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Tax: Payment and special conditions in Spain

The obligation to pay taxes to the state is an unpopular measure among taxpayers who, despite knowing that improvements to the system are implemented through their taxes, do not welcome having to pay the same.

No matter what financial and economic operations you may be involved in, you will always need to calculate the taxes that you must pay either before the central or local administration, which is why you may need the help of an accountant.

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When you start a new business and are self employed, you need an expert team to provide you with the assistance to be a Sole Trader (autónomo)…

Inheritance Tax

The Inheritance tax is a tax on your assets that must be paid by your heirs  when you pass away. On many occasions , the tax to be paid…

Non Resident Tax

There is a direct connection between the Non Resident Tax and owning a property in Spain, but the fiscal consequences could be very different…

Tax Return

The Spanish tax return system is very complicated and obscure, and can be a big challenge for expats and foreigners living in Spain. There are exemptions

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Self-employed and small companies

As it happens in many places, it is not easy to start a business neither alone nor in small societies, especially in Spain. Those who decide to work on their own or to open the doors of an SME face great challenges, such as the regular payment of fiscal obligations specific to their activity, which cannot be avoided, despite recent changes happening in Spanish territory.

Self-employed or autonomous workers must make a monthly payment to the Social Security, considering that they have a flat rate of 50 euros for basic coverage, in addition to other bonuses with which the government seeks to lighten their burdens. All other expenses incurred should considerer the payment of VAT and the Income Tax Return for Individuals (IRPF, for its acronym in Spanish). It is worth mentioning the measure approved in previous months that decrees a deferral of VAT for autonomous workers and SMEs, thus, an agreement to postpone a little, and even split the payment, of these taxes under special verifiable circumstances.

On the other hand, SMEs must add to their taxes a long list of commitments, including social security as well, which increases the cost of the work of the staff, aside from other taxes such as VAT on finished products that increases the price of the merchandise, and taxes imposed on the property, without leaving out the municipal licenses and other special rates that the small entrepreneur must face.

Hiring the services of an accountant and even professional legal services to organize and face these payments on time is often required, since they can help you meet these obligations in a timely manner and learn about the latest news.

Inheritance Tax

When it comes to receiving an inheritance, it is important to calculate which taxes are imposed on the estate and how much each beneficiary must inherit.

Currently, these taxes correspond to what is stipulated in each autonomous community, and to determine the “applicable regional regulations” you must consider “the habitual residence of the deceased,” where the person lived for the longest period over the last five years, counted from then until date of the death.

In the case of the Basque Country and Navarre the habitual residence will be the one in the mentioned territory where the person spent the “greater number of days of the year immediately preceding the death.”

Autonomous Communities

The payment details of this amount vary between autonomous communities, and in most of them, the taxes are usually less in case of “mortis causa transfer” than in case of donations in life.

So, this is how it differentiates the Autonomous Communities:

The Common Regime (CCAA, for its initials in Spanish): All those (except for Navarre and the Basque Country) that can establish their tax rate bonuses on their own account.

Bonuses or reductions that can be lost if “it is not settled within the established period.”

With foral regimes: Including the Basque Country and Navarre, where tax is regulated with greater freedom so, they are more advantageous in this subject than the rest of the country.

Clarification: If the heir or legatee lives overseas, it is established that “the inheritance tax is governed by state regulations, and the payment must be made to the State Tax Agency.”

It is advisable to leave all the details involved in this process in the hands of professionals, who can provide proper legal advice in addition to the corresponding tax calculations.

Tax Refund

There are some considerations on the subject that you should know about the type of tax to claim.

The VAT refund may refer to the one imposed on the purchases you request at the airport before leaving the country, this is the simplest claim.

If you live in Spain, there are other amounts on which you can request your refund, but always after your timely payment of the same.

Looking at local cases, after the ruling of the Constitutional Court on the payment of the municipal capital gains, this tax must be refunded to taxpayers who have fulfilled the established deadlines, and have already paid it, without forgetting that this right prescribes after four (4) years from the moment this tax was paid.

Experts say it is profitable to claim amounts higher than 5,000 Euros.

Therefore, after paying the money to the city council, it is time to request the “refund of undue income,” an application that must be addressed to the council along with these requirements:

Proof of payment of the capital gains tax.

Documents confirming the right to a refund (deeds of purchase and sale of the property, appraisals, etc.), in which the economic loss suffered due to the transfer is demonstrated.

The taxpayer must

Provide a means (financial product) to make the refund effective (check, transfer or other) and inform if it has any other debts before the same Administration.

Other refunds

There are other types of tax refunds that are more complex, and you will need the advice of professional to verify if you qualify.

For example, there is one that involves companies in EU territory, and consists on the claim of the amount corresponding to VAT refunds to companies established in the EU. If you wish to request this refund you must submit your application online to the administration of the country where the company is established, which will be sent to the corresponding country if it is correct.

Non-resident tax

In Royal Decree 5/2004 (March 5) through amendment of the text of the Law on Non-Resident Income Tax, it is established that the normative will regulate this tax by establishing the cases and the income for which it will be necessary to pay taxes, even if you do not live in Spain.

Non-Resident Income Tax. Who must pay this Tax?

  • Revenues from activities that take place in Spain, whether there is a physical location or not. The income derived from this activity is generated in Spain, and therefore must be taxed in this country. A clear example is if you are a distributor of a brand in Spanish territory. In the case of an internet collaborator whose work is carried out abroad, this rule does not apply.
  • Pensions and similar benefits will have to pay taxes when they are obtained for work done in Spanish territory.
  • Royalties obtained in the country by persons who live in Spain (rights over plans, artistic works, patents, computer software, etc.)
  • Real estate in Spain, i.e. money obtained from the rental of houses and other real estate properties.
  • Revenues arising from the participation in entities resident in Spain (obtained from the transfer of capital to third parties). In addition to capital gains, derived from real estate, other “movable assets located in Spanish territory,” or when assets are incorporated into the equity of the taxpayer in Spanish territory).

Income exempt from paying the Non-Resident Income Tax includes:

  • Scholarships and income paid by the Public Administration.
  • Tax exempt income in the IRPF included in the legislation (article 7)
  • Interest and income from the sale of equity capital.
  • “Government bonds yields obtained and securities issued in Spain without permanent establishment in Spain” (most cases).
  • Income from non-resident accounts.

Capital Gains Tax

The municipal capital gains tax must be paid by citizens before their corresponding municipalities, and the same taxes on the price for an urban lot of land that was obtained either by donation, purchase-sale, or inheritance.

For a long time, this tax was paid by taxpayers even when they sold their property without making a profit from the transaction (at a loss). Faced with this arbitrariness, the Constitutional Court issued a definite ruling exempting from this payment those cases in which “the value at the time of the accrual is less than the value of the land at the time of acquisition,” thus, avoiding the application of its automatic payment will be applied when there is no revaluation.

Until the final decision of the Supreme Court that specifies that this normative “violates the principle of economic capacity” and prevents the automatic collection that was made without having a “taxable event,” the municipalities continued to collect this tax whose amount had been reviewed and accommodated annually despite the economic situation.

If you must make the payment, we suggest you start with the declaration within the 30 working days following the transfer in life, since in case of inheritances the term can be extended to six months and then, for an additional six months.

After that, verify if you need to request a refund.

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