With the purpose of encourage the corporate capitalization and the investment in new fixed assets or real-estate investments, a new tax credit is created for SME companies (turnover less than 10 million of euros the previous year). This measure entails a reduced taxation for profits reinvested in the assets described above, (“qualifying assets”) which will be subject to an effective tax rate of 15% (the standard tax rate for SME is 25 %, so the tax credit is 10 % of the reinvested profits).
The investments shall be made within the period comprised between the beginning of the tax period when the profits financing the acquisition are obtained and the subsequent two years, or exceptionally, according to a special investment program proposed by the taxpayer and approved by the tax office.
The tax credit is to be applied it in the same tax year in which the investment takes place.
Entities applying this tax credit shall create a capital reserve for the amount reinvested, which cannot be distributed as long as the qualifying assets remain in the entity. This capital reserve is created debiting the Profit & Loss account or retained earnings account corresponding to the relevant tax year.
Qualifying assets shall remain operating in the company, except justified loss, during a period of 5 years, or during its useful life, if shorter. However, the Law provides for a rollover scheme, so that the tax credit will not be disallowed if the assets are sold before the completion of the legal term, as long as the proceeds of the sale, or the net book value of the asset sold if lower, are reinvested in other qualifying asset for the time remaining.
NOTE: this tax incentive is no longer in force (May 2018)
To know the current Corporation Tax regime, please kindly visit our post about the Corporation Tax in Spain