TAXATION IN SPAIN
MAJOR TYPES OF LIMITED COMPANY IN SPAIN
SA- Public Limited Company
Minimum 25% paid up share capital.
Minimum 60,121 Euros authorised share capital.
SL- Private Limited Company
Minimum share capital 3,006 Euros.
All companies must submit annual accounts to its shareholders for approval. These must be approved within six months from the end of accounting period.
The audit limit is around 2.5 million Euros turnover.
All companies need to submit annual accounts to the Mercantile Registry (Registro Mercantil).
The full rate of company tax in Spain is 30%.
For small and medium sized companies, there is a reduced rate:
25% for profits up to 120,202 Euros, 30% for profits above this.
A company is defined as small or medium sized if the net turnover in the previous year was less than approximately 3 million Euros.
PAYMENT OF COMPANY TAX
The company tax return must be filed within 6 months and 25 days after end of accounting period.
Payment by instalments of company tax is in April, October and December.
As a general rule, each instalment is 18% of the previous year's company tax liability.
A separate method of calculation applies to large companies whose turnover in the previous year exceeds a set limit.
CALCULATION OF TAXABLE INCOME
The Starting point is net profit per accounts, calculated in accordance with the Plan General de Contabilidad).
• Depreciation must be within prescribed limits. See Rates and Allowances.
• Goodwill amortisation is allowable.
• Movements in the following provisions are allowable for tax purposes:
Doubtful debts, legal expenses, stock obsolescence, devaluation of securities, extraordinary repairs, unsold publications.
• There is no distinction between long and short term gains.
• Tax losses can be carried forward for up to 10 years.
- Penalties and fines.
- Corporation tax payments.
- Gifts and donations other than to specifically approved organisations.
- Expenditure on improvement and enhancement of capital assets.
- Depreciation over maximum prescribed rates (unless it can be proved that this was the actual depreciation).
Capital gains made by companies are taxable as part of profits.
A consolidated tax return may be filed if an election is made before start of tax year.
Only resident companies with a resident Ultimate Holding Company are included.
This election needs to be renewed every 3 years.
There must be a 90% direct or indirect ownership for whole of both the current and prior tax year.
This is available for reinvestment in the same kind of asset, between one year before and three years after disposal.
Tax is paid equally over either the seven following years, or the actual depreciation period.
The new asset must be kept for seven years, or for its useful life if this is shorter.
SPANISH INCOME TAXES
Spain’s fiscal/tax year is the natural calendar year. Income taxes in Spain should be paid between May 1 and June 30 for the previous year’s income. With a DNI or NIE, you can apply for a Número de Identidad Fiscal (NIF) in order to pay your taxes in Spain.
Tax residents will need to pay income taxes in Spain and are generally defined as those who reside in Spain over 183 days in each calendar year and/or have their main financial interests in Spain. However, in many cases you only need to file a tax return in Spain when you make more than €22,000 per year, receive a rental income of more than €1,000 and/or receive a capital gains and savings income of more than €1,600.
Personal allowances for Spanish income tax purposes are €5,151, which increases to €6,069 for persons over age 65 and €6,273 for persons over age 75.
Child allowances for Spanish income tax purposes are: €1,836 for the first child, €2,040 for the second child, €3,672 for the third child and €4,182 for additional children. In addition, Spain has a maternity allowance of €2,244 for each child under three years old.
Earned income above these allowances is taxed at the following rates:
Income (above allowances)
Spain ’s national tax rate
Provincial tax rate
Total tax rate
€0 - €17,707
€17,707 - €33,007
€33,007 - €53,407
€53,407 and above
The provincial tax rate is only a guide. Some autonomous communities have different rates.
Income in Spain is roughly defined as:
- Wages and salaries, either as a salaried employee or as a businessperson
- Pension benefits
- Dividends, yields, interest and capital gains
- An employer’s pension contributions
- In-kind benefits
SPECIAL EXPAT INCOME TAX REGIME IN SPAIN
As of 10 June 2005, the Spanish government approved a new tax regime for expatriates working in Spain. This was Royal Decree 687/2005.
This tax rate for expats could be advantageous to avoid paying the upper levels of the rate table outlined above. In order to qualify, the expatriate must meet following:
- Expats must not have been a resident in Spain at any previous time during the 10 years before their current work or position in Spain.
- Their position must be under a legal employment contract with a Spanish company or through second employment, or with a non-resident company holding a permanent establishment (i.e. a branch) in Spain.
- The work must be performed in Spain, although some flexibility is allowed. Work may be partially performed outside Spain if the salary for work abroad does not exceed 15% of the total salary for the year. If the working contract provides that the individual performs functions in another group company, this limit goes up to 30%.
- The expat’s income must be subject to Spanish NRIT (Non-Resident Income Tax).
If you qualify, this means you’ll be subject to a special flat tax rate for expatriates at 25% for all Spanish income sources, and you will be taxed as a non-resident regarding all income, capital gains and wealth taxes.
You’ll have to make the decision within six months from the start date of your social security registration. The period of time you can claim this expat tax rate starts from the first year when the expat has spent more than 183 days in Spain and continues for a total of five years or more.
Further note: Due to the special nature of this tax, you’ll very likely need a tax advisor to ensure proper adherence to the decree.
PROPERTY – REAL ESTATE TAXES IN SPAIN
The average cost of property in Spain is €186,000 for new property and €179,000 for resale property. To conduct real estate transactions in Spain, you must obtain a NIE number – a foreigner identification number.
When you buy property, you will pay a transfer tax of 7%, unless you’ve already paid VAT.
VAT/IVA is 4% for publicly subsidized homes, 7% for newly-built properties and 16% for plots of land and commercial premises.
The stamp duty tax is levied on the sale price declared on the public notarized deed; it varies by autonomous community between 0.1% and 1%.
The wealth tax rate ranges from 0.2% to 2.5% of the value of the property every year. For residents the first €108,182 is tax exempt. The tax exemption increases to the first €150,253 if it is a primary residence.
LOCAL PROPERTY TAX – COUNCIL TAX
The local property tax/council tax is set by the municipal authorities, usually between 0.5% and 1%.
LAND APPRECIATION TAX
The land appreciation tax is levied each time a property changes hands and increases in value; this rate is set by the municipal authorities.
When you sell property, the capital gains tax rate is 18%. However, there are tax breaks available.
Inheritance tax is not a fixed rate. It depends on a number of factors, including the wealth of the beneficiary, not just the benefactor.
INCOME TAX ON RENTAL INCOME
The income tax on rental income is 24% for non-residents and will still be taxed if you don’t rent out the home at the level set by the government. However, tax breaks are available. Rental income should be declared quarterly.
For more information, please consult the following address:
Spanish Tax Agency (Agencia Tributaria)
c/ Infanta Mercedes, 37
Tel.: 91 583 70 00
Basic tax information: 901 33 55 33
For further information about Taxation for Non-Residents please click here
These notes are intended as a guideline and should not be used as a substitute for proper professional advice. Please contact us and we will be happy to assist you.
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