What is the exemption under Article 7.p LIRPF, and what is its limit?
This is a tax incentive regulated in Article 7.p of the Spanish Personal Income Tax Law (IRPF) that allows personal work income earned from work actually performed abroad to be declared as exempt, provided certain requirements are met.
The maximum exemption limit is €60,100 per year. Any amount exceeding this figure will be taxed as ordinary employment income in the income tax return.
It is important to note that this exemption only applies to employees, so a formal employment contract must exist between the parties.
What is the fundamental requirement (precondition) to apply this exemption?
The 7.p exemption is only applicable to taxpayers who maintain their tax residence in Spain. If the assignment results in the loss of Spanish tax residence (e.g., by spending more than 183 days abroad or relocating the center of vital interests), the applicable tax regime will be the Non-Resident regime, which excludes this exemption.
What are the three essential legal requirements that must be met?
To apply the exemption of up to €60,100 per year, the work must simultaneously meet three conditions, in addition to the taxpayer remaining a Spanish tax resident:
- The work must provide direct benefit to a company or entity that is NOT resident in Spain. This is vital. If you work for a foreign subsidiary of your group, it must be possible to demonstrate that the subsidiary benefits and that you are providing an actual service to that non-resident entity (intragroup service).
- There must be a real and demonstrable physical relocation abroad to carry out the work. Teleworking from home, even for a foreign client, does not meet this requirement. Proof will be required (tickets, hotels, visas, etc.).
- The country where the work is performed must have a tax system similar to the Renta tax. In practice, this is met if the country is not considered a tax haven and has a Double Taxation Avoidance Agreement (DTA) with Spain that includes an information exchange clause. This ensures that the income is effectively taxed abroad, even if the exemption is applied in Spain.
How is the exempt amount calculated?
The exempt amount is calculated proportionally based on the days of actual presence and work abroad.
General Formula: Exempt remuneration = (Total annual salary / Days in the year) × Days worked abroad
The result is applied up to the maximum limit of €60,100 per year. If the annual remuneration is lower than this limit, the daily salary is calculated by dividing €60,100 by 365 days (approximately €164.66/day) to apply proportionality.
Latest Supreme Court jurisprudence regarding executives and directors
The Supreme Court ruling of March 28, 2019 established an important criterion: the exemption also applies to income earned by board members and executives for their functions in foreign subsidiaries, provided that the effective provision of a service generating benefit or utility to the non-resident entity can be demonstrated. This ruling expands the application of Article 7.p to senior management positions that were previously systematically rejected by the tax authorities.