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V0763-16 25 February 2016 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · pacto de no competencia poscontractual

30% reduction not applicable to post-contractual non-compete compensation

A company inquired whether compensation for a three-year post-contractual non-compete agreement qualifies for the 30% reduction under Article 18.2 of the Personal Income Tax Act (LIRPF). The Directorate General for Taxes (DGT) ruled that it is not applicable because there is no generation period exceeding two years.

The question raised

It is asked whether, for the purposes of calculating withholding tax, the 30 percent reduction of Article 18.2 of Law 35/2006 is applicable to the compensation.

The DGT's ruling

The compensation for a non-compete agreement does not allow for the 30% reduction provided for in Article 18.2 of Law 35/2006. It is not considered that a generation period exceeding two years exists, as the compensation arises upon the dismissal that triggers the agreement. Furthermore, the duration of the non-compete period cannot exceed the two years established in labor regulations.

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