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Practical manual for Income Tax 2023.

a) General rule

The determination of the attributable income is carried out at the headquarters of the entity that obtains it, in accordance with the regulations of Personal Income Tax applicable to each type of income according to its origin or source, without taking into account any reductions or deductions that may correspond to said income. However, the corresponding reductions or decreases may be applied by the members of the entity under the income attribution regime who are taxpayers of the IRPF .

In short, the determination of the attributable income, based on its origin or source, will be carried out at the headquarters of the entity that obtains it, in accordance with the criteria explained below:

1. Return on real estate property

The attributable net income will be determined by the difference between the total income and the expenses necessary to obtain it, including the amortization of the property and other assets transferred with it, without having to apply:

  • The 60% reduction on the positive net income derived from the leasing of properties for residential purposes referred to in article 23.2 of the Personal Income Tax Law .

  • The reduction of 30 percent on income with a generation period of more than two years, as well as on income classified by regulation as having been obtained in a notoriously irregular manner over time when, in both cases, they are imputed in a single tax period and the amount of net income to which the reduction is applied does not exceed 300,000 euros per year. Reduction contemplated in article 23.3 of the Personal Income Tax Law .

Individual members of the entity under the income attribution regime who are IRPF taxpayers will be able to apply these reductions in their tax return.

2. Income from movable capital

The attributable net income will be determined by the difference between the gross income and the deductible expenses referred to in article 26.1 of the Tax Law.

In the case of capital gains that are included in the savings tax base, the expenses of administration and storage of negotiable securities are deductible. In the case of income derived from the provision of technical assistance, the leasing of movable property, businesses or mines or subleases, the expenses necessary for obtaining them and, where applicable, the amount of the deterioration suffered by the assets or rights from which the income comes shall be deducted from the total income.

In no case may the attribution regime entity apply the 30% reduction contemplated in article 26.2 the Income Tax Law to the net income provided for in article 25.4 of the aforementioned Law (income from movable capital to be integrated into the general tax base) that have a generation period of more than two years or are classified by regulation as having been obtained in a notoriously irregular manner over time when, in both cases, they are imputed in a single tax period and the amount of net income to which the reduction is applied does not exceed 300,000 euros per year.

The members of the entity under the income attribution regime who are taxpayers under the IRPF will be able to apply this reduction in their declaration.

Depending on the nature of the attributed capital gains, the taxpayer must include it in his/her tax return as follows:

  1. In the general tax base the income provided for in article 25.4 of the Personal Income Tax Law under the name "other income from movable capital", as well as those derived from the transfer to third parties of own capital referred to in article 25.2 of the Personal Income Tax Law that come from entities linked to it.

  2. In the taxable savings base the returns provided for in sections 1, 2, and 3 of article 25 of the Personal Income Tax Law (returns obtained from participation in the equity of any type of entity; returns obtained from the transfer of own capital to third parties; income from capitalisation operations and life or disability insurance contracts and income from capital taxation). The commentary on these returns to be integrated into the taxable savings base is contained in Chapter 5.

3. Earnings from economic activities

The determination of the attributable income will be carried out in accordance with the method of determining the net income applicable to the entity, without applying the reduction of 30 percent to the income with a generation period of more than two years or classified by regulations as obtained in a notoriously irregular manner over time, when, in both cases, they are imputed in a single tax period provided for in article 32.1 of the Tax Law.

The reductions for the exercise of economic activities of article 32.2. of the Personal Income Tax Law and for starting a new activity in article 32.3 of the Income Tax Law are not applicable to entities under an income attribution regime to determine the net income of their economic activities. The members of the entity under the income attribution regime who are taxpayers under the IRPF will be able to apply these reductions in their declaration.

The expenses of each of the owners, partners or participants that, because their payment has not been agreed to be charged to the entity under an income attribution regime, are paid by each of them will be deductible for them, provided that there is due correlation with the obtaining of the income. The deductibility of these expenses will be carried out by the commoner, partner or participant who has paid them, reducing the income attributed to him by the entity.

The requirements for the application to entities under income attribution regime of the direct estimation method both in the normal and simplified modality, and the objective estimation method for agricultural, livestock and forestry activities remaining activities can be consulted, respectively, in Chapters 7, 9 8 of this Manual.

4. Capital gains and losses

The determination of the attributable income will be carried out in accordance with the rules of IRPF .

Depending on whether the attributed capital gain or loss derives or not from the transfer of assets, the taxpayer must include it in his/her declaration as follows:

  1. The tax base generates l the capital gains and losses that do not derive from the transfer of assets.

  2. In the taxable savings base the capital gains and losses arising from the transfer of assets, regardless of their generation period.

In the case of the transfer of a common asset, the amount of the capital gain or loss will be calculated by the entity for each partner, heir, common owner or participant, taking into account their participation in the ownership of the asset or the real right thereon, by the difference between their acquisition and transfer values, applying, where appropriate, the transitional provision of the Income Tax Law only to the capital gains corresponding to those partners, heirs, common owners or participants who had acquired prior to 31 December 1994, which requires them to communicate the information necessary to apply the new limit of 400,000 euros established by the aforementioned ninth transitional provision (a limit which is individual).

The specialities relating to the application of the reduction coefficients to capital gains arising from transfers of unaffected assets acquired before 31 December 1994 are discussed in Chapter 11.

Important: For the calculation of income from capital gains derived from the transfer of elements not affected by the development of economic activities, which must be attributed to the members of these entities, who are taxpayers of the Corporate Tax or taxpayers of the Non-Resident Income Tax with a permanent establishment or without a permanent establishment who are not natural persons, the reducing or abatement coefficients referred to in the ninth transitional provision of the Personal Income Tax Law will not apply.

5. Real estate income allocation

The determination of the attributable income will be carried out in accordance with the rules of IRPF that are applicable to each concept included in this category of income. These rules have been discussed previously in this same Chapter in the section corresponding to " Real estate income imputation regime ".

6. Withholdings and payment on account

The withholdings and payments on account borne by the entity under the income attribution regime and the bases of the deductions corresponding to the entity will be attributed to its members in the same proportion in which the income is attributed.