A deductible expense is one you can subtract from your income so you pay less tax. Record them well and you pay less income tax (IRPF) and VAT. Record them badly and you risk losing some of them if the Tax Agency checks your books.
This guide is for freelancers (autónomos) under direct assessment (estimación directa), which is how most of them are taxed. Companies follow their own rules under corporate income tax.
Three conditions for any expense
According to the Tax Agency's manual, an expense is only deductible if it meets all three:
- It's linked to your business. It has to relate to how you earn your income, and only expenses after you registered your activity count.
- It's backed up. The preferred proof is an invoice in your name that meets the legal requirements.
- It's recorded in your accounting books (libros registro).
Miss one and the expense doesn't count, even if you really paid it.
Income tax and VAT are different things
One expense can count twice:
- For income tax (IRPF), the base amount (before VAT) is subtracted from your income. It feeds form 130 each quarter, if you file it, and your annual return.
- For VAT, the VAT you paid is subtracted from the VAT you charged. It goes on form 303.
The rules don't always match. Cars are the classic case, covered below.
The most common expenses
Your social security contributions
Your contributions to the self-employed social security scheme (RETA) are a deductible business expense. If the annual adjustment of your contributions means you pay extra, that payment is an expense in the year you pay it. If you get money back, you deduct less that year.
Private health insurance
Health insurance premiums are deductible for the part covering you, your spouse and your children under 25 who live with you. There's a cap: €500 a year per person, or €1,500 for a person with a disability.
Utilities when you work from home
If you use part of your main home for work, you can deduct part of the utilities: water, gas, electricity, phone and internet. The Income Tax Act sets the formula: 30% of the share of floor space you use for the business, unless you can prove a different percentage.
Example: your flat is 90 m² and your office is 18 m², or 20%. 30% of 20% is 6%. On an electricity bill of €100 before VAT, you deduct €6 for income tax.
This rule is for income tax. Don't apply it to VAT without checking.
Business meals
Your own meals while working are deductible if all of this holds:
- They're at a restaurant, bar or similar.
- You pay by card or another electronic method. Cash doesn't qualify.
- They stay under these daily limits, which apply to days in a town other than the one where you usually work and live:
| In Spain | Abroad | |
|---|---|---|
| No overnight stay | €26.67 | €48.08 |
| With overnight stay | €53.34 | €91.35 |
Anything above the limit isn't deductible. And a meal on a working day isn't automatically a business meal.
Example: you live and work in Madrid. You visit a client in Toledo, pay €35 for lunch by card and come back the same day. You deduct €26.67.
Hard-to-justify expenses
Under the simplified direct assessment method, the law lets you take a flat amount for expenses that are hard to prove, with no invoice needed: 5% of your net profit, capped at €2,000 a year. It doesn't apply if you take the reduction in article 26.1 of the Income Tax Regulation.
Example: your net profit before this item is €30,000. 5% is €1,500, under the cap. Your profit drops to €28,500.
Training, books and professional fees
The Tax Agency's manual gives these as examples, when they relate to your business: books, trade magazines, courses, conferences, and certain fees paid to professional associations, chambers of commerce and business associations.
Things that last for years
A laptop, a camera or office furniture isn't deducted in full for income tax on the day you buy it. It's deducted bit by bit through depreciation (amortización), year by year. The VAT on the purchase follows a different path: it goes on form 303, in the capital goods section.
Cars, the tricky one
Cars are where most people get it wrong, because income tax and VAT treat them differently.
- For VAT, the law presumes a passenger car is used 50% for business, so you can deduct 50% of the VAT. For certain uses, such as mixed vehicles carrying goods or cars used by sales representatives, the presumption is 100%. If actual use differs, the deduction is adjusted.
- For income tax, the Regulation says an asset used for both business and private life isn't treated as a business asset. The exception for "incidental" private use (on days or hours when you aren't working) doesn't apply to passenger cars, except in cases such as passenger transport, driving schools or sales representatives.
In practice: if your car is also the family car, you usually can't deduct it for income tax.
VAT on till receipts
To deduct VAT you need an invoice. A till receipt (a simplified invoice) only works if it shows your tax ID (NIF), your address and the VAT amount separately. Any shop has to add them if you're a business or professional and ask.
Ask at the till. Afterwards it's much harder.
Keep the paperwork
You have to keep received invoices for the period set by the General Tax Law and show them if the Tax Agency asks. An expense with no proof, in a tax check, is an expense you lose.
How Factuly helps
With Factuly you take a photo of the receipt or drop in the invoice PDF, and it reads the supplier, date, VAT and amount. You confirm, and the expense is saved with its category and photo, ready for forms 303 and 130. See Expenses and receipt scanning.
With your expenses in, Factuly tells you how much VAT you get back this quarter and how much to set aside for taxes. That's in Taxes and quarterly plan.
For the grey areas, like a car or a shared space, check with your accountant before you deduct.
