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V2325-19 10 September 2019 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · rendimientos del trabajo

Compensation for non-compete clauses is taxed as employment income

A worker inquired about the applicable withholding tax on an amount received due to a non-compete agreement. The DGT ruled that such an amount constitutes employment income and must be added to the total remuneration to calculate the withholding tax.

The question raised

Applicable withholding tax to the aforementioned amount.

The DGT's ruling

Amounts received under a non-compete agreement are classified as gross employment income pursuant to Article 17.1 of the LIRPF. To calculate the withholding tax, this compensation must be added to the total monetary or in-kind remuneration that the employee is to receive during the calendar year. No reduction under Article 18.2 of the LIRPF is applicable as it is neither income with a generation period exceeding two years nor notoriously irregular.

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