Not all new companies start out on an equal footing from a tax perspective. Sometimes, the key lies not in what you do, but in how and where you begin. Incorporating a new company to carry out a familiar business activity always raises the same question: Can the reduced corporate tax rate be applied, or is it considered a disguised continuation?
As you may know, it is common for certain individuals (partners) who are already involved in a company to decide to launch a separate business. Sometimes this is because the previous company is exiting a line of business; other times, it is to separate risks or reorganize the business. The issue arises when the new company engages in the same activity as the previous one.
The question arises: Can this new company apply the reduced corporate income tax (CIT) rate of 15%, or is it considered a simple continuation of the previous one?
Reduced rate
Corporate income tax regulations provide for a particularly favorable rate for newly established entities: 15% for two fiscal years, starting from the first year in which there is a positive taxable income.
However, this benefit is not intended to “restart” existing businesses, but rather for activities that are truly new. For this reason, the law establishes clear limits.
The tax incentive does not reward a change in corporate structure, but rather the actual commencement of an economic activity.
When does the tax authority cease to consider a company as new?
Broadly speaking, a company is no longer considered a newly formed entity when:
- The business activity originates from another company or related party and the business has been transferred.
- The business activity was already being carried out, and a natural person assumes control of the new company.
- A corporate group exists in a strict sense.
- The company is primarily an asset-holding entity rather than an operating one.
The analysis is neither automatic nor mechanical. The entire transaction is examined, and above all, the economic reality.
The partners are individuals
This is where the most common mistake usually occurs. The fact that the partners of the new company are the same as those of another company does not necessarily imply the existence of a business group or the loss of the reduced tax rate.
When we speak of individuals, the focus is on two very specific elements:
- Individual control, not family or relational control.
- The absence of a business transfer, in any form.
If no single individual controls more than 50% of the new company and there is no transfer of the previous business, the analysis changes substantially.
The DGT, in a recent binding ruling V1627-25, analyzes precisely this scenario: individual partners who were already involved in another entity create a new company to carry out the same activity, without a legal transfer of the business and without any of them controlling more than 50% of the capital on their own.
Starting “from scratch” is not just a figure of speech
One of the most sensitive issues is proving that the new company has not taken over the business from the previous one. It is not enough to simply say so; it must be reflected in the facts.
When the new company does not purchase assets, does not assume contracts, does not inherit clients or structure, and begins its operations with its own resources, the fact that it does “the same thing” does not, in and of itself, prevent the application of the reduced tax rate.
Consistency between what is declared and what occurs is key in a future audit.
Capital distribution as a decisive factor
Another point that often goes unnoticed is the distribution of shares. Even if several people have carried out the activity in the past, if none of them individually holds more than 50% in the new company, the automatic veto on the 15% rate is not triggered.
This seemingly technical detail is one of the most significant factors in practice.
A small adjustment in the capital can completely change tax treatment.
Avoiding Classification as a Holding Company
In addition to meeting all the above requirements, the company must engage in a genuine economic activity. If more than half of its assets are not used in that activity, the reduced tax rate does not apply.
This assessment usually comes later, but it’s important to keep it in mind from the start.
It’s not enough to simply generate revenue; the company must have a structure that aligns with its business activity.
Forming a new company with partners who already have business experience does not automatically preclude the 15% reduced tax rate, but it does require proceeding in an orderly, judicious, and forward-thinking manner. The difference between qualifying for the incentive and not usually lies in decisions made even before signing the deed of incorporation. And once those decisions are made, there is rarely any turning back.
For more information, please contact our tax advisory department.
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