Spain

Employment expenses

The following, amongst others, can be deducted from gross employment income for PIT purposes:

• Social security contributions (employee contributions).
• Mandatory contributions to mutual benefit societies, providing for widows/widowers 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/city or for disabled workers.

Employment income (with certain exceptions) with a vesting period of more than two years that is not obtained on a regular or recurring basis and employment income that is obtained on a notably irregular basis in accordance with the regulations implemented under Spanish PIT Law is reduced by 30% if, 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 applied should not exceed EUR 300,000.

The reduction will not apply when it has been applied on income generated over more than two years obtained in the previous five tax periods, 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 19,747.50 and who have no other non-exempt income over EUR 6,500 can reduce their net employment income by the following amounts:

• EUR 6,498.00 for taxpayers whose net employment income is EUR 14,047.50 or less.
• EUR 6,498.00 - (1.14 x [employment income - EUR 14,047.50]) for taxpayers whose net employment income is between EUR 14,047.50 and EUR 19,747.50.

This general reduction for employment income and its application is limited to income under EUR 19,747.50. Higher reductions are established for employees over 65 years of age, unemployed persons who accept a job that 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.

Effective as of 17 July 2023, the tax exemption for travel expenses to be compensated by the company to its employees has been increased from EUR 0.19 to EUR 0.26 per kilometre covered if the reality of the displacement is justified. The amount of toll charges and parking expenses are also exempt from taxation.

Business expenses

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.

Supply expenses (water, electricity, gas, telephone, Internet) are partially tax deductible when taxpayers partially use their habitual residence to carry on a business activity. The deduction is 30% of the expenses in proportion to the square metres of the home used for the activity with respect to its total area, unless the taxpayer can prove any other proportion.

Maintenance expenses incurred to carry on the business activity are also tax deductible, when the activity is carried on in catering and hospitality establishments and the expenses are paid using any electronic means of payment. The limits of the deductible amount are the same as those for employed persons.

Health insurance premiums paid by the self-employed person are deductible in the part corresponding to their own coverage and that of their spouse and children under 25 who live with them. The maximum deduction limit will be EUR 500 for each of the persons indicated above or EUR 1,500 for each of them with a disability.

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 on which the 30% reduction can be applied should not exceed EUR 300,000.

Net business income is reduced by EUR 2,000.

In addition, net business income is reduced by:

• EUR 6,498.00 for taxpayers whose business income is EUR 14,047.50 or less.
• EUR 6,498.50 - (1.14 x [business income - EUR 14,047.50]) for taxpayers whose business income is between EUR 14,047.50 and EUR 19,747.50.

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 total taxable expenses corresponding to all of the 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 law are complied with by the taxpayer during the tax period.
• The taxpayer does not generate employment income during the tax period. Nevertheless, this requirement will still be met if a taxpayer receives unemployment or any of the income referred to in article 17.2.a) of the PIT Law within the fiscal year if such income is not higher than EUR 6,500.
• 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 8,000. When such business income amounts to between EUR 8,000 and EUR 12,000, a reduction of EUR 1,620 - (0.405 x [business income - EUR 8,000]) will be applicable instead.

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 needed to obtain the income. These include, amongst others, the following:
  • Interest on capital borrowed to acquire or improve the property and repair and maintenance expenses incurred for the property. Expenses may not exceed the gross income from the property. 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 property, providing that it is in line with its effective deterioration and complies with the requirements established in Spanish PIT law. 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 that is evidently irregular in accordance with the regulations implemented under Spanish PIT law and recorded in a single tax period qualifies for a 30% reduction. The amount on which the 30% reduction can be applied should not exceed EUR 300,000.

Deductions from moveable capital income

In determining net income from dividends, interest, or other types of income from capital 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 administering and depositing negotiable securities. Amounts that are paid as consideration for 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 needed to obtain such income and, if the case, the deterioration of the items or rights from which the income is generated are deducted from gross income.
• Certain moveable capital income generated over a period of more than two years or that is evidently irregular in accordance with the regulations implemented under Spanish PIT law and recorded in a single tax period qualifies for a 30% reduction. The amount on which the 30% reduction can be applied should not exceed EUR 300,000. This reduction may be applied for the following types of moveable capital income:
  • Income generated from intellectual property when the taxpayer is not the author, and from industrial property not used to carry out the taxpayer's business activities.
  • Income generated from providing technical assistance unless the provision of technical assistance is a business activity of the taxpayer.
  • Income generated from the lease of property, business, or mines that is not a business 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 business 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

A taxpayer's annual contributions to qualifying pension plans is deductible up to a maximum of EUR 1,500 per year. The limit will be increased by EUR 8,500 when it comes from business contributions or employee contributions to the same social security instrument for an amount equal to or less than the amounts resulting from the following table, depending on the amount of the business contribution:

However, in any case, the multiplier 1 will be applied when the employee obtains in the fiscal year employment income of more than EUR 60,000 from the company making the contribution.      

The amount may not exceed 30% of total 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 from their own taxable income on behalf of the spouse, up to a maximum of EUR 1,000 per year.

Personal and family allowances

In 2023, the following allowances apply:

• A personal allowance, which is generally EUR 5,550. The allowance is EUR 6,700 when the taxpayer is over 65 years of age and EUR 8,100 when the taxpayer is over 75 years of age. When the taxpayer is disabled, allowance is increased by 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 the care or has reduced mobility or a disability of at least 65%.
• A minimum family allowance of:
  • EUR 1,150 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 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. 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 relative or EUR 9,000 when the level of disability is 65% or more. This minimum is increased by EUR 3,000 of care assistance expenses for each relative that can justify that one needs the care or has reduced mobility or a disability of at least 65%.

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.

The allowance cannot be applied when the income of the relatives in ascending or descending order with respect to which this allowance may be applied is over EUR 1,800 and these persons file their own tax returns.

The minimum thresholds stated above will apply to the personal and family circumstances existing on the date on which the tax becomes due and payable (generally, 31 December).

In the cases of legal marital separation, the allowance for relatives in a descending line is applied by the parent who is assigned the guardianship and custody of the child/children at the date of accrual (generally, 31 December) as this is the person who the child/children live with.

When guardianship and custody is shared, the allowance is pro-rated between the parents, regardless of which parent the child/children lives with at the date of accrual.

Losses

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. If the result of this last offsetting is still negative, they may only be offset against capital gains (or 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.