Business Activity Tax in Spain: Exemptions and Calculation
Exemptions to the Business Activity Tax (IAE)
Law 51/2002 introduced a broad scope of exemptions to the Business Activity Tax (IAE). These exemptions apply to:
- All individuals carrying out an economic activity.
- Resident companies with a turnover of less than one million euros are also exempt.
Turnover essentially refers to sales activity. There are also exemptions for the first two years of starting any activity. Additionally, there is a 50% bonus for the five years following the first two years; this is mandatory for the City Council regarding professional activities.
Finally, there is a bonus of up to 50% for five years after the first two years, which is voluntary for the City Council regarding all business activities.
Determination of the Business Activity Tax
A legislative decree of 1990, with subsequent amendments, sets the tax collection rates. This includes a long list of economic activities arranged by headings and subheadings. Rates define the content of the activity, and fees are determined by tax items such as the number of workers, installed capacity, electricity consumption, etc.
Some activities have a state-defined fee. Certain activities also have a local surface element. The determination of the fee is analogous to an objective assessment based on parameters such as the number of workers and the installed capacity, including:
- Minimum Fee: Derived from municipal rates.
- Weighting Factor: A mandatory factor (for municipalities to use) based on turnover. The minimum ratio is 1.29, and the maximum is 1.35. This ratio is multiplied by the minimum fee.
- Situation Coefficient: This coefficient can be set by municipalities (not required) depending on the category of the street where the premises are located. The minimum ratio is 0.4, and the maximum is 3.8. There may be up to nine categories of roads.
Example:
- Minimum Fee: 100
- Weighting Coefficient: 1.30
- Situation Coefficient: 1.5
- Tax Rate: 100 x 1.30 (Weighting Coefficient) = 130; 130 x 1.5 (Situation Coefficient) = 195
Provincial and national quotas are expected for activities that take place in several municipalities within the province and for activities carried out in several provinces.
In these cases, the situation ratio does not apply. The settlement of provincial and national dues is the responsibility of the Tax Agency.
Application and Management of the IAE
The IAE is managed through a census and registration, and collection is done by receipt. Regarding the declaration, the taxpayer has the duty to register, communicating to the management the information necessary for them to settle.
Regarding the census and registration, census management is the responsibility of the State Tax Agency. The census includes all taxpayers. The amendment requires notification of the taxpayer census.
The enrollment refers to the municipality and contains the activities, subjects, and minimum payments. Against acts of census management of the tax, claims can be made to the economic courts of the State administrative.
Regarding the settlement, the authority to settle and collect municipal fees applies to the City Council where the activity takes place. The City Council practices clearance from the registration tax. Against the settlement made by the City Council, an appeal for reinstatement can be made to the City Council.