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V3686-20 30 December 2020 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización

Compensation for contract termination following substantial change in working conditions is exempt (subject to limits)

A query was raised regarding whether compensation received for terminating an employment relationship due to a substantial change in working conditions is exempt from Personal Income Tax (IRPF). The Directorate General for Taxes (DGT) ruled that such compensation is exempt, provided it complies with the provisions of the Workers' Statute.

The question raised

Tax treatment in Personal Income Tax regarding the severance pay received. Exemption in Personal Income Tax.

The DGT's ruling

Amounts received as severance pay are considered income from employment, but those established as mandatory under the Workers' Statute are exempt. In the case of termination due to a substantial modification of working conditions (Article 41 of the Workers' Statute), the severance pay is exempt in the amount and compensatory situation provided for in said article, subject to a limit of 180,000 euros.

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