The following deductions, amongst others, can be made to gross employment income for PIT purposes:
- Social security contributions (employee contributions).
- Mandatory contributions to mutual benefit societies, providing for widows and orphans upon the death of the participant.
- Dues to unions and compulsory contributions to professional colleges, up to a maximum of EUR 500.
- Legal defence expenses, up to a maximum of EUR 300.
- 'Other expenses' deduction of EUR 2,000. This deduction is higher for workers who accept a work post in another town or for disabled workers.
Earned income (with certain exceptions) with a vesting period of more than two years that is not obtained on a regular or recurring basis and earned income that is obtained on a notably irregular basis in accordance with the regulations implemented under Spanish PIT Law is reduced by 30%, provided that in both cases the income is recorded in a single tax period (except in the case of income resulting from the termination of an ordinary or special employer/employee relationship). The amount regarding which the 30% reduction can be availed of should not exceed EUR 300,000.
The reduction will not apply to income generated over a period of more than two years when, in the previous five tax periods, income generated over more than two years has been obtained and this reduction has been applied on such income unless the income is generated from the termination of an ordinary or special employer/employee relationship.
When employment income is between EUR 700,000.01 and EUR 1 million and is generated from the termination of an employment or commercial relationship, the 30% reduction is applied on the amount resulting from the following calculation: EUR 300,000 - (severance pay - EUR 700,000). When the income generated is EUR 1 million or more, the income on which the 30% reduction can be applied is zero.
Taxpayers whose net employment income is under EUR 14,450 and who do not have other non-exempt income over EUR 6,500 can reduce their net employment income by the following amounts:
- EUR 3,700 for taxpayers whose net employment income is EUR 11,250 or less.
- EUR 3,700 - (1.15625 x [earned income - EUR 11,250]) for taxpayers whose net employment income is between EUR 11,250 and EUR 14,450.
The general reduction for earned income and its application is limited to income under EUR 14,450. Higher reductions are established for employees over 65 years of age, unemployed persons who accept a new employment which requires a change of their place of permanent residence or persons with a recognised disability.
The amount resulting from the application of the aforementioned reductions may not be negative.
Net business income is calculated by deducting from gross business income the expenses incurred to obtain it.
PIT payers who determine their business income using the direct evaluation method apply CIT regulations with some exceptions. Therefore, to calculate net business income, expenses are those which are not non-deductible for CIT purposes.
Net business income is calculated in accordance with Spanish CIT laws with the application of some specific regulations.
Tax amortisation of goodwill is deductible up to an annual rate of 5%, provided that certain requirements are met.
Tax amortisation of other intangible assets whose useful life may not be reliably estimated is deductible up to an annual rate of 5% if certain requirements are met.
Gross business income generated over a period of more than two years or that is evidently irregular income in accordance with the regulations implemented under Spanish PIT Law, when recorded in a single tax period, qualifies for a 30% reduction with certain limits and requirements. The amount regarding which the 30% reduction can be availed of should not exceed EUR 300,000.
Net business income is reduced by EUR 2,000.
In addition, net business income is reduced by:
- EUR 3,700 for taxpayers whose business income is EUR 11,250 or less.
- EUR 3,700 - (1.15625 x [business income - EUR 11,250]) for taxpayers whose business income is between EUR 11,250 and EUR 14,450.
Higher reductions are provided for persons with a recognised disability.
These reductions can only be applied if the following requirements are met:
- Net business income is determined using the direct evaluation method.
- All supplies of goods and services are made to one non-related person or company or the taxpayer is considered to be a self-employed person who economically depends on a client which is not a related company.
- The global taxable expenses corresponding to all taxpayer’s business activities do not exceed 30% of the taxpayer’s gross income.
- All formal information, control, and verification obligations established in Spanish PIT laws are complied with by the taxpayer throughout the tax period.
- The taxpayer does not generate employment income during the tax period.
- At least 70% of the taxpayer’s turnover for the tax period is subject to withholdings or advance payments of tax.
- The taxpayer does not carry on any business activities through a flow-through company during the tax period.
A reduction of up to EUR 1,620 is established for taxpayers who do not meet these requirements and whose non-exempt income, including business income, in the tax period is under EUR 12,000.
Deductions from real estate income
The following expenses are deducted from gross income generated from real estate owned by PIT payers (generally lease income):
- All expenses incurred to obtain the income; for this purpose, the following expenses, amongst others, are considered to be necessary to obtain the income:
- Interest on capital borrowed to acquire or improve the real estate and repair and maintenance expenses incurred on the real estate. The amount of such expenses may not exceed the amount of gross income obtained by the property in question. Any excess amount is deductible in the following four tax periods.
- Certain taxes, such as local property tax.
- Bad debt provisions that meet the requirements laid down in Spanish PIT Law.
- Amounts payable to third parties for the provision of personal services.
- Depreciation of the real estate, providing that it is in line with its effective deterioration and complies with the requirements established in Spanish PIT Law. For this purpose, depreciation complies with the requirement of effective deterioration when it does not exceed the amount resulting from applying 3% to the higher of the following values: acquisition cost or rateable value, without including the land value.
Positive income declared for leases of real estate used for residential purposes is reduced by 60%.
Real estate income generated over a period of more than two years or income that is evidently irregular in accordance with the regulations implemented under Spanish PIT Law, when recorded in a single tax period, qualifies for a 30% reduction. The amount regarding which the 30% reduction can be availed of should not exceed EUR 300,000.
Deductions from moveable capital income
In determining net income from dividends, interest or other incomes established by Spanish PIT Law as income from capital different to real estate, only the following expenses may be deducted from the gross income:
- Expenses incurred for the administration and deposit of negotiable securities. For this purpose, sums that are paid as consideration for a discretionary and individual management of investment portfolios, where the investments are made on behalf of the owners in accordance with their instructions, are not deductible.
- For income generated from the provision of technical assistance and the lease or sub-lease of moveable properties, businesses or mines, the expenses which are needed to obtain such income and, if applicable, the amount of deterioration undergone by the items or rights from which the income is generated, are deducted from gross income.
- Certain moveable capital income that is generated over a period of more than two years or is evidently irregular in accordance with the regulations implemented under the Spanish PIT Law, when recorded in a single tax period, qualifies for a 30% reduction. The amount regarding which the 30% reduction can be availed of should not exceed EUR 300,000. This reduction may be availed of for the following types of moveable capital income:
- Income generated from intellectual property when the taxpayer is not the author, and from industrial property which is not used to carry out the taxpayer's business activities.
- Income generated from providing technical assistance unless the provision of technical assistance is an economic activity of the taxpayer.
- Income generated from the lease of property, business, or mines which is not an economic activity of the taxpayer.
- Income generated from the transfer of a right to trade on image rights, or the consent or authorisation to use them, unless such transfer is carried out as part of the taxpayer's economic activities.
Reductions to net taxable income
Alimony and child support payments
Alimony paid to an ex-spouse in accordance with a court decision is deductible from the taxpayer's PIT taxable income. Child support is not deductible from taxable income, although the progressive tax scales can be applied separately for this amount if the taxpayer is not entitled to the allowance for relatives in a descending line.
Contributions to pension plans
The following amounts are deductible from general taxable income:
- Taxpayer's annual contributions to qualifying pension plans up to a maximum of EUR 8,000 per year. This includes contributions to a pension plan on behalf of the employee made by the employer. The amount may not exceed 30% of the sum of individual net income from employment and business activities.
- In addition, taxpayers whose spouses do not obtain income from employment or business activities over EUR 8,000 can deduct the contributions made to qualifying pension plans on their behalf from their taxable income, up to a maximum of EUR 2,500 per year.
Personal and family allowances
From 2016, the following allowances apply:
- A personal allowance, which, in general, amounts to EUR 5,550. The allowance is raised to EUR 6,700 when the taxpayer is over 65 years of age and to EUR 8,100 when the taxpayer is over 75 years of age. When the taxpayer is disabled, these amounts are raised by a further EUR 3,000 or, if the disabled taxpayer's level of disability is 65% or more, by EUR 9,000. This minimum is increased by EUR 3,000 of care assistance expenses when the taxpayer can justify that one needs care or has reduced mobility or a disability of at least 65%.
- A minimum family allowance of:
- EUR 1,150 per year for each relative in an ascending line over 65 years of age who forms part of the taxpayer's household and is dependent on the taxpayer and whose annual income does not exceed EUR 8,000. The allowance is raised to EUR 2,550 when the relative is over 75 years of age.
- EUR 2,400 for the first relative in a descending line who forms part of the taxpayer's household and whose annual income is not over EUR 8,000. For the second, third, and subsequent relatives in a descending line, the allowance is EUR 2,700, EUR 4,000, and EUR 4,500, respectively. In addition, the allowance is increased by EUR 2,800 when the relative is under three years of age.
- A minimum family allowance for disability of relatives in an ascending and descending line of EUR 3,000 for each of the relatives or EUR 9,000 when the level of disability is 65% or more, to be increased by EUR 3,000 of care expenses for each relative that can justify that one needs care or has reduced mobility or a disability of at least a 65% level.
When two or more taxpayers are entitled to apply these allowances, they are equally divided between the taxpayers. However, when taxpayers have different degrees of kinship, the allowance is applied by the taxpayer with the nearest kinship unless their annual income, excluding exempt income, does not exceed EUR 8,000, in which case the allowance is applied by the taxpayer with the next degree of kinship.
When the income of the relatives in ascending or descending order with respect to which this allowance may be applied by the taxpayer is over EUR 1,800 and such persons file their own returns, the taxpayer may not apply the allowance.
The personal and family circumstances on which the minimum thresholds stated above will be based will be the circumstances on the date on which the tax becomes due and payable (31 December, in general).
In the cases of legal marital separation, the allowance for relatives in a descending line is applied by the parent to whom the guardianship and custody of the children is assigned at the date of accrual (generally, 31 December) as this is the person with whom the children live.
When guardianship and custody is shared, the allowance will be prorated between the parents, regardless of the parent with whom the children are living at the date of accrual.
Capital losses arising from transfers of assets are included in savings income and can only be offset against capital gains included in savings income of the tax period. If the result of offsetting capital losses is negative, they may only be offset against certain positive moveable capital income, with the limit of 25% of such positive moveable capital income. For the 2015, 2016, and 2017 tax periods, this percentage will be 10%, 15%, and 20%, respectively. If the result of this last offsetting is still negative, they may only be offset against capital gains (or 10%/15%/20%/25% of positive moveable capital income) included in savings income generated in the following four years.
Capital losses that do not arise from transfers of assets are included in general income and can only be offset against capital gains included in general income of the tax period. If the balance is negative, the amount should be offset against the positive balance resulting from compensating the tax period’s income and allocated income included in the general tax base up to the limit of 25% of that positive balance. If, following this compensation, there is still a negative balance, the amount of the balance should be offset over the following four years.