Spain tax system: audit, reporting and optimization of taxation of Spanish companies and individuals: VAT, income tax and capital gains
Basic taxes (briefly)
|Corporate tax (in detail)||Companies - tax residents in Spain pay income tax on their global income, and foreign companies - on income from sources in Spain. Profits of newly formed companies are taxed at a rate of 15%.|
|Capital gains tax. Details||Capital gains are taxed at the general income tax rate.|
|VAT. Details||Standard rate is 21%; reduced rates are 10% and 4%|
|Other taxes||Capital duty, real property tax, transfer tax, wealth tax|
International tax agreement
|Albania, Algeria, Andorra, Argentina, Armenia, Australia, Austria, Azerbaijan, Barbados, Belarus, Belgium, Bolivia, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, Chile, China, Colombia, Costa Rica, Croatia, Cuba, Cyprus, Czech Republic, Dominican Republic, Ecuador, Egypt, El Salvador, Estonia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea (Republic of), Kuwait, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova (Republic of), Morocco, Netherlands, New Zealand, Nigeria, Norway, Pakistan, Panama, Peru, Philippines, Poland, Portugal, Romania, Russian Federation, Qatar, Saudi Arabia, Senegal, Serbia, Singapore, Slovakia, Slovenia, South Africa, Sweden, Switzerland, Tajikistan, Thailand, Timor-Leste, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Venezuela, Vietnam|
|Andorra, Aruba, Bahamas, Bonaire (Saint Eustatius and Saba), Curaçao, Denmark, Jersey, San Marino, Saint Maarten|
Personal Income Tax
In Spain personal income tax is levied on the worldwide income of residents and Spain-source income of residents. Taxable income of individuals includes earned income (e.g. salaries, wages and business or professional income) and passive income (e.g. dividends, interest and capital gains). For 2014, savings income is subject to the following progressive rates:
Besides, a temporary complementary tax that increased the range of progressive rates to 24.75% to 56% (from the previous range of 24% to 49%) has been extended for 2014, with the maximum rate varying according to the region of residence. For individuals, tax year is a calendar year. Individuals must file a tax return and pay tax due within 6 months following the close of the fiscal year. The minimum work income threshold to file a tax return is EUR 22,000. Where there is no effective or potential loss to the tax authorities, the penalty is limited to a fixed penalty of EUR 200.
|Income, EUR||Rate the first EUR 6,000||21% 6,000-24,000||25% Over 24,000||27%|
Corporate Income Tax
Spainsh residents are subject to corporation tax on worldwide profits and capital gains. Nonresident companies are taxed on Spanish-source income and gains, subject to the provisions of an applicable tax treaty. Branches generally are taxed similar to subsidiaries. Taxable income includes worldwide profits less deductible expenses, and is based on income disclosed in the financial statements. Some expenses are not considered deductible for tax purposes (e.g. restrictions apply to the deductibility of financial expenses, penalties, certain provisions, certain employee benefits, etc.). For taxable years 2013 and 2014, the depreciation rates applicable to tangible assets are limited to 70% of the maximum rates provided by law, for corporate taxpayers with turnover exceeding EUR 10 million. The rate of corporate income tax is 25% (a reduced rate applies to small and medium-size enterprises).
Foreign-securities holding entities (ETVEs), also known as “Spanish holding companies” has quite favorable tax regime: a Spanish holding company is not taxed on its foreign-source income and/or gains; it is also not taxed on income it distributes to its shareholders, or on the gains arising when the shareholder sells its stake in the holding company. Neutral tax regime (guarantees exemption from taxation in respect of direct and indirect taxation) is set for restructuring operations (mergers, spin-offs, contributions of the assets and exchanging of securities and transfers of registered office of a European Company from one EU Member State to another). Small and medium-sized enterprises (net sales amount less than 10 million euro) qualify for certain tax incentives (accelerated depreciation, 25% tax rate and others). Certain formalities should be fulfilled. The Canary Islands tax regime offers a number of tax benefits (there is a special zone in which the tax rate for companies is 4%, there are also certain reductions in the tax base). Other special tax systems apply to venture capital companies and funds, collective investment institutions.
Dividends received are subject to corporate income tax, and double tax relief is available (provided certain requirements are met).
Capital gains are treated as ordinary business income taxable at 30%, and double tax relief is available for capital gains derived from the transfer of shares if certain requirements are met.
Operating losses may be carried forward for up to 18 years, starting from the first period in which profits are earned. The carryback of losses is not permitted. For tax periods beginning in 2011 through 2015, limitations apply on the use of net operating losses if business turnover (based on the preceding 12 months before the date on which the taxable year starts) is more than EUR 20 million. Where the turnover is more than EUR 20 million but no higher than EUR 60 million, the amount of losses carried forward that can offset taxable income is limited to 50% of taxable income. Where turnover is more than EUR 60 million, the limit is 25% of taxable income.
The tax year coincides with the accounting period. The tax period may not exceed 12 months.
The general rate on income for nonresidents is 24%; however, the rate temporarily has been increased to 24.75% for 2014. The withholding tax rate on dividends and ineterst paid to nonresidents as well as branch remittance tax is 19%. However, the rate temporarily has been increased to 21% for 2014. The rate may be reduced by an applicable tax treaty. The withholding tax rate on royalties paid to nonresidents and technical service fees is 24%; however, the rate temporarily has been increased to 24.75% for 2014. The rate may be reduced by a tax treaty.
VAT is imposed on the sale of goods and the provision of services. In Spain VAT is a harmonized tax within the European Community and applicable in the Spanish territory on the Iberian peninsula and on the Balearic Islands. This area excludes the territories of Ceuta and Melilla (where the tax on production, services and imports is applied, the IPSI) and the Canary islands, where the General Indirect Tax of the Canary Islands, the IGIC (rates from 5% to 13,5%) is applied). The standard VAT rate is 21%. The reduced rates are 10% (for certain goods and services) and 4% (basic foodstuffs, books, magazines and newspapers).
Registration is mandatory for all taxpayers that carry out transactions in Spain.
VAT tax period and returns
Filing and payment are due on a monthly basis where the turnover in the previous period exceeds approximately EUR 6 million; otherwise, quarterly filing and payment are required. There is a possibility for certain groups of entities to pay tax under a new consolidation regime (the parent company must own directly or indirectly at least 50% of the capital stock of its subsidiaries, among other requirements).
Stamp duty is levied at 0.5% (increased to 1% in most regions; in certain regions this could increase to 1.5%) of the value of the subject of notarized documents registered in a public register. This tax rate may be increased to 1.5% or 2%—depending on the autonomous region (in certain regions, this could increase to 2.5%)—when real estate is acquired in a VATable transaction as a consequence of the waiver of the applicable exemption.
Other Taxes and Duties
|Capital duty||A 1% capital duty applies on the reduction of capital and upon liquidation. However, the incorporation of companies and increases to capital are not subject to capital duty. Payroll tax||Withholding tax on income from employment is applicable on payroll (i.e. in relation to the personal income tax). Real property tax||Local tax is levied annually on real estate properties, superficial rights and administrative concessions on a property. Landowners must pay tax to the local authorities, with a temporary surcharge of up to 10% (which may be lower, depending on the municipality) applying from 2012 through 2015. Nonresidents pay a special 3% tax if they are resident in a country classified as a tax haven. Social security contribution||Social security contributions represent 28.3% of an employee’s wages, with the employer paying 23.6% and the employee paying 4.7%. Transfer tax||Companies pay a 7% transfer tax (which may be higher or lower, depending on the region) on acquisitions from individuals (nonentrepreneurs) and on Spanish real estate, including any indirect acquisitions. Customs duty||The amount of the customs duty on imports is determined in accordance with harmonized system for the classification of goods (EU Tariff /sp.TARIC code), their origin and customs value. Customs duties on imports from countries which do not belong to the EU are those included in the EU’s Common Exterior Tariffs. Wealth tax||Is levied on the total assets of Spanish residents, and on the assets of non-residents, located in Spain or on the rights of non-residents, exercisable in Spain. In the absence of autonomous community regulation, the maximum tax rate applicable is 2,5%. Some autonomous territories have modified the exempt amounts, in others the tax is not payable at all (in Madrid Autonomous Community, for example).|
- Tax on business activity, conducted within the territory of the municipality (is calculated on basis of various factors – type of activity, area of premises, net revenues etc.) Tax on real estate (based on the cadastral value and on urban/rural property) Tax on motor vehicles (depends on horsepower) Tax on erection and installations projects and contractual work (4%) Tax on increase on urban land value (a top rate of 30%).
Annual Government Fee
Each Spanish company is obliged to an annual government fee of 120 EUR.
Transfer pricing: Transactions with related parties must be carried out at arm's length. Spain incorporates the OECD ́s transfer pricing guidelines. Thin capitalization: Thin capitalization rules no longer apply. However, there are some restrictions on the deductibility of interest expenses. Net interest deductions generally are capped at 30% of tax-adjusted EBITDA. However, in any case, net interest expenses are considered tax deductible if they do not exceed EUR 1 million per year. Controlled foreign companies: Spain’s CFC rules require that certain income obtained from nonresident entities be included in the corporate income tax base of resident entities. Disclosure requirements: Transfer pricing legislation requires documentation to be prepared for related party transactions.
Avoiding International Double Taxation
Spain has entered a whole range of double tax and tax information exchange mechanisms:
- 96 DTC: Albania, Algeria, Andorra, Argentina, Armenia, Australia, Austria, Azerbaijan, Barbados, Belarus, Belgium, Bolivia, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, Chile, China, Colombia, Costa Rica, Croatia, Cuba, Cyprus, Czech Republic, Dominican Republic, Ecuador, Egypt, El Salvador, Estonia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan, Korea (Republic of), Kuwait, Kyrgyzstan, Latvia, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova (Republic of), Morocco, Netherlands, New Zealand, Nigeria, Norway, Pakistan, Panama, Peru, Philippines, Poland, Portugal, Romania, Russian Federation, Qatar, Saudi Arabia, Senegal, Serbia, Singapore, Slovakia, Slovenia, South Africa, Sweden, Switzerland, Tajikistan, Thailand, Timor-Leste, Trinidad and Tobago, Tunisia, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan, Venezuela, Vietnam; 11 TIEA: Andorra, Aruba, Bahamas, Bonaire (Saint Eustatius and Saba), Curaçao, Denmark, Jersey, San Marino, Saint Maarten.
Foreign Exchange Control
Exchange control and capital movements in Spain are fully liberalized. For exchange control purposes, individuals are considered to be resident in Spain if they have their customary place of residence in Spain. Legal entities with registered offices in Spain, and the permanent establishments and branches in Spain of legal entities or of individuals who are resident abroad, are resident in Spain for exchange control purposes. Individuals with their customary place of residence abroad, legal entities with registered offices abroad, and permanent establishments and branches abroad of Spanish resident individuals or entities are not resident for exchange control purposes. As a general rule, payments, receipts and transfers between residents and non-residents, should be made through deposit-taking entities (usually banks) to whom the resident party must provide with certain data and specially with a description of the transaction. The debits and credits, posted to bank accounts held in Spain by non-residents are also subject to this regime. Payments and receipts between residents and non-residents must be declared by the resident party within 30 days if they, in general terms exceed 6,000 euro. Residents, involved in business abroad on a regular basis, should declare their transactions in certain cases. The notification of foreign loans and credits provided by non-residents requires the resident borrower (prior to the first draw-down of funds) to obtain a financial transaction number (“NOF”) by the Bank of Spain when the amount thereof is equal to or higher than 3,000 000 euro.
Generally speaking, Annual Return is a short review on the current state of the company, which is prepared by the company secretary annually. As a rule it includes the following information:
- Incorporation information (registration date, registered address); Information about directors and their resignation; Information about secretaries and their resignation; Information about registered capital, nominal value of shares and amount of issued shares; Information about shareholders and share transfer.
There is a general obligation to maintain reliable accounting records (chronologically monitoring all the operations). The provisions of Commercial Code require periodical preparation of balance sheets and inventories. The following books should be maintained:
- A Book of Inventories (the totals and trial balances are entered at least every three months) Annual Accounts (a balance sheet, profit and loss account, a statement of changes in equity, a cash-flow statement and the notes) a Journal (records every day all the operations of a company).
The corporate income tax return must be filed and taxes paid within six months and 25 days following the close of the fiscal year. Corporations are required to make three advance payments of income tax in April, October and December of each year. Where there is no effective or potential loss to the tax authorities, the penalty is limited to a fixed penalty of EUR 200. Underpayment penalties range from 50% to 150% of the unpaid tax liability. Surcharges, ranging from 5% to 20%, are imposed for late payment where payment is made voluntarily by the taxpayer, without investigation by the tax authorities. Late payment interest also is imposed.
Taxes of Spain
|Min. rate for corporate tax||25%|
|Capital gains tax||Regular rate|