Premier International Meeting Barcelona 10 29 2011


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DOING BUSINESS IN SPAIN, A tax view for individuals

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Premier International Meeting Barcelona 10 29 2011

  1. 1. DOING BUSINESS IN SPAIN: A TAX VIEW FOR INDIVIDUALSRambla Catalunya, 47 3r08007 BarcelonaTel.: 93 467 51 57 – Fax: 93 215 47
  2. 2. INTRODUCTIONBarcelona is considered one of the best cities to do business according to the Ernst &Young study called “Cities for Citizen” (March 2011).Interviews were made to 72 local leaders (city major, strategy directors, chief executive,finance directors). Conclusion: “It is a great example of a global city at a regional levelwith a good talent attraction policy”.Spain has real properties very interesting to do investments, due to the prices andlocations and due also to the weather and good food!
  3. 3. INTRODUCTIONTable of contents1. WHAT TAXES ARE THERE IN SPAIN? 1.a) Residency for individuals 1.b) Taxes in Spain for individuals 1.c) Taxes for property owners Non-Residents2. DEALING WITH TAXES IN SPAIN 2.a) NIE number 2.b) Tax Representative for individuals3. TWO SPECIAL CASES TO SAVE TAXES IN SPAIN 3.a) The “Beckham Law” 3.b) ETVE, Spanish Holding Company
  5. 5. 1.- WHAT TAXES ARE THERE IN SPAIN?1. A) RESIDENCY FOR INDIVIDUALSResidents in Spain pay taxes on their income worldwide.Non-residents are taxed only on their income within Spain.When is an individual considered to be resident in Spain, and when non-resident?An individual is resident in Spanish territory when any one of the followingcircumstances apply:1.- They have stayed longer than 183 days in Spanish territory over the calendar year2.- They situate the main base or centre of their activities or economic activities, directlyor indirectly, in Spain.3.- They have dependent not legally separated wife and/or underage children who areusually resident in Spain. This latter situation accepts evidence to the contrary.Otherwise, where none of the previous situations applies, an individual is considered asa Non-resident in Spain.In case of being resident in Spain and another country, the International Agreements toavoid double taxation will apply, if any. Spain has subscribed a lot of these Agreements.
  6. 6. 1.- WHAT TAXES ARE THERE IN SPAIN?1. B) TAXES IN SPAIN FOR INDIVIDUALSPersonal Income Tax (IRPF): This tax is about Individuals because it takes intoaccount:- The personal situation (married or single, with children or not.)- All the incomes worldwide, wherever they were originated.- There are many allowances : Personal (5.151,00 euros) , Children (1.836,00 euros forthe first), Dividends (first 1.500,00 euros), for Disabilities, etc.- Savings and capital gains are taxed at a two flat rate 19%-21% (over 6.000,00 euros)- Is a progressive tax: the more you earn the more taxes you pay.It is paid annually and the tax rate starts at 18% and rises to 45% or 49%.Non-residents Income Tax (IRNR): This tax is only about incomes generated orobtained in Spain:-Because you own a real property in Spain-Because you have worked for a few months during the year in Spain-Because a Spanish company has paid you dividendsIt is paid annually and the common tax rate is a 24% (i.e Capital gains 19%)
  7. 7. 1.- WHAT TAXES ARE THERE IN SPAIN?1. B) TAXES IN SPAIN FOR INDIVIDUALSVAT Tax (IVA): This tax is for the consumption.The general rate is 18%.Essentials goods like food, water, medicine… have a reduced rate of 8% o 4%Transfer Tax and Stamp Duty (Impuesto de transmisiones patrimoniales y actosjurídicos documentados): This tax is for certain real estate and commercialtransactions.The rate for a real estate transaction is 7% (Transfer tax)The rate for commercial activities starts at 0,5% and could rise to 1,5% (Stamp Duty)Economic activity tax (Impuesto de Actividades Económicas): This tax is applied ifcarried out professional, artistic and entrepreneur activities in Spain.It is paid annually but only if the incomes are above 1 million Euros.The quotation depends on several circumstances (type of activity, surface occupied,workers, ...)
  8. 8. 1.- WHAT TAXES ARE THERE IN SPAIN?1. B) TAXES IN SPAIN FOR INDIVIDUALSProperty Tax (Impuesto sobre Bienes Inmuebles- IBI): Every owner of a real property inSpain pay this tax.It is paid annually and the rate is usually between 0.5% and 1.1% of the cadastral value (valorcatastral) of the property, which is lower than the market value.Motor Vehicle Tax (Impuesto sobre vehículos de motor): This tax is based on the age andthe power of the vehicle.It is paid annually and the bigger the city is, the higher the tax is.Additional Property Tax (Impuesto sobre el patrimonio): All the properties are taxed (realproperties, shares, investments, jewels..)Applicable only for years 2011 and 2012.Commercial properties are exempt, under some conditions.Residents are limited up to 60% of their incomes, toghether with the personal income tax.For the first house, there are 300.000,00 euros exempts.The minimum taxed is 700.000,00 euros (also for Non-residents).
  9. 9. 1.- WHAT TAXES ARE THERE IN SPAIN?1. C) TAXES FOR PROPERTY OWNERS NON-RESIDENTSNon-Residents: Personal Income TaxEach owner is treated as a separate taxpayer and must file returns separately.Taxation will depend on whether the property is let:•Leased property:The tax base consists of the obtained earnings (gross income).Some expenses that are directly related to the income can be deducted (i.e. IBI,depreciation…) but only for taxpayers resident in another European Union member state.The tax rate is 24 %.•Not leased property (it is used by the owner or is unoccupied).The tax base consist in a percentage of the cadastral value of the property: 2% or 1.1%,depending on if it has been revised.•Example: Accrual: 31 December 2011 Cadastral value: 60.000,00 euros Taxable base: 1,1%: of 60.000,00 euros: 660,00 euros Tax payable 24%: 158,40 euros
  10. 10. 1.- WHAT TAXES ARE THERE IN SPAIN?1. C) TAXES FOR PROPERTY OWNERS NON- RESIDENTSNon-Residents: Additional property taxThe tax is calculated based on the highest of the following three values:1. The cadastral value.2. The value assessed by the Spanish Tax Office for purposes of other taxes.3. The purchase price (price plus expenses on the acquisition like taxes, Public Notary, Property Registry, commissions…).Every owner file its own tax return for the percentage of property (a married couple usually50%).This tax is only for 2011 and 2012.The applicable rate depends on a progressive table.There are a minimum exempt from taxation of 700.000,00 euro.
  11. 11. 1.- WHAT TAXES ARE THERE IN SPAIN?1. C) TAXES FOR PROPERTY OWNERS NON-RESIDENTSFor example, if having a property of 2.500.000,00 euros, without mortgage and notconsidered as a first home, the taxation would be:2.500.000,00 less 700.000,00, basis of 1.800.0000,00.Previous amount for the first 1.336.999,51 would be 8.523,36 eurosFor the rest (1.800.000,00 less 1.336.999,51) that is 463.000,49 euros the rate would be1,3%, this is, the amount of 6.019,00.Total amount to pay: 8.523,36 euros plus 6.019,00, total of 14.542,37 euros. Base liquidable Cuota Resto base liquidable Tipo aplicable - - - - Hasta euros Euros Hasta euros Porcentaje 0,00 0,00 167.129,45 0,2 167.129,45 334,26 167.123,43 0,3 334.252,88 835,63 334.246,87 0,5 668.499,75 2.506,86 668.499,76 0,9 1.336.999,51 8.523,36 1.336.999,50 1,3 2.673.999,01 25.904,35 2.673.999,02 1,7 5.347.998,03 71.362,33 5.347.998,03 2,1 10.695.996,06 183.670,29 en adelante 2,5
  13. 13. 2.- DEALING WITH TAXES IN SPAIN2. A) NIE NUMBERSpanish residents have an Identification number called “DNI” (Documento Nacional de Identidad- National Identity Card), every person has one.Non-residents need to have also an Identification Number and this is called “NIE” (Numero de Identificación de Extranjeros- Identity card for foreigners).When is it necessary to ask for a NIE?The NIE is necessary for residents in Spain (foreigners) since it is like DNI for SpanishResidents.For non-residents it is necessary to do almost everything:-To buy a property or a car-To rent a flat or a car-To pay taxes-To get a driving license-To get a loan, including a mortgage-To join social security system-To open a resident bank account-To be a partner of a Company or a Company representative
  14. 14. 2.- DEALING WITH TAXES IN SPAIN2. A) NIE NUMBERHow to get a NIE:- If the foreign person travels to Spain:. Go with a Spanish resident to the local National Police Station, to the ForeignersDepartment. This Spanish resident will collect the NIE number. Fulfill the application form,original and a photocopy (original returned).. Take the Original and one photocopy of your passport or NIE. Pay the tax. Take a written justification of why you need the NIE ( issued by an accountant, a Notary, abank manager, a future employer, a tax adviser,…). Foreigners from abroad European Union, need two photographs- If the foreign person is not in Spain but in his country:. Go to the Spanish Consulate.It is no possible to grant a power to a representative to ask for the NIE number.
  15. 15. 2.- DEALING WITH TAXES IN SPAIN.2. B) TAX REPRESENTATIVE FOR INDIVIDUALS It is necessary in order to pay taxes by a Non-resident in Spain. The Tax Representative must comply with the duties imposed on the taxable persons they represent. How to get a Tax Representative? 1.- Tax Office: in person with the Tax Representative. 2.- Power: In order to appoint a Tax Representative is necessary to grant a Power before the Notary Public for tax purposes. a) The Power can be granted in the residence country of the Non-resident. In this case it is necessary to have Footnote (The Hague Apostille) and translate (official translation) the document into Spanish. b) The power can be granted in Spain. It is necessary to have a translator or the Public Notary has to know the original language of the Non-Resident. 3.- Private Document with a legal signature.
  17. 17. 3.- TWO SPECIAL CASES TO SAVE TAXES 3. A) THE “BECKHAM LAW”The "Beckham Law" is a Spanish tax law that was passed in 2005. The law gained itsnickname after football player David Beckham became one of the first foreigners to takeadvantage of it.-A foreign resident can opt to be taxed as a non-resident, only for the incomesearned in Spain. The tax rate is 24% but the taxpayer gets no personal allowances or otherdeductions from gross income (e.g. for mortgage costs) . If taxed as a resident, the foreignresident would be subject to a progressive tax scale ranging from 18% to 45% dependingon their level of income.-This exemption applies to all foreign workers, although it is geared more towardwealthier expats i.e. middle & upper management and international football players. There isa limit: the remuneration expected under the contract of work in each of the tax periods inwhich special arrangements apply not exceed the amount of 600,000 (from 01/01/2010)
  18. 18. 3.- TWO SPECIAL CASES TO SAVE TAXES 3. A) THE “BECKHAM LAW”-Foreign workers must apply to the Tax office and be accepted for the tax exemption.-The exemption applies in the year of arrival and for the following 5 tax years, for a total of6 years.Conditions:The foreign resident must be a first time resident to Spain. This is, he can not have beenresident in Spain in the last 10 years, minimum.The foreign resident must have been relocated to take up an employment contract in Spain.The work must be performed for a Spanish corporate entity, or for a Permanent Spanishestablishment of a foreign company.The application must be made within 6 months of commencing the employment contract.
  19. 19. 3.- TWO SPECIAL CASES TO SAVE TAXES3. B) ETVE (Entidad de tenencia de valores extranjeros – Spanish Holding Company)• The regime of ETVE is in force since 1996/1/1.• It introduced a system of “participation exemption” in dividends andpatrimonial profits similar to the one of The Netherlands or Luxembourg, butthe ETVE structure complies meets all EU and OCDE criteria and is protectedby EU Directives.•No Corporate Income Tax on Dividend Income received.• No capital gains tax on the sale of shares in the ETVE.• No withholding taxes on outgoing Dividends. Outgoing dividends paid to itsnon-resident parent company are free of withholding taxes un less the parentcorporation is in a country where it will no pay corporate taxes or is a taxheaven.•No Spanish withholding taxes would apply to dividends paid by the Spanishparent Company.
  20. 20. 3.- TWO SPECIAL CASES TO SAVE TAXES3. B) ETVE (Entidad de tenencia de valores extranjeros – Holding)The requirements to form the ETVE in Spain:• The ETVE should have a minimum participation of 5% or 6 million Euro in thecapital of the foreign Company.•The non-resident Company must be subjected to, and not exempt from, a taxsystem that is similar to Spain´s corporate income tax.•The non-resident entity must not reside in a country or territory identified as atax heaven.•For capital gain tax purposes, the seller and the purchaser must be unrelatedparties if the purchaser is a Spanish entity.•Income earned by the non-resident entity, is derived form business activitiesconducted outside Spain in a minimum 85%.
  21. 21. GENERAL SYSTEM FOR COMPANIES ETVE SYSTEM, SPECIAL REGIME EU / NON EU EU / NON EU Capitalgain at 30% Corporate Income Tax Capitalgain exempts Dividends WHT Dividends WHT at 0% at Agreement HOLDING HOLDING Dividends0% WH Tax Dividends No WH Tax or Agreement Dividends 0% WH Tax Dividends No WH Tax or Agreement EU NON EU EU NON EU
  22. 22. MANY THANKS FOR YOUR ATTENTIONPLANARTUS TAX ADVISORSwww.plana-artus.comRambla de Catalunya 47, 3pl08007 BarcelonaTel: 93.467.51.57Fax: Castillo