The Spanish Experience – sun and…taxes!

• Spain comprises 17 Autonomies (including the Balearic Islands and the Canary Islands), as well as the enclaves of Ceuta and Melilla in Northern Africa.
  

• The Basque country and Navarra have their own income tax systems.

Personal income tax
Individuals are subject to income tax levied on behalf of the state and the autonomous regions. No separate capital gains tax exists.

Residence
An individual is a resident of Spain for tax purposes if:

• he/she stays in Spain for more than 183 days in any calendar year (art. 9 IRPF)
  
• his/her centre of vita interest, i.e. his/her economic interest or business or professional activities, is in Spain.

In the absence of proof to the contrary, a married individual is deemed to be resident of Spain if the permanent home of his spouse and dependent minor children is in Spain.

Individuals who move their residence into Spain may elect to be taxed under the rules of individual income tax on residents or the rules of income tax on non-residents in the tax year in which he/she moves to Spain and the following 5 tax years whenever the following conditions are met:

• he/she has not been resident in Spain any time during the preceding 10 years;
  
• he/she moves to Spain because of an employment contract;
  
• he/she works physically in Spain for a company or entity resident in Spain or for a Spanish permanent resident of a non-resident entity; and
  
• his/her salary income is not exempt from non-resident income tax.

Therefore, residents are liable to income tax on individuals (IRPF) in respect of their worldwide income. Non-residents are liable to income tax on non-residents (IRNR) only on their Spanish-source income.

(IRPF – Impuesto sobre la Renta de las personas físicas)
(IRNR – Impuesto sobre la Renta de no residentes)

Business Income

Business income includes income from business and professional activities.
There are three different methods of computation:

0. the normal direct method
   
0. the simplified direct method. For taxpayers whose turnover is under €600,000 or who are in their first year of operation
   
0. the objective method. It is more appropriate for businessmen engaged in listed activities, e.g. restaurants, as they may determine their net (notional) income according to certain parameters: square metres, employees.

Rates on general income

Taxable income is classified into: employment income, investment income, business income.

The tax revenue resulting from this rate is assigned to the autonomous regions, which are empowered to modify it.

Personal deductions, allowances and credits apply.

Taxable period

The taxable period for individuals is the calendar year.

Tax returns and assessment

Resident taxpayers may elect to file a single or a joint tax return. Resident taxpayers who are members of the same family unit have the option to file a joint tax return for the household.

A family unit consists of husband and wife, their minor children (under 18 years of age) and their disabled children regardless of age and, in the case of legally separated spouses or de facto unions, the father or the mother and the children living with either of them. Joint tax returns do not allow splitting of income.

The annual return for a tax year must be filed and any outstanding tax paid in the period 1 May to 30 June following the end of the tax year. It may be paid in two instalments, 60% by 20 June and the remainder by 5 November of that year.

Entrepreneurs and professionals are required to file quarterly returns and make advance payments by 20 April, 20 July and 20 October of the current year and 30 January of the next year on account of final income tax liability for the current year.

Net Wealth Tax

The taxable persons are resident individuals.
This tax is levied on the worldwide assets of resident individuals. The value of the taxpayer’s primary residence is exempt up to €150,253.03.

Non-residents individuals are liable to net wealth tax on assets situated or deemed to be situated in Spain, unless expressly exempt or unless a tax treaty provides otherwise.

This tax has now been abolished with effect from 1 January 2008.

Rates on net wealth tax and assessment

The autonomous regions are authorized to set their own tax rates within certain limits. If they fail to do so, the national standard table will apply.

Each resident taxpayer is entitled to a deduction which may vary from one region to another. The standard deduction is €108,182.18, which will apply if a region fails to set its own one.

The rates rise from 0.2% to 2.5% for amounts over €167,129.45 in different bandwidths.

Each year the tax return must be filed together with the income tax return, accompanied by the payment of tax, in the period 1 May to 30 June of the current year.

Property transfer and Stamp duty

The tax is levied on property transfers, corporate transactions and stamp duties.

• Property transfers: this tax must be paid upon purchase of estate to a private individual, establishing rights in rem (e.g. a usufruct), acquisition of a registered interest in property, etc.
  This tax is levied at a general rate of 6% of the purchasing price.
  The autonomous regions are authorized to set their own rates within certain limits. Most regions apply a rate of 7% of the purchasing price.
  
• Stamp duty: The tax shall be paid upon signature of a public deed, of notarial documents, registry office documents…
  The rate applicable differs from one case to another.

• Tax on the increase in the value of the urban land (Plusvalía) is the Spanish municipal tax voluntarily empowered and administered by the local council.
  The tax base is calculated by applying a rate, which varies on each municipality, to the value of the property at the time of transfer, it also takes consideration on how long has the seller been in possession of the property.
  
• Tax on economic activities is a direct tax levied annually on the exercise of a business, professional, or artistic activity, regardless this activity is performed in business premises or not.

  The amount of tax due depends on the activities carried out by the taxpayer and the surface area of the business/professional premises, as corrected by certain coefficients and increased by a provincial surcharge.

Corporate tax

Corporate income tax is levied on all legal entities resident in or having a permanent establishment in Spain. Resident companies are liable to corporate income tax on their worldwide income and capital gains. A company is resident in Spain if it meets one of the following conditions:

• it is incorporated under Spanish law;
  
• its legal seat is located in the territory of Spain; or
  
• its place of effective management is in Spain.

The general rate of corporate income tax is 30% for 2008 and later years. The withholding rate on dividends and other profit distributions, on interest and royalties is 18%. Stock dividends are not subject to tax. As a general rule, the tax year coincides with the calendar year, but companies may file their returns with reference to their financial year. During the tax year resident companies and permanent establishments must make tax prepayments in three instalments by 20 April, 20 October and 20 December. The balance of the tax, if any, is payable at the time of filing the annual return. Any excess tax paid is refunded.

VAT

Spain imposes a valued added tax (IVA) in respect of taxable supplies of goods and services in mainland Spain and the Balearic Islands, thus excluding the Canary Islands and the Spanish enclaves of Ceuta and Melilla in Northern Africa.

The Canary Islands levy a type of valued added tax (IGIC) on taxable supplies of goods and services within the Canary Islands.

The rates of IVA in mainland Spain and the Balearic Islands are:

• standard rate of 16%. The taxable supplies at the standard rate are not defined in the legislation; therefore it is applied by exclusion.
  
• Reduced rate of 7%: Water, dwellings, transport, tourism
  
• Super-reduced rate of 4%: books, magazines, papers, basic necessities.

Assessment

Resident taxpayers must submit quarterly returns. However, companies whose turnover has exceeded, during the immediately previous calendar year, €6,010,121.04 must file monthly returns. The returns are due within 20 days of the end of the prescribed accounting period for which the return is made.