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Practical Handbook for Companies 2021

Practical examples

Example 1:

Company "M" is a small entity taxed under the special regime applicable to such entities provided for in Articles 101 to 105 of the LIS, the tax period of which coincides with the calendar year.

This company was obliged to set aside a reserve of 100,000 euros in 2020 and only set aside 50,000 euros in that year.

On the corporation tax return for the year 2020, company "M" should have completed the section "Allocation to the reserve" in the table "Equalisation reserve" on page 20a of Form 200 as follows:

Exercise of
generation
Reserve amount
to provide
Reserve amount
endowed
Reserve amount
pending endowment
Reserve ready
2020 [02413] 100,000 [02414] 50,000 [02415] 50,000 [02416] 0

Subsequently, in the financial year 2021, company "M" sets aside an additional reserve of 25,000 euros corresponding to the amount of the reserve it was obliged to set aside in the financial year 2020.

In the corporate income tax return for the financial year 2021, company "M" must complete the section "Allocation to the reserve" in the table "Equalisation reserve" on page 20a of Form 200 as follows:

Exercise of
generation
Reserve amount
to provide
Reserve amount
endowed
Reserve amount
pending endowment
Reserve ready
2020 [02241] 100,000 [02242] 75000 [02243] 25,000 [02244] 0

As can be seen in this example, the amount of 100,000 euros to be entered in the column "Amount of reserve to be allocated" does not change in the different corporate income tax returns as long as the obligation to allocate the equalisation reserve persists.

Example 2:

Company A is a small entity taxed under the special regime applicable to such entities provided for in Articles 101 to 105 of the LIS, whose tax period coincides with the calendar year.

Financial year 2020:

Company A's own funds as at 01/01/2020Company A's own funds at 31/12/2020
Social capital
300,000
Social capital
300,000
Legal reserve
30,000
Legal reserve
30,000
Statutory reserves
10,000
Statutory reserves
10,000
Voluntary reserves
300
Voluntary reserves
30,300
Result for the financial year 2019
50,000
---
---

Other data:

  • Result of 2020 from the profit and loss account of IS:250,000
  • No difference between accounting result and tax result
  • Retenciones:5,000
  • Tax rate: 25%

Calculation of capitalisation and equalisation reserves financial year 2020

  1. First, company A calculates the capitalisation reserve in accordance with Article 25 of the LIS:

    Total: 300,300 Total: 330,300
    FP for the purpose of Article 25 at 01/01/2020FP for the purpose of Article 25 at 31/12/2020
    Social capital
    300,000
    Social capital
    300,000
    Voluntary reserves
    300
    Voluntary reserves
    30,300

    According to the above data, the increase in own funds (Δ PF) is 30.000

    Therefore, the capitalisation reserve for the year, as established in article 25 of the LIS, will be 10% of the increase in the company's equity, up to a limit of 10% of the positive taxable income for the tax period prior to this reduction, the consolidation referred to in article 11.12 of this Law and the offsetting of tax losses.

    • Capitalisation reserve = Reduction 10% of Δ PF = 3.000
    • Limit 10% BI prior to the capitalisation reserve = 10% 250,000 = 25,000
    • Capitalisation reserve to be applied = 0

    The requirements for the maintenance of the increase in own funds must be met.A capitalisation reserve of 3,000 must also be set aside.

  2. As regards the equalisation reserve for the year 2020, as established in article 105 of the LIS, it may be reduced by up to 10% of the positive taxable income, up to a limit of 1 million euros:

    • Equalisation reserve = 10% of positive BI = 10% 247,000 = 24,700
    • Limit = 1,000,000

    The amount of 24,700 shall be added to the tax base of the tax periods ending in the 5 years immediately following the end of the 2020 tax period, provided that company A has a negative tax base, and up to the amount of the negative tax base.The remaining amount shall be added to the taxable amount for the tax period corresponding to the date of expiry of that period.

    An equalisation reserve of 24,700 euros is to be set aside in 2020.

    The corporate income tax settlement for 2020 is as follows:

    Settlement of IS 2020
    Accounting result before tax 2020 250,000
    Differences
    0
    BI prior to the reduction of Art. 25 and the offset of negative BI 250,000
    Capitalisation reserve (limit 10% x 250,000 = 25,000)
    -3,000
    Offsetting of tax losses in previous periods 0
    Gross tax base 247,000
    Equalisation reserve (limit 1,000,000)
    -24,700
    BI after the equalisation reserve 222,300
    Tax rate 25%
    Total tax liability 55,575
    Tax deductions and allowances 0
    Liquid quota 55,575
    Withholdings and payments on account -5,000
    Due tax 50575

Financial year 2021:

Own funds of company "A" at 01/01/2021Own funds of company "A" at 31/12/2021
Social capital
300,000
Social capital
300,000
Legal reserve
30,000
Legal reserve
30,000
Statutory reserves
10,000
Statutory reserves
20,000
Voluntary reserves
30,300
Capitalisation reserve
3,000
Result for the financial year 2020
250,000
Equalisation reserve
24,700
---
---
Voluntary reserves
60,300

Other data:

  • 2021 result of the IS profit and loss account:-20,000
  • No difference between accounting result and tax result
  • Retenciones:5,000
  • Tax rate: 25%

Calculation of capitalisation and equalisation reserves for the year 2021

  1. First, company A calculates the capitalisation reserve in accordance with Article 25 of the LIS:

    Total: 330,300 Total: 363,300
    FP for the purpose of Article 25 as of 01/01/2021FP for the purpose of Article 25 as at 31/12/2021
    Social capital
    300,000
    Social capital
    300,000
    Voluntary reserves
    30,300
    Voluntary reserves
    60,300
    ---
    ---
    Capitalisation reserve
    3,000

    According to the above data, the increase in own funds (Δ PF) is 33,000.

    Therefore, the capitalisation reserve for the year, as established in Article 25 of the LIS, will be 10% of the increase in the company's equity, up to a limit of 10% of the positive taxable income for the tax period prior to this reduction, to the consolidation referred to in Article 11(12) of this Law and to the offsetting of tax losses.

    • Capitalisation reserve = 10% reduction of Δ FP = 3,300
    • Ceiling 10% BI prior to capitalisation reserve = 0
    • Capitalisation reserve to be applied over the next two financial years = 3,300
  2. Regarding the equalisation reserve for the year 2021, as the tax base for the period is -20,000, the amounts deducted for the equalisation reserve for 2020 should be added up to this amount.

    • Addition of equalisation reserve 2020 = 20,000
    • Equalisation reserve to be added = 24,700 - 20,000 = 4,700

    The corporate income tax settlement for the year 2021 is as follows

    Settlement of IS 2021
    Accounting profit before tax 2021 -20,000
    Differences
    0
    BI prior to the reduction of Art. 25 and the offset of negative BI -20,000
    Capitalisation reserve (limit 0)
    0
    Offsetting of tax losses in previous periods 0
    Gross tax base -20,000
    Equalisation reserve (negative BI limit:-20,000)
    20,000
    BI after the equalisation reserve 0
    Tax rate 25%
    Total tax liability 0
    Tax deductions and allowances 0
    Liquid quota 0
    Withholdings and payments on account -5,000
    Due tax -5,000

Completion in model 200 of the capitalisation and equalisation reserve tables for the years 2020 and 2021

- Corporate Income Tax Return 2020
Equalisation reserve (page 20a of model 200)
Reduction in taxable income
Exercise of
generation
Amount of reduction BI
in the period / pending
add at the beginning of the period
Amount added to base
taxable in the period
Amount outstanding
add in future periods
2020 [01034] 24,700 [01730] 0 [01731] 24,700
Reserve allocation
Exercise of
generation
Reserve amount
to provide
Reserve amount
endowed
Reserve amount
pending endowment
Reserve ready
2020 [02413] 24,700 [02414] 24,700 [02415] 0 [02416] 0
Capitalisation reserve (page 20a of Form 200)
Exercise of
generation
Right to reduce BI generated
in the period / pending
apply at the beginning of the period
BI reduction appliedReduction BI pending
apply in future periods
2020 [02407] 3,000 [02408] 3,000 [02409] 0
Capitalisation reserve set aside in the year [01140] 0
- Corporate Income Tax Return 2021
Equalisation reserve (page 20a of model 200)
Reduction in taxable income
Exercise of
generation
Amount of reduction BI
in the period / pending
add at the beginning of the period
Amount added to base
taxable in the period
BI amount integrated in the declaration
for non-compliance with requirements
Amount outstanding
add in future periods
2020 [02410] 24,700 [02411] 20,000 [01604] 0 [02412] 4,700
Reserve allocation
Exercise of
generation
Reserve amount
to provide
Reserve amount
endowed
Reserve amount
pending endowment
Reserve ready
2020 [02241] 0 [02242] 0 [02243] 0 [02244] 20,000
Capitalisation reserve (page 20a of Form 200)
Exercise of
generation
Right to reduce BI generated
in the period / pending
apply at the beginning of the period
BI reduction appliedReduction BI pending
apply in future periods
2020 [01985] 3,300 [01986] 0 [01987] 3,300
Capitalisation reserve set aside in the year [01140] 3,000