D. Materialization of the reservation

Regulation: DA 70. Four (sections 4 to 9) Law 31/2022

1. Deadline to make the reservation

The amounts allocated to the reserve for investments in the Balearic Islands must be materialized within the maximum term of three years , counted from the date of accrual of the tax corresponding to the year in which it was allocated, in the realization of some of the investments that, as a summary, are detailed in the following point.

2. Investments in which the reserve must materialize

1. Additional Provision 70.Four 4 A)

   The acquisition of property elements of tangible or intangible assets, property elements that contribute to the improvement and protection of the environment in the territory of the Balearic Islands, in the terms that are determined by regulation, as well as the research and development expenses derived from research, development and technological innovation activities referred to in article 35.1 and 2 of the LIS.

   Investments in land, built or not, provided that it is affected:

   • To the promotion of protected housing, when this classification is applicable in accordance with the provisions of the regional regulations regulating the actions of the Housing Plan of the Balearic Islands, and they are intended for rental by the promoter company.

   • To the development of industrial activities included in divisions 1 to 4 of the first section of the IAE rates, approved by Royal Legislative Decree 1175/1990, of September 28.

   • To social-health activities, residential centers for the elderly, geriatric homes and neurological and physical rehabilitation centers.

   • To commercial areas that are the subject of a rehabilitation process.

   • To tourist activities regulated in Law 8/2012, whose acquisition aims to rehabilitate a tourist establishment.

2. Additional Provision 70.Four 4 B)

   The creation of jobs directly related to the investments provided for in letter a) above, which occurs within a period of six months from the date of entry into operation of said investment, with the following requirements:

   • The creation of jobs will be determined by the increase in the total average workforce of the taxpayer produced in said period with respect to the average workforce of the 12 months prior to the date of entry into operation of the investment, provided that said increase is maintained. for a period of five years.

     In the case of taxpayers who meet the requirements of article 101 of the LIS to be considered a small entity in the tax period in which the benefit is obtained from which the reserve is allocated, the five-year period will be reduced to three years in the tax period in which the benefit from which the reserve is allocated is obtained.

   • To calculate the company's total average workforce and its increase, the people employed will be taken, in the terms provided by labor legislation, taking into account the contracted day in relation to the full day.

3. Additional Provision 70.Four 4 C)

   The subscription of shares or participations in the capital issued by companies as a result of their incorporation or capital increase that carry out their activity in the islands, which meet the following requirements: 

   • These companies will make the investments provided for in letters a) and b) above, under the conditions regulated in this section.

   • These companies must make these investments within three years from the date of accrual of the tax corresponding to the year in which the taxpayer who acquires the shares or participations in their capital had allocated the reserve.

   • The heritage elements thus acquired must remain in operation in the Balearic Islands in the terms provided in this section.

   • The amount of the acquisition value of the investments made by the investee company must reach, at a minimum, the amount disbursed of the shares or participations acquired by the taxpayer.

3. Requirements for the materialization of the reservation

1. The assets in which the investment is materialized must be located or received in the Balearic archipelago, be used therein, be affected and be necessary for the development of the taxpayer's economic activities, except in the case of those that contribute to the improvement and protection of the environment in the Balearic territory.

2. In general, it will be understood that the amount of the materialization will reach the acquisition price or production cost of the assets, excluding interest, indirect state taxes and their surcharges, without being higher than their market value.

3. The materialization will be understood to have occurred, even in cases of acquisition through financial leasing, at the moment in which the assets come into operation.

4. The assets in which the reserve for investments referred to in letter a) of point 2 above has materialized, as well as those acquired by virtue of the provisions of letter c) of that same point, must remain in operation in the company of the acquirer for at least five years, without being transferred, leased or assigned to third parties for their use. 

   In the case of the acquisition of land, the term will be ten years.

5. The investments in which the reserve is materialized may be financed through financial leasing contracts regulated in article 106 of the LIS, in which case the reduction in the tax base will be conditional on the effective exercise of the purchase option.