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Practical Manual for Companies 2024.

Net deductible financial expenses

Regulation: Article 16.1 LIS

Net financial expenses will be deductible up to limit of percent of the operating profit for the year.

For these purposes, the following must be taken into account:

a) Net financial expenses

net financial expenses shall be understood as the excess of financial expenses with respect to the income derived from the transfer to third parties of own capital accrued in the tax period, excluding those non-deductible expenses referred to in letters g) and h) of article 15 of the LIS and article 15 bis of said Law.

b) Operating profit

The operating profit will be determined from the operating result of the profit and loss account for the year determined in accordance with the Commercial Code and other accounting regulations for development:

  • Eliminating the depreciation of fixed assets, the allocation of non-financial fixed asset subsidies and others, the impairment and results from disposals of fixed assets, and

  • Adding the financial income from participations in equity instruments, provided that they correspond to dividends or participations in profits of entities in which either the percentage of participation, direct or indirect, is at least 5 percent, except that said participations have been acquired with debts whose financial expenses are not deductible by application of article 15 h) of the LIS.

    Keep in mind:

    With effect for tax periods beginning on or after 1 January 2021, in determining operating profit the addition of financial income from participations in equity instruments that correspond to dividends will not be taken into account when the acquisition value of said participations is greater than 20 million euros , without reaching the aforementioned percentage of 5 percent.

With effect for tax periods beginning on or after January 1, 2024, to determine operating profit will not be taken into account, in no case,income, expenses or revenues that have not been included in the taxable base of the Corporate Tax.

Keep in mind:

Those income, expenses or rents that should not be part of the operating profit would not have been permanently integrated in the tax base of the period.

Therefore, when determining the operating profit for the period, does not exclude those income, expenses or rents that could have been subject to a temporary adjustment, since this will subsequently reverse in a subsequent year, with the opposite sign.

Being an expense or income that forms part of the operating profit and, therefore, of the operating result, to the extent that that is not definitively integrated into the tax base of the Corporate Tax, by be subject to a permanent off-the-books adjustment, you must to be excluded from the calculation of operating profit in the terms provided for in article 16.1 of the LIS.

In the event that it is a expense or income that forms part of the unrealized operating result, by the accounting concept of operating profit itself, the operating profit for the period, such expense or income will not count, This is regardless of whether said expense or income has been the subject of extra-accounting adjustment, temporary or permanent.