IAE: who is exempt and what needs to be reviewed each year to avoid overpaying

Many companies and self-employed individuals pay the Economic Activities Tax (IAE) each year without checking whether they still meet the exemption requirements or whether the factors determining the tax liability have changed.

Changes in turnover, activity or business characteristics may mean that you are paying more IAE than necessary or, conversely, that you are not complying correctly with your formal obligations.

In this practical guide, we explain when you need to register for IAE, who is exempt and what you should review each year to avoid mistakes and unnecessary costs.

When do you have to register for IAE?

Starting a new activity

If you are starting a new activity, either because you have just set up your company or because you are opening a new business, you must submit an IAE registration declaration, indicating the heading that corresponds to your activity.

Although this procedure is mandatory, many companies are eligible for exemptions that allow them to avoid paying this tax.

Who is exempt from paying the IAE?

Permanent exemption

The following are entitled to exemption, provided they meet the legal requirements:

• Self-employed persons and individuals who carry out activities, regardless of their turnover.
• Commercial companies with a turnover of less than €1 million during the previous financial year. For example, to apply the exemption in 2026, the turnover for 2024 must be taken into account.
• Civil partnerships and joint ownership entities with a turnover of less than €1 million in the year prior to the previous year (the 2024 financial year must also be taken into account for the 2026 exemption).

If your company is part of a commercial group, the turnover of the entire group must be added together. Thus, even if your company only has a turnover of €500,000, you will not be able to apply the exemption if the group has a total turnover of €20 million.

If you carry out several activities, the turnover of all of them must be calculated, including those carried out abroad and those that are exempt and not exempt from IAE.

Temporary exemption

There is also a temporary exemption that applies to all companies during the year in which they start trading and the following year. This exemption does not apply if you have already carried out the same activity under another name (for example, if you contribute a personal business to a company).

In this way, a company can have both exempt and non-exempt activities at the same time.

How and when to register for IAE

Census declaration (form 036)

Registration must be completed within one month of starting the activity.

Individuals and entities with a turnover of less than €1 million can do so by submitting a census declaration (form 036) to their tax office.

Specific form (form 840)

In other situations (companies with other activities that have a turnover of more than €1 million or that are not eligible for the exemption), it is necessary to submit the registration using the specific IAE form. The form and place of submission may vary depending on the activity to be carried out by the company:

• Municipal fee: If you opt for a municipal IAE fee (because the activity will only be carried out in one municipality), you must check which administration is responsible for its management (Town Hall, Provincial Council or Tax Office), as the form to be submitted varies in each case.
• Provincial or national tax: You must register with the tax office using form 840.

Communications after two years

In December of the year following the start of the activity:

• If you registered using form 036 and do not exceed €1 million, you do not need to communicate anything. If you exceed this figure, you must send the tax details using form 840.
• If you registered using form 840, you have already reported the tax elements. However, if you now meet the exemption requirements for turnover of less than €1 million, you must notify the AEAT.

Changes in tax elements

The factors that determine the amount of IAE (such as machinery power, capacity or premises surface area) may change over time, so it is essential to review them:

• If the variation exceeds 20%, it is mandatory to submit a variation declaration to the tax authorities.
• If the variation is negative, reporting it is voluntary, but recommended in order to reduce the tax liability (for example, a 15% decrease).

The deadline for reporting these variations is one month from when they occur and they generally affect the following year's tax liability. If this is not done within the deadline, it can still be reported later, with the reduction being applied in the following year.