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 percent on existing debtors at the conclusion of the tax period.

For these purposes:

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

• The amount of the provision may not exceed 1 percent of the balance of the existing debtors at the conclusion of the tax period.

  This balance will not include the debtors for whom the loss due to impairment of credits due to insolvencies established in article 13.1 of the LIS had been recognized, nor those others whose losses due to impairment were not are deductible in accordance with the provisions of said article.

• The balance of the provision made by this method at the close of the tax period may not exceed 1 percent of the aforementioned debtors existing at the conclusion of the same.

In the tax periods in which no longer meets the conditions of article 101 of the LIS to be considered small entities, the losses incurred in these tax periods due to deterioration of the credits for coverage of the risk derived from the possible insolvencies of the debtors, will not be deductible up to the amount of the balance of the impairment loss when the entity was considered a small company.