Can a professional, business owner or self-employed person apply the 30% reduction in Spanish personal income tax when they receive, in a single tax year, fees or income that have been generated over more than two years? The answer is yes, but not automatically.
The key is to distinguish between two separate issues: first, whether the income was actually generated over more than two years; and second, whether that type of income is a regular or usual way of earning income in the taxpayer’s specific economic activity.
The Spanish Supreme Court has once again clarified this distinction in Judgment 655/2026 of 29 May, issued by the Third Chamber in appeal 968/2024, when interpreting Article 32.1 of the Spanish Personal Income Tax Law. Although the case concerned a lawyer, the reasoning is relevant to any taxpayer carrying out an economic activity and receiving income concentrated in a single tax year after a prolonged period of work or generation.
What Article 32.1 of the Spanish Personal Income Tax Law allows
Article 32.1 of Law 35/2006 on Spanish personal income tax allows certain net income from economic activities to be reduced by 30% where, in essence, two requirements are met:
- the income has a generation period of more than two years, or it is income classified by regulation as obtained in a notably irregular manner over time; and
- the income is allocated to a single tax period.
The reduction is also subject to a limit: the amount of net income to which it is applied may not exceed 300,000 euros per year.
The purpose of this reduction is to correct the effect of the progressive nature of the tax. If income has been generated over several years but is declared entirely in one year, it may be taxed more heavily than if it had been allocated gradually. The reduction seeks to mitigate that effect.
However, Article 32.1 contains an important exception: the reduction does not apply to income which, although it may individually arise from work carried out over a period exceeding two years, comes from an economic activity that regularly or habitually obtains this type of income.
Two separate issues: generation of the income and habituality
The Supreme Court clearly distinguishes between two levels of analysis that should not be confused.
- Proving that the income was generated over more than two years is the taxpayer’s responsibility
The first requirement must be proven by the person seeking to apply the reduction.
It is not enough that payment is made years later, or that the procedure, contract, project or engagement was formally open for more than two years. What matters is that the income was effectively generated throughout that period.
This requires objective evidence showing that real activity took place for more than two years: work performed, project milestones, professional actions, deliverables, communications, reports, pleadings, certifications, execution phases, services rendered or any other element linking the remuneration to a prolonged generation period.
A mere delay in payment, invoicing or resolution of a matter, does not, by itself, turn the income into income generated over more than two years.
- Proving that this type of income is habitual is the Tax Administration’s responsibility
Once it has been established that the specific income was generated over more than two years, the Tax Administration may seek to deny the reduction by applying the exception in Article 32.1.
But to do so, it is not enough to rely on general statements about the sector, profession or type of activity. The Tax Administration must justify, by reference to the specific taxpayer, that income generated over a prolonged period is a regular or habitual way of earning income within that taxpayer’s economic activity.
In other words, the Tax Administration cannot simply say that “in this profession it is normal to be paid at the end”, that “these projects usually last for years” or that “this type of activity commonly generates multi-year income”. It must analyse the taxpayer’s individual situation, their actual activity and the nature of the income obtained.
What the Supreme Court held in Judgment 655/2026
Supreme Court Judgment 655/2026 of 29 May confirms and clarifies the doctrine already established in previous decisions, in particular Judgment 429/2018 of 19 March.
In summary, the Supreme Court states that:
- income obtained from an economic activity may benefit from the reduction if the taxpayer reasonably proves that it had a generation period of more than two years;
- the habituality that excludes the reduction must be assessed by reference to the specific taxpayer and their individual income, not by reference to a profession or sector considered in the abstract; and
- the burden of proving that excluding habituality lies with the Tax Administration, which must give reasons for considering that the reduction does not apply.
Although the case concerned a lawyer, the logic of the judgment is not limited to the legal profession. It may apply, with the necessary adaptations, to other professionals, business owners or self-employed individuals who receive income concentrated in one tax year for work, engagements or projects developed over a prolonged period.
Selena Escandell