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V1285-15 28 April 2015 · SG de Fiscalidad Internacional Criterion in force
IRNR · rendimientos del trabajo

Competence payments may be taxable in Spain if based on prior work in Spain

A non-resident asks whether income from a non-competition agreement executed in Peru is taxable in Spain. The DGT responds that the portion of the compensation linked to prior work carried out in Spain is subject to IRNR.

The question raised

The taxpayer asks whether the Spanish company acted correctly in applying withholdings on the income derived from the non-compete contractual agreement, given that said income was not obtained in Spanish territory, but rather derives from an absence of activity in said territory, having fulfilled the non-compete commitment in Peru, where they reside and carry out their professional activity.

The DGT's ruling

Non-compete compensation is considered employment income as it derives from the previous employment relationship. Its liability for Non-Resident Income Tax (IRNR) depends on whether the work that gave rise to said obligation was performed in Spain. Therefore, the proportional part of the compensation corresponding to the work performed in Spanish territory is subject to taxation and withholding in Spain.

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