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New Tax changes currently being debated in Spain

The government in Spain has recently said they have plans to set a new and temporary “solidarity tax” on the rich. If and when it is approved by the central government, the tax will affect those with net wealth above €3 million. It is expected to be implemented for 2023 and 2024 on a temporary basis.

Below are details of:

New package of measures

 Minister Montero explained that the package of measures presented today is consistent with the Government’s fiscal policy and deepens a fiscal model designed for “the social majority of the country, which strengthens the foundations of society and generates opportunities, economic efficiency and prosperity “.

These measures, which will be incorporated into the General State Budgets for 2023 or into laws that allow them to be implemented next year, will act on high net worth individuals, and large companies, through taxes as relevant as the IRPF (Income tax) or the Tax on Companies.

Specifically, among the measures included to increase the contribution of those who have the most is the announcement of creating a Solidarity Tax for large fortunes that will affect net assets of more than 3 million euros. To avoid double taxation, the taxpayers of the Solidarity Tax will only be taxed for the part of their assets that has not been taxed by their Autonomous Community.

The tax rate will be 1.7% for assets between 3 and 5 million euros; 2.1% for assets between 5 million and 10 million; and 3.5% for assets of more than 10 million euros.

It is a temporary state tax for the years 2023 and 2024, although a review clause will be included to evaluate at the end of its validity if it is necessary to maintain it or eliminate it. The potential number of taxpayers affected stands at 23,000 taxpayers, 0.1% of the total, and the potential collection impact reaches 1,500 million.

Income tax reduction to 50% of workers with lower income

Measures are also included in personal income tax to advance the objective of reducing the tax gap between capital income and income from work. For this, the tax for capital income between 200,000 and 300,000 euros is increased by one point, up to 27%. Likewise, the tax for capital income of more than 300,000 euros is raised to 28%. This measure will affect 17,814 taxpayers and will have an impact of more than 200 million.

Also, to help taxpayers who need it most, the Government will extend the current reduction for earned income. Currently, this tax benefit applies to gross income of up to 18,000 euros and the Government will expand and raise the reduction to reach taxpayers with a gross salary of 21,000 euros. In other words, not only will there be more beneficiaries, but the tax aid will be greater.

The Minister of Finance has emphasized that this measure does not imply a deflation of the rate nor does it imply modifying tax brackets and rates.

The reduction for work income will operate on gross salaries between 15,000 and 21,000 euros, a figure that is equivalent to the median salary in Spain. In other words, this measure means applying a reduction for 50% of workers, who will achieve savings of 1,881 million euros.

One consequence of the extension of the reduction for work income is that the minimum tax for a single taxpayer without children rises from 14,000 euros to 15,000 euros. This is relevant and guarantees, for example, that a worker who today earns the SMI (Salario Mínimo Interprofesional or minimum professional wage) , set at 14,000 euros, will not pay personal income tax when the Government increases the Interprofessional Minimum Wage in 2023. It also means that a worker who today earns 14,500 euros and pays for income tax will stop paying the tax.

In the case of an employee with two children who files the joint return, the minimum tax rate increases from 18,000 euros to 19,000 euros due to the increase in the reduction in income from work.

Savings for the self-employed

In the package of fiscal measures there are also measures aimed at alleviating the situation of the self-employed, a priority group for the Government. In this way, the minister has announced that the General State Budget Law for 2023 will include an additional reduction in personal income tax of five percentage points in the net performance of modules, which will allow 577,688 self-employed workers to save 68 million.

In addition, the self-employed who are taxed by simplified direct estimation currently apply an automatic reduction of 5% of the net income with a maximum annual amount of 2,000 euros. Here come what are known as deductible expenses that are difficult to justify. The Government will increase the percentage of reduction in the next Budgets up to 7%. This will benefit 956,452 freelancers who will see their tax bill reduced by 116 million euros.

In addition, the Minister of Finance has also announced that the current exclusion limits in the module system will be extended for another year. This decision implies that more taxpayers will be able to continue paying taxes through this system, which represents a saving of 124 million.

More contributions from large companies and discounts for PYMES (Pequeñas y medianas Empresas / small and medium companies)

Other announced measures have to do with the Corporation Tax. Minister Montero recalled that since the beginning of the legislature, the Government has approved measures so that large companies and multinationals contribute more. This includes the minimum taxation of 15% for large companies and consolidated groups or limiting the exemption of dividends and capital gains to 95%.

Following this line and in line with a fair distribution of the crisis, the Minister of Finance and Public Function has announced that a regulatory change will be promoted in the Congress of Deputies that will limit by 50% the possibility of compensating the losses in the groups consolidated. This is not a tax increase, but the possibility of offsetting negative tax bases is deferred.

This is a temporary measure that will increase collection by 2,439 million between 2023 and 2024 and that will affect only 3,609 companies, which barely represent 0.2% of those who file Corporate Tax.

On the other hand, to alleviate the situation of small businesses, the minister has indicated that the nominal rate of Corporate Tax will be lowered from 25% to 23% for SMEs with a turnover of up to one million euros. This measure will benefit 407,384 companies that will save 292 million.

With this battery of fiscal measures, together with the actions carried out in recent years, the Minister of Finance has been convinced that Spain will gain in economic efficiency, productivity and social cohesion.

In addition, as promised, the Government will also approve a reduction from 10% to 4% VAT on feminine hygiene products (pads, tampons, panty liners), condoms and non-medicinal contraceptives.

As mentioned above these new measures will be debated by the parliament in Madrid and if approved brought into effect for 2023 and 2024. They are said to be temporary. Time will tell!


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