In many cases, a company may cease its business activities, but the directors decide not to dissolve it. This is often done with the hope that the company might be reactivated in the future, either in the same line of business or a new one. Another common reason for maintaining an inactive company is to avoid the complex and often costly process of dissolution and liquidation.
However, it’s a misconception to think that keeping a company inactive is free of responsibilities or legal obligations. In reality, directors must be fully aware that an inactive company still comes with a series of formal duties and potential liabilities.
What Must Be Done First
The first step when deciding to make a company inactive is to formally approve this decision in a General Shareholders’ Meeting. Despite becoming inactive, the company continues to bear responsibilities before various authorities, including the Spanish Tax Agency (AEAT), Social Security, the Mercantile Registry, and third parties.
Tax Obligations for Inactive Companies
From a tax perspective, the company must take the following steps with the AEAT:
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Notify the AEAT of the Inactive Status:
This is done by submitting an update via the Modelo 036 (census declaration form). You must check:
“Cessation of all business and/or professional activities (legal entities without liquidation. Inactive entities).” -
Indicate the Effective Date:
Additionally, box must be completed with the effective date of the cessation of activity, indicating when the company officially became inactive.
These formalities are mandatory for any legal entity that has ceased its economic activity but has not been dissolved or extinguished.
Obligations with Social Security
Administrators enrolled in the RETA regime (Special Scheme for Self-Employed Workers) can request to deregister from Social Security, provided they are not performing any other economic or professional activity.
Obligations with the Mercantile Registry (Registro Mercantil)
Even if a company is inactive, it must continue to fulfill several obligations, including:
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Keeping proper accounting records
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Legalizing accounting books
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Preparing and approving the Annual Accounts by the General Shareholders’ Meeting
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Filing the Annual Accounts with the Mercantile Registry
In essence, an inactive company is not a “dormant” one in legal terms. The administrative and formal obligations remain in place, and failure to comply can result in penalties and liabilities for the administrators.
If your company is currently inactive or you are considering making it inactive, it is important to understand all the legal and tax implications. We can guide you through the necessary steps to ensure full compliance with Spanish regulations.
Thank you for reading this post, if you think we have been able to help you or if you still have any questions, you can always contact me via WhattsApp (+49 1520 8381499) or e-mail (erica@taxandlawspain.com).
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