The term “tax relief” refers to a reduction of someone’s tax burden if they meet certain conditions. We’ll explain the most common forms of tax relief for individuals and businesses and what to do to benefit from them.

Taxes are a major way for governments to raise funds that pay for part of their operations and invest in healthcare, education, security, infrastructure and other public services. Tax collection involves special financial schemes so that every taxpayer pays taxes based on their financial, familial and personal circumstances — or pays less if they help achieve certain social, environmental or economic objectives. They are “tax credit” and "tax deduction".

In finance, tax relief “discounts” or “reduces”. It is, therefore, financial relief that subtracts an amount from the tax we’ll have to pay the government, regardless of whether we're employed by someone or self-employed. In general, tax law stipulates requirements we must satisfy before we can be entitled to a tax deduction. Because tax relief is regulated by law, we must provide relevant documents to justify them.

There are many types of tax relief, and individual taxpayers can claim ones that companies cannot (and vice versa). Often, governments set specific purposes for tax credits and deductions that can range from adapting a person's tax burden to their situation to promoting an economic, social or environmental agenda.

In Spain, the central and regional governments institute their own tax relief based on a person’s disability, large family status (with at least three children or other qualifying circumstance), pension plan and other aspects. Self-employed workers, SMEs and large companies can also get it as a means to promote job creation, investment in research and development (R&D) or the use of renewable energy.

As we can see, the list of tax credits and deductions is long. Below we’ll tell you about the most common ones.

Tax credits and deductions for individuals

At some point in the year, we tend to look back and think about the money we’ve earned from work, investment, or some other business; or about changes to our family, such as a newborn. Those things matter in order to benefit from the tax deductions available where we live.

The most common reasons individual taxpayers can get a tax deduction are:

  • Maternity. Spain’s central government provides a tax deduction (for childcare and nursery expenses) to mothers who work for someone or are self-employed and have children under the age of three. This article (in Spanish) from Santander Consumer España’s blog, Tu Futuro Próximo (“Your near future”), gives more details on the tax benefits available to mothers of newborns.

  • Large family. As a rule, anyone in Spain whose family has at least three children can claim this tax credit provided by the central government. Families with three children or more who meet other financial requirements can fall under a special category.
  • Disability. In Spain, for personal income tax purposes, a person can claim these central and regional government tax credits to benefit themselves and their households if they demonstrate a degree of disability of 30% or higher.
  • Donations. National tax deductions for donations can depend on the amount donated to legally recognized philanthropic and not-for-profit organizations and whether the donation is regular or one-off.
  • Conservation of the planet. In Spain, regional governments have been rewarding such initiatives as electric or sustainable vehicle purchases and energy-efficient home improvements with tax deductions.

While it is the most common reason for tax deductions, there are other deductions. Also, regional governments can improve on or add to national tax deductions. 

A common question about deductions in Spain relates to home purchases. This article (in Spanish) by Openbank will tell you if you can deduct your mortgage.

Tax deductions for self-employed workers

In general, self-employed workers can obtain similar tax deductions, regardless of the country where they live. National and regional governments use these deductions to reduce the tax burden self-employed workers must cope with to do business. The most common deductions are:

  • Value added tax (VAT). We’re all familiar with this tax on consumption, which we pay on every good and service we acquire. Still, self-employed workers and companies can recover part of the VAT they pay on goods and services they buy in connection with their business. 

  • Office expenses. Rent for office space and bills for electricity, water, Internet and the telephone can be deducted. Now, with widespread "working from home", some governments allow part of home-related expenses to be deducted.

  • External services. This deduction is for third-party services hired for business purposes. They include transport, publicity, communications, business accounting and legal services.

  • Transport and travel. Spending on vehicles or fuel, travel allowances and accommodation can be deducted when duly justified as a business expense.
  • Employee costs. Costs of hiring staff can be deductible, including social security contributions, training courses and insurance policies.

Tax credits and deductions for companies

Tax relief for small and large companies generally aims to achieve goals that will benefit the community or the region where they operate. Governments can give it to companies for lowering the CO2 emissions from their operations, aiding employment and sustainable development and other things. In particular:

  • Job creation. New job listings can lead to tax relief, depending on national and regional law. Sometimes, tax credits are given for hiring young people, people with disabilities and mothers raising children. 

  • Investment in R&D. Companies can claim a tax deduction on expenses for projects they execute to increase know-how or innovate in tech.

  • Sponsorship and donations. To give SMEs and large companies the incentive to get involved in art, cultural and sport initiatives, governments tend to offer tax incentives if they engage in sponsorship and philanthropic programmes.

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