Spain's New Wealth Tax

At the end of last year, Spain introduced a temporary solidarity tax on large fortunes, that must cancel the exemptions on the wealth tax introduced by several autonomous communities.

Impuesto Sobre el Patrimonio

The existing net wealth tax (the "impuesto sobre el patrimonio") was reinstated in 2012 and it has been renewed every year since then. The tax is levied on the net value of a taxpayer’s assets on 31 December of each year. In computing the taxable base, resident taxpayers are entitled to a general allowance of € 700,000. There is also an allowance of €300,000 for the taxpayer’s main residence.

There are exemptions for, inter alia, non-listed shares and similar interests in companies (other than portfolio or real estate management companies) in which the taxpayer holds more than 5% of the capital and a managerial function if he draws more than 50% of his total income from the company.

Spouses are taxed separately. If they are married under the community property system, the assets are generally attributed to the spouses on a 50/50 basis. If they are married under the separate property system, each asset is attributed to the appropriate owner.

The rates are :	€ 0	- 137,129.45		0.2%
	€ 137,129.45	- 334,252.88		0.3%
	€ 334,252.88	- 668,499.75		0.5%
	€ 668,499.75	- 1,336,999.51		0.9%
	€ 1,336,999.51	- 2,673,999.01		1.3%
	€ 2,673,999.01	- 5,347,998.03		1.7%
	€ 5,347,998.03	- 10,695,996.06		2.1%
	€ 10,695,996.06	- . . .		3.5%

The aggregate burden of income tax and net wealth tax due by a resident taxpayer may not exceed 60% of his total taxable income for income tax. If it exceeds that amount, the taxpayer may reduce his net wealth tax liability by the excess amount. However, a minimum tax of 20% of the net wealth tax liability, as originally calculated (before the application of the 60% rule) has to be paid.

The tax is administered and collected by the 17 autonomous communities. They can set their own tax rates and allowances (within certain limits). The communities of Madrid, and recently Andalusia, have de facto abolished the wealth tax; they apply a 0% wealth tax rate.

Non-residents only pay the wealth tax on assets located in Spain. Spanish assets are, in the first place, Spanish real estate, but also cash in a Spanish bank account, and shares of a Spanish company, etc. would also be included.

El impuesto temporal de solidaridad de las grandes fortunas

The New Solidarity Tax on Large Fortunes was introduced to counter the favourable regimes in certain communities, to make them (at least partially) less attractive.

The solidarity tax is levied on top of the existing wealth tax, and it is due by taxpayers whose net estate exceed three million euros on 31 December of the year.

Spanish residents have an allowance of €700,000 and an allowance of € 300,000 for their habitual residence, so that only residents with net wealth of more than €4 million euros will pay the solidarity tax.. Assets and rights that belonged to the taxpayer prior to the accrual date will be presumed to form part of the net assets, unless there is proof of transfer or loss of assets by the taxpayer. The tax will accrue on 31 December of each year and will affect the net assets of the taxpayer at that date.

The rates are :	€ 5,000,000	- 5,347,998.03		1.7%
	€ 5,347,998.03	- 10,695,996.06		2.1%
	€ 10,695,996.06	- . . .		3.5%

The taxpayers are the same as for the wealth tax. Spanish residents are taxed on the total of their net wealth regardless of where the assets are located, or the rights can be exercised. Non-residents only pay the tax on any the assets and rights they own if they are located, can be exercised or must be fulfilled in Spanish territory.

Taxpayers who pay the wealth tax are entitled to a credit for the regional wealth tax they paid.

This new federal wealth tax may have a significant impact depending on the wealth tax regime in their autonomous community. The solidarity tax will directly affect seven autonomous communities, either because they have a 100% tax relief or because they have lower rates. That is the case for Madrid, Andalusia, Asturias, the Balearic Islands, Cantabria, Catalonia, Galicia and Murcia. Aragon, Asturias and Catalonia have a rebate for the protected estates of people with disabilities; Catalonia has a 95% rebate for forestry properties; the Balearic Islands have a 90% rebate for cultural assets; and Galicia has a rebate for the creation of companies and the development of certain activities.

Contested

The new federal wealth tax has triggered a lot of discussion as to whether the tax is constitutional and whether it is does not infinrge the division of competences between the federal state and the autonomous regions. It is anticipated that there will be several court cases on this solidarity tax..

However, there are significant novelties, the law amends the existing wealth tax as well. The wealth tax and the solidarity tax will also be due on the shares of overseas private companies that directly or indirectly hold real estate located in Spain that is 50 per cent or more of their assets. This amendment is likely to affect many non-residents who hold Spanish real estate through non-resident companies. Until now, they were not liable to the wealth tax, as the shares in these companies could not be considered to be located in Spain.

Effect for Belgian residents

This solidarity contribution is a new form of wealth tax and under the double tax treaty between Belgium and Spain, not all Spanish assets of Belgian residents can be targeted by the Spanish solidarity contribution.

Article 22 of the treaty allows the Spanish tax authorities to charge the solidarity tax on real estate located in Spain, on a shareholding in a company that holds mainly Spanish real estate, on a substantial shareholding in a Spanish company (a shareholding is substantial if the resident holds directly or indirectly, alone or with family members or associated persons), at least 25% of the shares). Spain cannot charge the tax on bank accounts in Spain.