Will you benefit from the tax reform?

Last updated on May 9th, 2020 at 04:06 pm.

A draft Spanish tax reform law was approved on the 20^th June. The new reforms were proposed by the finance minister Cristobal Montoro at a meeting of the Council of Ministers and are intended to be introduced by January 2015.

In this article we will go through some relevant information regarding the Spanish tax reform. However, we would like to remind you that taxes in Spain can be complicated and you could be subject to fines or penalties if you miss a deadline or don’t do your taxes properly. Advisably, you should seek fiscal advice from an expert to avoid possible complications.

They include:

• Reduction in income tax for people earning less than €12,450 a year from 24.75% in 2014 to 20% in 2015 and 19% in 2016
• For those earning €60,000 or more a year the top rate tax will be cut from 52% in 2014 to 47% in 2015 and 45% in 2016
• Corporate tax rate reduced from 30% in 2014 to 28% in 2015 and to 25% in 2016
• Redundancy pay will become taxable
• Reduction in retention for the self-employed – for those earning less than 12,000€ it will go down from 21% to 15%
• Reductions in tax of around 100€ a month for families caring for a disabled relative
• VAT (IVA) to remain the same

Where to make the changes

It continues to be a difficult period for Spain. Although some people are indicating an upturn, there is still a need for an optimistic budget that will bring relief to ordinary people.

The argument over how this relief should be distributed will not be quashed by these proposals. Although the lowest earners will feel some benefit, there are those who will raise an eyebrow at the cut to taxes in the highest income bracket and corporate taxes. The reasons given by Cristobal Montoro are that ‘We’re doing it to stimulate growth, for job creation and for the gains to corporate competitiveness’.

Not everyone will agree and for those without hope of any income at all then this tax reform will come as little consolation. The State Tax Inspectorate professional organisation (IHE) are suggesting that the reforms will do little to improve the country’s financial situation and will hit the middle income earners hardest.

Instead IHE would have preferred to have seen measures aimed at reducing Spanish tax fraud, implementing new taxes efficiently and improvements within the Tax Authority. Similarly UPTA who represent the self-employed in Spain raise concerns about the reduction in corporate tax.

Most people are in agreement with the changes to the self-employed system, however. With a monthly payment upwards of 270 euros to social insurances and a 21% retention, as well as the likelihood that you will need to pay an accountant from your proceeds, there is not much incentive for people to declare. These expenses remain the same if you are self-employed no matter how much you earn.

Keeping the wealthy with us

It is generally argued that a high tax burden for the most wealthy leads to them taking their business to other countries where there is less to pay. True this may be, however, many will be left wondering how this new tax reform is going to address the growing gaps between the wealthy and the poor in Spain.

With it reported in On The Pulse that there were another 16,000 new millionaires in Spain last year taking the total up to 161,000, it would seem that plenty are not exactly rushing to leave the country. Perhaps where a lower tax rate might succeed is in encouraging them to be less inventive in finding ways of avoiding tax at all.

There are no easy solutions to the current run of austerity. Spain is not the only country to be groaning under the pressure. It’s to be hoped that the route down which they are so confidently taking us, is the right one after all.

A draft Spanish tax reform law was approved on the 20^th June. The new reforms were proposed by the finance minister Cristobal Montoro at a meeting of the Council of Ministers and are intended to be introduced by January 2015.

They include:

• Reduction in income tax for people earning less than €12,450 a year from 24.75% in 2014 to 20% in 2015 and 19% in 2016
• For those earning €60,000 or more a year the top rate tax will be cut from 52% in 2014 to 47% in 2015 and 45% in 2016
• Corporate tax rate reduced from 30% in 2014 to 28% in 2015 and to 25% in 2016
• Redundancy pay will become taxable
• Reduction in retention for the self-employed – for those earning less than 12,000€ it will go down from 21% to 15%
• Reductions in tax of around 100€ a month for families caring for a disabled relative
• VAT (IVA) to remain the same

Where to make the changes

It continues to be a difficult period for Spain. Although some people are indicating an upturn, there is still a need for an optimistic budget that will bring relief to ordinary people.

The argument over how this relief should be distributed will not be quashed by these proposals. Although the lowest earners will feel some benefit, there are those who will raise an eyebrow at the cut to taxes in the highest income bracket and corporate taxes. The reasons given by Cristobal Montoro are that ‘We’re doing it to stimulate growth, for job creation and for the gains to corporate competitiveness’.

Not everyone will agree and for those without hope of any income at all then this tax reform will come as little consolation. The State Tax Inspectorate professional organisation (IHE) are suggesting that the reforms will do little to improve the country’s financial situation and will hit the middle income earners hardest.

Instead IHE would have preferred to have seen measures aimed at reducing Spanish tax fraud, implementing new taxes efficiently and improvements within the Tax Authority. Similarly UPTA who represent the self-employed in Spain raise concerns about the reduction in corporate tax.

Most people are in agreement with the changes to the self-employed system, however. With a monthly payment upwards of 270 euros to social insurances and a 21% retention, as well as the likelihood that you will need to pay an accountant from your proceeds, there is not much incentive for people to declare. These expenses remain the same if you are self-employed no matter how much you earn.

Keeping the wealthy with us

It is generally argued that a high tax burden for the most wealthy leads to them taking their business to other countries where there is less to pay. True this may be, however, many will be left wondering how this new tax reform is going to address the growing gaps between the wealthy and the poor in Spain.

With it reported in On The Pulse that there were another 16,000 new millionaires in Spain last year taking the total up to 161,000, it would seem that plenty are not exactly rushing to leave the country. Perhaps where a lower tax rate might succeed is in encouraging them to be less inventive in finding ways of avoiding tax at all.

There are no easy solutions to the current run of austerity. Spain is not the only country to be groaning under the pressure. It’s to be hoped that the route down which they are so confidently taking us, is the right one after all.

To help navigate the bureaucracy of the Spanish tax system, our dedicated advisers are on hand to help at every step of the way. Fill out this short form and we will offer you a free consultation without obligation.