If your company has applied the Canary Islands Investment Reserve (RIC) and simultaneously paid dividends, you could be facing a delicate tax situation. The RIC is a key tool for tax planning in the Canary Islands, but proper application is essential to avoid issues with the tax authorities. In this article, we explain the most important points you need to keep in mind.
How Does Paying Dividends Affect the RIC?
The distribution of dividends, if not handled correctly, can reduce the tax benefits associated with the RIC. This is because the law states that only undistributed profits can fund the RIC. So, if you've paid dividends, how does that impact the reserve?
The key is that as long as your company’s equity increases by the amount allocated to the RIC, the dividend distribution will not affect the tax benefits. In other words, as long as your equity grows, the tax incentive remains intact. However, it’s crucial to understand the specific conditions and ensure compliance with the requirements.
What About Financial Income?
Another critical aspect is how financial income from surplus cash is treated. If you’ve placed funds in short-term financial products, you should know that this income is not considered “undistributed profits” and, therefore, cannot be used to fund the RIC. Many companies overlook this detail, which can lead to problems during a tax audit.
How Does the Capitalization Reserve Play a Role?
When the RIC is no longer unavailable due to meeting the maintenance period, it may affect your company’s Capitalization Reserve. The good news is that, in most cases, this change does not penalize the calculation of the Capitalization Reserve, but it is essential to know the rules to avoid unpleasant surprises.
Avoid Tax Risks with the RIC and Dividends
At Vega Asesores, we help you manage the RIC correctly and ensure that your company’s financial decisions, such as dividend distribution or investing surplus cash, do not negatively affect your tax incentives.
Do you have questions about the application of the RIC? Contact us today!
Our team of tax experts will guide you through the process, helping you maximize the benefits of the RIC without jeopardizing your tax standing. Proper planning is the key to benefiting from tax incentives without making costly mistakes.