Levelling reserve

Regulation: Article 105 LIS

1. Scope

Entities that meet the requirements of Article 101 of the LIS to be considered small companies in the tax period and apply the tax rate provided for in the first paragraph of Article 29.1 of said Law may apply this tax incentive.

2. Amount and limits

Small companies that apply this tax incentive will be able to reduce their positive tax base by up to 10 percent of its amount.

However, this reduction may not exceed the amount of 1 million euros.

If the tax period has a duration of less than one year, the amount of the reduction may not exceed the result of multiplying 1 million euros by the proportion existing between the duration of the tax period and the year.

This reduction of the positive tax base will be taken into account for the purposes of determining the fractional payments referred to in section 3 of article 40 of the LIS.

The amounts referred to in the previous paragraph, will be added to the tax base of the tax periods ending in the 5 years immediately following the end of the tax period in which said reduction is made, provided that the taxpayer has a negative tax base, and up to the amount thereof. The amount will be added to the tax base for the tax period corresponding to the date of completion of the aforementioned .

3. Reserve allocation

Small companies that apply this tax incentive must set aside a reserve for the amount of the reduction specified in the previous section, which will be unavailable until the tax period in which the amounts referred to in the previous section are added to the entity's tax base.

The reserve must be provided against the positive results of the year in which the reduction in tax base is made. In the event that this reserve cannot be allocated, the reduction will be conditional on it being allocated from the first positive results of subsequent years for which it is possible to make such allocation.

The aforementioned reservation will not be deemed to have been used in the following cases:

• When the partner or shareholder exercises his right to separate from the entity.

• When the reservation is eliminated , totally or partially, as a result of operations to which the special tax regime for mergers, spin-offs, contributions of assets and exchange of securities established in Chapter VII of Title VII of the LIS applies.

• When the entity must apply the aforementioned reserve by virtue of a legal obligation.

The amounts allocated to the provision of the reserve provided for in this article may not be applied, simultaneously, to the fulfillment of the capitalization reserve established in article 25 of the LIS or the Reserve for Investments in the Canary Islands provided for in article 27 of Law 19/1994, of July 6, amending the Economic and Fiscal Regime of the Canary Islands.

Date on which the reserve must be provided

Article 273 of the consolidated text of the Capital Companies Act, approved by Royal Legislative Decree 1/2010, of July 2, establishes in its section 1 that the general meeting will resolve on the application of the result of the year in accordance with the approved balance sheet. Consequently, the equalisation reserve must be provided at the time determined by commercial regulations for the application of the results of the financial year.

4. Non-compliance

If the requirements established by the regulations in order to apply this tax incentive are not met, the full amount corresponding to the amounts that have been subject to reduction, increased by percent, must be included in the full amount for the tax period in which the non-compliance occurs in addition to the late payment interest.

The payment of the increased full amount and late payment interest will be made jointly with the self-assessment corresponding to the tax period in which the requirements have not been met. This amount must be entered in box [01038] "Increase due to non-compliance with the leveling reserve (art. 105.6 LIS)" on page 14 of form 200, the breakdown of which will be made in box " Leveling reserve " on page 20 bis of said form.