DOING BUSINESS IN SPAIN:A TAX VIEW FOR INDIVIDUALS

Rambla Catalunya, 47 3r

08007 Barcelona

Tel.: 93 467 51 57 – Fax: 93 215 47 99

general@plana-artus.com

INTRODUCTION

Barcelona is considered one of the best cities to do business according to the Ernst & Young study called “Cities for Citizen” (March 2011).Interviews were made to 72 local leaders (city major, strategy directors, chief executive, finance directors). Conclusion: “It is a great example of a global city at a regional level with a good talent attraction policy”.

Spain has real properties very interesting to do investments, due to the prices and locations and due also to the weather and good food!

INTRODUCTION

Table of contents

1. WHAT TAXES ARE THERE IN SPAIN?

1.a) Residency for individuals

1.b) Taxes in Spain for individuals

1.c) Taxes for property owners Non-Residents

2. DEALING WITH TAXES IN SPAIN

2.a) NIE number

2.b) Tax Representative for individuals

3. TWO SPECIAL CASES TO SAVE TAXES IN SPAIN

3.a) The “Beckham Law”

3.b) ETVE, Spanish Holding Company

1. WHAT TAXES ARE THERE IN SPAIN?

1.A).- RESIDENCY FOR INDIVIDUALS

1.B) .- TAXES IN SPAIN FOR INDIVIDUALS

1.C).- TAXES FOR PROPERTY OWNERS NON-RESIDENTS

1.- WHAT TAXES ARE THERE IN SPAIN?

1. A) RESIDENCY FOR INDIVIDUALS Residents in Spain pay taxes on their income worldwide.Non-residents are taxed only on their income within Spain.

When is an individual considered to be resident in Spain, and when non-resident?

An individual is resident in Spanish territory when any one of the following circumstances apply:

1.- They have stayed longer than 183 days in Spanish territory over the calendar year

2.- They situate the main base or centre of their activities or economic activities, directly or indirectly, in Spain.

3.- They have dependent not legally separated wife and/or underage children who are usually resident in Spain. This latter situation accepts evidence to the contrary.

Otherwise, where none of the previous situations applies, an individual is considered as a Non-resident in Spain.

In case of being resident in Spain and another country, the International Agreements to avoid double taxation will apply, if any. Spain has subscribed a lot of these Agreements.

1.- WHAT TAXES ARE THERE IN SPAIN?

1. B) TAXES IN SPAIN FOR INDIVIDUALS

Personal Income Tax (IRPF): This tax is about Individuals because it takes into account:

- The personal situation (married or single, with children or not.)- All the incomes worldwide, wherever they were originated.- There are many allowances : Personal (5.151,00 euros) , Children

(1.836,00 euros for the first), Dividends (first 1.500,00 euros), for Disabilities, etc.

- Savings and capital gains are taxed at a two flat rate 19%-21% (over 6.000,00 euros)

- Is a progressive tax: the more you earn the more taxes you pay.

It is paid annually and the tax rate starts at 18% and rises to 45% or 49%.

Non-residents Income Tax (IRNR): This tax is only about incomes generated or obtained in Spain:

- Because you own a real property in Spain- Because you have worked for a few months during the year in Spain- Because a Spanish company has paid you dividends

It is paid annually and the common tax rate is a 24% (i.e Capital gains 19%)

1.- WHAT TAXES ARE THERE IN SPAIN?

1. B) TAXES IN SPAIN FOR INDIVIDUALS

VAT Tax (IVA): This tax is for the consumption.

The general rate is 18%. Essentials goods like food, water, medicine… have a reduced rate of 8% o 4%

Transfer Tax and Stamp Duty (Impuesto de transmisiones patrimoniales y actos jurídicos documentados): This tax is for certain real estate and commercial transactions.

The rate for a real estate transaction is 7% (Transfer tax)The rate for commercial activities starts at 0,5% and could rise to 1,5% (Stamp

Duty)

Economic activity tax (Impuesto de Actividades Económicas): This tax is applied if carried out professional, artistic and entrepreneur activities in Spain.

It is paid annually but only if the incomes are above 1 million Euros.The quotation depends on several circumstances (type of activity, surface

occupied, workers, ...)

1.- WHAT TAXES ARE THERE IN SPAIN?

1. B) TAXES IN SPAIN FOR INDIVIDUALS

Property Tax (Impuesto sobre Bienes Inmuebles- IBI): Every owner of a real property in Spain pay this tax.

It is paid annually and the rate is usually between 0.5% and 1.1% of the cadastral value (valor catastral) of the property, which is lower than the market value.

Motor Vehicle Tax (Impuesto sobre vehículos de motor): This tax is based on the age and the power of the vehicle.

It is paid annually and the bigger the city is, the higher the tax is.

Additional Property Tax (Impuesto sobre el patrimonio): All the properties are taxed (real properties, shares, investments, jewels..)

Applicable only for years 2011 and 2012.Commercial properties are exempt, under some conditions.Residents are limited up to 60% of their incomes, toghether with the personal income tax.For the first house, there are 300.000,00 euros exempts.The minimum taxed is 700.000,00 euros (also for Non-residents).

1.- WHAT TAXES ARE THERE IN SPAIN?

1. C) TAXES FOR PROPERTY OWNERS NON-RESIDENTS

Non-Residents: Personal Income TaxEach owner is treated as a separate taxpayer and must file returns separately.Taxation will depend on whether the property is let:

• Leased property:

The tax base consists of the obtained earnings (gross income).Some expenses that are directly related to the income can be deducted (i.e. IBI, depreciation…) but only for taxpayers resident in another European Union member state.The tax rate is 24 %.

•Not leased property (it is used by the owner or is unoccupied).

The tax base consist in a percentage of the cadastral value of the property: 2% or 1.1%, depending on if it has been revised.

•Example: Accrual: 31 December 2011 Cadastral value: 60.000,00 euros Taxable base: 1,1%: of 60.000,00 euros: 660,00 euros Tax payable 24%: 158,40 euros

1.- WHAT TAXES ARE THERE IN SPAIN?

1. C) TAXES FOR PROPERTY OWNERS NON- RESIDENTS

Non-Residents: Additional property tax

The tax is calculated based on the highest of the following three values:2. The cadastral value.3. The value assessed by the Spanish Tax Office for purposes of other taxes.4. The purchase price (price plus expenses on the acquisition like taxes, Public

Notary, Property Registry, commissions…).

Every owner file its own tax return for the percentage of property (a married couple usually 50%).

This tax is only for 2011 and 2012.

The applicable rate depends on a progressive table.

There are a minimum exempt from taxation of 700.000,00 euro.

1.- WHAT TAXES ARE THERE IN SPAIN?

1. C) TAXES FOR PROPERTY OWNERS NON-RESIDENTS

For example, if having a property of 2.500.000,00 euros, without mortgage and not considered as a first home, the taxation would be:2.500.000,00 less 700.000,00, basis of 1.800.0000,00.Previous amount for the first 1.336.999,51 would be 8.523,36 eurosFor the rest (1.800.000,00 less 1.336.999,51) that is 463.000,49 euros the rate would be 1,3%, this is, the amount of 6.019,00.Total amount to pay: 8.523,36 euros plus 6.019,00, total of 14.542,37 euros.

Base liquidable-

Hasta euros

Cuota-

Euros

Resto base liquidable-

Hasta euros

Tipo aplicable-

Porcentaje

0,00 0,00 167.129,45 0,2

167.129,45 334,26 167.123,43 0,3

334.252,88 835,63 334.246,87 0,5

668.499,75 2.506,86 668.499,76 0,9

1.336.999,51 8.523,36 1.336.999,50 1,3

2.673.999,01 25.904,35 2.673.999,02 1,7

5.347.998,03 71.362,33 5.347.998,03 2,1

10.695.996,06 183.670,29 en adelante 2,5

2.- DEALING WITH TAXES IN SPAIN

2. A).- N.I.E NUMBER

2. B).- TAX REPRESENTATIVE FOR INDIVIDUALS

2.- DEALING WITH TAXES IN SPAIN

2. A) NIE NUMBER Spanish residents have an Identification number called “DNI” (Documento Nacional de

Identidad- National Identity Card), every person has one.Non-residents need to have also an Identification Number and this is called “NIE”

(Numero de Identificación de Extranjeros- Identity card for foreigners).

When is it necessary to ask for a NIE?

The NIE is necessary for residents in Spain (foreigners) since it is like DNI for Spanish Residents.

For non-residents it is necessary to do almost everything:

- To buy a property or a car- To rent a flat or a car- To pay taxes- To get a driving license- To get a loan, including a mortgage- To join social security system- To open a resident bank account- To be a partner of a Company or a Company representative

2.- DEALING WITH TAXES IN SPAIN

2. A) NIE NUMBER How to get a NIE:

- If the foreign person travels to Spain:

. Go with a Spanish resident to the local National Police Station, to the Foreigners Department. This Spanish resident will collect the NIE number. Fulfill the application form, original and a photocopy (original returned).. Take the Original and one photocopy of your passport or NIE. Pay the tax. Take a written justification of why you need the NIE ( issued by an accountant, a Notary, a bank manager, a future employer, a tax adviser,…). Foreigners from abroad European Union, need two photographs

- If the foreign person is not in Spain but in his country:

. Go to the Spanish Consulate.

It is no possible to grant a power to a representative to ask for the NIE number.

2.- DEALING WITH TAXES IN SPAIN.

It is necessary in order to pay taxes by a Non-resident in Spain. The Tax Representative must comply with the duties imposed on the taxable persons they represent.

How to get a Tax Representative?

1.- Tax Office: in person with the Tax Representative.

2.- Power: In order to appoint a Tax Representative is necessary to grant a Power before the Notary Public for tax purposes.

a) The Power can be granted in the residence country of the Non-resident. In this case it is necessary to have Footnote (The Hague Apostille) and translate (official translation) the document into Spanish.

b) The power can be granted in Spain. It is necessary to have a translator or the Public Notary has to know the original language of the Non-Resident.

3.- Private Document with a legal signature.

2. B) TAX REPRESENTATIVE FOR INDIVIDUALS

3.- TWO SPECIAL CASES TO SAVE TAXES

3. A).- THE “BECKHAM LAW”

3. B).- ETVE, SPANISH HOLDING COMPANY

3.- TWO SPECIAL CASES TO SAVE TAXES

The "Beckham Law" is a Spanish tax law that was passed in 2005. The law gained its nickname after football player David Beckham became one of the first foreigners to take advantage of it.

- A foreign resident can opt to be taxed as a non-resident, only for the incomes earned in Spain. The tax rate is 24% but the taxpayer gets no personal allowances or other deductions from gross income (e.g. for mortgage costs) . If taxed as a resident, the foreign resident would be subject to a progressive tax scale ranging from 18% to 45% depending on their level of income.

- This exemption applies to all foreign workers, although it is geared more

toward wealthier expats i.e. middle & upper management and international football players. There is a limit: the remuneration expected under the contract of work in each of the tax periods in which special arrangements apply not exceed the amount of 600,000 (from 01/01/2010)

3. A) THE “BECKHAM LAW”

3.- TWO SPECIAL CASES TO SAVE TAXES

Conditions:

The foreign resident must be a first time resident to Spain. This is, he can not have been resident in Spain in the last 10 years, minimum.

The foreign resident must have been relocated to take up an employment contract in Spain.

The work must be performed for a Spanish corporate entity, or for a Permanent Spanish establishment of a foreign company.

The application must be made within 6 months of commencing the employment contract.

- Foreign workers must apply to the Tax office and be accepted for the tax exemption.

- The exemption applies in the year of arrival and for the following 5 tax years, for a total of 6 years.

3. A) THE “BECKHAM LAW”

3.- TWO SPECIAL CASES TO SAVE TAXES

3. B) ETVE (Entidad de tenencia de valores extranjeros – Spanish Holding Company)

• The regime of ETVE is in force since 1996/1/1.

• It introduced a system of “participation exemption” in dividends and patrimonial profits similar to the one of The Netherlands or Luxembourg, but the ETVE structure complies meets all EU and OCDE criteria and is protected by EU Directives.

• No Corporate Income Tax on Dividend Income received.

• No capital gains tax on the sale of shares in the ETVE.

• No withholding taxes on outgoing Dividends. Outgoing dividends paid to its non-resident parent company are free of withholding taxes un less the parent corporation is in a country where it will no pay corporate taxes or is a tax heaven.

• No Spanish withholding taxes would apply to dividends paid by the Spanish parent Company.

3.- TWO SPECIAL CASES TO SAVE TAXES

3. B) ETVE (Entidad de tenencia de valores extranjeros – Holding)

The requirements to form the ETVE in Spain:

• The ETVE should have a minimum participation of 5% or 6 million Euro in the capital of the foreign Company.

• The non-resident Company must be subjected to, and not exempt from, a tax system that is similar to Spain´s corporate income tax.

• The non-resident entity must not reside in a country or territory identified as a tax heaven.

• For capital gain tax purposes, the seller and the purchaser must be unrelated parties if the purchaser is a Spanish entity.

• Income earned by the non-resident entity, is derived form business activities conducted outside Spain in a minimum 85%.

EU / NON EU

HOLDING

EU NON EU

GENERAL SYSTEM FOR COMPANIES

Capital gain at 30% Corporate

Income TaxDividends WHT at Agreement

Dividends No WH Tax or Agreement

Dividends 0% WH Tax

EU / NON EU

HOLDING

EU NON EU

ETVE SYSTEM, SPECIAL REGIME

Capital gain exemptsDividends WHT at 0%

Dividends No WH Tax or Agreement

Dividends 0% WH Tax

MANY THANKS FOR YOUR ATTENTION

PLANARTUS TAX ADVISORSwww.plana-artus.comRambla de Catalunya 47, 3pl08007 Barcelona

Tel: 93.467.51.57Fax:93.215.47.99

Imma Castillo Marchueticastillo@plana-artus.com