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"Business or professional activities", from the point of view of VAT and Personal Income Tax

From a tax point of view, the concept of "business or professional activities" is regulated in some of the different tax regulations and directly affects their taxation, as appropriate; However, do we know the differences of this concept in relation to the Value Added Tax and the Personal Income Tax? Let's analyze the definitions and differences for each of them.

Concept of "business or professional activities" in personal income tax:

In relation to the Personal Income Tax, Chapter II of Law 35/2006, of November 28, establishes the definition and determination for each of the returns that will result in taxable income from the tax itself.

Thus, in article 27 of the aforementioned Law, economic activities are defined as "those that, coming from personal work and capital together, or from only one of these factors, involve the taxpayer's own management of means of production and human resources or one of both, with the purpose of intervening in the production or distribution of goods or services.

Needless to say, personal income tax and VAT regulate and define this type of activities; although, in the case of personal income tax, it defines them as "economic activities."


Concept of "business or professional activities" in VAT:

From the point of view of VAT regulation, article 5.2 of Law 37/1192, of December 28, defines as "business or professional activities those that involve the self-management of material and human production factors or of one of them, with the purpose of intervening in the production or distribution of goods or services.

Common points in relation to both concepts:

In both cases and as can be deduced from the literal wording of the norm, material and human production factors are not required to occurOtherwise, only one of them must be given, so professionals, independent artists and other subjects who may meet these conditions would be included, such as commission agents.

Furthermore, the essential element for this concept of business or professional activities is that on their own, therefore excluding dependent work or work performed by civil servants.   

Both precepts and concepts list the same economic activities, citing: extractive activities, manufacturing, commerce and provision of services, including crafts, agriculture, forestry, livestock, fishing, construction, mining and the exercise of liberal and artistic professions.


Differences in relation to both concepts:

In relation to this concept, there are some practical differences between both taxes, such as:

The most striking case is the difference in the tax treatment in the real estate leasing. In the case of VAT, the lease must always be carried out by a businessman while, in personal income tax, it will be considered a business activity if there is a premises intended exclusively for this activity and a full-time person is employed. for the performance of the activity (art. 27.2 LIRPF).

For example, if a person rents a parking space to another: for VAT purposes the lessor will acquire the status of businessman for VAT purposes, since it is understood that he is carrying out a business activity within the scope of the regulations of this tax; while, for personal income tax purposes, the lessor must declare the income obtained in his income tax return as income from real estate capital, as the requirements for it to be economic activity for personal income tax purposes are not met.

Regarding movable property and when leasing them, there may also be differences between both taxes: in relation to personal income tax, article 25.4.a) establishes that income from movable capital will be "those from intellectual property when the taxpayer is not the author and those from industrial property that is not found affects economic activities carried out by the taxpayer"; while article 5 LIVA establishes that they will be considered entrepreneurs or professionals "those who make one or several deliveries of goods or services that involve the exploitation of a tangible or intangible asset in order to obtain continuous income over time."

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