Types of taxes in Spain: direct and indirect taxes

Business start-up in Spain, Finance, Living in Spain, Spanish Taxation Leave a comment   Published on par Jonatan Carbonell

The collection of taxes in Spain allows the proper functioning of the State and other public administrations on a daily basis. For this reason, all citizens have a series of tax obligations that they should be aware of. Read on and find out what is the difference between direct and indirect taxes!

What are taxes?

According to the General Tax Law, taxes refer to a series of taxes levied without consideration, which means that the taxable event corresponds to the acts or businesses that demonstrate the economic capacity of the taxpayer.

Tax rates in Spain

Do you have doubts about the different types of taxes in Spain? In order to understand them more easily, below we classify them into direct taxes and indirect taxes:

Direct taxes

As its name indicates, direct taxes are those levied directly on individuals or legal entities, and are applied taking into account the money they collect, or that they obtain as a result of carrying out some activity.

In this sense, in order to calculate a direct tax, the forms of manifestation of wealth are taken into account as the possession of a patrimony, or the income obtained from an income. And, in Spain, the main direct taxes are the following:

Personal Income Tax (IRPF)

According to Royal Decree 439/2007 and Law 35/2006, this tax is levied on income received during a year or fiscal year and must be paid to the Tax Agency by all residents of Spanish territory.

Non-Resident Income Tax (IRNR)

In this case, according to Royal Decree 5/2004 and 1776/2004, the income obtained in Spanish territory is taxed by those entities and individuals who do not reside in Spain, and they must pay the corresponding amount annually.

Corporate Income Tax (IS)

Royal Decree 1777/2004 and 4/2004 are aimed at civil companies with commercial purposes, foundations and associations, and are in charge of taxing the wealth produced by the activities of the companies, taking as a central basis their accounting records.

Inheritance and Gift Taxes

Regulated in Law 29/1978 and 1629/1991, the regulations establish that it functions as a progressive tax that must be paid by the person who receives money or an asset, product of an inheritance or donation, according to the amount designated by each Autonomous Community.

Real Estate Taxes (IBI)

When we talk about real estate it is worth mentioning Royal Decree 1/2004, 2/2004 and 417/2006, which establish the rules for the application of the tax, applied to homes or any type of urban real estate.

In these declarations, the taxpayer must pay for the simple fact of owning a property.

Tax on Economic Activities (IAE)

According to Royal Decree 1175/1990, 1259/1991, and 243/1995, this tax is levied on the performance of a professional or business activity and must be paid only by large companies. In addition, the management of the IAE is the responsibility of the municipalities.

Tax on the Increase in the Value of Land

Also known as capital gains tax. This tax is regulated by Royal Decree 26/2021 and is levied on the increase in value of the land of a property at the time of its transfer or sale, on the owners.

 

You may also be interested in: Tax benefits for the self-employed in Spain

 

Indirect taxes

When we refer to indirect taxes we are talking about those taxes that do not take into account the economic capacity of the taxpayer, so they are in charge of taxing the consumption of goods and services.

In this way, it is understood that all consumers must pay the same amount when contracting a service or purchasing a product.  These can be divided into:

Value Added Tax (VAT)

Probably one of the best known taxes today. In Spain, VAT is regulated by Royal Decree 1/1993 and 828/1995, and establishes that the tax is borne by the end consumer, but will be managed through the companies offering the products or services.

Excise Taxes (IIEE)

In the case of excise taxes, it is levied on coal, electricity and the manufacture and import of certain types of products such as:

  • Alcoholic beverages: beer, wines, fermented beverages, intermediate products, among others.

  • Hydrocarbons: gasoline, natural gas, biofuels, among others.

  • Tobacco processing: cigarettes, roll-your-own, etc.

Transfer Tax and Stamp Duty

Royal Decree 1/1993 and 828/1995 establish that this indirect tax is levied on the circulation of goods and rights, as well as on the expenditure of money associated with the purchase and sale of second-hand goods.

This type of transaction is reflected, for example, in the case of a used car or a second-hand property.

 

You may also be interested in: How to defer the payment of taxes in Spain?

 

Difference between direct and indirect taxes

In order for you to understand more clearly when a tax is indirect and when it is direct, we summarize the most important aspects to take into account to differentiate between them:

  • Direct taxes are levied on wealth, income, capital or assets and directly affect the subject, while indirect taxes are levied on the production and consumption expenditures involved.

  • It is impossible to transfer the direct tax, but in the case of the indirect tax it is indispensable that the process of transfer to the final consumer takes place.

  • Regarding the scope, indirect taxes are broader, since they are levied on the entire population sector (including foreigners); contrary to the case of direct taxes, which do not tax part of the social sector.

  • Direct taxes are considered mandatory, since the State imposes an income beforehand; but in indirect taxes it is the consumer who decides whether to purchase a good, and if not, he/she will not have to pay any tax.

  • There is a specific date for the payment of direct taxes, while indirect taxes are constantly paid by taxpayers on a day-to-day basis.

  • Taking into account the equitable aspect, direct taxes are considered fairer, while indirect taxes are considered less fair, since they do not take into account personal circumstances or economic solvency at the time of making the declarations.

 

You may also be interested in: VAT exempt activities: in which cases does it apply?

 

Knowing the different types of taxes in Spain is essential to comply with tax regulations and achieve a better management of your finances. Do you still feel you need advice on the subject? Our team at TAS Consultancy will solve each of your problems!

 

Published on par Jonatan Carbonell

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