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V0418-22 3 March 2022 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IVA · asistencia jurídica gratuita

Free legal assistance not subject to VAT, taxed as professional income

A lawyer inquires about VAT and IRPF treatment of services provided in office duty. The DGT states that, following the 1996 Law reform, such services are exempt from VAT due to their indemnity nature, and the income is subject to IRPF as professional activity income.

The question raised

Question raised: Taxation in VAT and Personal Income Tax (IRPF).

The DGT's ruling

Free legal aid services are not subject to VAT because the compensation received is compensatory in nature and does not constitute consideration. As they are not subject to VAT, a professional who only performs these activities is neither an entrepreneur nor a professional for the purposes of filing tax returns or deducting VAT quotas. For Personal Income Tax (IRPF) purposes, economic compensations are considered income from professional activities, and the net income must be determined using the direct estimation method.

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