The Spanish government has announced further income tax cuts for fiscal year 2015. This is a welcome development for taxpayers, and an encouraging sign of how the local economy is improving.
It is not too often that we receive good news about income tax, but the Spanish government has announced income tax cuts twice in one year now. This is a welcome development for taxpayers, and an encouraging sign of how the local economy is improving.
Prime Minister Mariano Rajoy announced the reduction in personal income tax on 2nd July. The new tax rules (Real Decreto-ley 9/2015) were then approved and published in the Spanish Official Gazette (Boletín Oficial del Estado) on 11th July 2015.
The tax cuts extend to both scale and savings income tax rates. For both rates, the cuts are backdated to 1st January 2015 and apply to the whole fiscal year instead of the previous rates
The income tax scale rates and bands were initially modified under new laws last year. The seven income tax bands were reduced to five, and the tax rates cut, from 1st January 2015, with further cuts scheduled for 1st January 2016.
2015 income tax rates for Spanish tax residents
Income tax rates in Spain are comprised of state rates and regional rates set by each Autonomous Community.
Only the state portion has been reduced with the new law. The Autonomous Communities are under no obligation to change their own rates, so it is likely that those established in 1st January 2015 will remain in place at the regional stage.
The changes to the state part of the progressive tax rates are:
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Taxable base
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Previous 2015 tax rates
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New 2015 tax rates
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Up to €12,450
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10%
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9.5%
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€12,450 – €20,200
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12.5%
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12%
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€20,200 – €34,000
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15.5%
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15%
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€34,000 – €60,000
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19.5%
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18%
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€60,000 onwards
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23.5%
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22.5%
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The regional rates are then added on top. So, in general, the total tax rates will range from 19.5% to 46%. They can vary by region, so that in Andalucía they go from 21.5% to 48%; in Comunidad Valenciana from 21.4% to 45.98%; in Murcia from 19.5% to 46%; in Islas Baleares from 19% to 44%; in Islas Canarias from 18% to 46.5% and in Cataluña from 21.5% to 48%.
For fiscal year 2016, the combined rates will range, in general, from 19% to 45%. Again, local variations are likely.
2015 savings tax rates for Spanish tax residents
“Savings income” is taxed separately from general income, and consists of interest income, dividends, capital gains on the sale or transfer of assets, income derived from life assurance contracts and purchased annuity income.
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Taxable base
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Previous 2015 tax rates
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New 2015 tax rates
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Up to €6,000
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20%
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19.5%
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€6,000 – €50,000
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22%
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21.5%
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€50,000 onwards
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24%
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23.5%
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The new rates apply for savings income for the whole fiscal year 2015. Nevertheless, the withholding tax rate applicable by the payer of the savings income (i.e. bank entity, company, etc.) is 20% until 12th July 2015 and 19.5% for the income obtained from 12th July 2015 onwards.
There are no regional variations for savings income tax rates.
Spanish non-residents
Non-residents who earn income in Spain also benefit from the new tax reform.
For general income, the tax rate charged on EU/EEA residents reduces from 20% to 19.5%. For those resident outside Europe it remains 24% as before.
The tax rate applied on savings income is cut from 20% to 19.5%.
Special tax regime (‘Beckham law’) taxpayers
The general income tax rates for those taxed under Spain’s special tax regime do not change, but they do benefit from the reduction to the tax rates on savings income as listed above for residents.
The government calculates that these measures will constitute an additional saving for taxpayers amounting to €1,500 million. It is in a position to bring the tax cuts forward because of the improving Spanish economy and increased tax collection in the previous months. A spokesperson for the government said that it could now “pay back Spanish society for the efforts made during the toughest times of the crisis”.
The Personal Income Tax Ruling and the Non-Resident Income Tax Ruling were also approved on 11th July, and clarify the finer details of the application of the ‘Exit Tax’ and the amended ‘Beckham Law’, among others.
While the tax cuts are obviously very welcome, if you have savings and investments you still need to protect your income and gains from tax. With the right tax planning Spain can be very tax efficient for retired expatriates.
Contact the tax specialists at Blevins Franks to find out how much tax you can save. We have decades of experience advising British expatriates in Spain and specialise in reducing tax on invested capital, pensions, wealth and inheritance.
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 is advised to seek personalised advice.
