Capitalization Reserve and Equalization Reserve: how to optimize Corporate Tax at the end of the financial year

 

The fiscal year-end is a decisive moment to review the economic and financial situation of the company and optimize Corporate Tax.

1. Capitalization Reserve: reducing the taxable base by increasing equity

The CR allows reducing the taxable base by increasing equity and allocating an unavailable reserve.

Who can apply it

Tax benefit

• 20% of the increase in equity, or

• 25% if the turnover is less than 1 million euros.

Main requirements

• Allocation of an unavailable reserve for the reduced amount.

• Maintenance of the reserve and the increase for 3 years.

• Calculation of the increase excluding contributions from partners, capital increases for credit compensation, and legal/statutory reserves.

• Possibility of applying the unused reduction in the following two financial years.
   

The CR is particularly interesting for companies that retain profits and do not plan to distribute dividends in the short term.

2. Equalization Reserve: stability for small and medium-sized enterprises

The RN is exclusive to small-sized companies and allows smoothing the volatility of results.

What it consists of

The amount is added to the taxable base over the following 5 fiscal years, only if negative bases are generated; otherwise, it is fully added in the fifth year.

Essential requirements

• Creation of a separately identified unavailable reserve.

• Maintenance until its future incorporation.

• Incompatibility with the RC and the Reserve for Investments in the Canary Islands.

• Generation of a deferred tax liability.

The RN is optimal for companies with irregular cycles or forecast of future losses.

3. Which one is convenient to apply?

The choice between RC and RN depends on:

• forecast of results

• dividend distribution policy

• profit retention capacity

• cash needs

• impact on equity

Analyzing these factors allows optimizing the tax burden and improving the financial stability of the business.

The Capitalization Reserve and the Equalization Reserve are key instruments in the tax planning of Corporate Income Tax.
When applied correctly, they strengthen the financial structure and effectively reduce the taxable base of the fiscal year.