Improving the special tax regime and the tax incentives for patronage

The approval of Royal Decree-Law 6/2023, of 19 December, has been welcomed with open arms by Spanish non-profit organisations and by those taxpayers who make donations, gifts and contributions to them since, after several failed attempts, the modification of Law 49/2002, of 23 December, on patronage, has materialised. This amendment has introduced important changes in the special tax regime and in the tax incentives provided for in the law, with effect from 1 January 2024.

The new features introduced by the reform of Law 49/2002 extend the scope of the list of income exempt from Corporate Income Tax (IS), the deductible donations and improve the rate and limits of deductions for donations in Personal Income Tax (IRPF) and Corporate Income Tax (IS).

The most significant changes introduced by the reform are those that most directly affect taxpayers' pockets in both Personal Income Tax (IRPF) and Corporate Income Tax (IS).

Are you deducting contributions for donations, gifts or contributions in the Personal Income Tax (IRPF)?

In the Personal Income Tax (IRPF), an improvement has been introduced, and that is that from the income tax return for 2024 and following years, taxpayers will be able to deduct in their income tax return 80% of the donations they make up to 250€ (the previous limit was 150€) and in case of exceeding that amount, the rest will have a deduction of 40% (before it was 35%) or even 45% for recurring donations. Recurring donations are considered to be those cases in which the amount of the donation has been similar during the last three financial years. It should be noted that before the reform of Law 49/2002, a donation was considered multi-yearly if a similar amount had been donated during the last four financial years.

The deduction limit is still 10% of the personal income tax base and, surprisingly, the fact remains that, in case of excess, it will not be applicable in subsequent tax returns or tax years.

Are you deducting contributions for donations, donations or contributions in the Corporate Income Tax (IS)?

Legal entities will also see their deduction percentage modified as of the 2024 Corporate Income Tax (IS) return, where they will be able to deduct 40% (previously the deduction percentage was 35%) of the contributions made at corporate level, with this percentage being increased to 50% (previously 40%) for recurring contributions.

In this case, the deduction limit is 15% of the taxable base for Corporate Income Tax (IS), however, unlike in the case of Personal Income Tax (IRPF), the excess not applied in a tax return is applicable in the following 10 financial years.

Are you deducting contributions for donations, gifts or contributions in the Non-Resident Income Tax (IRNR)?

IRNR taxpayers operating in Spanish territory without a permanent establishment in accordance with article 21 of the aforementioned law are entitled to apply the deduction foreseen for IRPF in those tax returns they file for taxable events occurring within one year from the date of the donation, gift or contribution.

With this amendment, the basis for the deduction increases to a limit of 15% (previously 10%) of the taxable base of all tax returns filed within this period.

It should be noted that taxpayers operating through a permanent establishment in Spanish territory will be able to apply the aforementioned deductions to corporate income tax.

Recognition of access to the regime for non-profit entities that participate in other foundations' own projects.

In addition, one of the requirements already foreseen in Law 49/2002 is that, in order to be considered a non-profit entity, the company must allocate at least 70% of the income generated to general interest purposes. However, as a result of the reform, the wording has been introduced and, therefore, recognises the possibility for entities to allocate the aforementioned percentage of income, either directly or indirectly. Earmarking the funds directly means that the entity itself carries out the general interest purposes, and indirectly means that the entity allocates the necessary resources through other entities, i.e. without having its own projects. It will be interesting to see how the Directorate General for Taxation reacts on this point, as until now it has interpreted that in order for a non-profit entity which indirectly allocates 70% of its income or revenue to general interest purposes to benefit from the special regime, it must first of all demonstrate that it maintains control and monitoring of the contributions made, and that the ultimate beneficiary company is subject to the special regime provided for in Law 49/2002.

Other improvements introduced by the reform of Law 49/2002

The provision of services is excluded from the reform of Law 49/2002, although those service providers who meet the requirements will have access to the tax advantages under the umbrella of the collaboration agreement.

Another of the new features introduced is the figure of reward sponsorship, which allows the entity benefiting from the sponsorship to offer a reward (in the form of goods or services) to the donor. The value of the reward may never exceed 15% of the value of the donation and, in any case, the value of the reward may not exceed 25,000 euros.

In addition, it is established that non-profit associations that work in the defence of animals, in social and labour insertion services for people at risk of social exclusion and in professional training for students of high capacity, may benefit from the special regime foreseen in Law 49/2002, as these activities are included in the open list of general interest purposes.

At CIM, we have experts who are prepared to assist you in complying with tax regulations in Spain. With proper management and a thorough knowledge of tax regulations, your company can achieve the success you desire.