Companies may deduct remuneration for non-resident directors

The deductibility of expenses intended for the remuneration of directors who do not reside in Spanish territory has been clarified by the tax administration. The focus of the issue lies in whether a company can count the amount destined for the payment of a non-resident director as a deductible expense in its Corporate Income Tax.

What the DGT has resolved

The Dirección General de Tributos (DGT) has determined that the expense for the director's remuneration is deductible for Corporate Income Tax purposes, provided that the following requirements are strictly met:

• Accounting registration: The expense must be correctly recorded in the entity's accounting records.
• Accrual-based imputation: The remuneration must be imputed in the fiscal year in which the service is accrued.
• Documentary justification: There must be documentary support proving the performance of the activity and the right to payment.
• Compliance with the LIS: The expense must not be included in the list of non-deductible concepts under the Corporate Income Tax Law (LIS).

Furthermore, in the case of companies resident in Andorra, the administration reminds that these remunerations are considered income obtained in Spain in accordance with the Convention and the TRLIRNR. In this scenario, the entity is obliged to apply a 24% withholding tax on the gross amount and comply with the obligations to declare and pay the amount to the Treasury.

What this means for you

For companies with non-resident directors, this resolution confirms that the remuneration of these professionals does not constitute an automatic or prohibited expense; rather, its deductibility is conditioned on correct administrative and accounting management. The key lies not in the director's residence, but in traceability and compliance with accrual and withholding rules.

What should be done

It is necessary to ensure that the documentation justifying the director's work is solid and that the accounting entries faithfully reflect the accrual of the remuneration. In the case of directors subject to specific withholding regimes due to their residence abroad, it must be verified that the calculation of the 24% withholding and its subsequent payment to the tax administration are carried out accurately to avoid contingencies regarding the deductibility of the expense.