There are common situations in companies that seem straightforward until viewed from a tax perspective. When a partner provides services to their own company and the company assumes certain expenses, the income tax classification can change completely depending on small details that should not be overlooked. Not everything a partner charges their company is taxed equally, nor is everything the company pays on their behalf off the tax authorities' radar. Recent administrative doctrine reminds us of this once again with uncomfortable clarity for those who have not fine-tuned their remuneration structure. Let us explain...
The Directorate-General for Taxation (DGT), in its consultation V1796-25, once again enters familiar territory, but one that is not always well interpreted: what happens when a partner, in addition to holding a corporate position, provides real and regular services to the company and receives remuneration for this.
The case analyzed is that of a majority shareholder and sole director whose position is unpaid, but who performs ordinary tasks for the company, is paid for them and, in addition, has the company pay his self-employment contributions and certain travel expenses.
La clave no está tanto en la etiqueta formal, sino en cómo se articula la relación económica y qué se está pagando realmente.
1. Nature of the remuneration received by the partner
The DGT starts with an essential distinction: the position of director is one thing, and the actual work performed for the company is another.
When the functions performed do not coincide with those of the administrative body and are not professional activities in the strict sense, the amounts received are classified as income from work, in accordance with Article 17.1 of the Personal Income Tax Law.
It does not matter if there is no traditional employment contract or if the partner contributes to the RETA (Special Scheme for Self-Employed Workers). The classification does not depend on Social Security, but on the actual nature of the income.
If the partner is paid for regular operational tasks (internal management, coordination, technical functions, etc.), it is reasonable to assume that the tax authorities will treat them as income from work unless very specific circumstances apply.
2. Withholdings applicable to this remuneration
As this is income from work, the company is obliged to make withholdings in accordance with the general rates set out in the Personal Income Tax Regulations.
It is important not to confuse the two situations here. The increased rates provided for directors only apply when the position is remunerated. If it is not, neither 35% nor 19% should be applied, but rather the rate resulting from the ordinary calculation.
Applying an incorrect rate by automatically assimilating the partner with a remunerated director can lead to unnecessary adjustments and avoidable penalties.
3. Self-employment contributions paid by the company
This is one of the points that generates the most doubt, and where the DGT is once again clear.
When the company assumes the partner’s self-employment contributions, it is granting a personal economic benefit. Therefore, this amount constitutes remuneration in kind according to Article 42.1 of the Personal Income Tax Law.
If, instead of paying it directly, the company gives the amount to the partner to pay, the classification changes slightly, but the tax effect does not: it becomes monetary remuneration, also subject to withholding.
However, these contributions are a deductible expense for the partner when calculating their net income from work, regardless of who makes the payment.
Treating the self-employed contribution ‘as just another company expense’ without reflecting it correctly in the payroll or withholdings is often one of the usual focuses of adjustments in audits.
4. Travel and petrol expenses
This is probably the most sensitive aspect of the entire consultation.
The regulations make a clear distinction between exempt allowances and concealed remuneration, and this distinction depends on two factors: the existence of an employment relationship and the way in which the means are provided.
Exempt allowances only apply when there is an employment relationship and the regulatory requirements are strictly complied with. In the case of partners without a formal employment relationship, the exemption does not apply automatically.
However, not all expenses generate income. If the company directly provides the necessary means—vehicle, accommodation, organized travel—and these are used exclusively for the activity, there is no income for the partner.
The case is different when lump sums are paid or expenses are reimbursed without effective control. In this scenario, the amounts are considered monetary income, subject to withholding tax, exactly like the rest of the remuneration.
Reimbursing petrol ‘as a matter of habit’ or without clear traceability often turns a necessary expense into taxable income without anyone being aware of it until the audit arrives.
5. A conclusion that should not be simplified
The administrative doctrine does not introduce any major changes, but it does reinforce an idea that should be internalized: paying expenses is not the same as remunerating services, even if the money comes out of the same account.
The correct classification of each item—salary, remuneration in kind, necessary expense—is what allows you to comply correctly with personal income tax and avoid subsequent adjustments that always come at the worst possible time.
When a partner works for their company, tax improvisation often proves costly.
Reviewing the remuneration structure before the tax authorities do so remains the most sensible option.
For further information, please consult our Employment Advice Service.
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