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Spain Individual - Income determination

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Employment income

For the purposes of PIT, all remunerations, regardless of their name or nature, whether they are in cash or in kind, generated directly or indirectly from personal work or from an employment or statutory relationship, and which are not business earnings, are employment income.

Amongst others, the following income is regarded as gross employment income:

  • Salaries or wages.
  • Living allowances.
  • Housing allowances.
  • Bonuses.
  • Tax reimbursements
  • Remunerations in kind (e.g. schooling and rent-free housing).
  • Pension income.
  • Amounts paid to deputies, senators, councillors and the like for the performance of their work.
  • Remunerations of directors and members of boards of directors.
  • Income from literary, artistic, or scientific works when the trading rights for such works have been transferred.
  • Income generated from providing courses, conferences, seminars, etc.
  • Income from involvement in humanitarian or welfare activities organised by non-profit organisations.
  • Alimony received from an ex-spouse and non-exempt annuities for food.
  • Non-exempt grants.

PIT is levied on severance pays awarded for dismissals over the limit established in Spanish employment law. The part of the awarded severance pay under the limit that exceeds EUR 180,000 is also subject to and not exempt from PIT.

Employment income is included in the PIT general base and taxed at progressive tax rates, which vary depending on the autonomous region where the taxpayer is situated (see the Taxes on personal income section for further information).

Withholdings and advance tax payments are payable on salaries and wages and on benefits.

Non-residents obtaining employment income in Spain are taxed at the general NRIT rate of 24%. For residents of other EU member states or EEA countries with which there is an effective exchange of tax information, the rate is 19% in or after 2016. Pensions are taxed at special rates.

Equity compensation

Shares granted to employees are generally regarded as employment income and are considered to be remuneration in kind at their market value at granting.

However, under PIT regulations, company or group shares awarded to employees free of charge or for a price that is lower than the market price are not benefits in kind, up to the limit of EUR 12,000, provided that the terms and conditions of the offer are the same for all employees.

Business income

For the purpose of PIT, business income is income generated by an individual from a combination of personal work and capital, or only one of these factors, for the production or distribution of goods or services as a result of the person’s organisation on his own behalf of the means of production and/or human resources of the business.

In particular, income generated from extraction, manufacturing, trade or service activities, including income obtained from handicraft activities, agriculture, forestry, livestock farming, fishing, building, mining and the practice of liberal, artistic, or sporting professions is considered as business income.

Leases of properties are only considered to be a business activity when at least one person is employed on a full-time basis to organise the lease activity.

Net business income is calculated in accordance with Spanish CIT laws with the application of some specific regulations.

Business income is included in the PIT general income and is taxed at the progressive tax rates applicable in each autonomous region (see the Taxes on personal income section for further information).

Self-employed persons who are resident in Spain for tax purposes and who carry out an economic or business activity are required to make advance payments of PIT during the year (in April, July, October, and January). The tax base and percentage of these advance payments will depend on the evaluation method which is applicable.

  • If the person applies the direct evaluation method (normal or simplified), the tax base is determined in accordance with CIT regulations with certain specific differences and the percentage of the advance payment is 20%.
  • If the taxpayer applies the objective evaluation method, the tax base for the advance payment is determined in accordance with income indicators established by the Spanish law (signs, indexes, and modules). In this case, the percentage of the advance payment is generally 4%.

Business income obtained in Spain by Spanish non-tax residents acting without a PE is taxed at the general NRIT rate of 24%. For residents of other EU member states or EEA countries with which there is an effective exchange of tax information, the rate is 19% from 2016.

Capital gains

Capital gains and losses are variations in the value of a person’s wealth which are generated when there is an alteration in its composition and which are not considered to be income under Spanish PIT law.

It is important to note that capital gains can arise on all inter vivos transfers, but not on mortis causa transfers.

When the capital gain or loss is generated from the transfer of an asset, it is calculated by deducting the previous acquisition value from its transfer value, otherwise, the capital gain or loss is the market value of the asset.

Capital gains arising from transfers of assets are included in savings income and are taxed at the corresponding progressive tax rates between 19% and 23%.

A transitory tax regime may be applied for transfers of assets or rights which are not used to carry out an economic activity and which were initially acquired before 31 December 1994. In accordance with this regime, reduction coefficients (of 14.28%, 25%, or 11.11% per year, depending on the type of assets, for each year the assets or rights have been held between the acquisition date and 31 December 1996) may be applied on the proportional part of the capital gain generated from the date of acquisition up to 19 January 2006. Therefore, if the transitory regime is applicable, the total capital gain should be divided into two parts:

  • Part of the capital gain generated from the acquisition date up to 19 January 2006, on which the reduction coefficients is applied. The rest of the capital gain is taxed at a progressive tax rate of between 19% and 23% .
  • Part of the capital gain generated from 20 January 2006 up to the date of the transfer. This part is taxed at a progressive tax rate of between 19% and 23% and no reduction coefficients apply.

With effect from 1 January 2015, this transitory regime is applied when the value of the transfer does not reach EUR 400,000 per taxpayer. For this purpose, the transfer values of all assets transferred from 1 January 2015 on which this transitory regime may be applied should be added together, and if the total amount exceeds the threshold, the transitory regime is applied proportionally to the part of the transfer value that does not exceed the threshold.

The capital gain generated from the sale of a person’s home is tax exempt for the same proportion as the amount that is reinvested in a new home, provided that the new home is purchased within two years.

Capital gains not generated from transfers of goods (such as some lottery prizes) are included in the general tax base and are taxed at the progressive tax rates, which are different for each autonomous region (see the Taxes on personal income section for further information).

Capital gains obtained in Spain by non-residents without a PE are taxed at a rate of 19% when they are generated from transfers of assets otherwise they are taxed at the general NRIT rate of 24% (for residents of other EU member states or EEA countries with which there is an effective exchange of tax information, the rate is 19% from 2016).

The transitory regime for transfers of assets and rights which are not used to carry out an economic activity and which were initially acquired before 31 December 1994 is also applicable for capital gains obtained in Spain by non-residents without a PE.

Capital gains arising from transfers of assets by PIT payers over the age of 65 are tax exempt if the total amount of income obtained from the transfer is used within six months to establish an assured life annuity for the taxpayer. A maximum of EUR 240,000 may be used to establish an assured life annuity. For partial reinvestments, only the part of the capital gain obtained that corresponds to the reinvested amount will be tax exempt.

For transfers of properties located in Spain by non-residents without a PE (individuals), the purchaser is required to deduct and pay to the local tax authorities 3% of the price of the transfer. This withholding is treated as an advance payment of capital gains tax for the seller. The non-resident seller must be formally represented in the transaction by a lawyer or legal representative.

Dividend income

Dividends and other income generated from holding interests in companies are included in PIT savings income, which is taxed at a 19% tax rate up to the first EUR 6,000 of income, a 21% tax rate for the following EUR 6,000 to EUR 50,000 of income, and a 23% tax rate on any remaining income.

Dividend income obtained by Spanish non-resident individuals without a PE is taxed by Spanish withholding tax (WHT) at the flat rate of 19% from 2016 (DTTs normally establish lower rates).

Interest income

Interest and other income generated from transferring a person’s own capital to third parties are included in PIT savings income and are taxed at a 19% tax rate up to the first EUR 6,000 of income, a 21% tax rate for the following EUR 6,000 to EUR 50,000 of income, and at a 23% tax rate on any remaining income.

As an exception, when capital transferred to an associated company exceeds three times the latter company’s equity, the interest corresponding to the excess will be included in general taxable income and taxed at the progressive tax rates which are different for each autonomous region (see the Taxes on personal income section for further information).

Interest income received by non-residents without a PE is taxed by Spanish WHT at a flat rate of 19% from 2016. An exemption is applicable for EU residents. DTTs normally establish lower rates.

Lease income

Income generated from leases of properties by the taxpayer is included in PIT general taxable income and taxed at progressive tax rates which are different for each autonomous region (see the Taxes on personal income section for further information).

PIT is levied on any residential properties owned by the taxpayer (excluding the taxpayer’s habitual residential property) that have not been leased out. An income allocation of 1.1% or 2% of the property’s rateable value is included in PIT general taxable income and taxed at progressive tax rates. A 24% tax on 1.1% or 2% of the property’s rateable value is also levied on non-resident taxpayers (individuals) without a PE with properties in Spain that are not leased out. For residents of other EU member states or EEA countries with which there is an effective exchange of tax information, the rate is 19% from 2016.

WHT is levied on rent payments received by non-residents from leases and sub-leases of property at the flat rate of 24%. For residents of other EU member states or EEA countries with which there is an effective exchange of tax information, the WHT is 19% from 2016.

EU citizens may deduct all costs incurred for the maintenance of property from taxable income. Non-EU residents cannot deduct any costs.

Exempt income

The following incomes are specifically exempt from PIT (usually subject to certain limits on the amounts involved):

  • Certain literary, artistic and scientific awards.
  • Severance pay for dismissals, up to the limit established in Spanish employment law. The tax exemption is limited to EUR 180,000.
  • Benefits awarded to the taxpayer by the social security or by any other authorities which replace it as a result of his total permanent disability or serious disability.
  • Child support received by a parent following a court decision.
  • Employment income earned for work carried out abroad if this income is subject to an identical or similar tax to Spanish PIT, subject to certain limits and conditions (see the Taxes on personal income section for further information).

Last Reviewed - 21 December 2017

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