Inviting a client to the Grand Prix or to a box at the Bernabéu: deductible for corporate income tax, not for VAT

The Madrid Formula 1 Grand Prix runs from 11 to 13 September 2026 at the Madring circuit, on the IFEMA grounds, and many companies are using the occasion to invite a client. The tax treatment of that invitation runs in two directions: the expense is deductible for Spanish corporate income tax as client entertainment, subject to a ceiling of 1 per cent of net turnover for the tax period, while the input VAT cannot be deducted "in any proportion". The same invoice is therefore borne differently under each tax. The position of the drivers and teams themselves is a separate question, which we covered in our note on how non-resident drivers and teams are taxed in Spain.

The hospitality box explains it better than the circuit does. A box at the Santiago Bernabéu for a Champions League match usually includes catering, the food served in the box itself, and for VAT purposes the ticket and the meal do not follow the same rule. The decision is best taken before the booking.

Why is the expense deductible for corporate income tax?

Article 15.e) of Corporate Income Tax Act 27/2014 treats donations and gratuitous transfers as non-deductible, and then removes from that category expenses for entertaining clients or suppliers. The rule closes with a cap: entertainment expenses "shall be deductible subject to a limit of 1 per cent of the net turnover for the tax period". Inviting a client to a sporting event, where the invitation responds to the commercial relationship with that client, is not a gratuitous transfer: it is a business expense subject to a quantitative ceiling.

The ceiling has three consequences. It is annual and aggregate: the September invitation competes for the same 1 per cent as every business lunch of the year and the Christmas hampers. The reference figure is net turnover, not profit, so a company with high revenue and thin margins has more room than a small, highly profitable one. And any excess is neither deferred nor recovered in later years: it operates as a permanent difference in the tax base, alongside the other adjustments reviewed in our summary of the 2026 corporate income tax rules.

Is client entertainment the same as a promotional expense?

Spanish law separates the two concepts and caps only one of them. The same letter e) of article 15 also removes from the notion of gratuitous transfer, alongside entertainment, expenses "incurred to promote, directly or indirectly, the sale of goods and the supply of services", as well as those correlated with income. The 1 per cent ceiling is drafted for entertainment of clients or suppliers alone; promotional expenditure does not carry it.

Nor is sponsorship an invitation. The advertising sponsorship contract, defined in article 22 of General Advertising Act 34/1988, commits the sponsored party to collaborate in the sponsor's advertising in exchange for financial support, so the company pays a price for an advertising service. Where what has been contracted is brand presence, and the use of the box is ancillary to that package, the characterisation does not turn on the label on the invoice but on what was agreed and what can be evidenced.

Why is the VAT on the ticket not deductible in any proportion?

Article 96.Uno of Value Added Tax Act 37/1992 excludes from the right to deduct, "in any proportion", the input VAT borne on certain goods and services, and a ticket to the circuit or to the stadium falls within two of those cases at once. Its number 4.º excludes "shows and services of a recreational nature", a category that plainly covers a Formula 1 race and a football match. Its number 5.º excludes "goods or services applied to the entertainment of clients, employees or third parties", which is exactly what an invitation is.

The words "in any proportion" are to be read literally: there is no scope for deducting a proportionate part by reference to the commercial purpose of the invitation, nor for supporting the deduction with the schedule of meetings held over the weekend. The exclusion is objective, it operates by reason of the nature of the service acquired however close its connection with the business, and it applies equally to inviting an employee, not only a client.

The Bernabéu box: the ticket and the catering follow different rules

The outcome reverses under number 6.º of that same article 96.Uno, which excludes travel and transport services, hotel accommodation and catering with a decisive proviso: "save where the amount thereof qualifies as a tax-deductible expense for personal income tax or corporate income tax purposes". The VAT on travel, on the hotel and on restaurant services is deductible where the amount is a deductible expense under the direct taxes.

Read together, the two rules chain the taxes to each other. If the catering in the box is deductible entertainment and fits within the 1 per cent of article 15.e), its VAT is deductible; if the company has already exhausted that limit for the year, the amount ceases to be a tax-deductible expense and drags the input VAT down with it. Deductibility for corporate income tax therefore conditions VAT recovery on these items, which is why the 1 per cent has to be tracked through the year rather than checked at the year end.

Two further points. Number 3.º of article 96.Uno excludes food, beverages and tobacco from the right to deduct, so the favourable rule in number 6.º covers hotel and catering services, the meal served by the caterer, and not the purchase of food and drink as such. And everything turns on the invoice: if the supplier issues a single line for "box" or "season pass", the whole amount is characterised as the assignment of a right of admission to a show and no part of the VAT is recovered. Breaking the invoice down between the ticket and the catering service is what opens the door to deducting the catering.

What does not count as client entertainment?

Number 5.º itself defines the concept by exclusion: entertainment does not include "free samples and low-value advertising items as defined in article 7, numbers 2.º and 4.º" of the VAT Act. That article 7 treats as advertising items those with no intrinsic commercial value bearing the advertising reference indelibly, and brings their supply within the scope of the tax where the total cost of supplies to a single recipient in the calendar year exceeds 200 euros. A low-value branded corporate gift accordingly follows a regime of its own; a ticket to a show never does.

How is an invitation evidenced as client entertainment?

Article 105.1 of General Tax Act 58/2003 requires the party asserting a right to prove the facts constituting it, and its article 106.4 states that an invoice is not privileged evidence of the existence of the transactions: once the tax administration puts its effectiveness in issue on reasoned grounds, the taxpayer must prove that the transactions were real. It is worth recording who was invited, the commercial relationship with that person and the purpose of the invitation.

How we help with the deductibility of client entertainment at RCM Legal

There are two points of friction that recur in this area. The first is control of the 1 per cent: it is computed across the whole year, and companies tend to find they have exceeded it once the expense can no longer be rearranged, dragging down the VAT on the items covered by number 6.º as well. The second is documentary: an invoice in the company's name, with no record of the guests and no breakdown between ticket and catering, does not establish the entertainment character of the expense.

At RCM Legal we review how a company's entertainment and representation spending is structured and documented (invitations, travel, catering, sponsorship and gifts), separating what is deductible for corporate income tax, what carries a right to deduct VAT and what has to be absorbed as a cost. As a law firm in Murcia specialising in tax advice for companies, if you are planning to invite clients to a sporting event or want to put your entertainment policy in order before the year end, tell us about the operation.