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Practical Handbook for Companies 2021

Endowment

Regulation:Article 27.2 Law 19/1994

The reduction will be applied to the allocations made in each tax period to the RIC up to the limit of 90 per cent of the part of the profit obtained in the same period that is not distributed, insofar as it comes from establishments located in the Canary Islands.

In no case may the application of the reduction result in the tax base being negative.

The allocations to the reserve for investments from profits from tax periods commencing prior to 1 January 2015, shall be governed by the provisions of article 27 of Law 19/1994, of 6 July, as amended at 31 December 2014.

For these purposes, profits from permanent establishments in the Canary Islands, will be considered to be those derived from operations carried out with the personal and material resources assigned to the same that close a commercial cycle that determines economic results, as well as those derived from the transfer of assets not assigned to economic activities, provided that, in the latter case, they are tangible fixed assets, real estate investments or intangible assets that have generated income for at least one year within the three years prior to the date of transfer.

Undistributed profits shall be deemed to be profits intended to nourish reserves, excluding legal reserves.

Undistributed profit shall not include profit deriving from securities representing holdings in the capital or equity of other entities, as well as the transfer to third parties of own capital, except in the case of entities providing financial services.

With effect for tax periods beginning on or after 7 November 2018, , the profit deriving from the transfer of assets whose acquisition would have determined the materialisation of the investment reserve endowed with profits from tax periods beginning on or after 1 January 2007 will not be considered as undistributed profit.

In the case of assets that were only partially allocated to the reserve as from 1 January 2007, the portion of the undistributed profit corresponding to the acquisition value that did not materialise the reserve shall be deemed to be undistributed profit.

The allocations to reserves shall be deemed to be reduced by the amount that may have been deducted from shareholders' equity, either in the year to which the reduction of the tax base refers or in the year in which the resolution to make such allocations was adopted.