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Spain Tax Summary
PERSONAL INCOME TAX (PIT)
Personal Income Tax in Spain is the direct tax of individual taxpayers who are resident in Spain for tax purposes. Every taxpayer’s worldwide income subject to PIT is taxed by a progressive rate. Depending on the kind of income, it will be part of the general taxable income or the savings taxable income. Savings taxable income is mostly:
- Dividends and similar income
- Interests and other income generated from transferring capital to third parties
- Capital gains from selling assets
Current savings taxable income rates are the following:
Revenue of the general taxable income is basically the rest. PIT return includes the income generated during the calendar year (from the 1st of January to 31st of December) and it is filed between April and June of the next year. Every region (“comunidad autónoma” may have different rates for the general taxable income, so it is possible that a resident in one district may pay a different amount of PIT than a resident in another country (anyway the maximum margin rate is about 50%).
NON-RESIDENTS INCOME TAX (NRIT)
It is the direct tax of the taxpayers (individuals or bodies corporate) who are non-resident in Spain for tax purposes and do not have a Permanent Establishment (PE), although they will pay PIT or corporate tax, as appropriate. These taxpayers will pay taxes only for the income generated in Spain according to the current law and the double tax agreements between Spain and their country of residence. There are differences whether you are a resident in another country of the European Union (EU) or not, including lower rates (a 19% general rate for other countries of the European Economic Area (EEA) and 24% for the rest of the world) or deductible expenses. Also, double tax agreements may establish lower rates than the general rate for some kinds of income.
CORPORATE INCOME TAX (CIT)
It is the direct tax for both bodies corporate which are resident in Spain for tax purposes and the PE of non-resident companies only for the income generated in Spain.
The general rate in 2021 is 25% of the profit, although it is 15% for the first year of operation generating profit and the following year. This tax return is filed within the following 25 days after a 6-month period once the tax year has finished (if the fiscal year of the Company is the calendar year, the tax return will be filed from the 1st to 25th of July of the next year. It is mandatory to make interim payments during the year (in April, October and December) based either on that year’s profit or on previous years’ profit , depending on what system the Company chose (if you exceed a limit, then it is mandatory to make the interim payments based on the current year’s profit).
These payments will be deducted when the tax return is filed, as well as any withholding the company has paid (financial income, rental income, non-residents withholdings in other countries, etc.).
VAT
Spanish VAT is governed by the EU Directive 2006/112/EC, which applies to every single Member State (i.e. UK, not anymore) on supplies of goods and services carried out in the Spanish VAT territory (i.e. Canary Islands, Andorra, Ceuta and Melilla not included), and in both EU and non-UE international acquisitions of goods and services (i.e. intra-community acquisitions and imports).
It is not exactly a sales tax, as it applies only over the value added in each step of the supply chain.
Ordinarily, tax rates applies as following, irrespective of the taxable event stated above:
a) Regular tax rate = 21%
b) Reduced rate = 10% applies on basic goods and services that the law is intending to tax benefit (e.g. foods and drinks, home purchase, and qualifying services)
c) Super reduced rate = 4% applies only to a few listed essential goods, mostly (e.g. medicines, bread, milk, books, etc.)
Exemptions apply both to domestic and international transactions, (e.g. share deals, sports, culture, health, second-sale RE property, rural property, home rental, etc.). In addition, there are special schemes for VAT Groups, retailer, second-hand goods, etc.
TRANSFER, STAMP DUTY AND CAPITAL DUTY
Transfer tax covers any non-VAT transfer, which is also not subject to the Inheritance Tax (i.e. individuals’ inter vivos transfers). Tax rate varies in between 5%-11%, depending on the Spanish region where the goods or rights are located, as long as the taxpayer is a tax resident in Spain.
Taxpayer is most frequently the acquirer. The taxable base is composed by the market value, which could be questioned by Regional Tax Authorities. Exemptions may apply (e.g. share deals under certain conditions met, restructuring processes).
It is worth nothing that second and further transfers of RE property and home rental, exempt from VAT, are subject to Transfer Tax.
Stamp duty is levied on notarial papers, commercial and public records (e.g. public deeds, commercial notes, etc.) documenting certain transactions with an economic value to it. There is no accrual where transactions are not exempt from Transfer Tax or Capital Tax, but it is yet fully compatible with VAT. Tax rates varies from 0.75% to 1.5% depending on which Region holds the taxable event.
Capital duty is levied only on certain corporate events, such as a capital reduction, partner splits or partnership dissolution. Tax rate is fixed at 1% and most usually the shareholder is the taxpayer.
TAX ON INCREASE OF URBAN LAND VALUE (TIULV)
TIULV is a local tax payable by the owner upon disposal of his urban RE property based on the theoretical increase of the land’s value, while the property remained in the owner’s equity.
Tax base is defined in consideration of both the land’s value, as per stated by the local Land Register (i.e. cadastral value) and the duration of ownership. Tax rates are different for each municipality. The taxpayer is the transferor of the property, exception made for donations.
Provided that the property acquisition value has not experienced any increase of value, a refund may be claimed on tax paid within the statute-of-limitation period on a procedure in front of the Spanish Tax Authorities.
EXIT TAX
It works different both for individuals and for entities.
If a person ceases to be tax resident in Spain, they will have to put together any income pending at the time, not yet allocated to their last PIT return, upon the change of residence, and file a supplementary tax return. No late interests, additional charges or penalties due.
However, if the new place of residence is located within another EU country, an alternative cash approach may be opt in by the taxpayer, where the tax due is delayed to the time (i.e. year) in which the piece of income is due. Again, no late interests, additional charges or penalties accrual.
The taxpayer may delay and/or faction tax payable by applying to the Spanish Tax Authorities with the proposed payment schedule.
In addition, latent capital gains exceeding some burdens and derived from qualified shares or interests from CIIs shall must be paid in advanced.
In respect on entities subject to CIT, they will always anticipate tax due on latent capital gains (i.e. unrealized gains) before moving to a third country. However, if income is derived from shares, tax relief may be applicable up to 95% of tax due payment.
BUSINESS TAX
Local direct tax levied every year usually by the municipality where the business is carried out. That means different tax rates in consideration of the area where you may be operating (e.g. a single town, isolated regions, or the whole Spanish territory), the type of activity and the location and size of premises at your business’ disposal.
A safe-harbor is granted over gross profits up to 1 million Euros. Individuals are not subject to it at the time. Non-residents shall review their situation where profits may be allocated to a permanent establishment in Spain.
PROPERTY TAX
Property tax is a local tax levied yearly on real estate property and other real rights to fixed assets located within Spain, whether that property is of a rural or urban nature.
In respect of total tax due, the taxable amount shall be the cadastral value of the property, as per defined and periodically reviewed by the local Land Register, and local authorities will usually define tax rates, that could vary from one municipality to another depending on certain circumstances:
Depending on the characteristics of the RE property (e.g. social housing, research or educational purposes, arts and culture, sustainable energy, employment plans) and/or the personal circumstance of the owner (e.g. low income, social renting, large family), tax relief may apply.
Tax on constructions, installations, and building works (TCIBW)
Direct local tax charged on the cost of building and installation works that require a construction license within the municipality. Not applicable to public building projects.
Tax rates will differ from region to region, up to a 4% max. tax rate. Taxpayer is responsible of his provisional tax return estimate, and by the time the project is completed, the City Council will come back with final tax due.
Taxable base may be tricky to estimate, since it only gathers direct expenses related exclusively with material implementation. Additionally, tax allowances are available, especially interesting in case of social housing and social rental, infrastructures, sustainable energies, that tend to be globally encouraged by most of our municipalities.
WITHHOLDING TAX
Most common income for both individuals and entities subject to a withholding tax in Spain is as follows, excluding applicable EU-Directives or double tax Treaties in place:
CONTROLLED FOREIGN CORPORATION (CFC)
These rules in Spain target profit shifting strategies, whereby income is attributed to those companies within a Group located in low-tax jurisdictions.
CFC rules apply to Spanish companies that, alone or together with other related individuals or entities control 50% or more of the capital (i.e. legally and economically speaking) of the Controlled Foreign Company.
It is important noticing that CFC rules apply on passive income, but also on services rendered between foreign fellow entities. Income will only be re-characterized following a substance-criteria test performed in the CFC.
However, the Spanish approach does not tackle partnerships and other pass-through entities. The Law allows a “the minimis” rule so that if the attributable income placed in a low taxed jurisdiction is any lower than 15% of the net income. No CFC rules will apply.
FAMILY ASSETS (WEALTH TAX, INHERITANCE AND DONATION TAX)
Wealth Tax is a direct, personal, progressive, objective tax, assigned to the regions (comunidades autónomas), whose taxable regime is determined by the ownership, on the 31st day of December of each year, on the net property of individuals.
This tax, which does not exist in most of our neighbour countries, is likewise relevant regarding those individuals who are not resident in Spain, with a few exceptions; actually, it can be required as a limited liability for those assets and rights located, or which can be executed in our country.
As a matter of facts, its regulations include multiple tax exemptions and incentives that result in a significant tax reduction, whereas it is a tax to be taken into account for proper tax planning and reorganisation of assets by non-residents; application can significantly reduce the tax burden for this topic.
Inheritance and Donation Tax, this one is, on the other hand, a direct, personal, subjective, progressive and instant tax, conveyed to the “comunidades autónomas”, as well - hence the many differences in taxation that exist between territories in Spain - which is levied on the acquisition of assets and rights by any inheritance (mortis causa) or, where appropriate, by donation or any other legal transaction free of charge (inter vivos).
This means that the acquirer/individual is taxed on increases in assets obtained for any of the aforementioned circumstances.
In any case, the regulations governing this tax (state and autonomous community) include many tax incentives in base and quota, making correct tax planning compulsory, as well.
HOLDING
A holding structure is a business organisation monitored by a company considered to be the "dominant or parent company". The latter owns all, or a part of the shares of other subsidiaries or affiliates. It is therefore characterised by a vertical organisation that waives the "comb" type structures where the individual partners are located and hereunder, in a horizontal sequence, all the active or asset holding companies.
These types of companies are holding companies, so as to optimise the management of all of them, thus taking advantage of the notorious tax benefits and operational profits that exist.
Nevertheless, if you need to perform additional activities, then more than a pure holding company will be required; in fact, we will recommend to merge to a mixed holding company.
Among the main advantages of a business structure of this type, which is more and more used by family businesses and certainly, by groups with an international scope, we would like to point out:
• Monitored management of all companies by one unique core-point (to be considered as compulsory when there are subsidiaries abroad).
• Protection of the entrepreneur's business and personal assets.
• Reduction of the entrepreneur’s liability
• Allowance of synergies and economies of scale
• Facilitate the entry of partners or even disinvestment
• Providing liquidity between companies of the group, based on distribution of EXEMPT dividends (whilst application of the new regulations, in some cases at 95% and in others at 100%) to the holding company.
• Exemption on capital gains from the transfer of shares in subsidiaries(up to 95%), despite of Personal Income Tax (comb structure), where taxation is notoriously high.
• EXEMPTION in Wealth Tax.
• Reduction in Inheritance and Donation Tax, in compliance with family business requirements.
• Possibility of CIT/VAT grouping.
Also worth noting the ENTITY FOR HOLDING OF FOREIGN VALUES (known as: "ETVE").
ETVEs are companies based in Spain whose main activity consist of the management and administration of values of non-resident entities.
These companies do have a favourable tax regime which allows: i) repatriation of exempt dividends; ii) transfer of shares in companies without tax burden; iii) non-taxation of interest paid by ETVEs, under the assumption that the recipient is a resident.
