No 30% reduction for retention bonuses and non-compete agreements

The Directorate General of Taxes (DGT) has issued a relevant ruling regarding the taxation of certain labor incentives and compensations. The inquiry focuses on determining whether retention bonuses and non-compete agreement compensations can benefit from the 30% reduction provided for in the IRPF regulations.

What the DGT has ruled

The administration has ruled that the 30% reduction established in Article 18.2 of the IRPF Law is not applicable to these concepts. The reason lies in the failure to meet the requirement that the earnings must have a generation period exceeding two years.

• Retention bonus: The DGT points out that this concept does not have a generation period exceeding two years, given that the right to receive such amounts is acquired on an annual basis.
• Non-compete agreement: In this case, the compensation does not have a prior generation period, as the right to it arises at the moment of the termination of the employment contract.

What this means for you

This ruling directly affects administrators and employees who receive these types of incentives or compensations. If you plan to apply the 30% reduction to these amounts in your income tax return, you should be aware that the tax authority considers that the necessary legal conditions are not met. The nature of these payments, whether due to their annual acquisition or their appearance following the termination of the employment relationship, prevents access to the tax benefit.

What you should do

In light of this ruling, it is necessary to analyze the structure of compensation agreements and the agreed bonuses. It is essential to verify the legal nature of each payment and the exact moment when the right to receive them accrues to avoid errors in the tax settlement. It is recommended to assess each particular situation to ensure that taxation strictly complies with the provisions of Law 35/2006 and the IRPF Regulations.