Personal income tax exemption for trips abroad: what do you need to know?

Are you a company or entity whose employees have to travel abroad for work purposes and you do not know how travel and subsistence expenses are treated for tax purposes?

In this opportunity, we address the question of the IRPF exemption for trips abroad and we tell you what this tax incentive is all about. We will also help you to comply with the requirements. Review of applicable amounts and limits, at the end of the article.

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Personal Income Tax exemption: working abroad

Generally speaking, when an employee⋅a travels or makes a business visit outside the company and outside the country, he/she incurs a series of expenses, which can be of two types:

• meals: subsistence and subsistence allowance,
• travel: mileage for travel abroad.

Requirements for the IRPF refund for foreign work

A person resident in Spain can benefit from a tax exemption for travel undertaken for a company, provided that the travel meets the requirements set out in Article 7 of Law 35/2006, of 28 November, on Personal Income Tax (IRPF).

As with other expenses, it is not sufficient for employees to announce that they have incurred a particular expense as part of a trip, but they must justify it, respecting the company's provisions and those laid down by law. Since an unjustified expense is not eligible for reimbursement, it will be necessary:

• The justification: sometimes it is required to specify the client visited, the reason for the trip, the participants of the meeting, parking and toll tickets, etc.
• The method of payment: it is necessary to indicate by which means of payment the transaction was made.

In turn, companies are obliged to calculate withholdings from their employees' paychecks when making their tax returns to the tax office. In order for the jobs not to be subject to the tax, the requirements to be met are as follows:

1. That they are carried out for a company or entity not resident in Spain.
2. The territory where the work is carried out must not be classified as a tax haven and it must apply a tax similar to the one dealt with in this article.

With regard to this requirement, the Tax Agency makes the proviso that the requirement will be considered fulfilled when the territory " has signed an agreement with Spain to avoid double international taxation that contains an information exchange clause".

Personal income tax refund for foreign work

Refund amounts

The Tax Agency has established a series of applicable amounts for these expenses, some of which are exempt from taxation, as shown in the following table:

Source: Personal Income Tax Declaration Form 100.

For persons working on flights, the amounts of living expenses that are exempt within and outside Spain are €36.06 and €66.11 respectively.

Calculation of exemption for work abroad

In order to correctly calculate the amount to be paid, only the days during which the employee has actually been abroad and the expenses generated in relation to the work he/she has carried out must be taken into account.

To determine the amount, the Tax Agency specifies that a "proportional distribution criterion will be applied, taking into account the total number of days in the year".

Limits of the exemption

The exemption will have a maximum limit of 60,100 euros per year and will be incompatible with the system of excess allowances excluded from taxation.

In the case of expatriates, they must be able to prove the value added in order to be able to apply the exemption.

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7p: the role of companies in its application

The requirements set out in Article 7(p) ("Exempt Income") of Law 35/2006 seek to ensure that companies monitor and control the expenses incurred by their employees on a regular basis.

This not only leads to greater clarity in internal reconciliation processes, but also simplifies declarations for the competent authorities and avoids inconsistencies in declarations.