Has your company performed poorly and you are keeping it inactive? It is important to know that inactive companies still have obligations before the Spanish Tax Agency, the Commercial Registry and, in some cases, Spanish Social Security.
In this post, we explain what inactive companies are, which obligations they must continue to comply with, the risks of keeping them inactive for too long, and how their reactivation or purchase and sale can be managed.
What are inactive companies?
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Carrying out the winding-up and liquidation of a company requires time and money. For this reason, many business owners decide to leave the company inactive instead of dissolving it immediately. Inactive companies can be defined as those that cease their economic activity but are not liquidated or extinguished.
The inactivity of a commercial company may be due to disputes between shareholders, financial difficulties, lack of funds to proceed with dissolution, absence of real activity or a temporary decision to pause the business, among other reasons.
To make a company inactive, Form 036 must be filed with the Spanish Tax Agency. The inactivity must be notified by ticking box 140, which refers to entities that stop carrying out economic activities without having been dissolved or extinguished. In addition, the effective date of cessation of activity must be indicated in box 141.
In any case, leaving a company inactive does not mean that its obligations disappear. Even if the company does not issue invoices or carry out any activity, its tax, accounting, registry and, where applicable, labour obligations must still be reviewed.
Obligations of inactive companies
Even if a company is inactive and does not carry out any economic activity, not all its obligations disappear. In practice, the company continues to exist legally and must comply with certain tax, accounting, registry and, where applicable, labour obligations.
The obligations of inactive companies are mainly of three types:
Obligations before the Spanish Tax Agency
If there are withholdings to professionals, they must be declared quarterly through Form 111. Afterwards, Form 190 must be filed annually.
On the other hand, if the company has rented premises or an office and must apply withholding tax on the lease, it must file Form 115 to declare and pay the withholdings made. Afterwards, it must file Form 180 as the annual summary.
In addition, it is important to remember that, even if the company is inactive, it must file Corporate Income Tax through Form 200 and tick the corresponding box for inactive entities, where applicable.
In relation to VAT, if the company does not carry out economic activity and does not issue invoices due to inactivity, as a rule there will be no obligation to file periodic VAT self-assessments. Likewise, since there is no economic activity, there will normally be no deductible input VAT amounts linked to that activity. However, each specific case should be reviewed.
Obligations before the Commercial Registry
In relation to the Commercial Registry, the company must approve and file its Annual Accounts, even if it is inactive.
In general, the company must keep accounting records, legalise its accounting books, prepare the Annual Accounts and file them with the Commercial Registry within the corresponding deadlines.
Obligations before Spanish Social Security
If the company’s working shareholders and directors do not carry out any other activity as self-employed workers, they may assess deregistration from the Special Regime for Self-Employed Workers (RETA), provided that the applicable requirements are met.
However, each situation should be analysed individually, especially when the director continues to perform management duties, there are pending employment relationships or obligations before Spanish Social Security may arise.
Risks of keeping a company inactive for too long
It is important to bear in mind that leaving a company inactive indefinitely may generate tax, registry and corporate risks.
From a corporate perspective, the Spanish Companies Act establishes that a company must be dissolved due to the cessation of the activity or activities that constitute its corporate purpose. Such cessation is deemed to have occurred when there is a period of inactivity of more than one year.
Therefore, if the company remains inactive for too long and the corresponding decisions are not adopted, liabilities may arise for the management body. This is especially relevant if the General Meeting is not called to assess the reactivation, dissolution or liquidation of the company.
In addition, failure to comply with tax or registry obligations may lead to penalties, closure of the company’s registry sheet due to failure to file Annual Accounts, or even the revocation of the Spanish tax identification number (NIF) by the Spanish Tax Agency.
The revocation of the NIF may severely limit the company’s operations, making it difficult to carry out formalities, transactions or actions before third parties. However, in certain cases, its reinstatement may be requested if the circumstances that led to the revocation no longer exist.
How to reactivate an inactive company
To reactivate an inactive company, it is advisable to follow a series of prior steps to avoid tax, accounting or corporate issues:
1. Review the company’s situation
Before notifying the reactivation, it is advisable to check whether there are:
- tax returns pending filing;
- Annual Accounts not filed;
- accounting books not legalised;
- issues with the NIF;
- or any other pending obligation that may affect the company’s reactivation.
2. Analyse the activity to be restarted
It is also important to verify whether the activity to be carried out matches the corporate purpose registered with the Commercial Registry. In some cases, it may first be necessary to amend the corporate purpose, the management body, the registered office or even review the shareholders’ situation.
3. Notify the Spanish Tax Agency of the reactivation
Once the company’s situation has been reviewed, Form 036 must be filed as a tax census modification return to notify the Spanish Tax Agency of the restart of activity. This procedure can be completed electronically using an electronic certificate.
4. Review the company’s corporate situation
It should be noted that the Spanish Companies Act establishes the cessation of the activity or activities that constitute the corporate purpose as a cause for dissolution. Such cessation is deemed to have occurred after a period of inactivity of more than one year.
5. Call the General Meeting if there is a cause for dissolution
Once that period has elapsed, the management body must call the General Meeting within the legally established period so that the shareholders can adopt the appropriate decision: reactivate the company, approve its dissolution or adopt the necessary measures according to the specific situation.
Steps for the purchase and sale of inactive companies
In some cases, the purchase and sale of inactive companies is carried out to avoid the costs of incorporating a new commercial company and to save time in the initial procedures. This option may make it possible to have an already incorporated company available to start an activity in a shorter timeframe.
However, before purchasing an inactive company, it is essential to analyse its real situation. The fact that it has no activity does not necessarily mean that it is free from obligations, debts or tax, accounting or corporate issues.
The stages for carrying out the purchase and sale of inactive companies are as follows:
- Contact a law firm with expertise in the purchase and sale of companies.
- Choose the company to be purchased and review its tax, accounting and corporate situation to check that there are no relevant outstanding debts or obligations.
- Execute the public deed of purchase and sale of equity interests before a notary. Where applicable, aspects such as the corporate purpose, company name, registered office or management body may also be amended.
- Register the corresponding corporate amendments with the Commercial Registry.
- File Form 036 to notify the Spanish Tax Agency of the restart of activity and update the company’s tax census details.
Therefore, although the purchase and sale of an inactive company may be a useful alternative to incorporating a new company, it must be carried out with an adequate prior review to avoid assuming hidden risks or previous liabilities.
Reactivating an inactive company: when specialised advice is advisable
Relying on specialised advice makes it possible to avoid penalties, registry issues, problems with the NIF or liabilities arising from prolonged inactivity.
If you have an inactive company and want to reactivate it, sell it or regularise its situation, it is important to analyse its tax, accounting and corporate status beforehand.
From LEIALTA’s corporate and legal department, we study each case to assess the different legal alternatives available: company reactivation, purchase and sale, regularisation of pending obligations or, where applicable, dissolution and liquidation.
