Skip to content
Back to index
V2324-22 4 November 2022 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por despido

Unfair dismissal compensation in cases of business succession may be exempt from Income Tax

A query was raised regarding the tax exemption for unfair dismissal compensation when a business succession occurs. The Directorate General for Taxes (DGT) clarifies that the exemption applies in accordance with the limits set by the Workers' Statute and a cap of 180,000 euros, with years of service calculated across both the previous and the new company.

The question raised

Tax treatment under Personal Income Tax (IRPF), application of the exemption provided in Article 7 e) of the Personal Income Tax Law, regarding compensation for unfair dismissal in cases of business subrogation pursuant to the provisions of Article 44 of the Workers' Statute.

The DGT's ruling

Compensation for unfair dismissal shall be exempt from tax up to the lesser of the amount mandatorily established in the Workers' Statute and the amount of 180,000 euros. To calculate years of service in cases of business subrogation (Article 44 of the Workers' Statute), both the time worked for the new company and for the former company must be computed. The exempt amount is calculated based on the number of years of service and not on the seniority recognized by agreement or contract.

Book your free first meeting