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Steps to Establish a Company (part 4th : Tax Obligations)

Posted on by Jesús R. Ballesteros
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24
Jun

In previous posts we have explained the ways in which a business or a company is usually started, we have also commented on the differences between self-employed and limited company, as well as the taxation of both.

Now we are going to explain what the Tax Obligations of a company are, specifically those of a Limited Company.

Companies are established by signing a deed at the Notary and Registering, among other steps that we will explain later, in the Tax Agency (Treasury) to obtain a CIF number  or tax number that identifies the Company, well, from that moment we have some obligations to fulfill, they are called Tax Obligations.

We all should know that failure to comply with these Obligations entails financial sanctions from the Treasury, which will end up seizing your bank account if you do not pay them.

Sometimes we have heard things like that these Obligations do not have to be fulfilled if the Company is not registered in the Tax on Economic Activities, that is, if is not “registered” with the Treasury, well, this is not true, let it be very clear.These  following three points are mandatory for “all” Companies, without exception, and even if they only have a CIF number and have not been registered with the Treasury or are on “stand by” as others say. Assuming that the Company closes its fiscal year on December 31, the obligations would be as follows:

  1. Presenting the Account Books until April of the year following the close of the fiscal year. These Books are telematic and are presented in the Commercial Registry, paying the corresponding fees.
  2. Carry out and self-assess the Corporate Tax, even if it is zero euros or negative!, completing the corresponding form between the 1st and the 25th of July of the year following the closed fiscal year.
  3. Submit the Annual Accounts to the Commercial Registry until July 31 of the year following the closed financial year, for which fees from the Commercial Registry must also be paid.

The three previous points are mandatory even if the company does not have any type of economic activity. If the company is also registered with the Tax on Economic Activities (hereinafter, IAE) to carry out any business activity, then it must also comply with the following Tax Obligations, also under the threat of receiving sanctions from the Treasury for its lack of presentation or for the late submission.

Without going into special obligations, we are going to comment on the most common ones, the typical ones for any entrepreneur’s company:

Again, suppose that the company has its fiscal year from January 1 to December 31 of year X1:

  1. In the month of February of year X2 the company must present a declaration of “opeations with third parties” (current form 347) in which all operations carried out in year X1 must be declared, both with clients and supliers, and which have exceded a total of 3.000 euros, i.e., even if there have been several operations, the important thing is that between all of them they have exceded 3.000 euros.
  2. In the months of January, April, July and October of year X2, the company must make the following declarations:
    1. VAT:declare the VAT for the immediately previous quarter. That is, in April the VAT for the first quarter (composed of January, February and March) is declared; In July, the VAT for the second quarter (composed of April, May and June) is declared; and so on. The fourth quarter is declared in the month of January of the following fiscal year. Normally we will use model 303.
    2. Rent withholdings.In addition to the VAT declaration, on the same dates the withholdings for rent from premises or offices must be declared and entered. Normally we will use model 115.
    3. Withholdings of professionals and employees.Same as the two previous statements and on the same dates, the withholdings made on invoices received from self-employed workers and also the withholdings made on employee payrolls must be declared and paid. Normally we will use model 111 for both withholdings.
  3. Annual summaries.In the month of January of year X2 many tax return are made, in addition to the quarterly tax returns mentioned above, the annual summaries of these quarterly returns must be made. In other words, in this month the tax return for the fourth quarter and annual summary of the fourth quarter and an annual summary of the four quarters are made, in which the quarterly returns must coincide with the total of the annual summary in order to avoid receiving letters from the tax authorities asking for expalanations of the differences.
  4. Fractional Payments.In the months of April, October and December, the so-called fractional payments of the Corporate Tax are made. The Spanish tax system for this tax follows the “going concern principle” and assumes that a Company grows year after year, therefore, in order to distribute the payment of Corporate Tax (Tax on the Company’s profit), What it does is advance payments in the indicated months so that in the month of July of year X2 an excessive disbursement does not have to be made, such that in some cases it “breaks” the company’s liquidity.

The fractional payment system will deserve a special post later, to learn some things about Tax Advice, since controlling the fractional payment system can save money, at least liquidity in the company, essential especially for the first two or three years, in which any entrepreneur will need more support and greater availability of the money received.

The Tax Obligations of the self-employed are the same with the following differences:

  1. Instead of filing Corporate Tax, the self-employed person will file the personal Income Tax Return, which is normally done between May and June instead of in July, which is when the Tax Return is filed regarding the Companies.
  2. The self-employed person does not have to present Accounting Books or Annual Accounts, as long as they carry out a professional activity, but if they carry out a business activity then they do have to prepare these Books and Accounts.

The difference between business and professional activity will also deserve an exclusive post later, as it generates different important obligations in practice.

Remember that if you want to find out more you can always go to Ruiz Ballesteros.

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Jesús R. Ballesteros

Jesús is Economist and Lawyer. He studied “Licenciatura de Economía´´ (Bussines and Financial Degree) at the University of Navarra, and is “Máster en Tributación´´ (Master Degree in Taxation) by Garrigues (Multinational Company of Legal Services), where he started to work at their office in Granada. After this, he worked for two well-known multinational companies, while he studied “Derecho´´ (Legal Degree) in Madrid until he finally opened Ruiz Ballesteros Lawyers and Tax Advisors at the beginning of 2006. Jesús is a frequent collaborator of Radio Intereconomía at their program “Foro Fiscal´´, this program is based on tax advisement, Cadena Ser and Ondacero. He wrote a Thesis at the University of Granada which he then defended before the correspondent court, obtaining the DEA in Financial and Tax Law. The title of his Thesis: “Intercambio internacional de información tributaria y Paraísos Fiscales´´ (International tax information exchange and Tax Heavens), this makes clear that he is one of the few that have delved into this aspect of the law, and this makes it easier for him to deal with all issues related to international taxation. He is the author of the book “ Como rentabilizar tu declaración de la renta´´ (how to render your annual personal income-tax) and he is the ideologist and developer of the first legal App in Spain. Paxtum, where you can download models of all kind of legal documents. Professor of the “Instituto Superior del Derecho y Economía´´ (Institute of Law and Economics) (ISDE), in the areas of Commercial Law and Tax and Financial Law, he is co-author of their theoretical books in both areas as well as their book of “practical cases” in Financial and Tax Law. He is an expert in the Spanish taxation system, international taxation, and corporate-commercial law. He speaks English and is the Founder and Director of our company. Ruiz Ballesteros Lawyers and Tax Advisors.