Taxes in Spain 

Lack of awareness with regards to the basic system applicable in a country with regards to taxes can affect a person in many different ways. At the very least it can lead to frustrations arising from conflicting information received from different sources. In other cases, it can sometimes lead to making inappropriate decisions with regards to investments, business transactions as well as private transactions. Some of these decisions can lead to either greater taxes due in the future or even fines and penalties.  

Let’s consider, in plain English, some of the key taxes which may affect you whilst living, doing business or even just being on Holiday in Spain. 

Value Added Tax 

At present, the general rate of VAT is 16%. This is the rate charged on most supplies. There is also a reduced rate for certain products and services of 7% and 4%. However, the government has just announced an increase in this tax for next year in line with similar steps taken by other countries in light of the current economic climate to 18% for general rate and 8% and 4% for the reduced rates. 

Registration is compulsory for companies or individuals making supplies which fall within the scope of this tax. It is important to point out that, unlike in some countries, businesses making supplies of goods or services subject to VAT must register from commencement of trade, as there is no lower threshold limit. 

Stamp Duty 

Taxable transfers of buildings and land are taxed at the rate of 7%, and other items are taxable at a lower rate. First transfers of property from the developer are subject to VAT instead of stamp duty at 7% for buildings and 16% for land. 

Stamp Duty also arises at the rate of 1% on share capital, either at the incorporation stage or when share capital increases are made. 

Corporation Tax 

Taxable profits generated by companies are chargeable to corporation tax. The standard rate for the year 2009 is 30%. However, the taxable profits of companies with a turnover below €5 million are taxed at 20% for the first €120,202 and at 25% for the remainder of the profits. This tax will also be affected by the temporary reform planned by the Government which will include considerable reductions for businesses meeting certain targets such as increasing or maintaining their number of employees. 

Payments on account may be required and the total of the corporation tax charge is due within the six months and 25 days after the end of the financial year. 

Income Tax 

This tax arises when individuals have any the following sources of income:

• Income from employment
• Income from current assets (interest, dividends, etc)
• Income from property (rentals)
• Income from economic activities (business profits)
• Capital Gains
• Deemed income (on the benefits derived from certain assets)

At present, residents are taxed at a maximum of 18% on certain types of income such as savings income and capital gains. On the remaining sources of income the minimum tax rate is 24% and the maximum is 43%. Some increases to these rates are currently planned by the government to such as raising the rate applicable to savings to 20%. 

Resident taxpayers are entitled to a minimum personal allowance of €5,150. This amount increases after the taxpayer reaches the age of 65. Further allowances can be claimed for dependants. 

Other deductions may also be available. It is worth noting that a deduction may be made for the amounts paid for the purchase of your main residence, amounting to 15% of the amount invested up to a limit of €9,015 per year. This also applies to the amounts paid in relation to the mortgage obtained when acquiring the house. 

Payments on account may be required for sole traders and the total income tax for each calendar year is due by 30^th June of the following year. 40% of the remaining payment due may be postponed until the following November. 

Inheritance and gift Tax 

This tax arises when individuals receive an inheritance or a life time gift. The tax payable depends on the wealth of the recipient as well as on the value of the transfer. The impact of this tax is considerably less on residents given the reliefs available, so non-residents beware! 

Local Taxes on Property 

In addition to the above there is council tax due on the ownership of urban property. This tax is calculated on the rateable value of the property (valor catastral) and the rates range between 0,4% and 1,3%.  

Local tax also arises when the property is sold, this charge considers the rateable value increase during the period of ownership. 

Local Taxes on Businesses 

Business rates may also be payable to the local authorities. However, at the present time small and medium sized companies are exempt from this tax. 

It is always advisable to seek professional advice when entering into certain transactions either as a private individual or a business person. Similarly, being non resident does not exclude one from many of the aforementioned tax-traps, and therefore anyone planning to acquire any assets in Spain should likewise seek professional advice at the earliest opportunity. 

Susana Serrano-Davey – Rose & Clavel Chartered Accountants – Traditional accountancy services as well as innovative business solutions in a new kind of way – www.roseandclavel.com – 952 81 53 65.