Taxation in Spain

Personal income tax in Spain, known as IRPF, was introduced in 1900. It represents nearly 38% of government revenues.[2] Since 2007, the responsibility for regulating and collecting personal income tax has been decentralized, the autonomous regions being responsible for collecting 50% of tax revenue (although all the returns and amounts are actually received by the central tax authority on their behalf). A single national rate applies per taxation band for the whole national portion of the income tax. Tax rates on the regional portion vary between regions, Madrid having the lowest and Catalonia the highest. Tax is withheld by the employer monthly on behalf of the tax authority. Tax returns are submitted between April and June of the following year and refunds are normally paid between May and July, however the Government has until the end of the year to liquidate before the tax payer has a right to interest for the outstanding money: any payments not paid by this date are paid with interest from the beginning of the next year.

As in other jurisdictions income tax is payable by both residents and non-residents with different rates applying. Individual residents are subject to personal income tax (IRPF) based on their income from around the globe. Non-residents are subject to IRPF only on their Spanish-sourced income.[3] Residence status must be established when filing a Spanish tax return and has consequences for the amount of tax due. The rules are complex.[4] Spain considers any alien to be resident if they were living in Spain for more than 183 days in the tax year. Sporadic periods of time outside of Spain are not counted towards establishing oneself as non-resident for tax purposes. An alien is also considered resident if s/he has a spouse or underage child who are residents, as well as any alien who has their main economic centre in Spain. When there is a residence conflict double taxation agreement must be checked.

1. Interest, coupon, bonds, insurance and dividends are generally withheld at 21% rate, but are added to savings base and taxed at savings scale. The first 1,500 € of dividends are exempt (since 2015 this exemption does not apply).
2. Long term (+1 year) capital gains on: stocks, investment funds and real estate, are also taxed at savings scale.
3. Short term (-1 year) capital gains are taxed at general scale (24,75%-52%). Since 2015 short and long term capital gains are taxed at savings scale.

Savings scale 2014

* up to 6,000 €: 21%
* from 6,000 to 24,000 €: 25%
* over 24,000 €: 27%

Savings scale 2015/2016

* up to 6,000 €: 20%/19%
* from 6,000 to 50,000 €: 22%/21%
* over 50,000 €: 24%/23%

VAT (IVA in Spanish: impuesto sobre el valor añadido or impuesto sobre el valor agregado) is due on any supply of goods or services sold in Spain. The current normal rate is 21% which applies to all goods which do not qualify for a reduced rate or are exempt. There are two lower rates of 10% and 4%. The 10% rate is payable on most drinks, hotel services and cultural events. The 4% rate is payable on food, books and medicines.[7] An EU directive means that all countries of the European Union have VAT. All exempt goods and services are listed below.

• Education provided by the state
• Tutoring
• Sporting services
• Cultural services
• Insurance
• Postal stamps
• Artists, writers and composers

As of January 1, 2013, new properties are taxed at the reduced rate of 10%. Second-hand properties are not subject to VAT, but a transfer tax, known as Impuestos sobre Transmisiones Patrimoniales or ITP. The tax is levied by the autonomous regional governments and therefore varies by region. The rate varies from 6% to 8%.[7]

As of January 1, 2015, the corporate tax rate is 28%. In 2016 the tax will be further reduced to 25%. There is a lower tax rate for newly formed companies. The rate, which was introduced in 2015, is set at 15% for the first 2 years in which the company obtains taxable profit.[8]

In the Canary Islands, you have access to 4% Income Taxes if you enter into the Canarian Special Zone (ZEC).

Most sorts of employment income earned are subject to social security contributions, by both the employee and the employer. The standard rate for the employee is 6.35%. The employer pays what corresponds to 29.90% of the employee salary. The current maximum monthly Social Security base is EUR3,596.98 (2015). Any income exceeding that maximum base is not subject to both employee and employer contributions.[9]