An earn-out is a deferred price mechanism with complex tax consequences. We explain how it is taxed in Spain for both individual and corporate sellers, and how to structure it optimally.
The earn-out is the outstanding item in M&A tax planning for Spanish mid-sized companies. It is frequently debated in tax advisory circles, Hacienda’s criteria are material and sometimes shifting, and business owners who sign earn-outs without adequate tax advice can face unpleasant surprises years after closing.
This guide is the tax companion to our article on earn-out strategy. Here we focus on how earn-outs are taxed, when they are taxed, what fiscal risks they carry, and how to structure them optimally depending on the seller’s profile.
An earn-out is the payment of a portion of the company purchase price that is deferred in time and conditioned on the achievement of agreed performance targets (typically EBITDA, revenue or net profit) over one to three post-closing financial years.
From a tax perspective, the earn-out raises two fundamental questions: when is it taxed? and at what rate? The answer to both depends on who the seller is (individual or company) and how the earn-out is structured in the contract.
The correct classification of the earn-out for IRPF purposes determines the applicable rate. And here there is a fundamental difference that many business owners only discover when they receive an inspection from the AEAT (Spanish tax authority).
If the earn-out is structured as consideration for the transfer of shares, it is taxed as a capital gain at the savings income rates (2026):
If Hacienda considers that the earn-out is remuneration linked to the seller’s continued presence in the company (i.e. the payment is conditioned on the seller continuing to work in the business after the sale), it will recharacterise it as employment income, subject to marginal IRPF rates that can reach 47% for high earners. The difference in tax liability can exceed 20 percentage points.
Recharacterisation as employment income is the primary tax risk of earn-outs for individual sellers. Hacienda has taken this position in multiple TEAC resolutions and Supreme Court judgments, though not always with consistent criteria.
Key to avoiding recharacterisation: The earn-out must be tied exclusively to business performance (EBITDA, revenue), not to the seller’s presence in the company. If the contract conditions the earn-out on the seller remaining employed, recharacterisation is almost inevitable.
For capital gains from the sale of shares with deferred or contingent price, IRPF rules provide:
The distinction between deferred price and contingent price is crucial and must be clearly defined in the SPA. An earn-out that is well structured from an M&A perspective can be poorly structured from a tax perspective if the contract language is imprecise.
Instalment sale regime: If Article 14.2 LIRPF applies (instalments or deferred price with payments falling in years subsequent to the sale year), the seller can defer recognition of the capital gain in proportion to amounts received. This can be highly relevant when the earn-out is received in different tax years from the year of sale.
A business owner sells their company for €3M fixed plus a maximum earn-out of €1M based on EBITDA over the following two years. In year 1 they receive €500,000 earn-out; in year 2 they receive €300,000.
If the earn-out is contingent:
If the full earn-out had been structured as certain (merely deferred), there could be an obligation to declare the full amount in the year of sale, though with instalment deferral rights.
When the seller is a Spanish company — for example, a family holding company selling shares of the operating entity — the earn-out taxation can be radically different thanks to the participation exemption regime of Article 21 of Spain’s Corporate Income Tax Act.
This regime provides that capital gains from the transfer of shareholdings are 95% exempt from CIT (with a minimum effective taxation of 5% of the gain) if these conditions are met:
Where these conditions are met, both the fixed purchase price and any earn-out characterised as transaction consideration will be 95% exempt from CIT in the selling company.
Effective rate 2026: With CIT at 25% applied to the taxable portion (5% of the gain), the effective rate on the total capital gain is 1.25% (25% × 5%), compared with 19–28% under IRPF for an individual seller.
This difference means that, for family-owned businesses with prior wealth planning structures, selling through a holding company can dramatically reduce the fiscal cost of the earn-out.
Under CIT, income is allocated to the tax period in which it accrues, pursuant to the accrual principle of Article 11 LIS. For earn-outs:
Consistency between accounting and tax treatment is essential to avoid conflicting adjustments.
Beyond the employment income risk (for individuals), Hacienda may also challenge the classification of earn-outs in two other scenarios:
1. Earn-out as self-employment income. If the seller continues to provide services to the acquired company as a self-employed consultant or adviser, Hacienda may attempt to link the earn-out to those services and classify it as self-employment income (general IRPF scale, up to 47%).
2. Earn-out as director’s remuneration. If the seller remains as a director of the company and the SPA does not clearly separate the earn-out from director’s fees, this confusion may facilitate recharacterisation.
Separate documentation of the earn-out (in the SPA, not in the employment or services contract) and a clear separation between the earn-out and the seller’s continued presence are the primary defences against these risks.
Evaluate whether you can sell through a holding company. If you meet the Article 21 LIS requirements, the difference between selling as an individual (up to 28%) and selling through a company (1.25% effective) is very large. If you don’t yet have a holding structure, ask a tax adviser whether it is feasible to establish one with sufficient lead time.
Structure the earn-out as contingent, not merely deferred. If the earn-out depends on genuinely uncertain future results, ensure the SPA clearly reflects it as contingent consideration. This allows you to defer taxation to the year of receipt.
Avoid any contractual link between the earn-out and your continued presence. If the earn-out is conditioned on your remaining in the business, recharacterisation as employment income is likely. Keep the two relationships clearly separate.
Define the measurement metric precisely. An imprecise EBITDA definition in the SPA can generate disputes with the buyer and, if payment is delayed, may also affect the timing of taxation.
Consider the impact on your overall wealth plan. Receiving a significant earn-out in a single year can push you into very high marginal IRPF rates. In some cases, negotiating earn-out distributions spread across multiple years may be advisable.
Savings income rates under IRPF for 2026 remain stable compared to 2025: the top bracket (above €300,000 of savings taxable income) is taxed at 28%. No significant modifications have been made to Article 21 LIS or to the IRPF instalment sale regime.
If you are in the process of selling your business and there is an earn-out on the table, we strongly recommend obtaining specialist tax advice before signing the SPA. Errors in the tax structure of an earn-out are very difficult to correct once the transaction has closed. For a broader view of tax obligations, see our guide to taxes when selling a business.
At Blue Mountain, we always work with specialist transaction tax advisers. If you would like to discuss your transaction, you are welcome to contact us.
See also: Earn-outs: when they work and when they fail and Tax implications of selling a company: 2026 guide.
By Blue Mountain Capital
By Blue Mountain Capital
By Dirk Manuel Martens Jiménez
If you wish to explore a potential collaboration or present an investment opportunity, we invite you to contact us. We guarantee absolute confidentiality in all our conversations.