Exenciones en indemnización por despido

Are all severance payments exempt?

Firstly, we must refer to the Personal Income Tax Law, which establishes in article 7. e) that they are exempt:

«Compensation for dismissal or termination of employment, in the amount compulsorily established in the Workers’ Statute, in its implementing regulations or, where applicable, in the regulations governing the enforcement of judgements, without the amount established by virtue of agreement, pact or contract being considered as such.


The amount of the exempted compensation referred to in this point shall be limited to the sum of EUR 180 000. »

As can be deduced from this article, the Law determines that severance payments for dismissal will be exempt in the amounts established in the Workers’ Statute (never amounts established in agreements, contracts or pacts between the worker and the company). The amount received by the worker as severance pay is exempt up to €180,000, i.e. the amount received by the worker as severance pay in excess of €180,000 must be taxed in the General Personal Income Tax Base as Employment Income.

However, in cases where the employment relationship can be considered senior management, the exemption limits are different and we must bear in mind that, in the different rulings (TEAC 02766/2019 and TEAC 7269/2018, both dated 25/02/2022), it is established that, regardless of the position held by the employee, if the functions performed are senior management, and he/she has general powers of the company, this employment relationship can be considered for tax purposes as a senior management relationship and not as an ordinary employment relationship.

The exemption limits for special senior management contracts are as follows:

  • Termination of contract due to employer’s withdrawal: 7 days per year worked, with a maximum of 6 monthly payments.
  • In the event of unfair dismissal: 20 days per year worked, with a maximum of 12 monthly payments.

Is there any additional reduction if the exempted amount is exceeded?

In those cases in which the amount of the compensation exceeds the amount that can be considered as exempt, the taxpayer may apply a reduction of 30% on the amount of the compensation, provided that such income has been generated irregularly, for a period of more than 2 years and the reduction for this type of income has not been applied in the previous 5 years.

Are there any additional requirements to be able to apply the exemption and reduction in these cases?

Article 1 of the Personal Income Tax Regulation lays down requirements for the application of the above exemption, namely the following:

« The exemption foreseen in article 7.e) of Law 35/2006, of 28 November, on Personal Income Tax and partial modification of the laws on Corporate Income Tax, Non-Resident Income Tax and Wealth Tax will be conditional on the worker’s effective separation from the company.

It will be presumed, unless proven otherwise, that said separation does not occur when in the three years following the dismissal or termination the worker returns to provide services to the same company or to another company linked to it in the terms provided for in article 18 of the Law 27/2014, of November 27, on Corporate Tax. »

It is important to keep in mind that, for the real and effective separation of the worker from the company to occur, it is not only required that the worker is not rehired by the company during the 3 years following the dismissal, but that, once the dismissal occurs, all ties between the worker and the company are broken.

The following jurisprudential pronouncements are related to the above:

  • The Supreme Court Ruling 280/2022 of March 4, 2022, determines that the concept of effective disengagement is not defined in either the Law or the Regulation, which is why it is considered an indeterminate concept that must be analysed in depending on each case. That is, the exemption will be altered in the event that the worker, once dismissed, resumes assuming the responsibilities that he had been carrying out before being dismissed.

  • The Sentence 870/2020 issued by the Superior Court of Justice (TSJ) of the Valencian Community in 2022, in which it is understood that a real effective separation of the worker from the company has occurred and that, therefore, it is up to him to apply the exemption in a case in which the worker has been providing programming analyst services in a company since 2001 and in 2012 is dismissed, receiving compensation. In 2014, after passing a selection process, he was hired again for a business manager position in energy, industry, and science, different from the one he held at the time as a programmer.

Need advice? Access our areas related to the application of tax exemptions or reductions applicable to personal income tax in cases of dismissals:

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