New tax residents cannot apply the reduction for commencement of activity

Access to the reduction for commencement of activity in Personal Income Tax (IRPF) is subject to strict compliance with temporal and residency requirements. A recent resolution from the Directorate General of Taxes (DGT) clarifies the consequences for those taxpayers who begin operating in Spain before acquiring the status of tax residents.

What the DGT has ruled

The inquiry analyzes the possibility of applying a 20% reduction on the net income obtained in the fiscal year in which an economic activity is started. The Administration's criterion establishes that, for this reduction to be applicable, the commencement of the activity must coincide with the status of being an IRPF taxpayer.

In the case analyzed, the taxpayer began their economic activity in 2023 under the non-resident regime. Upon becoming a tax resident in Spain during the 2024 fiscal year, the DGT determines that the requirement for commencement of activity is not met for this new tax period. The fact that the activity was already underway before residency prevents the taxpayer from accessing this tax benefit in their first tax return as a resident.

What this means for you

This criterion directly affects expatriates and professionals who decide to establish their base of operations in Spain before formalizing their tax residency. If you are already carrying out an economic activity under the non-resident regime, the tax system will not consider that there is a "commencement of activity" at the moment you switch to paying IRPF.

In practice, this implies that the 20% reduction on net income under the direct estimation method will not be applicable in the year of the change of residence, as the economic activity is not new regarding the taxpayer, but rather a continuation of a previous stage.

What you should do

It is fundamental to analyze the chronology of the economic activity and the exact moment of acquiring tax residency before making financial projections. Since the regulations of Law 35/2006 (LIRPF) are strict regarding the concurrence of requirements, each situation must be evaluated individually to determine the tax impact of the transition from non-resident to resident.