Taxation of travel allowances in Spain – it appears to be quite a difficult topic, as it causes a lot of questions. So, let’s find out what it is about together.
Before getting into details, let me stress that we are talking about taxation from the personal income tax (IRPF) point of view. In other words – what tax issues may arise when an employee goes on a business trip and is compensated by their company for the costs of the travel, hotel stay, and additional expenses he can have related to this trip?
Spanish Income Tax (IRPF) lists five major classes of income which are subject to Income tax (it is quite important to distinguish between different classes of income, as they are taxed under different rules):
- Income from work (Rendimientos del Trabajo)
- Income from capital (Rendimientos del Capital) – divided in two categories of movable and immovable capital
- Income from Economic activities (Rendimentos de Actividades Economicas)
- Capital Gains and Losses (Ganancias y Pérdidas Patrimoniales)
- Imputed Income (Rentas Impùtadas)
It is very important to understand to which category of income each income source belongs. We will talk about each category of income in separate lectures, but as of today we are interested in the taxation of travel allowances, which are assigned to the category of “Income from Work” (Rendimientos del Trabajo).
Art. 17.1 LIRPF lists different types of income that are categorized as income from work (please follow this link). These include dietas (pernoctas – daily allowances to cover extra expenses due to travel) and payments for travel expenses (asignaciones para gastos de viaje) with the exception of those calculated in accordance with the norms of Art.9 RIPRF.
In other words, both dietas and payments for travel expenses to the employee are considered by the law as part of his income from work and are subject to the usual taxation rules, EXCEPT when they are paid according to the rules and in the limits permitted by law.
These specific rules you can find in Art. 9 of RIPRF – Real Decreto 439/2007.
Let’s keep in mind while we study these rules today, that only allowances paid within the rules and the limits are not taxable, all the rest goes into the person’s taxable income. Again, if it is inside the rules and limits – no taxation for the recipient (employee) as they are considered compensation payments, and also it is advantageous for the employer – as it can deduct it as an expense and not pay the Employer’s social security contributions, which are quite significant and usually stay at the level of 36% of the gross pay.
Also, let’s note one important detail – the limits discussed here are just thresholds for excluding certain allowances from taxation. Companies are not obligated to pay up to the maximum limit and may have varying financial situations, internal policies, or agreements with their employees. Thus, there are situations where they might pay less than the maximum limit or not provide any allowances at all.
An important, but not widely known, clause in the art.9 of RIPRF states that “When travel and living expenses are not specifically compensated by the companies to which they provide their services, taxpayers who obtain work income derived from labor relations of a dependent nature may reduce their income, for the determination of their net income” according to rules which repeat the basic rules with minor changes.
That means, that when travel expenses and subsistence allowances are not compensated by the employer, they can be considered additional deductions when calculating taxpayers’ Net Income from Work.
We need to distinguish between three different types of allowances and expenses related to travel:
- Travel expenses (gastos de locomoción) – include expenses required for the person to travel to their destination and return back;
- Accommodation expenses (gastos de estancia) – encompass costs for hotels and other types of accommodation;
- Subsistence allowance (gastos de manutencion) – represents the compensation provided by the employer for extra expenses incurred for meals while the employee is away from home for business purposes. These allowances consider the additional costs involved in eating out during travel compared to preparing meals at home.
Let’s start with travel expenses (gastos de locomocion). When an employee travels for his work, we can meet two basic situations – when he travels by public transport or by his private car (or a motorcycle).
If a person travels by public transport – all confirmed ticket costs can be compensated without triggering any taxation. So just make sure that you have all supporting documents, and you will be fine.
But what if you travel in your vehicle? The company can pay you compensation for using your vehicle. Starting from July 2023 it is 26 cents per kilometer. Until then it was 19 cents per kilometer and had not changed since 2005.
Apart from that you can compensate in full for the road tolls and parking expenses.
Accommodation expenses (gastos de estancia) – if you pay for the stay away from home for the work purpose your expenses, are justified by an invoice or another equivalent document.
One important caveat, contrary to the treatment of travel expenses and subsistence allowances, in the case if employer does not compensate these costs, employee can not include them into his income tax declaration as an additional deduction.
Subsistence allowance (gastos de manutencion) – the so-called pernocta. There may be two basic situations – an employee goes on a business trip and returns to his home for the night. Technically in this case there is no “pernocta” but the employee can be paid free of charge a compensation of 26.67 euros per day if the trip was in Spain, or 48.08 if it was abroad for extra costs he incurs during his trip. If he returns home, there are no accommodation expenses to compensate.
The second, more widespread situation – an employee goes on a business trip and spends a night in a hotel. In this case, accommodation expenses (hotel stay) are covered in full based on the supplied hotel invoice or an equivalent document. The employee can also receive a subsistence allowance (gastos de manutencion) – with a limit of 53.34 euros per day for trips in Spain and 91.35 euros per day for trip outside of Spain. No need to provide any supporting documents.
But, be careful – the Spanish states set a time limit for tax-free payments of the subsistence allowance and accommodation expenses – if an employee is sent to work continuously outside of his normal residence, such a continuous period can not exceed 9 months.
Spanish states set a time limit for tax-free payments of the subsistence allowance and accommodation expenses – if an employee is sent to work continuously outside of his normal residence, such a continuous period can not exceed 9 months.
Also, there are special rules for certain categories of employees:
- Truck drivers (or, as the law puts it – drivers of the vehicles, dedicated to transporting merchandise by the roads – do not need to provide any supporting documents for their accommodation expenses up to 15 euros per day while traveling in Spain and up to 25 euros per day abroad. The normal rules of paying subsistence allowances are applied to them.
- Flight personnel for air companies – if they do not spend overnight on their trip, they can receive a higher subsistence allowance (gastos de manutencion) than other categories of employees – 36.06 for the travel on the Spanish territories and 66.01 if abroad.
SUMMARY:
- Both daily allowance (per diem) and travel allowances paid to employees are considered part of their income from work and are subject to usual taxation rules, except when they adhere to specific rules and limits as outlined in the law.
- To exclude these allowances from taxation, you need to stay inside prescribed limits, conditions, and special rules. There are also special rules for specific categories of employees, such as truck drivers and flight personnel for air companies.
- For hotel stay, tickets paid for public transport, road tolls, and parking fares – there are no limits for compensation, so long as you have confirmation documents like invoices or equivalent.
Now let’s consider several practical examples.
Example 1. Travel expenses. Meet Jack. He works for a company that sent him for a business trip from Madrid to Valencia. The company paid him 400 euros for travel expenses. On his return, Jack provided the accounting department with two air tickets costing 220 euros. The following depends on company policy. If Jack returns the difference – 180 euros, there is no taxable income. But the company allows Jack to keep the difference, hence there is 180 euros of taxable income, which will be shown in Jack’s tax declaration as income from work.
Now, let’s assume that instead of the plane, Jack traveled in his personal car. The distance between Madrid and Valencia is 300 km. Let’s assume that there were no extra costs like road tolls or parking. How much Jack’s additional taxable income will be?
The answer: distance 300 km x 2 (return trip) x tax-free allowance of 0.26 euro per km = 156.00 euros tax-free. The difference – 244 euros will be treated as Jack’s taxable income from work.
Challenge 1. Now try to figure yourself, will there be a taxable income in the case of Mary, who over the year made 6 trips from Madrid to Barcelona? The company paid her 1 500 euros. The distance between Madrid and Barcelona is 600 km. Assume that Mary used the plane to fly and each return air ticket cost her 200 euros. Will there be any additional taxable income for Mary?
Try to figure out the answer yourself.
The correct answer is 300 euros. Solution: 200 euros per flight x 6 = 1 200 euros. As Mary received 1 500 euros. So the difference of 300 euros will be treated as additional income from work.
Now, what additional taxable income will be if Mary used her private car instead of the plane for travel? Pause the video and try to find the answer yourself.
The correct answer is No taxable income. Solution: 600 km x 2 per each trip x 6 trips x 0.26 euro per km = 1 872 euros. As the difference of 372 euros is not compensated by the company, Mary can deduct it from her net income when filing her tax declaration.
Example 2. Example with daily allowances (per diem). This time Jack is sent by his company from Madrid to Barcelona for a 4-day business trip. He bought air tickets costing 200 euro with a company card. Also, he received 400 euros from a company to cover his extra daily costs wily on the business trip, as the company has an internal policy to pay employees with a 100 euro daily allowance for business trips in Spàin. After returning Jack does not have any supporting documents for his expenses while traveling to Barcelona. There will be extra taxable income for Jack´s trip to Barcelona?
Answer. Let’s start with Jack buying air tickets with a company credit card. Costs were charged directly to the company and there are no limits for the costs of tickets when traveling using public transport. So no extra income here.
Now let’s turn to the daily allowance: To be tax-free, the daily allowance (per nocta) for traveling in Spain is limited to 53.34 euros per day. As Jack was away for 4 days, it will be 53.34 x 4 = 213.36 nontaxable. As he received 400 euros, that means that 186.64 euros will be taxable and considered es extra income from employment.
Challenge 2. During the month, the company sent Jack for 6 daily trips to meet customers – 3 times in Spain and 3 times abroad. As Jack lives close to the airport, each time he returns home the same day. During these trips he never spent a night away from home. To compensate for his extra costs due to travel, the Company paid him the same daily allowance – 100 euros per day of 600 euros in total. Will there be, if any, extra taxable income for Jack?
Answer. As Jack did not spend any night away from home during these trips, we need to use tax-free limits of 26.67 euros per day for traveling in Spain and 48.08 euros per day for traveling abroad. So the tax-free amount will be: Traveling in Spain: 26.67 * 3 = 80.01euros. For traveling abroad: 48.08 * 3 = 144.24. Or 224.25 euros in total.
As Jack received 600 euros from the company 600 euros, 375.75 should be included in his taxable income from work.
