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Practical manual for Income Tax 2023.

2. Deduction for income derived from the sale of tangible assets produced in the Balearic Islands

Regulations: Seventieth Additional Provision. Five of Law 31/2022, of December 23, on the General State Budget for 2023.

Time scope: This bonus will be applicable in the years 2023, 2024, 2025, 2026, 2027 and 2028 .

Amount of deduction

  • In general

    The 10 percent of the portion of the full quota reduced, where applicable, by the amount of the deduction for the reserve for Investments in the Canary Islands , in the part that proportionally corresponds to the income derived from the sale of tangible assets produced in the Balearic Islands by the beneficiaries of the deduction, without prejudice to the limits established in community legislation that may affect it .

    See the table on the limits of aid to de minimis , which are applicable to the tax benefits of the Special Tax Regime of the Balearic Islands and are included in section 3 of this section on the special tax regime of the Balearic Islands.

  • Increase in bonus percentage

    The bonus will be increased up to 25% in those tax periods in which, in addition, there has been an increase in the average workforce in the terms indicated in the following section .

Clarifications:

In those cases where the IRPF is applicable, in addition to this bonus (deduction), the deduction for the reserve for investments in the Balearic Islands, the quota eligible for bonus will be the full quota reduced by the amount of the deduction for the reserve for Investments in the Balearic Islands, in the part that proportionally corresponds to the income derived from the sale of tangible assets produced in the Balearic Islands.

Likewise, in the case of marriage, if both spouses meet the requirements to apply this bonus, but only one of them is eligible for the increased percentage, and provided that the total amount of the joint declaration is less than the sum of the bonuses for both, they may choose to apply first the bonus of the spouse to whom the increased percentage applies.

Example:

Filer

  • Income derived from tangible assets located in the Balearic Islands: 15,000

  • Applicable bonus percentage: 25%

Spouse

  • Income derived from tangible assets in the Balearic Islands: 5,000

  • Applicable bonus percentage: 10%

Taxable Base for joint declaration (due to negative income): 18,000

General integral share joint declaration: 1,800

Share corresponding to the declarant's income: 1,800 x 15,000 / 18,000 = 1,500

Share corresponding to the spouse's income: 1,800 x 5,000 / 18,000 = 500

The sum of the quota corresponding to the returns of both exceeds the general total quota, so the maximum amount to which the bonus can be applied will be the amount of this (1,800).

Declarant bonus: 1,500 x 25% = 375

Declarant bonus: 300 (*) x 10% = 30

(*) When the declarant applies the bonus on 1,500, the spouse may only apply the bonus on the remaining amount of the fee: 1,800 – 1,500 = 300

The amount of the bonus in joint taxation will be 375 + 30 = 405

Requirements

The following requirements must be met to apply the bonus:

  • That the tangible assets produced in the Balearic Islands derive from the exercise of agricultural, livestock, industrial and fishing activities , in the latter case in relation to the catches made in its fishing and aquaculture zone.

  • That taxpayers are domiciled in the Balearic Islands . If taxpayers are domiciled in other territories, they must engage in the production of the aforementioned goods in the Balearic Islands through a branch or permanent establishment.

Note: Please note that this bonus does not apply to income derived from the sale of tangible goods produced in the Balearic Islands, typical of shipbuilding, synthetic fibres, the automobile industry, steel and coal industries.

  • That taxpayers determine their income under the direct estimate regime .

  • Maintenance or increase of the template .

    1. For the application of the 10% percentage it is required that the average workforce of the entity in said period is not less than the average workforce corresponding to the twelve months prior to the start of the first tax period in which the regime provided for in this section takes effect.

      When the entity has been established within the aforementioned period of twelve months, the average workforce resulting from that period will be taken into account.

      To calculate the average workforce, the number of people employed will be taken into account, in accordance with the terms established by labour legislation, taking into account the contracted working hours in relation to the full working day.

    2. For the application of the increased percentage of 25% , in addition to the previous requirement (maintenance of the average workforce), it will be necessary that there has been an increase in the average workforce of no less than one with respect to the average workforce of the previous tax period and that said increase is maintained for at least a period of three years from the date of completion of the tax period in which this increased bonus is applied.

      To calculate the average number of employees of the entity, the number of people employed will be taken into account, in accordance with the terms established by labour legislation, taking into account the contracted working hours in relation to the full working day.

      When the entity has been established in the first tax period in which the regime provided for in this section takes effect, the application of the bonus will require that it meets the requirements for the reduced tax rate for newly created entities regulated in article 29.1 of the LIS to be applied.

      For these purposes, an economic activity , will not be deemed to have been started in accordance with article 29.1 of the LIS , in the following cases:

      1. When the economic activity had been previously carried out by other persons or entities linked within the meaning of article 18 of this law and transferred, by any legal title, to the newly created entity.

      2. When the economic activity has been carried out, during the year prior to the establishment of the entity, by a natural person who holds a direct or indirect interest in the capital or equity of the newly created entity exceeding 50 percent.

        Entities that form part of a group under the terms established in article 42 of the Commercial Code, regardless of their residence and the obligation to prepare consolidated annual accounts, are also not considered newly created entities.

      In this case, the following rules will be followed:

      1. Compliance with the requirement of maintaining employment in successive tax periods will refer to the average workforce of the entity's first tax period.

      2. To determine compliance with the requirement for increasing the average workforce of the entity, it will be understood that the figure corresponding to the first tax period prior to incorporation is zero.

  • That the net returns eligible for bonuses are positive .

Note: Please note that this bonus is compatible , as far as job creation is concerned, with the reservation of investments in the Balearic Islands.