In 2015, the following significant reforms have been made to Spanish law on direct taxation of individuals:
The main measures contained in the new regulations that affect taxation of individuals are the followings:
- Legal interest for 2015 is 3.5% whereas late payment interest is 4.375%.
- Wealth tax is still levied in 2015 although regional governments of the various autonomous regions in Spain may establish a different measure.
Law 26/2014, of 27 November 2014, which amends the Spanish Personal Income Tax Law (the PIT Law), the Spanish Non-Residents' Income Tax Law (the NRIT Law), and other regulations, was published November 2014 and came into force on 1 January 2015. This law contains, most notably, the following measures:
- The tax-exempt amount of severance pay is limited, as of 1 August 2014, to 180,000 euros (EUR). This limit will not apply to severance pay awarded for dismissals made before 1 August 2014 or dismissals made as a result of approved lay-off proceedings or a collective dismissal when the employment authorities have been notified of the commencement of the consultation period, in both cases, prior to that date.
- Expenses and investments relating to training staff in the use of new information technology (IT), when such IT can only be used outside the workplace and outside working hours, are considered earned income.
- Benefits in kind consisting of the assignment of the use of vehicles shall be valued, in general, at 20% of the acquisition cost for the payer, taxes included. The valuation may be reduced by up to 30% in the case of vehicles that, in accordance with regulations, are considered to be energy-efficient vehicles.
- The general reduction for earned income obtained and its application is limited to income under EUR 14,450.
- A deduction of EUR 2,000 is introduced for 'other expenses', which is higher for workers who accept a work post in another town or for disabled workers.
- Earned income (with certain exceptions) generated over a period of more than two years, as well as earned income that, by law, is irregular income, is reduced by 30%, provided that in both cases the income is recorded in a single tax period (except in the case of income generated as a result of the termination of an ordinary or special employer/employee relationship).
The reduction will not apply to income generated over a period of more than two years when in the previous five tax periods income generated over more than two years has been obtained and the reduction has been applied to this income, unless the income is generated as a result of the termination of an ordinary or special employer/employee relationship.
- The specific limit for the application of this reduction to income generated on the exercising of share options is eliminated.
- Persons subject to PIT who have received undeclared foreign pensions have a period of six months as of the date on which the rule comes into effect to voluntarily rectify the taxable foreign pensions received by filing supplementary tax returns, without any requirement to pay penalty or late payment interest charges. Any penalty or late payment interest charges that may have been imposed for this matter are waived.
- Positive income generated from leases of property used for residential purposes is reduced by 60%.
- Share capital reductions with a return of contributions and distribution of the share premium in unlisted companies are taxed as securities investment income up to the limit of the positive difference between the amount of equity in the last year closed prior to the distribution and the acquisition cost. Any excess reduces the acquisition cost until its cancellation and the remainder is taxed as securities investment income. Dividends received after the distribution of the premium or capital reduction reduce the acquisition cost to the limit of those previously recorded as such in these operations.
- The EUR 1,500 tax exemption for dividends is eliminated; consequently, dividends will be fully taxed!
- A new investment instrument is created, the 'Long-term Savings Plan', whose income is tax exempt if channeled through deposits or life insurance policies with contributions under EUR 5,000 and terms of more than five years.
- Income generated from property leases is understood to be generated from business activities if at least one person working on a full-time basis is contracted to organise the business activity.
- Hard-to-justify expenses that are tax deductible under the simplified direct evaluation method are fixed at 5% of net income, up to the limit of EUR 2,000.
- The reduction of net income from business activities to create and maintain jobs is eliminated.
- From 1 January 2017, sales of preferential subscription rights for listed securities are taxed as a capital gain of the year, and those transferred on or before 1 January 2017 will reduce the acquisition cost unless they are taxed as a gain.
- The transitory regime for abatement coefficients is maintained, albeit with restrictions. This transitory regime shall be applied when the value of the transfer does not reach EUR 400,000 per taxpayer. For this purpose, the transfer values of all the assets transferred from 1 January 2015, regarding which this transitory regime may be applied, must be added together, and if such amount exceeds the threshold, the transitory regime will be applied proportionally to the part of the transfer value that does not exceed EUR 400,000.
- The application of inflation adjustment coefficients is eliminated.
- Capital gains arising from transfers of assets by taxpayers over the age of 65 are tax exempt provided that the total amount of the proceeds obtained from the transfer is used within six months to set up an assured life annuity for the benefit of the taxpayer. The maximum amount that may be used to set up life annuities is EUR 240,000. In the event of partial reinvestment, only the part of the capital gain obtained that corresponds to the reinvested amount shall be tax exempt.
- If taxpayers resident in Spain during at least ten of the 15 tax periods prior to the last tax period for which a PIT return should be filed change their residence to another country, in general, the taxation of latent capital gains on shares or interests in companies or Collective Investment Institutions (CIIs) classified according to their value (EUR 4 million) or the interest percentage (25% for EUR 1 million upwards) is brought forward.
Payment may be deferred in the event of temporary relocation for work reasons or if the relocation is to a country or territory, with which Spain has signed a double tax treaty (DTT) with an exchange-of-information provision. If, during the following five years (which may be extended for a further five years for cases of relocation for work reasons), taxpayer status is acquired again without having transferred the shares or interests, the deferred debt as well as any accrued interest shall be waived by tax authorities.
The taxpayer may ask the tax authorities to rectify the self-assessment and claim a refund of tax paid if taxpayer status is acquired without any transfer of the shares or interests.
- Special rules are established for changes of tax residence to another member state of the European Economic Area (EEA). Premiums paid by employers for mixed insurance policies that cover both retirement and death or disability shall be recorded for tax purposes for the part that corresponds to the sum at risk due to death or disability when it exceeds an annual amount of EUR 50.
- The quantity limits that determine whether the objective evaluation method is applicable or not and the activities excluded from this method are modified with effect from 1 January 2016.
- Income generated over a period of more than two years or income that is evidently irregular income, when recorded in a single tax period, qualifies for a 30% reduction, with certain limits.
- There are five income tax bands with marginal tax rates ranging between 20% and 47% for 2015 and 19% and 45% from 2016 (rates applicable to residents abroad who are liable to Spanish PIT due to a change of residence to a tax haven or members of Spanish diplomatic offices. The rates applicable in each Autonomous Community will depend on the scale approved by each of them). Nevertheless, the new Royal Decree-Law 9-2015, of 10 July 2015, which amends the PIT and NRIT, regulates new PIT marginal tax rates ranging for the tax period 2015, between 19.5% and 46%.
- Income included in the savings tax base is taxed at a marginal rate of between 20% and 24% for 2015 and between 19% and 23% from 2016. Capital gains and losses arising from transfers of assets are included in the savings tax base irrespective of the period when they were generated. However, the marginal tax rate was amended as well by the new Royal Decree-Law 9-2015, of 10 July 2015, establishing the new marginal rate of between 19.5% and 23.5% for the tax period 2015.
- The negative balance resulting from integrating and offsetting capital gains and losses relating to the general tax base may be offset against the positive balance of the income and allocations of income that form part of the general tax base for the same period, up to the limit of 25% of said positive balance.
- Capital losses included in the savings tax base may be offset against securities investment income up to the limit of 25% of such net income. For the 2015, 2016, and 2017 tax periods, this percentage will be 10%, 15%, and 20%, respectively.
- The reduction in the tax base for membership dues and contributions to political parties is eliminated and a tax credit of 20% of such dues or contributions is established up to a limit of EUR 600 in the deduction base.
- Contributions to social welfare systems reduce the tax base up to the limit of the lower of the following two amounts: (i) 30% of net earned income and net income from business activities and (ii) an annual amount of EUR 8,000. This amount is EUR 2,500 in the case of contributions for a spouse who does not obtain net earned income or net income from business activities over EUR 8,000.
- The personal allowance, allowance for relatives in an ascending or descending line, and allowance for disability is increased. In the case of the allowance for relatives in a descending line, the dependency is likened to cohabitation except when spouse or child support payments are made where the rule to reduce the progressivity is applied.
- Taxpayers who pay spousal or child support as a result of a court decision shall only apply the tax scale separately if they are not entitled to the allowance for children.
- Taxpayers who work outside the home and have dependent relatives in an ascending or descending line or who form part of a large family can apply a tax credit of EUR 1,200 to their tax payable for each of these situations. This tax credit is compatible with the current tax credit for maternity.
- The tax credit for business savings accounts is eliminated.
- The tax credit for the lease of habitual residential properties is eliminated for contracts signed after 2015.
- Taxpayers who engage in business activities and comply with certain requirements can, in general, apply a tax credit of 5% for investment of profits. The investment may be made in the period when the income is obtained or in the following period.
- The tax credit for obtaining earned income or income from business activities is eliminated for taxpayers with a tax base of less than EUR 12,000.
- When certain conditions for the application of the international tax transparency regime are met, the following income obtained by non-resident subsidiaries shall be included in the tax base: (i) income generated from properties not used for a business activity, (ii) income generated from investments in the equity of any type of company and lending activities, (iii) capitalisation and insurance activities that have legal entities as a beneficiary, (iv) income generated from industrial and intellectual property, technical assistance, moveable property, image rights, and leases or subleases of businesses and mines, (v) income generated from transfers of these goods and rights, income generated from credit, financial, and insurance operations and the provision of services, or income generated from derivative financial instruments.
The regime is not applicable to interests held in European Union (EU)-resident companies, provided that it can be proven that the company was incorporated for valid economic and operational reasons and carries on a business activity. Likewise, the regime is not applicable to collective investment institutions incorporated and with a registered office in the European Union.
When the non-resident company does not have the relevant organisation of material and human resources, taxpayers shall include the total positive income obtained by the non-resident company in Spain in their tax base, except where it can be proven that these operations are carried out with material and human resources of a non-resident company of the same group or that the company was incorporated and operates on valid economic grounds.
However, dividends, shares in profits, or income generated from transfers of shares shall not be included when the interest is over 5% and has been held for at least one year and the shares are held to manage and direct the interest, provided that the company has the relevant organisation of material and human resources and the subsidiary is not primarily engaged in the management of moveable and immoveable assets.
- The special tax regime for workers assigned to Spain may be applied irrespective of the amount of the remuneration. The annual limit of EUR 600,000 is eliminated. The tax liability is determined in accordance with the NRIT rules with certain special characteristics. The tax rate for earned income is 24% up to EUR 600,000 and 45% (47% in 2015) for any earned income in excess of this amount.
The assignment to Spain may result from an employment contract, with the exception of the special employer/employee relationship of sportspersons, or as a result of acquiring the condition of director of a company in which the worker does not hold an interest or in which the interest held is less than 25%. The requirements that the work should actually be carried out in Spain for a company resident in Spain and that the earned income generated from this relationship is not exempt from NRIT are eliminated.
A transitory tax regime is established for taxpayers assigned to Spain before 1 January 2015, who can apply the special tax regime in accordance with the rules in force at 31 December 2014.
- For earned income generated from employer/employee relationships or statutory relationships and pensions as well as passive income, a scale of withholdings is established, which is split into five bands with a minimum rate of 19% (20% from 1 January 2015 to 11 July 2015 and 19.5% from 12 July 2015 to 31 December 2015) and a maximum rate of 45% (47% from 1 January 2015 to 11 July 2015 and 46% from 12 July 2015 to 31 December 2015).
- Directors' remuneration are subject to a withholding rate of 35% (37% in 2015). When the remuneration is received from companies with a net turnover of less than EUR 100,000, the withholding rate is 19% (20% from 1 January 2015 to 11 July 2015 and 19.5% from 12 July 2015 to 31 December 2015).
- The withholding rate is 15% from 12 July 2015 (19% from 1 January 2015 to 11 July 2015) for the following incomes:
- Earned income generated from giving courses, conferences, symposiums, seminars, and similar activities.
- Earned income generated from the creation of literary, artistic, or scientific works, when the right to exploit such works is assigned.
- Income generated from professional activities.
The withholding rate is 19% (20% from 1 January 2015 to 11 July 2015 and 19,5% from 12 July 2015 to 31 December 2015) for the following income
- Securities investment income.
- Capital gains arising from the transfer or reimbursement of shares and interests in collective investment institutions.
- Capital gains arising from the use of mountain forests established by law.
- Capital gains arising from transfers of subscription rights (from 1 January 2017).
- Prizes won as a result of participating in games, competitions, lotteries, or random combinations.
- Income generated from the lease or sublease of urban property, irrespective of the type of property.
- Income arising from intellectual or industrial property and technical assistance and the lease and sublease of moveable property, businesses, or mines.
- Amount to be allocated for the assignment of image rights by taxpayers that have an employer/employee relationship with a person or company when they have assigned the exploitation right or consent to use the image to such person or company, or related person or company.
- The withholding rate for earned income obtained by workers assigned to Spain who are taxed under the special tax regime system shall be 24%. When the remuneration paid by the same payer of earned income in the calendar year exceeds EUR 600,000, the withholding rate applicable to the excess is 45% (47% in 2015).
- The supplementary tax rate that should be applied, with some exceptions, when income obtained through a permanent establishment (PE) in Spain of non-resident companies is transferred abroad is 20% from 1 January 2015 to 11 July 2015, 19.5% from 12 July 2015 to 31 December 2015 and 19% from 2016
- For transfers of subscription rights, the deposit-taking business of, if no such business exists, the financial intermediary or notary who has intervened in the transfer is required to make the relevant withholding, with effect from 1 January 2017.
- The standard tax rate for income obtained in Spain by non-residents without a PE is 24%. For residents of other EU member states or EEA countries with which there is an effective exchange of tax information, the rate is 20% from 1 January 2015 to 11 July 2015, 19.5% from 12 July 2015 to 31 December 2015 and 19% from 2016.
- The tax rate applicable to interest, dividends, and capital gains arising from transfers of assets obtained by non-residents without a PE is 20% from 1 January 2015 to 11 July 2015, 19.5% from 12 July 2015 to 31 December 2015 and 19% from 2016.
- The tax rate applicable to income obtained by non-residents through a PE in Spain is, in general, 28% in 2015 and 25% from 2016.
- The tax rate applicable to companies set up abroad that are taxed under the income allocation tax system and carry on a business activity in Spain is 25%.
- Dividends received by non-residents without a PE are fully subject to and not exempt from tax.
- When calculating the tax base, a distinction is made, for taxpayers without a PE who are resident in other EU member states, between individuals and companies. In each case, the deductible expenses are established by referring to PIT and corporate income tax (CIT) legislation, respectively.
- Taxpayers resident in other EU member states or EEA countries with which there is an effective exchange of tax information can also avail of the tax exemption for reinvestment in habitual residential properties when they sell their habitual residential property in Spain.
- Provided that certain requirements are complied with, dividends paid by a subsidiary to its parent company resident in another EU member state or a PE of the latter located in another EU member state are exempt from NRIT. For this purposes, a company that has a direct or indirect interest of at least 5% in the capital of another company or the acquisition cost of the interest is more than EUR 20 million is a parent company. In addition, the interest should be held for at least one year and this period may be completed following the distribution. When calculating this period, the number of years during which the interest has been held uninterruptedly by other companies of the same group shall also be taken into account.
- Persons who are resident in other EU member states may opt to be treated as PIT payers when at least 75% of their total income during the year has been obtained in Spain from earned income and income from business activities and NRIT has actually been levied on such income during the period. They can also exercise this option when the income obtained in Spain during the year is under 90% of the personal and family allowance that they would have been entitled to apply if they had been resident in Spain and NRIT has actually been levied on the income during the year. The option to be treated as PIT payers is extended to residents of other EEA countries with which there is an effective exchange of tax information.
- To apply the tax exemption applicable to royalties paid to associated companies resident in other EU member states, the company that receives the payments should do so for its own benefit and not as an intermediary or authorised agent (special rules are applicable to PEs). If the majority of the voting rights of the recipient are owned, directly or indirectly, by persons or companies resident in the European Union, the tax exemption can be applied if the company that receives the payments has been set up for valid economic reasons and operates for substantive business reasons other than the management of securities or assets.
- The NRIT exemption for capital gains arising from transfers of assets obtained by residents in other EU member states will not apply when the transfer made by the non-resident company does not comply with the requirements laid down in Section 21 of the Spanish Corporate Income Tax Law for the application of the tax exemption (in general, an interest of at least 5% or acquisition cost greater than EUR 20 million and a holding period of one year). The tax treatment of capital gains for Spanish residents is similar to that in EU member states.
- The NRIT exemption for the distribution of profits by resident subsidiaries to their parent companies resident in other EU member states shall not apply when the majority of the parent company's voting rights of are owned, directly or indirectly, by persons or companies not resident in EU member states or EEA countries with which there is an effective exchange-of-information provision, unless the company was set up for valid economic reasons and carries on substantive business activities other than the management of securities or assets.
- Estimated expenses and allocated income for internal operations of a PE are regulated in cases where a DTT applies that permits the deduction of estimated expenses for internal operations with the head office or with any of its PEs located outside Spain.
- Annual employer contributions to pension plans regulated by the Law cannot exceed the maximum amount of EUR 8,000.
Participants may only exercise their vested rights in cases of long-term unemployment or serious illness. Likewise, participants of individual and associated pension plans may draw early on the amount of their vested rights relating to contributions made at least ten years earlier. For this purpose, the rights generated from contributions made until 31 December 2015 and the income relating to such contributions shall be available from 1 January 2025.
- The criteria for a certain country or jurisdiction to be considered a tax haven include the existence of an effective exchange of information as well as the results of the peer reviews carried out by the Global Forum on Transparency and Exchange of Information. The list of tax havens is regulated by law and the possibility that the list may be updated is expressly established.
- Spanish gift and inheritance tax regulations have been reformed with effect from 1 January 2015 as a result of a judgment of the EU's Court of Justice on 3 September 2014, which established that these regulations are an obstacle to free movement of persons and capital and breach the Treaty on the Functioning of the European Union by allowing discrimination in the tax treatment of gifts and inheritances between resident and non-resident successors and donees and between gifts and similar disposals of property located in and outside Spain. The reform introduces several rules that aim to equate the tax treatment in the discriminating situations listed by the EU's Court of Justice.
Law 22/2013, approving the State budget for 2014, was passed on 23 December 2013. The main measures laid down in this law that affect the taxation of individuals are:
- Wealth tax is still levied in 2014; however, a different measure may be established by regional governments of the various autonomous regions in Spain.
- The temporary 20% reduction of net income generated from business activities for job maintenance or creation is maintained in 2014.
- The PIT treatment for investments made and expenses incurred to train staff in the use of new communication and computing technologies is maintained in 2014; consequently, these amounts are not a benefit in kind.
- The supplementary tax that increased state PIT rates applicable to the general scale in 2012 and 2013 by between 0.75% and 7%, depending on the person’s tax bracket, is maintained in 2014. As a result of this supplementary tax, the maximum state PIT rate applicable to general taxable income is 30.5% for taxable income in excess of EUR 300,000. The total PIT rate applicable to general taxable income is the state tax rate plus the regional tax rate approved by the corresponding autonomous community.
- The supplementary tax that increased the PIT rates applicable to savings income in 2012 and 2013 by 2% and 6%, respectively, is maintained in 2014. As a result of this supplementary tax, the total tax rates applicable to savings income are 21% for the first EUR 6,000 of taxable income, 25% for the following EUR 6,000 to EUR 24,000 of taxable income, and 27% for any amounts of taxable income over EUR 24,000.
- The increased withholding tax (WHT) rates applicable to employment income are also maintained in 2014.
- The increased WHT rate applicable in 2012 and 2013 to employment income obtained by directors (42% instead of the general 35%) is maintained in 2014.
- The WHT or advance tax applicable to the following income and capital gains is maintained at 21% (instead of the general 19%):
- Income from capital.
- Income from professional activities established by PIT regulations for which the 9% tax rate does not apply.
- Capital gains generated from transfers or payments of shares of joint investment institutions.
- Capital gains generated from forest use or exploitation by persons residing in public woodland that are established in the regulations implemented under Spanish PIT law.
- Prizes awarded in games, competitions, lotteries, or promotional draws, whether or not they are linked to the offer, promotion, or sale of certain goods, products, or services.
- Income generated from leases or sub-leases of urban real property, irrespective of the type of property.
- Income generated from intellectual or industrial property, provision of technical assistance, leases or sub-leases of movable property, businesses, or quarries irrespective of the type of property.
- Amounts allocated to transfers of image rights by PIT payers who have an employment relationship with a person or company/entity if the taxpayers have transferred to such person or company/entity the right to trade on or the consent or authorisation to use their image in acts with persons or companies/entities resident or not resident in Spain, when this tax allocation should be made in accordance with the provisions of Section 92.8 of Spanish PIT law.
- Income generated from teaching courses, conferences, symposia, seminars, and the like, or from the production of literary, artistic, or scientific work, provided that the right to trade on such works is transferred.
This information is current as of the date of its publication and does not necessarily reflect the present state of the law or relevant regulation.