Understanding how an earn-out is taxed on the sale of a business is essential before signing a sale and purchase agreement with a variable price. The tax treatment does not depend solely on when it is paid: it is also necessary to analyse whether the seller is an individual or a company, whether the variable amount can be estimated at the time of sale, when it becomes due, whether the transaction can be treated as an instalment sale and whether the payment genuinely remunerates the price of the shares or the seller's subsequent services.
At Barcelona Tributario, we specialise in the taxation of corporate transactions and M&A. We review the tax structure from the first draft of the agreement and coordinate it with the transaction's corporate and financial advisers. We also have a dedicated guide to the taxation of selling a business in Barcelona.
Quick answer: if the seller is an individual and the earn-out forms part of the price of the shares, it will generally affect the capital gain on the disposal. Where the variable price is not fixed in advance, the DGT accepts that the final price may be estimated and subsequently adjusted; and, if the transaction meets the deferred payment requirements under Article 14.2.d) of the LIRPF, the taxpayer may opt to allocate the income proportionately as payments become due. If the seller is a company, the treatment follows the accounting and tax rules of Corporate Income Tax.
What is an earn-out and why does it change the tax treatment of a sale?
Fixed and contingent consideration
In a sale transaction, an earn-out is a portion of the price that depends on future events: EBITDA, sales, margin, contract renewals, obtaining licences or other agreed metrics. Its purpose is usually to bridge the gap between buyer and seller expectations when they disagree on the business's current value. To understand how an earn-out is taxed on the sale of a business, this contingent component must be separated from the fixed price and any remuneration for subsequent services.
The tax treatment of an earn-out can make a significant difference to what you actually receive for your business. Before signing anything, speak to our tax lawyers and make sure the agreement structure is optimised from day one.
The key tax distinction is between a simply deferred price —where the amount is already known— and a contingent price whose final amount depends on future variables.
The agreement cannot be analysed solely from a corporate law perspective
The drafting of the metrics, the date on which the right to payment arises, conditions precedent, the payment timetable and the seller's continued involvement may change the tax treatment. Therefore, when we analyse how an earn-out is taxed on the sale of a business, we review the entire clause, not just the variable percentage.
Earn-outs under Personal Income Tax: what happens when an individual sells?
The sale of shares generates a capital gain or loss
When an individual resident in Spain disposes of shares or equity interests held in their personal assets, the difference between the tax disposal value and the tax acquisition value generally generates a capital gain or loss.
If the earn-out genuinely constitutes an additional part of the price of the shares, it should be included in the analysis of the disposal and not automatically treated as separate income.
What to do when the variable price cannot be known at the time of sale
The DGT has analysed disposals where part of the price depends on unknown future parameters. In rulings such as V2644-22, the approach is to estimate the final price if the entire gain is allocated to the year of disposal, and subsequently adjust it when the actual amount differs.
This means it is not correct to say that every uncertain earn-out must necessarily be declared only when the money reaches the account. The applicable timing rule and the option chosen by the taxpayer must be assessed.
Instalment sales: the rule under Article 14.2.d) of the LIRPF
Where the price is received wholly or partly through successive payments and more than one year passes between the disposal and the due date of the final instalment, Article 14.2.d) allows the taxpayer to opt to allocate the income proportionately as the corresponding payments become due.
This rule can be highly relevant in determining how an earn-out is taxed on the sale of a business, but it should not be confused with a universal cash-basis taxation rule. First, it must be confirmed that the transaction meets the legal requirements.
What Personal Income Tax rates may apply in 2026?
If income from the earn-out is ultimately included in the savings tax base, the current combined scale reaches 30 % for the portion exceeding €300,000. Since 2025, the bands have been as follows:
| Savings tax base | Combined rate |
|---|---|
| Up to €6,000 | 19 % |
| From €6,000 to €50,000 | 21 % |
| From €50,000 to €200,000 | 23 % |
| From €200,000 to €300,000 | 27 % |
| Over €300,000 | 30 % |
Catalonia does not add another savings tax scale on top of these rates
It is not correct to use the former 28 % reference or subsequently add an additional Catalan scale to the same gain. The savings tax scale is technically split between state and regional components, but the current combined result reaches 30 % in the top band.
The acquisition cost remains decisive
To calculate the gain, we must review the acquisition price, related expenses and taxes, capital increases and the special valuation rules that may apply to unlisted shares. An incorrect estimate of the tax value can significantly alter the final tax treatment of the earn-out.
The main risk: part of the payment may not genuinely be sale consideration
The seller's continued involvement after closing
It is common for the seller to remain as a director, officer, adviser or employee during a transitional period. This continued involvement does not automatically turn the earn-out into salary.
The risk arises where the right to payment depends primarily on continuing to work, providing personal services or meeting targets linked to that future activity. In such cases, it must be assessed whether all or part of the payment remunerates services rather than exclusively the value transferred.
Separating price, remuneration and non-compete payments
Where an earn-out, remuneration for services, a retention bonus or a non-compete agreement coexist, we recommend contractually separating the obligations and assigning a defensible value to each item.
A contractual label alone does not determine the tax treatment. The tax authorities may consider the payment's true economic nature.
Earn-outs under Corporate Income Tax: a relevant development in 2026
The contingent price may be allocated to a subsequent year
When the seller is a company, the tax base starts from the accounting result, adjusted under tax rules. For a contingent price, the timing of recognition depends on when the events occur that allow the income to be recognised and quantified under the applicable accounting and tax treatment.
Every earn-out is different, and an incorrect tax classification can cost you thousands of euros in unnecessary tax. At Barcelona Tributario, we analyse your transaction in detail and help you make informed decisions before closing the sale.
The binding ruling V0062-26, dated 15 January 2026, is particularly relevant: the DGT analyses a sale of shares with a fixed component and a contingent component that is included in a period subsequent to that of the disposal.
The Article 21 exemption may also extend to the earn-out
In that ruling, the DGT confirms that income associated with the contingent price may benefit from the exemption under Article 21.3 of the LIS where its requirements are met, even if it is included in the tax base for a year subsequent to the sale.
This is a very important clarification for explaining how an earn-out is taxed on the sale of a business when the transferor is a holding company or trading company. However, the exemption is not automatic: the shareholding, holding-period requirements and the specific limitations of Article 21 must be reviewed.
A 95 % exemption does not always mean a final 1.25 % cost
At the standard 25 % rate, taxing only the non-exempt 5 % nominally results in a 1.25 % charge on that income before other adjustments. However, this figure should not be used as a universal rule: it depends on the rate applicable to the entity, whether the exemption applies and all other tax circumstances.
Clauses we review before signing an earn-out agreement
KPIs, measurement period and buyer control
We define EBITDA, revenue, margin, clients, extraordinary expenses, related-party transactions and accounting policies that may affect the calculation with precision. We also review what decisions the buyer may take during the measurement period and how disputes are resolved.
Due dates, deferred payments and guarantees
It is not the same for an amount to arise when a milestone is met as it is to agree today on a certain price whose payment is deferred. This distinction is essential for tax timing. We also review escrow arrangements, price retentions, debt adjustments and working capital so that different mechanisms are not confused with the earn-out.
Change of residence and international transactions
If the seller expects to move their tax residence during the earn-out period, the applicable double tax treaty, the timing of the disposal and, where relevant, the potential exit tax must be analysed. A subsequent change of residence does not automatically alter the tax treatment of a sale that has already taken place.
How we plan transactions at Barcelona Tributario
We model several scenarios before the final agreement
To explain precisely how an earn-out is taxed on the sale of a business, we calculate the transaction with different variable price amounts, due dates and seller structures. The aim is to understand not only the gross price, but also the net amount remaining after tax.
We also review outstanding capital losses, the tax value of the shares, the seller's tax regime and the documentation needed to defend the transaction in the event of a tax audit.
Tax documentation to support the earn-out
We retain and organise the sale and purchase agreement, appendices, valuation reports, KPI calculations, communications between buyer and seller, and evidence for each instalment. Documentary traceability is particularly important where the final price is determined several years after the disposal.
Binding rulings for particularly complex transactions
Where there is a relevant interpretative doubt and the transaction has not yet been carried out, submitting a binding ruling request to the Directorate-General for Taxation may be considered. The responses have the binding effects provided for in Article 89 of the LGT where its requirements are met.
A ruling request does not replace proper contractual structuring, but it can provide legal certainty in high-value transactions or those involving unusual facts.
Frequently asked questions about how an earn-out is taxed on the sale of a business
Is an earn-out always taxed when it is paid?
No. Under Personal Income Tax, it is necessary to analyse how the price was determined and the timing rule chosen. If the transaction meets the deferred payment requirements under Article 14.2.d), the taxpayer may opt to allocate the income proportionately as payments become due. In other cases, it may be necessary to estimate the price initially and adjust it later.
Are you negotiating the sale of your business and unsure how the earn-out will be taxed? Speak to us with no obligation: we will explain the tax implications and how to structure the agreement to protect your assets.
What is the maximum savings tax rate in 2026?
The combined scale reaches 30 % for the portion of the savings tax base exceeding €300,000, provided that the earn-out is in fact treated as a capital gain included in that base.
Can an earn-out be taxed as employment income?
There may be a risk of a different classification if the payment genuinely remunerates personal services provided after the sale or is materially conditional on the seller's future activity. Continued involvement alone does not automatically mean that the entire earn-out is salary.
Can the Article 21 LIS exemption apply to an earn-out received later?
Yes, where the seller is a company and the relevant requirements are met. In ruling V0062-26, the DGT confirmed that a contingent price allocated to a subsequent year may benefit from the exemption under Article 21.3.
Is it better to sell directly or through a holding company?
There is no universal answer. The tax treatment depends on who currently holds the shares, the pre-existing structure, the future use of the funds and the requirements under the LIS. Creating or inserting a holding company shortly before a sale does not in itself guarantee any tax advantage.
What documentation should be retained?
The sale and purchase agreement and appendices, KPI calculations, valuation reports, acquisition cost documentation, settlements for each variable instalment, communications between the parties and tax returns related to the transaction.
When should the tax treatment of an earn-out be reviewed?
Before signing the sale and purchase agreement. The way the price, milestones, due dates and seller obligations are defined can affect the tax treatment, and it is much more difficult to correct the structure once the transaction has closed.