The year in which the capital reduction must be recorded is the year in which it is resolved by the General Shareholders' Meeting, provided that the public deed evidencing such resolution is recorded at the Mercantile Registry before the annual accounts for that year are prepared.
The fiscal year in which the capital reduction must be recorded is the one in which it is resolved by the General Meeting, provided that the public deed recording such resolution is recorded in the Commercial Registry before the annual accounts for such fiscal year are prepared, and within the legally established period for their preparation.
An issue that can sometimes give rise to confusion are those cases in which a corporation or limited liability company begins to implement a capital reduction operation in one year but registers it in the following year.
In these cases, the question that arises is whether the accounting of the capital reduction should be recorded in the year in which it is agreed by the General Meeting, or in the year in which the public deed is executed and registered in the Commercial Registry.
ICAC Resolution and Consultations
To answer this question, the Resolution of March 5, 2019, of the Spanish Accounting and Auditing Institute, which develops the criteria for the presentation of financial instruments and other accounting aspects related to the mercantile regulation of capital companies (RICAC of companies), establishes in its article 36, that the reduction of share capital agreed during the year will be shown in the balance sheet for that period, provided that the public deed reflecting the resolution is registered in the Mercantile Register before the annual accounts for that year are prepared, within the period established in the revised text of the Capital Companies Act.
This is also stated in the recent Consultation No. 4 of BOICAC No. 134 of June 2023, in a case in which the partners of an SL agreed in November 2022 to reduce capital by amortizing shares with the return of contributions in kind, which is registered in February 2023, the consultation states that the reduction “will be recorded for accounting purposes in the year 2022, which is when it is agreed by the General Meeting, provided that the registration in the Commercial Registry of the deed of reduction has taken place before the formulation of the annual accounts, and is within the legally established period for its formulation”.
Therefore, if a capital reduction operation is initiated in a fiscal year without being able to conclude it in that year, in order to reflect the new capital in the annual accounts of that year, it must be registered, at the latest, before the end of the legal deadline for the formulation of the accounts of that year (e.g., the balance sheet of December 31, 2023 will reflect a capital reduction agreed on December 15, 2023 and registered on February 15, 2024, that is, before the end of the deadline for formulation on March 31, 2024).
For further information, please consult with Tax consulting
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