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Taxation in Spain can seem complex due to the diversity of applicable taxes and regulations. This article offers an essential guide to understanding the key aspects of taxation for both individuals and companies.

1. Types of Taxes in Spain

The tax structure in Spain is divided into three large categories:

• Direct taxes: They tax the income or assets of people and companies. Examples:

  • Personal Income Tax (IRPF): Mandatory for tax residents in Spain. It is applied progressively, which means that the percentage increases with the level of income.

  • Corporate Tax (IS): Applies to profits obtained by companies resident in Spain.

  • Wealth Tax: Taxes the net worth of individuals above certain thresholds.

• Indirect taxes: They tax the consumption of goods and services. Examples:

  • Value Added Tax (VAT): It is 21% generally, with reduced rates of 10% and 4% for certain goods and services.

  • Special taxes: They apply to products such as tobacco, alcohol or fuel.

• Local taxes: They are managed by city councils and autonomous communities. Examples:

  • Real Estate Tax (IBI): Taxes the ownership of real estate.

  • Tax on Economic Activities (IAE): For companies and professionals that exceed a certain income.

2. Tax Residency in Spain

Being considered a tax resident in Spain implies being subject to taxation on income obtained throughout the world. A person is a tax resident if:

• He spends more than 183 days a year in Spain.

• It has its main core of economic interests in Spain.

• His family resides in Spain, although he spends less time in the country.

Non-residents only pay taxes on income generated within Spanish territory.

3. Tax Obligations for Individuals

• Income Tax Return (IRPF):

  • It occurs annually, generally between April and June.

  • Includes income from work, economic activities, rents and capital gains.

• Wealth Tax:

  • Mandatory if the net worth exceeds an exempt minimum, which varies depending on the autonomous community.

• Declaration of Assets Abroad (Form 720):

  • Requires reporting on bank accounts, securities or properties abroad if they exceed 50,000 euros.

4. Tax Obligations for Companies

• Corporate Tax:

  • It applies to the net profits of companies.

  • The general rate is 25%, although there are reduced rates for newly created entities.

• VAT:

  • Companies must periodically settle the VAT collected and input tax on their operations.

• Withholdings and Payments to Account:

  • Companies must make withholdings on payments made to employees, professionals and landlords.

• Periodic Models:

  • Declarations such as Form 111 (IRPF withholdings) and Form 303 (VAT self-assessment) are common for most companies.

5. Differences According to Autonomous Communities

Spain has a decentralized tax system. Some autonomous communities have powers to modify certain taxes, such as:

• IRPF: Regional rates that vary by region.

• Wealth and Inheritance Tax: With important bonuses in communities like Madrid.

6. Sanctions and Tax Compliance

Failure to comply with tax obligations can lead to sanctions that include fines, late payment interest and even criminal liability in serious cases. It is crucial:

• Submit all statements in a timely manner.

• Keep the supporting documentation of the operations for at least 4 years.

7. Practical Tips

• Tax planning: Take advantage of deductions and bonuses to reduce the tax burden.

• Professional advice: Hiring a tax advisor can avoid mistakes and optimize your situation.

• Review legislative changes: Tax regulations change frequently, as well as that staying updated is essential.

Understanding taxation in Spain is key to complying with your obligations and avoiding legal problems. Whether you are an individual or a company, good tax management can help you optimize your resources and add peace of mind to your finances.