date | theme

8. October 2021 | Establishment in Spain: only 25% tax for German partnerships

30. December 2021 | Spain and its tax law: An overview of tax types

15. February 2022 | Taxes on the Canary Islands

17. February 2022 | Special Economic Zone ZEC in the Canary Islands

11. November 2022 | Special features in the tax law of Spain (this contribution)

Each country has its own tax law. It follows logically that each country also has certain specificities in its tax law, which are unknown in many other countries. Therefore, it is also exciting to look at such regulations abroad that are foreign to us in Germany. Therefore, this time we report on special features in the tax law of Spain. For this purpose, we will give an example of the five special features of tax registration, residency-dependent tax regimes, regional competences for tax legislation, the so-called Lex Beckham and the self-use tax.

Other countries, other taxes: With almost 200 countries in the world, to which are added other independent tax regimes, such as those on the Channel Islands, the diversity of tax regulations, globally, is almost limitless. This is really only about one thing, namely taxes, i.e. taxes that taxpayers have to pay. Of course, you can distinguish different tax types according to more than just a few criteria. But it is also obvious that every tax jurisdiction in the world develops its own ideas about how it wants to collect taxes. Therefore, in addition to a number of general characteristics, there are also a large number of peculiarities. With which we refer back to the well-known proverb borrowed at the beginning.

In this article we should be interested in the specifics of the tax law of Spain. Since many of our clients and readers are quite enthusiastic about moving there, we think it is a good idea to address some of these special features in the tax law of Spain.

With which we are basically already committing ourselves to a certain perspective from which we want to look at the specifics in the tax law of Spain. Because we are explicitly interested in which of these special regulations are particularly important for emigrants and investors from Germany. However, this consideration should by and large also include similar connections for citizens of other states, at least if one assumes from other EU member states. Nevertheless, it must always be ensured that the special features of the own state can also be relevant here. For example, Austrians face very different consequences than Germans due to the lack of an inheritance tax in their home country.

In addition, only a selection of special features in the tax law of Spain will come into the spotlight. References to the general regulations in Spanish tax law, however, can be found in a separate article.

Let’s start with a rather curious regulation from a German point of view. Unlike in Germany, for example, taxpayers in Spain do not submit a tax return. One might rightly ask how Spain’s financial administration receives the correct taxes.

The special feature of the tax law of Spain lies in the fact that in principle you are obliged to submit tax declarations. So you unsolicitedly report to the Spanish tax office all the taxes you have to pay him. This means first of all that you have to know at all whether a fact is taxable. Also important here is that you have to determine the taxes yourself. In Germany, the tax office takes over. This applies both to the annual income tax and to other types of tax. Of course, in parallel with the tax declaration, the tax calculated on this basis must also be transferred to the tax office.

So we can state that in Spain there is no separate request for a tax declaration by the tax offices. For example, if you have exceeded the filing period for income tax registration, you will receive mail from the Treasury, which immediately includes a reminder fee. But this also means that you do not regularly receive a tax assessment in Spain. Instead, you will receive a confirmation of the payment of the registered tax.

By the way, the tax declaration circumventing an assessment is not a special feature that exists only in the tax law of Spain. In fact, it also applies in the largest economy in the world, namely the USA. Further examples include Great Britain, Ireland, Italy, Canada, Poland, Czech Republic and Hungary. And even in Germany we know in some exceptional cases a tax application. Especially in the case of the wage tax registration and the sales tax pre-registration or the sales tax annual declaration one goes the same way here.

3.1.2. How the Spanish Financial Administration audits taxes

Overall, tax registration in Spain is not such a special feature. In Germany, too, taxpayers are in principle obliged to submit timely income tax returns without being requested. The special feature of the regulations in Spain's tax law is rather that the taxpayer instead of the tax office calculates the taxes. The tax office merely checks the calculations. If it finds a deviation from the actual tax, it informs the taxpayers. As a result, there is either a refund or an additional payment. The financial administration charges interest on both, as in Germany. At least here there are no special features in the tax law of Spain.

Since the Spanish tax administration does not carry out an assessment, it increasingly relies on the examination. For this reason, external examinations are more common in Spain than in Germany.

3.1.3. Option for tax arrangements: Request for binding information

One way that the Spanish tax offices use to verify tax declarations is therefore external verification. If you have previously applied a tax structure in which you are uncertain whether the financial administration accepts it, then the clarification often takes place only in the context of such an external examination. Apart from this, however, there is also the possibility of a preliminary clarification of a request for binding information in Spain. However, if you are willing to take risks, you can give it a try and submit the tax application without comment and hope that no external examination will take place. A limitation period of four years must be taken into account.

3.1.4. Implications of tax declaration for taxpayers and state

The hidden consequence of this approach to taxation in Spain is that taxpayers basically have to have the tax expertise to determine taxes correctly. In Germany, however, you only have to provide the data required for tax calculation. The actual calculation is then carried out by the tax offices.

Anyone who submits a tax application as a taxpayer in Spain without appropriate professional knowledge always risks that the calculation of the tax is too high or too low. In both cases, without verification by the tax authority, this leads to one side receiving a financial advantage over the other. A sound tax advice by tax consultants who are familiar with the specifics of the tax law of Spain is therefore a basic recommendation.

In Spain, a peculiarity with regard to tax law lies in the fact that the State has placed part of the competence for tax law in the hands of the regional administrations. For example, the regions of Spain can self-determine the real estate transfer tax and the property tax within generally specified parameters.

We also know a similar competence in Germany. Here, for example, the countries determine the level of the tax rate on the real estate transfer tax. Recently, they can also design the property tax according to their own ideas. However, the most important taxes, which form the basis for budget financing, remain firmly in the hands of the federal government in Germany.

In Spain, however, they go one step further. Here even the income tax is subject to the competence of regional authorities. This also affects the following peculiarity in the tax law of Spain.

Furthermore, two different tax regimes exist in parallel in Spain. One concerns exclusively resident taxpayers (dom tax regime); Dom comes from domiciled, so resident or resident in German) and the other is the non-dom tax regime (for all other taxpayers). While in Germany we primarily distinguish between unlimited and limited tax liability without changing the principles of taxation, Spain has taken a path that allows significantly more freedom in the different form of tax law depending on residence. For example, taxpayers subject to the non-dom tax regime have the right to choose whether to tax real estate in Spain, which is located in different regions, under national rules or under the law of the region where the largest assets are located. A person resident in Spain, on the other hand, has no such right to vote.

Coming back to the regional tax legislation competences, anyone who wants to use the right to vote in relation to property tax under the non-dom tax regime can purchase real estate in several regions of Spain where a property tax applies (for example, in the Balearic Islands). However, as long as the highest assets are located in a region where there is no property tax (for example Madrid), the remaining properties will also be spared the regional property tax.

When a Spanish football club signed the English professional footballer David Beckham, a special tax law was introduced in Spain. This allowed Beckham to benefit from preferential taxation. Because now he paid only 25% tax on his salary. At the same time, taxation in all other areas of tax law in Spain was abolished. There was also no tax on foreign income in Spain. This tax law therefore received the winged term Lex Beckham.

In the meantime, the law has been tightened. This now only applies to employees who work in Spain for at least six years on the basis of an employment contract. However, athletes are now excluded. In order to benefit from this scheme, the taxable person was exclusively resident abroad for the last ten years before moving to Spain. For this, the tax rate has even been reduced to currently 24%.

The peculiarities of tax law in Spain in this respect are, on the one hand, the flat-rate taxation of revenues arising from the activity as an employed person or from commercial activity. This means that no costs or other expenses associated with the activity can be taken into account. On the other hand, this only applies to an amount that amounts to a maximum of EUR 600,000 per year. In this way, the state intends to create tax incentives to work in Spain, especially for highly qualified specialists from abroad.

From a German point of view, the self-use tax in Spain must also have an extremely curious effect. It arises if you have more than one residence in the country. Because then you pay a self-use tax on those properties that you neither live in nor rent. However, this only applies for the period during which these conditions are met. If, for example, a second home is uninhabitable for a certain period of time, is renovated or is even still under construction, then there is no self-use tax for this period. However, in order to provide proof of this, a document from a Spanish authorities is required (for example from the building authority).

Fortunately, there is usually only a small self-use tax. The basis for taxation is the cadastral value, which roughly corresponds to the German unit value. As a rule, this is a value that corresponds to about 30-40% of the market value. By limiting the tax base to 1.1% of the cadastral value, despite a tax rate of 19% for a cadastral value of, for example, EUR 500,000, a self-use tax of only EUR 1,045 a year is incurred. However, the accounting of costs or other expenses is excluded.

Although we could only present a small part of the special features in the tax law of Spain within the framework of this article, without breaking it, it is probably clear to everyone that this proves that tax law can also be designed differently than in Germany. At the same time, however, one also realizes that some things only superficially affect us differently. For although the external form may sometimes seem strange to us, the solution introduced by the Spanish legislature for this purpose sometimes leads to similar results.

With these two statements in mind, one should therefore exercise general caution when looking at those in other countries from the perspective of German tax law. Often such comparisons miss the reality. For example, such projects must always take into account a number of other decisive factors. For example, the size of the economy is as important as the orientation of the economy. Both factors can in turn depend on geographical and other circumstances. The historical development of the respective tax law alone has a major impact on current tax laws. After all, it is rare for a country to introduce a completely newly developed tax law overnight. So anyone who looks at the special features in the tax law of Spain should always be aware of these connections.