Spanish Government announces tax measures effective 2023

On 6 October 2022, the Spanish government approved the draft of the 2023 Budget Act (“the 2023 Budget”), which includes several tax measures. The most relevant measures are summarized below.

Personal Income Tax

The Spanish Government proposes to increase the tax rates applicable to “savings income”(eg. dividends, interest and capital gains) establishing a new 27% rate for income between EUR200,000 and EUR300,000 and a new 28% rate for income exceeding this threshold.

In addition, taxpayers will not be obliged to file their tax return when obtaining salaries below EUR15,000 (currently EUR14,000) and the effective tax rates will be reduced for salaries below EUR19,747.50.

Corporate Income Tax

The 2023 Budget reduces the tax rate from 25% to 23% for taxpayers with a net turnover in the last tax year below EUR1 million, excluding entities forming part of a mercantile group and passive holding companies.

It also introduces a tax regime for the Balearic Islands for tax periods 2023 to 2028, including (i) a deduction on the taxable base for investments made in the territory of the Balearic Islands, capped at 90% of the non-distributed profits obtained by establishments located in such territory, and (ii) a reduction of the tax quota for the sale of certain goods produced in the Balearic Islands by taxpayers resident or acting through a permanent establishment in such territory.

Value Added Tax (VAT)

The Spanish Government proposes to limit the scope of services falling under the current so called “use and enjoyment rule”. According to this rule, certain services provided to a customer established in a non-European Union State are deemed to be located in Spain and thus subject to Spanish VAT when such services are actually used and enjoyed in Spanish VAT territory. As from 2023 this rule would not apply except in the following situations:

• Services listed in article 69. Two of the VAT Law (eg. legal services and transfer of intangible assets, etc.) provided to recipients, who are not entrepreneurs or professionals.
• Insurance, reinsurance and capitalization services, as well as the financial services, referred to in article 20. One.16º and 18º respectively of the VAT Law, including those services which are not exempt, excluding the leasing of safe deposit boxes" provided to recipients entrepreneurs or professionals.
• Leasing of means of transport.

The Budget eliminates the reverse charge mechanism on the following services rendered by non-established in Spain entrepreneurs: (i) leasing of immovable property subject to and not exempt from VAT, and (ii) intermediation in the leasing of immovable property.

In addition, the Spanish Government proposes to allow more flexibility in order to recover VAT related to bad debt.

Municipal Tax on the Increase in Value of Urban Land

The Budget updates the coefficients to calculate the tax under the objective method. The municipalities should amend their regulations accordingly to address these changes and reduce their coefficients when higher.

Other tax measures announced

Although no legislative text is published yet, the Minister of Finance has announced to the press the introduction of a temporary “solidarity” Wealth Tax for years 2023 and 2024. This tax would be levied on individuals with net assets (assets – liabilities) worth EUR3 million at the following rates:

• 1.7% for wealth from EUR3 million to EUR5 million.
• 2.1% for wealth from EUR5 million to EUR10 million.
• 3.5% for wealth exceeding EUR10 million.

In order to avoid double taxation, the amount paid under the current regional Wealth Tax would be creditable against the new “Solidarity” Wealth Tax.

In addition, the Spanish Government also announced its plan to limit during tax periods 2023 and 2024 the offsetting of tax losses within entities forming part of a consolidated group at a 50% of their amount.

Key takeaways

The 2023 Budget will be sent to the Congress for debate and approval. If the Spanish Government obtains greenlight on the 2023 Budget, it is expected that these measures will go into effect on 1 January 2023.

It would be advisable to review the VAT treatment of the transactions formerly falling under the use and enjoyment rule and the reverse charge mechanism in order to assess the potential impacts.

Measures announced for tax groups may have a substantial impact so we recommend to follow-up on the changes announced and assess potential tax implications.

In addition, individuals currently benefiting from a 100% Wealth Tax exemption under regional rules (such as the Madrid region rules), should review the impact of the new “Solidarity” Wealth Tax.