Spain - Tax incentives for patronage: higher personal income tax credits and corporate income tax credits
Plus, for gifts, the giver can receive goods or services from the recipient which are token in nature, and for collaboration agreements, the economic support can be in cash or in kind or consist of supplies of services where they are part of the collaborator’s specific activity.
Royal Decree Law 6/2023 of December 19, 2023, approving urgent measures for implementation of the Recovery, Transformation and Resilience Plan with regard to the public justice service, government service, and the local authority and patronage regime which amends, among others, Law 49/2002 of December 23, 2002, on the tax regime for not-for-profit entities and on tax incentives for patronage (Law 49/2002) was published in the Official State Gazette on December 20, 2023. The amendments it has introduced came into force on January 1, 2024. Below is a summary of the main new legislation.
1. Requirements to be met by not-for-profit entities
Article 3 of Law 49/2002 contains the requirements that not-for-profit entities (defined in article 2) have to meet to be able to apply the regime defined in that law. These requirements have been amended as follows:
- Animal protection is included among the valid public benefit purposes required to apply the regime.
- The law sets out an obligation to devote 70% of certain amounts of income or revenues to carrying out the entity’s purposes. It has now been specified that the mentioned amounts of income or revenues may be devoted “directly or indirectly” to carrying out those purposes.
- Not-for-profit entities cannot conduct any activity consisting of the performance of economic operations falling outside their stated purpose or aim in their bylaws. The law already stated that leasing the entity's real estate assets does not qualify as an economic operation, for these purposes. Now, alongside leasing, that exclusion includes any other form of assignment of the right to use those assets.
- The trustees, statutory representatives and members of the governing body cannot be remunerated for their services as such, although they may be entitled to the reimbursement of any duly supported expenses they incur in the performance of their services (as long as the amounts received in this respect do not exceed the thresholds set out in the personal income tax legislation for tax-exempt per diems). It has now been specified that civil liability insurance policies arranged by the entity for their benefit will not be classed as remuneration, as long as they only cover risks related to the performance of their duties.
2. Exempt economic operations for corporate income tax purposes
The list of economic activities that may be exempt for corporate income tax purposes for not-for-profit entities has been updated. It now includes (i) initiatives for social and labor inclusion of individuals at risk of social exclusion and, (ii) in the field of education, “high capacity education”. Additionally, if they carry out research, development and innovation activities, it is specified that they must meet the definitions of those activities set out in article 35 of the Corporate Income Tax Law (Law 27/2014 of November 27, 2014).
3. Exemption from the tax on increase in urban land value
The law states that not-for-profit entities are exempt from this tax where they have a legal obligation for its payment. In relation to transfers for consideration of land or to the creation or real rights of enjoyment limiting rights of ownership in land, a condition for the exemption is that these must meet the stipulated requirements for applying the exemption from real estate tax. It has now been specified that those requirements must be met on the due date for the tax on increase in urban land value and regardless of the use that the transferee assigns to the land.
4. Donations, gifts and contributions giving entitlement to a tax credit:
- A specific type of donation giving entitlement to a tax credit has been included, consisting of assignment of the right to use a movable or real estate asset for a specific time period and for no consideration. In these cases, the base for the tax credit is equal to the expenses paid by the assignor in respect of those assets in the assignment period (except for taxes and interest on borrowed capital and other borrowing costs), if they had been deductible in the event of an assignment for consideration and are correctly recognized (if the assignor is required to keep accounting records under the Commercial Code).
- The donations, gifts and contributions defined in the law will give entitlement to a tax credit, even if the giver is entitled to receive goods or services from the recipient or beneficiary, where they are token in nature. More specifically, the value of the received goods and services must not go above 15% of the value of the donation, gift or contribution and must be €25,000 or less.
- In relation to personal income tax credits:
- An 80% tax credit may be applied to gifts, donations and contributions up to €250.00 (formerly, €150).
- Over and above that amount the tax credit must be applied at 40% (formerly 35%).
- Tax credit for recurring gifts: formerly, if in the two immediately preceding taxable periods, donations, gifts or contributions giving entitlement to a tax credit were made to a same entity in an amount that in each of the two periods is equal to or higher than the previous year’s gift, the tax credit percentage applicable to the base for that entity’s tax credit over and above €150 would be 40%. The following clarifications have been made in relation to this tax credit:
- The tax credit for recurring gifts now relates to the making of donations, gifts or contributions in the two immediately preceding taxable periods to a same entity, provided that the amount gifted in that fiscal year and in the previous fiscal year is equal to or higher, in each of them, to the immediately preceding fiscal year.
- The tax credit on any amount over and above €250 will be 45%.
- In relation to corporate income tax:
- The general tax credit percentage has been increased from 35% to 40%.
- The tax credit on recurring gifts has been raised from 40% to 50%.
- The tax credit base may not be higher than 15% (formerly, 10%) of the tax base for the period. This amendment also benefits nonresident income taxpayers operating in Spain without a permanent establishment, who, let us recall, are eligible for tax credits allowed for personal income tax purposes.
5. Collaboration agreements for public benefit activities.
Collaboration agreements for public benefit activities are agreements in which the patronage beneficiaries undertake, in exchange for economic support for the conduct of their activities, to disseminate in writing the collaborator’s participation. The payments made or expenses incurred are deductible on the collaborator’s corporate income tax or nonresident income tax return (if they operate through a permanent establishment); or, for individuals carrying out an economic activity under the direct assessment method, in determining the net income for their activity. Additionally, dissemination of the collaborator’s participation does not amount to a supply of services (in other words, it is not subject to VAT).
It is stated that the economic support may be in cash or in kind or consist of supplies of services made in the conduct of the collaborator’s economic activity. Additionally, it is provided that any income disclosed in respect of the economic support will be exempt from any taxes charged on the collaborator’s income.
Lastly, dissemination of the collaborator’s participation is allowed to be done by either the collaborator or the beneficiaries of the patronage.