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Major tax changes in Spain


The Spanish Government recently confirmed there will be an increase in taxes in order raise additional revenues to reduce Spain's state budget deficit. The Government have now approved the Bill with measures effective from 1 January 2010. Garrigues, our Spanish member discuss the details in their latest newsletter.{C}

Last August the Government announced on several occasions that a tax policy reform consisting of an increase in taxes which, according to declarations, would be "limited and temporary."

These declarations were confirmed in September in the Lower House of the Spanish Parliament, when the Prime Minister took the floor to explain that the objective of the reform would be to raise additional revenues equal to 1.5% of gross domestic product (approximately EUR15 billion) in order to reduce the Spanish state's budget deficit.

At an extraordinary meeting held on Saturday, September 26, the Council of Ministers approved the Bill specifying the tax changes announced previously. We briefly summarise below these proposed changes:

  • Increase in VAT rates. It is proposed to raise the standard VAT rate from the present 16% to 18%, and to increase the reduced rate, which currently stands at 7%, to 8%.
  • Increase in the taxation of savings income. Until now, savings income has been taxed at a flat rate of 18%. It is planned to raise the rate to 19% for the first EUR6,000, and then 21% on savings income over and above that amount.
  • Reduction in the corporate income tax rate for SMEs to 20%, subject to certain requirements being met. The current rate is 25% for the first EUR120,202.41 and 30% over the excess. It is not clear yet if the reduction to 20% will be a new tax rate or will affect only the first bracket.
  • Elimination of the EUR400 personal income tax credit claimable until now by taxpayers obtaining salary income or income from professional activities. All these measures will apply as of next 1 January 2010, except for the increase of VAT rates which would apply as of 1 July 2010.


Taxand's Take

The new Spanish tax reform may be polemic. Although the Government has already announced these increases most opposition parties in Congress are challenging it. Therefore the Government does not have the full support of the Parliament and will have to seek support from smaller parties, which may impact further tax increases. We would not be surprised if further measures are proposed as result of Parliamentary proceedings.

In any case, with this reform the standard VAT rate shortens the distance with respect to the average EU rate, while savings income (dividend, interest and certain capital gains), derived either by residents or non-residents will be taxed at 19% or 21% rate - these rates that appear too high, especially for non-residents. Although the latter should be covered by the Spanish tax treaty network which contains several exemptions or reductions and non-resident multi-nationals should seek to take advantage of these agreements.

Your Taxand contact for further queries is:
Vicente Bootello
T.+34 91 514 52 00

The Garrigues Newsletter provides a practical insight into the latest tax and legal developments taking place in Spain and Portugal. 

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