The new Law 6/2017 on Urgent Reforms to Self-Employment introduces some developments, starting in 2018, in regard to deductible expenses for employers and self-employed professionals. For this purpose, at Arrabe Integra we gave prepared the following tax guide to clarify which expenses are tax deductible and which are not.
In the first place, we must bear in mind a fundamental premise: the deductibility of expenses is conditional to the matching of income and expenses: the only expenses deductible are those in respect of which it has been accredited that they occurred in the exercise of the business activity and are necessary for obtaining income.
In any case, in addition to their being necessary for obtaining income, the expenses must be properly recorded in the books, correctly attributed to the tax period and justified by means of the corresponding document or invoice.
Based on the foregoing, we are now going to analyze the different blocks of deductible expenses, with a brief subsequent mention of those of “doubtful” deductibility or with special characteristics.
TAX DEDUCTIBLE EXPENSES:
Operating costs: purchases of goods, raw and ancillary materials, fuel, containers, packaging and office supplies.
Wages and salaries paid to workers.
Social Security paid by the employer: contributions for the hiring of workers, in addition to the contribution of the self-employed person.
Other personnel expenses: training costs, employee accident insurance, gifts (Christmas baskets) and contributions to pension plans or social security mutual benefits.
Leases and taxes.
Business premise or office specific to the business: all expenses associated with the business premise may be deducted (rent, reforms, maintenance, electricity, water and telephone supply, mortgage or insurance costs) with prior notification to the Tax Agency of the details of the premises at the time of registration or transfer of the business premise or office.
Repairs and upkeep: maintenance costs, replacements and adaptation of material goods. This does not include those that represent enlargements or improvements, as these are considered investments that depreciate over several years.
Services of independent professionals: fees for economists, lawyers, auditors and notary publics, commissions paid to commercial agents or independent mediators.
Other external services: transportation, banking services, advertising, public relations, office supplies and other expenses not included in the above items.
Tax deductible expenses: Property Tax (IBI) of the premises where the activity is carried out, Tax on Business Activities (IAE) and other non-state taxes and surcharges, as well as state fees, surcharges and contributions. Fines or surcharges for the late filing of declarations will not be deductible.
Financial expenses directly related to the activity, such as interest on loans and credits relating to the same or expenses for discounting bills, among others.
Amortizations: depreciation of investments included in the tangible or intangible fixed assets assigned to the business.
Impairment losses on the value of capital assets: impairment of credits arising from debtor insolvencies (only those not backed by guarantees, insurance, etc.), as well as the cost of acquisition of goodwill, with an annual maximum limit of 5%.
Other deductible expenses: among others, these include the purchase of books, subscriptions to professional magazines, courses, conferences, business association fees, as well as health insurance premiums paid by the self-employed person for him or herself, spouse and children under the age of 25 who live in the family residence, with a maximum of 500 euros per person or 1,500 euros per person with disabilities.
In any case, Self-employed persons who pay taxes under the Simplified Estimated Tax System may deduct 5% of the net previous income as “expenses of difficult justification”, with a maximum of 2,000 euros.
Self-employed persons who pay taxes under the Normal Direct Evaluation System who are not able to apply the above expense may deduct uncollected invoices or expenses associated with returns of sales (tax deductible provisions).
“SPECIAL” DEDUCTIBLE EXPENSES
Business premises or office within the home: the Tax Administration must be informed of the percentage of the home assigned to the business activity, which will enable the proportional deduction of certain expenses relating to the building. Thus, expenses deriving from ownership of the home (amortizations, IBI, Property Owners Association, etc.) will be deductible in proportion to the part of the home assigned to the activity and the percentage of ownership in the building, while supplies (water, gas, electricity, telephone and Internet) will be deductible by 30% for the proportional part of the square meters of the home used for the activity, unless it can be proven that there is a higher or lower percentage.
Consequently, costs intended exclusively for the exercise of the activity will be deductible and there may be an independent contract for the office used, such as in the case of a telephone. Home rental expenses may be deducted with the additional requirement that the owner sign a contract with VAT for the total of the home or, at least, a separate one for the percentage concerned.
Private vehicle and associated costs (maintenance, fuel, insurance): for the purposes of Personal Income Tax (IRPF), this expense will only be admitted for self-employed persons who are dedicated to the transport of passengers, goods, driving courses or commercial activities (taxi drivers, transport drivers, delivery persons, messengers, driving schools, commercial agents and representatives). Other professionals may not deduct these as Personal Income Tax expenses, but they may account for them in VAT, although only 50%.
Living expenses or allowances: self-employed persons who for work reasons must eat or spend the night away from home may, subject to conditions, deduct the cost from Personal Income Tax with a daily limit of 26.67 euros if the expense occurs in Spain, or 48.08 euros if abroad. In the case of overnight stays, the amounts reach 53.34 euros and 91.35 euros, respectively. The conditions for this expense to be deductible are:
It must be performed outside of the city corresponding to the business address,
Payment must be made by electronic means and…
Receipt of payment must be maintained.
Representation expenses: expenses for customer or supplier services will be deductible with a limit of 1% of the net turnover amount for the tax period.
Clothing expense: only expenses for professional clothing such as uniforms or other garments with the company logo will be admitted.
Mobile phone. This can be deducted whenever the line is used exclusively for the performance of the business activity and, therefore, it is not possible to have just one line contracted for all uses.
Arrabe Integra
Tax Department
