3 Tax System 1. Introduction 2. Central government taxes The Spanish tax system is modern and com- in order to facilitate the fulfillment of their 3. Local taxes petitive. The tax burden in Spain, (i.e. tax and tax obligations. For this purpose, among social security contributions as a percentage other measures, it provides the taxpayers of GDP), is almost five points lower than the with computer programs that facilitate the Exhibit I - Corporate income tax incentives average ratio for the EU-28 zone1. preparation of their tax forms and promotes for investment its electronic submission and payment, by The Spanish Tax Agency (AEAT), who has using an electronic official certificate. Exhibit II - Treaty tax rates been recognized as one of the most innova- tive and efficient tax agencies in the world, The main taxes of the Spanish tax system offers the taxpayers a wide range of services are analyzed in this chapter. Exhibit III - Practical examples Exhibit IV - Case of Application of the 1 Total tax revenue (including social security contributions). 2018 in % of GDP. Regime for foreign-securities holding Source: http://appsso.eurostat.ec.europa.eu/nui/show.do?dataset=gov_10a_taxag&lang=en companies (ETVE) the shareholders of which are not resident in Spain Exhibit V - Nonresident case study: Income obtained without a permanent establishment Exhibit VI - VAT case study 2 3 1. Introduction Tax System The Spanish tax system is modern and competitive. The and collected by regional and local authorities), albeit with a Spanish State Tax Agency has distinguished itself through its brief reference to the special regimes applicable in the Canary 1. Introduction technological leadership within the Government. Moreover, Islands, the Basque Country and Navarra. it is one of the most modernized European tax agencies, in the vanguard of offering electronic public services, such as Due to the health crisis triggered by the outbreak of COVID-19, 2. Central government taxes the possibility of obtaining tax certificates or filing tax returns the Spanish Government approved various tax regulations in online (indeed, online filing is obligatory in many cases). the first months of 2020 which, on general terms, affect the 3. Local taxes calculation of the time periods for administrative and judi- This tax system comprises three kinds of taxes: impues- cial purposes (statute of limitations, duration of inspection tos (true taxes), tasas (dues and fees) and contribuciones proceedings, filing of appeals or claims) and of the periods Exhibit I - Corporate income tax incentives especiales (special levies). The tasas and contribuciones for filing and paying some taxes. Also, the Autonomous for investment especiales are collected in return for a public service provided Communities, municipal governments, the autonomous cities by the authorities or for any type of benefit as a result of public of Ceuta and Melilla, and the provincial governments, within works or services. their respective jurisdictional scopes competence area, have Exhibit II - Treaty tax rates approved numerous tax measures, generally aimed at granting From a territorial perspective, taxes in Spain are levied by deferrals in the filing of tax returns and the payment of taxes, the Central Government, by the Autonomous Communities and in some cases even establishing tax relief and incentives. Exhibit III - Practical examples (regional) and by local authorities. Due to their relevance, this chapter concentrates exclusively on the taxes levied by the Given the extraordinary and temporary nature of these meas- Central Government (whether or not they are administered ures, we have not included them in this Guide. Exhibit IV - Case of Application of the Regime for foreign-securities holding companies (ETVE) the shareholders of which are not resident in Spain Exhibit V - Nonresident case study: Income obtained without a permanent establishment Exhibit VI - VAT case study 3 3 2. Central government taxes Tax System National taxes in Spain can be classified as follows: obligation relating to assets and rights held abroad (intro- duced for the first time for year 2013 in relation to the assets 1. Introduction • Direct taxes: and rights owned in 2012), the breach of which affects person- al income tax and CIT. On income: 2. Central government taxes • 2.1 CORPORATE INCOME TAX2 • Corporate Income Tax (CIT). 3. Local taxes • Personal Income Tax (PIT). The regulation of CIT, for fiscal years starting on or after January 1, 2015, is basically contained in Corporate Income Exhibit I - Corporate income tax incentives • Nonresident Income Tax. Tax Law 27/2014, of November 27, 2014, and in Royal Decree for investment 634/2015, of July 10, 2015, approving the Corporate Income • On assets (affecting only individuals): Tax Regulations. Exhibit II - Treaty tax rates • Wealth tax. The basic legislation applicable tax periods commencing as from January 1, 2020 is summarized below. For more detailed • Inheritance and gift tax (IGT). information on the legislation applicable to fiscal years Exhibit III - Practical examples beginning before that date, we refer the reader to the Guide • Indirect taxes: corresponding to the year in question. Exhibit IV - Case of Application of the Value added tax (VAT). 2.1.1 Tax residence Regime for foreign-securities holding • companies (ETVE) the shareholders of which are not resident in Spain • Transfer tax and stamp tax. The key factor in determining the application of CIT is “resi- dence”. A company is deemed to be resident in Spain for tax • Excise taxes. purposes if it meets any of the following conditions: Exhibit V - Nonresident case study: Income obtained without a permanent • Customs duties on imports. • It was incorporated under Spanish law. establishment • Tax on insurance premiums. • Its registered office is located in Spain. Exhibit VI - VAT case study Given its importance, we refer herein to the formal reporting • Its place of effective management is in Spain. 2 Exhibit I: Tax incentives for investment 4 The Tax Administration can presume that entities, theoretically In turn, the status of “zero-taxation country or territory” will be Resident companies are taxed on their worldwide income. Tax- resident in tax havens or territories with zero taxation, have given to countries or territories which do not apply a tax identi- able income includes all the profits from business activities, their tax residence in Spain when their principal assets directly cal or analogous to PIT, CIT or Nonresident Income Tax. For a income from investments not relating to the regular business or indirectly consist of property situated in Spain or rights that tax to be considered identical or analogous to the above taxes, purpose, and income derived from asset transfers. are exercised there, or when their principal activity is carried it should tax income and/or gains, regardless of whether the on in Spain, unless it is proven that their administration and subject-matter of the tax consists of the income and/or gains, In order to determine the tax liability of corporate income effective management are handled in another country or ter- the revenues or their indicative elements4. taxpayers, however, regard must also be had to the provisions ritory and that their establishment and operation in Spain are of Spain’s tax treaties with other countries which, where appli- for valid and compelling commercial and business reasons In addition, where Spain has signed a tax treaty, a tax of cable, can affect the determination of taxation in Spain. and not just as a means of managing securities or assets. an identical or analogous nature which applies for the above-mentioned purposes will be deemed to exist. Taxation of nonresident entities is regulated separately In principle, in order to determine which entities reside in tax under the Revised Nonresident Income Tax Law approved havens, the provisions of article 1 of Royal Decree 1080/1991, Lastly, the countries or territories with which Spain considers by Legislative Royal Decree 5/2004, of March 5, amended by of July 5 (listing 483 territories classified as such) will apply. there to be effective exchange of information are those which Law 26/2014, of November 27, 2014. This tax was mainly have executed the following: implemented in regulations through Royal Decree 1776/2004, As from 2015, and in accordance with the current wording of March 5, 2004. The most important aspects of nonresident given to Additional Provision One of Law 36/2006 (establish- • A tax treaty which includes an exchange-of-information income tax (IRNR) legislation are discussed in section 2.3. ing new criteria for determining whether a particular territory is provision (provided that there are no express limitations on or is not to be classed as a tax haven), the Directorate General its scope). The following section is structured in the same way as the CIT of Taxes published a report on the validity of the current list assessment. of tax havens, according to which the possibility of such list • A tax information exchange agreement (provided that being automatically updated is eliminated. The list must be its suitability for the above purposes has been expressly 2.1.2 Taxable income expressly updated, in accordance with the criteria contained established)5. in aforementioned additional provision one of Law 36/2006, There are three methods for determining taxable income: the which came into force on 1 January 2015. • The Convention on Mutual Administrative Assistance in direct assessment method, the indirect assessment method Tax Matters of the OECD and of the Council of Europe, and the objective assessment method. Those criteria are as follows: amended by the Protocol of 2010. Under the direct assessment method (which is generally ap- a. The existence with that country or territory of an interna- In the event of a conflict of residence, the provisions of plicable), taxable income is defined as the difference between tional tax treaty with an exchange of information clause, Spain’s tax treaties with other countries will, where applica- period revenues and period expenses.