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Practical manual for Income Tax 2021.

Performance of economic activities

A. 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 sector and in tax matters ( BOE of the 23rd), taxpayers of IRPF that 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 arising 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 LIS is three months.

B. 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 2021:

1. Resignation and consequences of resignation

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 ( BOE of the 23rd), eliminated the mandatory link to the direct estimation method for three years, established in articles 30.1 of the Personal Income Tax Law and 29 of its Regulations, when the taxpayer who carries out economic activities renounces the objective estimation method of Personal Income Tax . Specifically, waiving the application of the objective estimation method for the 2021 financial year does not prevent the return on economic activity from being determined again in accordance with said method in 2022, 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 2021 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 2021 using the direct estimation method.

Additionally, for personal income tax payers who carry out economic activities in accordance with the objective estimation method and waive its application for the 2021 financial year, either by express or tacit waiver, the possibility of redetermining the net income of their economic activity in accordance with the objective estimation method in the 2022 financial year is established, without being subject to the 3-year period.

2. Exclusive limits :

  • Article 63 of Law 11/2020, of December 30, on the General State Budget for the year 2021 ( BOE of 31), modified the thirty-second transitional provision of the Personal Income Tax Law by extending for the 2021 tax period the application of the same quantitative limits excluding the objective estimation method set for the years 2016 to 2020: 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 for 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 all activities in objective estimation - also including agricultural, livestock and forestry activities).

  • For agricultural, livestock and forestry activities, the exclusion limit provided for in article 31 of the Personal 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 250,000 euros, excluding acquisitions of fixed assets, for all activities in objective estimation, provided for in the thirty-second transitional provision in the Personal Income Tax Law and whose application is extended to the 2021 financial year.

3. Determination of prior net performance :

Order HAC /1155/2020, of November 25 ( BOE of December 4), maintains for the year 2021 the amount of the signs, indexes or modules of the previous year.

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

  • General reduction: The general reduction is 20% for agricultural, livestock and forestry activities and 5% of the net income for the remaining economic activities. 

    The increase for 2021 from 5 to 20 percent of the reduction provided for in the first Additional Provision of Order HAC/1155/2020, of November 25, by which the agricultural, livestock and forestry activities included in Annex I of the aforementioned Order are carried out for the year 2021, has been carried out by article 4 of Royal Decree-Law 4/2022, of March 15, by which urgent measures are adopted to support the agricultural sector due to the drought ( BOE of the 16th).

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