Quick Spanish tax guide

Details: Published: Wednesday, 12 June 2013 17:13

A quick but still complete guide to navigating the tax system in Spain.

Residence determination

The way in which natural or legal persons must pay income tax in Spain is determined by whether persons are considered residents or non-residents.

Residence (Individuals)

When any of the following circumstances apply:

They remain in Spain for more that 183 days, including sporadic absences.
They situate the main base or centre of their activities or economic activities in Spain, directly or indirectly.

A taxpayer will have his usual place of residence in Spain when the not legally separated spouse and his minor dependant children are usually resident in Spain.

All these circumstances will not be applied for those who prove their residence in other country, taken into consideration that tax residency is proven by means of a certificate issued by the responsible tax authority of the country concerned, and will has a validity of one year.

A change of residence does not imply an interruption of the taxable period.

Residence (Legal persons)

An organization is considered to be resident in Spain when it complies with any of the following criteria:

It was incorporated according to Spanish Law
It has its registered address in Spanish Territory
Its effective head office is in Spanish territory (when the management and control of the sum of its activities are exercised from said territory).

Change of address means the end of tax period once this change has taken place.

There exist a residence presumption that means an organization located in a country or territory considered such as tax haven has its residence in Spanish territory when its main interest (assets, credits, customers, employees,…) are exercised in Spanish territory.

NON RESIDENTS DUTIES

Non-residents taxpayers are obliged to appoint an individual or organization resident in Spain to represent them in dealing with the Tax Administration. Those representatives will be jointly and severally responsible for the payment of tax liabilities.

Representatives will be appoint in the following cases:

When operating through permanent establishment.
When operating through and organization constituted abroad with presence in Spanish territory and under the income apportionment tax system.
When NOT operating through a permanent establishment organization where the taxable base is calculated between gross income and the cost of that income (personnel, materials…)
When Tax Administration so requires it.
When situated in countries with no effective tax information exchange agreement.

MOST COMMON INCOME TAXATION IN THE CASE OF NON-RESIDENTS

Work Income
Pension
Managerial payments
Incomes from liquid capital (interest, dividends…)
Rentals
Real State incomes (Building-real state tenancy)
Capital Gains
Other capital gains
Incomes from economic activity (through permanent establishment)
Incomes from economic activity (without permanent establishment)

1. Work Income

According to Spanish law, working income is understood to be obtained in Spanish territory in the following cases:

When derived from a personal activity performed in Spanish territory.
Public remuneration paid by Spanish Government except when holly performed abroad and taxed with similar tax.
Remuneration of employees of ships and aircraft in international traffic paid by residents or permanent establishment located in Spain, EXCEPT when the work is fully performed abroad and is subject to a similar tax abroad.

In the case of residents in countries that have signed and agreement to avoid double-duplicate taxation with Spain, usually the income earned for employment performed in Spain can be taxed by the Spanish State, except if the following circumstances coincide:

That the no resident doesn’t remain in Spain more that 183 days during the tax year
That the remunerations are paid by a non resident employer
That these remunerations are not supported by a permanent stablishment or a fixed base that the employer has in Spain.

TAXABLE BASE: Whole amount received without deduction for any expense.
GENERAL TAX RATE: 24%
TEMPORARY TAX RATE: 24,75 % (2012, 2013)

Special Cases

a) When taxpayers are resident in another EU country, the expenses described in the Law on Personal Income Tax can be deducted when calculating taxable base. In order to do so it must be fulfilled two circumstances: that these expenses are directly related to the income earned in Spain and also to accompany a certificate of tax residence in the correspondent EU member State issued by the Home Tax Authority.
b) Earnings from work by non-residents individuals in Spanish territory who perform their services in Diplomatic Missions and Spanish consular representations are taxed at a fixed tax rate of 8%.
c) Seasonal workers will be taxed at a rate of 2%.

Deductions

Deductions for donations (under the conditions described in the Personal Income tax Act)
Tax withholding that has been applied in the taxpayer income.

2. Pensions

   According to Spanish law, pensions and similar benefits are understood to be obtained in Spanish territory in the following cases:
Derive from employment in Spain.
They are paid y a resident person, organiation or by a permanent stablishment in Spanish territory.

       Cases of exempt pensions

Old age pensions for Spanish emigrants (resident abroad and returned).
Public pensions. The State where the pension comes has the right to tax it, except in the case of residents and nationals of the other State, in that case the right to tax wil correspond to that State.

TAX RATE SCALE
   (0 -     12.000)             8%
(12.001 – 18.700)          4%
(18.701 – and over)    40%

   In relation to the this it is important to point out that as the income is subject to and not exempt from NON RESIDENT INCOME TAX, the organization making the pension payment, as the withholder organization should withhold tax of an amount equivalent to the average tax due by the taxpayer.

   Taxpayers will be free to deduct from gross income donations and withholding taxes.

3. Managerial payments

   Payments to managers and members of board of directors or any representative bodies of organizations are understood to be obtained in Spanish territory when paid by an organization resident in Spanish territory.
GENERAL TAX RATE:   24%
TEMPORARY TAX RATE: 24,75 % (2012, 2013)
   Deductions: donations and tax withholdings applied on the taxpayer´s income.

4. Incomes from liquid capital (dividends, interest,…)

   According to Spanish Tax Act the following incomes from capital will be considered obtained in Spanish Territory:
Dividends and any other type of income from participation in funds belonging to organizations resident in Spain.
Interest and other remunerations obtained by assignment to others of own capital.
Royalties paid by residents or permanent establishments in Spanish Territory.

   There exist EXEMPTION for interest and dividend (except when received from a tax haven):

Exemption in the case of Interest

Those obtained by residents in a EU Country.
Incomes from Public Debt
Incomes from non-residents accounts.

Exemption in the case of Dividends

Dividends and share in profits by individuals resident in another member state of the EU or in Countries or territories with which there exist an effective exchange of tax information agreement, with a limit of €1,500

GENERAL TAX RATE: 19%
TEMPORARY TAX RATE: 21 % (2012, 2013)

Royalties are understood to be the sums paid for the use or license to use rights to work of. From July, the 1st, 2011, royalties between associates companies paid to a company resident in a EU member state or to a permanent establishment of said company in another EU member state will be exempt.

GENERAL TAX RATE: 24%
TEMPORARY TAX RATE: 24,75 % (2012, 2013)

Deductions: donations and tax withholdings.

5. Rentals

According to Spanish Law, incomes derived directly or indirectly from property assets in Spanish territory are considered to be obtained in Spanish Territory. Taxable base is the whole amount without any deduction for any expense, nevertheless when taxpayers are resident in another EU member state, the expenses described in the Law on Personal Income Tax (IRPF) can be deducted when calculating the taxable base.

GENERAL TAX RATE: 24%
TEMPORARY TAX RATE: 24,75 % (2012, 2013)

6. Real State tenancy

Natural persons that are non residents taxpayers who own urban buldings in Spanish territory, used for their own use rather that for economics purpose or activities, or even vacant, are subject to non-residents income tax.

Taxable base will be determined according to personal income tax regulatons:

1,1% of the rateable value of the bulding.
2,0% if the rateable value has not been revised or changed since 1-1-94
Deductions: Donations.
7. Capital gains from the sale of buldings

Capital gains are considered to be obtained in Spanish territory when they come from property assets in Spanish territory.

Partial Exemption

An exemption applies to 50% of the capital gains resulting from the sale of urban real state in Spain, which has been purchased between 12-May-2012 and 31.12-2012. This partial exemption is not applicable in the case of individuals when the real state has been purchased by of transferred to their spouse, to any a person related to the taxpayer directly or by collateral lines (blood or affinity up to 2nd degree).

Taxable base ill be obtained through the difference between the transmission minus the acquisition value.

GENERAL TAX RATE: 19%
TEMPORARY TAX RATE: 21 % (2012, 2013)

Deductions: donations and the amount withheld by the purchaser of the bulding.

Withholding in account

The person acquiring the building, whether resident or non-resident, shall be obliged to withhold 3% of the agreed payment and deposit it. For the seller, this withholding acts as a payment on account of capital gains tax arising from the transaction.

The purchaser will deposit the withholding using 211 form, within one month from the date of the transfer and will give the non resident vendor a copy of the form, so that the vendor be able to deduct the withholding from the tax liability resulting from declaring the net gain.

Capital gains special treatment

If the real state was adquired before 31-12-1994, the capital gain may be reducted if a Transitional Regimes in applicable. Only the fractional part of the capital gains generated before 20-01-2006 will be susceptible of reduction.

Rule 1.- Calculation of the part of the capital gain generated before 20-01-2006

The fractional part of the capital gain susceptible to reduction is determined by the proportion if the number of days elapsed from the date of acquisition up to 19-January-2006 with respect to the total number of days elapsed from the date of acquisition t the date of transfer.

Rule 2.- Calculation of the reduction

Reduction of 11,11% to the capital gains proportion susceptible to reduction for each year the asset has been owned by the taxpayer since the year of acquisition and until 31-12-1996. Result is rounded up.

8. Other capital gains.

According to Spanish Law, capital gains are understood to be obtained in Spanish Territory in the following cases :

When they are derived from securities issued by residents (individuals or organizations).
When they are derived from other liquid assets situated in Spanish territory or from rights that must be satisfied in Spanish territory.

Exemptions

Capital gains deriving from movables goods obtained by residents in another member state of the EU (except when obtained through a tax haven).
Capital gains derived from the transfer of securities or the reimbursement of shares in investments funds carried out in any of the official secondary Spanish markets, obtained by an individual or organizations resident in a country with which Spain ha signed a information exchange agreement.
Capital gains derived from securities issued in Spain by non-residents.

Taxable base

Net gain will be calculated by the difference between the transmission value and the acquisition value. In de case of acquisition before 31-2-1994, transitional regime reducing the amount of the net gains may be applicable.

Transfer of elements of property

GENERAL TAX RATE: 19%
TEMPORARY TAX RATE: 21 % (2012, 2013)

Transfer of other assets

GENERAL TAX RATE: 24%
TEMPORARY TAX RATE: 24,75 % (2012, 2013)

Deductions: Donations and withholdings.

9. Incomes from economic activity (through permanent establishment (PE)).

When a non-resident has available in Spain, in any capacity, facilities or places of work of any type in which they usually perform all or some of their business or when they act in Spain through an agent authorised to contract on behalf of and for the account of the non-resident person or organisation, provided they habitually exercise these powers, they are considered to be non-residents acting through permanent establishment.

According to Spanish law, non-residents who obtain income through permanent establishment in Spain will pay tax on the totality of the income attributable to this establishment, wherever the income is obtained.

Attributable income comprises earnings from the economic activities or operations undertaken by this permanent establishment, those derived from elements related to the permanent establishment and the liable capital gains or losses derived from the related elements.

The taxable base of the permanent establishment will be determined according to the provisions of the general Corporation Tax system, applying the system of compensation for negative taxable bases (15 years, or 18 years for tax periods beginning on 1 January 2012), with the following special areas of activity:

Application of the rules for related party transactions performed by the permanent establishment with the head office, or with another permanent establishment of the same head office and with other individuals or organisations connected to the head office or its permanent establishments, either those situated in Spanish territory or abroad.

Generally, non-deductibility of the payments that the permanent establishment makes to the head office for fees, interest, commissions, technical assistance services and for the use or assignment of assets or rights.

Deductibility of part of the general management and administration overheads charged by the head office to the permanent establishment, as long as they are reflected in the accounts of the permanent establishment and are charged continually and rationally. For the determination of these expenses, it is foreseen that the taxpayers can submit proposals to the Tax Administration for the valuation of the part of the general management and administration overheads that will be deductible.

Deductions and refunds

Permanent establishments can apply the same deductions and refunds as Corporation
Tax payers to their net tax liability.

Tax period and accrued amount

The tax period coincides with the financial year declared, without exceeding twelve
months. The tax becomes payable on the last day of the taxable period. Permanent establishments are obliged to comply with the same accounting obligations, registered or formal, that are required of resident organisations.

Supplementary taxation

When permanent establishments of non-resident organisations (not natural persons) transfer income abroad, a supplementary tax of 19% (21% from 1 January 2012 until 31 December 2013, inclusive) will be due on the quantities transferred. However, this tax will not be applicable to those permanent establisments whose head office has its tax residence in another Member State of the EU,except in the case of a country or territory considered as a tax haven, or in a State that has signed an Agreement for avoiding double taxation with Spain, in which no other situation is expressly established, provided that there exists reciprocal treatment.

The supplementary tax will be deposited using form 210 in the first twenty days of the months of April, July, October or January; the payment deadline is that immediately following the close of the natural quarter in which the income was transferred abroad.

Tax withheld and deposits on account

Permanent establishments are subject to the same regime of tax withheld at source as
organisations subject to Corporation Tax.

Staged payments (on account to final tax liability)

Permanent establishments are obliged to make staged payments towards the tax under the same conditions as the organisations subject to corporation tax. The formal obligations relating to staged payments are:

• Filing periods: The first 20 calendar days of the months of April, October and December.
• Form: 202

When no deposit need be made as a staged payment, filing of form 202 is not obligatory, except for permanent establishments classified as Large Companies, which must file the form, even if no deposit is required, which will lead to the existence of negative self-assessments.
• Where to file the return: The filing of Form 202 and the deposit can be made with any collaborating tax collecting organisation (bank, savings bank or credit co-operative) sited in
Spanish territory.

   Tax return

Permanent establishments must file the return for the tax on the same forms and in the same time periods as resident organisations subject to Corporation Tax. Returns will be filed either in electronic format online or using the paper tax return forms generated exclusively by the Tax Agency's printing service. Electronic filing will be obligatory if the PE falls under the Large Taxpayers Central Office or a Major Company management Unit, in certain cases where additional documentation must be presented, and when the taxpayer has submitted the self-assessed tax return for the single tax on the revaluation of assets for payers of Corporation Tax and the non-resident income tax acting with PE.

   • Period: 25 calendar days following the 6 months after the conclusion of the tax period.

   • Form: 200

10. Incomes from economic activity (without permanent establishment (PE)).

According to Spanish law, income from economic activity without permanent establishment in Spanish territory is understood to be obtained in Spanish territory in the following cases:

• When the economic activity is carried out in Spanish territory. However, income obtained from the installation or assembly of machinery or facilities coming from abroad is not considered to be carried out in Spanish territory when these operations are performed by the supplier and their amount does not exceed 20% of the cost price; nor those arising from the international buying and selling of goods, including additional expenses and brokerage fees.

• When income is from providing services in Spanish territory. When these provisions of services partially support economic activities performed in Spanish territory, only the income supporting the activity performed in Spain will be considered to have been obtained in Spain.

   • When income derives from the personal performance of artists and sports people in Spanish territory, even when they are received by a different person or organisation.

   When, in keeping with the internal regulations and, if applicable, the agreement, the income from economic activity carried out without permanent establishment can be subject to taxation in Spain, the general tax rate of 24% will be applicable (24.75% from 1 January 2012 to 31 December 2013, inclusive).

In general, the taxable base will be the difference between the gross revenues and the costs of personnel, materials used in the work, and supplies.

When taxpayers are resident in another European Union member state, the expenses described in the Law on Personal Income Tax can be deducted when calculating the taxable base, provided that the taxpayer provides proof that these expenses are directly related to income earned in Spain and have a direct economic connection that is inseparable from the activity carried out in Spain.

The taxable base corresponding to the earnings deriving from reinsurance operations
will be constituted by the amounts of the premiums paid, in reinsurance, to the nonresident reinsurer. This income will be liable for a special tax rate of 1.5%.

Deductions: Only the following deductions are allowed from the taxable income:

- Deductions for donations, under the conditions described in the Income Tax Act and in the Act on the tax regime of non-profit organisations and of tax incentives for patronage.

- Tax withholdings that have been applied on the taxpayer's income.