Taxation in Spain

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Taxes in Spain are levied by national (central), regional and local governments. Tax revenue in Spain stood at 36.3% of GDP in 2013. [1] A wide range of taxes are levied on different sources, the most important ones being income tax, social security contributions, corporate tax, value added tax; some of them are applied at national level and others at national and regional levels. Most national and regional taxes are collected by the Agencia Estatal de Administración Tributaria which is the bureau responsible for collecting taxes at the national level. Other minor taxes like property transfer tax (regional), real estate property tax (local), road tax (local) are collected directly by regional or local administrations. Four historical territories or foral provinces (Araba/Álava, Bizkaia, Gipuzkoa and Navarre) collect all national and regional taxes themselves and subsequently transfer the portion due to the central Government after two negotiations called Concierto (in which the first three territories, that conform the Basque Autonomous Community, agree their defense jointly) and the Convenio (in which the territory and Community of Navarre defense itself alone). The tax year in Spain follows the calendar year. The tax collection method depends on the tax; some of them are collected by self-assessment, but others (i.e. income tax) follow a system of pay-as-you-earn tax with monthly withholdings that follow a self-assessment at the end of the term.

Contents

Tax rate in Spain for a Single Tax rate in Spain for one person.png
Tax rate in Spain for a Single

Income tax

Personal income tax in Spain, known as IRPF, was introduced in 1900. It represents nearly 38% of government revenues. [2] Since 2007, the responsibility for regulating and collecting personal income tax has been decentralized, the autonomous regions being responsible for collecting 50% of tax revenue (although all the returns and amounts are actually received by the central tax authority on their behalf). A single national rate applies per taxation band for the whole national portion of the income tax. Tax rates on the regional portion vary between regions, 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 refunds are normally paid between May and July, however, the Government has until the end of the year to liquidate before the taxpayer has a right to interest for the outstanding money: 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. Individual residents are subject to personal income tax (IRPF) based on their income from around the globe. Non-residents are subject to IRPF only on their Spanish-sourced income. [3] Residence status must be established when filing a Spanish tax return and has consequences for the amount of tax due. The rules are complex. [4] 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 a non-resident for tax purposes. An alien is also considered a resident if s/he has a spouse or underage child who are residents, as well as any alien who has their main economic center in Spain. When there is a residence conflict double taxation agreement must be checked.

Allowances and deductions

Some amounts are subtracted from the income tax base before the rate is applied. Allowances are adjusted annually by law. Allowances vary depending on whether the income is from labor, the taxpayer is single or lives with elderly relatives or dependants, challenge conditions of the taxpayer or those they live with, the autonomous community where they live, and other issues. Also, the amount may be reduced by declaring income with your spouse if you are married and some expenditures (like contributions to unions, personal pension funds, etc.). The figures given below are valid for the year 2019. [5]

The personal tax allowance differs depending on age. For the year 2019 under 65s, the personal tax 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.

There is an elderly relative allowance which lowers the taxable income and applies to those taxpayers who live with relatives older than 65 (or with relatives of any age with a disability graded at 33% or more) who do not have income themselves. This allowance is €1,150 if the relative is aged up to 75 and €2,550 above the age of 75.

There is also a dependants allowance which also lowers the taxable income base. It applies to taxpayers who live with dependants younger than 25 (or with dependants of any age with a disability graded at 33% or more). For the first dependent, the allowance is €2,400. The allowance for the second dependent is €2,700, the allowance for the third dependent is €4,000, and each further child has an allowance of €4,400. In addition to dependant allowances, there is a maternity allowance which is €1,200 for each child under the age of 3.

There are also other reductions and deductions applicable for expenditures and housing (home rental and purchasing). The exact amount of the deduction depends on the amount of the expenditure though it is topped.

Some autonomous communities (like Cantabria, Castilla-La Mancha and Madrid) have different allowances for their own share of the income tax and also establish their own deductions.

Retired expatriates living in Spain who receive an income within Spain for tax purposes and a pension from their native country will need to calculate their income tax [6] and allowances by first identifying their marginal rate of income tax. This can be quite complex given the differing tax rates and thresholds within specific tax regions and variances in allowances.

Current rates

Once the gross income has been reduced by the legal allowances, reductions, and deductions, the taxpayer has to apply the rate to find out the actual tax.

As of January 1, 2015, the income tax has been reformed and simplified. It's important to note that these rates vary between regions. The rates shown below apply 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%.

From (euros)Up to (euros)Tax RateStep * Tax Rate
€0€12,45019%€2,365.5
€12,450€20,20024%€1,860
€20,200€35,20030%€4,500
€35,200€60,00037%€9,176
€60,000 & Above45%

It's also noteworthy that these rates apply to the general income. Some kinds of income, like income bound to saving accounts, have different rates.

Tax on investment income

  1. Interest, coupon, bonds, insurance, and dividends are generally withheld at a 21% rate, but are added to the 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 a general scale (24,75%-52%). Since 2015 short and long-term capital gains are taxed at a 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 (IVA in Spanish: impuesto sobre el valor añadido or impuesto sobre el valor agregado) is due on any supply of goods or services sold in Spain. The current normal rate is 21% which applies to all goods which do not qualify for a reduced rate or are exempt. There are two lower rates of 10% and 4%. The 10% rate is payable on most drinks, hotel services, and cultural events. The 4% rate is payable on food, books and medicines. [7] An EU directive means that all countries of the European Union have VAT. All exempt goods and services are listed below.

As of January 1, 2013, new properties are taxed at a reduced rate of 10%. Second-hand properties are not subject to VAT, but a transfer tax, known as Impuestos Sobre Transmisiones Patrimoniales or ITP. The tax is levied by the autonomous regional governments and therefore varies by region. The rate varies from 6% to 8%. [7]

Corporate tax

As of January 1, 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]

In the Canary Islands, you have access to 4% Income Taxes if you enter into the Canarian Special Zone (ZEC).

Spanish property tax for non-residents

Property owners are considered a non-resident in Spain if they live in the country for less than 183 days in a single year. Non-resident property owners are required to make a tax declaration for each quarter in which they have earned rental income. “Impuesto Sobre la Renta de no Residentes” is a tax on rental income for non-resident landlords in Spain. For the tax year 2020, the tax rate is 19% for residents of the EU, Norway and Iceland. Meanwhile, the tax rate is 24% for citizens of other countries. If the property is not rented out, non-residents must submit a deemed tax return. [9]

Quarterly tax filing deadlines

Non-resident owners of Spanish property are required to file four different quarterly tax returns throughout the tax year. These tax returns are due in January, April, July and October. [9]

Plusvalia tax

Plusvalia tax in Spain is a local tax charged by the local Town Hall on properties, at the moment they are sold. It is calculated on the value of the property and depends on the number of years that have passed since the property was previously sold. [9]

Deemed tax returns for a property in Spain

Deemed tax is a tax paid by non-residents in Spain who own properties located in the country that were not rented. Where a property has only been let for part of a year, Spanish Deemed tax is applicable only for the period in which it was vacant or occupied by the owner for personal use. Landlords are required to file a non-resident income tax return (Form 210) to report the “deemed income”. The deadline for non-residents to file a deemed tax return is 31 December of the following tax year. [10]

Social Security contributions

Most sorts of employment income earned are subject to social security contributions, by both the employee and the employer. The standard rate for the employee is 6.35%. The employer pays what corresponds to 29.90% of the employee's 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. [11]

See also

Related Research Articles

An income tax is a tax imposed on individuals or entities (taxpayers) in respect of the income or profits earned by them. Income tax generally is computed as the product of a tax rate times the taxable income. Taxation rates may vary by type or characteristics of the taxpayer and the type of income.

A tax deduction is an amount deducted from taxable income, usually based on expenses such as those incurred to produce additional income. Tax deductions are a form of tax incentives, along with exemptions and tax credits. The difference between deductions, exemptions, and credits is that deductions and exemptions both reduce taxable income, while credits reduce tax.

A capital gains tax (CGT) is the tax on profits realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale of stocks, bonds, precious metals, real estate, and property.

<span class="mw-page-title-main">Taxation in the United Kingdom</span> United Kingdom tax codes

In the United Kingdom, taxation may involve payments to at least three different levels of government: central government, devolved governments and local government. Central government revenues come primarily from income tax, National Insurance contributions, value added tax, corporation tax and fuel duty. Local government revenues come primarily from grants from central government funds, business rates in England, Council Tax and increasingly from fees and charges such as those for on-street parking. In the fiscal year 2014–15, total government revenue was forecast to be £648 billion, or 37.7 per cent of GDP, with net taxes and National Insurance contributions standing at £606 billion.

In France, taxation is determined by the yearly budget vote by the French Parliament, which determines which kinds of taxes can be levied and which rates can be applied.

<span class="mw-page-title-main">Income tax in the United States</span> Form of taxation in the United States

The United States federal government and most state governments impose an income tax. They are determined by applying a tax rate, which may increase as income increases, to taxable income, which is the total income less allowable deductions. Income is broadly defined. Individuals and corporations are directly taxable, and estates and trusts may be taxable on undistributed income. Partnerships are not taxed, but their partners are taxed on their shares of partnership income. Residents and citizens are taxed on worldwide income, while nonresidents are taxed only on income within the jurisdiction. Several types of credits reduce tax, and some types of credits may exceed tax before credits. Most business expenses are deductible. Individuals may deduct certain personal expenses, including home mortgage interest, state taxes, contributions to charity, and some other items. Some deductions are subject to limits, and an Alternative Minimum Tax (AMT) applies at the federal and some state levels.

Income taxes in Canada constitute the majority of the annual revenues of the Government of Canada, and of the governments of the Provinces of Canada. In the fiscal year ending March 31, 2018, the federal government collected just over three times more revenue from personal income taxes than it did from corporate income taxes.

Taxation in the Netherlands is defined by the income tax, the wage withholding tax, the value added tax and the corporate tax.

Under Article 108 of the Basic Law of Hong Kong, the taxation system in Hong Kong is independent of, and different from, the taxation system in mainland China. In addition, under Article 106 of the Hong Kong Basic Law, Hong Kong has independent public finance, and no tax revenue is handed over to the Central Government in China. The taxation system in Hong Kong is generally considered to be one of the simplest, most transparent and straightforward systems in the world. Taxes are collected through the Inland Revenue Department (IRD).

This is a list of the maximum potential tax rates around Europe for certain income brackets. It is focused on three types of taxes: corporate, individual, and value added taxes (VAT). It is not intended to represent the true tax burden to either the corporation or the individual in the listed country.

Taxes in Iceland are levied by the state and the municipalities. Property rights are strong and Iceland is one of the few countries where they are applied to fishery management. Taxpayers pay various subsidies to each other, similar to European countries that are welfare states, but the spending is less than in most European countries. Despite low tax rates in relation to European welfare states, overall taxation and consumption is still much higher than in countries such as Ireland. Employment regulations are relatively flexible. The tax is collected by Skatturinn, the Iceland Revenue and Customs Agency and is due in March each year.

The tax system of Andorra has evolved according to the country's economic activity and structure, and the tax bases have been expanded to optimally distribute the weight of the tax burden, going from an almost exclusively indirect tax system to a system with direct taxation that can be approved at the international level. Despite its taxes, Andorra ceased to be a tax haven for its neighboring countries years ago, and for the European Union and OECD recently.

Taxation in Norway is levied by the central government, the county municipality and the municipality. In 2012 the total tax revenue was 42.2% of the gross domestic product (GDP). Many direct and indirect taxes exist. The most important taxes – in terms of revenue – are VAT, income tax in the petroleum sector, employers' social security contributions and tax on "ordinary income" for persons. Most direct taxes are collected by the Norwegian Tax Administration and most indirect taxes are collected by the Norwegian Customs and Excise Authorities.

Taxes in Germany are levied by the federal government, the states (Länder) as well as the municipalities (Städte/Gemeinden). Many direct and indirect taxes exist in Germany; income tax and VAT are the most significant.

<span class="mw-page-title-main">Taxation in South Africa</span>

Taxation may involve payments to a minimum of two different levels of government: central government through SARS or to local government. Prior to 2001 the South African tax system was "source-based", where in income is taxed in the country where it originates. Since January 2001, the tax system was changed to "residence-based" wherein taxpayers residing in South Africa are taxed on their income irrespective of its source. Non residents are only subject to domestic taxes.

Taxation in Gibraltar is determined by the law of Gibraltar which is based on English law, but is separate from the UK legal system. Companies and non residents do not pay income tax unless the source of this income is or is deemed to be Gibraltar. Individuals pay tax on a worldwide basis on income from employment or self employment if they are ordinarily resident in Gibraltar. There is no tax on capital income.

Taxes in Portugal are levied by both the national and regional governments of Portugal. Tax revenue in Portugal stood at 34.9% of GDP in 2018. The most important revenue sources include the income tax, social security contributions, corporate tax and the value added tax, which are all applied at the national level.

In Slovakia, taxes are levied by the state and local governments. Tax revenue stood at 18.732% of the country's gross domestic product in 2019. The tax-to-GDP ratio in the Slovakia increased by 0.4 percentage points from 34.3% in 2018 to 34.7% in 2019. The most important revenue sources for the state government are income tax, social security, value-added tax and corporate tax.

Taxation in Belgium consists of taxes that are collected on both state and local level. The most important taxes are collected on federal level, these taxes include an income tax, social security, corporate taxes and value added tax. At the local level, property taxes as well as communal taxes are collected. Tax revenue stood at 48% of GDP in 2012.

<span class="mw-page-title-main">Taxation in Luxembourg</span>

Tax revenue in Luxembourg was 38.65% of GDP in 2017, which is just above the average OECD in 2017.

References

  1. ↑ "Tax GDP".
  2. ↑ "Spanish Tax Authority Tax Report 2013". Archived from the original on 5 June 2015. Retrieved 1 June 2015.
  3. ↑ "Taxation in Spain". Moving to Valencia. Retrieved 13 July 2016.
  4. ↑ Tax Residence concept. http://jullastres.es/wordpress/?p=400
  5. ↑ "Tax-free thresholds, reductions and deductions on the Personal Income Tax" . Retrieved 17 August 2019.
  6. ↑ "Spanish Income Tax Calculator 2017/18". iCalculator - Spanish Income Tax Calculator 2017/18. Retrieved 2017-11-07.
  7. 1 2 "IVA (VAT) rates in Spain". Archived from the original on 2015-04-10. Retrieved 2015-04-04.
  8. ↑ "Guide to company tax in Spain for 2020". www.spainaccountants.com.
  9. 1 2 3 Valcheva, Kristina (8 October 2020). "Own a property in Spain? Here's everything you need to know about non-resident property taxes". www.ptireturns.com.
  10. ↑ Valcheva, Kristina (2 July 2020). "What are deemed tax returns for a property in Spain?". www.ptireturns.com.
  11. ↑ "Social Security in Spain KPMG". 27 June 2022.
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