D. Materialization of the reservation

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

1. Deadline for making a reservation

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

2. Investments in which the reserve must be materialized

1. Additional Provision 70.Four 4 A)

   The acquisition of tangible or intangible fixed assets, assets that contribute to the improvement and protection of the environment in the territory of the Balearic Islands, in the terms determined by regulation, as well as 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 affects:

   • For the promotion of protected housing, when this qualification is appropriate in accordance with the provisions of the regional regulations governing the actions of the Housing Plan of the Balearic Islands, and they are intended for leasing by the developer company.

   • For 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 socio-health activities, residential centers for the elderly, geriatric centers and neurological and physical rehabilitation centers.

   • To commercial areas that are subject to a rehabilitation process.

   • To tourist activities regulated by Law 8/2012, the acquisition of which has the purpose of rehabilitating 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 average total 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 profit from which the reserve is provided is obtained, the five-year period will be reduced to three years in the tax period in which the profit from which the reserve is provided is obtained.

   • To calculate the company's total average workforce and its increase, the number of people employed will be taken into account, in accordance with the terms established by labour legislation, taking into account the contracted working hours in relation to the full working day.

3. Additional Provision 70.Four 4 C)

   The subscription of shares or interests 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 acquiring the shares or interests in its capital had provided the reserve.

   • The assets thus acquired must remain in operation in the Balearic Islands under the terms set out in this section.

   • The amount of the acquisition value of the investments made by the participating company must reach, at least, the amount paid for the shares or interests acquired by the taxpayer.

3. Requirements for the materialization of the reservation

1. The assets in which the investment is made must be located or received in the Balearic archipelago, be used there, be affected by 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 able to exceed their market value.

3. Materialization will be deemed to have occurred, even in cases of acquisition through financial leasing, at the time when the assets become operational.

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

   In the case of land acquisition, the period 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.