Tax deductions for employment creation in Spain

On December 21, 2013, the Spanish Official Bulletin published the Royal Decree/Law 16/2013 on measures to promote stable employment and improve the employability of workers. It became effective on December 22, 2013.

This Law amends the 3/2012 Law of July 6 on urgent measures to reform the labour market to enable the execution of the indefinite employment contract to support part-time entrepreneurs. Because of this amendment, all issues relating to discounts and tax incentives face adaptation, which must be proportional to the agreed working hours in the case of part-time contracts.

In particular:

1. The Law abolishes the former requirement (effective until December 21, 2013), by which the contract must be full-time. Therefore, the contract can now be part-time. The Law also abolishes any reference to the execution through an official form to simplify contract models.

2. Regarding taxation, one of the new legal measures consists of applying tax incentives provided in the Corporate Tax Law of deductions for employment creation on indefinite employment contracts to part-time contracts, which Article 4 of the 3/2012 Law regulates (Law of July 6 on urgent measures to reform the labour market). But for this kind of contract, tax incentives will be proportional to the working hours agreed to in the contract.

Prior to this amendment, it was only possible to execute indefinite and full-time contracts to support entrepreneurs. Since December 22, 2013, indefinite contracts to support entrepreneurs — both full- and part-time — are also allowable.

Regarding part-time contracts, deductions for employment creation apply proportionally to the working hours agreed to in the contract.

Deductions for employment creation

The Spanish Corporate Tax Law provides for these deductions for employment creation. They consist of the following points:

  • Companies that hire their first employee through an indefinite employment contract to support entrepreneurs under 30 years old may deduct €3,000 from their total tax liability.
  • Notwithstanding the foregoing and to support entrepreneurs, companies with fewer than 50 employees that hire unemployed persons (receiving unemployment benefits) through indefinite employment contracts may deduct from their total tax liability 50% of the lesser of the following amounts: (1) the unemployment benefit that the employee had pending or (2) 12 monthly payments of the unemployment benefit that the employee had recognized.

The deduction shall apply to those contracts up to 50 employees if in the 12 months following the beginning of the employment relationship the total average workforce of the company increases in at least one unit regarding each employee compared to the workforce that existed at the company during the previous 12 months. For this deduction to apply, the hired employee must have been receiving the unemployment benefits for at least three months before the beginning of the employment relationship.

Other requirements:

  • Deductions will apply to the total tax liability of the assessable period that corresponds with the completion of the probationary period of one year and will be contingent upon the maintenance of this employment relationship for at least three years from the beginning date.

Non-compliance will result in the loss of the deduction. No breach of the requirement occurs when the termination is due to objective grounds or disciplinary dismissal when either is declared or recognized as lawful, a resignation, death, retirement, or total and permanent disability or absolute or severe disability of the employee.

  • The Corporate Tax Law outlines these deductions among the provisions to encourage certain activities, meaning that the norms on joint limits and deadlines common to all of them also apply to these deductions.
  • The hired employee who initiates a company’s right to one of these deductions will not count for the purposes of increasing the workforce as a prerequisite for the application of tax incentives for small companies and free amortization.

This deduction is incompatible with free amortization of SME’s. Therefore, if the company has purchased a new asset during the year that is freely depreciable, the company will have to calculate and opt for the incentive that suits it best.

This article is not considered as legal advice

Advice on Labour law in Spain 

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