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Practical manual for Income Tax 2024. Part 1

1. Requirements to consider an expense as deductible

Expenses that meet the following requirements are considered tax deductible:

  1. That they are linked to the economic activity carried out. That is, they are specific to the activity.

    The deductibility of expenses is conditioned by the principle of their correlation with income , such that those expenses that are proven to have been incurred in the exercise of the activity, that are related to the obtaining of income, will be deductible, in the terms provided for in the legal provisions indicated above, while when such a link does not exist or is not sufficiently proven, they could not be considered as fiscally deductible from the economic activity.

    In the case of seasonal activity (restaurant), the amount of the rent for the premises paid during the period of time in which the activity is closed, given its seasonal nature, must be considered to be correlated with the development of the restaurant activity, since they are made with the intention of restarting the activity in the following season. 

    In relation to the deductibility of expenses incurred prior to the start of the activity, please note that article 9.4 of RGAT establishes that: 

    • The declaration of registration in the census of entrepreneurs, professionals and withholding agents must be submitted prior to the start of the corresponding activities, and

    • The commencement of a business or professional activity shall be deemed to have taken place from the moment any deliveries, services or acquisitions of goods or services are made, collections or payments are made or personnel are hired, for the purpose of participating in the production or distribution of goods or services.

    According to the above, only expenses incurred by the taxpayer after registering and starting their activity will be deductible.

  2. That they are adequately justified.

    In accordance with the provisions of article 106.4 of the LGT , deductible expenses and deductions that are made, when they are originated by operations carried out by entrepreneurs or professionals, must be justified, as a priority, by means of the invoice delivered by the entrepreneur or professional who has carried out the corresponding operation that meets the requirements indicated in the tax regulations.

    However, and without prejudice to the foregoing, invoice does not constitute a privileged means of proof regarding the existence of the operations, so once the Administration has reasonably questioned its effectiveness, it is up to the taxpayer to provide evidence regarding the reality of the operations.

  3. That they are registered in the accounting or registration books that taxpayers who carry out economic activities must keep on a mandatory basis.