Personal Income Tax (IRPF) exemption under Article 7.p): Must the employer be Spanish for the exemption to apply?

In conclusion: provided that the other requirements laid down in Article 7p are met, it is not essential for the employing company to be Spanish.

On some occasions, when taxpayers claim the exemption for workers posted abroad in cases where they travel abroad to work under a contract with a foreign company, some tax offices deny the exemption. Their reasoning is that the purpose of the rule is to encourage Spanish companies to send their workers abroad, and that the exemption therefore does not apply to individuals who work directly for companies from other countries.

Article 7p of the Personal Income Tax (IRPF) Law (LIRPF) specifically provides:

“That such work be performed for a company or entity not resident in Spain or a permanent establishment located abroad, under the conditions established by regulation”

In this case, Article 6 of the IRPF Regulations does not add any further specification. Therefore, the rule requires the work to be performed for a non-resident company, and in no case does it require the work to be performed as an employee of a Spanish company.

Several binding rulings (consultas vinculantes) also confirm this point:

• In binding ruling V1562-09, where the taxpayer had an employment contract with a Dutch company, the exemption for workers posted abroad was accepted:
  “In order for the exemption to apply, the rule requires that the income derive from work performed for a company or entity not resident in Spain or a permanent establishment located abroad. For the work to be regarded as having actually been performed abroad, the worker must travel outside Spanish territory, and the workplace must be located, at least temporarily, outside Spain. At the same time, the work must be performed for a non-resident company or entity, or a permanent establishment located abroad.”
• In binding ruling V2035-10, where the taxpayer worked for a United Kingdom company, the application of Article 7p was likewise accepted:
  “2. The work must be performed for a company or entity not resident in Spain or a permanent establishment located abroad. As this Directorate General has repeatedly held, the application of the exemption requires that the recipient or beneficiary of the work performed by the worker posted from Spain be a non-resident company or entity, or a permanent establishment abroad.”
• In binding ruling V3208-18, the taxpayer worked as an employee of a company headquartered in the Netherlands with no permanent establishment in Spain. To perform his work, the taxpayer traveled to the Netherlands, where he actually carried out his work abroad. Once it was completed, he returned to Spain, and so on. The taxpayer and the company decided, by mutual agreement, to terminate the relationship. The Directorate General for Taxation (DGT) rejected the possibility of applying the exemption to the agreed severance payment pursuant to Article 7.e) of the LIRPF, but accepted that it could apply where the income derived from work: “As this Directorate General has pointed out, this exemption does not apply to all employment income. The term ‘work’ in Article 7 p) must be understood as referring to the employment income defined in Article 17.1 of the LIRPF, that is, employment income derived from an employment or statutory relationship, as well as to certain cases provided for in Article 17.2 of the LIRPF (such as special employment relationships). However, Article 7 p) of the LIRPF refers to income received for work actually performed abroad for a non-resident company or entity, or a permanent establishment located abroad, establishing a direct link between the work performed abroad and the exempt income, such that the exemption will apply only to remuneration that specifically corresponds to the performance of that work. In this regard, that article provides that ‘the exemption shall apply to the remuneration accrued during the days spent abroad.’”