Yes, we're talking about IRC and not IRS. There is also a simplified regime for IRC taxpayers.
As part of the Corporate Income Tax Reform carried out until 2014, this new regime was introduced. As the name suggests, this is a system that allows tax to be calculated in a simpler and less complex way. Let's take a look at the provisions of articles 86-A and 86-B of the Corporate Income Tax Code.
The Simplified Regime may be an option for resident taxable persons who are neither exempt nor subject to a special tax regime and who carry out a commercial, industrial or agricultural activity as their main activity.
It is also necessary that:
- Have not obtained a gross annual income of more than €200,000.00 in the previous year;
- Do not have a balance sheet total of more than €500,000.00 in the previous year;
- They are not legally obliged to have their accounts audited;
- Its share capital is not held in more than 20%, directly or indirectly, by entities that do not fulfil the above requirements, except if they are venture capital companies or venture capital investors;
- Adopt the accounting standardisation regime for micro-entities;
- They have not renounced the application of the scheme in the previous three years from the date on which the application of the scheme begins.
Once these requirements have been met, the option for the Simplified Corporate Income Tax Regime can be made in the declaration of commencement of activity or in a declaration of changes to be submitted by the end of February of the year in which they intend to apply the regime.
What is the main difference in tax calculation?
According to the regulations, the tax base (the basis for applying the tax rate) is defined using the following coefficients:
- 0.04 for sales of goods and products, as well as for the provision of services in the field of catering, beverages, hotels and similar, except for local accommodation activities in villas or flats;
- 0.75 of the income from professional activities set out in the table in article 151 of the IRS Code;
- 0.10 for other income from services rendered and operating subsidies;
- 0.30 for non-operating subsidies;
- 0.95 for income from contracts related to intellectual property, industrial or other capital income, positive property income, and capital gains;
- 1.00 for property increases obtained free of charge;
- 0.50 for income from operating local accommodation in containment areas;
- 0.35 for local accommodation outside containment areas.
However, the taxable amount calculated by these coefficients cannot be less than 60% of the annual value of the national minimum wage, which in 2020 corresponds to €5,334.00 (€635.00 x 14 x 60%). For the first €25,000.00 of taxable income, a CIT rate of €17% applies, and €21% for the excess. In the case of sales (coefficient of 0.04) and the provision of services (coefficient of 0.10), the minimum tax base is reduced by 50% in the first year of activity and 25% in the second year.
This method of calculation can have some limitations, since the application of the coefficients to income determines the tax base. Therefore, tax losses from previous periods cannot be deducted. However, if the simplified regime is discontinued, losses still within the carry-forward period can be deducted.
Another advantage is that taxpayers in the simplified regime are exempt from paying the municipal surcharge, as this is levied on taxable profit, a concept that does not apply here.
As for autonomous taxation, taxpayers under this regime are exempt from paying representation expenses, subsistence allowances, among others.
Finally, it is not possible to deduct amounts related to tax benefits, such as the RFAI or the DLRR.
Shall we take a practical example?
A commercial company, which began trading in 2020, had a turnover of €100,000.00 from the sale of goods.
Calculation of the tax base:
100.000,00€ * 4% = 4.000,00€
Minimum taxable income:
635,00€ * 14 * 60% = 5.334,00€ * 50% = 2.667,00€
Collection: €4,000.00 * 17% = €680.00 - this is the amount of corporation tax payable for 2020.
