Criteria for affecting assets and rights to the exercise of an economic activity

Regulations: Articles 29 Law IRPF and 22 Regulation IRPF

According to the regulations of the IRPF , the criteria for allocating assets and rights to the exercise of an economic activity are the following:

1. Assets and rights related to an economic activity are those necessary to obtain business or professional income.

According to this criterion, the following assets are expressly considered affected:

The real estate in which the activity is carried out.
Assets intended for the economic and sociocultural services of the personnel serving the activity.
Any other assets necessary to obtain the respective returns.

According to the above, those assets intended for the private use of the owner of the activity, such as those for recreation or entertainment, cannot be considered as assigned.

Note: In no case are assets representing participation in the equity of an entity (shares or interests) and the transfer of capital to third parties, such as, for example, all types of bank accounts, considered to be assets related to an economic activity.

2. Affected elements must be used only for the purposes of the activity.

According to this characteristic note those assets and rights that are used simultaneously for economic activities and private needs cannot be considered as affected unless the use for latter is accessory and clearly irrelevant

In this regard, are considered to be used for private needs in an accessory and clearly irrelevant manner , the fixed assets acquired and used for the development of the economic activity that are intended for the personal use of the taxpayer on non-working days or hours during which the exercise of the activity is interrupted.

This exception does not apply to passenger cars and their trailers, motorcycles and aircraft or sports or recreational boats. These assets will only be considered assets related to the development of an economic activity when they are used exclusively for the purposes of the same, and in no case may they be considered as assets if they are also used for private needs, even if such use is accessory and clearly irrelevant.

However, as an exception to the exception, the use for private needs (provided that it is accessory and clearly irrelevant) without losing their status as affected goods, of passenger cars and other means of transport that, being included in the enumeration of the previous paragraph, are listed below, is permitted:

Mixed vehicles intended for the transport of goods.
Those intended for the provision of passenger transport services for consideration.
Those intended for the provision of driving or pilot training services for a fee.
Those intended for professional travel by commercial representatives or agents.
Those intended to be transferred for regular and onerous use.

For these purposes, the following are considered to be passenger cars, trailers, mopeds and motorcycles: those defined as such in the Annex to Royal Legislative Decree 339/1990, of March 2, which approves the consolidated text of the Law on Traffic, Circulation of Motor Vehicles and Road Safety and, as of January 31, 2016, in the Annex to Royal Legislative Decree 6/2015, of October 30, which approves the consolidated text of the Law on Traffic, Circulation of Motor Vehicles and Road Safety, as well as those defined as mixed vehicles in said annexes and, in any case, those called all-terrain vehicles or "jeep" type.

3. The necessary and exclusive use of a divisible asset for the purposes of the activity may only apply to a certain part of it (partial allocation) and not necessarily to its entirety.

In the case of assets that only partially serve the purpose of the activity, the allocation will be understood to be limited to that part of them that is actually used in the activity in question. In this sense, only those parts of the heritage elements that are susceptible to separate and independent use from the rest will be considered affected, without indivisible heritage elements being susceptible to partial affectation in any case.

The partial allocation of an asset has important tax consequences, since the income and expenses corresponding to said part of the asset must be included among those corresponding to the economic activity to which it is allocated.

Clarifications:

To calculate the net income from an economic activity in direct estimation, in the case of a property being used partly as a habitual residence and partly for the exercise of the activity, a distinction must be made between the expenses derived from the ownership of the home and the expenses corresponding to the supplies of the property.

In the case of expenses derived from the ownership of the home, such as amortization, IBI, community of owners, etc., they are deductible in proportion to the part of the home affected by the development of the activity and its percentage of ownership in the referred property.

In the case of expenses corresponding to supplies rule 5 of section 2 of article 30 of the Income Tax Law must be taken into account regarding deductible expenses for certain supplies when the businessman or professional carries out his activity in his own habitual residence, the commentary of which appears in Chapter 7 of this manual.

4. Those assets that are owned by the taxpayer but do not appear in the accounting or official records of economic activity (investment asset register) that the taxpayer is required to keep, unless proven otherwise, are not considered to be affected.

5. In the case of marriage, the allocation of an asset is conditional on its ownership being exclusive to the spouse who carries out the activity, or whether it is joint or common to both spouses.

If a common or joint asset is used, the owner must consider it fully assigned to the activity, even if the asset in question belongs to both spouses. On the other hand, the private assets of the spouse who does not carry out the economic activity cannot be considered as being assigned to it, but rather are considered transferred assets.

Therefore, assets owned by both spouses (not necessarily joint assets) will be considered assets that are entirely related to the business spouse's economic activity, even if one of them does not carry out the activity.

And as a consequence of said rule of allocation, the use of assets or rights owned by both, by the business or professional spouse in the development of his/her activity, will not give rise to deductible expenses for him/her or to capital gains for the other spouse, due to the transfer of use carried out on the part of the asset corresponding to that other spouse. (art. 30.2.rule 3, second paragraph of the Personal Income Tax Law ).

In accordance with the above, common assets will be treated as follows for each of the spouses:

The spouse, owner of the activity, may deduct, as deductible expenses, all expenses generated by them, including amortizations.
For the non-practicing spouse, these common assets will have no impact, meaning that he or she will not have to allocate any income or expense.

**Summary table: criteria for impact on economic activity**
Asset-related elements	Use of heritage elements	Rules on the impact on personal income tax	Exceptions
Divisible (example, real estate)	Partial When part of the heritage elements are susceptible to separate and independent use from the rest.	The allocation will be understood to be limited to that part of them that is actually used in the activity in question.	There are no exceptions.
Indivisible	Alternative Those assets that, due to their material characteristics, cannot be used simultaneously (but alternatively) for a private activity and an economic activity.	Its use is only permitted for private needs of the taxpayer provided that it is accessory and clearly irrelevant (that is, on non-working days or hours during which the exercise of economic activity is interrupted).	Exception : It does not apply, except in certain cases, to passenger cars and their trailers, mopeds, motorcycles, aircraft or sports or recreational boats." Art. 22.4 Regulation Income Tax

Examples:

Mr VRV, a practising lawyer, uses his office computer for personal matters on certain holidays.

The use of the computer, which objectively has the character of fixed assets acquired and used for the development of professional activity, on non-working days is expressly included in the Regulation as an exception to the requirement of exclusivity of the assignment, so that, in this case, the computer can be considered in its entirety as an assigned asset.
Don SAM, a taxi driver, usually uses his vehicle on certain days off to go to the countryside with his family.

The use of a taxi for private needs on non-working days when the normal exercise of the activity is interrupted does not prevent said vehicle from being considered fully related to the business activity carried out by its owner, as it is a vehicle intended for the transport of passengers for consideration and is expressly exempt from the requirement of absolute exclusivity generally applicable to passenger cars.
Don AAR, an ophthalmologist, uses two rooms in his home exclusively as consultations. These rooms, which measure 40 m2 and are thus stated in the corresponding registration for the Tax on Economic Activities, represent 30% of the total surface area of the habitual residence. Can the surface area used for consultation be considered to be affected by professional activity and, consequently, can the expenses corresponding to said surface area be deducted from the income from the activity?

The part of the home used exclusively as a consultation room may be considered to be affected by the professional activity carried out by its owner; Therefore, the specific expenses of this part of the home can be deducted from the gross income from the professional activity.