Understanding Spanish Business Taxation
Taxation Concepts in Business
Non-Tax Income
Income which is derived from a contract between government authorities or between a public entity and a private party. Example: the sale of goods.
Fiscal Income (Taxes)
These are called taxes by law. It is classified into three categories:
Types of Fiscal Income
Taxes
Taxes are payable without any direct consideration, because there is no direct relationship between the amount paid and what use is made of tax-funded services.
Rates
These are taxes that are required in return for the provision of services by authorities to the recipient of the services. Example: Tuition fees.
Special Contributions
Taxes which are imposed as a result of the surplus value or special benefit to property, as a result of the completion of public works or establishing or expanding services. Often levied by local councils. Example: opening of streets.
The majority of revenues of public entities come from taxes, which may be:
Direct vs. Indirect Taxes
Direct Taxes
These are those which fall on the capital and income generated by taxpayers. Taxes are personal, to be paid by each citizen taking into account their special circumstances. Example: Personal Income Tax (PIT), Corporation Tax (IS), Wealth Tax (IP).
Indirect Taxes
These are those which affect the consumption of goods and services, regardless of the personal circumstances of the subject. Example: VAT, Customs Duties.
Constitutive Elements of a Tax Obligation
- Active Subject: Is the State, the Autonomous Communities, and local corporations as holders of the power to tax and demand payment.
- Passive Subject: The person required by law to declare and pay taxes.
- Taxable Event: The General Tax Law (LGT) defines it as the budget and economy of legal nature established by law to set each tax and whose conduct causes the birth of the tax liability to Public Finance at the taxpayer’s expense.
- Accrual: This is the moment that the taxable event occurs and at which the tax obligation is born.
Personal Income Tax (PIT)
Concept of PIT
A personal and direct tax which taxes, according to principles of equality, generality, and progressivity, the income of individuals according to their personal and family circumstances.
Features of PIT
- Direct: Charged on income of a period, normally one year.
- Personal: The law only regulates the assumption of liability. Rests on a specific person.
- Considers personal and family circumstances: For example, if the taxpayer is part of a family unit with favorable tax treatment.
- Progressive: Income achieved by each taxpayer is subject to an increasing tax rate; the more income, the more tax is paid.
- Applied throughout the Spanish territory: It is in force throughout the Spanish territory, although the Basque Country (PV) and the Autonomous Community of Navarre have a special statutory scheme.
Elements of PIT
- Passive Subject: Which is the natural person receiving income in an amount sufficient to be subject to tax. This person has income.
- Active Subject: The state.
- Taxable Event: The collection of income as defined by law.
Corporation Tax (IS)
Concept of Corporation Tax
Taxes the income of companies and other legal entities not subject to Personal Income Tax, and is applied throughout the Spanish territory.
Elements of Corporation Tax
- Passive Subjects: All types of entities, of any denomination whatsoever, provided they have legal personality, except civil societies.
- Taxable Event: The collection of income.
- Active Subject: The state.
- Tax Rate: Generally 30%. In the Basque Country (PV) and Navarre, it is 28%.
- Accrual: Corporation Tax is accrued on December 31st each year. The normal tax period coincides with the annual financial year.
- Filing Deadline: The submission of the tax return must be made within 25 calendar days to 6 months after the end of the tax period. If paid in installments, payments are due within the first 20 calendar days of April, October, and December.