New Gipuzkoan Foral Regulation for the reform of the Tax System
On 17 May 2018, Provincial Law 1/2018 was published in Gipuzkoa's Official Gazette No. 94, introducing modifications to various tax regulations. This new regulation introduces significant modifications in several of the taxes on which the Historical Territory of Gipuzkoa has regulatory autonomy, specifically, modifications in the following tax figures:
- CORPORATE INCOME TAX.
- PERSONAL INCOME TAX.
- THE TAX REGIME FOR COOPERATIVES.
- THE TAX ON TRANSFERS OF ASSETS AND DOCUMENTED LEGAL ACTS.
- THE GENERAL FORAL TAX LAW.
- ADAPTATION OF THE TAX REGULATIONS TO THE BASQUE CIVIL LAW ACT 5/2015 OF 25 JUNE 2015.
At BAUM we are experts in corporate tax advice and for this reason, in this article we will focus on explaining the relevant regulatory changes introduced in Corporate Income Tax by the new approved standard.
As indicated above, the New Foral Law 1/2018, of 10 May, introduces very significant amendments to the current Foral Law on Corporate Income Tax, Foral Law 2/2014, of 17 January, on Corporate Income Tax, making these amendments effective from 1 January 2018 onwards.
Essentially, the most relevant changes introduced by most companies are as follows:
- Changes in tax rates:
Micro and small enterprises:
2017: 24 %
2018: 22 %
2019: 20 %
2017: 28 %
2018: 26 %
2019: 24 %
- Reduction of compensation to micro-enterprises for the difficulties inherent in their size:
Until 2017, microenterprises had a "pass" to reduce their tax base by 20%, applicable automatically to all of them. This "pass" is reduced to 15% for 2018 and to 10% for 2019.
- Modification in the compensation of Negative Tax Bases:
- The time limit for its application is extended to 30 years from the previous 15 years.
- A quantitative application limit is incorporated,
i. Applicable to 70% of the Negative Tax Base for Micro and Small Enterprises.
ii. A 50% of the Negative Tax Base applicable for the rest.
- Modifications introduced in the Tax Deductions:
- As in the previous case, the time limit for its application is extended to 30 years.
- The limits applicable each year for deductions are reduced:
i. The R&D&I deductions go from unlimited to a limit of 70% of the tax rate.
ii. The remaining deductions lower their application limit from 45% to 35%.III. The deduction for job creation is modified to an amount of 25% of the gross annual salary, with a limit of €5,000. Some new requirements for the application of this deduction are introduced:
i. That the salary be higher than the average Interprofessional Salary in force at the time of hiring, increased by 70%.
ii. That the number of workers with permanent contracts of employment shall not be reduced in the following three years.
iii. During the three years following the hiring, the salary attributable to the person who has generated the deduction must at least be maintained.
- Entering the instalment payment:
A fractioned payment is introduced for large and medium-sized companies, which will be 5% of the taxable base for the last declared period, to be paid in October of each financial year.
- Amendments to the figure entitled "Patent Box":
The scope of application of this figure is considerably reduced, with the new rule eliminating certain activities that were eligible for this tax benefit under the previous legislation (as intellectual property models, non-commercial software, Know-how and industrial, commercial or scientific equipment).
- Modification of the scheme for the reinvestment of extraordinary profit:
The possibility of reinvestment in the acquisition of shares in the capital or equity of entities is eliminated.
As said, these are the most relevant modifications introduced into the applicable corporate income tax regulations by the new Foral Law published on 17 May.
At BAUM we are at your disposal to help your organisation, - in these or in any other aspects of fiscal nature- , so do not hesitate to contact us.
Igor Barrios Azkue