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Practical Handbook for Companies 2021

Equalisation reserve

Regulation:Article 105 LIS


This tax incentive may be applied by 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.

2.Amount and limits

Small companies that apply this tax incentive may reduce their positive tax base by up to 10 per cent of its amount.

However, such a reduction shall not exceed the amount of EUR 1 million.

If the tax period has a duration of less than one year, the amount of the reduction may not exceed the result of multiplying EUR 1 million by the ratio of the duration of the tax period to the year.

This reduction of the positive tax base will be taken into account for the purposes of determining the instalments referred to in Article 40(3) 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 and successively to 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 of the same.The remaining amount shall be added to the tax base for the tax period corresponding to the date of expiry of the said period.

3.Reserve allocation

Small companies that apply this tax incentive must set aside a reserve for the amount of the reduction referred to 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 funded with a charge to the positive results of the year in which the reduction in the tax base is made.If it is not possible to set up this reserve, , the reduction is conditional upon the reserve being charged against the first profits of subsequent financial years for which it is possible to set up the reserve.

The reserve shall not be deemed to have been drawn down in the following cases:

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

  • When the reserve is eliminated, in whole or in part, as a result of transactions to which the special tax regime for mergers, spin-offs, contributions of assets and exchanges of securities established in Chapter VII of Title VII of the LIS is applicable.

  • When the institution is required to apply the reserve by a legal obligation .

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

Date on which the reserve is to be funded

Article 273 of the revised text of the Capital Companies Act, approved by Royal Legislative Decree 1/2010, of 2 July, establishes in section 1 that the general meeting shall resolve on the application of the profit for the year in accordance with the approved balance sheet.Consequently, the equalisation reserve must be appropriated at the time determined by commercial law for the appropriation of the profit or loss for the year.


Company A, whose financial year runs from 1 January to 31 December, may, for the purpose of reducing the tax base for the tax period 2021, when the general meeting resolves on the appropriation of the profit for the year 2021, set up the equalisation reserve.


If the requirements demanded by the regulations to be able to apply this tax incentive are not met, the full tax liability for the tax period in which the non-compliance takes place must include the full tax liability corresponding to the amounts that have been subject to reduction, increased by 5 percent, in addition to the interest for late payment.

The payment of the increased full tax liability and late payment interest will be made together with the self-assessment corresponding to the tax period in which the requirements have not been met.This amount should be included in the box [01038] "Increase due to non-compliance with the levelling reserve (art. 105.6 LIS)" on page 14 of form 200, the breakdown of which should be made in the table "Levelling reserve" on page 20 bis of this form.