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V2504-17 5 October 2017 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IVA · asistencia jurídica gratuita

Legal aid services are exempt from VAT and compensations are subject to income tax withholding

A lawyer inquired whether legal aid services are subject to VAT and if the amounts received must be subject to income tax (IRPF) withholding. The Directorate General for Taxes (DGT) ruled that, following the reform of Law 1/1996, these payments are not subject to VAT as they constitute compensations, but they do constitute professional income subject to income tax withholding.

The question raised

Liability for Value Added Tax on the services provided and subjection to withholding tax under Personal Income Tax (IRPF) of the amounts received.

The DGT's ruling

Since January 1, 2017, free legal aid services are not subject to VAT because the amounts received are compensatory in nature and do not constitute consideration. However, the economic compensations received by lawyers are considered income from professional activities. Therefore, they are subject to withholding tax under Personal Income Tax (IRPF) according to the rate applicable to professional activities.

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