits due to bad debts established in article 13.1 of the LIS has been individually recognized.

  2. Debtors whose impairment losses are not deductible according to the provisions of article 13.1 of the LIS . In accordance with the aforementioned article, in the case of small entities, the following losses due to credit impairment are not deductible:

    • Those corresponding to credits owed by public law entities, except when they are the subject of an arbitration or judicial procedure that deals with their existence or amount.

    • Those corresponding to credits owed by related persons or entities, unless they are in a situation of bankruptcy and the liquidation phase has been opened by the judge, in the terms established in Law 22/2003, of July 9, Bankruptcy and, since September 1, 2020, in Royal Legislative Decree 1/2020, of May 5, which approves the revised text of the Bankruptcy Law.

      For informational purposes only, the table of correspondences of the provisions of Law 22/2003, of July 9, on Bankruptcy, with those of the consolidated text of the Bankruptcy Law, approved by Royal Legislative Decree 1/2020, of May 5, by virtue of the third Additional Provision thereof, may be consulted through the following link .

In periods in which the economic activity ceases to meet the conditions to be considered a small company, losses due to impairment of credits due to possible insolvency of debtors will not be tax deductible until they exceed the amount of the overall loss allocated in the periods in which the economic activity was considered as such.

Note: Please note that small companies that reach or exceed a turnover of 10 million euros in a tax period may 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 the latter.