Spanish expatriate tax system -article 7P IRPF- (Spanish personal income tax act)
For the purpose of increasing their competitive edge and promoting their internationalisation, many companies now send their employees abroad, where they provide services to their corporate customers.
To facilitate this practice, article 7 p) IRPF (Spanish Personal Income Tax Act) establishes a mechanism through which income obtained from work carried out abroad by the taxpayer is considered exempt, up to a maximum limit of 60,100 euros.
The requirements to be met are summarised here: i) the effective and real transfer abroad of the employee; ii) the services must be carried out for non-resident companies; and iii) a tax similar to the Spanish Personal Income Tax must exist in the destination country.
Furthermore, if the non-resident company is a member of the Spanish company’s business group, the services provided must generate a benefit or use for the foreign company.
If the company does not apply the exemption set out in article 7 p) to the employee’s salary, the employee must apply the exemption in their income tax return. This practice will almost certainly give rise to the tax authorities sending a notification to the employee with a settlement request or proposal and granting the employee a term within which to prove they are entitled to the exemption.
The current problem arises in the reluctance of the tax authorities to accept that the above income is exempt. It is therefore important to be in possession of all the necessary documents to prove the fulfilment of the foregoing requirements and enlist the help of the company by asking it to issue a certificate whose content is in agreement with the ruling of the Courts of Justice, as well as obtaining advice from an expert in the matter.
For the sake of simplification, the following documents are usually accepted and regarded as sufficient proof: i) boarding cards, passport stamps, hotel and restaurant bills, rental agreements and bank documents, among others; ii) certificates issued by the company indicating the travel dates and the services provided during each trip.
We recommend studying each case in depth, in order to evaluate its feasibility.
Autor: Laura Lamas