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Practical manual for Income Tax 2020.

Aspects to take into account for your application

1. Taxpayers who can apply the deduction

This deduction can be applied by taxpayers of IRPF who carry out economic activities and who meet the requirements to be considered as a small entity, in the year in which the investment income is obtained.

See the concept of small entity discussed in Chapter 7.

2. Object and basis of the deduction

The deduction will be entitled to the net income from economic activities from the 2019 or 2020 financial years that is invested in 2020 in new elements of tangible fixed assets or real estate investments related to economic activities carried out by the taxpayer.

For these purposes, it is understood that the net income from economic activities of the tax period is subject to investment when an amount equivalent to the part of the positive general taxable base of the tax period that corresponds to such income is invested, without in any case the same amount being understood to be invested in more than one asset.

The basis for the deduction will be the amount invested, that is, the part of the positive general taxable base of the tax period corresponding to the net income from economic activities of the tax period subject to investment in new elements of tangible fixed assets or real estate investments.

3. Deadline for investment

Investment in assets related to economic activities must be made in the tax period in which the income subject to reinvestment is obtained or in the following tax period.

The right to apply the deduction will occur in the tax period in which the investment is made, although it will be conditional on the allocation of the asset to economic activity within the investment period.

The investment shall be deemed to have been made on the date on which the assets are made available, including in the case of assets that are the subject of financial leasing contracts referred to in section 1 of the Seventh Additional Provision of Law 26/1988, of July 29, on discipline and intervention of credit institutions. However, in the latter case, the deduction will be conditional, in a resolutory manner, on the exercise of the purchase option.

The provision of assets must be understood as the availability of the thing that is the object of the contract, that is, the delivery of the same that constitutes the mode of acquisition of ownership by the purchaser.

The deduction will be applied to the entire amount corresponding to the tax period in which the investment is made.

4. Percentage of deduction

  • 5 per 100, in general

  • 2.5 per 100, in the following cases:

    a) If in the year in which the reinvested returns were obtained the 20% reduction of the declared positive net return was applied, provided for in article 32.3 of the Income Tax Law for taxpayers who begin the exercise of an economic activity and determine the net return thereof in accordance with the direct estimation method.

    b) If the reinvested returns gave rise to the right to the deduction for income obtained in Ceuta or Melilla under article 68.4 of the Personal Income Tax Law in the year in which they were obtained.

    The percentage of 5% will be applicable if in the year in which the reinvested returns were obtained the deduction for income obtained in Ceuta or Melilla was not applied, nor the reduction of article 32.3 of the Income Tax Law, even if said deduction reduction is applied in the following year (year of the investment).

5. Limits

The amount of the deduction may not exceed the sum of the total state and regional tax rate for the tax period in which the net income from economic activities was obtained.

When the deduction is applied in 2020 as a result of the investment of the net income obtained in 2019 and in this last period joint taxation has been chosen, the quota limit mentioned above will be the one corresponding to the taxpayer who makes the investment.

6. Permanence in the taxpayer's assets of assets subject to investment

The assets subject to investment must remain in operation in the taxpayer's assets, except in the case of justified loss, for a period of 5 years, or during their useful life if it is less.

The transfer of the assets subject to investment before the end of the required maintenance period will result in the loss of the deduction and, therefore, the amount of said deduction must be entered in the liquidation of the tax period in which the non-compliance occurs, together with the corresponding late payment interest.

However, the deduction will not be lost if the transfer of the assets subject to investment occurs before the end of the period indicated in the previous paragraph and the amount obtained or the net book value, if lower, is invested under the terms established to be entitled to this deduction.

In relation to this requirement, the entity has a period of two years from the beginning of the tax period in which the transfer occurs until the end of the following tax period, to make the investment.

7. Incompatibility

This deduction is incompatible, in relation to the same assets, with the application of the freedom of amortization, with the deduction for investments regulated in article 94 of Law 20/1991, of June 7, modifying the fiscal aspects of the Economic Fiscal Regime of the Canary Islands, and with the Reserve for investments in the Canary Islands regulated in article 27 of Law 19/1994, of July 6, modifying the Economic and Fiscal Regime of the Canary Islands.