Doctrine by topic · DGT Observatory

Termination of Contract: DGT doctrinal evolution

How the DGT's position on this topic has evolved, and the rulings it rests on.

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How the DGT's position has evolved

Settled doctrine High confidence 19 rulings · 2014–2026

Current position

Severance payments or terminations mandatory by law are exempt, but those received due to expiration of time or completion of work are taxed as income from employment. The 30% reduction for irregular income does not apply, nor does the 40% reduction if they are not linked to the duration of the contract. To benefit from the 3,500 euro deductible expense for disability, it is an indispensable requirement to maintain the status of an active worker, which excludes those who have already terminated their contract.

The DGT's position remains constant in the distinction between exempt severance payments for dismissal and those taxed due to contract expiration or completion. Throughout the rulings, it has been specified that these amounts do not qualify as notoriously irregular income nor as income linked to the duration of the contract. Recent doctrine limits access to tax benefits for disability to those who maintain an active employment relationship.

Turning points

  1. V2466-23

    Establishes that the compensation is not income with a generation period exceeding two years nor notoriously irregular, as it does not derive from the duration of the contract but from the fact of the termination.

  2. V1314-26

    Determines that the termination of the contract prevents the application of the 3,500 euro deductible expense increase for persons with disabilities, as they lose the status of an active worker.

Analysis based on 18 of 19 rulings with a stated position. Updated 25 September 2026.

Rulings on this topic

19
V1314-26 28 May 2026

Increase in disability expenses requires active worker status

SG de Impuestos sobre la Renta de las Personas Físicas
rendimiento del trabajogastos deduciblestrabajador activodiscapacidadincapacidad temporal LIRPF — Ley 35/2006 del IRPF art. 19.2RIRPF — RD 439/2007, Reglamento del IRPF art. 72
Affects CompanyExpat · Non-residentIndividual
V0293-25 17 Mar 2025

Commercial contract termination indemnity does not allow 30% IRPF reduction

SG de Impuestos sobre la Renta de las Personas Físicas
rendimientos de actividades económicasrelación mercantilreducción por irregularidadextinción de contratoperiodo de generación LIRPF — Ley 35/2006 del IRPF art. 27LIRPF — Ley 35/2006 del IRPF art. 32.1
Affects CompanyExpat · Non-residentIndividual
V3255-20 30 Oct 2020

Severance pay is not subject to minimum wage attachment limits

SG de Tributos
embargoindemnizaciónsalarioextinción de contratolímites de embargabilidad LGT — Ley 58/2003 General Tributaria art. 169.2.cLGT — Ley 58/2003 General Tributaria art. 7.2
Affects CompanyExpat · Non-residentIndividual
V1528-16 12 Apr 2016

2% minimum withholding rate does not apply to one-year contracts terminated early

SG de Impuestos sobre la Renta de las Personas Físicas
retenciónrendimientos del trabajocontrato de duración determinadaextinción de contratotipo mínimo RIRPF — RD 439/2007, Reglamento del IRPF art. 80.1RIRPF — RD 439/2007, Reglamento del IRPF art. 86.2
Affects CompanyExpat · Non-residentIndividual
V1167-16 22 Mar 2016

Severance pay for fixed-term contracts is not exempt from Income Tax

SG de Impuestos sobre la Renta de las Personas Físicas
indemnizacióncontrato temporalrenta exentarendimientos del trabajoreducción del 40 por ciento LIRPF — Ley 35/2006 del IRPF art. 7.eLIRPF — Ley 35/2006 del IRPF art. 17
Affects CompanyExpat · Non-residentIndividual
V1165-16 22 Mar 2016

Severance pay for fixed-term contracts is not exempt from Income Tax

SG de Impuestos sobre la Renta de las Personas Físicas
indemnizacióncontrato temporalexenciónrendimientos del trabajoreducción del 40 por ciento LIRPF — Ley 35/2006 del IRPF art. 7.eLIRPF — Ley 35/2006 del IRPF art. 17
Affects CompanyExpat · Non-residentIndividual
V1163-16 22 Mar 2016

Severance pay for fixed-term contracts is not exempt from Income Tax

SG de Impuestos sobre la Renta de las Personas Físicas
indemnizaciónexenciónextinción de contratorendimientos del trabajoretención LIRPF — Ley 35/2006 del IRPF art. 7.eLIRPF — Ley 35/2006 del IRPF art. 17
Affects CompanyExpat · Non-residentIndividual
V0764-14 19 Mar 2014

Severance pay for fixed-term contracts is not exempt from Income Tax

SG de Impuestos sobre la Renta de las Personas Físicas
indemnizacióncontrato temporalexenciónrendimientos del trabajoreducción del 40 por ciento LIRPF — Ley 35/2006 del IRPF art. 7.eLIRPF — Ley 35/2006 del IRPF art. 17
Affects CompanyExpat · Non-residentIndividual

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