Skip to main content
Practical Manual for Companies 2022.

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 debtors existing at the end 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 allocation may not exceed 1 percent of the balance of debtors existing at the end of the tax period.

    The balance shall not include the debtors on which the loss due to impairment of credits due to bad debts established in article 13.1 of the LIS has been recognized, nor those others whose losses due to impairment are not deductible according to the provisions of said article.

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

In tax periods in which cease to meet the conditions of article 101 of the LIS to be considered small-sized entities, the losses incurred in these tax periods due to impairment of credits to cover the risk arising from 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-sized company.

Keep in mind:

With effect for tax periods beginning within the years 2020 and 2021, article 14 of Royal Decree-Law 35/2020, of December 22, establishes that taxpayers of Corporate Tax that are considered small companies may deduct, in said periods, losses due to impairment of credits arising from possible insolvencies of debtors when three months have elapsed since the due date of the obligation referred to in letter a) of article 13.1 of the LIS.

In this way, for small companies, the period established for being able to deduct losses due to impairment of credits arising from possible debtor insolvencies is reduced in these periods, going from 6 months to 3 months, the time required to have elapsed between the maturity of the obligation and the accrual of the tax.