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Practical manual for Income Tax 2020.

Performance of economic activities

A. General issues: Criteria for the temporary allocation of the components of the net income of economic activities

From 1 January 2020, public aid for the first installation of young farmers provided for in the National Framework for Rural Development of Spain may be imputed in quarters, in the tax period in which they are obtained and in the three following ones.

B. Economic activities in direct estimation

Tax deductible expenses

Losses due to impairment of credits arising from possible insolvency of debtors under article 13.1 of the LIS.

In accordance with article 14 of Royal Decree-Law 35/2020, of December 22, on urgent measures to support the tourism, hospitality and commerce sectors and in tax matters, personal income tax taxpayers who are considered small companies by meeting the conditions of article 101 of the LIS, may deduct, in the years 2020 and 2021, losses due to impairment of credits derived from possible insolvencies of debtors when, at the time of the tax accrual, the period that has elapsed since the due date of the obligation referred to in article 13.1.a) of the ICEX LIS is three months.

C. Economic activities in objective estimation

As a result of the health crisis caused by Covid-19 and in order to ensure that the amount of net income determined according to the objective estimation method is adjusted to the reality of the economic activity caused by this situation, the following measures have been adopted for this year 2020:

1. Resignation and consequences of resignation

Following the declaration of the state of alarm due to Covid-19, article 10 of Royal Decree-Law 15/2020, of April 21, on urgent complementary measures to support the economy and employment ( BOE of 22), eliminated the mandatory link that is legally established for three years for the waiver of the objective estimation method of personal income tax. Specifically, the waiver of the application of the objective estimation method for the year 2020 does not prevent the return on economic activity from being determined again in accordance with said method in 2021, provided that the requirements for its application are met, when the taxpayer revokes the previous waiver.

To this end, taxpayers were given the option of waiving the application of the objective estimation method for the 2020 financial year by submitting the split payment in accordance with the direct estimation method (therefore submitting Form 130 instead of Form 131). In that case, they pay taxes in 2020 using the direct estimation method.

For the year 2021, the exceptional revocation of the waiver to return to paying taxes under the objective assessment regime may be carried out during the month of December 2020 or by submitting on time the declaration corresponding to the fractional payment of the first quarter of the 2021 fiscal year in the manner provided for the objective assessment method.

Article 10.1 of Royal Decree-Law 15/2020, of April 21, on urgent complementary measures to support the economy and employment (BOE of April 22), also provides for the waiver of the application of the objective estimation method for the year 2021, which is not binding for 2022 either.

2. Exclusive limits :

  • Royal Decree-Law 18/2019, of December 27, adopting certain measures in tax, land registry and social security matters (BOE of the 29th), modified the thirty-second transitional provision of the Personal Income Tax Law by extending for the 2020 tax period the application of the same quantitative limits excluding the objective estimation method set for the years 2016, 2017, 2018 and 2019: both those relating to the volume of gross income in the immediately preceding year derived from the exercise of economic activities (250,000 euros for all economic activities, except for agricultural, livestock and forestry activities and 125,000 euros for operations in which there is an obligation to issue an invoice when the recipient is a businessman) and to the volume of purchases of goods and services (250,000 euros, excluding the acquisition of fixed assets)
  • For agricultural, livestock and forestry activities, the exclusion limit provided for in article 31 of the Income Tax Law applies for the volume of gross income in the immediately preceding year (250,000 euros per year, for all agricultural, livestock and forestry activities carried out by the taxpayer) and, for the volume of purchases in goods and services, the amount of euros, excluding acquisitions of fixed assets, provided for in the thirty-second transitional provision of the Personal Income Tax Law and whose application is extended to the 2020 financial year.

3. Determination of prior net performance :

Order HAC /1164/2019, of November 22 ( BOE of the 30th), maintains for the year 2020 the amount of the signs, indexes or modules of the previous year.

However, for the application of the signs, indices or modules of the objective estimation method of personal income tax, for the purposes of calculating the annual income, article 11 of Royal Decree-Law 35/2020, of December 22, on urgent measures to support the tourism, hospitality and commerce sectors and in tax matters, has taken into account the impact of the states of alarm decreed in 2020, establishing that the days in which the state of alarm was declared in the first half of 2020, as well as the days in the second half of 2020 in which, whether or not the state of alarm was declared, the effective exercise of the economic activity would have been suspended as a result of the measures adopted by the competent authority to correct the evolution of the epidemiological situation derived from Covid-19 (also called SARS-CoV-2) will not be counted as a period in which the activity would have been carried out.

In particular, for the quantification of the modules "salaried personnel" and "non-salaried personnel", the hours corresponding to the days referred to in the previous paragraph will not be counted as worked and for the quantification of the modules "distance travelled" and "electrical energy consumption", the kilometres travelled and the kilowatts/hour that proportionally correspond to the days referred to in the first paragraph will not be counted.

4. Determination of the net income of the activity: applicable reductions

  • General reductions: Article 10 of Royal Decree-Law 35/2020, of December 22, on urgent measures to support the tourism, hospitality and commerce sectors and in tax matters, raises the percentage of reduction to be applied, in general, to the net income of modules in the personal income tax return for the year 2020, from 5% to 20%. Percentage that increases to 35% for activities linked to the tourism, hospitality and trade sectors.

  • The 20% reduction in net income for economic activities carried out in the municipality of Lorca (Murcia) is maintained.

Accounting and Registration Obligations

On January 1, 2020, Order HAC /773/2019, of June 28, came into force, regulating the keeping of record books in the Personal Income Tax that replaces and repeals the previous Order of May 4, 1993.