Spanish Tax & Taxation in Spain

Disclaimer: Tax law is complex and every effort has been made to offer information that is current, correct and clearly expressed. The information in this summary is intended to be no more than a general overview of the position and certain details have been deliberately omitted. The contents of this page should not be taken as an authoritative statement of Spanish tax law and practice. Neither the author nor the publisher is responsible for the results of actions taken on the basis of information contained in this summary, nor for any errors or omissions. This text is not intended to render legal, accounting or tax advice. Readers are encouraged to seek professional advice concerning specific matters before making any decision.

This summary analyses the general principles governing Spanish taxation on the net worth owned by individuals and free of charge disposals. In this respect, it should be noted that the analysis of the particular tax provisions that might be applicable in the different Spanish autonomous communities, and especially in the Basque Country, Navarre and the Canary Islands, are outside its scope.

Wealth Tax

Spanish resident individuals for tax purposes pay wealth tax on their worldwide patrimony at December 31 of each year, valued in accordance with tax rules.

Non-residents individuals may be taxed in Spain on property situated, or rights exercisable, in Spanish territory. However, this rule may be affected by the application of tax treaties.

Assets include all land and property, shares, etc. The regulations establish different valuation methods for each type of asset.

For Spanish resident taxpayers there are several assets exempt from this tax, such as the habitual home up to a maximum amount of €150,253,03, vested rights of participants in pension plans and funds; assets or rights required for a business or professional activity and equity interests in entities in certain circumstances.

If the value of individual's net worldwide assets, assessed on the 31 December, is in excess of €108.102,18 the excess is subject to a progressive tax which starts at 0.2% and rises to a maximum of 2.5% for the top slice of net assets in excess of €1,779,664,000 (figures for the year 2005).

These rates are applicable to both residents and non-residents.

An annual wealth tax declaration must be filed before the Spanish Tax Offices by June. The tax is self-assessed and the payment should be done at the time of filing.

Inheritance and Gift Tax

In general terms, inheritance tax will be levied on the inheritance of assets after the donor's death and gift tax applies to gifts made during the donor's lifetime.

The application of these provisions to non-residents depends on the contents of the tax treaty that binds Spain and the country of residence of the heir, beneficiary or donee.

Spanish residents and non-residents heirs, beneficiaries and donees are liable to pay this tax.

Taxable items

In the case of Spanish resident heirs, beneficiaries and donees for tax purposes the tax is charged on all assets received regardless they are located in Spain or abroad.

In the case of non-resident heirs, beneficiaries and donees the tax is charged on property situated, or rights exercisable, in Spanish territory. However, this rule may be affected by the application of tax treaties.

Tax rate

The tax rate depends on the application of adjustment coefficients and reductions that basically take into account the degree of kinship with the donor and the previous net worth and age of the beneficiary.

The tax is calculated by adjusting a tax scale of progressive rates depending on the value of the estate or gift. From the 1 January 2006 the tax scale ranges from 7.65 percent to 34 percent.

In case of inheritances "tax free" allowances vary depending the degree of kinship with the donor. There are other compatible allowances for those persons physically, mentally or sensorial handicapped.

The rate of tax that is applied to gifts is the same as for inheritance tax but the aforementioned allowances will not apply to gifts.

Exemptions and reductions

The most important relief from inheritance tax are contained in the international tax treaties that provide relief from double taxation.

There are some other limited exemptions from inheritance tax but these exemptions are subject to specific conditions being satisfied.

Please note: Taxation is a complex subject and you should not take or refrain from taking any step without full independent advice on the particular facts of your case. The content of this article is of a general nature and no liability is accepted in connection with it.

Further Information

• The Spanish Government Tax Offices website
• See AngloINFO INFOrmation page Capital Gains Tax on Real Estate in Spain
• See AngloINFO INFOrmation page Personal Income Tax Regulations in Spain
• See AngloINFO INFOrmation page Tax Regime for Employees in Spain

Information supplied by Inma Sallent of JAUSAS 
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