Learn what expenses are acceptable by Hacienda to be offset against your incomes to reduce tax liability.
Of course there is not a closed list of types of expenses that you can offset against tax in Spain. It much depends on the kind of business that you have. However, the short answer to the question of the title is:
Anyone meeting these two criteria:
1) Ordinary and necessary. It is related to your business activity and necessary to operate. ie a carpenter can put in the invoice for a hammer, an accountant…hardly.
2) There must be a proper invoice as a documental proof backing the expense, containing all the required information.
In order to give you a better idea of what these may be, we are going through the different categories that the current law of Personal Income Tax contemplates:
(Autonomos and SL companies have not exactly the same rules, though this could well give general idea for both cases)
- Trading Goods:
These are the products that you buy in order to sell them or the raw materials with which you will manufacture your end-product.
- Business Consumables
Side products, such as, stationery, wrapping, boxes, plastic bags,…
- Wages and Salaries
Payments to employees, expenses for travels and meals properly justified.
- Social Security
It includes here the contributions for the employees and the one of the self employed business owner.
- Other expenses of personnel
You can think under this category on training costs, other insurances covering the staff, gifts or incentives to employees.
Premises rental, tools and equipment, car, bank ‘leasing’, …
- Maintenance and repairs
These refers strictly to maintenance and it does not includes works that constitute an improvement. This is consider an investment and has to be depreciated along time.
- External professional services
Lawyer, accountant, notary,…
- Other External Services
Bank charges, insurances, supply of electricity, internet, water…
Telephone bill, petrol, courier services, advertisement…
- Taxes and Fees
The taxes we refer to here are the IBI of a property related to our business, and other fees payable to the town hall for obtaining business license, work license, etc…
- Financial expenses.
Interest for loans, postponed payment to the tax Office,
This represents the loss of value along time of assets and intangibles related to the activity.
In the simplified Direct Assessment Mode, the tax calculation system in which most self employed are, the actual figure is calculated according to a table provided.
- Other Expenses:
Any other expense related to the activity: training, courses, conventions, fee of business association, other insurances, etc…
On top of your declared expenses, you are granted a deduction of 5% of your profit that covers for other expenses that are difficult to justify but are assumed to be part of your business expenses.
It is important therefore to obtain an invoice every time that you need to buy anything and make sure that it is correct.
Related: What is a valid invoice for tax porpuses?
On occasion you will not be sure if you will be able to put one particular expense in your books. What if your purchase is not totally related to your business and you give it personal use too? For example, you give your telephone line both uses. How much can you offset?
We do or will address these questions in separate posts. Visit us regularly.