Self-employed workers teleworking due to COVID will not be able to deduct utility expenses

Law 6/2017, of October 24, on Urgent Reforms of Self-Employment, introduced tax advantages for self-employed workers by allowing, from January 1, 2018, the deduction of new expenses for Personal Income Tax (IRPF) purposes. Specifically, these measures concern utility expenses (for entrepreneurs or professionals who work from home) and subsistence expenses.

Accordingly, with regard to utility expenses, Article 30.2.5.b) of the Personal Income Tax Law provides that taxpayers who partially allocate their main residence to the conduct of their business activity may deduct utility expenses (such as water, gas, electricity, telephone, and internet) in the amount resulting from applying 30 percent to the proportion that the square meters of the home used for the activity represent of its total floor area, unless a higher or lower percentage is proven.

The Directorate General for Taxation (DGT) recently addressed this issue in binding ruling (consulta vinculante) V3461-20PDF, of November 30, concluding that self-employed workers who are teleworking due to COVID will not be able to deduct utility expenses. The DGT takes the view that, for certain utilities of the taxpayer’s main residence to qualify as deductible expenses of a business activity carried on by the taxpayer, it is necessary that the main residence be partially allocated to the activity.

According to the DGT, this requirement of partial allocation is not met when the self-employed worker is working from home due to COVID-19, since this results from an occasional and exceptional circumstance.