Income from economic activities — general concepts

Professional income includes, among others, income of veterinarians, architects, doctors, lawyers, notaries, singers, music teachers and insurance agents… provided the practice is independent and involves organising means on one's own account.

Income obtained by a partner of an entity providing professional services is classified as income from economic activities when:

1. It comes from an entity in whose capital the taxpayer participates.
2. It derives from activities included in Sections 2 or 3 of the IAE.
3. The partner is registered with the Special Social Security Scheme for Self-Employed Workers (RETA) or an alternative mutual fund.

Rental of property is only an economic activity if at least one full-time employee with an employment contract is used. Otherwise, it constitutes real estate capital income.

• Properties in which the activity is carried on.
• Assets devoted to economic and socio-cultural services for staff.
• Any other element necessary to obtain the income.

Assets representing equity interests in entities (shares, interests) or capital lending (bank accounts) are never considered assigned to an economic activity.

Assigned assets must be used exclusively for the purposes of the activity. If an asset is used both for the activity and for private purposes, it cannot in principle be considered assigned.

Exception: if the asset is divisible (for example, part of a home used exclusively as a consulting room), the separate and independent part may be assigned. Indivisible assets do not admit partial assignment.

Private cars, motorcycles, aircraft and recreational vessels are treated more strictly:

• Only considered assigned if used exclusively for the activity.
• If also used for private needs — even incidentally — they are not assigned.
• Exception: taxis, buses, driving school vehicles, ambulances, goods transport vans and vehicles specific to sales representatives and commercial agents may be assigned even if there is incidental private use.

(+) Gross income
(-) Deductible expenses
─────────────────────────────────────
(=) Net income
(-) Reduction for irregular income (30%) — max base €300,000
(-) Reduction for economically dependent self-employed workers
(-) General reduction (€2,000) and additional reduction based on income level
(-) Reduction for income from exceptional artistic activities
(-) Reduction for start of activity
─────────────────────────────────────
(=) Total reduced net income

(+) Gross income
(-) Deductible expenses (excluding provisions and depreciation)
(-) Depreciation (simplified table)
─────────────────────────────────────
(=) Difference
(-) Hard-to-justify expenses: 5% of positive difference (max €2,000)
    (incompatible with the self-employed worker reduction)
(-) Reduction for irregular income (30%) — max base €300,000
(-) Reduction for exceptional artistic income
(-) Reduction for start of activity
─────────────────────────────────────
(=) Total reduced net income

Net income is calculated by multiplying the modules (staff, floor area, electricity consumption, etc.) by the net income indices fixed for each activity. Correction indices are then applied and extraordinary expenses and investments in fixed assets are deducted.

🔵 Regulation: Art. 32.1 IRPF Law and art. 25 IRPF Regulation.

A 30% reduction is applied to the net income of the economic activity when one of these two conditions is met, and provided it is allocated to a single tax period:

1. Generation period exceeding 2 years.
2. Notably irregular over time — closed list in art. 25 IRPF Regulation:
   • Capital subsidies for the acquisition of non-amortisable fixed assets.
   • Indemnities and aid for cessation of economic activities.
   • Literary, artistic or scientific awards not exempt from tax (excluding payments for assignment of intellectual or industrial property rights).
   • Indemnities received in substitution for economic rights of indefinite duration.

🟠 Limit: The base to which the 30% applies cannot exceed €300,000 per year.

🟡 Important exception: The reduction does not apply to income that, although meeting the above requirements, derives from the exercise of an economic activity that regularly or habitually generates this type of income. Example: a lawyer specialised in large multi-year litigation cannot apply the reduction to fees from cases lasting > 2 years if this is their usual practice.

Remuneration paid to the spouse or minor children who regularly work in the activity is a deductible expense for the owner and earned income for the recipient, if the following conditions are met:

• Cohabitation with the owner.
• Employment contract.
• Registration with the appropriate Social Security scheme.
• Remuneration not exceeding market rates.

Under objective estimation, remuneration of the spouse and minor children is not deductible — it is understood to be incorporated into the income calculated by modules.

The owner may deduct consideration for the use of assets provided by the spouse or cohabiting minor children, provided it does not exceed market value. That consideration becomes capital income for the person providing the asset.

The use of joint marital assets by the person carrying out the economic activity does not give rise to remuneration or deductible expense between spouses.