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For the purposes of personal income tax, all compensations, regardless of their denomination or nature, whether monetary or in kind, generated directly or indirectly by personal work or by an employment or statutory relationship, and that are not classified as income from capital, are considered income from work.
Gross labor income includes, but is not limited to:
Personal income tax taxes severance payments that exceed the limit established by Spanish labor legislation. Earnings from work are included in the general income tax base and are subject to progressive tax rates, which vary depending on the autonomous community in which the taxpayer resides. For more details, see the section corresponding to personal income tax.
Withholding and on-account payments apply to salaries, salaries and benefits.
Non-residents who earn income from work in Spain are taxed at the general rate of Non-Resident Income Tax of 24%. For residents in other member states of the European Union or countries of the European Economic Area with which there is an effective exchange of tax information, the rate is 19%. Pensions are subject to special tax rates.
Shares awarded to employees are generally considered income from work and are classified as compensation in kind at their market value at the time of the grant.
However, in accordance with personal income tax regulations, company or group shares that are granted free of charge to employees or at a price lower than the market price are not considered compensation in kind, provided that they do not exceed the limit of 12,000 euros and that the conditions of the offer are uniform for all employees.
As of January 1, 2023, the recently approved Law for the Promotion of the Spanish Emerging Business Ecosystem (“Start-up Law”; Law 28/2022) has introduced favorable tax treatment for the delivery of shares or stock options to start-up employees, according to the definitions established in the same law. This preferential tax treatment includes the following aspects:
The tax exemption has been increased to a maximum annual gross amount of 50,000 euros per employee in the case of start-up employees. Unlike general regulations, for the application of this tax exemption, it is not necessary for shares to be offered on the same terms to all employees of the company, provided that these shares are part of the employer's general remuneration policy.
Non-exempt income derived from the award of shares or stock options to start-up employees will be subject to taxation when the first of the following events occurs:
This special valuation rule states that, if independent third parties have subscribed to a capital increase in the previous year, the shares given to start-up employees will be valued at the same price at which those third parties have subscribed those shares. If there was no capital increase by independent third parties in the previous year, the shares will be valued at their fair market value, following the general valuation standard.
As of January 1, 2023, the Spanish Law for the Promotion of the Emerging Business Ecosystem (“Start-up Law”; Law 28/2022) introduced the concept of interest supported into Personal Income Tax, establishing its taxation in accordance with Spanish personal income tax regulations.
The purpose of this new regulation is to regulate the taxation in Spain of income obtained from the successful management of venture capital funds. These funds are defined as alternative investment funds in accordance with EU Directive 2011/61/EU and are included in the following categories:
The tax treatment of these movable capital returns is as follows:
The income generated is considered income from work in accordance with the Spanish Personal Income Tax Act.
50% of the income from movable capital will be taxed without applying any tax exemption or reduction, provided that the following requirements are met:
This tax treatment will not be applicable when special economic rights derive, directly or indirectly, from an entity that is a tax resident of a non-cooperative jurisdiction or from a jurisdiction with which Spain does not have a mutual assistance agreement regarding the exchange of tax information.
For the purposes of personal income tax, business returns are those generated by a person through the combination of personal labor and capital, or based on a single one of these factors, in the production or distribution of goods or services. These returns arise as a result of the organization of the company's means of production and/or human resources by the taxpayer himself.
In particular, business income is considered to be those obtained from extractive, manufacturing, commercial or service activities, including those related to artisanal, agricultural, forestry, livestock, fishing, construction, mining activities, as well as the exercise of liberal, artistic or sports professions.
In the case of real estate leases, they are only considered a business activity if at least one person is employed full time to manage that leasing activity.
Net business income is calculated following Spanish corporate tax legislation, although with the application of certain specific rules.
Business income is included in the general income tax base and is subject to the progressive tax rates applicable in each autonomous community. For more details, see the Personal Income Tax section.
Self-employed workers with tax residence in Spain who carry out an economic or business activity are required to make personal income tax payments throughout the year, in the months of April, July, October and January. The tax base and the percentage of these on-account payments depend on the estimation method that is applied:
Business income earned in Spain by non-tax residents who act without a permanent establishment is subject to the general rate of Non-Resident Income Tax (IRNR) of 24%. For residents in other member states of the European Union (EU) or countries of the European Economic Area (EEA) with which there is an effective exchange of tax information, the tax rate is 19%.
Capital gains and losses represent changes in the value of a person's assets, resulting from an alteration in their composition, which are not considered income under Spanish personal income tax legislation.
It is important to highlight that capital gains can be generated in all inter-vivo transmissions, that is, those that are made between living people, but not in mortis causa transmissions, which occur due to death.
When a capital gain or loss is caused by the transfer of an asset, its calculation is made by subtracting the initial purchase value from the transfer value. If the capital gain or loss is not generated through the transfer, the market value of the asset is used as the basis for calculation.
Capital gains resulting from asset transfers are included in the savings tax base and are subject to progressive tax rates that vary between 19% and 28%.
There is a transitional regime applicable to the taxation of transfers of assets or rights that are not linked to the development of a business activity and that were acquired before December 31, 1994. This regime allows the application of reduction coefficients (14.28%, 25% or 11.11% per year, depending on the type of asset) on the proportional part of the capital gain generated from the date of acquisition to January 19, 2006. The total capital gain is divided into two parts:
Part generated up to January 19, 2006: On this part, the corresponding reduction coefficient is applied.
Part generated from January 20, 2006 to the transmission: This part is taxed at a progressive rate of 19% to 28% and no reduction coefficients are applied.
Since January 1, 2015, this transitional regime only applies when the transfer value of the assets does not exceed 400,000 euros per taxpayer. To determine if this limit is exceeded, the transfer values of all the assets sold after that date are added together, applying the transitional regime proportionately only to the part that does not exceed the threshold.
The capital gain generated by the sale of a home is exempt from taxation if the amount obtained is reinvested in a new home within two years, provided that the reinvestment is proportional to the amount obtained from the sale.
Capital gains that do not derive from capital transfers, such as certain lottery prizes, are integrated into the general tax base and are subject to different progressive rates depending on the autonomous community.
For non-residents without a permanent establishment in Spain, capital gains obtained through transfers of assets are taxed at 19%. If they are not generated by transmissions, the general rate of Non-Resident Income Tax of 24% applies. For residents in the EU or EEA with an effective exchange of tax information, the applicable rate is 19%.
The transitional tax regime also applies to capital gains obtained in Spain by non-residents without PE, provided that the assets are not involved in an economic-business activity and were acquired before December 31, 1994.
For personal income tax payers over 65 years of age, capital gains derived from transfers of assets are exempt if the amount obtained is allocated within six months to constitute an insured life annuity, with a maximum limit of 240,000 euros. In the case of partial reinvestment, only the proportional part of the profit will be exempt.
In transfers of properties located in Spain made by non-residents without an EP, the buyer is obliged to withhold 3% of the transfer price and pay it as an advance on capital gains tax. This on-account payment must be managed by a legal representative or attorney on behalf of the non-resident seller.
In Spain, dividend income and other income obtained from holding shares in companies are considered part of the Savings income in Personal Income Tax (IRPF). Dividends are taxed according to a progressive tax rate scale:
For people not resident in Spain who earn dividend income without a permanent establishment in the country, this income is subject to a withholding on a Spanish account at a fixed rate of 19%. However, this rate can be reduced if there is a double taxation agreement between Spain and the recipient's country of residence, which establishes lower tax rates.
This regime seeks to align the taxation of dividends received by non-residents with international standards and Spain's tax obligations under bilateral tax treaties.
In Spain, interest and other income obtained from the transfer of equity capital to third parties are considered part of savings income in personal income tax. These revenues are taxed according to the following progressive tax rate scale:
When the capital transferred to a related company exceeds the company's own funds by three times, the interest corresponding to the excess of this amount is not considered part of the savings income. Instead, they are integrated into the general tax base and are taxed according to the progressive tax rates established by each autonomous community. These tax rates are different depending on the autonomous community, and for more specific details, it is recommended to consult the corresponding section on Personal Income Tax.
For non-residents who receive interest income in Spain without having a permanent establishment, this income is subject to a withholding tax (WHT) at a fixed rate of 19%. However, residents of the European Union (EU) are exempt from this withholding, thus favoring the free movement of capital within the EU.
In addition, the Double Taxation Agreements that Spain has signed with other countries may establish lower withholding rates, providing additional tax benefits to residents of those countries.
The income obtained from the rental of real estate is included in the general tax base of personal income tax. These incomes are taxed at progressive tax rates that vary depending on the autonomous community in which the taxpayer resides. The specific details of these types can be found in the corresponding section of personal income tax.
For residential properties that are owned by taxpayers but are not leased (excluding regular housing), personal income tax applies an income tax. This charge is included in the general tax base and corresponds to 1.1% or 2% of the cadastral value of the property. This percentage depends on whether the cadastral value of the property has been revised in the last 10 years:
This income tax is also taxed at the progressive tax rates applicable by the autonomous community.
For taxpayers not resident in Spain without a permanent establishment who own properties in Spain that are not leased, a tax of 24% is applied on the attribution of income, that is, 1.1% or 2% of the cadastral value of the property. However, if the owner is a resident of a member State of the European Union or of a country of the European Economic Area with which there is an effective exchange of tax information, the applicable tax rate is 19%.
Rental payments received by non-residents for the lease or sublease of real estate in Spain are subject to a fixed account withholding of 24%. For residents of the EU or EEA countries that have agreements for the effective exchange of tax information with Spain, the withholding rate is 19%.
Regarding the deduction of expenses:
This regime allows EU residents to benefit from deductions that can significantly reduce their tax burden compared to non-EU residents.
In the RPF, there are certain incomes that are specifically exempt from taxation, generally under specific conditions and limits. The following are the most relevant incomes that are exempt from taxes:
Literary, Artistic and Scientific Prizes: Some prizes awarded in the literary, artistic and scientific fields are exempt from personal income tax. This exemption usually applies whenever such prizes meet certain requirements established by tax regulations, such as the official recognition of the prize or its award by non-profit entities.
Compensation for Dismissal: Compensation received for dismissal is exempt from personal income tax up to a limit of 180,000 euros. This limit is established in accordance with Spanish labor law and covers both unfair dismissals and other types of dismissal that meet the legal requirements for the exemption.
Disability Benefits: Benefits received from Social Security or from any other public administration that acts as a substitute for Social Security in cases of total permanent incapacity for work or severe disability are exempt. These benefits must be officially recognized for the exemption to apply.
Alimony: Alimony benefits received by one of the parents following a court ruling are exempt from taxation. This exemption applies only to amounts legally fixed as alimony, and does not extend to other concepts or amounts agreed outside the judicial sphere.
Income from Working Abroad: Work income earned through services provided abroad may be exempt from Spanish personal income tax under certain conditions. To benefit from this exemption, it is necessary that income be subject to a tax of an identical or similar nature to personal income tax in the country where the work is carried out. In addition, there are additional limits and conditions for this exemption, which vary depending on international tax laws and agreements.
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