Residents in Hong Kong will be taxed on the ICEX Vives grant in their country

The tax classification of aid intended for international internships is a critical aspect for beneficiaries operating under double taxation regimes. Recently, the Dirección General de Tributos (DGT) has clarified the treatment applicable to the ICEX Vives Project grant when the beneficiary is a tax resident in Hong Kong.

What the DGT has resolved

The query sought to determine whether the aid received fell under the articles for employment income, public service, students, or other income of the Convention for the Avoidance of Double Taxation between Spain and Hong Kong. The resolution establishes the following:

• It is not employment income: There is no employment relationship that allows for the application of Article 14 of the Convention.
• It is not public service: Since services are not provided to the State, Article 18 is ruled out.
• It is not student income: Article 19 is not applicable, as its subjective scope is limited to students and does not include individuals performing internships.
• It is other income: The grant must be classified under Article 20 of the Convention, which grants exclusive taxing rights to the State of residence (Hong Kong).

What this means for you

If you are a tax resident in Hong Kong and receive the ICEX Vives Project grant, the power to tax that income rests solely with the authorities of your country of residence. This prevents Spain from attempting to tax said aid under other concepts, but implies that you must comply with tax obligations in Hong Kong.

It is important to highlight that, if the beneficiary were a tax resident in Spain, the grant would not enjoy the exemption provided in Article 7.j) of the Personal Income Tax (IRPF) Law, given that the aid is not intended for formal studies or research activities.

What should be done

Beneficiaries of this aid must precisely verify their tax residency status before receiving the funds. It is necessary to analyze the applicable Double Taxation Convention according to their domicile to correctly determine where the income must be declared and to avoid errors in tax settlements in both territories. It is recommended to assess each particular situation before the tax administration.