87

Special Tax Rate Eligibility for Startups

Miguel González 5 February, 2024

The regulation on special tax rates for newly established businesses specifies that this advantageous rate applies to the first tax period in which the entity reports positive taxable income, and continues into the next tax period, regardless of the taxable income outcome in this subsequent period. This rule, which applies to both corporate income tax and personal income tax, stems from a preceding legislative framework.

The debate surfaced following a decision by the Valencia Tax Management Office, which deemed the reduced rate inapplicable for the 2019 fiscal year for a company that had reported positive taxable income in both 2017 and 2018. The company, contesting this interpretation, argued that the regulation should apply to the first two fiscal years where a positive taxable base was realized, including the year 2019. This perspective was endorsed by the Regional Economic-Administrative Court (TEAR).

In response, the Director of the Management Department initiated an extraordinary appeal for criterion unification before the Central Economic-Administrative Court (TEAC). The argument centered on the phrasing "and in the following", which was interpreted to mean the subsequent tax period regardless of the taxable base's performance.

The TEAC, in its decision (res. TEAC 4696/2023 of 24/07/23), sided with the Tax Administration. It clarified that the contemporary regulation perpetuates the interpretive logic of its antecedent. Despite the absence of explicit language in the regulation, it's inferred that the special tax rate is applicable in the first financially positive tax period and extends into the following period.

Baker Tilly International
43,000
Staff
$5.2bn
Turnover
658
Offices
141
Territories

Related content

Insights Audit
Lorena Pérez y Samy • 19 April, 2024
Insights Tax
Miguel González • 1 April, 2024
Insights Tax
Miguel González • 1 April, 2024
Insights Tax
Miguel González • 1 April, 2024
Insights Tax
Miguel González • 1 April, 2024
Insights Tax
Miguel González • 1 April, 2024
Insights Tax
Miguel González • 1 April, 2024
Insights Labour 
Daniel López • 19 March, 2024
Baker Tilly newsletter
Find out about the latest developments that could affect your business
Subscribe here