The Spanish tax authorities clarified, in two recent binding resolutions, when the payment of the employee’s and his / her family’s medical insurance is not qualified as a fringe benefit.
The payment of medical insurance is often included in flexible compensation plans. These have proven to be an effective tool to optimize the employees’ net salary income, by adapting the employees’ salaries to their personal needs.
✔ Employees can change their payroll structure by substituting cash payments by fringe benefits such as the use of a company vehicle, rental of dwelling, meal and transportation tickets or illness medical insurance, for example.
✔ The payment of the employees’ medical insurance is not qualified as taxable income when the annual premium does not exceed 500 Euro for the employee, his /her spouse or descendants. The limit applies per insured individual. The excess on such amount is considered as taxable fringe benefit that is valued by the employer’s cost.
✔ The Spanish tax authorities have clarified that there is no limit as to the age of the descendants; that is to say, they can include children, grandchildren or even great grandsons.
✔ This exemption also applies if the employee is not covered by the premium but only the spouse and descendants are covered. In such a case, the exempt limit shall only apply to the premium paid for such individuals and not the employee himself.
Resolutions of the Spanish Directorate of Taxes of March 03, 2014 – V0573-14 and of March 11, 2014 – V0658-14