Skip to main content

Aspects to analyse in civil companies

How the first balance sheet is drawn up and how transitional income is processed. Remuneration of working partners and deductibility of expenditure

Civil companies with a commercial purpose are taxpayers of Corporate Tax under the same conditions as any other taxpayer, and may benefit from the special regimes regulated in Title VII of the LIS if they meet the requirements established for each of the regimes established there.

Therefore, all the provisions of the LIS will apply to them with regard to determining the tax base, temporary imputation, computable income, deductible and non-deductible expenses, tax rates, deductions, fractional payments, etc.

We present below two issues that have generated doubts in civil societies:

As regards the preparation of the first balance sheet, as taxpayers of Corporate Tax, it must be taken into account that the fourth section of the thirty-second transitional provision of the LIS, provides that in the case of civil companies that pay Corporate Tax, it will be understood that as of January 1, 2016, for tax purposes, all of their equity is made up of contributions from partners, with the limit of the difference between the value of tangible fixed assets and real estate investments, reflected in the corresponding registry books, and the liabilities payable, unless the existence of other assets is proven.

The shares held in the civil company as of 1 January 2016 and acquired prior to that date shall have the acquisition value derived from the provisions of the preceding paragraph.

The entity must only include tangible fixed assets and real estate investments in its assets if they were recorded in its investment assets register in the year prior to 1 January 2016, as they were its property.

The tax effects of changing from paying taxes as an entity in the attribution of income to as a taxpayer of IS , both for the company and its partners, are the following:

  1. Accrued income : In the case of income whose imputation criterion has been determined according to the rules of IRPF , in particular, the criterion of exigibility and not the accrual criterion, when, on the contrary, once the company becomes a taxpayer of IS, all the income that is included in its tax base is determined according to the accrual principle. Therefore, it is possible that there are incomes that have been accrued during the period of time in which the company has paid taxes according to the income attribution regime and, therefore, have not been attributed to the partners of said company, since they have not yet been payable. In these situations, the LIS establishes that such incomes are integrated into the taxable base of the civil company of the first tax period in which the company begins to pay taxes according to the general regime, that is, in the first tax period starting on or after 1-1-2016.

  2. Unearned income : This case involves income whose imputation criterion has been determined according to the IRPF exigibility criterion and, therefore, has been attributed to the partners of the civil society, but has not been accrued according to the IS criterion, so that when the company becomes a IS taxpayer, the accrual of the same would take place, which would entail double taxation on such income. To avoid these situations, a special rule is established whereby the income that has been integrated into the tax base of the civil company in application of the income attribution regime is not integrated again into that company on the occasion of its accrual.

  3. Increase in value of assets : The elements comprising the assets of the civil company that incorporate latent capital gains at the time of the change to the general regime have not been integrated into the company's tax base because they have not yet been generated, so that if these capital gains become apparent when the civil company is taxed according to the general regime, all of them would be integrated into the company's tax base and would be taxed at the general rate, even though part of them was generated in previous periods in which the company was taxed according to the attribution regime.

Any accounting expense will be a tax-deductible expense for the purposes of Corporate Tax, provided that it meets the legally established conditions in terms of accounting entry, accrual-based allocation, correlation of income and expenses, and documentary justification, provided that its valuation is carried out at market value, in accordance with the provisions of article 18 of the LIS and that it is not considered a tax-non-deductible expense by application of any specific provision established in the LIS.

At this point, it is worth mentioning the provisions of Article 15 of the LIS: Non-deductible expenses include: e) Donations and generosity. This letter e) shall not include remuneration to directors for the performance of senior management functions or other functions derived from an employment contract with the entity.

By virtue of all the above, the expense corresponding to the services provided by the working partner, for the performance of ordinary tasks other than those inherent to the position of administrator, will be considered a tax-deductible expense, provided that said expense meets the legal requirements mentioned above and in particular said remuneration has been valued at market value in accordance with the terms of article 18 of the LIS.