The Spanish Government is in the process of finalizing an important tax reform, which will mostly enter into force in 2015. The laws, together with their final modifications, will be published in the end of 2014, but the Government has already presented its intentions with draft projects presented in the end of June.
Even though the Government presents it as a generalized tax reduction (highs), the truth is that there are also important increases (lows), which is important to know, as soon as possible, as certain actions may be taken in the remaining part of 2014, in order to avoid a higher taxation from 2015.
TAX REDUCTION RATES
The rates applicable to the Income Tax and Corporate Income Tax are lowered even though they will be above the European average.
The individuals, RESIDENTS, are currently taxed on salaries, pensions, enterprise performance, rents, etc. with a progressive scale of 7 tax brackets, with rates from 24,75% to 52%. For 2015 this scale will be reduced to 5 tax brackets with rates from 20% to 47%, and from 2016 the rates of this tax bracket will be from 19% to 45%. The problem is that the maximum rate will be applied from 60.000 € and will therefore affect more people.
Taxation of savings income (interests, dividends, gains arising from transfer) is currently carried out with a scale of 21% to 27% (21% up to 6000, 25% from 6000 up to 24.000, and 27% from 24.000). For 2015 taxes will be 20% up to 6000, 22% from 6000 up to 50.000 and 24% from 50.000, and from 2016 taxes will be 19% up to 6000, 21% from 6000 up to 50.000 and 23% from 50.000
On the other hand, the individuals, NON-RESIDENTS, currently pay an Income Tax, with a general rate of 24,75%, which is applied for example to rents or income arising from real estate for personal use. From 2015 this rate will be cut to 24%, but the cut will be more drastic for European residents and will be 20% in 2015 and 19% from 2016. For income arising from transfer, interests and dividends the non-residents currently pay 21%, which will be reduced to 20% in 2015 and to 19% from 2016.
In the CORPORATE INCOME TAX the general rate, which is currently applied, will be reduced from 30% to 28% in 2015 and to 25% in 2016.
MORE WILL BE PAID FOR THE SALE OF USED HOMES
It might be much cheaper to sell real estate in 2014 than in 2015, as although the Income Tax rates go down, two important tax benefits will be eliminated.
In fact, to calculate the possible benefit arising from the sale from 2015, it will NOT be possible to increase the purchase value of the properties, applying adjustments coefficients, that take into account the accumulated inflation and, for example increase the value of the purchased properties with approximately 33% until 1994, 21% the value of the ones bought in 2002, or 5% the value of the ones bought in 2009.
Nor may apply other coefficients that significantly reduced profits for the transmission of property acquired before 1994.
MORE TAXES FOR THE RENTAL
Individuals residents who rent their properties currently pay only income tax on 40% of the profit obtained and pay nothing if your tenant is younger than 30 years and meets certain requirements. From 2015 it will be taxed on the 50% of the profit obtained, whatever the age of the tenant.
The tenants residents with incomes of less than €24,107 can also apply for a deduction up to 10.05 % of the sum they have to pay for the properties they rent.This deduction will be no longer available from 31/12/2014.
WOULD IT BE POSSIBLE TO LEAVE SPAIN AND SELL THE OLD HOME WITHOUT PAYING TAXES IF THE MONEY WERE REINVESTED IN THE ACQUISITION OF A NEW HOME
Currently if a person sells his main home in Spain and is still a resident he does not have to pay Capital Gains Tax if within 2 years reinvests in the acquisition of a new main home in Spain or abroad.
From 2015 with purpose to promote the free movement of the individuals within the EU, the seller will also have the same tax benefit if he first ceases to be a resident and then sells his main home in Spain.
YOU’LL HAVE TO PAY TAXES ON EXIT FROM SPAIN AND ESTABLISH RESIDENCY OUTSIDE OF EUROPE
The high net worth individuals invested in companies or funds (more than 4,000,000 € or more than $1,000,000 if you have more than 25 %) who decided to leave Spain and domicile outside of the European Union or European Economic Area will be forced to pay taxes on the positive differences between the market value of their shares and its acquisition value.
INHERITANCE TAX CONTINUES TO DISCRIMINATE AGAINST NON-RESIDENTS
It seems that the Government wants to delay the reform of the mentioned tax, which is in the hands of the Autonomous Communities, whose residents pay much less in the inheritance or donations than non-residents.
In any case, the European Commission condemned such discrimination before the Court Justice of the EU who will deliver in a few weeks an important judgment. If the Court finds that such discrimination contravenes Community law it could force a harmonization of the tax in all Spain and possibly an important discount to non-residents, who could even ask for return of excessive taxes paid in previous years.
INDIVIDUALS WHO HAVE HAD THEIR HOMES REPOSSED THROUGH MORTGAGE DEFOLT DO NOT HAVE TO PAY TAXES
This is a measure that is already in force, introduced with an Act of Royal Decree 8/2014 that was published in the BOE last July 5. This Act is retrospective to 1st January 2014and previous years in which it was not applied.These people do not have to pay Capital Gains to the Municipal Town Hall nor Income Tax if it is gain (the difference between purchase price and the value of the delivered housing).
TAXATION ON THE BANKS OF 0.03 % ON THE BANK DEPOSITS
This is another measure already introduced with effect from 1st January 2014 by the same Act of Royal Decree 8/2014.
It is a tax to be paid by the banks but without doubt can negatively affect the savers, with an increase of the commissions or with lower interest of the deposits.