Taxes in Spain

Mar 2, 2024 | AEAT, IRPF Spanish Tax Return, US Tax Consultants | 0 comments

What types of taxes are there?

There are many ways to classify taxes. The most common thing is to make a division that takes into account the type of income or assets that are taxed. They can be separated into two categories: direct and indirect.

This is not the only classification, since we can also talk about objective or subjective taxes; progressive or proportional; or order them according to the administration that collects them: local, regional, state and community.

What is a direct tax?

Direct taxes are those that are applied to income, assets or any other direct manifestation of a person’s economic capacity. A citizen has to pay these taxes for everything he owns (a house, land…) and for the money he earns (a salary, a pension…).

Some direct taxes paid in Spain are: personal income tax (IRPF), non-resident tax (IRNR), corporate tax (IS) or wealth tax (IP), by its initials in Spanish.

And an indirect one?

These taxes tax the indirect manifestation of people’s wealth. A citizen has to pay these taxes when he consumes something or receives a good.

Here are the value added tax (IVA) or special taxes, which only pay those who consume certain goods such as alcohol, hydrocarbons, tobacco or vehicle registration.

Which ones raise the most?

The most important taxes for the public coffers are, logically, the ones best known to citizens: personal income tax—a part of the workers’ payroll is withheld—and VAT—paid when purchasing a product.

These two taxes are the ones that contribute the most money each year to the Tax Agency, with a lot of difference compared to other figures. Seven out of every 10 euros collected in Spain come from personal income tax and VAT.

But there is another important income that public administrations receive every month; according to Treasury Inspector Francisco de la Torre in his book “Are we all Treasury?” “Social contributions are not considered a tax, however, they are the main source of income for the public sector” and are used to pay pensions, unemployment benefits or birth benefits.

Are many or few taxes paid in Spain?

The tax pressure in Spain is below that of the countries of the European Union. Specifically, tax revenue in our country stood at 35.4% of gross domestic product (GDP) in 2018 compared to 41.7% in the eurozone, according to the European statistics agency Eurostat.

Why does Spain collect less than its neighbors?

Spain has a series of structural problems that complicate tax collection. The lower per capita income – due to low salaries – and the high level of unemployment are some of the reasons that explain this difference, according to a report by the Institute of Economic Studies.

These reasons have a structural nature, which could not be changed overnight. There are other aspects where the Government can act more easily, such as VAT, tax deductions and the underground economy. Spain has less VAT revenue than its neighbors because there are many products with reduced (10%) and super-reduced (4%) rates, according to the Bank of Spain.

Personal Income Tax (IRPF)

Personal income tax is a tax that taxes earning income. It is the direct tax per excellence, since all workers, whether self-employed or employed, have to pay it when they work. It is a progressive tax that is structured around a series of sections, with a minimum and a maximum amount. In Spain, the sections of work (General Base) are the following:

Taxes (%)         From                To

19%                 0                      €12,450

24%                 €12,450           €20,200

30%                 €20,200           €35,200

37%                 €35,200           €60,000

45%                 €60,000           €300,000

47%                 €300,000         ∞

The investment tranches (Savings Base), which apply to capital gains and capital gains and losses, are as follows:

Taxes (%)         From                To

19%                 0                      €6,000

21%                 €6,000             €50,000

23%                 €50,000           €200,000

26%                 €200,000         ∞

The Law provides for a series of income deductions, such as contributions to pension plans, the deduction for habitual residence (for those taxpayers who acquired their home before January 1, 2013) or donations.

Who is required to file the tax and when?

Personal income tax is a tax that is declared between the months of April and June, filing Form 100 from the Tax Agency. All fiscal resident of Spain, reporting worldwide income. This period is what is commonly known as the income tax return, where all the income obtained by the taxpayer throughout the previous year is regularized.

Corporate Tax

Corporate Tax taxes the accounting profit of companies throughout a fiscal year. It applies to legal entities that are constituted as commercial companies (public limited companies, limited liability companies, etc.), but self-employed individuals who are natural persons do not have to pay it. It is a tax that is the responsibility of the central state. Its settlement corresponds to the companies that are obliged to pay it. However, the rate applied will depend on various factors, such as the type of company and its size. The rate is generally 25%.

However, there are some exceptions to this rule:

  • Tax-protected cooperatives pay 20% of the accounting profit.
  • Newly created companies pay 15% during the first two years that have a positive base.
  • Investment companies, such as SICAVs, that pay 1% taxes.
  • Associations and foundations declared of public utility to which the tax regime established in Law 49/2002 is susceptible pay 10%.

Who is required to file the tax and when?

The corporate tax is similar to personal income tax in terms of payment and presentation deadlines. It is paid in installments at different times of the year and is regularized when the tax settlement is submitted. To do this, Form 200 is submitted between July 1 and 25 of each fiscal year, and it is mandatory even if no activity has been carried out or income subject to the tax has not been obtained.

Inheritance tax and donations

The inheritance and donation tax are taxes that are applied in mortis causa and inter vivos transmissions, respectively. That is, it applies when there is a transfer of assets between two people free of charge, either because one of them has died or because she has donated part of the capital. Normally, these transmissions pass from parents to children or to a relative with a certain degree of consanguinity. For this reason, the Law differentiates between transmissions made to close relatives and those made to other people. The management of the inheritance tax is the responsibility of the autonomous communities, which are the ones that regulate it.

Like personal income tax, it is a progressive tax, in which there is no fixed percentage of tax, but rather the more you inherit, the more you pay. The general tax rate ranges between 7.65% and 34%, although there are various discounts depending on the autonomous community of residence of the taxpayer.

Who is required to file the tax and when?

In the event of death, both for assets and for life insurance beneficiaries, the tax accrues from the date of death, and must be settled by whoever receives the estate. The deadline to verify payment is six months from death. However, in many autonomous communities, such as Madrid, the payment of inheritance tax is reduced 99%, which means that in practice you do not have to pay anything, although you do declare it.

Property Transfer Tax (ITP)

The property transfer tax (ITP as per the initials in Spanish) taxes onerous transfers, in addition to corporate operations and documented legal acts. The ITP taxes everything from the purchase of a home or a second-hand car to an increase or reduction of capital in companies, including the rental itself. Like the inheritance and donation tax, the ITP is a tax assigned to the autonomous communities, so its conditions depend on each region. The ITP is closely linked to the Tax on Documented Legal Acts, which taxes the notarial, commercial and administrative documents necessary for the operation to be carried out.

Who is required to file the tax and when?

The taxpayer of this tax depends on the type of operation carried out although, in general, the purchaser, lessee or borrower in the operation will have to pay the tax. The deadline to settle it is 30 days from the moment in which the purchase of the asset or the signing of the right occurs, and it must be paid at the Treasury office of the corresponding autonomous community.

US Tax Consultants Phone +34 5194392 info@ustaxconsultants.es



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