Learn what expenses are acceptable by Hacienda to be offset against your income and reduce tax liability.
There is no closed list of expenses that you can offset against tax in Spain. It depends heavily on the kind of business you have.
However, the short answer is that an expense normally needs to meet two criteria.
The two basic criteria
- Ordinary and necessary: the expense must be related to your business activity and necessary to operate. A carpenter can justify a hammer; an accountant, hardly.
- Proper invoice: there must be documentary proof backing the expense, containing all the required information.
To give you a better idea of what these expenses may be, below are the categories contemplated by personal income tax rules.
Autonomos and SL companies do not have exactly the same rules, but this gives a useful general idea for both cases.
Trading goods
These are the products that you buy in order to sell them, or the raw materials with which you will manufacture your end product.
Business consumables
Side products used in the activity, such as stationery, wrapping, boxes, plastic bags and similar consumables.
Wages and salaries
Payments to employees, including properly justified travel and meal expenses where applicable.
Social Security
This includes contributions for employees and the Social Security contribution of the self-employed business owner.
Other personnel expenses
This category can include training costs, staff insurance, gifts or incentives to employees.
Rentals
Premises rental, tools and equipment rental, car rental, bank leasing and similar arrangements connected to the activity.
Maintenance and repairs
This refers strictly to maintenance. It does not include works that constitute an improvement.
Improvements are generally considered an investment and must be depreciated over time.
External professional services
Lawyer, accountant, notary and other professional services used for the business.
Other external services
Bank charges, insurance, electricity, internet, water, telephone bills, petrol, courier services, advertising and similar external services.
Taxes and fees
This category may include IBI for a property related to the business, and other fees payable to the town hall for obtaining a business licence, works licence or similar authorisations.
Financial expenses
Interest on loans and postponed payments to the Tax Office can fall under this category when connected to the business.
Depreciation
Depreciation represents the loss of value over time of assets and intangibles related to the activity.
In simplified direct assessment, the tax calculation system used by most self-employed workers, the figure is calculated according to an official table.
Other expenses
This covers other expenses related to the activity, such as training, courses, conventions, business association fees, additional insurance and similar items.
The 5% difficult-to-justify expenses allowance
On top of declared expenses, in the simplified direct assessment system you are generally granted a deduction of 5% of profit.
This covers other expenses that are difficult to justify but are assumed to be part of your business activity.
Keep proper invoices
It is important to obtain an invoice every time you buy something for your business and to make sure that the invoice is correct.
Mixed business and personal use
Sometimes you may not be sure whether a particular expense can be included in your books.
What if the purchase is not totally related to your business and you also use it personally?
For example, if your telephone line has both personal and business use, how much can you offset?
These situations need to be reviewed carefully because the deductible amount may depend on the specific facts and available proof.