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V0616-22 23 March 2022 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · rendimientos del trabajo

Salaries paid to a cohabiting sister are deductible and subject to withholding tax

A lawyer inquires whether the salary of her sister, who lives with her and works in her firm, is deductible and if income tax withholdings must be applied. The Directorate General for Taxes (DGT) responds that the expense is deductible provided it meets the requirement of being correlated with income, and that such remuneration constitutes employment income subject to withholding.

The question raised

Whether it is appropriate to apply any IRPF withholding to the salary that must be paid to her sister.

The DGT's ruling

The salaries of a sister living with the entrepreneur do not possess any special status relative to any other person and constitute earned income. These salaries are deductible expenses if they are linked to the activity, their existence is proven, they comply with the principle of correlation with income, and they are correctly recorded. Remuneration is subject to withholding, unless the exclusive quantitative limit of the IRPF Regulation is applied.

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