Spain

Country Name: Spain
Currency: Euro (EUR, €)
Primary Tax Authority: Agencia Estatal de Administración Tributaria (AEAT)

Key Legislation:

Constitution of Spain (1978): Establishes the tax framework in Articles 31 and 133, ensuring tax equity and legal basis for tax imposition.
General Tax Law (Ley General Tributaria): Regulates the application of taxes, enforcement, and penalties.
Corporate Income Tax Law (Ley del Impuesto sobre Sociedades): Governs the taxation of corporate income.
Personal Income Tax Law (Ley del Impuesto sobre la Renta de las Personas Físicas): Regulates taxation of individual income.
Value Added Tax Law (Ley del Impuesto sobre el Valor Añadido): Provides the framework for VAT.

Spain operates a decentralized tax system, with both national and regional taxation authorities.
Taxes Collected by National Authorities:

Corporate income tax
Value-added tax (VAT)
Personal income tax (shared with regions)
Customs duties
Taxes Collected by Regional Authorities:
Wealth tax
Inheritance and gift tax
Transfer tax
Regional personal income tax surcharge
Taxes Collected by Local Authorities:
Property tax (IBI)
Business tax (IAE)
Vehicle registration tax

Standard CIT Rate: 25%
Reduced Rates: SMEs with annual turnover less than EUR 1 million may qualify for a reduced rate of 15% during the first two profitable years.
Taxable Income Definition: Resident companies are taxed on worldwide income, while non-resident companies are taxed only on income sourced from Spain.
Deductible Expenses: Depreciation, interest (subject to limitations), R&D expenditures, and business expenses are deductible.
Loss Carryforwards/Carrybacks: Losses can be carried forward indefinitely, though offset limits apply. Loss carrybacks are not permitted.
Tax Incentives: Spain offers incentives for R&D, job creation, and investments in renewable energy.

Standard VAT Rate: 21%
Reduced Rates: 10% (for certain food products, hospitality, and transport) and 4% (for basic foodstuffs, books, and pharmaceuticals).
Scope of VAT: VAT applies to the supply of goods and services, as well as imports into Spain.
Exemptions: Education, healthcare, and some financial services are VAT-exempt.
International VAT Treatment: Exports are zero-rated, while imports are subject to VAT upon entry.

PIT Rates: Progressive rates from 19% to 47%, depending on the income level and region.
Taxable Income Thresholds: The rates and income thresholds vary slightly between Spain’s autonomous regions due to regional surcharges.
Deductions and Exemptions: Spain offers deductions for home ownership, pension contributions, charitable donations, and family dependents.
Treatment of Foreign Income: Residents are taxed on worldwide income, but foreign tax credits are available to avoid double taxation. Non-residents are taxed only on Spanish-sourced income.
Special Rules for Expatriates: The Beckham Law provides a special PIT regime for expatriates, taxing only Spanish-sourced income at a flat rate of 24% for six years.

Social Security Contributions:

Total Contribution Rate: Social security is compulsory for all employees in Spain, with contributions totaling approximately 36.25% of gross salary.
Breakdown of Contributions:
- Employer: 29.9%
- Employee: 6.35%
Contribution Ceiling: Contributions are subject to a salary cap, which is adjusted annually.
Coverage: Social security covers health insurance, unemployment benefits, and pensions.
Tax Deductibility: Contributions are deductible for personal income tax purposes.

Dividends: 19%
Interest: 19%
Royalties: 24% (subject to reduction under applicable double tax treaties).
Payments to Non-Residents: The general withholding rate on payments to non-residents is 24%, though rates may be reduced under tax treaties.

Documentation Requirements: Spain follows the OECD guidelines on transfer pricing and requires documentation for transactions between related entities.
Arm’s Length Principle: All transactions between related parties must comply with the arm’s length standard.
Penalties for Non-Compliance: Penalties for non-compliance can result in adjustments to taxable income and fines.

Taxation of Trusts/Foundations: Foundations are generally exempt from corporate income tax, provided their activities are not-for-profit and meet public interest criteria.
Holding Company Regime (ETVE): Spain offers a participation exemption for holding companies, allowing dividends and capital gains from foreign subsidiaries to be tax-exempt.
Free Trade Zones: Certain tax exemptions and reductions are available in Spain’s designated free trade zones.

Wealth Tax: This is levied on individuals’ net assets, with rates ranging from 0.2% to 3.5%. Wealth tax is regionally administered, and in some regions, like Madrid, it is fully exempt.
Inheritance and Gift Tax: Rates and exemptions vary by region, with progressive rates reaching up to 34%.
Property Tax (IBI): An annual tax on real estate ownership, based on cadastral values, typically ranging from 0.4% to 1.1%.

Key Partner Countries: Spain has over 90 DTAs, including agreements with major trading partners such as the US, UK, Germany, and China.
Reduced Withholding Tax Rates under DTAs: Reduced rates generally apply to dividends, interest, and royalties under DTAs.
Tax Treaty Benefits Application Process: Companies must file the appropriate forms to claim tax treaty benefits, including a certificate of residence.

Corporate Tax Filing Deadlines: Corporate income tax returns are due six months and 25 days after the end of the fiscal year.
VAT Filing Requirements: VAT returns must be filed quarterly or monthly, depending on the company’s turnover.
Penalties for Late Filing/Non-Compliance: Late filing penalties can be severe, with interest charged on unpaid taxes and fines for non-compliance.

Recent Tax Law Changes: In 2022, Spain introduced a new temporary solidarity tax on large fortunes, applicable to net assets over EUR 3 million.
Upcoming Reforms: Spain is currently considering reforms to personal income tax, focusing on making the system more progressive. Changes to corporate tax rates and further incentives for green energy investments are also under discussion.
Global Tax Initiatives: Spain has adopted OECD’s Base Erosion and Profit Shifting (BEPS) measures and is implementing the global minimum tax proposal under Pillar Two.
Digital Services Tax: Spain introduced a 3% digital services tax (DST) in 2021, applicable to companies with significant digital revenues in Spain.

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