What amount is exempt from tax for objective dismissal compensation under Spanish Personal Income Tax?

Exemption for objective dismissals: what the law says

The law states that compensation paid for the termination or dismissal of an employee is exempt from IRPF up to the mandatory limit established in the Spanish Workers’ Statute. This exemption also applies to dismissals for objective reasons (Article 52.c of the Workers’ Statute) when they are due to economic, technical, organisational, production-related reasons or force majeure. The maximum exempt amount is 180,000 euros.

How to calculate the exempt amount

To calculate the exempt amount, the compensation that would correspond to an unfair dismissal is used as the reference.

• Contracts signed on or after 12 February 2012: 33 days’ salary per year of service, with a maximum of 24 monthly payments.

• Contracts signed before 12 February 2012: 45 days’ salary per year worked up to that date and 33 days per year worked after that date, with a maximum limit of 720 days’ salary or the result of the calculation for the period before 12 February 2012, never exceeding 42 monthly payments.

The exempt amount will always be the lower of the unfair dismissal compensation limit and 180,000 euros.

What happens if the compensation exceeds the exempt limit

If the compensation you receive for your objective dismissal exceeds the amount calculated above (or 180,000 euros), the excess must be taxed as employment income in your income tax return. It is essential to declare this correctly to avoid problems with the Tax Agency.

Can you apply the irregular income reduction?

Yes, the Personal Income Tax Law provides for a 30% reduction for employment income generated over a period of more than two years, which is common in severance payments for the termination of employment. However, there are limitations:

• The reduction cannot be applied if you have already used it for other similar income in the previous five tax years.

• The amount to which the reduction applies cannot exceed 300,000 euros per year.

• If your total income is very high (more than 700,000 euros), the reduction may be limited or even not apply at all.

If you face an objective dismissal, it is advisable to carefully review your compensation and its tax implications. Good advice can help you avoid costly mistakes. If you need help with your income tax return or have any questions, at Valero Tax Legal we are here to offer you a professional, personalised service. c/ Migdia 37, 2º A, 17002 Girona info@valerotaxlegal.com 972 697 790 WhatsApp Business: +34 644 76 97 24 www.valerotaxlegal.com