Refund of the Economic Activities Tax (IAE) in Spain Due to the Covid Pandemic

Did you have to stop your company’s activity due to the state of emergency caused by COVID-19?

The Spanish Supreme Court recognises the possibility of reducing the Economic Activities Tax (“IAE” in Spanish acronym) amount to pay for the fiscal year 2020 for all those companies that remained closed during the state of alarm for health reasons for more than thirty days during that year.

It is important to note that, in order to be able to apply the reduction, the stoppage must have been total. For example, catering establishments that made home deliveries of food cannot apply the reduction, as it is not considered a total stoppage of the business.

The inactivity of many businesses lasted several months, making it difficult for businesses to operate. Some City Councils, in view of this situation, took measures to reduce the IAE tax rate. However, many others did nothing to alleviate the situation and the tax rate was not modified.

This is why, following the Spanish Supreme Court ruling, taxpayers can apply for a refund of the IAE tax due in proportion to the days of inactivity caused by the state of alarm. The application must be submitted to the corresponding City Council in each case, in writing, stating the reasons for the request. This must be submitted within the four-year limitation period established in the General Tax Law (“Ley General Tributaria”).

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The Supreme Court has recently ratified this criterion which has been set by judicial decision no. 725/2023, of 30 May 2023, which concludes that:

  • The stoppage of activity and closure of establishments ordered by Royal Decree 463/2020 of 14 March, declaring a state of alarm for the management of the health crisis situation caused by COVID-19, in particular, Article 10(1) and (4) thereof, does not determine, given its dates and the prior occurrence of the chargeable event, the non-existence, or non-production, of the taxable event during the period of inactivity.
  • On the other hand, it is appropriate to apply to the case the regime of paralysation of industries established in paragraph 4 of rule 14 of Royal Legislative Decree 1175/1990, with a reduction of the proportional part of the tax liability, according to the time that the industry, trade or activity has ceased to operate.
  • It is not necessary, for this purpose, either to prove in particular the stoppage or closure of the business or to inform the Administration of such closure or inactivity, as both circumstances derive directly from the law. In particular, for hotel and catering activities, the only proof required is that of the non-existence of home delivery, which is not disputed here.


In conclusion, our recommendation is to check whether you meet the requirements to be able to apply for the refund of the undue income and that you apply for it before the end of the period established.
If you have any doubts about this or other tax, accounting, or legal issues, please do not hesitate to contact our tax advisors in Barcelona.

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