Grants and aid for businesses in the Balearic Islands: how they work, what they require and mistakes that lose them

A grant is not an automatic payment: it is processed through a procedure, imposes requirements before and after it is awarded and can require what has been received to be repaid. This guide explains the legal framework and the mechanics of aid for businesses and the self-employed in the Balearic Islands, without covering specific calls for applications, which change every year and must always be checked in their official text.

What a grant is and what other aid exists

Article 2.1 of Law 38/2003, the General Grants Act (LGS) defines it as a monetary disposition in favour of public or private persons, without direct consideration, linked to an objective, project, activity, conduct or situation and aimed at a purpose of public or social interest. Not all aid fits that concept:

• Subsidised loan. Official credit is excluded, unless the authority subsidises all or part of the borrower’s interest or other costs (Art. 2.4.h LGS).
• Tax benefits and social security contribution relief. These are not grants and are governed by their own rules (Art. 2.4.g LGS; Art. 2.3.b of Legislative Decree 2/2005, the consolidated text of the Balearic Islands Grants Act).

They are called by the State, the regional government (Govern; ministries and bodies such as the Regional Development Agency of the Balearic Islands, ADRBalears), the island councils (consells insulars), the town councils and, for European funds, the authorities that manage them (Art. 3 LGS; Art. 3.1 of Legislative Decree 2/2005).

Which rules apply to each aid

The LGS and its Regulations (Royal Decree 887/2006) are the common basis. For aid from the regional administration and its bodies, Legislative Decree 2/2005 also applies; it does not govern the island councils or the town councils, which apply the LGS and their own by-laws. But each case is decided by the governing rules (bases reguladoras) and the call for applications, which must be approved before awarding (Art. 9.2 LGS; Art. 12.1 of Legislative Decree 2/2005) and regulate the eligible expenses, the deadlines, compatibility and justification.

How calls are published and where to find them

• BDNS. The National Grants Database is the national publicity system (Arts. 18.1 and 20.8 LGS); its portal is the National System for the Publicity of Grants and Public Aid. The authorities send it the text of the call, and the call forwards the extract to the official gazette in the State and local public sector and in the autonomous regions that do not choose to dispense with this procedure (Art. 20.8.a LGS).
• BOIB. For aid from the Govern and its bodies, the call is sent to the BDNS and published in the Balearic Official Gazette (Butlletí Oficial de les Illes Balears) (Art. 15.1 of Legislative Decree 2/2005).
• Websites of the calling body, such as ADRBalears, the island councils or the town councils.

The ordinary procedure is competitive tendering: applications are compared with the criteria in the rules and the best-rated are awarded aid within the available budget (Art. 22.1 LGS). For aid from the Govern and its bodies, if the maximum period expires without an express decision, the application may be deemed rejected (Art. 22.2 of Legislative Decree 2/2005).

Requirements for the beneficiary

The following, among others, cannot be beneficiaries: those who are not up to date with their tax obligations, with Social Security or with the payment of repayments; those with tax residence in a tax haven; those in certain situations of insolvency or bankruptcy; or those who have been penalised with the loss of the right to obtain grants (Art. 13.2, letters b, e, f, g and h, LGS).

• Being up to date must be proven before the proposed decision (Art. 14.1.e LGS): returns filed and no debts in enforcement period, unless deferred or suspended (Arts. 18, 19 and 22 of Royal Decree 887/2006).
• For grants of more than €30,000, for-profit persons and entities must also prove compliance with the payment periods of the late-payment law (Art. 13.3 bis LGS).
• For aid from the Govern and its bodies, being up to date with the regional tax authority is also required (Art. 11.f of Legislative Decree 2/2005; a declaration of responsibility is enough if the grant does not exceed €3,000) as is notifying, within three working days, the application for or receipt of other aid for the same purpose (Art. 11.e).

De minimis aid, compatibility and incentive effect

Much aid is granted under Regulation (EU) 2023/2831 (de minimis), which exempts it from notification as State aid (Art. 3.1). The essentials:

• A limit of €300,000 per single undertaking in any three-year period (Art. 3.2).
• “Single undertaking” includes companies linked by a majority of voting rights, the right to appoint the majority of the administrative body or a dominant influence (Art. 2.2): this is key in groups and family structures.
• From 1 January 2026, Member States must record de minimis aid granted in a central register, national or of the Union, within twenty working days of the award (Art. 6.1 and 6.2); the regulation applies until 31 December 2030 (Art. 8).

In addition, the grant, alone or together with other aid or income, cannot exceed the cost of the activity (Art. 19.3 LGS; Art. 20 of Legislative Decree 2/2005), and the excess is repaid (Art. 37.3 LGS). The rules set compatibility (Art. 19.2 LGS) and any other aid must be notified (Art. 14.1.d LGS).

For State aid exempt from notification, European rules usually require an incentive effect, that is, applying for the aid in writing before starting the project. Always check what the rules require: starting the investment before applying is a frequent ground for exclusion.

Eligible expenses

These are expenses that unambiguously relate to the activity, are strictly necessary and are incurred within the period set by the rules (Art. 31.1 LGS; Art. 40.1 of Legislative Decree 2/2005). The ones that cause the most problems:

• The cost cannot exceed market value and the expense must be paid before the justification period ends, unless the rules provide otherwise (Art. 31.1 and 31.2 LGS).
• Above the amount of a minor contract, at least three quotes must be requested before contracting, subject to the exceptions the law itself provides (Art. 31.3 LGS).
• Inventoriable assets must remain used for the subsidised purpose, for at least five years if they are registrable and two if they are not (Art. 31.4 LGS).
• Advisory expenses are only accepted if the rules provide for them; surcharges and penalties and recoverable VAT are not eligible (Art. 31.7 and 31.8 LGS). For aid from the Govern and its bodies, the expenses of intermediaries or advisers paid a percentage of the cost of the transaction are not accepted, unless justified at market value (Art. 38.7.c of Legislative Decree 2/2005).

Justification and deadlines

Justification takes the form of a justifying account, modules or accounting statements according to the rules; it is mandatory and expenses are proven with invoices or documents of equivalent evidential value (Art. 30.1 to 30.3 LGS). If the rules do not set a deadline, the account is submitted at the latest within three months of the end of the period for carrying out the activity (Art. 30.2 LGS; Art. 39.3 of Legislative Decree 2/2005).

For aid from the Govern and its bodies, as a general rule and without prejudice to the grading under Article 44, the funds are not considered fully justified until at least the amount of the project that was the basis for the award has been proven (Art. 39.2 of Legislative Decree 2/2005). Once the deadline has passed, the authority requires the justification within fifteen non-extendable days (Art. 42 bis.1 of Legislative Decree 2/2005; for the General State Administration and local authorities, Art. 70.3 of Royal Decree 887/2006); submitting it within that additional period does not exempt from the penalties that apply under the LGS (Art. 70.3).

Repayment, penalties and common causes of loss

What has been received must be repaid plus late-payment interest, among other cases, for (Art. 37.1 LGS; Art. 44.1 of Legislative Decree 2/2005):

• obtaining the aid by falsifying or concealing conditions;
• failing in whole or in part to carry out the project or the commitments, such as maintaining the investment;
• failing to justify or justifying insufficiently;
• omitting publicity of the public funding (Art. 18.4 LGS);
• failing to keep the documentation or hindering checks, so that the destination of the funds cannot be verified.

If compliance comes significantly close to the total, repayment is graded using the criteria in the rules (Art. 37.2 LGS). Beneficiaries are liable and, secondarily, the directors who did not act to ensure compliance or consented to the breach (Art. 45.3 of Legislative Decree 2/2005 at regional level; Art. 40.3 LGS at State and local level). For aid from the Govern, if compliance comes significantly close to the total, partial repayment is required without late-payment interest (Art. 44.3).

Repayment is independent of penalties. For example, failing to notify other aid or failing to justify after the deadline is serious, and falsifying conditions or not applying the funds to their purpose is very serious (Arts. 57 and 58 LGS; Arts. 52 and 53 of Legislative Decree 2/2005). Fines can reach three times the amount wrongly obtained and the possibility of obtaining aid may be lost for up to five years (Art. 59 LGS); the Balearic regime provides for that loss for one to three years in serious cases and three to five in very serious ones (Art. 58 of Legislative Decree 2/2005).

Accounting and tax treatment

Recognition and measurement standard 18 of the General Accounting Plan records the grant as a liability while it is repayable; it becomes non-repayable with an individual award decision, once the conditions have been met and without reasonable doubts about its receipt (section 1.1). Once non-repayable, it is recorded in net equity and taken to profit or loss according to its purpose: in line with the expenses it finances or, if it finances fixed assets, in proportion to their depreciation (section 1.3).

In Corporate Income Tax, the taxable base starts from the accounting result (Art. 10.3 LIS) and income is allocated to the period in which it accrues under accounting rules (Art. 11.1 LIS); as a general rule, the grant is taxed when it is taken to profit or loss. For the rates, see our analysis of the Corporate Income Tax reform. A self-employed person under the direct assessment method applies those rules (Arts. 14.1.b and 28.1 of the Personal Income Tax Law); in that sense the Directorate-General for Taxes ruled, for a grant to a self-employed person, in binding ruling V0380-25 of 20 March 2025.

In VAT, only grants directly linked to the price of the taxable transactions form part of the taxable base, that is, those set according to the number of units delivered or the volume of services provided and fixed before the transaction is carried out (Art. 78.Dos.3.º of the VAT Law); not every grant carries VAT.

Checklist before applying

1. Read the rules and the call in full.
2. Check the prohibitions and be up to date with the State and regional tax authorities and with Social Security.
3. Calculate the cumulative de minimis of the “single undertaking”.
4. Do not start the project if a prior application is required.
5. Gather quotes and prove the actual payment of each expense.
6. Keep the project separate in the accounts, retain the documentation and give publicity to the funding.

Frequently asked questions

Can I start the project before applying for the aid?

It depends on the rules and the regime that applies: many regimes require a prior application, and the rules set the period for eligible expenses (Art. 31.1 LGS).

How long must the documentation be kept?

For as long as it may be subject to checks and controls (Art. 14.1.g LGS). Under the LGS, the right to repayment becomes time-barred four years after the justification period ends or, if there are maintenance obligations, after the required period ends (Art. 39).

Is the grant taxable?

As a general rule, yes, when it is taken to profit or loss under standard 18 of the General Accounting Plan (Arts. 10.3 and 11.1 LIS).

How we work at Vicens Advisors

At Vicens Advisors we review each aid against its rules and its call: requirements, de minimis, compatibility, expenses, justification and accounting and tax treatment. Within our business consulting area we support the processing, with no guarantee of award, which always rests with the authority.

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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