If you are resident in Spain you need to be prepared for a higher tax bill this year and next. At the end of 2011 the new Spanish government announced austerity measures which includ
If you are resident in Spain you need to be prepared for a higher tax bill this year and next. At the end of 2011 the new Spanish government announced austerity measures which included the second largest tax hike in Spain?s history. While many of the tax increases we have seen imposed around Europe over the last couple of years have been targeted at higher earners, these tax rises in Spain affect everyone, albeit in varying degrees.
Tax on general income
An additional contribution has been added to the scale rates of income tax for 2012 and 2013. The more income you earn, the more additional tax you will pay, as shown below.
Income: ?0 to ?17,707 – Additional tax: 0.75% – 2012 tax rate: 24.75%
Income: ?17,707 to ?33,007 – Additional tax: 2% – 2012 tax rate: 30%
Income: ?33,007 to ?53,407 – Additional tax: 3% – 2012 tax rate: 40%
Income: ?53,407 to ?120,000 – Additional tax: 4% – 2012 tax rate: 47%
Income: ?120,000 to ?175,000 – Additional tax: 5% – 2012 tax rate: 49%
Income: ?175,000 to ?300,000 – Additional tax: 6% – 2012 tax rate: 51%
Income: Over ?300,000 – Additional tax: 7% – 2012 tax rate: 52%
The tax rate is a combination of national income tax and community tax which can vary. If you live in Andaluc? the top rate of tax is of 54% for 2012, while in Catalu? it is 56% for income over ?300,000.
General income covers all earned income, such as salaries, pension income, rental income etc.
Tax on savings income
Savings income covers interest, capital gains on the sale or transfer of assets (whether real estate or securities), dividend income, income derived from life assurance contracts and purchased annuity income. The tax rates for savings income have also increased across the board for 2012 and 2013.
Income: ?0 to ?6,000 – Additional tax: 2% – 2012 tax rate: 21%
Income: ?6,000 to ?24,000 – Additional tax: 4% – 2012 tax rate: 25%
Income: Over ?24,000 – Additional tax: 6% – 2012 tax rate: 27%
Note that bank interest is taxed whether you withdraw it or not. When it comes to gains made within an approved life assurance bond, however, income and gains roll up tax free within the bond, so if you do not take withdrawals, you do not have to pay any tax. This only applies to approved bonds; if a policy is unapproved for tax purposes, any increase in value in a calendar year is taxed in full as income, even if you have not made any withdrawals.
Remember, as a tax resident of Spain you are obliged to declare and pay tax on your worldwide income, gains and wealth.
Losses can generally be offset against income within the same category, so losses on general income can only be offset against other income falling within the general income category and losses from savings income can only be offset against other savings income. Note that although capital gains are included in savings income, they are treated separately when dealing with losses.
Spanish-source income of resident companies and individuals is generally subject to a withholding tax, which is creditable as an advance levy against the company?s or individual?s final tax liability. The withholding tax on investment income, capital gains derived from the transfer of shares and participations in investment funds, and rental income has increased from 19% to 21% for 2012 and 2013.
If you are a non-resident property owner you may also be affected by the tax rises. Non-residents pay tax on general income at a flat rate of 24%, and for 2012 and 2013 this is increased to 24.75%. For non-residents, the tax rate on Spanish dividends, interest and capital gains derived from the transfer of assets has also increased from 19% to 21% for these years.
The tax rises above are only meant to apply for income received in 2012 and 2013. Realistically they may need to be in place for longer since reducing the Spanish budget deficit down to 3% by the end of next year seems a rather ambitious target in the current economy.
In December 2008 the Spanish government had approved a measure to apply a 100% tax credit against an individual?s wealth tax liability from 1st January 2008, effectively abolishing wealth tax from that date. In September 2011 the tax was reinstated as a temporary measure, to apply for 2011 and 2012 (tax payable in 2012 and 2013).
The government had not wanted to reinstate the tax but was left with little choice as it needed to increase revenue for the state. Wealth tax is however one of the taxes that can be varied by region, and the Comunidad Valenciana (Valencia, Alicante and Castell? provinces), Islas Baleares and Madrid have since announced that they will continue to apply the 100% tax credit. Residents of these regions therefore do not pay any wealth tax, regardless of the level of their wealth.
The re-introduction of wealth tax has backfired somewhat for the government as it will not be able to collect the amount of revenue they had hoped for. While this is good news for wealthy people who live in the Comunidad Valenciana, Islas Baleares and Madrid, it could have negative consequences for everyone in Spain as the administration may have to put up taxes elsewhere to compensate.
If you have not already done so, this is the time to look to protect your assets from tax. Contact a wealth management and tax advisory firm like Blevins Franks to find out about tax saving opportunities in Spain.
By Bill Blevins, Managing Director, Blevins Franks
2nd March 2012
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual must take personalised advice.