Summary 1 - Basic and Non-Resident Income Tax in Spain

Question 1

What is the resident principle

Answer 1

World wide income is taxed in the country of residence of the tax payer

Question 2

what is the SOURCE PRINCIPAL?

Answer 2

each country taxes income obtained within their boundaries

Question 3

What principal do country use / How?

Answer 3

Countries use a combination of both, first one for residents and second for non-residents. the use of both responds to reasons of equity and efficiency, but can trigger double taxation

Question 4

Which two ways of double taxation are there? How?

Answer 4

1. Juridical: same income is taxed twice in the hand of the same taxpayer
2. economical: same income is taxed twice in the hands of different taxpayers)

Question 5

What are the methods to provide double taxation relief by the residence country?

Answer 5

1. EXEMPTION: country of residence refuses to tax income obtained abroad (in source countries)
2. EXEMPTION WITH PROGRESSIVITY: country of residence refuses to tax income obtained abroad, but takes the foreign income into consideration to work out tax rate applied to local income
3. full credit method
4. partial credit method
5. deduction method

Question 6

what is EXEMPTION method?

Answer 6

1. EXEMPTION: country of residence refuses to tax income obtained abroad (in source countries)

Question 7

what is EXEMPTION WITH PROGRESSIVITY?

Answer 7

2. EXEMPTION WITH PROGRESSIVITY: country of residence refuses to tax income obtained abroad, but takes the foreign income into consideration to work out tax rate applied to local income

Question 8

what is FULL CREDIT METHOD?

Answer 8

FULL CREDIT METHOD: COUNTRY OF RESIDENCE TAXES W.W.INCOME, BUT TAXES PAID ABROAD (FOREIGN TAX CREDITS) CAN BE SUBTRACTED FROM TAX LIABILITY, WITHOUT LIMITATIO

Question 9

what is partial credit method?

Answer 9

PARTIAL CREDIT METHOD: SAME THAN F.C.M., BUT TAXES PAID ABROAD CAN BE SUBTRACTED UP TO A LIMIT: WHAT FOREIGN INCOME WOULD HAVE PAID IN RESIDENCE COUNTR

Question 10

what is deduction method?

Answer 10

DEDUCTION METHOD: COUNTRY OF RESIDENCE TAXES W.W.INCOME, BUT TAXES PAID ABROAD CAN BE SUBTRACTED FROM THE TAXABLE BASE

Question 11

When are tax residence in Spain as in individual?

Answer 11

Arts 8-9:
- PRESENCE TEST (stay in Spain > 183 days/year) or center of economic interest (majority of income & assets)

• PRESSUMPTION OF RESIDENCE (if spouse and minor child are considered resident in Spain)
• SPECIAL SCHEME FOR DIPLOMATICS (under conditions of reciprocity keep being considered residents)
• extended liability

Question 12

what are the guidelines and tax rates for BUSINESS INCOME?

Answer 12

taxable base will be INCOME - LINKED SALARIES, RAW MATERIAL AND SUPPLIES (also EU); 19% EU, Iceland + Norways; 24% non EU

Question 13

what are the guidelines and tax rates for IMMOVABLE CAPITAL INCOME?

Answer 13

rental income in any leased property in Spain; taxable base for outside EU: gross income –> in the EU: gross income - deductible expenses (Depreciation: 3% of the cost of the property construction); 19 % EU *I,N;24% non EU

Question 14

what are the guidelines and tax rates for IMPUTED INCOME?

Answer 14

for empty 2nd,3rd houses: 2% of the cadastral value (1,1% if updated in the last 10 years); 19% for EU,I,N;; 24% non EU

Question 15

what are the guidelines and tax rates for DIVIDENDS?

Answer 15

paid by Spanish companies to foreign companies 8WATCH PSD) 19%

Question 16

what are the guidelines and tax rates for INTEREST?

Answer 16

paid by Spanish companies to foreign companies; 19%

Question 17

what are the guidelines and tax rates for ROYALTIES?

Answer 17

paid by Spanish companies to foreign companies 19%

Question 18

what are the guidelines and tax rates for CAPITAL GAINS?

Answer 18

difference between selling price and purchase price, considering expenses; in real estate sales, buyer must withhold 3% of the selling price; 19% independent from residence

Question 19

What is “Double Taxation Relief”?

Answer 19

It will be provided by the country of residence, unilaterally (on its domestic legislation), or because of the existence of an agreement among the states

Question 20

What is done in a case of conflicts of residence? In which cascade?

Answer 20

Tie Break Rules:

1. Permanent home available
2. center of vital & economic interest
3. Habitual abode
4. Nationality
5. Mutual agreement

Question 21

What is the optional scheme for impatriated employees?

Answer 21

Can keep being taxed as non-residents

• > goal is to offer advantage to attract foreign talent
• > taxpayer is taxed at a 24% tax rate instead of progressive (first year+5
• > move to Spain due to labor contract + not in Spain last 10 years
• > max of 600.000

Question 22

What is the exemption for expatriated employees?

Answer 22

to facilitate their internationalization

-> method: first 60.100€ of income earned abroad are exempt in Spain

Question 23

What is the EXIT TAX? (for high profile taxpayers moving their residency out of Spain)

Answer 23

to tax them when moving for capital gains

• > taxpayers resident in the at least 10 of last 15 years and own securities with value
• > possible deferrals: move into another EU state, move due to labor

Question 24

Which sources of law can be applicable?

Answer 24

domestic legislation, bilateral and multilateral tax treaties, EU-Directives
-> primacy relation

Question 25

What are the main goals of tax treaties?

Answer 25

to avoid double taxation and nowhere taxation, to distribute the right to tax among contracting states, to provide juridical certainty to investors and traders

Question 26

What are the goals of EU-Directives in direct taxation? Method?

Answer 26

create conditions of a common market, compatible with its principles, to increase competetivness of EU companies, harmonization

METHOD-> no withholding tax in source country for P-S, I-R

Question 27

When is the tax residency in Spain for companies given?

Answer 27

registered domicile or effective place of management in spain

Question 28

What is NRIT?

Answer 28

Non resident income tax in Spain: direct tax on income obtained within a country by non-residents of that country

Question 29

When is income considered obtained in Spain by non residents?

Answer 29

Art. 13 LIRNR:
key criteria to link income and territory:

• location of the property: rental income and capital gains from immovable properties
• residence of the payer: applies to interest, royalties and certain employment income
• residence of the issuer: applies to dividend and capital gains from securities
• place of exercise: applies to business income without PE, income from artist&sportspeople

Question 30

How is the taxation for income obtained through a PE in Spain?

Answer 30

genreal rule: follow CIT rules
a) payments of interest/royalties/technical assistance/comissions for the use of assets made by the PE to the HG are NOT deductible

b) reasonable part of management/genreal expenses of HQ attributable to PE can be deducted

Question 31

What are the CIT-Rules?

Answer 31

tax is paid like spanisch corporations do July up to 25th at 25% tax rate accounting obligation will also be the same

Question 32

What are the special schemes for PE’s?

Answer 32

PE that doesn’t close/end a business cycle (warehouse) -> taxable base will be worked out through Arm’s length principle; alternatively 15% of global costs of the PE

tax treaty imposes deductibility of payments to the HQ, provisions related parties and arm’s length principle will be applied

Question 33

Name the special requirements and consequences of th Parent-Subsidiary directive

Answer 33

applies to the distribution of dividends between PS EU companies -> requires a minimum holding of 10%
minimum holding period can be requested to apply (in Spain 1 year)

effect: exclusive taxation at residence country-> no WH tax

MS can improve conditions:pain: enough 5% or a 20M stock

Question 34

Name the special requirements and consequences of the Interest-Royalties directive

Answer 34

applies to the payment of I&R made between EU associated companies-> requires a hold participation of 25%; minimum holding period can be requested (Spain = 1 year)

effect: exclusive taxation at residence country no WH
improve conditions is possible: Spain is no minimum % and no minimum holding period for INTERESTS