exemption for works carried out overseas

In a recent resolution, the Spanish Supreme Court (SC) clarifies that company directors and advisers can benefit from the exemption for works carried out overseas regulated in the Spanish Personal income tax Law, more concretely, in its article 7 p).

The SC considers that the exemption cannot be denied to the advisers of a company for the simple reason of holding such a position, without taking into account first the type of work carried out overseas.

✔ In the case analysed by the SC, the Spanish Personal income tax exemption for overseas works was considered as not being applicable to the company directors and advisers on the basis that the expression “works” as ruled out in article 7 p) was only referred to employment income derived from labour or statutory relationship of an employee and not to employment income established by Law, as it is the case of the remunerations perceived by company directors and advisers.

✔ We remind you that Spanish Personal income tax permits considering tax-exempt employment income received for works effectively carried out overseas, providing that:

  • Such works are done for a company or entity non-resident in Spain or for a permanent establishment of another jurisdiction.
  • In the territory where works are performed, a tax similar in nature to Spanish Personal income tax is applied and it is not considered a tax haven.
Learn more about the guidelines of the Spanish Tax Agency Tax Control Plan

The exemption applies to income accrued while staying overseas, with the maximum annual limit of 60,100 euros.

✔ The SC concludes that if the exemption was not accepted this would be due to a restrictive interpretation of the Law, with no legal background (given that the exemption refers to employment income in general and it does not exclude employment income that is considered as such by the Law), thus not taking into consideration the real purpose of these regulations when they entered into force which was stimulating the internationalization of Spanish companies, by increasing their competitiveness through the reduction of the tax burden of their employees.

✔ The Court also considers that it is necessary to analyse the functions carried out by the director in its international task. Hence, if its functions are of an executive and management nature, there is no prohibition in the Spanish Laws concerning these, since these are supervision and coordination tasks.

✔ This is a new interpretation criterion that can permit facing new fiscal years with a lower tax burden for these taxpayers as well as analysing tax returns filed in previous years not time-barred by the statute of limitations, to eventually benefit from a tax reduction.


Publicado el 07-2022 por PBS