Taxation of board members' allowances: employment income under Personal Income Tax (IRPF)

The Directorate General of Taxes (DGT) has clarified the tax treatment of allowances received by members of boards of directors, defining their legal nature and the applicable withholding obligations under Personal Income Tax (IRPF).

What the DGT has ruled

In accordance with current regulations, remuneration received by administrators and members of boards of directors is considered employment income. This criterion is based on Article 17.2.e) of Law 35/2006.

As they are classified as employment income, these amounts must be mandatorily included in the taxpayer's general taxable base. Likewise, the ruling specifies the withholding rates that the paying entity must apply:

• A withholding rate of 35 percent in general terms.
• A withholding rate of 19 percent if the entity's turnover is less than 100,000 euros.

What it means for you

For members of boards of directors, this implies that allowances do not have the treatment of exempt income, but rather increase their general taxable base, which may affect their final tax burden. It is fundamental to understand that the nature of this income is employment-related for tax purposes.

For companies, the relevance lies in the correct application of withholdings. The entity is responsible for determining the appropriate withholding rate based strictly on its turnover, ensuring compliance with the provisions of Law 35/2006 and the IRPF Regulations.

What should be done

It is necessary for administrators and members of boards of directors to be aware that these allowances are taxed as employment income to avoid discrepancies in their tax returns. For their part, companies must verify that the applied withholding rate is correct according to their business volume to avoid contingencies with the Tax Administration. Each situation must be analyzed to ensure regulatory compliance.