Understanding how they are registered, when they are taxed and how they affect the financial structure is key to avoiding errors, gaining credibility with investors and turning public aid into a real strategic advantage.
Public aid has become one of the main funding levers for innovative startups and SMEs in Spain. Instruments such as ENISA, CDTI, regional grants or European programs make it possible to accelerate growth, extend the runway and reduce dependence on private investment at an early stage.
However, despite their popularity, they are still one of the elements most misunderstood from a financial, accounting and fiscal point of view. In many companies, they are simply perceived as “money coming in”, when in reality their impact goes much further and directly affects how the balance sheet is presented, how the income statement is constructed and how present and future taxation is planned.
Correctly understanding this impact is not an academic question. It's a strategic decision which influences the relationship with investors, the eligibility for future aid and, in the worst case scenario, the avoidance of requirements or refunds years later.
In this article, we explain, from a practical and experience-based perspective, how public aid actually affects the balance sheet and taxation of an innovative company.
Not all public aid is the same (and that changes everything)
The first common mistake is to speak of “public aid” as if they were a homogeneous concept. In reality, there are different types of instruments and each one has very different implications.
On the one hand, we found the non-refundable grants, such as NEOTEC, Torres Quevedo or many regional grants. These are amounts that should not be returned, provided that the conditions of the program are met and the expenses are properly justified. On the other hand, there are soft public loans, such as ENISA or sections of conventional CDTI lines, which must be returned, although under very advantageous conditions compared to the market.
Finally, there are the tax incentives, such as deductions for R+D+i or Social Security bonuses, which do not involve direct cash inflow, but do imply a very significant reduction in future costs.
Each of these instruments has a different accounting and tax treatment. Understanding this difference is key to not making mistakes right from the start.
What happens on the balance sheet when a company receives a grant
One of the most confusing issues is how a grant is reflected in the balance sheet. Intuitively, many entrepreneurs expect to see a direct increase in their financial results, but accounting works differently.
When a grant is granted and there is a favorable resolution, its accounting treatment will depend on the time it is received and the degree of execution of the subsidized project. In cases where aid is received early, is not registered directly as a login. Instead, it is initially recognized in the net worth of the balance sheet, under the heading of grants, donations and bequests. This responds to a basic principle of accounting: income must be recognized when it is earned, not when it is collected or granted.
From that moment on, the grant is progressively charged to the income statement, in parallel with the expenditure or investment it finances. If the aid covers personnel costs for two years, it will be recognized month by month. If you finance an investment in assets or capitalized R&D, it will be charged following the amortization rate of that asset.
This mechanism has a very positive effect: it avoids artificially distorting the company's results and allows the profit and loss account to faithfully reflect the economic reality of the project.
On the contrary, when the grant is received once the project has been executed and justified, the amount granted can be directly recognized as income in the income statement, since the corresponding accrual has already occurred.
The real impact of a grant on the income statement
From a P&L perspective, a well-registered grant usually has a fairly balanced effect. The financed expenditure appears in full, for example, salaries of technical personnel, and, in parallel, the subsidized part is reflected as operating income.
In practice, this means that the operating result improves, but without generating fictitious benefits. For a startup, this point is especially relevant, since it allows us to show a coherent evolution of the business to investors, financial institutions or future granting bodies.
In addition, a correct attribution of grants greatly facilitates financial reporting and avoids complex explanations when analyzing metrics such as EBITDA or the real burn rate.
Do grants pay taxes? The short answer is yes, but...
Fiscally, non-refundable grants are part of the accounting result and, as a result, are taxed on Corporation Tax. However, the fiscal impact depends on the type of grant and, above all, on its temporary allocation, which follows the accounting criteria.
Law 27/2014 on Corporation Tax (Article 10.3) states that the tax base is calculated based on the accounting result. Since tax regulations do not contain specific rules on the temporary attribution of grants, the criteria of the General Accounting Plan (NRV 18th) apply.
1. Capital grants (linked to non-current assets)
They are charged to results progressively, in proportion to the amortization of the financed asset. If the asset is not amortizable, the imputation is carried out systematically during its useful life or, failing that, within a maximum period of ten years.
2. Operating grants (linked to current expenses)
They are charged to results in the year in which the subsidized expenses are accrued. If the grant is received in advance, it is deferred and charged as the expense is incurred. If it is granted once the expense has been executed, it can be fully charged in that year.
The “tax shield” of negative tax bases
In many startups and innovative SMEs in the initial stages, there are negative tax bases accumulated from previous years. In accordance with Article 26 of the Corporate Tax Act:
- BINs have no time limit on their compensation.
- They can be offset by positive future bases with the following limits:
- Up to 1 million euros without restriction.
- If the positive base exceeds 1 million euros, up to 70% of the excess can be offset.
- In the case of newly created entities, the 70% limit does not apply during the first three years with a positive tax base.
In practice, this implies that the effective taxation derived from grants is usually zero or very low for several years in innovative companies in the initial stages, since accounting income is offset by accumulated tax losses. This dismantles the common idea that receiving a grant automatically has an immediate fiscal impact.
How public loans affect the balance sheet
The treatment of public loans is simpler, but no less strategically relevant. When a company receives a public loan, the effect is clear: the cash flow in the asset increases and a debt appears in the liabilities, generally under the heading of other debts, depending on their nature and expiration date.
There is no direct impact on the income statement, other than the interest that accrues. From a tax point of view, these interests are deductible expenses, making public loans a very efficient tool.
The case of ENISA deserves special mention. Although accounting is recorded as debt, participatory lending is considered net worth for commercial purposes to evaluate situations of equity imbalance and cause of dissolution. This makes it an especially valuable instrument for companies with cumulative losses, since it reinforces their financial structure from a legal point of view without generating dilution. It is important to note that this consideration does not apply to other regulatory analyses, such as determining whether a company is in a situation of a company in crisis, where the equity loan is not considered as net worth.
Public aid and tax incentives: a powerful combination
Another of the great myths is that receiving public aid prevents tax deductions for R+D+i. In reality, both instruments are compatible, provided that certain limits are respected.
The general rule is simple: you cannot tax deduct the part of the expense that has been subsidized. However, expenses not covered by the grant can result in tax deductions. On the other hand, when spending is financed through a overdraft, if it is tax-deductible in its entirety. This distinction is important, since the two concepts often tend to be confused.
In many cases, the combination of grant plus deduction remains highly advantageous and allows for maximizing public return on private investment.
This combined approach is common in well-advised technology companies and is part of advanced financial planning.
Common mistakes we see in practice
Over the years, there are patterns that repeat themselves. Companies that register a grant as income in a single financial year, that do not correctly separate subsidized and unsubsidized expenses, or that do not anticipate the future fiscal impact when the business becomes profitable.
These errors usually have no immediate consequences, but they can lead to problems when an inspection, audit or request for new aid occurs. The good news is that all of them are avoidable with proper planning from the start.
Using public aid as a strategic tool
Beyond its accounting or fiscal impact, public aid has a strategic effect that is often undervalued. They reinforce the credibility of the company, validate the project before third parties and facilitate access to private investment under better conditions.
When properly integrated into the financial strategy, they allow us to extend the runway without dilution, take on more ambitious R&D projects and build a stronger financial structure.
In addition, many public grants, including non-refundable grants and certain public loans granted directly by public bodies, do not count in the CIRBE, so they do not penalize the debt analysis carried out by banks, which improves the capacity to access additional funding.
For all this to happen, it is essential to understand how they affect the balance sheet and taxation, and not treat them as a simple administrative procedure.
Frequently asked questions about public aid, balance sheet and taxation
Does a grant automatically improve a company's profit?
No. Its effect is progressive and is linked to the expenditure it finances.
Can I have tax problems for receiving public aid?
Only if it's mismanaged. Well planned, its fiscal impact is controllable and, in the initial stages, it is usually neutral.
Do investors penalize companies with a lot of public aid?
Quite the contrary, if they are well structured. Grants are often seen as institutional validation.
Do you need a specialist advisor?
It's not required, but experience shows that it makes a huge difference in results and peace of mind.
Public aid is not simply a source of additional funding. They are a structural element that impacts the balance sheet, taxation and financial strategy of an innovative company. Understanding how they work and how they are reflected in accounting is key to making the most of them and avoiding unnecessary risks.
When managed judiciously, public aid ceases to be an administrative obligation and becomes a real competitive advantage. In an environment where access to capital is increasingly demanding, knowing how to use them well can make the difference between growing solidly and growing with constant tension.
At Intelectium, we have been helping innovative startups and SMEs to integrate public funding into their global financial strategy for more than 20 years. If you want to know how to do it in your specific case, we will be happy to help. Write to us! dealflow@intelectium.com
