PERSONAL INCOME TAX IN SPAIN

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What is personal income tax?

The Personal income tax (IRPF), is applicable throughout Spain. Personal Income Tax (Impuesto sobre la Renta de las Personas Físicas or IRPF) is a personal, progressive and direct tax levied on the income obtained in a calendar year by individuals resident in Spain. It is therefore a tax figure belonging to the Spanish tax system.

Who is subject to personal income tax?

THE PERSONS WHO ARE SUBJECT TO PERSONAL INCOME TAX ARE AS FOLLOWS:

• Individuals habitually resident in Spanish territory.
• Individuals of Spanish nationality who habitually reside abroad but who meet any of the conditions set out in the law (e.g. diplomatic or consular services, etc.).
• In addition, any Spanish citizen who establishes residence for tax purposes in a tax haven will continue to be subject to the PIT (during the year in which he or she changes residence and for the following four years).

A taxpayer is considered to be habitually resident in Spanish territory if any of the following conditions are met:

• The taxpayer is physically present in Spanish territory for more than 183 days in the calendar year.
• Sporadic absences are included in the determination of the taxpayer's time of presence in Spanish territory, unless tax residence in another country is accredited.
• In the case of territories designated in the regulations as tax havens, the authorities may require the taxpayer to prove that he was present in those territories for 183 days in the calendar year.
• For the purpose of determining the period of stay in Spain, absences for cultural or humanitarian cooperation, without compensation, with the Spanish authorities are excluded.
• The main centre or base of the taxpayer's activities or economic interests is in Spain, either directly or indirectly.
• In the absence of proof to the contrary, a natural person is presumed to be resident in Spain if his/her spouse/husband (from whom he/she is not legally separated) and dependent minor children have their habitual residence in Spain.

Individuals who are taxpayers of non-resident income tax and who are resident in an EU Member State may opt to be taxed under the Spanish PIT if they can prove that their domicile or habitual residence is in another EU Member State and that at least 75% of the income for the year was obtained as salary income or business income in Spain.

For tax years starting on or after 1 January 2016, civil law companies not subject to CIT, undistributed estates, joint ownership and other entities referred to in Article 35.4 of the General Tax Law 58/2003 of 17 December 2003 are not considered taxpayers.

The corresponding income shall be attributed to the shareholders, heirs, co-owners or partners, respectively, in accordance with the transfer regime laid down in the PIT Act.

Taxable event

Taxpayers subject to the PIT are taxed on their entire worldwide income, including income from foreign entities (international tax transparency system), unless the non-resident entity is a resident of an EU Member State. This international tax transparency regime is similar to that described above for CIT.

Tax system and taxpayer

The possibility of individual or joint taxation (as a family unit) is regulated. However, there is only one tariff but it is divided into two parts: the general tariff and the regional tariff.

General structure of the tax

The law distinguishes between a general and a savings component of taxable income. The general component is taxed according to a progressive scale of rates, while the savings component is taxed at fixed rates (or according to a scale applied according to income brackets).

The general tax and the net savings tax payable are calculated on the basis of the general and savings components, after applying certain reductions. In addition, the general and savings components of taxable income are calculated according to the general and savings income categories.

These categories are fixed compartments, with some exceptions, so that, within each category, income items are integrated and offset against each other but without the possibility of offsetting losses against losses of other income categories. Within each category, there are even sub-compartments that cannot be offset against each other.

In this respect, the general component of taxable income is the result of adding the following two balances together: ehe balance resulting from adding together and offsetting against each other, without limit, the following income and attributions of income.

• Wage income.
• Income from real estate.
• Income from movable capital derived from the transfer of own funds to entities related to the taxpayer. 

• • This rule does not apply (in which case such income must be included as savings income) when: 

• • • They are institutions of the nature provided for in Article 1.2 of Royal Legislative Decree 1298/1996 of 28 June 1996, which adapts the current Law on Credit Institutions to the Law of the European Communities, provided that such income does not differ from the income that would have been offered to similar groups of persons related to such institutions.
    • The amount of own resources allocated to a related entity does not exceed the result of multiplying equity by three, to the extent that it relates to the taxpayer's interest in the related entity.
    • Other income forms part of movable capital that is not considered as savings income, such as income derived from the transfer of the right to use an image, income from intellectual property when the taxpayer is not the author and income from industrial property that is not assigned to the business activity carried out by the taxpayer: 

• • • • Income from commercial activities.
      • Imputation of real estate income.
      • Imputation of income of entities under the international tax transparency system.
      • Imputation of income from the assignment of advertising rights.
      • Changes in the value of units in collective investment undertakings established in tax havens.

The positive balance, resulting from adding together and offsetting, exclusively, capital gains and losses excluding those considered as savings income. If the balance is negative, it may be offset against 25% of the positive balance, if any, of income and allocations.

The remainder of the negative balance will be offset in the following four years under the same offsetting rules, with offsetting being mandatory to the maximum amount allowed by the rules.

• The component from savings of taxable income is calculated on the basis of the savings income which is made up of the positive balance resulting from the sum of the following balances: phe positive balance resulting from adding together and netting the so-called income from movable capital goods.

That is to say:

• Income derived from an entity as a partner, shareholder, associate or stakeholder.
• Income from movable capital derived from the transfer of own funds to third parties outside the taxpayer or derived from related entities that meet the requirements for not being included as general income.
• Cash refund or payment in kind on capitalisation operations and life or disability insurance contracts.

If the inclusion and offsetting of such income against each other leads to a negative result, this amount may only be offset against the positive balance of capital gains and losses reported in the next component of savings income (paragraph (b) below) up to a limit of 25% of that positive balance.

The positive balance resulting from adding and offsetting capital gains and losses arising from the transfer of assets. If this result is negative, its amount may be offset against the positive balance of the other component of savings income, i.e. income from movable capital, up to a limit of 25% of this positive balance.

In both cases, if the balance is negative after offsetting such gains and losses, the amount may be offset in the following four years. However, in 2015, 2016 and 2017, the rate of compensation between movable capital income and capital losses in the tax base was 10%, 15% and 20% respectively.

EXEMPT INCOME

The legislation provides for numerous items of exempt income. Among the exemptions is that relating to salary income for work performed abroad.

This exemption applies to salary income accrued during the employee's stay abroad up to a limit of €60,100 per year, if the following conditions are met certain requirements:

• Wage income must be paid for work actually performed abroad. In other words, the taxpayer must be physically performing services abroad.
• In the case of services provided by related entities, an advantage or benefit accrues or is likely to accrue to the recipient.
• The recipient of the services must be a non-resident entity in Spain or a permanent establishment abroad of a company resident in Spain.
• In the other country there must be a tax identical or similar to the Spanish PIT, and that country must not be a territory classified as a tax haven.

This requirement will be considered fulfilled when the country or territory where the work is carried out has signed a tax treaty with Spain containing an information exchange clause.

Exempt income received for work performed abroad should be calculated on the basis of the number of days the worker actually spent abroad and the specific income related to the services rendered outside the country. To calculate the daily amount, The method of pro rata distribution should be used for work carried out abroad, by reference to the total number of days in the year, in addition to the specific income related to the work performed.

In addition, an exemption is provided for capital gains arising from the transfer of the taxpayer's principal residence, where the full amount is reinvested in the acquisition of a new principal residence within two years from the date of transfer, subject to certain conditions.

Also relevant is the exemption of severance pay or severance payments in the mandatory amount stipulated in the Labour Statute, in its enabling regulation or, if applicable, in the regulation governing the enforcement of judgments, excluding amounts stipulated in (limited) agreements, clauses or contracts.

180,000 for redundancies occurring since 1 August 2014), or the exemption for positive income from investments in life insurance securities, deposits and financial contracts used to take out long-term savings plans, provided that the taxpayer does not use any capital plan before the first five years have elapsed.

It should be noted that the general exemption for dividends up to €1,500 per year was eliminated (from 2015).

INCOME FROM WORK

THE MAIN ASPECTS OF THE TAX TREATMENT OF EARNED INCOME ARE AS FOLLOWS:

Both cash income and benefits in kind are taxable.

Next, explains the most relevant issues affecting benefits in kind: 

• They are generally valued at the market value of the remuneration.
• However, the Law establishes special rules for certain types of income:
  The valuation of the benefit in kind consisting of the transfer of the use of vehicles is 20% per annum of the acquisition cost to the payer, or 20% of the value that the vehicle would be worth if it were new (depending on whether or not the vehicle is owned by the company, respectively).
• The calculated amount should be weighted according to the percentage of private use of the vehicle.
• The value obtained may be reduced by up to 30% in the case of vehicles classified as energy efficient. If the vehicle is given to the employee, it shall be valued at cost less the value of previous use.
• The benefit in kind consisting of the housing use of The amount of the business property is limited to 5% or 10% of the rateable value, depending on whether or not this value has been revised, respectively, up to a maximum limit of 10% of the remainder of the earned income.
  
• Other remuneration is valued at cost, such as subsistence or accommodation expenses.
• In any case, the Law establishes that, irrespective of the general and special rules mentioned above, the value of benefits in kind paid by companies habitually engaged in the performance of the activities that give rise to benefits in kind. 

• • For example: when a car rental company leases the use of vehicles to its employees. It may not be less than the price charged to the general public for the good, right or service in question, applying ordinary or common discounts and, in any case, with a limit of 15% or €1,000 per year (whichever is less).

• It should also be noted that certain benefits in kind are not taxable.
• The allotment to current employees, free of charge or below market price, of shares in the company itself or in other group companies is not subject to taxation to the extent that it does not exceed €12,000 per year for the total number of shares allotted to each employee, provided that the offer is made under the same conditions for all employees of the company, group or subgroup of companies and that other requirements (basically related to the retention of the shares for a certain period of time) are met.
  
• Amounts paid to entities providing public passenger transport services to help employees to travel from their place of residence to their place of work are not subject to tax, subject to a limit of €1,500 per year per employee (indirect payment formulas that meet a number of conditions such as "transport passes/vouchers" are allowed).
  
• Restaurant vouchers and health insurance premiums are also not taxable, subject to certain quantitative limits; Childcare vouchers are also not taxable and are not subject to limits.

Of the different types of remuneration, those derived from the granting to employees of stock options in the group company where they provide their services stand out (due to their special characteristics). In these cases, for stock options that are non-transferable (which is the most common scenario), wage income is generated when the employee exercises the options and receives the shares.

In short, income is not generated when the options are granted but only when the options materialise in shares (with vesting and subsequent or simultaneous exercise of the options). At that point, what is generated is wage income, for the difference between the market value of the shares received and the cost of the option.

Subsequently, when the shares received are transferred, a capital gain or loss will arise.

Additionally, There are a number of tax benefits for this type of compensation: 

• As mentioned above, the award of shares to current employees, free of charge or at a price lower than the normal market price, shall not be considered as compensation in kind for the portion not exceeding €12,000 per year for all the shares awarded to each employee, provided that the conditions set out in this section are met.
• In addition, the reduction for multi-year income can be applied to the part above €12,000, where the requirements discussed below are met.

REDUCTION FOR IRREGULAR INCOME:

A reduction of 30% applies to irregular income, which is defined as follows: 

Income which is generated over more than two years, provided that the reduction has not been applied in the previous five tax periods (this second requirement does not apply in the case of severance payments for dismissal or termination of a special or ordinary employment relationship).

Revenues classified by the regulations as notably irregular over time. This 30% reduction may be applied up to a maximum of €300,000 per year (this limit is reduced for severance payments or severance pay above €700,000, with no reduction applicable to severance payments of €1,000,000 or more).

Other types of reduction are applicable to certain earned income.
When calculating income, certain expenses, such as social security contributions, are also deducted, or a general reduction of €2,000 per year is applied for other expenses (this reduction is increased in certain circumstances). Taxpayers with a net earned income of less than €14,450 apply an additional reduction depending on the amount of their income.

This limit has been increased, with effect from 5 July 2018, to €16,825 and a specific regime has been introduced, applicable only from 2018. Finally, entities resident in Spain will be obliged to make withholdings on employment income paid to their employees, irrespective of whether the income is paid by the entity itself or by a different related, resident or non-resident entity.

RENTAL INCOME

For the calculation of the net profit, all expenses necessary to obtain the net profit can be deducted. Deductible finance charges and repair and maintenance costs may not exceed the gross income generated by each property.

However, the allowance may be deducted under identical conditions in the four years following. All other expenses may result in negative net income from real estate. In cases of, residential property leases, a 60% reduction will be applied to net income ( i.e, gross income less depreciation and amortisation, non-state taxes and surcharges, etc.) as long as it is a positive figure.

In addition, if the income was generated over a period of more than two years, or if it was earned at noticeably irregular intervals, a reduction of 30% (reduction applicable up to a maximum of €300,000) will apply.

INCOME FROM MOVABLE CAPITAL

Income from movable capital will generally be included in the savings component of taxable income, as specified above.

THIS REFERS MAINLY TO:

• Income derived from equity interests in entities (such as dividends).
  In this type of income, it is important to highlight the treatment of the shares in equity investment vehicles variable ( SICAV ).

In this respect: 

In the case of reductions of capital effected for the repayment of contributions, the amount of the reduction shall be considered as income from movable capital, subject to the limit of the higher of the following two amounts: the amount relating to the increase in the redemption value of the shares from their acquisition or subscription until the time of the reduction of capital, or, where the reduction of capital arises from retained earnings, the amount of such earnings.

In this regard, capital reductions, regardless of their purpose, shall be deemed to affect first the portion of capital derived from retained earnings, until that portion reaches zero. Any excess over the limit determined in accordance with the above rules will reduce the acquisition value of the relevant shares of the company. SICAV to zero, which will determine the future revenues from the transfer. However, any excess shall be included as income from movable capital, derived from the participation in the assets of all kinds of companies, in the manner laid down for the distribution of additional share capital.

These rules shall also apply to shareholders of collective investment undertakings equivalent to SICAV and registered in another EU Member State (and, in any case, shall apply to companies covered by Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009, on the coordination of laws, regulations and administrative provisions of certain undertakings for collective investment in transferable securities).

Likewise, with regard to the distribution of additional paid-up share capital The law provides that the amount obtained will reduce the acquisition value of the shares or participations in question to zero, and any resulting excess will be taxed as income from movable capital assets. Notwithstanding the provisions of the previous paragraph, in the case of distribution of additional share capital relating to securities not admitted to trading on any of the regulated securities markets as defined in Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004.

In markets for financial instruments and which, represent the equity interest in companies or entities, where the difference between the equity value of the shares or participations corresponding to the last close of the financial year preceding the date of distribution of the additional paid-in capital.

The normal market value of the goods or rights received shall be considered as income from movable capital, up to the limit of this positive difference. Income earned from the transfer to third parties of own capital (such as interest).

Income from capitalisation operations and life or disability insurance and income from capital deposits. However, certain income from movable capital forms part of the general component of the tax base: rThe amount of the excess of the amount of equity transferred to a related entity over the result of multiplying the equity of the entity that relates to the interest by three.

The aim of this rule is to avoid applying the tax rates of the savings component (which are lower) to cases where the income is derived from shareholders' debt to their investees where there is "excess debt", so that financial income may be replacing income that could have been taxed in the general component of the tax base.

Thus, for example, if an individual shareholder of an entity has a 100% interest in the entity, which corresponds to equity of 1,000, and he lends the entity 4,000. Lincome referred to in the law as 'other income from movable capital', which is income derived from intellectual property where the taxpayer is not the author: industrial property not assigned to economic activities.

The leasing of furniture, businesses or mines or the sub-letting of such property (received by the sub-lessor) other than commercial activities. The transfer of the right to exploit an image or of the consent or authorisation for the use thereof, where such transfer does not take place in the course of a business activity. In this case, a reduction of 30% can be applied, if they are generated over more than two years or are classified by regulations as notably multiannual. Again, in this case, the reduction applies to a maximum amount of €300,000.

Capital gains and losses

As mentioned above, capital gains and losses are classified into two types: those that do not arise from transfers and those that arise from transfers. The first rate is included in the general component of taxable income and taxed at the marginal rate, and the second rate is included in the savings component.

With regard to capital gains and losses, the following aspects should be highlighted:

• In general, a capital gain or loss on a transfer, whether for valuable or no consideration, is measured as the difference between the acquisition and transfer values of the items transferred.
• In certain circumstances, however, these securities are indexed to the market because they involve transactions where there is no acquisition or transfer value. per se. 

• • For example:

On the donation of an asset, the gain is calculated as the difference between its cost and the market value of the asset at the date of donation. Or in the case of a swap, the gain is calculated as the difference between the acquisition value of the asset or right transferred and the higher of the market value of that asset or right and the market value of the asset or right received in exchange.

• In some cases, there are also rules to ensure taxation of real income. 

• • For example:

In the transfer of unlisted securities, the transfer value shall not be the price of the securities, but the higher of that price, the value of the shares resulting from the last balance sheet closed before the imputation of the tax, or the value resulting from capitalising at 20% the average of the results of the last three financial years closed before that tax becomes chargeable (unless it is shown that the transfer price is the market price).

Abatement coefficients

The law provides for the application of coefficients that reduce the gain derived from the transfer. However, the application of these coefficients is only foreseen for assets acquired before 31 December 1994.

The coefficients do not apply to the entire gain generated on the transfer but only to the gain generated until the legislation eliminated the coefficients, specifically until 19 January 2006.

In general terms, what should be done is to calculate the amount of the "nominal" capital gain; distinguish the portion of that gain generated up to and including 19 January 2006 and the portion generated after that date (according to rules depending on the type of asset, the general rule being that of linear distribution) and apply the coefficients to the first part of the above-mentioned gain.

The coefficients are 11.11% in the case of real estate or real estate companies, for each year elapsed from the acquisition of the asset until 31 December 1994 (i.e. capital gains generated until 19 January 2006, from real estate acquired before December 1985, will not be subject to tax).

25% in the case of shares traded on secondary markets (capital gains generated up to 19 January 2006, arising from assets acquired before 31 December 1991, not subject to taxation).

14.28% in all other cases (where the gain arising up to 19 January 2006 from assets acquired before 31 December 1998 will not be taxable).

The rest of the profit, i.e. which is deemed to have been generated after 20 January 2006 (inclusive) shall be taxed in full.

In accordance with the applicable legislation, the maximum amount of the transfer value of the asset to which these coefficients can be applied is €400,000.

This limit of €400,000 does not apply to the transfer value of each asset individually but to the total transfer value of all the assets as a whole to which the abatement coefficients are applied as from 1 January 2015, up to the moment when the assigned capital gain occurs.

In other words, it is an overall limit even if the sale of each asset takes place at different times.

• Certain capital gains and losses are not considered as such (and therefore not taxed or taxed differently), namely those arising from the dissolution of joint ownership or those resulting from the division of common property. In other cases, losses incurred are not computed, such as consumption losses or losses arising from gifts.
• The Law also establishes an anti-abuse rule that prevents the computation of losses derived from the transfer of securities listed on organised markets when homogeneous securities have been acquired in the two months prior to or after the transfer (the period is one year in the case of transfers of securities not traded on organised markets), in these cases, the losses are included as the securities remaining in the taxpayer's assets are transferred.
• Of the capital gains or losses that are not subject to taxation, those derived from the donation of a family business, where the assets were used in the economic activity for at least five years prior to the date of transfer and, provided that the donor is 65 years of age or older or suffers from absolute permanent disability or total disability, stand out, ceases to perform management functions and to be remunerated for those functions, and the donee retains the assets received for at least 10 years from the date of the public deed evidencing the donation, except in the case of death, and does not make any disposition or corporate transaction that would result in a significant decrease in the acquisition value of the business received.
• In addition, it establishes, among other things, that the taxpayer will not compute capital gains obtained from the transfer of units or shares in collective investment undertakings provided that the proceeds are reinvested in assets of a similar nature.
• In both cases, the new shares or units subscribed for will retain the value and acquisition date of the transferred shares or units. Nor are capital gains considered to arise from capital reductions.
• When the reduction of capital, regardless of its purpose, gives rise to the redemption of securities or units, those acquired first shall be deemed to have been redeemed and their acquisition value shall be distributed proportionally among the remaining similar securities in the taxpayer's assets.
• Where the reduction of capital does not affect equally all the securities or units held by the taxpayer, it shall be deemed to refer to those acquired first.
• Where the purpose of the capital reduction is to repay contributions, the amount of the reduction or the normal market value of the assets or rights received shall reduce the acquisition value of the securities or units concerned, in accordance with the rules of the preceding paragraph, to zero.
• Any excess shall be included as income from movable capital derived from participation in the equity of any type of entity, in the manner established for the distribution of additional paid-up share capital, unless such capital reduction derives from retained earnings, in which case the The sum of the amounts received in this respect shall be taxed in accordance with the provisions of Article 25.1 (a) of this law.
• For these purposes, a reduction of capital, whatever its purpose, shall be deemed to be a reduction of capital.
• Since 1 January 2017, income obtained from a transfer of subscription rights derived from securities admitted to trading on any of the regulated securities markets defined in Directive 2004/39/EC of the European Parliament and of the Council has been treated as capital. gain for the transferor in the tax period in which the transfer takes place.
• This is a change from the regime applied in previous years, where the proceeds from the transfer of this right reduced the acquisition cost of the listed security in question.
• In other words, under the previous regime, taxation of the gain on the sale of pre-emptive subscription rights was deferred to the time of transfer of the share in question.
• In this case, the custodian and, failing that, the financial intermediary or the public authenticator who has accredited the transfer, shall be obliged to make the corresponding withholding or advance payment of this tax.
• There is an exemption for capital gains generated by the transfer of shares or holdings in newly or recently incorporated companies to which the tax credit for investment in newly or recently incorporated companies was applied. (see section 2.2.13) provided that the total amount obtained from the transfer is reinvested in the acquisition of shares or units which comply with the conditions set out in Article 3(1)(b) and (c). following requirements: 

• • Reinvestment in a corporation, a limited liability company, an employee-owned corporation or an employee-owned limited liability company that is not listed on an official stock exchange. This requirement must be met for all years in which the shares or stock are held.
  • To carry out an economic activity with the personal and material means necessary to carry it out.

In particular, the activity of the company may not be the management of movable or immovable property within the meaning of the Wealth Tax Act, in any of the company's tax periods ending prior to the transfer of the holding.

• • The net assets of the entity may not exceed 400,000 euros at the beginning of the tax period in which the taxpayer acquires the shares or units.

Where the entity is part of a group of companies as defined in Article 42 of the Commercial Code, irrespective of its domicile and the obligation to file consolidated annual accounts, the equity figure shall refer to all the entities belonging to that group.

• • Shares or participations in the entity must be acquired by the taxpayer either at the time of incorporation of the entity or through a capital increase within three years of incorporation and must be retained by the taxpayer for a period of between three and three years. Twelve years.
  • The direct or indirect holding of the taxpayer, together with holdings in the same entity owned by the taxpayer's spouse or any person related to the taxpayer by affinity or direct or collateral consanguinity up to and including the second degree, may not, on any day of the calendar years of ownership of the holdings, be more than 40% of the entity's share capital or voting rights.
  • They must not be shares or interests in an entity through which the same activity is carried on as that previously carried on under another title.

• In addition, it will be necessary to obtain a certificate issued by the entity whose shares or units have been acquired, certifying compliance with the first three requirements during the tax period in which the shares or units were acquired.

Reductions in the net tax base to bring the tax into line with the taxpayer's personal and family situation.

The law provides for certain reductions for that part of the net taxable income which is deemed to cover the basic and personal needs of the taxpayer, which is not subject to taxation:

• Taxpayer's personal allowance: 5.550 € per year, increased by 1.150 € per year for people over 65 years old and 1.400 € per year for people over 75 years old.
• Child benefit: 

• • For each unmarried descendant under 25 years of age, or descendant with a disability regardless of age, or person under guardianship or foster care living with the taxpayer, the taxpayer will be entitled to a reduction of € 2,400 for the first, € 2,700 for the second, € 4,000 for the third and € 4,500 for the fourth and following.

When the descendant is under 3 years of age, the above amounts shall be increased by €2,800 per year.

The family reductions will not apply if taxpayers who are entitled to these reductions file PIT returns with an income of more than €8,000 or a claim for a refund.

• Allowance for relatives in the ascending line: 1,150 € for each ascendant over 65 years of age or disabled person living with the taxpayer (or dependent pensioners) who does not have an income of more than €8,000. For ascendants over 75 years of age, this is increased by €1,400.
• Disability allowance: 

• • From the taxpayer:

In general, €3,000 per year, although it will be €9,000 per year for people who can prove that they have a disability equal to or greater than 65% (there will be an increase of €3,000 per year for assistance, if the need for assistance from third parties is demonstrated, or the existence of limited mobility or a disability of at least 65%).

• • Of ascendants or descendants:

For those entitled to the above-mentioned benefits, a reduction of €3,000 per person per year, although it will be €9,000 per year for people who can prove that they have a disability equal to or greater than 65% and an increase of €3,000 per year for assistance, if it is proven that they need the assistance of third parties, have limited mobility or a disability of at least 65%.

• For family units consisting of non-separated spouses and, where applicable, minor children or disabled persons, before the application of the personal and family allowances, a reduction of €3,400 will be made, firstly, to the regular net taxable income (which may not be negative) and subsequently, in the event of a surplus, to the net savings taxable income.

This prior reduction will be €2,150 for single-parent families, except in cases of cohabitation with the father or mother of one of the children forming part of the family unit.

Determination of the net tax base

The general component of net taxable income shall be the result of applying to the general component of taxable income the reductions for situations of dependency and old age and for contributions to social welfare systems, including those established for disabled persons, contributions to protected estates of disabled persons and reductions for compensatory pensions.

The application of the abovementioned reductions cannot result in a negative overall net tax base. These reductions include most notably reductions in contributions to employee welfare systems.

Thus, the making of these contributions will reduce the tax base by the lesser of the following amounts:

1. 2,000, except where the contributions relate to contributions from companies, in which case the limit may be increased by a further €8,000.
2. 30% of the sum of net income from work and business activities.

In addition, contributions to pension plans in which the contributor's spouse is a participant or member may also qualify for a reduction provided that the spouse does not earn income from work or business activity, or where such income is less than €8,000 per year.

The maximum reduction limit is €1,000 and the contribution is not subject to IGT.

If the general net tax base is negative, it can be offset against the positive net tax bases of the following four years.

The savings component of net taxable income shall be the result of deducting from the savings tax base the remainder (not applied to reduce the general tax base), if any, of the reduction for compensatory pensions, but such operation may not lead to a negative effect. savings net tax base.

Determination of the gross tax payable: tax rates

The gross tax payable is calculated by applying the tax rates to the net tax base.

Specifically:

• On the one hand, what could be called "general gross tax payable" is calculated by applying the progressive scale of tax rates to the general net tax base and subtracting the result of applying the same scale to personal and family allowances.
• On the other hand, what could be called "gross tax payable on savings" is calculated by applying the savings scale of tax rates to the net savings tax base.

There is no single tax scale, but rather a national scale and an autonomous community scale. Thus, a taxpayer in Madrid, for example, will apply both the national scale and the scale of the autonomous community of Madrid to his net taxable base.

The taxpayer's place of habitual residence determines the autonomous community in which income is deemed to be earned for the purposes of the PIT. The law also establishes specific rules to prevent tax-motivated changes of residence.

The tax scales do not vary according to the type of return (joint or separate) chosen by the taxpayer.

For the years 2021 and subsequent years, the total tax scale (national plus autonomous community rates) applicable to the autonomous communities that have not approved a specific autonomous scale is as follows:

In addition, the savings component of net taxable income that does not correspond to the other personal and family allowances will be taxed according to a flat-rate scale.

In other words, the general national and regional scales for 2021 and subsequent years are as follows:

The sum of the amounts resulting from the application of the national and regional tax rates to the general net tax base and to the net savings tax base described above will determine the national and regional gross tax payable, respectively.

Net tax payable and final tax payable: Tax credits

The tax national net payable and the net autonomic tax payable are the result of deducting from the gross national and autonomic taxes payable (in the corresponding percentages) some tax credits:

• The tax credit for investment in new or newly incorporated companies.
• The business tax credit.
• Donation tax credits.
• The tax credit for income obtained in Ceuta and Melilla.
• The tax credit for actions for the protection and dissemination of Spain's historical heritage and the cities, monuments and assets declared World Heritage Sites.

The net tax payable by the Autonomous Community shall, in addition, be calculated taking into account any tax relief that may be established by the Autonomous Community concerned in the exercise of its powers.

Of these, the tax credit for investment in new or newly incorporated companies is particularly noteworthy.

This tax benefit allows for a 30% deduction 37  of amounts paid for the subscription of shares or participations in new or newly incorporated companies when the following requirements are met:

• The entity whose shares or units are acquired must: 

• • Take the form of a Corporation, Limited Liability Company, Worker Owned Corporation or Worker Owned Limited Liability Company.
  • To carry out an economic activity with the personal and material means necessary to do so.
  • In addition, the net assets of the entity may not exceed €400,000 at the beginning of the tax period in which the taxpayer acquires the shares or holdings (where the entity is part of a group of companies as defined in Article 42 of the Commercial Code), regardless of the place of residence and the obligation to file consolidated annual accounts, the net assets figure will refer to all the entities belonging to that group.

• Shares or participations in the entity must be acquired by the taxpayer either at the time of incorporation of the entity or through a capital increase within three years of incorporation and must be retained by the taxpayer for a period of between three and three years. Twelve years.
• The direct or indirect holding of the taxpayer, together with holdings in the same entity owned by the taxpayer's spouse or any person related to the taxpayer by affinity or direct or collateral consanguinity up to and including the second degree, may not, on any day of the calendar years of ownership of the holdings, be more than 40% of the entity's share capital or voting rights.
• They must not be shares or interests in an entity through which the same activity is carried on as that previously carried on under another title.

The maximum tax credit base is €60,000 per annum and consists of the acquisition value of the shares or units subscribed.

It is also worth mentioning the deduction introduced with effect from 1 January 2018 for taxpayers whose other family members reside in another EU or EEA Member State, the purpose of which is to bring Spanish legislation into line with EU rules and domicile.

Situations in which a taxpayer cannot file a joint return because other members of the family unit reside outside Spain.

The deduction is applied so that the tax payable is equal to the amount that would have been borne by the taxpayer if all the members of the household had been in the same household. the family unitThe taxable person must have been resident for tax purposes in Spain.

The application of tax credits cannot lead to a negative net tax payable (national and regional).

The final tax payable is the result of deducting from the total net tax payable (autonomous community plus national) the sum of credits for international double taxation, withholdings, payments on account and instalments and deductions of the underlying tax in relation to income, attributed for international tax transparency or for the transfer of image rights.

The final tax payable may in turn be reduced by the maternity tax credit (subject to a limit of €1,200 per year), deductions for large families or disabled dependants (subject to a limit of €1,200 or €2,400, as appropriate).

Retentions

Payments of income from movable capital, capital gains on shares or units in collective investment undertakings, wage income, etc., are subject to withholding tax (or advance payment, in the case of compensation in kind) which is treated as an advance payment on account of the final tax. 

The withholdings by type of income can be consulted in the corresponding tables published periodically by the Tax Agency.

To calculate the withholding tax applicable to salary income, the procedure (explained in simple terms) is to take the total gross salary income and reduce it by certain deductible expenses and reductions to determine the net salary income.

The withholding scale at source (aggregation of the national and Autonomous Community scales) is then applied to the result of the calculation. The same process must be followed for personal and family allowances, to which the withholding scale is also applied separately.

The difference between the two transactions results in the withholding tax payable. The applicable withholding rate is determined by dividing the withholdings by the total wage income.

Ultimately, the calculation of the withholding tax rate is very similar to the calculation of the final tax rate,

Formal obligations:

The tax period coincides with the calendar year. However, if the taxpayer dies on any date other than 31 December, the tax period will be shorter than the calendar year.

The tax also becomes chargeable on 31 December of each year, unless the taxpayer dies on another day, in which case the tax becomes chargeable on the date of death.

Taxpayers who are obliged to file a PIT return (Form 100) must, when filing their returns, calculate the tax payable and pay it in the place, form and by the deadlines determined by the Ministry of Finance. The deadline is usually 30 June.

Taxpayers who are married and not legally separated, and who are required to file a PIT return under which tax is payable, may apply for a suspension of their tax liability for an amount equal to or less than the refund to which their spouse is entitled for the same tax in the same tax period.