Personal services: IRPF or IRAE? The choice and when each pays

As an independent professional or service provider, you aren't always locked into one tax: there's a decision that can save you money. You can pay IRPF or, if it suits you, opt for IRAE. Here's how the option works and when to pick each.

You can choose

The base rule gives you freedom of choice. Per the DGI:

Per the DGI:

«Quienes obtengan rentas por servicios personales fuera de la relación de dependencia podrán optar por tributar el IRPF o el IRAE.»

In English: Those who obtain income from personal services outside a dependency relationship may opt to pay IRPF or IRAE.

But IRAE locks you in for 3 years

Be careful choosing lightly: opting for IRAE isn't for one year. Once you opt, you're obliged to continue:

On the permanence:

«Si se realiza la opción de tributar el IRAE deberá liquidarse obligatoriamente este impuesto por un mínimo de tres ejercicios.»

In English: If the option to pay IRAE is taken, this tax must be settled for a minimum of three exercises.

And above a threshold, it's mandatory

If your personal-services income is high, you can no longer choose: IRAE becomes mandatory (compulsory inclusion).

On the mandatory case:

«Deberán tributar preceptivamente el IRAE quienes obtengan rentas comprendidas en el IRPF por servicios personales prestados fuera de la relación de dependencia, cuando tales rentas superen los UI 4000000.»

In English: Those who obtain IRPF-covered income from personal services provided outside a dependency relationship must compulsorily pay IRAE when such income exceeds UI 4,000,000.

When does each pay?

Simply: the services IRPF is progressive and gives you a notional expense deduction (a percentage), regardless of your real expenses. IRAE taxes your net profit, deducting real expenses (or a ficto). So, broadly: if you have many real, documented expenses, or high income, IRAE usually pays; with low or mid income and few expenses, IRPF is usually better. See our IRPF, IRAE ficto and deductible-expenses posts.

How to opt

To use the IRAE option, you must notify the DGI within three months of starting the income-generating activities. Compulsory inclusion (for exceeding the amount) applies on its own, from the following exercise.

At a glance

In short: in personal services you can choose between IRPF and IRAE (IRAE locks you for 3 years and is mandatory above UI 4,000,000). The best option depends on your expenses and income. Run the numbers with an accountant before deciding.