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29 December 20228 minute read

Global Tax Alert: Spanish Government introduces Temporary Solidarity Tax

and amends the current Wealth Tax
The Spanish Government introduces Temporary Solidarity Tax and amends the current Wealth Tax.

The Spanish Government has approved a law introducing temporary taxation of energy and of credit institutions and financial credit establishments which also creates a temporary solidarity tax on large fortunes (Solidarity Tax).

Background

This new Solidarity Tax is designed to complement the current Wealth Tax, where the regulation authority and tax collection is transferred to the autonomous regions. In fact, some regions have approved certain tax benefits, including a 100% tax allowance (e.g. Madrid). The Spanish Government has introduced this new tax in order to harmonize taxation within Spain, supplementing the Wealth Tax currently levied by the regions (if any).

Like the current Wealth Tax, the new Solidarity Tax is levied not only on Spanish residents but also on non-residents on the assets and rights located in Spain.

Key features

This Solidarity Tax is levied on the ownership by individuals of net assets of more than EUR3 million (although Spanish resident taxpayers may apply a EUR700,000 reduction of the taxable base) and is accrued on 31 December each year. In accordance with the text published, and contrary to the Wealth Tax, the taxpayers of the Solidarity Tax who are subject by real obligation will not be able to apply the minimum exemption and, consequently, may be affected from a net taxable wealth higher  than EUR3 million.

Wealth Tax rules apply in order to calculate the taxable base, which is determined on the basis of the taxpayer’s net wealth (i.e. the difference between the value of assets and liabilities).

The exemptions provided for in the Wealth Tax Law are also applicable. This means that, among other assets and rights, the habitual residence (up to EUR300,000 ), the family business and certain works of art, will be exempt from the new tax, under the same conditions and with the same requirements as those established for Wealth Tax purposes.

Net wealth, after applying the relevant exemptions and reductions, would be taxed according to the following progressive rates:

  • From EUR3,000,000.00 to EUR5,347,998.03: 1,7%
  • From EUR5,347,998.03 To EUR10,695,996.06: 2,1%
  • From EUR10,695,996.06 onwards: 3,5%

A joint limit similar to the current limit between Personal Income Tax and Wealth Tax is applicable. Namely, when the Personal Income Tax, Wealth Tax and Solidarity Tax quotas exceeds 60% of the Personal Income Tax base, the Solidarity Tax quota will be reduced until reaching said limit, although the reduction may not exceed 80% of the Solidarity Tax quota prior to said reduction.

Given that the purpose of the Solidarity Tax is to supplement the current Wealth Tax, the amount of Wealth Tax effectively paid to the regions will be creditable from the Solidarity Wealth Tax liability. In addition, Taxes paid abroad will be deductible under the terms of the Wealth Tax regulations in the case of Spanish residents, notwithstanding the provisions of the Double Tax Treaties.

It is worth noting that, non-resident taxpayers are subject to this tax as long as they meet the conditions, notwithstanding the provisions of the relevant double tax treaties which should be analyzed on a case by case basis.

Finally, an amendment is also included on the current Wealth Tax whereby non-residents participating in non-resident entities not traded on organized markets whose assets consist of 50% real estate located in Spanish territory are subject to Wealth Tax in Spain.

Key takeaways

Non-resident taxpayers must appoint a representative (an individual or legal entity resident in Spain) before the end of the voluntary period for filing the tax return unless they are resident in another Member State of the European Union (EU) or in a State of the European Economic Area (EEA), in the latter case if there are regulations on mutual assistance in the exchange of tax information and collection under the terms of the General Tax Law.

It is not a clear-cut issue if the new Solidarity Wealth Tax complies with the distribution of regulatory powers between the State and the regions and the legal process for the approval of new taxes, leaving doubts of its constitutionality.

The Solidarity Tax would be in force for two years, although the Law includes a review clause allowing the Government to extend it for future years.

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