27 August, 2014

Directors’ Tax Treatment in the Spanish Tax Reform

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The Spanish tax reform provides for a more beneficial tax treatment of Director’s fees in terms of withholding taxes than the one currently in force.

It also rules out the tax deduction of the payments made to Directors, for management functions, or due to the existence of a labour contract with the legal entity they represent.

The withholding tax rate applying to employment income derived by Directors shall be reduced from 42 to 35 per cent.

However, and in the terms that shall be further ruled, when income is obtained from entities whose turnover is lower than 100,000.00 Euro, the withholding tax rate will be reduced to 19 per cent.

 These withholding taxes will be reduced by 50% when income is obtained in Ceuta or Melilla.

  With the new regulations, payments made to Directors as a compensation for the development of functions other than those relating to the Director’s role, shall not be considered as a gift, due to their development of management functions or others deriving from a labour contract with the entity they represent. Consequently, they shall be tax deductible in so far as they comply with the rest of requirements set forth in Corporate income tax Law, (for example, they must conform to normal market prices).

  Apparently, with this new ruling, a rather confusing subject that has raised major concern between Spanish taxpayers could be made clear. We hope that the Spanish General Directorate of taxes will follow a new line of argument based on these new regulations.

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