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V2176-20 29 June 2020 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por despido

Unfair dismissal compensation has tax exemption limits and non-compete payments do not allow for the 30% reduction

A query was raised regarding the tax exemption of unfair dismissal compensation and the application of the 30% reduction to non-compete clause payments. The Directorate General of Taxes (DGT) clarifies that dismissal compensation is subject to specific exemption limits and that non-compete compensation does not permit the reduction for periods exceeding two years.

The question raised

Taxation of compensation for unfair dismissal and compensation for a non-compete agreement. Application of the 30 percent reduction provided in Article 18.2 of the Tax Law.

The DGT's ruling

Compensation for unfair dismissal is exempt up to the lesser of the amount established in the Workers' Statute and 180,000 euros. The excess is considered earned income. Compensation for a non-compete agreement is earned income and does not allow for the 30 percent reduction provided in Article 18.2 of the LIRPF, as there is no generation period exceeding two years.

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