Exemtion in IRPF for income from work abroad
It is becoming more and more common for Spanish companies to send their employees outside Spain to perform their work. In many occasions, the employee and the company are unaware that they can apply for the application of the IRPF exemption for work performed abroad (Art.7p. IRPF).
The requirements that must be fulfilled in order to apply this exemption (maximum limit of 60,100 euros per year) are as follows:
The taxpayer must be a tax resident in Spain.
The work must be physically carried out abroad.
That the country of destination of the company or subsidiary applies a tax analogous to personal income tax, excluding tax havens.
The Tax Agency emphasizes above all that the work that the receiving entity receives for the worker posted from Spain must be considered an advantage or utility for the foreign company, which represents an added value for the non-resident entities. It must be duly accredited that the work performed abroad is of benefit to the non-resident entities, otherwise it will be considered as work of the Spanish entity.
There are several ways to apply the exemption:
Company withholding system. The company is the one that must impute the amount of the annual exempt income of the employee in the IRPF certificate. However, due to the criterion of prudence, some companies do not apply the exemption, in order to avoid possible requirements or sanctions, leaving to the employee the responsibility or risk of applying this exemption.
In the employee’s income tax return. A priori, it seems the best way to apply the exemption, but the Tax Agency would send a requirement or proposal of liquidation, with possible sanctions, when the amounts declared by the company do not coincide with those of the taxpayer.
By means of a letter of rectification of self-assessment and request of undue income before the Tax Agency. By this process, the taxpayer makes its IRPF declaration and later compiles all the necessary documentation to be able to justify the displacements and the work carried out in the subsidiary in benefit of this one requesting the refund of the unduly made income.
From AGL we advise this way, although the time for the Tax Agency to resolve the file is between 4-6 months.
If you find yourself in this case and want more information, you can contact Marta Martínez – AGL Tax Department.