Taxation in Spain
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Taxes in Spain are levied by federal and regional governments. Tax revenue in Spain stood at 36.3% of GDP in 2013. 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.
Personal Income tax in Spain (IRPF) was introduced in 1900. It represents over 50% of government revenues. 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. 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.
Non residents, need to fill a form 210, for every income earned. Some examples of most common income earned by non residents:
- Rented real estate. Must fill every term. It is not allowed to deduct any expenses, unless you are a E.U. resident. Deadline 20 days after the end of each term.
- Non rented real estate. Taxable base is the 1.1% of cadaster value. Deadline December 31 of next year.
- Interest. There is not need to fill any form, if bank withholded 21%, or percentage stated in double taxation agreement. E.U. residents are exempt of tax and withholding, they should pay tax in the residence country. If you want that your bank applys reduced withholidng rate according to Double Taxation Agreement with your Country, you should inform of that to your Spanish bank.
- Dividends:There is not need to fill any form, if bank withholded 21%, or percentage stated in double taxation agreement. If you want that your bank applys reduced withholidng rate according to Double Taxation Agreement with your Country, you should inform of that to your Spanish bank or broker.
Certain residents may be considered non-residents under the "Impatriate regime". This applies to professionals who have not been resident in Spain in the previous 10 years and who move to Spain for professional reasons. This is also known as the Beckham law as it is used by many professional footballers. In 2012 Spain made significant changes to the Beckham Law, effectively ending many of the tax-lowering benefits for non-residents of all income levels. They are only taxed on Spanish source income, up to 600.000 € there is a flat rate of 24,75% (24% since 2015).
Residents are taxed on all earned income (wages and investments). Tax payers may choose between the individual regime or the joint regime for married couples. Under the joint regime, the combined income of the two taxpayers are considered and the allowances for both taxpayers are deducted (even if one has no income). This method effectively reduces income tax on most low income couples and particularly when one member has no income. Taxable income is divided in two parts: general base, saving base. General base includes: salaries, self-employment income, real estate income, short term capital gains and other gains not arising from savings (as prices...) Saving base includes two parts that cannot be compensated one with the other. First one includes interest, dividends and insurance. The other part includes long term capital gains (more than one year)as: stocks, investment funds, real estate.
Determination of taxable income
In order to determine taxable income the tax code allows certain allowances to be deducted from income.
- General allowance for working person:
- Annual income below 9,180: 4,080 euros allowance
- Annual income below 13,260: 4,080 euros minus 35% of difference between annual income and 9,180.
- Annual income above 13,260: 2,652 euros allowance
- Personal Allowance: 5,150 (filling jointly deducts 3.400 from taxable base)
- Child allowance:
1st Child 1,836 euros 2nd Child 2,040 euros 3rd Child 3,672 euros 4th & subsequent 4,182 euros
In addition to the basic allowances the tax code also allows taxpayers to deduct social security contributions and private pension plan contributions up to 10,000 euros per year. Once the taxable income has been determined the tax amount is determined.
Determination of general tax payable
The table below determines the amount of tax payable. Tax rates apply per band of income. The rates are marginal rates of tax.
General Scale (Autonnomies could change half of the percentage scale). This scale is applied in 2012, 2013 & 2014 due to European exigencies and the finance crisis in Spain.
|Taxable general base 2012-2014||Tax||Up to||%|
For 2015, new scale is:
|Taxable general base 2015-2016||Up to||% 2015||% 2016|
|12.450 €||20.200 €||25 %||24 %|
|20.200 €||35.200 €||31 %||30 %|
|35.200 €||60.000 €||39 %||37 %|
|60.000 €||+||47 %||45 %|
Lowest IRPF: Madrid and Rioja(23%-51,9%), Navarre, Biscay(Bilbao) (22%-43%)
Highest IRPF: Asturias, Catalonia, Andalusia, Extremadura(24,75%-56%)
Source(In Spanish): "Income Tax Law 35/2006"
Example to apply the IRPF Tax 2014
A couple with 2 child and a €100,000 income. (joint regime)
Allowances= 5.151 (for everybody) + 3.400 (for filling jointly)+ 2652 (for any salary, over 13.260 €) + 1,836 (1st child) +2,040 (2nd child)
Taxable income: Tax on general part of income (savings are taxed at a rate in the range 21%-27%)100.000 - salary reduction - joint reduction = 93.948,00
Calculate Tax= + 17.707,20 x 24,75% = 4.382,53 + 15.300,00 x 30,00% = 4.590,00 + 20.400,00 x 40,00% = 8.160,00 + 40.540,80 x 47,00% = 19.054,18 Total taxable income 93.948,00 = Total tax 36.186,71 €
Deduction for allowances 5.151 (for everybody) + 1,836 (1st child) +2,040 (2nd child)= 9.027,00 € Using same scale as before: 9.027 x 24,75 % = 2.234,18 €
Total taxation: 36.186,71 - 2.234,18 = 33.952,53
Amount to pay = Total taxation minus withholding
Same couple with 2 child. Person 1's income 60,000 €. Person 2's income 40,000 €. (individual regime)
Person 1: Allowances= 5.151 (for everybody) + 2.652 (for any salary, over 13.260 €) + 918 (1/2 of 1st child) +1,020 (1/2 of 2nd child)
Taxable income: Tax on general part of income (savings are taxed at a rate in the range 21%-27%)60.000 - salary reduction = 57.348,00
Calculate Tax= + 17.707,20 x 24,75% = 4.382,53 + 15.300,00 x 30,00% = 4.590,00 + 20.400,00 x 40,00% = 8.160,00 + 3.941,00 x 47,00% = 1.852,27 Total taxable income 57.348,00 = Total tax Person 1: 18.984,80 €
Deduction for allowances 5.151 (for everybody) + 918 (1/2 of 1st child) +1,020 (1/2 of 2nd child)= 7.089,00 € Using same scale as before: 9.027 x 24,75 % = 1.754,53 €
Total taxation Person 1: 18.984,80 - 1,754,53 = 17.194,27 €.
Person 2: Allowances= 5.151 (for everybody) + 2.652 (for any salary, over 13.260 €) + 918 (1/2 of 1st child) +1,020 (1/2 of 2nd child)
Taxable income: Tax on general part of income (savings are taxed at a rate in the range 21%-27%)40.000 - salary reduction = 37.348,00
Calculate Tax= + 17.707,20 x 24,75% = 4.382,53 + 15.300,00 x 30,00% = 4.590,00 + 4.341,00 x 40,00% = 1.736,40 Total taxable income 37.348,00 = Total tax Person 2: 10.708,93 €
Deduction for allowances 5.151 (for everybody) + 918 (1/2 of 1st child) +1,020 (1/2 of 2nd child)= 7.089,00 € Using same scale as before: 7.089 x 24,75 % = 1.754,53 € Total taxation Person 2: 10.708,93 - 1,754,53 = 8.954,40 €.
Family tax: 17.194,27 € + 8,954,40 €= 26.148,67 € This family saves more than 7.800 euros by filling returns separately. Amount to pay = Total taxation minus withholding
Deductions from tax due
Once tax due has been determined the tax authorities allow the taxpayer to reduce the tax due by applying certain further allowances. These include,
- Mortgage repayment relief (for houses purchased before 1 January 2013)
- Rental cost relief (for low incomes)
- Investment in deprived regions
- Regional allowances (Schooling, Children under 3, donations etc.)
Tax on investment income
- 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).
- Long term (+1 year) capital gains on: stocks, investment funds and real estate, are also taxed at savings scale.
- 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
Value-added tax (VAT) 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 basic food stuff. VAT is almost armonished within European Unión, differencies among EU countries are tax rates and list of good and services that are taxed at standard, reduced or superreduced rates.
The standard rate of corporate tax in Spain was 30% until 2014; as of 2015 it is 28%, and as of 2016 it will be 25%.
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.
- "Tax GDP".
- Spanish Tax Authority Tax Report 2012. http://www.agenciatributaria.es/AEAT.internet/Inicio_es_ES/La_Agencia_Tributaria/Memorias_y_estadisticas_tributarias/Memorias/Memorias_de_la_Agencia_Tributaria/_Ayuda_Memoria_2012/_Ayuda_Memoria_2012.html
- Tax Residence concept. http://jullastres.es/wordpress/?p=400
- Non Resident Income Tax Law (Spanish) http://noticias.juridicas.com/base_datos/Fiscal/rdleg5-2004.html
- Official non resident tax manual in Spanish http://www.agenciatributaria.es/AEAT/Contenidos_Comunes/No_residentes/Tributacion_de_no_residentes/Folletos_divulgativos/tribnoreside.pdf
- Official non resident taxation manual in English http://www.agenciatributaria.es/static_files/AEAT/Contenidos_Comunes/La_Agencia_Tributaria/Segmentos_Usuarios/Empresas_y_profesionales/Empresario_individuales_y_profesionales/Folletos/IRNR_enero2011_en_gb.pdf
- Non resident income form http://www.agenciatributaria.es/AEAT.internet/Modelos_formularios/modelo_210.shtml
- Taxation of non resident real estate. http://jullastres.es/wordpress/?p=632
- Spanish Income Tax Law (for residents). http://boe.es/buscar/act.php?id=BOE-A-2006-20764
- "Corporate tax rate Deloitte".
- "Social Security in spain KPMG".