Census Declaration & Business Taxes: IAE, Income Tax
Census Declaration & Tax Obligations
The census declaration serves several functions. For instance, it allows legal entities to apply for a Tax Identification Number (TIN). It also informs the tax office about all economic activities, impacting taxes such as the Economic Activity Tax (IAE), Income Tax, Individual Income Tax, and Value Added Tax (VAT).
Personal Income Tax & Census Declaration
Estimating Business Activity Yields
Yields can typically be determined objectively by applying specific rates or modules. For income tax, objective and simplified criteria are established to estimate business activity yields. Businesses calculate their taxable income using the objective assessment method, based on signs, indices, or modules.
Companies interested in this assessment scheme must opt out to switch to the direct estimation system, which can be normal or reduced. While this simplifies the company’s registration obligations, it can disadvantage the company in certain cases, potentially leading to a higher tax rate. One can always choose the normal direct estimation method for this tax.
For a new company, the employer must decide the desired estimation method. If your company is under objective assessment and you wish to opt out, you must declare this in the statement of commencement of census activity.
Economic Activity Tax (IAE) Essentials
IAE Characteristics & Governing Rules
The Economic Activity Tax (IAE) is a local tax established by the Law Regulating Local Treasuries. Although a municipal tax, some management aspects fall under the State Treasury. Tax rates and application instructions are governed by lower-ranking rules.
All taxes, as instruments of public finance, are subject to changes that are part of the normal evolution of any country’s tax system. This implies a continuous need for updates and adjustments to tax regulations.
Key Concepts of Economic Activity Tax
Taxable Event Defined
The taxable event is the mere exercise of a business, professional, or artistic activity. For the purposes of this tax, business, agricultural, livestock, forestry, fishing, industrial, commercial, and mining services are considered activities.
The following activities are exempt and not considered taxable events:
- The sale of goods for private use by a private seller, provided they have been used for more than two years.
- The sale of goods received in payment for work or services.
- Retail sales conducted as an isolated, single transaction.
IAE Exemptions
Exempt from this tax are the state and public administration agencies (state, regional, and local), public research bodies, public or private non-profit educational institutions, and charitable entities such as the Spanish Red Cross.
Taxable Persons for IAE
Natural or legal persons performing any of the activities that constitute the taxable event.
IAE Tax Liability
This refers to the method for applying tax rates to determine the final tax amount.
IAE Tax Reductions & Incentives
This tax provides a series of reductions and incentives for companies, which vary according to economic policy needs. These are primarily designed to favor cooperative legal forms, assist business start-ups in their initial years (after the first two-year exemption period), and foster job creation.
Tax Period & Accrual for IAE
The tax period coincides with the calendar year, except for the year of commencement of activity, which is understood to run from the start date until the end of the year.
IAE Registration Requirements
Taxable persons exempt from the IAE do not need to register for it.
IAE Tax Management Process
Tax management is carried out through the tax register. This register is formed annually for each municipality and includes the census of activities, indicating the minimum taxable contributions and applicable provincial surcharges.