Tax The internationalisation of Spanish businesses has led to an increase in the frequency with which their employees travel outside of Spain to perform their jobs. As a result, more and more of these employees are requesting the application for exemption for work performed abroad, also known as “the 7p” because it is specifically mentioned in the aforementioned article of the Personal Income Tax Law.
The application for the exemption can be requested in several ways:
-through the company’s withholding system;
-in the individual’s own Income Statement;
-or by submitting a document requesting the refund of undue income to the tax relief service Agency.
It is important to keep in mind the legal requirements that are part of both the Personal Income Tax Law and the Regulations that create said regulation before discussing the appropriate manner to request the use of this tax benefit:
-The taxpayer must be considered a tax resident in Spain.
-The work must be carried out physically abroad.
-To prevent transfers to “tax havens,” a tax that is equivalent to or similar to personal income tax must be imposed in the destination country.
The aforementioned activity is performed for a business or entity that is not based in Spain or for a permanent installation overseas, with special consideration given to the provision of services between related businesses.
In the latter scenario, according to the Law, it will be understood that the work has been completed for the non-resident entity when (in accordance with the Corporation Tax Law’s provisions) it may be considered that an intra-group service has been provided, in which said service produces or may produce advantage or profit for the recipient entity.
For example, if an employee of a company in Spain travels to carry out training at the related entity to transfer the expertise of said professional with respect to a specific subject, he must demonstrate that his displacement and training are really useful for the company that receives it.
-Maximum limit of the exemption of 60,100 euros per year.
-Incompatibility with the regime of excesses.
Why is it interesting for companies to apply for this exemption through their withholding system?
Entities frequently question whether or not they should apply it directly to their withholding system and the hazards involved in doing so when the a priori legal requirements are satisfied.
At this point, “it is essential, on the one hand, to carry out an exhaustive analysis of the type of trips and functions carried out by its employees and the corporate structure of the entity or business group, in order to determine the degree of applicability of the exemption”, indicates Daniel Enríquez, senior manager of KPMG Lawyers in Spain. “Likewise, subsequently, it is highly recommended to define the internal processes to incorporate groups into the “7p program)” as well as the rules or recommendations that the potential beneficiaries must comply with.
In recent years, with the corresponding collapse of some Tax agency Administrations, there has been a noticeable increase in requests for this benefit at the individual level, whether in the Income Tax return itself or through a letter of modification of the self-assessment and request for improper income.
The aforementioned Administrations typically shift the burden of evidence in these situations on parties like employers, asking things like business paperwork like contracts with the non-resident entity that justify the following relocation of staff.
It is also very common that they require the issuance of a company certificate where the characteristics of the posting are specified and compliance with the legal requirements of the exemption is guaranteed; and even on certain occasions, they urge the entity to make a substitute declaration of model 190: Annual Informative Declaration on Withholdings and payments on account of work income.
Enriquez observes, “It is interesting that entities examine their stance in light of this tax benefit, as it can become one more component of pay and a competitive edge over their rivals to recruit talent to their ranks.
Incompatibility with the regime of excesses
Last but not least, we must not overlook the “regime of excesses” described in article 9.A.3.b.4 of the Personal Income Tax Regulations as a substitute for overseas travel at 7p).
Given the incompatibility, marked by law, between the two, it is appropriate to ask which of the two benefits is more efficient in a scenario in which, in principle, both can be applied.
The excess regime may be used as long as the posting entails a change in work location for more than nine months (without losing tax residency in Spain) and permits the supplements received by the posted employee for the posting to be treated as taxable diet expenses.
And in addition to or in “excess” to their usual salary, without quantitative limitation and without the need for a tax similar to IRPF in the country of destination.
Benefits based on your tax regime
Individual life insurance represents an excellent opportunity to take advantage of the tax incentives offered by the tax law. Some of the tax advantages are:
- no withholding
Exemption. For income for which no tax is paid in tax matters, life insurance has the benefit of the exemption.
The insured sums received by the beneficiaries or insured for:
- organic losses
In individual life insurance, the insured amount is exempt from taxes regardless of who the beneficiaries are.