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Practical manual for Income Tax 2023.

Distinction between income from business and professional activities and between commercial and non-commercial business activities

A. Distinction between income from business and professional activities

The regulations governing IRPF establish the following differentiation rules:

1. General rules

  • The income from professional activities is that which derives from the exercise of the activities included in the Second Section (professional activities of a general nature) and Third Section (professional activities of an artistic or sporting nature) of the Rates of the Tax on Economic Activities ( IAE ), approved by Royal Legislative Decree 1175/1990, of September 28 ( BOE of September 29); while are income from business activities those arising from activities included as such in the First Section of the aforementioned Tariffs [Art. 95.2 a) Personal Income Tax Regulations].

    In relation to professional activities carried out by entities under an income attribution regime, it should be noted that, although said entities must pay taxes under the First Section of the IAE Rates for the exercise of such activities, they maintain, for the purposes of IRPF their character as professional and not business activities, in accordance with the provisions of section 3 of rule 3 of the Implementing Instruction of Royal Legislative Decree 1175/1990, of September 28, which approves the rates and instructions for the Tax on Economic Activities.

    According to this criterion, is income from professional activities obtained through the free exercise of his/her profession , provided that said exercise involves the self-employment of means of production and human resources or one of both, among others, by: veterinarians, architects, doctors, lawyers, notaries, registrars, insurance actuaries, insurance agents and brokers, singers, teachers and music directors, official sellers of lotteries, sports betting and other games included in the network of the public business entity Loterías y Apuestas del Estado.

  • ## Amounts received by persons who are paid by a company for the functions they perform therein and are required to register with their respective professional associations and, in general, those derived from an employment or dependent relationship are not considered income from professional activities. These amounts are included in the income from work, in which section they must be declared (Art. 95.3 Personal Income Tax Regulations).

  • Business income is derived from, among others, the following activities : extractive, mining, manufacturing, clothing, construction, wholesale trade, retail trade, food services, transportation, hospitality, telecommunications, etc.

2. Particular rules

The difficulties that may arise when correctly classifying certain specific income assumptions have led to the regulations governing personal income tax specifically considering and regulating the following particular cases:

2.1  Authors or translators of works

Regulations: Articles 17.2 d) Law IRPF and 95.2 b) 1 Regulation IRPF

The income derived from the production of literary, artistic or scientific works, provided that the right to exploit them is transferred, constitutes income from work , except when said activity involves the self-management of the means of production and human resources, or one of both, for the purpose of participating in the production of goods or services, in which case the income is classified as derived from economic activities . In the event that this happens, the returns are

  • business when the authors or translators themselves edit their works directly, and

  • professionals if the authors or translators transfer the exploitation of the same to a third party.

Finally, when the beneficiary or recipient of the copyright is a third party other than the author or translator (for example, heirs), they constitute for the recipient income from movable capital .

2.2. Commission Agents

Regulations: Art. 95.2 b) 2 Regulation Income Tax

Professional income is that obtained by commission agents when their activity is limited to bringing together or approximating interested parties for the celebration of a contract.

On the contrary, when, in addition to the function described above, they assume the risk and venture of the commercial operations in which they participate, the performance should be classified as business .

income from work is income derived from the special employment relationship with the company that the commission agents or commercial agents represent and which does not involve the self-management of means of production and/or human resources.

2.3. Teachers

Regulations: Art. 95.2 b) 3 Regulation Income Tax

The following are considered to be income derived from professional activities those obtained by these persons, regardless of the nature of the teachings they impart, provided that they carry out this activity either at home, in private homes or in an academy or open establishment, without an employment or statutory relationship.

If the relationship from which the remuneration comes is labor or statutory, the income will be included among those derived from work .

For its part, teaching in academies or own establishments will be considered as business activity .

2.4. Conferences, colloquia, seminars and the like

Regulations: Articles 17.2 c) and 17.3 Law IRPF

Income derived from giving courses, conferences, colloquia, seminars and the like is considered employment income , even when said activities are provided outside of an employment or statutory relationship.

However, when such activities involve the self-employment of means of production and human resources, or one of both, for the purpose of participating in the production or distribution of goods or services (for example, when the taxpayer was already carrying out economic activities and his participation in conferences, colloquia or courses corresponds to matters directly related to the object of the activity, so that it can be understood that it is another service of his activity, or in cases where he intervenes as an organizer of the courses or participates in the successful or adverse results derived from them), the income obtained will be classified as income derived from the exercise of professional activities.

B. Distinction between income from commercial and non-commercial business activities

According to commercial regulations, agricultural, livestock and craft activities are not considered commercial business activities, provided that in the latter case the sales of objects built or manufactured by artisans are carried out by them in their workshops. The rest of the business activities are considered commercial.