Planning the tax and accounting closing for 2023, at this stage of the year, is an important task. Because we are in time to plan the way to reduce the Corporate Tax. There is little time left to close the fiscal year but we can already know more or less how much we will have to pay.
Next, the experts of our Tax Consultancy propose a series of recommendations to reduce the tax bill, and we remember the main elements that must be reviewed before the tax and accounting closing.
Planning the tax and accounting closing for 2023
Some last minute tips to reduce the amount of the Corporate Tax of this fiscal year.
Fiscal adjustments of the accounting
At the end of the year it is the moment to remember and to review the differences between the accounting and fiscal criteria when considering if an expense is deductible. And in case it is appropriate, to modify them.
In relation to the deductibility of services to customers and suppliers, it should be checked that the limit of 1% of the net turnover for the year is not exceeded. The excess will not be deductible as it is considered a non-deductible liberality such as donations or gifts.
Regarding the expense derived from the remuneration of the position of Director. Both the condition of remuneration and the form of remuneration must be specified in the bylaws in order to be considered deductible.
Property Company
It is also time to check if there is a risk of having converted the company into a patrimonial entity by means of the patrimonial investments made during the year. According to Article 5 of Law 27/2014 on Corporate Income Tax, it is one in which more than half of its assets are made up of securities or are not assigned to an economic activity. Deduced from the average of the quarterly balance sheets of the fiscal year.
With respect to the activity of leasing real estate, in order for an economic activity to exist avoiding the patrimonial nature, it is required that, at least, it has an employee with a full-time contract, but, also and according to the criteria of the General Directorate of Taxes, TEAC, and Supreme Court, a “minimum volume and workload that justifies the need to have to count on such means”.
The consequences of the patrimoniality of the company are of special transcendence:
Firstly, the exemption on dividends and on income derived from the transfer of shareholdings cannot be applied.
Neither can the tax incentives for small companies be applied.
It is important to point out that the 15% tax rate cannot be applied in the case of newly created companies.
In addition, the possibility of offsetting negative taxable income is excluded.
On the other hand, the holding of their shares is not exempt from Wealth Tax. And it prevents the application of the favorable regime of business succession between family members, which implies a considerable reduction in the taxable income for inheritance and gift tax.
Capitalization Reserve
One of the mechanisms to reduce the corporate income tax bill is the application of this benefit. It allows the taxable income to be reduced by 10% of the amount of the increase in shareholders’ equity with a maximum limit of 10% of the taxable income prior to this reduction. To the integration of the provisions for impairment of credits of article 11 paragraph 12 LIS. And to the compensation of negative taxable bases.
Provided that the following requirements are met:
- The increase in the entity’s equity is maintained for a period of 5 years except for the existence of accounting losses in the entity.
- The allocation of a reserve for the amount of the reduction. This reserve must be shown in the balance sheet with absolute separation and appropriate title and will not be available for a period of 5 years.
Offset of tax losses from previous years
It is possible to offset the positive taxable income of the year with the negative taxable income of previous years, without time limit, and without restriction up to €1,000,000. After that amount, it is limited to 70% of the taxable income prior to the application of the capitalization reserve.
And when the net turnover reaches €20,000,000. The compensation will be limited to 50% of the previous taxable income. And if it reaches €60,000,000, it will be limited to 25%.
Reduced Size Entities (RSEs)
It is especially relevant to control whether the ERD requirements will no longer be complied with, due to its tax implications. This regime will be applied whenever the net turnover in the immediately preceding tax period is less than €10,000,000. The tax incentives will be applied in the 3 fiscal years immediately following the one in which the entity reaches €10,000,000. Provided that the conditions to be considered as an ERD have been met both in that period and in the 2 fiscal years prior to the latter.
The incentives are as follows
- Freedom of depreciation on new tangible fixed assets and real estate investments that generate employment. It is conditioned to the increase in the average number of employees of the company during 24 months with respect to the previous 12 months. The level will be maintained for a further 24 months. And quantitatively conditioned by an amount resulting from multiplying €120,000 by the increase in headcount calculated to two decimal places.
- Accelerated depreciation for investments in new tangible fixed assets, real estate investments and intangible fixed assets. They may be depreciated according to the coefficient resulting from multiplying by 2 the maximum straight-line depreciation coefficient provided for in the officially approved depreciation tables.
- Deduction of impairment losses due to possible insolvency of debtors. DGSs may deduct the impairment loss on receivables to cover the risk of possible insolvencies up to a limit of 1%. On existing debtors at the end of the fiscal year in which this ERD tax regime is applicable.
- Equalization reserve. The allocation of this reserve, which is not available, makes it possible to reduce the IS taxable income by up to 10% of its amount. With a maximum annual limit of €1,000,000. However, this reduction applied will have to be added to the taxable income of the five tax periods immediately following the one in which it is applied. As the taxpayer generates negative taxable bases, and up to the amount of these. In the event of not generating negative taxable income, the reduced amounts are added to the positive base of the fifth year. In this way, taxation is deferred.
Therefore, do not miss the opportunity to plan the 2023 tax and accounting closing correctly, as there is still time to reduce the tax bill.
