Offsetting Prior-Year Tax Losses: How Negative Tax Bases Work in Spanish Corporate Income Tax

When a company closes a year with a tax loss, that loss is not wasted: it becomes a negative tax base (NTB) that can be deducted from the profits of later years, reducing the Corporate Income Tax you have to pay. It is one of the most useful levers for start-ups and for companies going through a rough patch, but it is also one of the areas that generates the most mistakes when filing Form 200.

What an NTB is and how it is offset

An NTB is not exactly the accounting loss. It is worked out in the tax computation: you start from the accounting result, apply the tax adjustments (both positive and negative) and, if the resulting pre-offset taxable base is negative, that amount stays on the books as an outstanding NTB. That is why it pays to check that non-deductible expenses have been treated correctly before accepting the figure.

Since the 2015 reform, the Corporate Income Tax Act allows NTBs to be offset with no time limit: they no longer expire after 18 years as they used to. They are offset from the oldest periods to the most recent, and only when there is enough positive taxable base.

Offset limits

Offsetting is not unrestricted: the law sets an annual cap on the pre-offset taxable base (before the capitalisation reserve and before the offset itself). In general:

• You can offset up to 70% of that pre-offset taxable base.
• In any case, you can offset negative bases up to €1 million, even if 70% comes to less than that.
• Companies with high turnover (from €20 million in the preceding twelve months) face lower percentages. If that applies to you, check the exact bracket in the current legislation.

Two examples with round numbers:

• Pre-offset taxable base of €500,000 and an outstanding NTB of €1,000,000. 70% is €350,000: you offset that amount, pay tax on €150,000 and carry forward €650,000 of NTB to future years.
• Pre-offset taxable base of €900,000 and an outstanding NTB of €2,000,000. 70% is €630,000, but since the €1 million minimum is higher, you can offset the full €900,000 and pay no tax on that base.

There are exceptions and safeguards: for instance, the rules restrict offsetting when the ownership of the company changes and certain circumstances apply (a majority acquisition by third parties combined with a different activity, or dormant entities). If you have bought or sold a company with NTBs, check this point before counting on them.

Statute of limitations and substantiation

The fact that NTBs do not expire does not mean the tax authorities cannot challenge them. The Administration can verify the amount of negative bases within a ten-year period, counted from the day after the filing deadline for the self-assessment of the period in which they arose. Once that period has passed, it can no longer review the year of origin, but the taxpayer still has to substantiate the NTB in order to offset it.

That substantiation is done by producing the assessment or self-assessment for the year of origin, the accounting records and proof of their filing with the Mercantile Registry. In practice, you should keep the Forms 200 for every year with an NTB, the general journal and ledger, and the receipt for the filing of the annual accounts. Without that filing, your defence becomes considerably harder.

Where it appears on Form 200

On the form, the offset appears in the tax computation, right after the pre-offset taxable base and the capitalisation reserve, and is shown as a reduction of the taxable base. In addition, Form 200 includes a detail section where you report, year by year, the NTB generated, the amount already applied and the amount outstanding. This is not a mere formality: that table feeds the following year’s return, so a carry-forward error is repeated indefinitely.

Common mistakes we often see:

• Applying the 70% without checking whether the €1 million minimum applies.
• Forgetting to record the NTBs generated when the company reports losses, leaving them uncarried to future years.
• Carrying forward an NTB without having kept the original supporting documents.
• Confusing the accounting loss with the tax NTB, ignoring the adjustments.

At Zythos Business we track the negative tax bases of each company year by year: we check that the Form 200 carry-forward matches the previous one, calculate the applicable limit before filing, and keep the documentation that allows them to be substantiated when needed. If your company has accumulated losses, we can review with you how much you can make use of.