Exempt Income and Investment Income under Spanish Tax Law
Article 7. Exempt Income
The following income shall be exempt:
Extraordinary public benefits for acts of terrorism and pension based on medals and decorations conferred by acts of terrorism.
Aid of any kind received by those affected by the human immunodeficiency virus.
Recognized pensions for those who were injured or mutilated during or as a result of the Civil War.
Compensation as a result of civil liability for personal injury, to the extent legally or judicially recognized.
Severance pay or dismissal of a worker at the mandatory rate set by the Statute of Workers.
Taxpayer benefits provided by Social Security or entities that substitute it as a result of permanent disability or severe disability.
Pensions for uselessness or permanent incapacity of the passive classes regime, provided the injury or illness that caused them completely disables the beneficiary of the pension for any profession or trade.
Family benefits, pensions, orphan’s pensions, and pensions in favor of grandchildren and siblings of children under twenty years of age or unfit for any work, received from the public systems of Social Security and Pensions.
Perceived economic benefits from public institutions to support the placement of persons with disabilities, aged 65 or under, whether in simple, permanent, or pre-labor form, or the equivalent under the laws of the Autonomous Communities.
Public grants and scholarships awarded by regulated non-profit entities and collected for study.
Food annuities received from parents under court order.
Literary, artistic, or scientific awards, subject to the determined conditions, and the Prince of Asturias awards.
Economic aid for high-level athletes.
Unemployment benefits recognized by the relevant managing body when received as a lump sum, with a limit of 15,500 euros.
Winnings from lotteries and gambling organized by the public entity of the State Lotteries and the organs and institutions of the Autonomous Communities, as well as drawings organized by the Spanish Red Cross and authorized games of the Spanish National Organization of the Blind.
Special bonuses paid by the Spanish government for participation in international peacekeeping or humanitarian missions, under the terms established by regulation.
Earned income received for work actually performed abroad, subject to the following requirements:
- The work must be done for a company or entity not resident in Spain or a permanent establishment situated abroad under the conditions established by regulation.
- The territory where the work is performed must apply a tax identical or analogous to this tax, and it must not be a country or territory considered a tax haven.
Compensation paid by public authorities for personal injury resulting from the operation of public services.
Benefits received for burial or funeral expenses, with a ceiling on total expenditures.
Financial aid governed by Article 2 of Law 14/2002 of June 5.
Income arising from the implementation of hedging instruments when covering only the increased risk of variable interest rate mortgage loans for purchasing a residence.
Compensation under the laws of the State and the Autonomous Communities to compensate for the deprivation of liberty in prisons.
Rents that arise during the creation of insured annuities resulting from systematic individual savings plans.
Earned income derived from benefits received as income for people with disabilities and employment income derived from contributions to heritage protection, up to a maximum of three times the joint annual public income indicator of multiple effects.
Public economic benefits related to service, for care in the family environment and personalized assistance.
Dividends and profit participations referred to in paragraphs a and b of paragraph 1 of Article 25 of this Law, with a limit of 1,500 per year.
Benefits and family benefits received from any government, whether related to birth, adoption, foster care, or childcare.
Article 18. Percentages of Reduction Applicable to Certain Employment Income
These percentages may not be applicable when the service is perceived as income.
A 40% reduction applies to yields for income other than those provided in Article 17.2 a) of this Act that have a generation time of over two years and are not regular or recurring, as well as those that, according to regulation, must be judged as having been obtained irregularly over time.
A 40% reduction applies to the benefits provided for in Article 17.2.a.1 and 2 of this Act that are paid in a lump sum, provided they have been generated more than two years after the first injection.
Article 25. Investment Income
The following are treated as investment income:
Income Earned by Participation in the Equity of Any Entity
The following yields, in money or in kind, are included in this category:
Dividends, attendance at meetings, and bonuses of any type of entity.
Income from any asset class, except the delivery of free shares that, statutorily or by decision of the corporate bodies, entitle the holder to participate in profits, sales, operations, revenue, or similar concepts of an institution for reasons other than compensation for personal work.
Benefits resulting from the creation or transfer of rights or powers of use and enjoyment, regardless of name or nature, of securities or shares representing participation in the equity of the entity.
Any other benefit, other than the above, received from an entity due to the status of partner, shareholder, or investor.
The distribution of bonus issues of shares or units. The amount obtained will reduce, until its cancellation, the acquisition value of the affected shares, and any excess will be taxed as investment income.
Income from the Sale of Capital to Third Parties
This includes considerations of all kinds, regardless of name or nature, in money or in kind, such as interest and any other form of remuneration agreed upon as compensation for such assignment, as well as income from the transfer, redemption, amortization, exchange, or conversion of any asset class representing the recruitment and use of foreign capital.
In particular, this includes:
Income from drawing any instrument, including those arising from commercial transactions, from the time of endorsement or transmission, unless the endorsement or assignment is made as payment to credit providers or suppliers.
Consideration, regardless of name or nature, arising from all types of accounts in financial institutions, including those based on transactions in financial assets.
Income from sale and repurchase transactions of financial assets with repurchase agreements.
Rents paid by a financial institution as a result of the transfer or assignment of all or part of a claim owned by it.
In the case of transfer, redemption, amortization, exchange, or conversion of securities, the yield will be computed as the difference between the transfer, redemption, amortization, exchange, or conversion value and their purchase or subscription value.
Income from Capital Operations, Life Insurance Contracts, and Disability Income from the Taxation of Capital
Yields, in money or in kind, from capitalization and insurance contracts for life or disability, except as provided in Article 17.2 of this Act, will be taxed as earned income.
In particular, the following rules apply to investment income:
When an endowment is received, the investment income is determined by the difference between the capital received and the amount of premiums paid.
In the case of immediate annuities that have not been acquired by inheritance, bequest, or any other title, the investment income will be the result of applying the corresponding percentages to each annual payment.
Retirement and disability benefits received by beneficiaries of life insurance or disability contracts, where there has been no mobilization of the provisions of the insurance contract during its term, will be integrated into the tax base from the time the amount exceeds the premiums paid under the contract. If the income has been acquired by gift or any other free and inter vivos legal transaction, they will be integrated from the time they exceed the actuarial present value of the income at the time of their creation.
In the event of termination of temporary or annuity income, which have not been acquired by inheritance, bequest, or any other form of succession, when the extinction of income originates in the exercise of the right of redemption, the return on capital assets will be calculated by adding the amount of rescue income satisfied up to that time and subtracting the premiums paid and the amounts that, according to the preceding paragraphs of this section, have been taxed as investment income. If the income has been acquired by gift or any other free and inter vivos legal transaction, the cumulative return up to the constitution of the income shall also be deducted.
Life and disability insurance providing benefits in the form of capital, where that capital is allocated to the provision of annuities or temporary income, provided that this conversion is reflected in the insurance contract, will be taxed in accordance with the first paragraph of Item 4 above.
Temporary annuities will be subject to capital gains tax, unless they have been acquired by inheritance, bequest, or any other title.