We explain the reasons and consequences of not registering the Annual Accounts on time

Through this article we wish to inform you of the consequences that may result from non-compliance with your legal obligation to deposit your accounts in the Mercantile Registry within a maximum period of one month after their approval, as established by the Capital Companies Law applying the regulations of Royal Decree 2/2021, of January 12.

What are Annual Accounts?

Annual accounts are financial statements (accounting statements) or financial reports. They are the reports that companies use to disclose their economic and financial situation and the changes it undergoes at a specific date or period. They consist of:

1. The balance sheet
2. The profit and loss account
3. The statement of changes in equity
4. The statement of cash flows (for those required to present it)
5. The memory

The Annual Accounts are accompanied by the management report, a document that is not part of the accounts themselves, but which explains the evolution of the business and the company's financial situation, as well as the risks, uncertainties, and opportunities it faces (according to Article 262 of the Spanish Companies Act). This management report is mandatory for all companies, except those that may prepare abridged balance sheets and statements of changes in equity.

Who can prepare abbreviated annual accounts?

Those who meet at least two of the following three requirements for two consecutive years:

• Total Assets = or < 4 million euros
• INCN < 8 million euros
• Number of workers hired, on average per year = or < 50 workers

Deadlines for submitting Annual Accounts

The annual accounts must be submitted to the Commercial Registry within one month of the holding of the general meeting, which is usually held in May and June.

In accordance with the Spanish Companies Act, the company's directors are required to prepare the annual accounts within three months of the end of the financial year. Unless otherwise specified in the company's articles of association, the financial year ends on December 31 of each year (calendar year).

There is an obligation to convene the Ordinary General Meeting within a maximum period of three months after the annual accounts have been prepared – normally before the end of June. At this meeting, the Annual Accounts for the previous year will be approved, the company's management will be reviewed, and a decision will be made regarding the allocation of profits.

If the social exercise is natural, we could summarize the deadlines as follows:

1. Application deadline: March 31 (3 months)
2. Approval: maximum 3 months after formulation, until June 30 (6 months)
3. Submission to the Registry: maximum 3 months after approval, until July 30 (6+1 months)

Which passive subjects will be affected?

Legal Personality:

• Public limited companies, limited liability companies, limited partnerships by shares and mutual guarantee companies, pension funds and, in general, any entrepreneur who, by virtue of any current provision, is obliged to publicize their annual accounts.
• The parent company of a group that presents consolidated annual accounts.
• Foreign companies that have branches open in Spain.
• General partnerships and limited partnerships, when at the closing date of the financial year all the general partners are Spanish or foreign companies.
• Foundations must also deposit their annual accounts in the Register of Foundations.

Individuals:

• Self-employed individuals – Registered in the Commercial Registry and Property Registry if they carry out a business activity and pay income tax (IRPF) as they are required to keep more complete accounts, they must legalize these accounting books every year in the Commercial Registry.

The current figures are chilling, hence their appetite for sanctions:

Of the more than two million companies that fail to comply with the obligation imposed by the Capital Companies Act, we can differentiate between:

• INACTIVE: 1,830,689 companies
• ACTIVE: 253,110 companies

All of them must comply with the legal obligation of deposit and only about 150 companies are sanctioned per year by the Institute of Accounting and Auditing of Accounts (ICAC).

¿What revenue collection method will the administration follow?

Sanctioning Regime: the provisions of Article 283 of the Capital Companies Law (LSC) by Royal Decree 2/2021, of January 12:

1. Additional Provision 10 – Enables the option for competent commercial registrars to carry out both the management and the proposal of decision on sanctioning files for non-compliance with the duty to deposit annual accounts.
2. Additional Provision 11 – The deadline for processing the sanctioning procedure is 6 months from the adoption of the initiation agreement, without prejudice to the suspension of the procedure and possible extension of said deadline.
3. Penalty Amount – The criteria regarding assets and sales are included to quantify the amount of the penalty, within the limits established in the LSC:

• Penalty Rate = (0.05% total assets + 0.05% sales), according to the last declaration submitted to the Tax Agency, the original of which must be provided in the processing of the procedure.
• Penalty Rate = (2% Share Capital) according to the data held in the Commercial Registry if the company does not provide the tax return.
• If the tax return is provided, and the result of applying the aforementioned percentages to the sum of the asset and sales items is greater than 2% of the share capital, the penalty will be quantified in the latter reduced by 10%.

Amount of applicable penalties

As established in Article 283 of the Capital Companies Act, sanctioning regime, failure to comply with the legal obligation to file accounts in the Registry entails fines ranging from:

• SMEs

From 1,200 euros to 60,000 euros

• INCN companies > 6 million euros

Up to 300,000 euros

• If the documents referred to in this chapter were deposited prior to the initiation of the sanctioning procedure, the sanction will be imposed at its minimum level and reduced by 50%.
• It should be noted that the statute of limitations for imposing sanctions will be three years.

How will they expedite the collection/sanctioning process? 

The proposed solutions are in process, but the government is preparing a legal reform through two paths:

• Institute of Accounting and Auditing (ICAC)

1. Strengthen the body
2. Increase in Revenue from 50% of the annual collection of penalties

• Tax Agency / Association of Commercial Registrars – Involvement in the action

The new plan will be based on signing an agreement with the College of Commercial Registrars so that they will be in charge of supervising non-compliance and initiating sanctioning proceedings, a task for which they are expected to receive 50% of the sanctioning revenue.

The remaining 50% would go to the ICAC accounts, although a portion of those resources, around 10%, will be paid to the Tax Agency to manage the collection of these penalties and the corresponding claims when there are non-payments.

Conclusions

A new scenario is beginning in which the obligation to file annual accounts will become necessary. However, the retroactive application of the rule remains to be defined, raising questions such as from which fiscal year it applies and how the corresponding penalty proceedings will be notified.

On the other hand, there is a legal vacuum that will need to be addressed over time regarding:

• What will happen if, as a result of a formal irregularity, the Registry does not accept the filing of accounts? Would it be lawful to impose sanctions in such cases?
• How will they proceed in the event of the death of the sole administrator of the company?
• What if the General Meeting was held outside the legally established deadline?

If you require further information or have any questions, please contact us via email at ambit@ambitassessor.com or at our offices.

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Miguel Cabezas

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• FAILURE TO FILE ANNUAL ACCOUNTS IN 2021 WILL BE PUNISHABLE - March 11, 2021