There is no doubt that in the final part of the year, it is highly advisable to estimate the Corporate Income Tax (CIT) and Personal Income Tax (PIT) settlements before the end of the fiscal year. This allows you to obtain an approximate idea of the tax bill for the current year, enabling you to take appropriate action. The goal is to optimize your tax liability before it becomes due on December 31st. To this end, we help you carry out your tax and accounting closing procedures with maximum guarantees and efficiency.
The end of 2022 is approaching, and we undoubtedly need to review our tax and accounting practices in order to optimize our tax bill as much as possible.
Now is the time to properly apply and understand the tax regulations for the fiscal and accounting closing of the year 2022, taking advantage of the options offered by the different taxes, especially Corporate Income Tax and Personal Income Tax for companies, entrepreneurs and professionals.
Please note that 2022 is shaping up to be a year of many new developments, stemming from both the "regulatory package" approved by the legislator and the regulations expected to be approved before the end of the year, such as the Draft Law for the promotion of the emerging business ecosystem ("Startup Law") or the measures that will be incorporated into the 2023 General State Budget or in laws that will allow their implementation next year, as reported by the Government.
On the other hand, the various measures approved by the Government to curb the health and economic crisis caused by the coronavirus have repercussions in the tax field. Thus, temporary layoff schemes (ERTEs), the benefit for self-employed workers who have ceased activity, rent reductions or moratoria, financial compensation paid to remote workers (teleworking), the ICO COVID-19 loan guarantee programs, losses in value of stock investments, etc., all affect the 2020 corporate income tax (IS/IRPF).
Regarding Corporation Tax, we cannot forget the following for this year-end closing:
- Minimum taxation in Corporate Income Tax of 15% for certain taxpayers: With effect for tax periods beginning on or after 01-01-2022, a minimum taxation rule of 15% is introduced in Corporate Income Tax.
- Reduction of the tax credit applicable to companies under the special housing rental regime: With effect for tax periods beginning on or after 01-01-2022, the tax credit for entities engaged in housing rental is reduced from 85% to 40%.
- New calculation of the minimum number of shareholders of the SICAV and transitional regime for dissolution and liquidation during the year 2022: To prevent this collective investment instrument from being used in the wealth planning of high net worth individuals, the application of the reduced rate of 1% in the Corporate Income Tax is reserved, with effect for tax periods beginning from 1 January 2022, to those SICAVs whose minimum number of shareholders (100) is reached with investors who have acquired shares whose net asset value on the date of acquisition is equal to or greater than 2,500 euros -12,500 euros to calculate the minimum number of investors (20) of each sub-fund in this type of SICAV-.
- New deduction for employer contributions to company social welfare systems in Corporate Income Tax: With effect for tax periods beginning on or after July 2, 2022, companies may apply a deduction in the full tax liability of 10% of the employer contributions imputed in favor of workers with gross annual remuneration of less than €27,000, provided that such contributions are made to employment pension plans.
From an accounting perspective , it is important to detect if anything is missing from the accounting records and correct errors, reclassify account balances based on their due date, etc.
We must manage the processes for calculating the accounting profit and the taxable base for Corporate Income Tax, making the necessary accounting and non-accounting adjustments. We will also delve into the tax advantages that can be obtained by applying the regulations. To this end, we will analyze all the items involved in the year-end closing procedures, including the different special tax regimes and the specific differences for self-employed individuals and professionals.
Regarding personal income tax for business owners and professionals, we cannot forget the following for the end of this year:
- Extension of the exclusion limits for the objective estimation method ("modules"): For 2022, the same modules and application instructions as in 2021 remain in effect, as well as the amounts of €250,000 and €125,000 for the total income in the previous year corresponding to all economic activities, except livestock, forestry, and fishing, and for transactions for which invoicing is required, respectively. Likewise, the amount of purchases of goods and services that cannot be exceeded without leaving the system remains at €250,000.
- Limits on reduction in the taxable base of contributions to social security systems: With effect from 01-01-2022, different limits in relation to social security systems are modified.
- The maximum annual amount of contributions to social security systems with the right to reduction is reduced from €2,000 to €1,500.
- This limit will be increased by €8,500 (i.e., up to €10,000) when the increase comes from employer contributions or employee contributions to the same social security scheme, provided the employee's contributions are equal to or less than the employer's contribution. In other words, the employer's contributions must be greater than or equal to the employee's contributions.
- For these purposes, any amounts contributed by the company that result from a decision made by the employee will be considered as contributions from the employee.
- In the case of group long-term care insurance policies taken out by companies to cover pension commitments, an additional limit of €5,000 per year is set for the premiums paid by the company.
- The financial limits for contributions to social security systems are modified accordingly.
- Finally, the maximum annual limit for all reductions made by all persons who pay premiums to private insurance policies that exclusively cover the risk of severe or total dependency in favor of the same taxpayer, including those of the taxpayer himself, is reduced from €2,000 to €1,500.
- New deductions for energy efficiency improvement works in homes: With effect from 6 October 2021 (Royal Decree-Law 19/2021, of 5 October), new deductions in the Personal Income Tax of 20%, 40% or 60% are introduced for works in homes and residential buildings that improve energy efficiency and in the exclusion from taxation in said tax of certain subsidies and aid for rehabilitation.
- Economic activities: Business owners and self-employed professionals can apply for corporate income tax incentives and, where applicable, those provided for small businesses. In addition to expenses deductible under corporate income tax, we must consider health insurance premiums paid by the business owner for their own coverage and that of their spouse and children under 25 years of age living with them, up to a limit of €500.00 per person per year, or €1,500 in the case of persons with disabilities who qualify for the exemption.
Remember that the requirement of having premises is no longer necessary for the leasing of real estate to be classified as an economic activity, and that the income obtained by a partner who provides services to your company will be classified as an economic activity when the services provided by the partner are included in Section 2 of the Economic Activities Tax (IAE) rates and, in addition, the partner is registered in the Special Regime for Self-Employed Workers (RETA) or in an alternative mutual insurance scheme.
If you are under the simplified direct assessment method, the amount determined for all deductible provisions and expenses difficult to justify (5% of net income) is limited to a maximum of €2,000 per year. If you determine your net income using the objective assessment method (i.e., the modules method), now may be the time to compare this system with the direct assessment method and, if necessary, opt out of the modules method in December 2022 and switch to the direct assessment method in 2023.
Remember that from 2023 onwards, those who have been registered as self-employed during the tax period will be required, in any case, to declare in the IRPF (Personal Income Tax).
Furthermore, self-employed individuals using the direct estimation method for Personal Income Tax (IRPF) can deduct utility expenses for the home partially used for business purposes, such as water, gas, electricity, telephone, and internet, at a rate of 30% of the proportion of the home's square footage used for business purposes relative to its total area, unless a higher or lower percentage can be proven. Subsistence expenses incurred in the course of business are also deductible for determining net income under the direct estimation method, subject to certain limits.
- Deductions: Take advantage of deductions for investment in your primary residence (for taxpayers who acquired their primary residence or paid amounts towards its construction before January 1, 2013), for renting your primary residence (taxpayers with a lease agreement prior to January 1, 2015), donations, actions for the protection of Spanish Historical Heritage and World Heritage, for investment in newly created or recently established companies, for income earned in Ceuta and Melilla, for carrying out economic activities, for large families or dependents with disabilities, or the maternity deduction, as well as the new deductions of 20%, 40%, or 60% for works on homes and residential buildings that improve energy efficiency and the exclusion from taxation of certain subsidies and grants for rehabilitation. It is very important that you do not forget to verify the deductions offered by the applicable regulations depending on the Autonomous Community where you are a tax resident.
Preview of tax changes 2023
For proper planning for 2023, it will be necessary to take into account the tax measures that the legislator has yet to approve before the end of the 2022 fiscal year.
Regarding Personal Income Tax (IRPF), the reduction for income from employment and economic activities is increased, as is the threshold for the obligation to file a tax return when income from employment is received from more than one employer. The reduction is also increased in 2023 for taxpayers who determine their income using the objective estimation method, and the percentage applied to expenses that are difficult to justify is increased for those who determine their income using the simplified direct estimation method. New limits are established for contributions to pension plans, and two additional tax brackets are added to the savings tax rate for incomes exceeding €200,000. The limits established for 2022 are extended for both the objective estimation method in IRPF and the special simplified and agricultural, livestock, and fishing VAT regimes.
Regarding Corporation Tax, a reduced tax rate of 23 percent is established for companies that invoice less than €1,000,000 and are not asset-holding entities.
The government has announced other tax measures, such as the approval of a new temporary tax on large fortunes and a limitation on the offsetting of losses by entities belonging to a tax group under the Corporate Income Tax. However, these will be included in a separate Bill or Proposed Law, and will therefore be analyzed in a subsequent circular once the text is published.
All of this is without prejudice to the new regulations established by the respective Autonomous Communities and the regional regulations of the Basque Country and Navarre, which must be taken into account for tax residents in these territories, such as in relation to new or modified regional rates and whether new deductions have been established or some of the existing ones modified.
You can contact this professional office for any questions or clarifications you may have in this regard, in order to help you carry out your tax and accounting closing operations with the maximum guarantees and efficiency.
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A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.
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