Spain Coronavirus response and implications for business

Tax measures

The following COVID-19 tax measures, published in Royal Decree-Law 5/2021, of 12 March, are applicable in 2021:

• Defer tax liabilities:

It will be possible to defer payment of tax liabilities corresponding to settlements and self-assessments whose filing and payment deadline falls between 1 April and 30 April 2021. The possibility to defer payment will benefit companies whose turnover in 2020 did not exceed EUR 6,010,121.04, and will apply for liabilities arising from VAT, withholding, output tax, and Corporate Income Tax instalment payments whose value does not exceed EUR 30,000.00.

They can be deferred for a period of 6 months, with no default interest accruing during the first 4 months.

• Exemption from the variable fee for notarial deeds relating to documented legal acts:

This measure will apply to deeds extending the maturities of financing transactions that have received a public guarantee as provided in article 7 of Royal Decree-law 5/2021, of 12 March, when there exists a registrable secured debt.

• General exemption from any state, regional, or local tax for transactions charged to the Recapitalisation Fund for Companies Affected by COVID-19:

There is a general exemption from any state, regional, or local tax for all property transfers, corporate transactions and acts directly or indirectly deriving from the application of this provision, including any equity injections or capital increases charged to the Recapitalisation Fund and used for the capitalisation or financial and equity restructuring of investee companies.

Social Security measures / Employer and employee support measures

In view of the situation caused by the pandemic, the Spanish government implemented some exceptional socio-economic measures to cope with COVID-19. These included provisions on Social Security matters, namely the possibility to apply certain exemptions for companies regarding Social Security contributions. However, these measures were not applicable to all companies, but rather only to those that had implemented a Temporary Labour Force Adjustment Plan (ERTE) to reduce working hours or suspend employment contracts and consequently the payment of wages. These provisional plans were introduced as an extraordinary measure to tackle the global pandemic, and thus avoid a social and economic crisis.

Employees affected by the Temporary Plans were paid by the government according to their Social Security contribution base and the percentage reduction of their working hours, thus reducing the employment burden on companies. This original term of the measure has subsequently been extended several times.

At present, companies whose operations are affected by the new public health strategies declared by the government and other authorities may implement a new kind of Temporary Labour Force Adjustment Plan, until 31 May 2021, based on whether their operations have been interrupted or restricted.

Furthermore, on 12 March, the government announced direct aid for companies and self-employed workers that have suffered a decrease in revenue of at least 30% compared to 2019. Nonetheless, the regulation does set out specific requirements in order to apply for these grants, including that the company’s head office must be located in Spain, it must belong of one of the specified industry sectors, and so on.

Economic measures

The Official State Gazette on 13 March 2021 included the publication of Royal Decree-law 5/2021, of 12 March, on exceptional company solvency support measures in response to the COVID-19 pandemic. A new EUR 11 billion support package has been created for companies and the self-employed. It will benefit self-employed individuals and companies registered in Spain whose annual turnover in 2020 has fallen by at least 30% with respect to 2019. The funds must be used for the payment of fixed costs such as leases, salaries, utilities, or trade payables.

The beneficiaries must assume the following commitments:

2022. They must maintain their operations corresponding to the support received until 30 June 2022.
2023. They may not distribute any dividends in 2021 or 2022.
2024. They may not approve any increases in the senior management's remuneration for at least two years from the application of one of the measures.

Accounting implications

There are currently no plans to change the normal deadlines for preparing and approving annual accounts for 2020, in contrast with the previous year’s moratorium during the state of alarm.

Companies must assess whether there are any doubts at year-end or at the date of preparation as to their ability to continue as a going concern in light of the consequences of the pandemic. If so, for the purposes of preparing the accounts, they must apply the Spanish Institute of Accounting and Auditing (ICAC) Resolution of 18 October 2013 for companies in liquidation.

At the end of the financial year, they must take into account all the effects deriving from the various Royal Decrees adopted in 2020, and their respective accounting implications: contractual changes in leases, staff restructuring, grants, and expenses and related provisions.

It will also be of vital importance to make the relevant disclosure in the notes to the 2020 financial statements in each of the affected sections, rather than in events after the balance sheet date: recognition of income, increase in insolvency provisions, impact on inventory turnover, and useful life of assets, to name but a few.

It is worth highlighting that this year has already seen the adoption of a regulatory change affecting Spanish GAAP (Plan General de Contabilidad) and the content of the financial statements and annual accounts. Although unrelated to COVID-19, this will be yet another factor for companies to grapple with this year, in addition to the introduction of IFRS 9 and 15, and the changes that this entails.

We are closely monitoring the latest developments. If you are a business operating in Spain and would like to discuss the implications for your operation in more detail, we welcome the opportunity to do so.