Installment payment of corporate income tax.

What is more convenient for me?

During the month of February, those companies whose fiscal year coincides with the calendar year and whose turnover in the previous 12 months is equal to or less than 6 million euros can choose the method of the payment in installments on account of Corporate Income Tax. The chosen method will be the one applicable during the whole fiscal year 2024.

The choice is simple, it is enough to exercise it through a census declaration (Form 036).

Stop to think which calculation method is more beneficial for your company in this fiscal year, as the choice of one method or another will undoubtedly affect your cash flow and you will be able to avoid unnecessary tax anticipation.

 

The calculation methods are as follows:

Quota method- By means of this system the amount to be advanced will be calculated based on the net quota (box 599) of the last Corporate Income Tax return filed.
Base method – The installment payment will be determined on the basis of the taxable income of the current year.

 

Who can choose between the two methods of calculation of the installment payment?

The installment method will be the default system for calculating the installment payment. However, entities whose net turnover in the 12 months prior to the year to which the installment payment corresponds may choose whether to remain in the installment payment system (applicable by default) or, on the contrary, opt to apply the base method by filing Form 036.

On the other hand, entities whose turnover exceeds 6 million euros are obliged to make the installment payment based on the base system. Therefore, they do not have the choice between one or the other.

 

When must the installment payment be made?

Throughout the year the entities are obliged to make 3 installment payments to be made in the first 20 calendar days of the months of April, October and December of each year. As they are installment payments and therefore advances on account of corporate income tax, they will be deductible in the annual corporate income tax return.

 

How is the installment payment calculated for each of the calculation methods?

Installment method (Article 40.2 LIS)

This method is calculated by applying a fixed percentage of 18% on the amount of box 599 of the last corporate income tax return.

By virtue of the above, for a company that closes its financial year on 31/12 and therefore files the corporate income tax between 1 and 25 July of the following year, in this case in July 2024, it must take as a reference the corporate income tax box 599 of the 2022 tax year for the installment payment of April 2024 and the same corporate income tax box of the 2023 tax year for the installment payments of October and December.

Base method (Article 40.3 LIS)

The installment payment in this method is calculated on the basis of the taxable income for the first 3, 9 or 11 months of the year in respect of which each installment payment is made.

In this sense, this calculation modality requires accounting closings in the months of March, September and November, to make the extra accounting adjustments and to apply the negative taxable bases of previous fiscal years that are applicable. In short, we will have to make partial settlements (March, September and November) of the tax in order to arrive at the taxable base.

Once the taxable base corresponding to the 3, 9 or 11 months has been obtained, we must apply the specific tax rate according to the net turnover of the entity:

If the net turnover is less than 10 million euros, the tax rate will be 17% (5/7 for general tax rate). The rate may be 10% for entities applying the corporate rate for newly created entities.
If the net turnover is equal to or greater than 10 million euros, the tax rate will be 24%.

It should be noted that taxpayers whose net turnover is at least 10 million euros in the previous 12 months will be obliged to make a minimum installment payment which cannot be less than 23% of the positive result of the profit and loss account, reduced by the installment payments made previously corresponding to the same tax period.

 

Which calculation method is best for me?

In general terms, the calculation system foreseen in article 40.3 LIS (Base System) is the system that would reflect an advance payment of the tax in accordance with the financial reality of the company as it is calculated on the basis of the accounting results in the settlement period itself. It is also advisable if a decrease in the results for the year is foreseen with respect to those of the two previous years or if we are dealing with companies whose main volume of operations takes place in the month of December.

However, we do not advise the application of the base method for newly incorporated entities since, as there is no Corporate Income Tax presented as a reference, the system for calculating the tax liability would yield a result of 0 and we would not be obliged to advance tax.

Do you need help? Here in Cigarrán Abogados can help you (+34) 91.355.85.15