Do you need a worker from your company to temporarily move abroad? If your answer is yes, you should be aware of article 7p of the Personal Income Tax Law in relation to the tax exemption for workers posted abroad. We will tell you all the details in this post.
Many companies, as they grow and increase in size, decide to expand abroad, for which they open branches and subsidiaries and post a worker to carry out all the formalities. Knowing the exemption of article 7p of the IRPF Law will help you to manage the transfer correctly.
What is the exemption under Article 7p of the Personal Income Tax Act?
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The first thing you should know is that article 7 of the Personal Income Tax Act regulates a series of cases of income exempt from personal income tax. Specifically, section p) of this article refers to income from work received for work effectively carried out abroad, provided that a series of requirements are met, as we will see below.
The exemption applies to remuneration earned during the days spent abroad and the Personal Income Tax Act establishes a maximum limit of 60,100 euros per year. This exemption is not compatible with the regime of excesses excluded from taxation. The taxpayer may choose between the application of the excess regime or the tax exemption mentioned above.
Requirements for the application of Article 7p of the Personal Income Tax Law
The requirements for the application of the exemption provided for in Article 7p of the Personal Income Tax Act are as follows:
- That the employee’s work is carried out for a company or entity not resident in Spain or a permanent establishment located abroad.
- In the territory in which the work is carried out, a tax identical or similar to personal income tax is applied and it is not a tax haven.
How is compliance with the requirements accredited?
For the application of the exemption of Article 7p of the Personal Income Tax Act, it is not only necessary to fulfill the requirements we have seen, but it is also important to be able to prove it. To prove this, it is necessary to collect documentation such as the following:
- Airline tickets and boarding passes.
- Invoices from hotels or other accommodation.
- Restaurant bills.
- Invoices for work done for the foreign company by the posted employee. This is the most important document as it proves the work done and what it consisted of.
- Contract with the employee.
- E-mails between the company and the employee or clients abroad.
How is the exemption calculated and applied?
There are two options for applying the exemption under Article 7p:
- The employer calculates the payroll and the employee receives a higher net amount. In this case, the employer must calculate the days on which the employee is actually posted abroad. In this regard, there are various rulings that clarify this issue, such as the Supreme Court ruling of 25 February 2021, which considers that the days of transit do entitle the employee to apply the benefit of the exemption.
- To be applied by the worker in the tax return. This option could lead the tax authorities to understand that the company has not applied the exemption in the payroll because the requirements are not met, so it is more advisable to apply it in the payroll.
Do I have to declare in Spain if I work abroad?
As a general rule, if a worker moves to work in another country, unless he/she moves to a tax haven or has diplomatic status, he/she will have to file a tax return in that country.
A person is considered to be resident in Spain when he/she spends more than 183 days a year in Spain or has his/her main core or the basis of his/her activities or economic interests in Spain. If you do not meet these requirements, you will be considered not to be resident in Spain.
On the other hand, in these cases it is necessary to analyse whether there is a double taxation agreement with the country where the employee is going to work, as the existence of the agreement will avoid paying twice for the same income in two different countries.
In the event that you wish to temporarily transfer an employee of your organisation abroad, it is advisable to consult with labour experts who can advise you on the exemption regulated in article 7p of the Personal Income Tax Act to find out how to manage the matter and apply the tax exemption, if applicable, to the payroll.