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Practical manual for Income Tax 2024. Part 1

c) Investments where the amounts allocated to the RIB must be materialized and the amount of the materialization

Regulations: number 4 of section Four of the Seventieth Additional Provision. Law 31/2022, of December 23, on the General State Budget for the year 2023

The amounts allocated to the investment reserve in the Balearic Islands must be invested in one of the following investments:

Letter a:

1. Patrimonial elements of tangible or intangible fixed assets

The assets of tangible or intangible fixed assets shall be understood to be those elements referred to in the corresponding registration and valuation standards issued in development of the General Accounting Plan approved by Royal Decree 1514/2007, of November 16.

The assets may be new or used, provided that, in the case of the latter, said assets have not formed part, in their entirety, of the materialisation of the reserve for investments in the Balearic Islands with respect to another taxpayer.

Clarifications:

  1. In the case of investments for acquisition of land, built or not , this must be affected:

    • For the promotion of protected housing, when this qualification is appropriate in accordance with the provisions of the regional regulations governing Decree 27/2006, of March 7, which regulates the actions of the Housing Plan of the Balearic Islands, and is intended for leasing by the developer company.

    • For the development of industrial activities included in divisions 1 to 4 of the first section of the rates of the Tax on Economic Activities, approved by Royal Legislative Decree 1175/1990, of September 28, which approves the rates and instructions of the Tax on Economic Activities.

      Therefore, to the extent that the activities carried out are not included among the activities of divisions 1 to 4 of the first section of the rates of the Tax on Economic Activities, the investment in the land that occupies the property in which the activity will be carried out cannot be considered suitable for materializing the RIB .

    • To socio-health activities, residential centers for the elderly, geriatric centers and neurological and physical rehabilitation centers.

    • To commercial areas that are subject to a rehabilitation process. See article 6.1.a) of the Regulation implementing the Special Tax Regime of the Balearic Islands, approved by Royal Decree 710/2024, of July 23.

    • To the tourist activities regulated in article 3.b) of Law 8/2012, of July 19, on Tourism in the Balearic Islands, the acquisition of which has as its object the rehabilitation of a tourist establishment, as defined in article 3.h) of the aforementioned law 8/2012. See art. 6.1.b) and c) of the Regulation implementing the Special Tax Regime of the Balearic Islands, approved by Royal Decree 710/2024, of July 23.

    For the sole purpose of understanding the value corresponding to the land to be included in the amount of the materialization of the reserve, rehabilitation works will be considered to be actions aimed at the renovation, expansion or improvement of tourist establishments, provided that they meet the necessary conditions to be incorporated into tangible fixed assets as a higher value of the property.

  2. In the case of acquisition of intangible fixed assets , the reservation may not be materialized in trademarks or non-patented knowledge, in the terms established in article 7 of the Regulations for the development of the Special Tax Regime of the Balearic Islands, approved by Royal Decree 710/2024, of July 23.

    For these purposes, Article 7 of the aforementioned Regulation states that the following will be considered non-patented technical knowledge: rights to the economic exploitation of secret formulas or procedures, rights to information relating to industrial, commercial or scientific experience, and the undisclosed set of technical information necessary for the industrial reproduction, directly and under the same conditions, of a product or a procedure.

  3. In the case of the acquisition of means of transport, the investment reserve in the Balearic Islands may be any type of transport element used in economic activity, whether for internal or external use, without prejudice to the following specificities:

    • In the case of acquisition of passenger transport elements by sea they must be dedicated exclusively to public services within the scope of functions of general interest that correspond to the public needs of the Balearic Islands. See articles 10.2 and 13 of the Regulation implementing the Special Tax Regime of the Balearic Islands, approved by Royal Decree 710/2024, of July 23.

    • In the case of acquisition of road passenger transport vehicles it will be necessary for the company to have its tax domicile in the territory of the Balearic Islands. See articles 10, sections 3 and 4, and 13 of the Regulation implementing the Special Tax Regime of the Balearic Islands, approved by Royal Decree 710/2024, of July 23.

2. Investments that contribute to the improvement or protection of the environment in the territory of the Balearic Islands

Investments that contribute to the improvement or protection of the environment in the territory of the Balearic Islands are considered to be those referred to in article 8 of the Regulations for the development of the Special Tax Regime of the Balearic Islands, approved by Royal Decree 710/2024, of July 23.

Investments that contribute to the improvement or protection of the environment

For the purposes of understanding that the materialization requirement has been fulfilled, the following are considered to be fulfilled:

  1. Those carried out on tangible fixed assets intended for environmental protection, consisting of installations that prevent atmospheric or acoustic pollution from industrial facilities, or against the pollution of surface, underground and marine waters, or for the reduction, recovery or treatment of own industrial waste, or to optimize the consumption and treatment of agricultural or industrial water resources, provided that the current regulations in said areas of action are being complied with and they are carried out to improve the requirements established in said regulations.

  2. Those carried out on tangible assets consisting of facilities and equipment intended for the use, for self-consumption, of renewable energy sources for their transformation into electricity.

    For the purposes of the provisions of letters a) and b) above, the competent environmental body of the Administration of the Balearic Islands must issue the certification of the validation of the investment in any case before the end of the regulatory period for filing the self-assessment corresponding to the last tax period in which the taxpayer can carry out the materialization of the investment reserve (three years from the accrual date of the Personal Income Tax corresponding to the year in which it was provided or, in the case of early investments, in the tax period in which the investment is made or in the three subsequent ones). See for these purposes numbers 4 and 10 of section four of the Seventieth Additional Provision of Law 31/2022, of December 23.

    If the investment is not validated within the aforementioned period, the taxpayer must proceed to integrate the amounts that gave rise to the aforementioned deduction into the full personal income tax rate for the year in which these circumstances occurred, in accordance with the provisions of point 14 of section four of the Seventieth Additional Provision of Law 31/2022, of December 23.

3. Research and development expenses arising from research, development and technological innovation activities

Expenses derived from research, development and technological innovation activities referred to in article 35 of the LIS are considered research and development expenses.

The materialization of the reserve in research, development and technological innovation expenses will not be conditioned on its subsequent activation and will be considered realized as such expenses are accrued.

Note: Materialization will be deemed to have occurred, even in cases of acquisition through financial leasing, at the time when the assets become operational.

Amount of materialization of investments of letter A:

Regulations: see number 6 of section Four of the Seventieth Additional Provision. Law 31/2022, of December 23, on the General State Budget for the year 2023

  • Investment in assets: the amount of the materialization reaches the acquisition price or production cost of the assets , excluding interest, indirect state taxes and their surcharges, without being able to be higher than their market value.

  • Research and development expenses: the amount of the materialization of the reserve in expenses for research, development and technological innovation will also reach the projects contracted with universities, public research organizations or innovation and technology centers, officially recognized and registered and located in the Balearic Islands.

Limits on the amount of materialization of investments in letter A

Regulations: see number 6 of section Four of the Seventieth Additional Provision. Law 31/2022, of December 23, on the General State Budget for the year 2023

  • Intangible fixed assets: The amount of the materialization of the reserve in intangible fixed asset assets may not exceed 50% of the total value of the investment project of which they form part, unless the taxpayers are considered small entities (article 101 LIS) in the tax period in which the profit from which the reserve is provided is obtained.

  • Preparatory and consultancy studies: 50,100% of the amount of the costs of preparatory studies and consultancy will be computed when they are directly related to the investments provided for in this letter A and they are taxpayers that are considered small entities (article 101 LIS ), in the tax period in which the profit from which the reserve is provided is obtained.

Letter B:

See Article 11 of the Regulations implementing the Special Tax Regime of the Balearic Islands, approved by Royal Decree 710/2024 of July 23.

Creation of jobs directly related to the investments provided for in letter A), which occur within a period of six months from the date of entry into operation of said investment and meet certain requirements for increasing staff.

The creation of jobs is determined by the increase in the average total workforce of the taxpayer produced in said period with respect to the average workforce of the 12 months prior to the date of entry into operation of the investment, provided that said increase is maintained for a period of five years, except in the case of taxpayers who meet the conditions of article 101 of the LIS in the tax period in which the profit from which the reserve is provided is obtained, who must maintain said increase for three years.

To calculate the company's total average workforce and its increase, the number of people employed will be taken into account, in accordance with the terms established by labour legislation, taking into account the contracted working hours in relation to the full working day.

Amount of materialization of investments of letter B

Regulations: see number 6 of section Four of the Seventieth Additional Provision. Law 31/2022, of December 23, on the General State Budget for the year 2023

In cases of job creation, the materialization will be considered to have occurred only during the first two years since the increase in staff occurs and will be computed, in each tax period, at the amount of the average cost of gross salaries and mandatory social contributions that correspond to said increase .

Clarifications:

  • Job creation and changes in average staff will occur in all of the taxpayer's economic activities carried out in establishments located in the Balearic Islands.
  • It will not be necessary for the new jobs to be filled by newly hired workers.

Letter C:

See Article 11 of the Regulations implementing the Special Tax Regime of the Balearic Islands, approved by Royal Decree 710/2024 of July 23.

The subscription of shares or participations in the capital issued by companies as a result of their incorporation or capital increase that carry out their activity in the archipelago, provided that the requirements established in letter C of number 4 of section Four of the Seventieth Additional Provision of Law 31/2022, of December 23, on the General State Budget for the year 2023, are met.

These requirements are:

  • These companies will make the investments provided for in letters A and B above, under the conditions regulated in this section. Provided that both the entity subscribing to the capital and the one making the investment meet the conditions of article 101 of the LIS (that is, the ones required to be small entities), in the tax period in which the profit is obtained from which the reserve is provided, it will be possible to make the investments of the aforementioned letters A and B under the terms and conditions provided for this type of taxpayers.

  •  These companies must make these investments within three years from the date of accrual of the tax corresponding to the year in which the taxpayer acquiring the shares or interests in its capital had provided the reserve regulated in this section.

  • The assets thus acquired d must remain in operation in the Balearic Islands for at least five years under the terms set forth in the last paragraph of number 8 of section Four of the Seventieth Additional Provision of Law 31/2022, of December 23, on the General State Budget for the year 2023.

  •  The amount of the acquisition value of the investments made by the participating company must reach, at least, the amount paid for the shares or interests acquired by the taxpayer. 

The investments made by the participating company will not give rise to the application of any other tax benefit .

For these purposes, the entity subscribing to the capital will proceed to reliably communicate to the issuing company the nominal value of the shares or interests acquired, as well as the date on which the period for the materialization of its investment ends. The issuing company shall reliably inform the entity subscribing to its capital of the investments made against its shares or interests whose subscription has led to the materialization of the reserve, as well as its date. The investments made will be deemed to be financed with the funds derived from the shares or interests issued according to the order in which their effective disbursement has occurred. In the case of disbursements made on the same date, they will be considered to contribute proportionally to the financing of the investment.

Amount of materialization of investments of letter C

Regulations: see number 6 of section Four of the Seventieth Additional Provision. Law 31/2022, of December 23, on the General State Budget for the year 2023

The materialization will be considered to have occurred in the amount disbursed upon subscription.

The amount paid as issue premium will also be considered as such. 

Note: The portion of the investment financed by grants will not be considered as the amount of materialization of the reserve.