Spain: Bill for the General State Budget Law for 2023 introduces a new tax benefit: the Reserve for Investments in the Balearic Islands (RIB)
The RIB consists of a reduction to the taxable amount for the tax concerned, in respect of the portion of the taxable person's income obtained from economic activities, including amounts obtained from transfers of assets used in them, which is used to record a reserve to undertake certain types of investments in the Balearic Islands.
Additional provision number sixty-one of the Bill for the General State Budget Law for 2023 introduces the special tax regime for the Balearic Islands, in force, in principle, for taxable periods commencing between January 1, 2023 and December 31, 2028.
Among other measures, the special regime provides for the approval of a new tax benefit, the Reserve for Investments in the Balearic Islands (RIB), designed to provide an incentive for investments that will contribute to enhancing and protecting the environment in the Balearic Islands, and set to benefit corporate income taxpayers and nonresident income taxpayers having establishments in the Balearic Islands, as well as personal income taxpayers obtaining income from economic activities determined under the direct assessment method.
For corporate income taxpayers and nonresident income taxpayers, the RIB consists of a reduction to their taxable income for the tax concerned, in respect of the portion of their income obtained from economic activities, including amounts from transfers of assets used in them, which is allocated to a reserve for undertaking certain types of investments in the Balearic Islands. The reduction will be capped at 90% of the portion of undistributed income from establishments located in the Balearic Islands, and it cannot reduce the taxable amount to below zero.
The amounts allocated to the RIB must appear as a completely separate item on balance sheets and under the appropriate heading; they must be restricted for the period in which the assets in which the investment was made have to remain at the company, and they must be used within three years to make any of the following investments:
- Acquisition of premises plant and equipment or intangible assets contributing to enhancing and protecting the environment in the Balearic Islands, as well as the R&D&I that will be determined in the regulations (yet to be implemented).
It is important to note that:
- If the reserve is used to acquire land, developed or otherwise, the land must fulfill specific requirements, and be used for activities such as building protected housing, carrying on certain types of industrial activities, renovating tourist establishments or shopping and business areas, or health and social care activities.
- In relation to intangible assets, the reserve cannot be invested in trademarks or in unpatented know-how.
- Where items of transport equipment for the carriage of passengers by sea are involved, they must be used exclusively for public services falling withing the field of activities in the public interest relating to public needs in the Balearic Islands.
- Where passenger road transport vehicles are involved, the company must have its tax domicile in the Balearic Islands.
- The creation of jobs related to those investments, provided those jobs are created in the six months following the date the investments come into operation and the increase in the workforce is retained for a five-year period.
- Subscriptions to shares in companies’ capital issued as a result of their formation or a capital increase by companies carrying on their activities in the Balearic Islands, provided the companies make those investments within three years following the due date for the corporate income tax or nonresident income tax for the period in which the amount was allocated to the RIB.
The investments must be made in assets located or received in the Balearic Islands and must remain in operation for at least five years, in which period they cannot be transferred, leased or licensed for use by third parties.
For these purposes, located and used in the Balearic Islands means, among other cases, and as will be determined in the regulations, aircraft which are flown to destinations that contribute to improving connections to the Balearic Islands; vessels flying the Spanish flag and having their home port in the Balearic Islands; transport and communications networks connecting the Balearic Islands with the exterior; certain software programs and intellectual property rights, as well as certain types of administrative concessions.
Taxpayers may make advance investments which will be considered as qualifying investments of amounts allocated to the RIB out of income in the period in which the investment was made, or in the following three years.
Use of the RIB by personal income taxpayers will confer on them the right to benefit from a deduction from gross tax liability in respect of the amounts of net operating income that are allocated to the reserve, provided they come from economic activities carried out in the Balearic Islands, and those taxpayers also have to determine their net income under the direct assessment method. Also for these taxpayers the amounts allocated to the reserve must be used within three years from when any of the investments mentioned above was made.
The tax credit must be calculated by applying the average personal income tax rate to annual allocations to the reserve, and must be capped at 80% of the portion of gross tax liability proportionally relating to net income from establishments located in the Balearic Islands.