Income tax in Spain

The Spanish income tax is regulated according to Law 35/2006 (Income Tax Law LIRPF) and Regulation RDR439/2000 (Income Tax Regulation RIRPF)
It is a dual taxation system as it applies to two different types of income, each having its own tax rates:

  1. The general tax base, which is taxed progressively

INCOME TAX RATES SCHEDULE
TAXABLE INCOME RATE 2015 RATE 2016
Till 12.450 20 % 19 %
From 12.450 till 20.200 25 % 24 %
From 20.200 till 34.000 (35.200) 31 % 30 %
From 34.000 (35.200) till 60.000 39 % 37 %
From 60.000 onwards 47 % 45 %

(Subject to the development in the Autonomous Communities)

In the General tax base following types of income are included:

– Labour income
– Income from business or professional activity, copyrights, lectures, etc.
– Temporary and lifelong pensions
– Income from property (rental income from real estate)

  1. The tax base for income from Capital and Equity, with the following brackets:

Till 6.000 Euros: 20% (for 2016, 19%)
from 6.000 till 22.000: 22% (for 2016, 21%)
from 50.000 Euros onwards: 24% (for 2016, 23%)

In the tax base for the income from Capital and Equity following types of income are included:

– Interest Rates
– Dividends
– Gains from the sale or transfer of assets (real estate and any financial assets).

The autonomous communities (Comunidades Autónomas) have assumed certain responsibilities in terms of personal and family allowances and deductions. In addition, there are two tax rates, a national and of the autonomous communities. For a better understanding, we have showed the addition of both (see chart above).

For non-current income, that which is generated in more than two years, within certain limits, a reduction of 30% is applicable.

On the remuneration of managers and executives or board members there is applicable a withholding tax of 37% in 2015 (35% in 2016).

Economic and business activities

Income from business activities (Article 27 to 32 of LIRPF) is determined in accordance with the accounting rules as for corporations, with only a few differences. It is obligation to maintain a complete accounting in accordance with the Spanish General Accounting Plan (PGC) and pay taxes on the earnings generated, in accordance of the General tax rate.

For certain activities, there is the possibility to apply a system with limited accounting requirements. This possibility can be used when the total income shall not exceed 450.000 Euros per year.

Income from property in the UK

According to the double taxation treaty UK-Spain (Article 6), income from rental property is taxable in the UK, but Spain still has the right of taxation for Spanish residents. As a result, the income is taxable in both states, but the UK tax can be deducted from the Spanish.

Compensations of profits and losses of the General tax base and the tax base for Capital and Equity.

The maximum compensation limit for the tax base for income from Capital and Equity is 10% for 2015, 15% for 2016, 20% for 2017 (from 2018, maximum 25%).

Capital and Equity transfers originating gains and losses can be offset against other income of the General tax base of the same taxable year (from 2018) up to a limit of 25%. Was goes beyond this limit, can be compensated in the 4 subsequent years.

The transfer of assets (financial or equity like real estate) that generate gains or losses can be offset (from 2018) up to a limit of 25% with other income in the tax base for Capital and Equity (interest, dividends, insurance annuities and other life-long or temporary annuities). Beyond this limit, that amount can be used in the 4 subsequent years.

Allowances
The allowance is 5.500 Euros per person (married can present an individual or a joined tax form). For sons and daughters it is 2.400 Euros for each.

Main deductions:
Payments into a private pension plan are deductible from the tax up to the limit specified below (the lower of the two values):

a) 30% of the sum of labour income.
b) 8.000 € / year

Other deductions
Investment in primary residence, investment in start-ups, creation of businesses and economic activities, donations, contributions to political parties, rent of primary residence as well as measures for housing appreciation.

These deductions range between 15% and 20% of the invested amounts, but are associated with strong restrictions on the General tax base, which is why they are de facto irrelevant. They are listed rather for information purposes.

The income tax return must be submitted by 30th of June of next year of the taxable year. Payment can be made in two instalments (60% by submission of the declaration and 40% on November the 5th). No interest will be added. The instalment option is not mandatory and no prerequisites are needed.

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