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V1097-17 10 May 2017 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por despido

Redundancy compensation is tax-exempt up to the limits of unfair dismissal and €180,000

A query was raised regarding whether compensation received for redundancy on objective grounds is exempt from Personal Income Tax (IRPF). The Directorate General for Taxes (DGT) has determined that the exemption applies up to the amount established for unfair dismissal, subject to a maximum cap of €180,000.

The question raised

Tax treatment of dismissal compensation for Personal Income Tax purposes, specifically regarding the application of the exemption provided for in Article 7.e) of the Tax Law.

The DGT's ruling

Compensation for dismissal due to objective grounds (Article 52 c of the Workers' Statute) is exempt from Personal Income Tax (IRPF) subject to the lower of: the amount mandatorily established in the Workers' Statute for unfair dismissal and the amount of 180,000 euros. For contracts entered into as of February 12, 2012, the unfair dismissal limit is 33 days per year of service with a maximum of 24 monthly payments. Any excess over these limits shall be taxed as employment income.

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