The Spanish government has introduced provisional measures to the Corporate Income Tax in order to reduce public deficit this year. To achieve this objective, the government has fixed a 30% limit on net financial expenses deductibility of the EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), maintained zero deprecation of assets for small and medium-sized enterprises (SMEs), and cut down annual overall limitation on tax credits.
The decree comes into effect from March 31, 2012 with a retroactive effect to taxable years starting from January 1, 2012.
Spain Tax Measures: Changes to Corporate Income Tax Regulations-
Replacing the thin capitalization regulations, the new ruling sets limit of up to 30% on net financial expenses deductibility of the EBITDA, carrying forward the undeducted expenses up to 18 years. If the net interest expense of a taxable year is lower than 30 %, the undeducted expense up to 30% of the EBITDA will be carried forward for 5 years. Deductible net expenses up to E 1 million being always deductible, companies which are not the part of a group of companies with specific limits, and credit institutions do not come under the purview of the 30% limit.
The new decree maintains free depreciation of assets for (SMEs) where the company maintains employee level. According to the new legislation, from March 31, 2012, no incentive will be applicable for assets obtained after this date; however, free depreciation will be applicable with certain limits for assets acquired before March 31, 2012.
To facilitate promotion of Research & Development (R&D), environment and other activities, the new ruling has cut down the annual overall limitation on tax credits to 25% of the corporate income tax due minus domestic and international tax credit and discounts. In case R&D tax credits cross 10% of the tax due, the limit is reduced to 50%. The reinvestment tax credit that was excluded before has been included for calculation of the limits. With the intention of offsetting the effects of these provisional methods, carry forward period of unused tax credits has been increased to 15 years. However, for R&D tax credits, the carry forward limit is increased from 15 to 18 years.
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