D. Materialization of the reservation

Regulation:DA 70. Four (sections 4 to 9) Law 31/2022; articles 5 to 19 DR 710/2024

1. Deadline for making a reservation

The amounts allocated to the reserve for investments in the Balearic Islands must be materialized in the maximum term of three years, counted from the date of accrual of the tax corresponding to the year in which it was provided, in the realization of any of 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 investment reserve must be realized by making one of the following investments:

   • Acquisition of tangible or intangible fixed assets

     These are the elements referred to in the corresponding registration and valuation standards issued in accordance with the General Accounting Plan approved by Royal Decree 1514/2007, of November 16.

     Keep in mind:

     • These heritage elements may be new or used, provided that, in the case of the latter, said assets have not been fully included in the materialization of the reserve for investments in the Balearic Islands with respect to another taxpayer.

     • When it comes to investments in land, built or not, it must be affected:

       • To the promotion of protected housing, when this qualification is appropriate in accordance with the provisions of the regional regulations governing the actions of the Balearic Islands Housing Plan, and is intended for leasing by the development 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. (See article 6.1 a) of Royal Decree 710/2024).

       • To tourist activities regulated by Law 8/2012, the acquisition of which has the purpose of rehabilitating a tourist establishment. (See article 6.1 b) and c) of Royal Decree 710/2024).

       In relation to investments in land, sand will be considered rehabilitation works Actions aimed at the renovation, expansion or improvement of tourist establishments, provided that they meet the necessary conditions to be incorporated into tangible fixed assets as a higher value of the property in accordance with accounting regulations.

     • In the case of intangible fixed assets, the reservation may not be materialized in trademarks or unpatented knowledge. For these purposes, the following will be considered: non-patented know-how The rights to the economic exploitation of secret formulas or procedures, the rights to information relating to industrial, commercial or scientific experience, and the undisclosed set of technical information necessary for the industrial reproduction, directly and under the same conditions, of a product or a procedure. 

     • Finally, investments may be made in any type of transport element related to economic activity, whether for internal or external use:

       • When investments are made in elements of passenger transport by sea They must be dedicated exclusively to public services within the scope of functions of general interest that correspond to the public needs of the Balearic Islands. (See articles 10.2 and 13 of Royal Decree 710/2024).

       • If it is about investments in road passenger transport vehicles The company must have its tax domicile in the territory of the Balearic Islands. (See articles 10.3, 10.4 and 13 of Royal Decree 710/2024).

2. Acquisition of heritage elements that contribute to the improvement and protection of the environment in the Balearic Islands

   The following investments will be considered as such:

   • Those carried out on tangible fixed assets intended for environmental protection, consisting of installations that prevent atmospheric or acoustic pollution from industrial facilities, or against the pollution of surface, underground and marine waters, or for the reduction, recovery or treatment of own industrial waste, or to optimize the consumption and treatment of agricultural or industrial water resources, provided that the current regulations in said areas of action are being complied with and they are carried out to improve the requirements established in said regulations.

   • Those carried out on tangible assets consisting of facilities and equipment intended for the use, for self-consumption, of renewable energy sources for their transformation into electricity.

   The competent body in environmental matters of the Administration of the Balearic Islands must issue the certification of the validation of the investment.

   In any case, the aforementioned certification must be issued by the competent body in environmental matters of the Administration of the Balearic Islands before the end of the regulatory period for filing the self-assessment corresponding to the last tax period in which the taxpayer can carry out the materialization of the investment reserve, in accordance with the provisions of numbers 4 and 10 of section four of the Seventieth Additional Provision of Law 31/2022, of December 23.

   In the event that the investment is not validated within the period provided for in the previous section, the provisions of point 14 of section four of the Seventieth Additional Provision of Law 31/2022, of December 23, shall apply.

3. Research and development expenses derived from R&D&I activities

   This consideration will be given to the research and development expenses derived from R&D&I activities referred to in article 35 of the LIS.

   Keep in mind:

   The materialization of the reserve in these expenses will not be conditioned upon subsequent activation and will be considered carried out as such expenses are accrued.

4. Additional Provision 70.Four 4 B)

   The job creation 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.

   Keep in mind:

   The creation of jobs and changes in average staff will be those that occur in all of the taxpayer's establishments located in the Balearic Islands.

   It will not be necessary for the new jobs to be filled by newly hired workers.

5. 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 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 forth 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.

   Keep in mind:

   The investments made by the participating company will not give rise to any other tax benefits.

   For these purposes, the entity subscribing to the capital will proceed to reliably communicate to the issuing company the nominal value of the shares or interests acquired, as well as the date on which the period for the materialization of its investment ends. The issuing company shall reliably inform the entity subscribing to its capital of the investments made against its shares or interests whose subscription has led to the materialization of the reserve, as well as its date. The investments made will be deemed to be financed with the funds derived from the shares or interests issued according to the order in which their effective disbursement has occurred. In the case of disbursements made on the same date, they will be considered to contribute proportionally to the financing of the investment.

   Specific rules regarding the subscription of shares or participations in article 14 of Royal Decree 710/2024

   • The investments made by the investee company will not give rise to the application of any other tax benefits under the terms of number 11 of section four of the Seventieth Additional Provision of Law 31/2022, of December 23.

   • To fully apply the reduction for the investment reserve, the acquisition value of the investments made by the investee company must be at least the amount disbursed for the shares or interests acquired by the taxpayer. Otherwise, the reduction in the tax base will be proportional to the investment made.

     In any case, the participating company will be deemed to carry out its activity in the Balearic Islands when its tax domicile is located there or it has an establishment in accordance with the terms set forth in Article 3 of this Regulation.

   • The materialization of the investment by the subscribing person or entity will be considered to have occurred with the successive disbursement or disbursements of the subscribed capital due to the corresponding monetary contribution.

     For its part, the investments made by the participating entity must in any case be materialized after the incorporation or increase of capital and within the period established in letter C of section four.4 of the Seventieth Additional Provision of Law 31/2022, of December 23, without prejudice to the obligation of communication by the subscribing person or entity referred to in section 5 of this article.

   • The investment will be deemed to have been realized by the participating entity on the date on which the acquired assets become operational, and the subscribing person or entity must be notified of this.

   • The reporting obligation of the subscribing person or entity must be fulfilled within twenty days of the investment reserve being allocated.

     Likewise, the reporting obligation imposed on the issuing entity must be fulfilled within the same period of twenty days from the date the asset being invested comes into operation.

   • The communications referred to in the previous section shall be considered reliable when they are recorded in a public or private document, which includes the signature and identification of the parties, as well as their date.

   • For the purposes of the provisions of letter C of number 4 of section four of the Seventieth Additional Provision of Law 31/2022, of December 23, and in this article, the materialization of the reserve for investments in the Balearic Islands may be carried out through the acquisition of shares in temporary business associations regulated by Law 18/1982, of May 26, on the tax regime of groups and temporary business associations and regional industrial development companies.

     In particular, all legal or regulatory references to the subscribing entity, the participating company or entity, and the capital of the latter shall be understood to refer, respectively, to the participating company, the joint venture, and the common operating fund.

3. Requirements for the materialization of the reservation

1. The assets in which the investment is materialized must be located or be received in the Balearic archipelago, be used therein, be used 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. As for the materialization amount, in general, it will be understood that this amount will cover the acquisition price or production cost of the assets, excluding interest, indirect state taxes and their surcharges, and may not exceed their market value. In addition, the following are established: specialties:

   • In the case of transportation and communications networks that connect the Balearic archipelago with the outside, the amount of the materialization will reach the acquisition value or production cost of the section of the same that is located within the territory of the Balearic Islands and the part located outside of it that is used to connect the different islands of the archipelago with each other.

   • In relation to the investments in intangible assets, the amount of the materialization may not exceed 50 percent of the total value of the investment project of which they are part, unless they are taxpayers who are considered small entities (article 101 of the LIS), in the tax period in which the profit is obtained from which the reserve is allocated.

   • 50 percent of the amount of the costs of preparatory studies and consulting, when they are directly related to the planned investments referred to in letter a) of point 2 above and they are taxpayers who are considered small entities (article 101 of the LIS), in the tax period in which the profit is obtained from which the reserve is allocated.

   • The amount of the materialization of the reservation in research, development and technological innovation expenses It will also apply to projects contracted with universities, public research organizations, or innovation and technology centers, officially recognized and registered and located in the Balearic Islands.

   • In the case of creation of jobs , the materialization will be considered to have occurred only during the first two years since the increase in staff occurs and will be computed, in each tax period, at the amount of the average cost of gross salaries and mandatory social contributions that correspond to said increase.

   • In the case of the subscription of shares or participations in the capital, the materialization will be considered to have occurred in the amount disbursed on the occasion of its subscription. The amount paid as issue premium will also be considered as such.

   Keep in mind:

   The portion of the investment financed by grants will not be considered as a reserve realization amount.

   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.

3. 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 acquiring company for at least five years, without being transferred, leased or assigned to third parties for use. 

   When your useful life was less than said period, this requirement will not be considered unfulfilled when another asset is acquired to replace it at its book value, within six months of its removal from the balance sheet, which meets the requirements for the application of the reduction provided for in this section and which remains in operation for the time necessary to complete said period.

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

   Keep in mind:

   In the cases of loss of the heritage element It must be replaced under the same terms established for cases where the useful life is less than five years.

   Taxpayers who are engaged in the economic activity of leasing or transfer to third parties For their use of fixed assets, they may apply the investment reserve, provided that there is no direct or indirect link with the lessees or assignees of said assets, in the terms defined in article 18.2 of the LIS, nor are they financial leasing operations.

   In the cases of leasing of real estate, the taxpayer must have the consideration of a tourism company in accordance with the provisions of Law 8/2012, of July 19, it is the leasing of protected housing by the development company, of real estate used for the development of industrial activities included in divisions 1 to 4 of the first section of the rates of the Tax on Economic Activities, approved by Royal Legislative Decree 1175/1990, of September 28, on socio-health activities, residential centers for the elderly, geriatric homes and neurological and physical rehabilitation centers or commercial areas located in areas whose tourist offer is in decline, due to the need for integrated rehabilitation interventions of urban areas, according to the terms defined in Law 8/2012, of July 19, and Decree-Law 1/2013, of June 7, on urgent measures of a tourist nature and the promotion of mature tourist areas.

   When it comes to shares or equity interests, must remain in the taxpayer's assets for five uninterrupted years, without the rights of use or enjoyment associated with them being subject to transfer to third parties.

4. The materialization will be understood to have been produced, even in the case of acquisition through financial leasing, at the time the assets come into operation.