Accounting and financial control for SMEs: obligations to meet and what to monitor during the year

For many small and medium-sized businesses (SMEs), the accounts are put in order once a year, when they are filed. That is a mistake: the law imposes very specific accounting and calendar obligations, and the figures are there to support decisions throughout the year. This article summarises what the Commercial Code, the Companies Act (Ley de Sociedades de Capital, LSC) and the Corporate Income Tax rules require, and what is worth monitoring at each point.

Basic accounting obligations of a company

The starting point is Article 25 of the Commercial Code: every businessperson must keep orderly accounts, suited to the activity of their business, that allow a chronological follow-up of all their transactions and the periodic preparation of balance sheets and inventories. Specifically:

• Mandatory books. The Inventory and Annual Accounts book and the Journal (Art. 25.1). The first records, at least quarterly, the trial balances, together with the closing inventory and the annual accounts (Art. 28). Companies also keep a minutes book (Art. 26) and, for limited liability companies, a register of members (Art. 104 LSC).
• Accounting framework. The General Accounting Plan applies generally (Royal Decree 1514/2007); small companies may opt for the SME version if they meet the thresholds for abridged accounts (see below) and none of the exclusions apply, such as belonging to a group that consolidates or being a public-interest entity.
• True and fair view and record retention. The accounts must show a true and fair view of the assets, financial position and results (Art. 34.2); books and supporting documents are kept for six years from the last entry made, without prejudice to the special periods set by other rules, such as tax rules (Art. 30.1).
• Legalisation. Mandatory books, including the minutes book and the register of members, are legalised electronically at the Commercial Registry (Registro Mercantil) of the registered office, once completed in electronic format and within four months of the end of the financial year (Art. 18 of Law 14/2013; Art. 27 of the Commercial Code; Art. 329 of the Commercial Registry Regulations). If the application is made late, the registrar records that fact (Art. 333.3 RRM).

Calendar for a financial year ending on 31 December

Milestones for a company whose financial year matches the calendar year. If it differs, the deadlines run from the closing date.

• By 31 March. Preparation of the accounts. The directors prepare the annual accounts, the management report where applicable and the proposal for the allocation of profit within three months of the year end, with the signature of all of them (Art. 253 LSC).
• By 30 June. Ordinary general meeting. It meets in the first six months of the financial year to approve the management of the company and the accounts of the previous year and to decide on the allocation of profit (Art. 164.1 LSC). The meeting is valid even if held late (Art. 164.2), but that does not cure the breach.
• Within the month following approval. Filing of the accounts at the Commercial Registry of the registered office, which for Mallorca is the one in Palma de Mallorca. The certificate of the resolutions, the accounts, the management report and, where applicable, the auditor’s report are submitted (Art. 279 LSC).
• 1 to 25 July. Corporate Income Tax. The deadline is the 25 calendar days following the six months after the end of the tax period (Art. 124.1 LIS), using form 200. For the rates, see the Corporate Income Tax reform.
• First 20 days of April, October and December. Instalment payments. As a general rule, 18% is applied to the gross tax liability of the last tax period whose filing deadline has expired, reduced by deductions, allowances and withholdings or, by an option exercised in the census return, they are calculated on the taxable base of the first three, nine or eleven months. That method is mandatory if turnover exceeded €6 million in the previous twelve months, and special rules are added from €10 million (Art. 40 LIS and fourteenth additional provision; form 202). These payments should be reflected in the cash forecast; the Spanish Tax Agency’s calendar sets the dates for each year.

Abridged accounts: limits in force

A company may prepare an abridged balance sheet if, for two consecutive financial years, at the closing date of each one it meets at least two of these circumstances (Art. 257 LSC):

• Total assets not exceeding €4,000,000.
• Net annual turnover not exceeding €8,000,000.
• Average number of employees not exceeding 50.

With an abridged balance sheet, the statement of changes in equity and the cash flow statement are not mandatory (Art. 257.3), an abridged notes to the accounts may be filed (Art. 261) and no management report has to be prepared (Art. 262.3). Two clarifications avoid mistakes:

1. The abridged profit and loss account has different, higher limits: assets of €11,400,000, turnover of €22,800,000 and 250 employees (Art. 258).
2. The audit exemption has lower thresholds than the abridged balance sheet: assets of €2,850,000, turnover of €5,700,000 and 50 employees (Art. 263). A company may prepare an abridged balance sheet and still be required to have its accounts audited.

In November 2025 the Government introduced a bill to update these size criteria, in line with Delegated Directive (EU) 2023/2775. That bill has lapsed without being passed, so the LSC limits remain in force; if another bill is introduced, these figures would need to be reviewed.

Financial control: what to monitor during the year

Meeting the deadlines keeps the company up to date; financial control serves to know, while there is still time to act, whether the business is generating cash and margin. In an SME a simple but consistent system is usually enough:

• Cash. A forecast of receipts and payments several weeks ahead, including tax due dates. A profitable company can run out of liquidity if it is paid late. In commercial transactions the payment period is thirty days unless otherwise agreed, with a maximum agreed period of sixty calendar days (Art. 4 of Law 3/2004).
• Margin and ratios. Margin by line of business or customer, not just the overall result; liquidity, indebtedness and average collection and payment periods, whose trend matters more than any isolated value.
• Budget and dashboard. An annual budget, even a simple one, compared with the actual figures every quarter, and a few indicators reviewed regularly.
• Reconciliations. Banks, customers, suppliers and balances with the tax authorities must match the accounting records.

There are also figures with direct legal consequences that should be followed every quarter:

• Net equity compared with share capital. If losses reduce net equity to less than half of the share capital, the company must be dissolved unless the capital is increased or reduced sufficiently and provided that it is not appropriate to file for insolvency (Art. 363.1.e LSC). The directors must call the meeting within two months (Art. 365); if they do not, they are jointly and severally liable for the company’s later obligations (Art. 367).
• Distribution of profits. Dividends may only be distributed if net equity is not, and does not become after the distribution, lower than the share capital (Art. 273.2), and the legal reserve must be funded with 10% of profit until it reaches 20% of the capital (Art. 274). How much to distribute and how to remunerate the shareholder who works in the business depend on these limits (dividends or salary for the shareholder).

Common mistakes

• Booking late, so that control always arrives late, or neglecting the books: minutes not transcribed, register of members not updated or books not legalised.
• Confusing accounting and tax results: in Corporate Income Tax, the taxable base starts from the accounting result and is then adjusted according to the tax law (Art. 10.3 LIS), so the two may not coincide.
• Forgetting that preparing the accounts is a duty of the directors, who are liable for damage caused by acts or omissions contrary to the law (Art. 236 LSC).
• Approving the accounts and not filing them.

Consequences of not filing the accounts

Failing to meet the filing deadline has at least two direct consequences:

1. Registry closure (Art. 282 LSC). While the breach persists, no document relating to the company is registered at the Commercial Registry. Exceptions include, among others, the removal or resignation of directors and dissolution with the appointment of liquidators.
2. Fine (Art. 283 LSC). From €1,200 to €60,000, imposed by the Institute of Accounting and Auditing (ICAC). If the company, or its group, has annual turnover above €6,000,000, the limit for each year of delay rises to €300,000. If the accounts are filed before the penalty procedure begins, the penalty is imposed at its minimum level and reduced by 50%. These infringements become time-barred after three years.

When it makes sense to outsource

The accounts may be kept directly or by duly authorised persons, without prejudice to the businessperson’s liability (Art. 25.2 of the Commercial Code). Outsourcing the work does not transfer the responsibility, which remains with the directors. It usually makes sense when:

• The accounts can no longer be kept by one person without losing control.
• Information arrives late or is not reliable enough to base decisions on.
• There are several companies or reporting needs for banks or shareholders.

Frequently asked questions

What is the deadline for preparing the annual accounts?

Three months from the end of the financial year: until 31 March if it coincides with the calendar year. The meeting must approve them in the first six months of the following financial year and the filing is made within the month following approval (Arts. 253.1, 164.1 and 279.1 LSC).

Can I file abridged accounts?

Yes, if for two consecutive financial years at least two of the three limits in Art. 257 LSC (assets, turnover and headcount) are met. The audit obligation is analysed separately, because its thresholds are different.

What happens if the accounts are not filed?

Registry closure occurs and a fine of €1,200 to €60,000 may be imposed, with a limit of €300,000 per year of delay if turnover exceeds €6,000,000 (Arts. 282 and 283 LSC).

How we work at Vicens Advisors

At Vicens Advisors we provide accounting, reporting and financial control services to SMEs and companies in Mallorca, within our business consulting area. We start from a diagnosis of the accounting, corporate and tax situation, set a calendar of obligations and agree what information the director needs and how often, so that the accounts are prepared and filed on time and the figures are available when decisions have to be made.

LEGAL NOTICE

This content is provided for information purposes and does not constitute tax or legal advice. It is based on the legislation and the criteria cited, in force at the date of publication. Each situation requires a specific analysis.

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