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Spain Fiscal reform 2010, new changes in taxation

by | Jan 25, 2010 | Fiscal Law and taxation

Note: As from the 1 September 2012 the VAT in Spain will increase to:

  • 21% (standard rate) for professional services, alcoholic drinks and most commercial products, from the previous 18%.
  • 10% (reduced rate) for specific product categories like food, from the previous 8%.
  • 4% (extra reduced) on primary necessity goods (milk, bread…). This rate will stay unchanged.

At present most countries in the world are deploying fiscal stimulus packages in order to re-launch the economy. Spain, contrary to world trends and the recommendations of the IMF, will implement a fiscal reform in 2010 that will overall increase tax pressure for both companies and individuals.
Let’s see in detail the changes that will happen in 2010.

VAT increases (starting from 1 July 2010)

Staring from the first of July 2010 there will be VAT increases on all goods as follows:

  • The standard 16% VAT rate will increase to 18%.
  • The reduced 7% VAT rate (affecting new property property purchases, hotels and restaurants and most food products) will increase to 8%.
  • The 4% VAT rate on primary necessity goods won’t change.

In practice this will mean for example that a car costing 30.000€ without VAT, will cost 34,800€ prior to the first of July and will cost 35,400€ afterwards. Totalling a difference of 600€. For a newly built house costing 300.000€ without VAT, the VAT change will increase the burden by 3,000€. While for many items not subject to price fluctuations it may be advantageous to anticipate purchases before July, for the real estate market you will have to analyze market conditions. If the price decrease trend continues after July it may compensate for the VAT increase. In the Canary Islands VAT is not applied. Instead there is an “Impuesto General Indirecto Canario” that will stay at 5% and won’t be affected by the 2010 reform. As in the Canary Islands the territories of Ceuta and Melilla have a tax replacing VAT the “Impuesto sobre la Producción, los Servicios y la Importación”, this won’t change its present value.

VAT payments within the EU

From the first of January 2010 Spain will conform to the new 2010 EU regulations for VAT. In other words companies offering services across EU borders will pay VAT depending on the client:

  1. If the client is a company or a professional the VAT will be paid to the client’s country.
  2. If the client is an individual the VAT will be paid to the country from where the company is offering the service.

Capital gain tax increase on shares, deposits and high interest accounts

As from the first of January 2010 the taxation of saving interests will move to a progressive system from the previous 18% flat rate. For the first 6,000€ taxation will increase from 18% to 19% and for the following 6,000€ taxation will increase from 18% to 21%.  Your bank will deduct 19% -21% of the interest paid and pay the tax office on your behalf. This will only affect you if you are resident in Spain.

Capital gains tax increase on the sale of the property for residents or non residents:

From the first of January 2010 capital gains tax for residents will increase from 18% to 19% for the first 6,000€ and 21% for the rest of the gains obtained from the sale of the property.  For non residents will be a flat rate of 19%.
There are no changes regarding the retention of 3% of the property price for non residents, but there will be a significant increase on inspections to prevent tax evasion. Non residents have a period of three months after the sale of the property to comply with their legal obligations for paying capital gains tax, regardless of the initial retention of 3% at the signing of the title deeds.

Update: 2012 Transfer tax for properties

Starting from January 1st 2012 the Transfer Tax in Andalucía will increase using a progressive system.

For resale properties

Imposable base bracket Transfer tax rate
0.00€ to 400,000.00€ 8%
400,000.01€ to 700,000.00 9%
700,000.01 and above 10

For resale of properties qualified as garages

Imposable base bracket Transfer tax rate
0.00€ to 30,000.00€ 8%
30,000.01€ to 50,000.00 9%
50,000.01 and above 10

For New properties

For new properties there is no transfer tax but a VAT of 4% for now. The tax VAT decrease from 8% to 4% for new properties will be extended throughout 2012. Stamp duty will increase or decrease according to different cases.

  • 1.2% (compare to 1% previously) for properties
  • 0.1% for disabled people (compared to the previous 0.3%)

For sales happened between the 19th of March 2010 and the 31st of December 2011 the transfer tax was valued at: 7% for properties up to 400,000€ and 8% for the balance above 400,000€. Purchase of a new property was subjected to VAT 8% and stamp duty 1%.

Changes in income tax

This affects residents only: From the first of January 2010, the 400 € income tax rebate will only remain for those who earn less than 8,000 € a year, and then a sliding scale will run to 12,000 € above which the rebate is removed entirely. For the 2009 incomes the rebate will apply in full.  For non-resident foreign workers with an annual income above 600,000€ personal income tax will change from 24% to 43%.

Taxation for Small and Medium-sized Businesses and the self employed

The only good news for this new 2010 fiscal reform is a temporary tax decrease for SMEs and the self employed.
As from 1st January 2010:

  1. The “Impuesto sobre sociedades” or corporate tax, will decrease by 5% for SMEs that comply to all these conditions:
    1. The SME has less than 25 employees
    2. The SME has a total turnover of less than 5 million €.
    3. The SME won’t decrease in number of employees during the year.
  2. There will also be a 5% decrease in income tax for self-employed individuals that do not fire employees during the year.

In practice for a taxation base between 0€ and 120,202.41€ taxation will be 20% instead of the previous 25%. Above 120,202.41€ 25% instead of 30%.