Taxation in Spain

Taxes in Spain are levied by federal and regional governments. Tax revenue in Spain stood at 36.3% of GDP in 2013.^[1] A wide range of taxes are levied on different sourced, the most important ones include income tax, social security contributions, corporate tax and the value added tax, which are all applied on the federal level. Since Mariano Rajoy took office in 2011, attempts have been made to reform the labour market and the tax code. In an effort to make Spain more competitive, the government has lowered certain taxes. The tax year in Spain follows the calendar year. The tax collection method is self assessment as opposed to PAYE.

Income Tax

Personal Income tax in Spain, known as IRPF was introduced in 1900. It represents over 50% of government revenues.^[2] Since 2007, the responsibility for tax revenue has been decentralised, with the autonomous regions responsible for collecting 50% of tax revenue, although it is collected by the central tax authority on their behalf. A single national rate applies per taxation band for the whole nationportion of the income tax. Tax rates on the regional portion vary from region-to-region with Madrid having the lowest and Catalonia the highest. Tax is withheld by the employer monthly on behalf of the tax authority. Tax returns are submitted between April and June of the following year and reimbursals are normally paid between May and July, however the Government has until the end of the year to liquidate all reimbursements. Any payments not paid by this date are paid with interest from the beginning of the next year.

As in other jurisdictions income tax is payable by both residents and non-residents with different rates applying. Residence status must be established when filing a Spanish tax return and has consequences for the amount of tax due. The rules are complex.^[3] Spain considers any alien to be resident if they were living in Spain for more than 183 days in the tax year. Sporadic periods of time outside of Spain are not counted towards establishing oneself as non-resident for tax purposes. An alien is also considered resident if s/he has a spouse or underage child who are residents, as well as any alien who has their main economic centre in Spain. When there is a residence conflict double taxation agreement must be checked.

Deductions

The personal allowance differs depending on age. For under 65s the personal allowance is €5,550. Individuals aged between 65 and 75 are allowed a €6,700 personal allowance. Anyone above 75 receives the highest personal allowance at €8,100. ^[4]

There is also a child allowance which lowers the taxable income. For the 1st child, the allowance is €2,400. The allowance for the 2nd child is €2,700. For the 3rd child the allowance is €4,000 and each further child has a €4,500 allowance. In addition to child allowances, there is a maternity allowance which is €2,800 for each child under the age of 3.^[5]

Current Rates

As of January 1st 2015, the income tax has been reformed and simplified. It's important to note that these rates vary between each region. The rates shown below apply only to the Community of Madrid. The communities of Andalusia and Catalonia apply a higher regional income tax than Madrid. The top rate of income tax in Andalusia and Catalonia is 49%.

Tax on investment income

1. Interest, coupon, bonds, insurance and dividends are generally withholded at 21% rate, but are added to savings base and taxed at savings scale. The first 1.500 € of dividends are exempt (since 2015 this exemption does not apply).
2. Long term (+1 year) capital gains on: stocks, investment funds and real estate, are also taxed at savings scale.
3. Short term (-1 year) capital gains are taxed at general scale (24,75%-52%). Since 2015 short and long term capital gains are taxed at savings scale.

Savings scale 2014

* up to 6.000 €: 21%
* from 6.000 to 24.000 €: 25%
* over 24.000 €: 27%

Savings scale 2015/2016

* up to 6.000 €: 20%/19%
* from 6.000 to 50.000 €: 22%/21%
* over 50.000 €: 24%/23%

Value added Tax

VAT or IVA is due on any supply of goods or services sold in Spain. The current normal rate is 21% which apply to all goods who are not the reduced rates or exempt. Two different lower rates apply of 10% and 4%. The 10% rate apply on most drinks, hotels and cultural events. 4% apply to food, books and medicine.^[6] An EU directive means that all countries of the European Union have VAT. All exempt goods and services are listed below.

• Education provided by the state
• Tutoring
• Sporting services
• Cultural services
• Insurance
• Postal stamps
• Artists, writes are composers

As of January 1st 2013, new properties are taxed at the reduced rate of 10%. Second hand properties aren't taxed under VAT but a transfer tax, known as Impuestos sobre Transmisiones Patrimoniales or ITP. The tax is levied by the community government so the rate varies by community. The rate rages between 6% and 8%.^[7]

Corporate Tax

As of January 1st 2015, the corporate tax rate is 28%. In 2016 the tax will be further reduced to 25%. There is a lower tax rate for newly-formed companies. The rate, which was introduced in 2015, is set at 15% for the first 2 years in which the company obtains taxable profit.^[8]

Social Security Contributions

Most sort of employment income earned are subject to social security contributions for both the employee and the employer. The standard rate for the employee is 6.35%. The employer page what correspond to 29.90% of the employees salary. The current maximum monthly Social Security base is EUR3,596.98 (2015). Any income exceeding that maximum base is not subject to both employee and employer contributions.^[9]

References