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Experts Commission Submits Report for the Tax Reform

At Balearic Properties we like to give you as much information as possible, so that life in your island home will be as easy-going as possible.

We have already written so much on the subject of taxes etc. Now, intensive reforms of the tax laws are being initiated also affecting property owners and non-residents. So, no matter how “boring” the subject tax is, you should always be informed!

Who ever thought that the Spanish government is faint-hearted will have to think again. In spite of ongoing economic struggles, the government is taking very brave steps to relieve the pressure on the residents and citizens and reignite citizen spending motivation. The aim is obviously to boost the nation’s economy and make foreign investment in the country even more attractive.

The expert commission appointed by the Spanish Government published its 444 -page report which analyzed the Spanish tax system and made recommendations, including a reorganization of the social service costs in order to relieve the companies.

The taxation on real estate acquisition should remain unchanged. The direct taxes among others the income tax (IRPF) are to be lowered and indirect taxes, among other things the tobacco tax - excluding the VAT (IVA) - to be increased.

The principal recommendations of the expert committee are:

  • Removal of subsidies and special rules.
  • Simplification and reduction of the calculation of income tax.
  • Tax relief on savings.
  • Complete revision of property tax IBI.
  • Removal of the property tax from the income tax.
  • Reduction of corporate tax to 20%, maximum 25 %
  • Immediate abolition of the wealth tax.
  • Inheritance tax to be the same all over Spain of maximum 4-10%
  • Abolition of stamp duty AJD,
  • Simplification of VAT (IVA) with the aim to align the reduced (10 %) or super -reduced (4%) tax rates to the general tax rate (21%), meaning a hefty increase. The VAT on property sales, tourist services and public transport is excluded.
  • The energy taxation, in particular the new oil tax will be reshaped.
  • Increase of the alcohol tax, except for wine
  • A fairer distribution of social charges

Newly introduced is the "non-residing Resident" status (resident no domiciliado ) with the aim to use the Spanish tax law on foreigners as a marketing tool to attract highly skilled workers to Spain who then pay 24.75% tax on income earned in Spain. Pensioners should not pay any more taxes in Spain. Currently, retirees in Spain who have nothing more than a property are liable to pay three types of tax, land tax, property tax and income tax.

The administration needed for obtaining the Spanish tax number, NIE will be simplified.

The Form 720, which requests information not even of interest to the country of residence, is to be abolished.

With reference to the fact that one should be more interested to keep foreigners or tourists in tourist areas as long as possible, the ridiculous scheme, that the non -EU citizens who invest more than 500.000 € in a property might obtain a residence permit for more than six months a year, but are also automatically subject to unlimited tax liability, is to be abolished.

The notional taxation of the self - use of property for non-residents is to be abolished this was the tax, where the state assumed that it is an asset that could potentially generate income through letting, since it is not occupied all year which meant it was subject to taxation through personal income tax. The newly created status as "non- residing Resident“, will apply for a maximum of ten years.

By Iris Gruenewald

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