Overview of the Spanish Tax System English Presentations Workshop

Overview of the Spanish Tax System (I) The Spanish tax system comprises three kinds of taxes: Impuestos (true taxes which are levied without direct compensation. General Funds devoted for general public expenditures policies. Tasas (“dues, fees, charges”) which are collected in return for a public service provides by the authorities as well as for the utilisation of public goods. Contribuciones Especiales (Special levies): levied for any type of benefit as a result of public works or services.

Overview of the Spanish Tax System (II) Also, we have three levels of taxation: By the central government. By the Autonomous Communities. By the local governments. There are two special regimes applicable in the Basque Country and Navarre. Those specialities permits a certain level of independence in building their specific tax system. The main problem is tax coordination between those territories and the rest of Spanish State.

Overview of the Spanish Tax System (III) National taxes in Spain can be classified as follows: Direct Taxes: On income: Personal Income Tax Corporate Income Tax Non-residents Income Tax. On assets (affecting only individuals): Wealth tax Inheritance and gift tax Indirect Taxes: Value added tax (VAT) Transfer tax and stamp duty Excise taxes Customs duties on imports Tax on insurance premiums.

Overview of the Spanish Tax System (IV) Main features about each tax: Personal Income tax: Is one of the pillars of Spains’s tax system Radically reformed en 1998. The following persons are subject to this tax: Individuals habitually resident in Spanish territory. Individuals of Spanish nacionality who are habitually resident abroad and fulfil any of the conditions laid down in the Law (e.g. diplomatic services). A taxpayer is considered to be habitually resident in Spanish territory if he is physically present in Spain for more than 183 days in the calendar year. Also, if he is the main center of the taxpayer´s business or professional activities.

Overview of the Spanish Tax System (V) Main features about each tax: Personal Income tax: Taxpayers are taxed on their entire worlwide income. The Law distinguishes a general componente and a special component in the tax base. The general component comprises the positive balance from adding: Salary income. Income from real estate. Income from business activities develop for individuals. The positive balance resulting from offsetting capital gains and losses over a period of less than one year.

Overview of the Spanish Tax System (VI) Main features about each tax: Personal Income tax: The special component comprises the positive balance from adding: Income on movable capital. The positive balance of offsetting capital gains and losses obtanied over a period exceeding one year. There are certain tax-free allowances in order to consider particular and economic circunstances in the determination of tax base. The PIT is a progressive tax. We use tariffs (21% applied on the special component) for the determination of the gross tax payable and we have, also, some tax credits for housing, economic activities, donations to certain entities and income obtained in Ceuta y Melilla territories.

Overview of the Spanish Tax System (VII) Main features about each tax: Personal Income tax: Taxpayers who are required to file a PIT return must, when filing their returns, calculate the related tax payable and pay it over in the place and manner and by the deadlines determined by the Ministry of Finance. (June 20th). The possibility of being taxed individually or jointly (as a family unit) is regulated and is very important, in order to reduce tax burdens, to compare both situations.

Overview of the Spanish Tax System (VIII) Main features about each tax: Corporate Income Tax: The key factor in determining the aplication of CIT is “residence”. A company is deemed to be resident in Spain for tax purposes if it meets any of the following conditions: It has been created under Spanish Law It has been registered in an office located in Spain. The effective management headquarters are in Spain.

Overview of the Spanish Tax System (IX) Main features about each tax: Corporate Income Tax: Resident companies are taxed on their worldwide income. Taxable income includes all the profits from: business activities Income from investment not relating to the regular business purpose, and Income derived from asset transfers.

Overview of the Spanish Tax System (X) Main features about each tax: Corporate Income Tax: Spain´s current standard CIT tax rate is 30% Special rates are applicable to certain entities as small and medium enterprises (25%). There are, also, a very complex sistem of tax credits and allowances: Investment and professional training tax credits. Investment made in tangible fixed assets to protect the environment. R&D and technological innovation expenses,…

Overview of the Spanish Tax System (XI) Main features about each tax: Net Worth tax: Resident individuals pay net worth tax on their worlwide assets at December 31st., of each year, valued in accordance with tax rules. Non-residents are taxable on property situated, or rights exercisable, in Spain. Tax base is composed by the economic value of all types of properties and economic rigths, reducing these values for economic charges related with assets and personal debts. Tax burden is calculated applying a progressive tariff and there is a personal allowance of 108.000 €. Nowdays, the net amount obtain by this tax is devoted to financing Autonomous Communities.

Overview of the Spanish Tax System (XII) Main features about each tax: Inheritance and gift tax: IGT applies to Spanish resident heirs, beneficiaries and donees and is charged on all assets received. Taxpayers are heirs, beneficiaries and donees as results of a property transfer by death or “inter-vivos” donation. There are a lot of reductions to avoid an excessive tax burden in transfers in favor of spouses or children. The tax burden is calculated by adjusting a tax scale of progressive rates (depending on the value of the estate or gift) with a coefficient that takes into acount: The previous net woth, The age of the beneficiary, and The degree of kinship with tne donor.

Overview of the Spanish Tax System (XIII) Main features about each tax: Value added tax (VAT): The Spanish VAT legislation implements the EU Directives on the tax, whose main rules are harmonized in the different Member States. This tax is of an indirect nature. This feature does not normally imply any cost to traders or professionals, but only to end-consumers by translation in the bill. This figure taxes: Supplies of goods and services. Intra-EU acquisitions of goods, and Imports of goods. Within the Spanish territory, VAT is not applicable in the Canary Islands, Ceuta and Melilla territories. VAT rates are as follows: 21% in general. 10% for special sales and imports, and 4% for first neccesity goods.

Overview of the Spanish Tax System (XIV) Main features about each tax: Transfer tax and stamp duty: Transfer tax is levied on a limited number of transactions: Corporate transactions such as incorporation, capital increase, reduction companies,. (1%) Transfers of real estate (6%). Transfers of movable assets and administrative concessions (4%). Certain rights on real estate (rent) (1%). Certain mercantile law public deeds (o,5%). It´s a complementary tax of the VAT. Transfer tax is a cost to the acquiror/beneficiary.

Overview of the Spanish Tax System (XV) Main features about each tax: Transfer tax and stamp duty: Excise taxes: In Spain there are several excises taxes in line with the EU Directives on this matter. These specific consumption taxes are levied on the related products (alcohol and alcoholic beverages, beer, oil and gas and manufactured tobacco) in the manufacturing, processing or import phases.