Taxation of services provided by a shareholder to their own company

The Directorate General of Taxes (DGT) has issued a relevant ruling regarding the tax nature of remuneration that a shareholder receives from their own company for providing services that are not directly linked to their role as an administrator.

What the DGT has ruled

The inquiry addresses the taxation under Personal Income Tax (IRPF) of payments made to a shareholder for services provided to the entity. The body establishes that remuneration for administrative functions is considered employment income, in accordance with Article 17.2.e) of the Law on Personal Income Tax (LIRPF), provided that the position is not unpaid.

Regarding services provided by the shareholder that are distinct from administration, the DGT determines that these must also be classified as employment income according to Article 17.1 of the LIRPF. The Administration bases this decision on the fact that the necessary requirements for such income to be considered income from economic activities, as provided in Article 27.1 of the current regulations, are not met.

What this means for you

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

• For the shareholder: The amounts received must mandatorily be declared as employment income in their IRPF tax return.
• For the company: The company is obliged to value these transactions following the normal market value. Likewise, it must apply the corresponding withholdings according to the nature of the income received.

What should be done

It is fundamental to ensure that any economic consideration for services provided by shareholders is duly documented and adjusted to market prices to avoid discrepancies with the Administration. The correct classification of this income is necessary to comply with the company's withholding obligations and the shareholder's correct declaration in their income tax. It is recommended to assess each particular situation to guarantee that the nature of the services provided is clear and supported by the operational reality of the entity.