The headline of the Balearic investment reserve is a reduction of up to 90 per cent of undistributed profit. The figure is correct and, on its own, misleading. The regime is a state aid measure operating under the European de minimis rules, and de minimis aid has a ceiling. For a small or mid-sized operating company the ceiling rarely binds. For a group with several million euros of Balearic profit it binds in the first year, and a model built on the 90 per cent headline without it can overstate the return by a wide margin.
This is the number that advisers tend to leave for the closing meeting. It belongs at the start, because it decides whether the reserve is the main event in a structure or a useful but bounded extra. What follows is where the ceiling comes from, how the aid is measured against it, what that means in sheltered profit at current tax rates, and what has to be filed.
Where the ceiling comes from
Section Seis of the seventieth additional provision of Law 31/2022 states that the tax benefits of the Balearic regime must comply with European Union law and apply only within the scope of the de minimis regulations it lists, and their successors. Section Seis.2 adds that those benefits, together with any other aid received under applicable rules, may not exceed the amounts those regulations set for a period of three years, and that the computation of the tax benefit for that purpose is left to regulation.
Article 29 of Royal Decree 710/2024 restates the obligation and names the current instruments, among them Regulation (EU) 2023/2831 for general de minimis aid and Regulation (EU) 2023/2832 for services of general economic interest. The regime is therefore not a notified regional aid scheme with an intensity map; it is a measure whose total value per beneficiary is capped by a Commission regulation that applies across the whole economy.
The number and the period
Article 3.2 of Regulation (EU) 2023/2831 sets the ceiling: the total de minimis aid granted per Member State to a single undertaking may not exceed 300,000 euros over any period of three years. Article 8 provides that the regulation entered into force on 1 January 2024 and applies until 31 December 2030, so it covers the whole remaining life of the Balearic regime, which applies to tax periods beginning up to 31 December 2028.
Two features of the ceiling matter for structuring. It is rolling: every new grant requires looking back over the preceding three years and adding up what has been received. And it applies per single undertaking, which article 2.2 of the regulation defines as all enterprises linked by majority voting rights, by the power to appoint a majority of the board, by dominant influence under a contract or constitutional document, or by joint control. Two Balearic companies under the same holding share one allowance. Setting up a second company does not create a second 300,000. euros
Different ceilings apply to services of general economic interest and lower ones to primary agricultural production, fisheries and aquaculture, each under its own regulation. A group in those sectors has to confirm its figure case by case; the number in this article is the general one.
How the aid is measured
The ceiling is measured on the aid, not on the reserve, and the regulation says exactly how. Article 30.3 of Royal Decree 710/2024 provides that, for the investment reserve, the aid is the result of multiplying the corporate income tax rate applicable to the beneficiary by the amount of the reduction applied. For an individual under personal income tax it is the proportional part of the deduction. In other words, the aid is the tax actually saved, not the profit set aside.
That turns the ceiling into a question of tax rate. Under article 29 of the Corporate Income Tax Act the general rate is 25 per cent. For the years the Balearic regime covers, the forty-fourth transitional provision of the same Act sets the reduced rates: in tax periods beginning in 2026, entities whose net turnover in the previous period was below 1,000,000 euros pay 19 per cent on the first 50,000 euros of taxable base and 21 per cent on the rest, and entities of reduced size pay 23 per cent, falling to 22 per cent in 2027 and 21 per cent in 2028; the 17 and 20 per cent scale of article 29 only applies to the smallest entities from 2027. Newly created entities carrying on an economic activity pay 15 per cent in the first period with a positive base and the next. A lower rate means less aid per euro of reduction, and therefore more reduction before the ceiling is reached.
What the ceiling means in sheltered profit
At the 25 per cent rate, 300,000 euros of aid corresponds to 1,200,000 euros of reduction over three years. Since the reduction is capped at 90 per cent of undistributed Balearic profit, that is roughly 1,330,000 euros of profit sheltered over the same period, or in the region of 440,000 euros of undistributed Balearic profit a year with no other de minimis aid in the group. At a 20 per cent rate, the one that will apply to the smallest entities from 2027, the same 300,000 euros of aid covers 1,500,000 euros of reduction. These are arithmetical consequences of the two rules, not thresholds in the law, and they move with the tax rate and with whatever else the group has received.
Two honest readings follow. For an owner-managed hotel, a services firm in Palma or a family trading company, the ceiling is generous. That is the profile the regime was designed for, and for most of them the binding constraint will be finding enough qualifying investment within three years, not the aid cap. For a group with 10,000,000 euros of Balearic profit in a single year, a 90 per cent reserve would be 9,000,000 euros and the aid at 25 per cent would be 2,250,000, euros against an allowance of 300,000 euros for three years. The group can still book a reserve, but only the part whose aid fits under the ceiling is usable, and the marginal value of allocating anything further is zero. Modelling that group on the headline rate overstates the saving by a factor of seven.
Other aid in the same group counts
Because the ceiling is cumulative, the reserve has to be sized against everything else the single undertaking has received as de minimis aid in the rolling three years. Regional grants for energy efficiency, subsidised loans with a grant element, training subsidies, employment incentives and some COVID-era measures were granted under de minimis and sit in the same envelope. A Balearic subsidiary that has already received 200,000 euros of such aid has 100,000 euros left, which at 25 per cent is 400,000 euros of reduction.
Section Cuatro.12.g of the additional provision requires the notes to the annual accounts to carry a formal declaration of all other de minimis aid received in the two previous financial years, and that no other state aid has been applied in a way that exceeds the Community limits. That declaration is signed off by the directors, and it is the first place a tax auditor will look if the model 283 figure and the group’s grant history do not match.
The filing that quantifies it
Beneficiaries file an annual information return on aid received under the Balearic regime, model 283, approved by Order HAC/1031/2024. Article 2 of the Order requires every corporate, non-resident or personal income tax payer who has benefited from any incentive of the regime to file it, and article 4 fixes the deadline as the filing period of the corresponding income tax return, in respect of the previous calendar year. It is filed electronically only.
Model 283 carries the information defined in article 32.2 of the regulation: the identification of the beneficiary and the aid received in the year, quantified under article 30. That figure is what the administration measures against the 300,000 euros ceiling, and the regulation gives the AEAT express competence to regularise aid obtained in excess. Exceeding the accumulation limits is itself an infringement under section Seis.4, penalised at 20 per cent of the excess, in addition to repayment of the incompatible aid with late payment interest. Not filing the return on time, or filing it incompletely, is a separate infringement under section Seis.5.
Add to this that article 6 of Regulation (EU) 2023/2831 requires Member States, from 1 January 2026, to record every de minimis grant in a central register within twenty working days, with the beneficiary, the amount, the date, the granting authority and the sector. Traceability across the group’s grants is no longer a matter of what the company remembers.
Where this leaves a foreign holding
For a group structured through a Dutch or Luxembourg holding, the ceiling changes the question from how much profit can be sheltered to how much of the group’s three-year allowance is free, and which Balearic entity should use it. Where the group has one operating company in the islands, the answer is usually that the reserve is worth up to 300,000 euros of tax per three years and should be sized to that, with the remainder of the profit flowing up under the ordinary rules the Iberia, Balearic and Special Zones desk deals with. Where the group runs several Balearic entities, the allowance has to be allocated between them before any of them books a reserve, because the single undertaking test will aggregate them whatever the accounts say.
The comparison with the Canary Islands belongs here. The RIC Canary Islands reinvestment reserve sits inside a different European state aid framework, and the ZEC is a different instrument again. A comparison between archipelagos that does not start from the aid ceiling of each is not a comparison. For most international groups the Balearic reserve is the right tool for a bounded reinvestment in an existing island business, and the wrong tool for sheltering large profits.
Two lines before the structure is fixed
Before any structure is agreed, two numbers are needed. The first is what the reserve is worth in tax: the planned reduction multiplied by the applicable rate. The second is how much of the 300,000 euros three-year allowance is already committed elsewhere in the single undertaking. If the first exceeds what is left of the second, the model is wrong and the reserve should be sized down, or the investment should be split with the indirect route through Balearic shares and anticipated investments so that the usable aid lands in the right years. The overview of the RIB ends with the same question, and it is the one to answer first.