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Practical Handbook for Companies 2021

Impairment losses on loans to cover possible bad debts

Regulation: Article 104 LIS

Entities in the tax period in which they meet the conditions of article 101 of the LIS to be small companies, may deduct losses due to impairment of credits to cover the risk derived from possible insolvencies up to the limit of 1 per cent of the debtors existing at the end of the tax period.

For these purposes:

  • The entity must have the status of a small enterprise in the tax period in which the loss is deductible.

  • The amount of the allocation may not exceed 1 per cent of the balance of debtors existing at the end of the tax period.

    This balance shall not include debtors on which the impairment loss on bad debts established in article 13.1 of the LIS has been recognised, nor any other debtors whose impairment losses are not deductible in accordance with the provisions of said article.

  • The balance of the provision made by this method at the end of the tax period may not exceed 1 per cent of the aforementioned debtors existing at the end of the tax period.

In the tax periods in which ceases to meet the conditions of article 101 of the LIS to be considered small entities, the losses incurred in these tax periods due to impairment of credits to cover the risk derived from the possible insolvencies of debtors, will not be deductible up to the amount of the balance of the impairment loss when the entity was considered a small company.

A tener en cuenta:

With effect for tax periods beginning in 2020 and 2021, article 14 of Royal Decree-Law 35/2020, of 22 December, on urgent measures to support the tourism, hotel and catering and commerce sector and in tax matters, establishes that corporate income taxpayers that meet the conditions of article 101 of the LIS to be considered small companies may deduct, in those periods, losses due to impairment of credits derived from the possible insolvency of debtors when three months have passed since the expiry of the obligation referred to in letter a) of article 13.1 of the LIS.

Thus, for small companies, the period established for deducting credit impairment losses arising from the possible insolvency of debtors is reduced in these periods from 6 months to 3 months, the time required to have elapsed between the maturity of the obligation and the accrual of the tax.