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Practical manual for Income Tax 2019.

Rents and charges

In general

This heading includes expenses arising from rent, fees, technical assistance, etc., for the transfer to the taxpayer of assets or rights that are related to the activity, when ownership of the same is not acquired. 

The concept of "royalties" shall include the fixed or variable amounts paid for the right to use or the concession of use of the different manifestations of industrial property.

Under the concept of “lease”, the amounts paid for the rental or operating lease or for the transfer of movable and immovable property for the use or disposal of the company.

Without prejudice to the above, the specialties discussed in their corresponding sections must be taken into account for the purposes of determining the deductible amounts for this concept.

Leasing contracts

Regulations: Art. 106 LIS

A specific tax regime is established for financial leasing contracts in which the following requirements are met:

  • That the lessor is a credit institution or a financial credit institution. 
  • They must have a minimum duration of 2 years when they are aimed at movable property and 10 years when they are aimed at real estate or industrial establishments.

    However, in order to avoid abusive practices, other minimum duration periods may be established by regulation depending on the characteristics of the different assets that may constitute their object.

  • That the financial leasing fees appear expressed in the respective contracts, differentiating the part that corresponds to the recovery of the cost of the asset by the leasing entity, excluding the value of the purchase option and the financial burden required by it, all without prejudice to the application of the corresponding indirect tax.
  • That the annual amount of the part of the financial leasing installments corresponding to the recovery of the cost of the asset must remain the same or increase over the contractual period.

Concept of financial leasing contracts: With effect from 28 June 2014, Law 10/2014, of 26 June, on the regulation, supervision and solvency of credit institutions ( BOE of the 27th) defines in its Third Additional Provision the concept of financial leasing operations as "those contracts whose exclusive purpose is the transfer of the use of movable or immovable property, acquired for that purpose according to the specifications of the future user, in exchange for consideration consisting of the periodic payment of fees. The assets to be transferred must be assigned by the user only to his/her agricultural, fishing, industrial, commercial, artisanal, service or professional operations. The financial leasing contract will necessarily include a purchase option, at its end, in favor of the user."

Once these requirements are met, the tax deductibility regime is as follows:

  1. The entire portion of the installments corresponding to the financial burden paid to the leasing entity is considered a tax-deductible expense.
  2. The portion of the financial leasing fees paid to the lessor that corresponds to the recovery of the cost of the asset is considered a deductible expense with the following two limitations:
    1. The deductible amount may not exceed the result of applying twice the maximum linear amortization coefficient according to the officially approved amortization tables to the cost of the asset. 

      In the case of taxpayers (businessmen or professionals) who are considered as small company for tax purposes, the linear amortization coefficient according to the tables will be multiplied by three for these purposes.

      The table of amortization coefficients applicable in the normal form of the direct estimation method is contained in article 12.1.a) LIS. In the simplified form of the aforementioned regime, the applicable amortization table is contained in the Order of March 27, 1998 ( BOE of the 28th).

      For the calculation of the aforementioned limit, the moment in which the asset is put into operating condition will be taken into account. Any excess amounts that are not deductible as a result of this limitation may be deducted in subsequent tax periods, with the same double or triple limit of the amortization coefficient indicated above.

    2. In the event that the object of the contract is land, plots of land and other non-depreciable assets, this portion of the fee does not constitute a deductible expense. In the event that such condition is met only in part of the asset subject to the transaction, only the proportion corresponding to the elements susceptible to amortization may be deducted, which must be expressed separately in the respective contract.

Example:

Mr. STV carries out the activity of manufacturing footwear and determines the net income of said activity by the direct estimation method, normal mode.

On June 30, 2019, the company acquired a new delivery van under a financial lease agreement ("leasing") under the following conditions:

  • Contract period: 2 years.
  • Annual fees: 8,000 euros, of which 600 euros represent the financial burden and the remainder corresponds to the recovery of the cost of the asset.
  • Purchase option: 1,200 euros at the end of the second year.
  • Item cost: 16,000 euros.

Determine the amounts that STV don may deduct in the 2018 financial year from the amounts paid for the financial leasing contract carried out, knowing that the linear amortization coefficient according to the van's tables is 16 percent, that the van was made available and went into operation on July 1, 2019, and that the economic activity of which it is the owner is considered a small company in the 2019 financial year.

Solution:

Since the economic activity carried out is considered a small company for tax purposes in 2018, the owner may deduct the following tax-deductible expenses from his/her gross income:

Financial burden 2019: 300

Recovery of the cost of the asset (deductible amount paid): 3,700

Total deductible expenses: 4.000

Note: The amount paid corresponding to the recovery of the cost of the asset is considered in its entirety as a deductible expense, as it does not exceed the legally established limits. The determination of this limit is carried out as follows:

Maximum applicable linear coefficient according to tables: 16%

Maximum linear coefficient applicable in 2019: (16 x 3) = 48%

Maximum tax amortization amount: (48% s/16,000) x 6/12 = 3,840

Specialties in the Personal Income Tax on transfers to economic activity of assets and rights belonging exclusively to members of the family unit

Regulations: Art. 30.2.3 Law Income Tax

When the taxpayer's spouse or minor children who live with him/her transfer assets or rights that serve the purpose of the economic activity in question, the holder of said activity may deduct, to determine the income from said activity, the consideration stipulated for said transfer, provided that it does not exceed the market value and, in the absence of the former, the latter may be deducted.

Correlatively, the stipulated consideration, or the market value, will be considered capital income of the spouse or minor children for all tax purposes.

Note: The use of assets common to both spouses by the spouse who carries out an economic activity is not considered a transfer for tax purposes and does not generate any remuneration between them.