Taxation of services provided by a shareholder to their company

The Directorate General of Taxes (DGT) has issued a relevant ruling regarding the nature of remuneration received by a shareholder of a company for the provision of services that are not linked to their role as a director. This distinction is fundamental for determining the correct tax treatment under Personal Income Tax (IRPF).

What the DGT has ruled

The query focused on determining how income received by a shareholder of a company as remuneration for services provided to the same should be taxed. After analyzing current regulations, the DGT has determined that such remuneration must be included in the IRPF taxable base as employment income.

The ruling establishes that if the shareholder provides services to the company that are distinct from the functions inherent to their role as a director, the economic consideration received maintains the nature of employment income. This implies that the remuneration is not treated as a dividend or investment income, but as compensation for the activity performed.

What this means for you

This pronouncement has direct implications for both the shareholder and the company:

• For the shareholder: They must declare in their tax return both the remuneration for their role as a director and the corresponding amount for the additional services provided, classifying both as employment income.
• For the company: The company must ensure that the remuneration paid for these additional services aligns with fair market value to avoid tax contingencies.

What should be done

It is necessary to analyze the contractual relationship and the nature of the functions performed by the shareholder within the company. The correct differentiation between management functions and additional professional or technical activities is key to avoiding errors in the IRPF settlement. It is recommended to assess each particular situation to ensure that the remuneration aligns with market values and is correctly classified according to the regulations of the Law on Personal Income Tax (LIRPF) and the IRPF Regulations.