Personal income tax exemption for trips abroad: what should you know?

Are you a company or entity whose employees have to travel abroad for work purposes and you do not know how is the tax treatment of travel and per diem expenses?

In this opportunity, we address the issue of the IRPF exemption for travel abroad and we tell you what this tax incentive is all about. We also accompany you in the fulfillment of 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: per diem and subsistence,
• transportation: mileage for travel abroad.

Requirements for the IRPF refund for foreign work

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

As with other expenses, it is not enough for employees⋅as to announce that they have made a particular expense as part of a trip, but they must justify it, respecting the corporate provisions and those provided 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.

At the same time, companies are obliged to calculate the withholdings from their employees' paychecks when making their tax returns to the Tax Agency. In order for the jobs not to be subject to the tax, the requirements to be met are:

1. That the same are carried out for a company or entity not resident in Spain.
2. That the territory where the work is carried out is not qualified as a tax haven and that it applies a tax similar to the one dealt with in this article.

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

Personal income tax refund for foreign employment

Refund amounts

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

Source: Form 100. Individual Income Tax Return.

For persons working on flights, the amounts of living expenses that are exempt inside 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 in which the employee has actually been abroad and the expenses generated in relation to the work he/she has performed must be taken into account.

In order to determine the amount, the Tax Agency specifies that a "proportional distribution criterion will be applied taking into account the total number of days of 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 regime of excess per diems excluded from taxation.

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

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7p: the role of companies in its application

The requirements set forth in literal p of Article 7 ("Exempt Income") of Law 35/2006, seek to ensure that companies carry out an assiduous follow-up and control of the expenses incurred by their employees⋅as.

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