Issues to consider when settling the tax in 2024

Special tax regime of the Balearic Islands

With effect for tax periods beginning between January 1, 2023 and December 31, 2028, the Seventieth Additional Provision of Law 31/2022, of December 23, introduces the special tax regime of the Balearic Islands, in recognition of the specific and differential fact of its insularity. The regulatory development of the special tax regime of the Balearic Islands was approved by Royal Decree 710/2024, of July 23.

This special regime allows taxpayers of the Corporate Tax and Non-Resident Income Tax to apply the following tax benefits :

1. Reserve for investments in the Balearic Islands

   Taxpayers will be entitled to a reduction in the tax base of the amounts that, in relation to their establishments located in the Balearic Islands, they allocate from their profits to the investment reserve .

   This reduction will be applied to the allocations made to the investment reserve in each tax period up to the limit of 90 percent of the portion of profit obtained in the same period that is not subject to distribution , insofar as it comes from establishments located in the Balearic Islands.

   In no case may the application of the reduction determine that the tax base is negative.

   The amounts allocated to the reserve for investments in the Balearic Islands must be materialized within a maximum period of three years , counted from the date of accrual of the tax corresponding to the year in which it was provided for, in the realization of one of the investments included in the regulations.

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

   In addition, taxpayers may make advance investments, which will be considered as materialization of the investment reserve that is provided from profits obtained in the tax period in which the investment is made or in the three subsequent periods, provided that the required requirements are met.

   The materialization and its financing system will communicated together with the Corporate Tax declaration for the tax period in which advance investments are made.

   The application of the benefit of the investment reserve will be incompatible, for the same assets and expenses, with the deductions to encourage the performance of certain activities regulated in Chapter IV of Title VI of Law 27/2014, of November 27, on Corporate Income Tax. It will also be incompatible for the same goods and expenses with any tax benefit or measure of a different nature that has the status of state aid under European Union law, if said accumulation exceeds the limits established in the Community legislation that, in each case, are applicable.

   As for the regulatory development of the Reserve for Investments in the Balearic Islands, We highlight the following news:

   • Some are established general rules to specify which taxpayers are eligible for the reserve, the requirements that establishments located in the Balearic Islands must meet, and what benefits the reserve can provide.

   • The particularities and the specific requirements that must meet certain requirements investments in which you can materialize the reservation for investments in the Balearic Islands.

   • They are introduced special rules for the calculation of deadlines of the materialization of the investment. Of note is the one that establishes that the maximum period for the materialization of investments will not be affected due to the fact that such materialization may take place after December 31, 2028, provided that the allocation or allocations to the reserve for investments in the Balearic Islands linked to such investments have been made in the tax periods beginning between January 1, 2023, and December 31, 2028.

   • They are established specific rules for the determination of the amount of the investment materialization and its allocation to the reserve allocation(s).

2. Special regime for industrial, agricultural, livestock and fishing companies

   A bonus of 10 percent of the full quota corresponding to the income derived from the sale of tangible goods produced in the Balearic Islands by themselves, typical of agricultural, livestock, industrial and fishing activities is established ## , in the latter case in relation to the catches made in their fishing and aquaculture zone. Those persons or entities domiciled in the Balearic Islands or in other territories that are dedicated to the production of such goods in the archipelago, through a branch or permanent establishment, may benefit from this bonus.

   The application of the bonus in each tax period will require that the average workforce of the entity in said period is not less than the average workforce corresponding to the twelve months prior to the beginning of the first tax period in which the regime provided for in this section takes effect.

   When the entity has been established within the aforementioned period of twelve months, the average workforce resulting from that period will be taken into account.

   This bonus may be increased up to 25 percent in those tax periods where there has been an increase in the average workforce of no less than one with respect to the average workforce of the previous tax period and said increase is maintained for at least a period of three years from the date of completion of the tax period in which this increased bonus is applied.

   When the entity has been established in the first tax period in which the special tax regime takes effect, the application of the bonus will require that said entity meets the requirements for the application of the reduced tax rate for newly created entities regulated in article 29.1 of Law 27/2014, of November 27, on Corporate Tax . In this case, the rules set out in this number will be followed.

   The bonus will not be applicable to income derived from the sale of tangible goods produced in the Balearic Islands related to shipbuilding, synthetic fibres, the automobile industry, steel and coal industries.

   In relation to the regulatory development of the Special regime for industrial, agricultural, livestock and fishing companies, we highlight the following news:

   • A series of are introduced particularities for fishing and shipbuilding activities.

   • It is established that will not be part of the performance on which the bonus can be applied subsidies and aid, unless these must be passed on to the end user in the sales price of the product.

   Furthermore, in the regulatory development, the person in charge of the Ministry of Finance is authorized to determine the information that must be provided by taxpayers who apply the investment reserve in the Balearic Islands along with the statement for Corporate Tax, which will consist at least of:

   • Correction to the result from the profit and loss account as a reserve for investments in the Balearic Islands.

   • Amount of the endowment to the reserve for investments in the Balearic Islands charged to profits from the financial year.

   • Amounts applied/materialized in the settlement of the fiscal year, indicating, for each of the five financial years prior to said financial year, the amounts pending materialization of the reserve at the beginning of the period, the planned investments, the anticipated investments considered to be materialization of the investment reserve in the liquidation of the financial year and the amounts pending materialization at the end of the period.

   • Amounts of advance investments from the previous five years, indicating, for each of them, the amounts pending to be allocated to the reserve at the beginning and end of the period.

   Finally, the regulatory development states that the special tax regime of the Balearic Islands must in all cases respect the quantitative limits established in the European Union regulations on de minimis aid, and may be combined with other de minimis aid and with State aid compatible with the internal market. At the same time, the following are regulated: monitoring and control powers of the State Tax Administration, as well as the information obligations linked to the aforementioned aid.