€100,000 Limit for the Start-up Activity Reduction in Personal Income Tax

The Directorate General of Taxes (DGT) has issued a relevant ruling for individuals starting an economic activity under the direct estimation method. The inquiry focused on the possibility of applying the reduction for starting a new activity when the net income obtained exceeds the €100,000 threshold.

What the DGT has resolved

The administration has confirmed that the 20 percent reduction for starting a new activity applies exclusively to positive net income, but with a quantitative restriction. The base upon which this benefit can be applied cannot exceed €100,000 per year.

This implies that if the net income from the activity exceeds said amount, the reduction will only affect the first €100,000. The excess income above that figure will not be subject to the reduction. In practical terms, if a taxpayer obtains income exceeding €100,000, the maximum amount of the reduction they can apply will be €20,000.

What this means for you

If you are a professional or self-employed individual starting an economic activity, it is fundamental to understand that this tax benefit is not unlimited. Although the regulations allow for a reduction in the taxable base, there is a net income ceiling that conditions the final tax savings.

• The reduction is 20% of the net income.
• The income cap upon which the reduction is calculated is €100,000.
• Excess income does not benefit from this reduction.

What you should do

It is necessary to perform a precise calculation of net income to determine the real impact of this reduction on the Personal Income Tax (IRPF) return. Since the application of this benefit depends on the exact amount of income obtained, it is recommended to assess each particular situation to ensure that the calculation complies with Law 35/2006 (LIRPF) and Law 58/2003 (LGT).