Dormant Companies, what are they?
Dormant companies are companies that have ceased trading without being dissolved. Leaving a company inactive is as common as it is simple, however, certain legal obligations must not be forgotten.
Here at Letslaw by RSM we would like to explain some of the aspects you should know about this issue.
First of all, we should review an essential aspect of the business field which, although it is relatively obvious, it is always better to remember it; it is convenient to know the details of the current legislation when we embark on any professional or business activity because, otherwise, we could incur certain legal liabilities as unintended effects of a malpractice. To this end, we will always try to be well informed and, above all, well advised.
Possible reasons for making a company inactive
As mentioned above, dormant companies are dormant because they have not been dissolved. This decision to maintain the existence of the company’s legal personality can be made for different reasons, among which, in our opinion, two stand out: (i) to avoid the legal formalities and save the costs involved in winding up and dissolving the company; (ii) to anticipate resuming the company’s activity in the future, thus avoiding the costs involved in setting up an identical company again.
Be that as it may, the management body is often unaware of the obligations inherent in the company’s inactivity and the liability regime that may arise in this respect. Namely:
Communication to the competent administrative authority of the inactivity
This is an obligation on the company whose activity has stopped to notify the Tax Agency of its inactivity.
This notification must be made by completing and filing form 036 (the same form used to register the company’s activity), in which boxes 140 “Cease to carry out all business and/or professional activities (legal persons and entities, without liquidation. Inactive entities” and 141 where the date of the effective cessation of the business/professional activity is included.
For clarification purposes, it is highly advisable to highlight the fact that, as of this very moment, the company will no longer be able to issue invoices, nor deduct expenses, nor deduct input VAT.
Filing corporate tax returns
One of the obligations of the governing body that manages an inactive company is to file corporate income tax, since, despite its inactivity and the cessation of its obligations, the company is not exempt from filing this tax, given that the summaries are annual and the declarations are periodical.
The filing of corporation tax will only require the completion of the balance sheet and the section corresponding to the profit and loss account in those cases in which there have been movements.
However, if the company remains inactive throughout the tax year, it will be necessary to make the necessary adjustments to prepare the corporate income tax return.
Filing of the Withholding Tax Return and Annual Summary
In those cases where the company has employees, rents, etc., the governing body will be obliged to make the corresponding withholdings and payments on account for its employees, rents and any others required by law.
Removal of administrators with a salary
In those cases in which the governing body of an inactive company has its members registered with the general Social Security system, they must be deregistered.
However, in other cases where the aforementioned members of the governing body of a dormant company are registered under the special scheme for the self-employed, they may be deregistered provided that they are not engaged in any other activity.
Activities related to accounting and company secretarial activities
In addition to the above obligations related to the Spanish tax system, there are other obligations of a non-tax nature that must also be observed by dormant companies, which are:
Keeping orderly and up to date accounts of the company even if it is not carrying out any activity; formulating, approving and filing with the Mercantile Register its CCAA; keeping up to date and legalising the company books: minutes book of the Shareholders’ Meeting, minutes book of the Board of Directors (if any), and shareholders’ book for those cases in which the structure of the share capital is modified.
At this point, it is worth noting that if your ACs are not filed with the corresponding Companies Register, the administrative authority may impose a penalty ranging from €1,200 to €60,000.
At Letslaw by RSM we are specialists in the Commercial Law, so our lawyers can advise you on everything you need.
Letslaw es una firma de abogados internacionales especializada en el derecho de los negocios.