An increasing number of companies operate internationally and temporarily assign employees to work abroad. To avoid double taxation in such cases, Article 7(p) of the Spanish Personal Income Tax Act (IRPF) provides for a special tax exemption. This provision allows certain employment income earned abroad to be received tax-free, provided that the applicable requirements are met.

Who can benefit from the tax exemption under Article 7(p)?

In order to apply the tax exemption under Article 7(p), the following requirements should be met:

- The employee must be subject to taxation in Spain and be a tax resident in Spain.

- The work must be physically performed abroad. It is not sufficient to work from Spain for a foreign company; the employee must be physically present and working abroad during the relevant assignment.

- The work must be performed for the benefit of a company or permanent establishment that is not resident in Spain.

- The country in which the work is performed must either impose an income tax comparable to the Spanish IRPF or have entered into a Double Taxation Agreement (DTA) with Spain.

What income is exempt from taxation?

The tax exemption applies to:

1.) The proportionate remuneration corresponding to the days on which the employee actually worked abroad.

2.) Additional payments relating to the work performed abroad, provided that they are established in the employment contract or in a supplementary agreement.

The tax exemption is limited to €60.100 per year. If the income exceeds this amount, the excess must be taxed in Spain. Alternatively, under certain circumstances, the foreign assignment allowance regime provided for in Article 9.A.3.b of the IRPF may apply. This regime does not have a maximum monetary limit, but applies only to additional remuneration and is limited to a period of nine months.

When does the tax exemption not apply?

Not all assignments involving work for foreign companies meet the requirements for the tax exemption under Article 7(p). In particular, the exemption does not apply in the following cases:

- Where the work is performed from Spain, even if it benefits a foreign company.

- Where the employee holds a majority interest in, or exercises significant influence over, the foreign company.

- Where the activity relates to scholarships, study periods or research projects abroad.

- Where the work performed abroad does not provide an actual economic benefit to a foreign company.

 

Typical examples of the application of the tax exemption

- Consultants, engineers, medical professionals and similar specialists who temporarily work for a foreign company, generally for fewer than 183 days per year.

- An employee of a Spanish company who manages or supervises a project abroad, for example in construction management or technical consultancy.

- An executive or specialist who is temporarily assigned to a foreign subsidiary of an international group.

- A person who has transferred their tax residence to Spain but continues to work in their former country during the first few months.

- The tax exemption does not apply to administrative or management activities within centralised group structures where such activities do not provide a direct economic benefit to the foreign company.

Conclusion: How to benefit from the tax exemption

Article 7(p) provides an attractive opportunity to exempt income from work performed abroad from taxation in Spain. However, all statutory requirements must be met and the relevant supporting documentation must be carefully provided.

It is important to note that tax-exempt income must also be reported in the tax return, as it is taken into account when calculating the taxpayer's individual tax rate (exemption with progression). As a result, the tax rate applicable to the taxpayer's remaining taxable income may increase.

Our law firm will be pleased to assist you in analysing your individual circumstances, handling the necessary administrative procedures on your behalf and preparing and filing the relevant tax returns. If you are interested or have specific questions regarding this matter, please feel free to contact us by email or telephone.

Author: 

Silvia Luque
Director Self-Employed
Accountant & Tax Advisor
info@sspartners.es
Tel: (+34) 951 12 13 06
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