Spain: Royal Decree Amends Rules on Personal Income Taxation, VAT
A new Royal Decree-Law in Spain modifies the Personal Income Tax Law in ways that will increase the tax burden of many individuals. In particular, the Decree-Law amends the rules governing the tax relief related to the purchase of a principal residence and the rates of withholding tax on certain earnings. Also, the Decree-Law modifies the rates of value added tax (VAT).
These measures may raise the cost of living in Spain and increase the costs of sponsoring assignments to Spain as a result of the changes in taxation discussed below.
On 14 July 2012, Royal Decree-Law 20/20121 on measures to ensure budgetary stability and on the promotion of competitiveness – which, among other measures, modifies Personal Income Tax Law 35/2006 – was published in the Spanish official gazette (Boletín Oficial del Estado).
Principal Residence – Extra Credit for Taxpayers Eliminated
Regarding those taxpayers that acquired their principal residence before 20 January 2006, previous law had established an ‘extra’ benefit (a credit annually determined by the General Budget Law) over and above the existing tax credit applicable for every taxpayer upon the acquisition of his or her principal residence under certain conditions. Royal Decree-Law 20/2012 has removed this ‘extra’ credit for the tax year 2012. The new rules entered into force upon publication in the Boletín Oficial del Estado on 14 July.
Withholding on Certain Earnings – Rate Rises
Additionally, from 1 September 2012 to 31 December 2013, the fixed tax rate for withholding purposes has been increased to 21 percent (previously it was set at 15 percent). This withholding rate applies to income earned from professional activities, as well as to income derived from teaching courses, conferences, colloquiums, seminars and the like, or derived from the production of literary, artistic, or scientific work, provided that the right to ‘operate’ is surrendered. This measure is also applicable for income earned from professional activities.
VAT – Rates Go Up
With effect as from 1 September 2012:
• the standard VAT rate will rise from 18 percent 21 percent;
• the reduced 8 percent VAT tax rate is increased to 10 percent; and
• certain specified goods and services/transactions previously subject to the 8-percent reduced rate will be subject to the new 21-percent standard rate.