Tax and accounting obligations

Tax and accounting obligations

The Spanish tax system is based on a self-assessment model. This means that it is the taxpayer themselves, in this case the community, who is responsible for submitting the relevant forms for each tax and, in doing so, making the necessary payments to the public treasury, where applicable.

Considering the large number of models a community may have to submit, it is obvious that managing these tasks can become very complex, which makes it advisable for this work to be carried out by professionals in the field or, at the very least, for them to be advised by such professionals, since the deadlines for meeting tax obligations are very strict and failure to comply results in financial penalties.

As a general rule, in the Spanish tax system, each of the taxes is independent of the others, meaning you may have to pay tax on some and not on others. In this regard, over the past 20 years the tax situation of community woodlands has been clarified from a fiscal point of view, with them being classified as taxpayers for corporation tax and VAT, and being able to opt into special regimes for both taxes that involve fewer obligations and more manageable requirements.

Although the number of taxes that may affect the activities carried out by community woodlands is very high, four stand out:

• Corporation Tax
• Value Added Tax (VAT)
• Property Tax (IBI)
• Tax on Property Transfers and Documented Legal Acts

Corporation Tax

The communities of common woodland, as taxpayers liable for corporation tax, are required to keep accounts in accordance with the provisions of the General Accounting Plan and the Commercial Code. This requires the preparation of a daily accounting journal (a book that should be legalised with the Mercantile Registry) and annual accounts comprising the balance sheet, the profit and loss account and the notes. Furthermore, the communities must have the documentary support to substantiate each of the entries in the accounting books.

The Board of Directors must submit the company's accounts for the financial year to the General Meeting within the first six months of the year and, in July, must file the self-assessment return for corporation tax (Form 200). Finally, where applicable, it must both make the corresponding instalment payments and submit the declaration of transactions with third parties (Form 347).

With effect from 1999, the regulation considers communities of common woodland as taxpayers for corporation tax, as provided for in its Article 7.1.

This possibility of reducing the taxable base has meant that, since 2008, the vast majority of community woodlands in Galicia have not paid corporation tax. Under the tax law, community woodlands in common ownership have a special regime which, as its main feature, allows the taxable base for a given year to be reduced by the amount of profits allocated to conservation, improvement, protection, access and services for the social use to which the forest is put, to forest conservation and maintenance expenses, or to the financing of infrastructure works and public services of social interest.

Value Added Tax

Communities that are subject to the general VAT regime are required to:

• Pass on VAT on the supplies of products obtained from the farm and ancillary services;
• Submit the quarterly VAT returns and pay the corresponding tax;
• Submit a summary declaration for VAT (Form 393); and
• Prepare the following books:
  • Register of issued invoices;
  • Register of invoices received;
  • Register of investment assets.

Furthermore, and this applies to all communities, whether they are in the General Regime or solely in the Special Regime for Agriculture, Livestock Farming and Fishing, they are obliged to pass on the tax in the following cases:

• In the deliveries of investment real estate assets used for business purposes;
• In the importation of goods;
• In the acquisition of goods from another Member State;
• In the case of investment by the taxable person.

Property tax

According to the law governing local estates, as specified in Article 62 on IBI exemptions, communal assets and community woodland will be exempt.

Therefore, the settlement of the IBI for the community woodland or communal assets is null and void ab initio, as it is an automatic exemption, and the tax authority is obliged to act ex officio, without the need for a request from the community.

In this regard, the council in which the community is situated should be limited to verifying whether the community woodland meets the requirements laid down by the Law and, if so, granting the exemption. To that end, if a community is charged with IBI on land that is community woodland, it must notify the Cadastre, duly justifying its status as community woodland held in common.

Furthermore, it is a subjective exemption, since it refers to an asset (the community woodland) that should not be taxed. It is also a total exemption, as it does not matter whether the community woodland has a rural or urban nature.

Tax on property transfers and documented legal acts

According to Article 13 of Law 13/1989 on communal village woods, It shall be exempt from inheritance and gift taxes, and the first registration of the estate and any cancellations arising for this reason shall be free of charge, in accordance with Article 13 of Law 55/1980.

Implications of the distribution of dividends among the partners on the non-payment of corporation tax.

Mountain communities can distribute dividends to their members as they are regarded as for-profit entities. Even so, before proceeding with the distribution of dividends, it is advisable to consider its tax implications:

• On the one hand, the amounts actually distributed by the community are included in the savings tax base in the calculation of the IRPF for the community members, treating these income as if they were returns obtained from participation in the equity of any other entity. This savings tax base is taxed at a rate scale that currently ranges from 19 per cent to 23 per cent.
• The community must apply a 19% withholding tax to the agreed gross dividend, with the shareholder actually receiving 81% of the gross dividend.;
• On the other hand, as the community will distribute a certain amount of money among its members, it cannot reduce the taxable base by that amount of the profit, since it would not be able to reinvest it by giving it in cash to the members or by using it to pay the 19% withholding tax. As a result, the community has to pay 25% tax on the total amount, which it cannot reinvest as it is being distributed as a dividend to the members (equivalent to 33% of the gross dividend).

In some cases, the amounts payable in tax could be reduced (for example, in communities with very low incomes – below €8,000 per year – or in communities with substantial own resources and no reinvestment obligations).