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In the process of internationalisation and globalisation in which the business world is currently involved, it is increasingly common for company employees and managers to be sent temporarily from Spain to work abroad to carry out work of different levels of qualification, either for end clients or, on many occasions, for subsidiaries of the group in the destination countries.

These are usually temporary stays, for the execution of projects, which are sometimes concentrated in one trip for a few months or in several trips per day, but in no case do they imply the employee being outside Spain for more than 183 days in the year, so that he/she usually maintains his/her tax residence here.

For this type of work carried out abroad, Article 7.p) of the Personal Income Tax Law establishes an exemption regime for this income, which is reflected in Article 6 of the Personal Income Tax Regulations.

We will now analyse the requirements of the regulation, as well as some practical questions on its application.

Requirements and calculation of personal income tax exemption for work carried out abroad:

  1. The work must be carried out for a company or entity not resident in Spain or a permanent establishment located abroad.
  1. A tax of an identical or similar nature to personal income tax must be applied in the territory in which the work is carried out. This country or territory cannot be classified as a tax haven.
  1. The exemption will have a maximum limit of 60,100 euros per year.
  1. The exemption is incompatible, for taxpayers posted abroad (civil servants and employees of companies), with the system of excesses excluded from taxation provided for in article 9.A.3.b) of the Personal Income Tax Regulations, whatever the amount. The taxpayer may opt for the application of the excess regime instead of this exemption.

First of all, it should be remembered that this regime can only be applied if the worker is still a tax resident in Spain in the year in question, as it is included in the Personal Income Tax Act. Thus, if the stays abroad imply the loss of tax residency for more than 183 days in the year, or other circumstances, this regulation would no longer be applicable.

On the other hand, the actual trip must be accredited, as well as the need for it in order to carry out the work abroad, so that the number of days outside Spain are perfectly identified, given their impact on the calculation of the exempt amount.

In the event that the company receiving the work abroad is related to the employer in Spain (for example, a subsidiary), the work will be deemed to have been carried out for the non-resident entity when, in accordance with the provisions of article 16.5 of the Corporate Income Tax Law, it can be considered that an intra-group service has been provided to the non-resident entity, because the said service produces or may produce an advantage or profit for the recipient entity.

On the other hand, with regard to compliance with the second requirement, it is considered to be fulfilled when the country or territory in which the work is carried out has signed an agreement with Spain to avoid double international taxation, which contains an information exchange clause; in all other cases, the existence of a tax identical or similar to personal income tax must be taken into account.

For the calculation of the exempt amount, the actual days spent abroad must be taken into account (proportional distribution by days of the year), as well as the specific remuneration for these services, with a maximum limit of 60,100 euros per year.

Thus, for example, an employee who travels 75 days to provide services to a subsidiary of the group in the USA, whose gross annual salary is 100,000 euros, and who does not receive specific remuneration for this travel, would be exempt as follows:

Total days of the year: 365

Total days of travel to the USA: 75

Gross annual remuneration 100,000 euros.

Exempt remuneration for work abroad:

100,000 euros x 75days/365days = 20,547.95 euros.

With regard to the incompatibility with the excess regime, the latter regulates the exemption of the excess remuneration received for being posted abroad, compared with the remuneration that would be received if the employee were in Spain.

Practical application of the personal income tax exemption:

In terms of its practical application, there are several possibilities. In the quite common case of travelling abroad to work for a subsidiary of the group, the Spanish company itself, the employer, if it has all the supporting documentation, can no longer withhold tax on the part of the exempt income that applies and declare this income with a special code in the annual summary of withholdings (form 190), so that the tax authorities will have the information on this income from that moment onwards.

Once the employee files their personal income tax return for that year, the information to be included will coincide with that provided by the company on form 190.

On other occasions, either due to the complexity of calculations when there are numerous short trips or due to other circumstances, the company chooses to continue withholding on all of the employee’s remuneration, and when the employee files their income tax return for that year, they can include the amount considered exempt, which normally results in a significant refund.

In the latter case, you can also choose to file an income tax return that includes all employment income as non-exempt, including income from abroad, and subsequently request the rectification of the tax return including the exemption, requesting a refund of any undue income, so as to mitigate the risk of possible penalties,

It should be borne in mind that the tax authorities may review in detail the fulfilment of all the aforementioned requirements, so it is necessary to be very careful with regard to the correct documentation and accreditation of each one of them: travel with airline tickets, hotels, temporary rentals that justify stays, and even the nature and reality of the work carried out, in which case it is advisable for the company itself to provide the employee with a certificate detailing all these issues (expatriation conditions).

Likewise, in the case of related entities, it is advisable to support the services provided by the employee with contracts between the entities and, where appropriate, to re-invoice the cost to the subsidiaries with a market margin, given that the need and usefulness of the service for the recipient must be perfectly accredited.

In short, this is a regulation that can be very advantageous, both for the employee and for the company, which finds with this regulation an incentive that facilitates the posting of the manager by reducing his or her tax burden.

Any company that plans to send workers and executives to work abroad should seek advice to choose those alternatives that allow them to apply these incentives with maximum legal certainty for both parties, the worker and the company.

Do you need advice? Access our area related to personal income tax exemptions:

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