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As a result of the current situation caused by the sudden outbreak of COVID-19 in Spain and the publication of Royal Decree 463/2020 of 14 March by the Spanish Government to reduce its effects, there are many questions left in the air regarding the economic sustainability of SMEs and the self-employed and how to alleviate the negative effects on their viability and what to do if the latter cannot be guaranteed any longer.
One of the most frequently applied solutions in such cases is the extinction of the company; however, provided the cost that this implies both in economic terms and in terms of time to invest, quite a common choice in cases of legal uncertainty is to inactivate the company, which in the Common Law is known as a “Dormant Company”.
This option inspires a lot of interest since the so-called ‘inactivation’ of the company narrows down the costs of the company to a strict minimum, giving the administrator time to look for alternative financing solutions or investors who would like to acquire the company.
The following are the legal and tax requirements for the inactivation of your company:
COMPANY’S INACTIVATION
The first step to inactivate the company is to notify the Tax Office within one month from the date of cessation of activity by submitting form 036.
The deadline for restarting the company’s activity or dissolving and liquidating it is one year. Once this period has elapsed without the Tax Office having been notified that the activity has been recommenced, the administrator must summon the General Meeting to begin the process of liquidation and dissolution of the company.
Once the period for summoning the General Meeting has elapsed, the administrator becomes subsidiarily liable for any debt that the company undertakes from that moment on.
TAX IMPLICATION
During the period in which the company is inactive, it cannot issue invoices and therefore the input tax will not be deductible either. Filing Quarterly VAT returns will not be required, nor will their annual summary.
Since the company is rendered inactive, it is logical that it will not be able to deduct any expenses. As for the deductions for rental expenses or some expenses to a notary or adviser that have been withheld, they must be liquidated and paid together with the corresponding form without the expenses being deductible under any circumstances.
LEGAL IMPLICATION
Even if the company is inactive, it is still obliged to submit the corporate tax, model 200, stating that the entity is inactive if it was inactive during the whole period.
If during the Tax Period, the company was active for some time, the form 200 will be submitted with the appropriate data. In the first case, the Profit and Loss Account would be disabled, with the Balance Sheet as an indication.
The commercial requirement to keep the company accounting records would remain, therefore the books would have to be legalized and the annual accounts approved with their subsequent deposit in the Commercial Registry.
In the event that there is a Shareholder Employee, he or she must be removed from the RETA, as must the administrator.
Failure to file the Company Tax returns or to deposit the accounts at the register, as well as failure to dissolve the company, leaving it inactive after one year, will result in financial penalties, as stated by the General Directorate of the State Tax Administration Agency in its ruling of 11 January 2019-
This article does not constitute legal advice. It is intended to provide general information only. Please contact our lawyers if you have any specific queries.
