Taxation is an essential subject for many of us. Did you know that there are different types of taxation for individuals and companies? Moreover, these vary depending on the country and the area you are in.
In the case of taxes in Spain, this country is known as one of the European territories with quite favorable taxation, which is why it usually attracts various entrepreneurs. But what exactly are its tax advantages, and who can benefit from them? This is what we are going to reveal in this article.
These are the taxes that an individual or legal entity must pay for consumption. Regardless of the purchasing power they have, the tax rate will always be the same for both Spanish and residents.
You’ve probably already heard of Value Added Tax (VAT), this is a perfect example of an indirect tax, as it is levied on the consumption of goods and services by both businesses and individuals.
Currently in Spain there are 3 VAT rates: general (21%), reduced (10%), and super-reduced (4%).
It should also be noted that among indirect taxes there are also special taxes, which are levied on goods such as hydrocarbons, tobacco, car registration, or those goods that harm the environment or people.
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These are taxes that are associated with a natural or legal person, and are levied directly on income and wealth. This type of tax, unlike indirect taxes, varies in percentage depending on the purchasing power and the autonomous community in which the individual or legal entity is located.
Among the examples we can give you about direct taxes, the most important is the Personal Income Tax (IRPF).
In order to declare the IRPF, personal and family situations are taken into account, due to this, in articles 68, 80 and 81 of the Law, certain types of deductions are stipulated in which we can find ourselves:
Deductions for mothers who work outside the home and have children under the age of 3.
Deductions for having a large family or a family with disabled dependents.
Deductions for donations to certain foundations or for investment in assets of cultural interest.
Companies located in Spain benefit from aspects such as the absence of an annual flat rate or business tax. The only tax to be paid is corporate tax. Below, we explain its main characteristics and who it is aimed at.
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Corporate Income Tax (IS)
This tax is levied on the net income of a company, that is to say, on the profits obtained from the economic activity carried out by the company. In addition, the tax return must be filed even if no operating activities have been carried out during the period or even if income subject to the tax has been obtained.
Companies based in Spanish territory will be taxed on all their global income, including investments, social benefits and remittances.
Currently, corporate tax has several levels ranging from 15% to 35% depending on the turnover of the company. Compared to its European neighbours, this rate is particularly low.
Who must pay Corporation Tax?
The Tax Agency specifies that the IS must be paid by legal entities with the exception of non-profit civil societies, and must also be paid by certain entities that do not have a legal form. To explain in more detail who must pay this type of tax we leave you this list below:
All trading companies
Profit-making civil companies. However, civil companies engaged in agricultural, livestock, forestry, mining and professional activities that meet all the requirements under Law 2/2007, on professional companies, will not be taxpayers.
State, regional, provincial and local companies.
Agricultural transformation companies.
Associations, foundations and institutions.
Economic interest groupings.
Temporary joint ventures.
Provisional funds, investment funds, venture capital, regulation of the mortgage market, banking assets and investment guarantee funds.
Communities owning neighbouring forests in common ownership.
And you might be wondering what happens to the self-employed? Well, this tax is aimed at companies in Spain for tax purposes, so it will not include self-employed people.
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Social contributions in Spain
Everyone who works in a company must declare and pay social security contributions, which can be of various types: sickness, maternity, disability, death and family allowances.
The person must apply for registration at the TGSS (General Treasury of the Social Security) of the place where the company is located.
The start of the activity entails the obligation to pay contributions, which continues for the duration of the activity, even in situations of temporary disability of the worker. For any purpose or renewal of the activity, the worker must inform the TGSS.
On the other hand, failure to report the termination of activity does not prevent the worker from paying contributions, even if there has been a termination of activity. All contributions are paid up to a monthly or daily limit. The special plans, contribution bases and applicable rates vary according to the plan.
Fees for employer and employee
All companies, regardless of their type of activity, pay social security contributions. These contributions are used to cover the social benefits of workers in all matters relating to illness, accidents at work, retirement, dismissal and vocational training.
Employee contributions are paid by the employer. They are deducted directly from the monthly pay and are calculated on the basis of the net salary paid to employees. This amount is fixed, does not depend on income and is set at 314.40 euros per month.
PAYE is, as in any other country, the contributions that an employee must pay from the moment he/she starts working and throughout his/her career.
In Spain, anyone who works as a salaried employee is compulsorily insured. Each month, the employer must declare to the TGSS the remuneration paid to employees, as well as the exact number of hours worked.
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When we talk about this type of tax, it is important to recognize that it is mandatory and must be paid annually in all municipalities by businesses and professionals.
On the other hand, young companies are exempt from this tax during the first two years of activity in Spain. After this period, if the turnover exceeds one million euros, they will be subject to tax.
The amount of tax payable is calculated according to several factors, such as the type of activity, the type of premises occupied, the surface area used and the net amount of invoices. The minimum rates are published by the government and may vary according to the municipality.
Among those exempt from the tax are:
Public administration and autonomous administrative bodies.
Taxpayers who start their activity in Spanish territory during the first two tax periods.
Self-employed and freelance workers.
Social security and mutual insurance companies.
Public research and development entities financed entirely with public funds or charitable foundations.
Spanish Red Cross.
Associations and foundations for the disabled.
Inheritance and Gift Tax
If you are thinking of passing on an asset to someone else, inheritance and gift tax has certain regulations that you should be aware of:
This tax is ceded to the Autonomous Communities, and is the tax paid when an asset is passed from one person to another, either by inheritance, donation in life or the beneficiaries of life insurance. There are Autonomous Communities where this tax is higher or lower.
In the case of inheritances, they can be through intestate succession, that is, if there is a will. But if otherwise there is no will, the succession will proceed according to this order:
Children and descendants
Siblings and relatives.
This type of tax, like the IRPF, is progressive, that is to say, the more valuable the asset or the more money you receive, the more money you will have to pay, this amount depends on the Autonomous Community in which the inheritance or donation has been made.
Likewise, they must be paid, in the case of an inheritance, within a period of 6 months after the death, and in the case of a donation, the payment of the tax must be made at the moment of accepting the donation.
As you may have noticed, taxes in Spain are very complex and it takes time and dedication for you not to have any problems with them.
If you are about to create a company, you need to boost your business and know the employee and employer regulations, it is important that you take into account this issue, and for this, getting advice from experts in tax matters is your best alternative.
In TAS Consulting we are ready to offer you the support you need and adjust to your business needs. Do not wait any longer and contact our consultants!