Summary of state deductions to reduce the 2023 personal income tax bill.

When preparing for the 2023 Personal Income Tax return, it is advisable to take into account the deductions, both state and regional, offered by the Personal Income Tax regulations to reduce the tax amount payable.

If you want to pay as little as possible in your 2023 income tax return, you should know which deductions you are entitled to, which will help you reduce your tax bill.

Income tax deductions are diverse: some are national, others regional. And some are general for all taxpayers, while others are specific to self-employed workers engaged in economic activities (business or professional).

In this case, we will summarize the main state deductions that are in effect for the 2023 fiscal year.

Collection of documentation and supporting documents

It is important to gather documentation and supporting documents for investments and improvements to your primary residence, rental income, business investment incentives and subsidies, investments in newly established companies, donations, income earned in Ceuta and Melilla, and investments and expenses related to cultural heritage sites. In addition, be aware of deductions available for energy efficiency improvements to your home and for the purchase of plug-in electric vehicles, fuel cell vehicles, and charging points.

All of this is without prejudice to the approved regional tax deductions, which can only be applied by taxpayers who, meeting the requirements established to be entitled to them, have resided in their respective territories during the 2023 tax year.

Main state deductions for income tax 2023

1. For investment in primary residence. Transitional regime

The deduction for investment in a primary residence is governed by a transitional regime, allowing taxpayers who acquired their primary residence before January 1, 2013, and who have already claimed this deduction for amounts paid in previous periods, to apply it. The maximum deduction is 15% of the amounts paid in 2023, with a maximum annual deduction base of €9,040.

The tax regulations define the concept of a main residence for the purposes of applying this deduction, requiring that, for a property to be considered a main residence, it must be effectively and permanently inhabited within 12 months from the date of acquisition. The High Court of Justice of Madrid, based on a query from the Directorate General of Taxes, interprets that, even if the taxpayer cannot prove that they inhabited the property in the 12 months following its acquisition, nothing prevents them from applying the deduction in the tax year in which they actually occupied the property (Appeal No. 462/2015, of December 21, 2016).

2. Tax deduction for investment in newly created or recently established companies

Taxpayers may deduct 30%, up to a maximum of €60,000, of the amounts paid during the relevant period for the subscription of shares or equity interests in newly created or recently established companies. They may contribute business or professional expertise appropriate for the development of the entity in which they invest, under the terms established in the investment agreement between the taxpayer and the entity. The deduction percentage will be 50% and the maximum base €100,000 when the investment is in a startup company.

Amounts paid for the subscription of shares or holdings will not form part of the deduction base when, with respect to such amounts, the taxpayer makes a deduction established by the Autonomous Community of residence of the taxpayer.

To be entitled to this deduction, the entity whose shares or holdings are acquired must have the legal form of a SA, SRL, SAL or SRL; the shares must not be admitted to trading on any organized market; it must carry out an economic activity with personal and material resources; and the amount of the entity's equity must not exceed €400,000 at the beginning of the tax period in which the taxpayer acquires the shares or holdings.

Amounts paid for the subscription of shares or holdings not deducted because they exceed the maximum annual deduction base cannot be deducted in subsequent years (DGT V2967-21).

The application of this deduction will require that the verified amount of the taxpayer's assets at the end of the tax period exceeds the value shown by its verification at the beginning of the same by at least the amount of the investments made.

For these purposes, increases or decreases in value experienced during the tax period by assets that at the end of the period continue to form part of the taxpayer's assets will not be taken into account.

3. Deductions for incentives and stimuli for business investment in economic activities under direct estimation

Taxpayers who carry out economic activities under direct estimation may apply the incentives and stimuli for business investment established or to be established in the Corporate Income Tax regulations with the same percentages and deduction limits, with two exceptions:

• The provisions of Article 39.2 of the LIS, which establishes the possibility of applying the deduction for research and development and technological innovation activities of sections 1 and 2 of Article 35 of the LIS, without being subject to the joint limit of the full tax liability and being able to request, where appropriate, its payment, provided that certain requirements are met, do not apply to taxpayers of Personal Income Tax (IRPF).
• Nor does the provision of article 39.3 of the LIS apply to taxpayers of IRPF, which allows, in relation to the deduction for foreign film productions in Spain provided for in section 2 of article 36 of the LIS, to request, in the case of insufficient quota, the advance payment of deduction for investment in foreign production of feature films or audiovisual works.

In addition to the deductions established by the LIS, with the exceptions indicated above, IRPF taxpayers whose activities meet the requirements to be considered small-sized entities may deduct the net income from economic activities of the tax period that is invested in new elements of tangible fixed assets or real estate investments related to economic activities.

Table of general deduction regime (LIS)

4. Donations to foundations, associations, and political parties

4.1 In general, donations and gifts Entities benefiting from patronage

The types of donations that qualify for the deduction and the basis for the deduction are as follows:

• Monetary donations. The basis for the deduction is the amount of the donation.
• Donations or gifts of goods or rights. The basis for the deduction will be the book value that the aforementioned goods or rights had at the time of their transfer and, failing that, the value determined in accordance with the rules of the Wealth Tax.
• Membership fees for associations, other than political parties, that do not correspond to the right to receive a present or future benefit. The basis for the deduction is the amount of the fees.
• Establishment of the real right of usufruct over goods, rights or values, carried out without consideration. In these cases, the deduction base will consist of:
  1. Usufruct over real estate. 2 percent of the cadastral value of the property for each year of the usufruct's duration, determined proportionally to the number of days corresponding to each tax period.
  2. Usufruct over securities. The annual amount of dividends or interest received by the usufructuary in each of the tax periods of the duration of the usufruct.
  3. Usufruct over other assets or rights. The annual amount resulting from applying the legal interest rate for each year to the value of the usufruct at the time of its establishment, in accordance with the rules of the Property Transfer Tax and Stamp Duty.
• Donations of goods that form part of the Spanish Historical Heritage or of cultural goods of guaranteed quality. In both cases, the basis for the deduction will be the valuation carried out for this purpose by the Board of Qualification, Valuation and Export.

The value determined in accordance with the above rules has as its maximum limit the normal market value of the asset or right transferred at the time of its transfer.

Taxpayers will be entitled to deduct from the total tax liability the result of applying to the deduction base corresponding to the set of donations, gifts and contributions with the right to deduction, determined in accordance with the provisions of the previous section, the following scale applicable during the tax period 2023:

If in the two immediately preceding tax periods donations, gifts or contributions with the right to deduction have been made in favor of the same entity for an amount equal to or greater, in each of them, than the donation of the previous year, the percentage of deduction applicable to the base of the deduction in favor of that same entity that exceeds 150 euros, will be 40 percent.

4.2. Donations, gifts and contributions for priority patronage activities

When dealing with amounts donated or paid to the aforementioned entities and allocated by them to the execution and development of priority patronage activities and programs, the above percentages will be increased by five percentage points, that is:

New for 2023: Please note that for 2023 the fifty-seventh additional provision of Law 31/2022, of December 23, on the General State Budget for the year 2023 (Official State Gazette of December 24) has established that the percentages and limits of the deductions established in article 19 of the aforementioned Law 49/2002, of December 23, will be increased by five percentage points in relation to priority patronage activities.

4.3 Donations made to entities not included in the scope of Law 49/2002

Donations made to legally recognized foundations that report to the corresponding protectorate body, as well as to associations declared to be of public interest, not included in the scope of Law 49/2002, of December 23, on the tax regime of non-profit entities and tax incentives for patronage, entitle the donor to a 10 percent deduction.

4.4 Contributions to Political Parties, Federations, Coalitions or Groups of Electors

Membership fees and contributions to Political Parties, Federations, Coalitions or Groups of Electors entitle you to a 20 percent deduction.

The maximum basis for this deduction will be 600 euros per year and will consist of the membership fees and contributions provided for in letter a) of section Two of article 2 of Organic Law 8/2007, of July 4, on the financing of political parties.

5. Deduction for income obtained in Ceuta or Melilla

A 60 percent reduction is established, both for taxpayers residing in Ceuta and Melilla, and for non-residents in these territories who have obtained income there.

This deduction will also apply to taxpayers who maintain their habitual and effective residence in Ceuta or Melilla for a period of no less than 3 years, in the tax periods beginning after the end of that period, for income obtained outside of those cities when at least one third of the taxpayer's net worth, determined in accordance with the regulations governing the Wealth Tax, is located in those cities.

The maximum amount of income, obtained outside of these cities, that can be eligible for this deduction will be the net amount of income and capital gains and losses obtained in these cities.

This deduction is extended, for 2022 and 2023, to income obtained on the island of La Palma by residents there.

6. Tax deduction for actions for the protection and dissemination of Spanish Historical Heritage and World Heritage

Taxpayers are entitled to a deduction of 15 percent of the amount of investments or expenses they make for the following reasons:

• The acquisition of Spanish Historical Heritage assets, carried out abroad for their introduction into our country, provided that the assets are declared assets of cultural interest or included in the General Inventory of movable assets within one year of their introduction and remain in Spanish territory, and within the owner's assets, for at least 4 years.
• The conservation, repair, restoration, dissemination and exhibition of the assets owned by them that are declared of cultural interest in accordance with the regulations of the Historical Heritage of the State and the Autonomous Communities, provided that the requirements established in said regulations are met, in particular with respect to the duties of public visit and exhibition of said assets.
• The rehabilitation of buildings, the maintenance and repair of roofs and facades, as well as the improvement of infrastructure owned by them located in the environment that is subject to protection of Spanish cities or of architectural, archaeological, natural or landscape ensembles and of the assets declared World Heritage by Unesco.

7. Deduction for rent of main residence: Transitional regime

Only taxpayers who entered into a lease agreement before January 1, 2015, and who paid rent prior to that date and were entitled to the deduction, may claim the deduction for rent of their primary residence. The deductible amount is 10.05% of the amounts paid during the tax year, provided that the taxable income is less than €24,107.20 (when the taxable income is between €17,707.20 and €24,107.20 annually, the maximum deduction will be €9,040 less the result of multiplying by 1.4125 the difference between the taxable income and €17,707.20 annually).

The right to the deduction for rent of main residence is not lost if the contract is subject to an extension, provided that the validity of the lease agreement is maintained (DGT V2966-16).

Nor is the right to the rental deduction lost if a new lease agreement is signed with the same landlord at the end of the previous contractual period (DGT V0679-18), nor if a new contract is signed with the new owner of the apartment who acquired it from the previous landlord, under the same conditions as the previous contract (DGT V2034-17).

Likewise, it is allowed to deduct when a new contract is signed with the spouse of the previous landlord (DGT V2191-19).

Even if both members of a couple pay the rent for their usual residence, the deduction will only be applicable to the signatory of the contract (DGT V1954-18).

In addition to the rent, the deductible amount includes expenses and taxes payable by the landlord as the property owner, which, according to the lease agreement, are passed on to the tenant, such as homeowners' association fees or property tax (IBI). The garbage collection fee, utility costs, and the security deposit are not included in the deductible amount. Nor are payments made to a real estate agency that provides the leased property, or the cost of the bank guarantee (DGT V0110-18).

In the case of a seasonal rental contract dated July 1, 2014, signed for a period of one full year, in which a monthly rent was set and which was immediately followed by the signing of another, under identical conditions, signed this time for a period of five years, we are faced with a prolonged stay and, therefore, the successive contracts, for a total period of six years, were intended for the rental of the taxpayer's usual and permanent residence, resulting in the application of the deduction (TEAC Resolution of October 25, 2021).

8. Tax deduction for energy efficiency improvement works in homes

Take advantage of the three new temporary deductions in the total state tax liability applicable to the amounts invested in rehabilitation works to improve the energy efficiency of the main residence or rented for use as a residence:

• Deduction of up to 20 percent of the amounts paid for the works carried out from 06-10-2021 to 31-12-2023, with a maximum deduction base of €5,000 per year, provided that the works carried out contribute to a reduction of at least 7 percent in the demand for heating and cooling.
• Deduction of up to 40 percent of the amounts paid for works carried out from 06-10-2021 to 31-12-2023, up to a maximum of €7,500 per year, provided that the works carried out contribute to a reduction of at least 30 percent of the consumption of non-renewable primary energy, or improve the energy rating of the dwelling to obtain an energy class "A" or "B", on the same rating scale.
• Deduction for rehabilitation works that improve energy efficiency in predominantly residential buildings: applicable to amounts paid by the homeowner for works carried out from October 6, 2021, to December 31, 2024, where an improvement in the overall energy efficiency of the building is achieved, provided that an energy performance certificate demonstrates a reduction in non-renewable primary energy consumption of at least 30%, or an improvement in the building's energy rating to achieve an energy class of "A" or "B". The homeowner may deduct up to 60% of the amounts paid, up to a maximum of €15,000.

Attention: the table takes into account that Article 16 of Royal Decree-Law 8/2023, of December 27 (Official State Gazette of December 28), has modified, with effect from January 1, 2024, the fiftieth additional provision of the Personal Income Tax Law that regulates deductions for works to improve the energy efficiency of homes, extending its temporal scope.

9. Deductions for the purchase of "plug-in" electric vehicles and fuel cell vehicles and charging points

A new 15% tax deduction, with a maximum base of €20,000, is introduced for the purchase price of a new plug-in electric vehicle not used for business purposes. To qualify for the deduction, the vehicle must be purchased between June 30, 2023, and December 31, 2024.

Another deduction of 15 percent is introduced, with a maximum annual base of €4,000, on the amounts paid, from June 30, 2023 to December 31, 2024, for the installation of battery charging systems for electric vehicles not related to an economic activity.

10. Deduction applicable to family units formed by tax residents in Member States of the European Union or the European Economic Area

Since January 1, 2018, and in order to align our regulations with European Union law, this deduction has been established for taxpayers who are part of a family unit in which one member resides in another EU or European Economic Area Member State, thus preventing them from filing a joint tax return. This ensures that the tax payable by the taxpayer resident in Spain is equivalent to what they would have paid had all members of the family unit been tax residents in Spain.

Conditions for applying the deduction

The deduction may be applied by those taxpayers who meet the following conditions:

• That it forms part of one of the following types of family unit referred to in article 82.1 of the Personal Income Tax Law:

1. The one made up of the spouses who are not legally separated and, if there are any:

• Minor children, with the exception of those who, with the consent of their parents, live independently from them.
• Adult children who have been legally incapacitated and are subject to extended or reinstated parental authority.

2. In cases of legal separation, or when there is no marital bond, the family is formed by the father or the mother and all the children who live with one or the other and who meet the requirements referred to in rule 1 of this article.

• That the family unit is made up of taxpayers for Personal Income Tax and residents in another Member State of the European Union or the European Economic Area.
• That in the Member State of the European Union or the European Economic Area in which any of the members of the family unit resides there is legislation on mutual assistance in matters of exchange of tax information in the terms provided for in the LGT, which is applicable.

This deduction will not apply when any member of the family unit:

• I would have opted to pay taxes under the special regime applicable to workers transferred to Spanish territory in accordance with the provisions of Article 93 of the Personal Income Tax Law
• I would have opted to pay taxes under the regime provided for taxpayers resident in other Member States of the European Union in Article 46 of the consolidated text of the Non-Resident Income Tax Law.
• Do not have a tax identification number.

Taxpayers may deduct from the total amount due on their individual income tax return the result of the following operations:

1. The following amounts are added together:

• The total state and regional tax contributions reduced by the deductions provided for in articles 67 and 77 of the Personal Income Tax Law, of the members of the family unit who are taxpayers for Personal Income Tax
• The fees for Non-Resident Income Tax corresponding to the income obtained in Spanish territory in that same tax period by the rest of the family unit.

This operation is represented graphically below.

2. The total net tax liability that would have resulted from having been able to opt to pay taxes jointly with the rest of the members of the family unit is determined (C²).

For this calculation, only the portion of positive income of non-resident members of the family unit that exceeds the negative income obtained by the latter will be taken into account for each source of income.

Important: For these purposes only, it will be understood that all members of the family unit are taxpayers for Personal Income Tax (IRPF).

3. The amount obtained in point 1 (C1) is subtracted from^theamount referred to in point 2 (C2⁾. When this difference is negative, the amount to be calculated will be zero. Therefore:

• C1 ⁻ C2 is less than or equal to 0: No deduction is ^applicable
• C1 ⁻ C2 is greater than 0: Deduction is ^appropriate

4. The amount provided for in number 3 will be deducted from the total state and regional tax liability, once the deductions provided for in articles 67 and 77 of the Personal Income Tax Law have been made, in the following manner:

• The total state tax liability will be reduced in proportion to the share of the Non-Resident Income Tax in relation to the total amount provided for in paragraph 1, and
• The remainder will reduce the full state and regional quota equally.

When there are several personal income tax (IRPF) taxpayers integrated into the family unit, this reduction will be made proportionally to the respective full tax amounts, once the deductions provided for in articles 67 and 77 of this Law have been made, of each of them.

11. Other deductions

Remember that you can apply reductions to the tax liability for large families or dependents with disabilities, in addition to the maternity deduction…. Keep in mind other deductions applicable to the tax liability provided by some Autonomous Communities.

11.1 Maternity deduction and additional increase for custody expenses

Effective for the 2023 tax year, the scope of this deduction is extended to the following cases: women who, at the time of the child's birth, receive contributory or non-contributory unemployment benefits; and women who, at that time or at any later time, are registered with the corresponding Social Security or mutual insurance scheme with a minimum contribution period of 30 days in the latter case. These women may reduce their tax liability by up to €1,200 per year for each child under 3 years of age.

They can also deduct an additional €1,000 (€83.33 per full month of childcare) when they have paid childcare expenses for their child under 3 years old in authorized nurseries or early childhood education centers during the tax year, up to the lower of two amounts: their Social Security contributions or the annual amount of unsubsidized childcare expenses. This deduction, although it is a negative tax (it is paid to the taxpayer with their income tax return even if no tax has been withheld), cannot be claimed in advance.

Attention. Supreme Court Judgment No. 7/2024, of January 8 (Administrative Chamber), issued in appeal No. 4995/2022 (ROJ: STS 41/2024) has established as case law that the expression "authorized nurseries or early childhood education centers" must be understood to mean that the authorization required by the aforementioned provision for nurseries or early childhood education centers is not that granted by the corresponding educational administration, which will only be required for early childhood education centers, but rather that which is necessary for the opening and operation of the activity of childcare in nurseries, according to the regulations applicable to this type of center.

You can contact this professional office for any questions or clarifications you may have.

Warm regards,

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MGI Àmbit

A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.

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