Madrid Town Hall approves specific COVID-19 tax breaks for local taxes

Last May 29th, 2020, Madrid Town Hall Official Bulletin published two amendments to the local tax ordinances regulating the Economic Activities Tax (EAT) and Real Estate Tax (RET). Both amendments aimed to alleviate the negative economic effects of the state of alarm due to the COVID-19 pandemy on businesses established in the Capital.

Thus, Madrid Town Hall introduced two temporary tax breaks consisting of a 25% allowance for year 2020 in the local tax liability (cuota municipal) of the EAT, and the tax liability of the RET applicable to entrepreneurs carrying out businesses of special interest within the municipality.

Regarding EAT, a business qualifies as “of special interest” for the purpose of the allowance if (i) the taxpayer is register as performing an activity included in the specific list provided by the ordinance, and (ii) that activity was being carried out prior to March 15th, 2020 and will continue to be carried out through December 31st, 2020. The allowance may be extended to year 2021 subject to the maintenance of the average employment rate by the taxpayer. Additionally, it may be increased to 50% if the taxpayer has less than 10 employees working in the qualifying business.

On the other hand, owners of qualifying buildings are entitled to the 25% allowance in RET. For the purposes of this allowance, a building qualifies if (i) it is registered to be used and is used to carry out entertainment, catering and lodging, commercial, show or cultural businesses; and (ii) that business was being carried out prior to March 15th, 2020 and will continue to be carried out through December 31st, 2020. If the owner of the building is not the owner of the business carried in it, entitlement to the allowance is subject to proving that the owner granted the tenant a moratorium or deferment of the rent otherwise due under the leasing agreement, a reduction the said or any other alike-benefit, either in the context of Royal Law-Decree 15/2020, or freely agreed by the parties.

Neither of these allowances can be applied if the business owner is established in a tax-haven.

Both allowances must be applied for before June 28th, 2020 by filing the form approved by the Town Hall. At the time of the drafting of these comments, only the form to apply for the RET tax break has been approved.

Follow the link to access the RET Form.

Almudena Medina
Tax Law

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