New companies may apply the reduced Corporate Income Tax rate under specific requirements

Newly created entities that fall within the timeframe of the Twenty-Second Transitional Provision of Law 27/2014 may benefit from a scale of reduced rates in Corporate Income Tax (IS). However, this benefit is not automatic and requires strict compliance with conditions regarding the nature of the activity and the company's structure.

What the DGT has ruled

The Dirección General de Tributos (DGT) has clarified that companies incorporated between the years 2013 and 2014 that carry out economic activities may be taxed at the reduced rates established in the Nineteenth Additional Provision of the Recast Text of the Corporate Income Tax Law (TRLIS). For this right to be effective, the entity must meet three fundamental requirements:

• Absence of activity transfer: The economic activity must not have been received from related parties.
• Inexistence of prior exercise: The activity must not have been previously carried out by a partner who holds a stake exceeding 50% in the new entity.
• Group independence: The company cannot be part of a group of companies, in accordance with the definition in Article 42 of the Commercial Code.

The tax benefit will apply during the first period with a positive tax base and in the period immediately following it.

What this means for you

If your company was incorporated during this specific timeframe, you have the possibility of reducing your tax burden by applying the 15% and 20% rates, as applicable. However, the administration closely monitors that the new entity is not merely a continuation of a previous activity of a partner or a related company, which would invalidate the right to the reduced rate.

What should be done

It is necessary to verify the traceability of the economic activity prior to incorporation and the company's shareholding structure. The correct application of this benefit depends on the company structure being genuinely new and not a fragmentation of a group or a business transfer from majority partners. It is recommended to analyze the related-party situation and the capital composition to ensure compliance with the regulations.