What are leveling and capitalization reserves?

As of January 1, 2015, two concepts that allow companies to pay less began to be applied based on the Corporate Tax Law. We tell you the most important aspects of levelling and capitalization reserves.

Leveling reserves

Based on article 105 of the Corporate Tax Law small companies (those that have a net turnover in the previous tax period of less than ten million euros) that apply the 25% tax, may reduce their positive tax base by up to 10%.

The reduction in the tax base carried out may not exceed one million euros. If the tax period lasts less than one year, the proportional part of that million euros will be calculated. Euros.

What is done is to carry out a retroactive compensation of negative tax bases, which can only be applied, as we mentioned, to small companies.

The objective pursued is to increase the capitalization of companies by reducing the taxation of companies that obtain profits. Instead of distributing them among the partners as dividends, they allocate them to reserves.

Capitalization reserves

They are regulated in Article 25 of the Corporate Tax Law, which establishes that taxpayers who pay taxes at the tax rate of 25 or 30% will have the right to a reduction in the tax base of 10% of the increase in taxes. their own funds. To apply this deduction, a series of requirements will have to be met, which are the following:

• That the amount of the increase in the entity’s funds be maintained for five years from the close of the tax period to which this deduction corresponds unless there are accounting losses in the entity.
• That a reserve be set aside for the amount of the reduction, which must appear in the balance sheet with absolute separation and appropriate title and will be unavailable for five years.

Based on what is established in the article above, it will not be understood that the reserve has been made available in the following cases:

• If the partner exercises his right to separate from the entity.
• If the reserve is eliminated by application of the tax regime for mergers, divisions, contributions of assets, exchange of securities and change of registered office of a European company, a European Cooperative Society of an EU Member State .
• If the entity has to apply the reserve due to the application of a legal obligation.

The right to reduction cannot exceed 10% of the positive tax base of the tax period prior to the reduction, integrating article 12.11 of the Corporate Tax Law and compensating negative tax bases.