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Practical Income Manual 2021.

Classification of income according to its origin and source and classification for the purposes of calculating the tax

Regulations: Art. 6.2 Law Personal Income Tax

The income obtained by the taxpayer throughout the tax period is ordered according to its origin or source, into three tax categories:

  • Performances.
  • Income imputations.
  • Capital gains and losses.

This classification displays its effects especially in the quantification of income. Thus:

  • The net income is obtained by the difference between the computable income and the deductible expenses, without prejudice to the application of reductions on the full or net income that, if applicable, correspond.

  • Income imputations are quantified by directly applying the legally established criteria and rules.

  • Capital gains and losses are determined, in general, by the difference between the transfer and acquisition values.

However, for the purposes of calculating the tax, the income obtained by the taxpayer in the tax period is classified into the following two groups:

1 General income

Regulations: Articles 44 and 45 Law Personal Income Tax

This group includes the following components of the taxpayer's income:

  • Income from work, real estate capital, and movable capital (exclusively those provided for in section 4 of article 25 of the Personal Income Tax Law . That is, among others, those derived from intellectual property, the provision of technical assistance, the leasing of personal property, businesses or mines or subleases and the transfer of the right to exploit the image) and those derived from the exercise of economic activities.

  • Imputations of real estate income, international tax transparency, the transfer of image rights, collective investment institutions established in tax havens, Spanish and European economic interest groups, and temporary business unions.

  • Capital gains and losses that do not arise from the transfer of assets.

2 Savings income

Regulations: Articles 44 and 46 Law Personal Income Tax

Savings income is made up of the following components:

  • Income of movable capital provided for in sections 1, 2 and 3 of article 25 of the Personal Income Tax Law . That is, those derived from the participation of own funds of any type of entity, those obtained by the transfer of own capital to third parties, those from capitalization operations and life or disability insurance contracts, as well as income derived from the imposition of capital.

    However, the income from movable capital provided for in article 25.2 of the Personal Income Tax Law will form part of the general income, corresponding to the excess of the amount of own capital transferred to a related entity with respect to of the result of multiplying the own funds by three, in the part that corresponds to the taxpayer's participation, of the latter. Chapter 5 contains an example that details the operations necessary to determine the part of the performance that must be integrated into the general tax base.

    Keep in mind that in cases in which the relationship is defined based on the relationship of the partners or participants with the entity, the participation must be equal to or greater than 25 percent.

  • Capital gains and losses that become evident on the occasion of transfers of assets, regardless of the generation period.

The following tables show, graphically, the components of general income and savings income.