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Practical manual for Income Tax 2019.

Returns with a generation period of more than two years, other than those derived from social security systems

In general

A reduction of 30 percent of the amount of gross income will be applied when each and every one of the following requirements are met:

  • That the returns have a generation period greater than two years.

The period of generation of the yield must be understood as the time elapsed from the beginning of the existence of the right to receive the yield until it materializes, producing the accrual of the yield. The generation period thus understood must be greater than two years, computed from date to date.

  • That the returns are imputed in a single tax period.
  • That within the period of the five tax periods prior to one in which they become due, the taxpayer has not obtained other income with a generation period greater than two years, to which the reduction has been applied.

In particular: income derived from the termination of an employment relationship, whether common or special.

In case of compensation arising from the termination of an employment relationship, common or special, following particularities are established for the application of the 30% reduction:

  • The number of years of service ##1 .

  • These returns can also be collected in fractional form.

    However, in the event that they are collected in installments, the 30% reduction will only be applicable when the quotient resulting from dividing the number of years of generation, computed from date to date, by the number of tax periods of installment, is greater than two.

  • Taxpayer may apply the reduction, even if in the period of the five previous tax periods he had obtained other income with a generation period of more than two years, to which he had applied the reduction provided for in this section.

Transitional scheme

Regulations: Twenty-fifth transitional provision Law IRPF

  • For income received in installments before January 1, 2015 that does not come from compensation for termination of the employment relationship, common or special, or the commercial relationship.

    • This must be income other than that arising from compensation for termination of the employment relationship, common or special, or the commercial relationship referred to in article 17.2 e) of Law (administrators and members of the Boards of Directors, of the Boards that act in their place and other members of other representative bodies).

    • It must be returns that were received in installments prior to January 1, 2015 .

    • The income must be eligible for the application of the reduction in article 18.2 of the Personal Income Tax Law , in its version in force on December 31, 2014.

      When these conditions are met, the taxpayer may apply the current reduction of 30% to each of the fractions that are imputed from January 1, 2015, provided that the quotient resulting from dividing the number of years of generation, computed from date to date, by the number of tax periods of fractionation, is greater than two.

      However, in the case of income derived from commitments acquired prior to 1 January 2015 that were scheduled to begin being collected in installments in tax periods beginning on or after that date, the substitution of the initially agreed method of collection for its collection in a single tax period will not alter the start of the period for generating the income.

  • For income received in a fractional manner derived from the termination prior to August 1, 2014 of the business relationship with directors and members of the Boards of Directors, and other members of other representative bodies.

    In the case of employment income from compensation for termination of the business relationship with directors and members of the Board of Directors and other members of other representative bodies with a generation period of more than two years, a 30% reduction may be applied when the quotient resulting from dividing the number of years of generation, computed from date to date, by the number of tax periods of fractionation, is greater than two, provided that the date of termination of the relationship is before August 1, 2014 .

  • For income derived from the exercise of options to purchase shares or interests by employees granted before January 1, 2015.

    In the case of employment income derived from the exercise of purchase options on shares or interests by employees that were granted prior to January 2015 and are exercised more than two years after their grant, if, in addition, they were not granted annually, this reduction of 30 percent may be applied, even if, in the period of the five tax periods prior to the one in which they are exercised, the taxpayer had obtained other income with a generation period of more than two years to which the reduction would have been applied.