As from January 01, 2016, civil joint ventures with an activity qualified of a mercantile nature are considered as Corporate income taxpayers.
Up to such date, this type of collaboration agreement is a sort of a flow-through entity as its net income is not taxed under Personal or Corporate income tax but it is allocated to each one of the members, in the agreed proportion. If such agreement is unknown by the Spanish tax authorities, then the distribution is done in equal parts. The assigned income keeps the tax nature of the activities from which it proceeds.
This change will affect, primarily, small businesses that had found in this formula, a simple way to develop their businesses, without a strong bureaucratic burden.
Who is affected by the new regulations?
Civil joint ventures having legal personality, providing their internal agreements are not kept secret.
In order to be qualified as Corporate income taxpayers, civil join-ventures must be set up in a public deed or in a private document but providing it is contributed to the Spanish Tax Administration in order to be assigned a tax identity number.
In addition to it, it is necessary that the civil joint venture carries on an activity of a mercantile nature. To this purpose, activities within the agricultural, livestock, forestry, mining or professional sectors are excluded from the qualification as mercantile nature.
Is this change mandatory?
As mentioned above, from January 01, 2016, these entities no longer allocate their net incomes to their members but are taxed under the Corporate income tax system.
In such case, they will be subject to the rules of this tax ad will have to keep accounting records to as to calculate their tax benefit. Besides, the regulations establish a transitory system to translate to the new system.
Despite this new system is mandatory, If the legal requirements are met, taxpayers can elect to apply a special system. During the first six months of the fiscal year starting in 2016, they can agree to dissolve, having an additional six months period to extinguish.
Providing such terms are complied with, the joint venture will keep on being subject under the allocation of incomes system.
It will be required to analyse, on a case by case basis, the convenience to implement this change as well as the tax cost that it can imply, to evaluate whether the currently existing structure of these small businesses needs to be kept or not.