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Practical manual for Income Tax 2021.

Concept of income from economic activities

Regulations: Art. 27.1 and 2 Personal Income Tax Law

A. In general

Gross income from economic activities, according to article 27.1 of the Income Tax Law will be considered to be those that, coming from personal work and capital together, or from only one of these factors, involve the taxpayer's own use of production means and human resources, or one of both, for the purpose of participating in the production or distribution of goods or services.

According to this legal wording, the concept of income from economic activities is defined by the concurrence of the following two notes:

  • Existence of an autonomous organization of means of production or human resources .

  • Purpose of intervening in the production or distribution of goods or services .

B. In particular

In particular, the following are considered to be income from economic activities:

  • Extractive activities.

  • Trading activities.

  • Service provision activities.

  • Craft activities.

  • Agricultural, livestock and forestry activities.

  • Manufacturing activities.

  • Fishing activities.

  • Construction activities.

  • Mining activities.

  • Liberal, artistic or sports professions.

C. Partners of companies dedicated to the provision of professional services

The income obtained by the contributing partner that meets the following requirements will be considered income from economic activities:

1. That they come from an entity in whose capital the taxpayer participates, that is, in which the taxpayer has the status of partner.

2. That arise from the performance of professional activities.

These must be activities carried out by the partner on behalf of the company or provided by the company through its partners. In this activity, two legal relationships must be distinguished in general for tax purposes: the one established between the partner and the company, by virtue of which the partner provides his services to the former, constituting the company's remuneration to the partner as the partner's income to be included in his IRPF , and the relationship maintained between the client and the company, whose remuneration paid by the client to the company constitutes the company's income to be included in the Corporate Tax.

3. That these professional activities are included in the Second Section of the Rates of the Tax on Economic Activities, approved by Royal Legislative Decree 1175/1990, of September 28.

As for the professional activity that the company must carry out, this includes both professional companies under Law 2/2007, of March 15, on professional companies ( BOE of March 16), as well as any other company whose corporate purpose includes the provision of professional services included in the second section of the rates of the Tax on Economic Activities.

Furthermore, it will be necessary that the activity carried out by the partner in the company is precisely the performance of the professional services that constitute the object of the entity, and such services must be understood to include marketing, organizational or team management tasks, and internal services provided to the company within said professional activity.

4. That the taxpayer is included, for this purpose, in the special Social Security regime for self-employed workers or freelancers, or in a social welfare mutual fund that acts as an alternative to the aforementioned special regime in accordance with the provisions of the Fifteenth Additional Provision of Law 30/1995, of November 8, on the regulation and supervision of private insurance.

See article 305 of the consolidated text of the General Social Security Law, approved by Royal Legislative Decree 8/2015, of October 30 ( BOE of 31), which delimits the scope of application of the Special Social Security Regime for self-employed workers.

Otherwise (that is, if it is included in the general Social Security regime), the qualification of such services must be that of personal work in accordance with the provisions of article 17.1 of the Tax Law.

Without prejudice to the foregoing and regardless of the nature of the remuneration corresponding to said services, it must be taken into account that, since these are transactions between related persons or entities, they will be carried out at their market value, in accordance with the terms set out in article 18 of Law 27/2014, of November 27, on Corporate Tax.

Linked operations

According to article 18 of the LIS the linking relationships occur in the operations carried out between:

  • An entity and its partners or participants,
  • An entity and its legal and de facto directors or administrators,
  • An entity and the spouses or persons related by direct or collateral family ties, by consanguinity or affinity up to the third degree of the partners or participants, directors or administrators,
  • An entity and the directors or managers of another entity, when both entities belong to a group.

When the link is defined based on the partner-company relationship, the partner's participation must be equal to or greater than 25 percent.

In the case of remuneration for the exercise of their functions as directors or administrators of entities, the rules of the related relationships are not followed, because this is expressly established in article 18.2 of the LIS , and therefore said remuneration is excluded from the scope of related-party transactions regulated in article 41 of Law IRPF .

D. Leasing of real estate

The leasing of real estate is considered to be an economic activity only when at least one person with a full-time employment contract is employed to manage it.