UPDATED: 29th January 2021
This is perhaps the topic that creates the most confusion and misinformation among expats. In the article below, we aim to provide a basic explanation of the main taxes that resident and non-resident visitors or expats are likely to come across in Spain.
- Income Tax (Resident & Non-Resident)
- Inheritance & Gift Tax
- IGIC (VAT or Sales Tax)
- Stamp Duty / Transfer Tax
- Capital Gains Tax
- Council Tax / Rates / Property Tax
- Motor Vehicle Road Tax
- Plus Valia (Town Hall Tax on the Sale of a Property)
- Corporate Tax on Limited Companies
- ZEC Zone Business Tax Reduction Scheme
1. INCOME TAX – (RESIDENT AND NON-RESIDENT)
Do you personally need to file a tax return and if so, which type?
Are you Resident or Non-Resident for tax purposes?
The starting point is to identify whether you are RESIDENT or NON-RESIDENT in Spain for tax purposes, as each requires an entirely different tax return.
The official rule is that anyone who spends more than a total of 182 days in Spain per calendar/tax year (whether in one single continuous period or spread across several visits through the year) is legally classed as RESIDENT and should technically declare their tax affairs accordingly.
However, registering as a ‘RESIDENT’ in Spain and obtaining your small green Residencia card or new T.I.E. card at a Police Station doesn’t automatically register you as a TAX RESIDENT with the tax office, nor do those two departments tend to exchange that information without an express request or legal reason. Failing to actively register with the tax office as fully resident after registering at the police station is a common omission.
The downside of not registering is that if you subsequently seek any benefit, exemption or special tax rate that is only available to ‘residents’, you can bet that the taxman will treat you as ‘non-resident’ and exclude you from the benefit or exemption that you are trying to secure. As an example, non-residents (and those who fail to register as ‘tax resident’) are subject to a 3% retention from the sale proceeds when selling any property in Spain, which is paid directly to the tax office on account of Capital Gains Tax. However, ‘tax residents’ are not subject to any such retention.
Many expats do not register themselves as resident for tax purposes for different reasons. Perhaps they don’t know how to register or are baffled by the bureaucracy. Or perhaps they would prefer to stay as ‘non-resident’ in order save tax.
However, those who wrongly register (or who fail to register at all) are increasingly likely to be discovered, which can lead to penalties and interest for not filing a correct (or any) tax return on time. The taxman can claim unpaid back taxes for up to 4 tax years, so anybody caught in 2019 who has declared incorrectly for over 4 years will have to correct their affairs all the way back to the 2014 tax year.
So how can the taxman find out that you have wrongly declared? Spanish Banks are a common source of the information. They are now required to periodically write to customers who hold ‘non-resident’ accounts to require up-to-date proof of their non-resident tax status (e.g. a recent P60 Employment Tax Slip or Pension paperwork from the country of actual residence, or a self-employment tax return). Those who cannot or do not provide this information not only risk having their account frozen, but the bank will most certainly inform the Spanish tax office of the failure to disclose the information.
Implications of tax residency
The biggest implication that some expats fail to consider is that if you are legally a tax resident in Spain, then you must file an annual tax return declaring your worldwide tax affairs (i.e. your worldwide income, capital gains etc) for the previous year. Conversely, those who are permanently resident in the UK or other EU countries must obviously declare their worldwide tax affairs in that country instead.
So what happens when you have tax interests in two or more countries? Well fortunately the UK and all EU countries have tax treaties in place covering all major taxes (income, capital gains, inheritance) whereby any tax you pay in the ‘non-resident’ country can be reclaimed/offset against any corresponding tax you have to pay in your home country of residence. This essentially means that you don’t have to pay twice.
There are however exceptions to this rule and your home country will only credit you UP TO the amount you are liable to pay in the home country. So, if you are resident in the UK and pay tax on a Spanish asset or income, the UK taxman will only credit you the foreign tax paid UP TO the amount of UK tax you have to pay on that Spanish asset or income. So if the Spanish tax was higher than the corresponding UK tax, you will only receive a UK credit for the lower amount.
Do your financial circumstances require you to file either a Resident or Non-Resident Spanish tax return?
Spanish tax residents must file a tax return in Spain if any of the following apply:
- Your worldwide employment income exceeds €22,000 in the relevant tax year;
- You own a property that is not your main residence;
- You are self employed or run your own business anywhere in the world;
- You receive property rental income of more than €1,000 per year worldwide;
- You own a 2nd property (in Spain or overseas) that is not your main home;
- You have Capital Gains or Savings Income of more than €1,600 per year worldwide;
- You have changed jobs within the last year and received €1,500 or more from old company;
- It’s your first year declaring tax residency in Spain.
One exception is where you have 2 separate jobs for different
employers, in which case you must file a tax return if you earn more
than a combined total of €11,200 net.
Your tax figure for the above calculations is the net figure after
deducting social security payments, pension contributions, personal
allowances and accountant/professional costs.
In addition, you must declare all assets outside of Spain that are each individually worth €50,000 or more.
Non-Residents in Spain must file a tax return in Spain if:
- You own a property in Spain that is not your main private home year-round;
- Your Spanish based income exceeds €22,000 per tax year;
- You are self-employed or run your own business in Spain;
- You receive property rental income of more than €1,000 per year in Spain;
- You have Capital Gains or Savings Income of more than €1,600 in Spain.
So what is the rule for non-residents who spend less than half of the
year in Spain but who own one or more properties here in Spain? In this
instance, a Non-Resident Tax Return MUST be filed, regardless of
whether you actually rent out any such property. This is often referred
to among expats as the ‘non-letting tax’.
In Tenerife, it is basically a case of ‘guilty even where proven
innocent’. Following decades of non-residents failing to declare rental
income on their holiday homes, the taxman introduced a universal tax
rule whereby everybody is deemed to have earned a notional 2% income
return on their property, regardless of whether they actually rented it
out or not.
That notional 2% income return is calculated on the Town Hall
‘Catastral’ (i.e. Council Tax or Rateable) value of the property, which
is typically slightly lower than the actual market value. This figure
can be found on any IBI (Council Tax) receipt. Once the Catastral
property value is determined, a 2% income is then calculated on that
figure. You must pay income tax on that 2% income amount. The tax rate
is a flat 24%.
For 2021, the applicable income tax bands are as follows:
Up to €12,450 – 19%
€12,450 – €20,200 – 24%
€20,200 – €35,200 – 30%
€35,200 – €60,000 – 37%
More than €60,000 – 45%
However, the above figures are approximate ready-reckoners. Precise
tax figures and allowances vary from region to region and should be
calculated based on personal circumstances.
The deadline for filing all personal Income Tax returns in Spain is
by 30th June each year, e.g. for the tax year 2018 which ended 31st
December 2018, the deadline for filing your tax return is 30th June
As mentioned in more detail above, Spain and most other countries
have double-taxation treaties, meaning that tax you pay in the
non-resident country can be reclaimed against corresponding tax paid in
the home country (subject to limits and conditions), meaning that you
don’t pay twice on the same income or asset.
2. INHERITANCE & GIFT TAX
As the old saying goes, the only things certain in life are Death & Taxes. Inheritance tax aims to combine the two in order to take a chunk of your hard-earned life savings.
Unlike in countries like the UK and Ireland, Spain applies and calculated Inheritance Tax (IHT) for each separate beneficiary based on the gift they have received, plus depending on their personal circumstances. For example, if two sons inherit equal amounts but one is already a millionaire whilst the other is poor, they could end up paying entirely different rates of IHT on gifts they receive. Spain also charges Gift Tax (almost identical to IHT) on gifts received during the donor’s lifetime and there is no direct exemption for this tax (such as the UK’s 7 year PET rule).
The percentage of IHT payable on any gift or inheritance received is calculated using a fairly complicated formula that is based on A) age of the beneficiary B) Category of relationship to the deceased and C) Existing personal wealth of the beneficiary. There is also an IHT discount scheme exclusively for the Canary Islands (explained below).
The Tenerife taxman will demand IHT on any lifetime gifted or inherited assets that are situated in Spain (e.g. a property or a bank account) regardless of the location of the beneficiary, or alternatively on all gifts or inheritances worldwide if the beneficiary is a Spanish resident. Unmarried couples are not treated like married couples/spouses for IHT purposes in Tenerife UNLESS they have already registered at their local Town Hall as a pareja de hecho (‘common law couple’) and were living together immediately prior to the date of death.
CALCULATING INHERITANCE TAX PAYABLE – STEP BY STEP GUIDE
We must first ascertain the category of relationship of the beneficiary, which will determine if that beneficiary is entitled to a tax-free allowance. Beneficiaries are split into four groups:
- Group I: direct children (including adopted) under 21 years get an allowance of €47,859.
- Group II: direct children (including adopted) older than 21, grandchildren, spouses and parents/grandparents (including adoptive) get an allowance of €15,957. Tenerife also recognises unmarried partners registered as parejas de hecho.
- Group III: siblings, aunts and uncles, nieces and nephews, in-laws and their ascendants/descendants get an allowance of €7,993.
- Group IV: cousins, all other relatives, unmarried partners and those unrelated get no allowance.
- Those with disabilities are entitled to an allowance of either €47,859 or €50,253 depending on the extent of the disability.
After deduction of any applicable tax-free allowance, inheritance tax rates are calculated on the remaining balance of the inherited amount as follows:
- Remaining Inheritance up to €7,993: 7.65%
- €7,993–€31,956: 7.65 to 10.2%
- €31,956–€79,881: 10.2 to 15.3%
- €79,881–€239,389: 15.3 to 21.25%
- €239,389–€398,778: 25.5%
- €398,778–€797,555: 29.75%
- €797,555+: 34%
The percentage figure reached at stage 2 above must then be multiplied by the applicable number from the table below, depending on the existing personal wealth of the beneficiary:
|Pre-existing wealth €||Groups 1 & II||Group III||Group IV|
|€0 – €402,678||1.0000||1.5882||2.0000|
|€402,678 – €2,007,380||1.0500||1.6676||2.1000|
|€2,007,380 – €4,020,771||1.1000||1.7471||2.2000|
|Over €4,020,771 1.2000||1.2000||1.9059||2.4000|
So, for any beneficiary from Group I or II who is already worth less than €402,678, the multiplier is “1”, meaning that their IHT calculation is not subject to any adjustment. However, at the other end of the scale, anybody from Group IV who is already worth in excess of €4 million must multiply their starting IHT tax rate by a whopping x2.4 when calculating the amount payable.
This final percentage can then be used to calculate the IHT payable on the net estate (i.e. net after remembering to deduct any applicable personal allowance).
Finally, for those also eligible for the Canarian IHT Discount, you first take the provisional tax figure at Step 3 above and then apply the Canarian IHT discount (where applicable). The discount works as follows:
N.B. In Spain, Inheritance Tax is payable by each beneficiary on the gift that they receive, as opposed to being calculated on the whole estate of the deceased like in other countries (e.g. UK).
The Canarian discount applies to all Inheritance Tax or Lifetime Gift Tax (notarised gifts) payable in 2 scenarios:
a) by a beneficiary who is registered as tax-resident in the Canary Islands who receives any taxable gift or bequeath anywhere worldwide;
b) by a beneficiary who is non-tax-resident in Canaries/Spain but who receives a gift/bequeath located in the Canary Islands.
The discount is calculated as follows:
Group 1 Beneficiaries – Direct or adopted children / grand-children under 21 years old
This group continues to enjoy a 99.9% discount calculated on the total tax payable at Stage 3 above (lifetime and inheritance gifts received).
Group 2 Beneficiaries – Direct or adopted children / grand-children over 21, plus Parents & Spouses
Beneficiaries from this group receive a 99.9% discount on the first €55,000 of total tax calculated under Stage 3 above (death inheritances or notarised lifetime gifts). Above €55,000, any remaining Stage 3 tax receives a sliding-scale discount in increments.
Stage 3 Tax Subtotal Discount to Apply
€55,000 – 65,000 – 90% discount
€65,000 – €95,000 – 80% discount
€95,000 – €125,000 – 70% discount
€125,000 – €155,000 – 60% discount
€155,000 – €185,000 – 50% discount
€185,000 – €210,000 – 40% discount
€215,000 – €245,000 – 30% discount
€245,000 – €275,000 – 20% discount
€275,000 – €305,000 – 10% discount
More than €305,000 – No discount
To clarify, the Canarian Discount above is calculated on the TAX SUBTOTAL that would otherwise be payable at Stage 3 above. It is NOT calculated on the amount of assets the beneficiary receives.
So as an example, if a beneficiary receives assets upon which the total tax calculated at Stage 3 above comes to €100,000, then their Canarian Discount will be calculated as follows:
a) On the first €55,000 – 99.9% discount
b) On the next €10,000 (i.e. the €55,000 to €65,000 band) – 90% discount
c) On the next €30,000 (i.e. the €65,000 to €95,000 band) – 80% discount
d) Finally, on the last €5,000 (i.e. the €95,000 – €125,000 band) – 70% discount.
Group 3 Beneficiaries – siblings, cousins, nieces/nephews, in-laws & Step-children
Beneficiaries in this group enjoy the same sliding-scale discounts as Group 2 above but ONLY for death inheritances. For lifetime gifts they will receive NO discount on any amount.
Beneficiaries from any more distant category of relationship beyond Group 3 (including non-relatives), are NOT eligible for any Canarian Discount.
Deadline for declaring and paying IHT
Under Spanish tax rules, a beneficiary is required to file an inheritance tax or gift tax return within 6 months of the date of accruing a gift (i.e. 6 months from the date of death or date of notarised gift). Late declarations/payments will attract modest penalty interest.
Under Spanish tax laws generally, there is a 4 and a half year deadline for the taxman to secure rights to the tax owed. This means that either the taxpayer alerts the taxman by filing a tax return/payment for any given tax within the requisite 4 and a half year period, or the taxman otherwise becomes aware of the taxable event and writes to the taxpayer prior to the expiry of the said deadline demanding an assessment of the tax.
So, if no tax return is filed and no notification has been sent by the taxman prior to the deadline, then the tax lapses by law and the taxpayer gets away Scot-free. Wisened expats, plus nearly all Canarian residents, are all acutely aware of this rule and many try to avoid notifying the authorities of a death in the hope that the 4 years elapses without receiving a notification. This is particularly common where a death occurred overseas. Naturally, Tenerife Guru does not endorse this type of tax avoidance / tax evasion. It should also be noted that if you are caught within the 4 years, late-payment interest will be added to the tax owing.
Spanish authorities will not permit the release of estate assets until all Spanish inheritance tax has been paid in full. In exceptional cases, it may be possible to sell a property simultaneously with the probate completion, for instance where the sale of the deceased’s property is the only way to raise the inheritance tax owing. However, expert legal advice should be obtained in such instances as the procedure can be complicated.
Beneficiaries have six months from the date of death to file an Inheritance Tax return and to pay the tax, but can claim a one-time extension of an additional six months or to pay in instalments.
3. IGIC SALES TAX (VAT)
Most countries in the world impose a sales or turnover tax upon business transactions. In the UK and Ireland this is called V.A.T. (Value Added Tax). In mainland Spain and the Balearics it is called IVA (Impuesto sobre el Valor Añadido). However, as the Canary Islands are an autonomous region, they have their own separate sales tax called I.G.I.C. (Impuesto General Indirecto Canario).
This works broadly in a similar way to most sales taxes around the world. IGIC is on average much lower than most comparable sales taxes around the world.
- The general rate of IGIC continues at 7%.
- Commercial electricity bills and tourist/recreational travel (air & maritime) services now attract 3% IGIC. However, household electricity supplies remain 0% rated.
- Telecommunications services (phone bills etc) stay at 7%.
- Special IGIC tax rate (for luxury goods etc) from the current stays at 15%.
- Canned fish products have now risen from 0% to 3% IGIC rate.
The IGIC bands therefore now apply as follows:
0% band (Tipo Cero) – water supplies; the sale of sanitary and veterinary products; books, newspapers and magazines; officially protected housing works; deliveries of certain foods; hybrid electric vehicles (which produce below 110g CO2 per km); scooters + electric scooters;
3% band (Tipo Reducido) – Mining industry; Chemical industry; Textile sector; Wood industry; Paper industry; Ground Transportation; Vehicle repair. Non-commercial air and maritime travel services;
7% band (Tipo General) – general goods and services not specified elsewhere here.
9.5% band (Tipo Incrementado) – Import/sale of basic types of vehicles or transportation devices.
15% band (Tipo Especial Incrementado) – Import/sale of luxury/powerful vehicles, cigars (costing over €1.80 each), alcoholic beverages, jewellery, fur and perfume products.
20% band (Tipo Especial) – Production of Black Tobacco (but 35% for Blonde Tobacco).
Meanwhile, the following activities/products continue to be exempt from IGIC:
postal services, healthcare, blood deliveries, social assistance services, education, services provided by sports associations, cultural companies, insurance and reinsurance, financial operations, small retail trading.
Self-employed individuals (Autonomo) do not have to charge IGIC on products and services provided they do not exceed an annual turnover of €30,000. However, they may optionally elect to charge IGIC if they prefer. This exemption does not apply to unlimited partnerships (‘comunidad de bienes’).
4. TRANSFER TAX / STAMP DUTY (Impuestos de Transmissiones Patrimoniales)
This tax applies to the transfer or transmission of title in certain assets from one person to another. It commonly applies to the transfer of land and property and company shares (which is often called ‘Stamp Duty’). However, in Tenerife, this tax is also imposed on the resale of a second-hand vehicle.
The tax is payable on the declared contract value (or the government tables official value, whichever is the greater), regardless of whether money actually changes hands in the transaction. The tax is legally payable by the person who acquires the asset in question (e.g. a buyer or recipient).
Rates for the most common transactions include:
Transfer of a second-hand vehicle – 5.5% (vehicles up to 10 years old – sliding fixed fees thereafter)
Transfer of Real Estate and Land – 6.5%
Options to buy Real Estate/Land – 1%
Transfer of Real Estate at Auction – 7%
Transfer of Shares etc – Sliding Scale
Transfer of Loans/Pensions/Bonds – 1%
Please note that since the financial crisis that hit in 2007, the taxman has been rather reluctant to accept that real-estate property prices for less desirable properties substantially plummeted. The result is that when you buy a property, the taxman may well send you an ‘assessment’ within approximately 5 years of completion of a property transaction. The assessments essentially allege that the declared value was too low and suggest what is the correct figure that should have been inserted.
Naturally, such assessments do a good job of catching those who deliberately under-declare the property value in order to pay less capital gains tax upon the sale. However, given that the capital gains tax is payable by the seller and the transfer tax is payable by the buyer, buyers today have very little incentive to mess around with under-declared prices. In such instances, they are still likely to receive an ‘assessment’ and are also just deferring a potentially even bigger capital gains tax bill for when they ultimately sell the property themselves in the future.
The assessments do however tend to unfairly penalise those who have genuinely obtained a ‘bargain’ or who have paid under the odds due to other criteria (squatters, subsidence, planning problems etc).
If you have genuinely obtained a property for the originally declared price, you are perfectly within your rights to challenge the ‘assessment’. However, the cost of hiring an accountant and/or lawyer to properly present your challenge and to follow it up to a satisfactory conclusion could end up costing more than the small difference between the original 6.5% tax calculation and the 6.5% assessed tax on the slightly higher ‘assessment’ amount. As such, unless the amount is huge, most accountants recommend simply paying the extra tax and avoiding the risk of ending up in the taxman’s ‘little black book’ for years to come.
One other option to avoid the above problem is to get your lawyer to ask for an Official Tax Office Valuation at the time you purchase the property. However, this can be a two-edged sword. You might get lucky and find the valuation to be lower than what you were previously planning to declare. However, if the amount is higher, you are essentially stuck with that amount and will definitely receive an ‘assessment’ if you declare any lower amount upon the purchase. The other downside is that obtaining an official valuation can take up to 8 weeks, which could cause problems where the parties are waiting to complete on a property transaction.
5. CAPITAL GAINS TAX
Many foreigners in Tenerife are confused by this tax, particularly when selling a property. CGT (Impuesto sobre Incremento de Patrimonio de la Venta de un Bien Inmeuble) depends on the date of the initial purchase of the property, its value at the purchase and sale dates, plus deductions allowances for certain expenses (e.g. notary and lawyer’s fees) and certain home improvements.
Once the above factors are taken into account, the applicable tax rate is calculated on the net benefit as follows:
For Non-Residents (i.e. non tax-residents in Spain), the flat rate for Capital Gains Tax is 19%.
However, for registered tax residents in Spain, the following sliding scale applies:
- Up to 6.000 Euros – 19%.
- From 6.000 to 50.000 Euros – 21%.
- From 50.000 Euros and upwards – 23%.
Tax residents in Spain (i.e. those filing resident tax returns) are however granted reinvestment relief on their principal private residence once they have lived in it for 3 or more years. If they buy another property using the proceeds of sale, and provided that the new property is purchased within two years of the said sale, they will get CGT relief. The reinvestment relief is calculated on the amount of the sale proceeds that are reinvested in the new property. So, if the purchase price of the new property is greater than the sale price of the old property, the sale is completely exempt from CGT.
For those who downsize and, for example, spend 50% of the sale proceeds on a new property, then that 50% is all that will be exempt. However, if there is a mortgage to be paid off with the proceeds, the calculation is based on the amount left over as capital once the mortgage is cleared.
To be entitled to this relief, the capital gain and the intention to reinvest some or all of the proceeds must be declared at the time of sale. Spanish Residents over 65 who sell their main home that they have lived for more than three years will be completely exempt from CGT, regardless of whether they intend to reinvest.
There are also reductions available for Spanish residents who acquired property on or before 31st December 1994. However, this only applies to assets valued at no more than 400,000 Euros at the date of sale or disposal.
The reduction only applies to the gain accumulated up to 20th January 2006 in the following percentages:
- 11,11% in real estate.
- 25% in shares.
- 14,28% for all other items.
The rules are slightly different for non-residents. When a non-resident sells a property, he or she is required to leave a 3% retention at the point of signing, as a deposit towards any potential CGT payable. This 3% non-resident retention is withheld by the buyer and paid directly to the tax office. The seller than has a 3 month deadline to file a full CGT return in respect of the sale, at which point, if no CGT was actually payable, then a refund of the 3% already paid can be requested. However, if the actual CGT owing is greater than the 3% paid, then the remaining balance owing must then also be paid on top.
N.B. The above Capital Gains Tax (Impuesto sobre Incremento de Patrimonio de la Venta de un Bien Inmeuble) is NOT to be confused with ‘Plus Valia’, which is an entirely separate tax that also accrues upon the sale of a property. Plus Valia is charged by the local Town Hall (Ayuntamiento) for the property, based on the years of ownership and the notional increase in value of the land (using the IBI Council Tax yearly valuations).
For more information on Plus Valia, including recent Court cases on the subject, click HERE.
6. COUNCIL TAX / PROPERTY TAX / RATES
All residential and commercial properties in Tenerife must pay an annual tax known as ‘IBI’ (Impuesto sobre Bienes Inmuebles).The tax is calculated for each calendar year, but is payable between 1st May and 15th July in the following year.
The calculation is based on complicated formulae used by the Town Halls based on location, square meterage of plot and buildings, plus facilities such as garages, swimming pools etc.
When purchasing a property, it is essential that you register the property in your name at the Ayuntamiento’s ‘Catastral Office’. It is also highly recommended to set up a direct debit, to avoid the possibility of missing a payment notification and ending up with a late payment penalty or interest.
Rates vary considerably from property to property and from Town Hall to Town Hall, but as a very rough guide, annual IBI in Euros for an apartment should be somewhere in the low hundreds whilst for a 3 bed villa should be in the high hundreds.
In addition to IBI, each property must also pay a smaller subscription towards ‘Basura’ (Rubbish collections’). This is substantially lower than IBI and will typically range from €30 to €100 per annum.
7. MOTOR VEHICLE ROAD TAX (Impuestos sobre Vehiculos de Motor)
All vehicles circulating on public roads in Spain are required to pay Road Tax (“Impuesto sobre Vehículos de Tracción Mecánica (IVTM)”)
Road Tax is paid to the Town Hall (Ayuntamiento) for the address where the vehicle is registered. Registered owners are therefore legally required to update any change of address with their local Traffic Office (‘Jefatura Provincial de Trafico’) to make sure Road Tax is paid to the correct borough.
Road Tax is payable once each year. It is calculated from 1st January, so the legal registered owner of the vehicle at that date is the one responsible for paying the Road Tax.
Any vehicle that is removed from circulation on public roads temporarily or permanently (‘baja definitiva / baja temporal‘) will not pay Road Tax for any period in which the vehicle was off the road. Brand new vehicles will also pay an adjusted rate ‘pro rata’. Certain Public Service Vehicles, Diplomatic vehicles and vehicles over 25 years old are exempt from paying Road Tax.
How is Road Tax calculated?
The amount of Road Tax payable is set by each Town Hall, which must be within the minimum and maximum amounts set by the Spanish government. The price is based upon the vehicle’s horsepower (‘potencia fiscal’) and the type of vehicle. Hybrid and Electric vehicles receive a discount of up to 75%. Vehicles with environmentally friendly modifications may also receive a discount.
How to pay Road Tax
Road Tax is payable once a year. Each Town Hall sets its own payment period, which lasts for 2 months. The deadline is usually well publicised in the local press and even on billboards in the borough. Some, but not all, Town Halls send out notifications by post. You can pay in person at the Town Hall, at certain banks, or direct debit. Some Town Halls are now introducing online payment systems via their website.
When paying in person at your local Town Hall, you will need to bring the following documentation:
- Proof of identity (Passport plus NIE or CIF number)
- Car registration document (Permiso de Circulacion)
- Technical certificate (Certificado de Características Técnicas)
If you fail to pay Road Tax within the designated payment period, late payment charges and 5% interest will accrue. If payment is not made within 1 year, the interest rate increases to 20%. However, Town Halls have discretion to discount this amount depending on the circumstances.
Please note that in order to sell a vehicle and have it legally transferred on the vehicle register, the Road Tax must be fully paid up to date. Buyers should therefore request proof of payment of this tax before completing the purchase of a vehicle.
8. PLUS VALIA TAX (Town Hall Tax on the sale of a Property
Plus Valia is a property tax that is paid when a property is sold, transferred or bequeathed, which supposedly reflects an increase in the value of the land. However, this tax is entirely separate to Capital Gains Tax. Payable to the local Town Hall for the borough in which the property is registered, Plus Valia is calculated upon the number of years the property has been held – and then factoring in the rateable value of the property (same formula used in calculating the annual “IBI” Council Property Tax).
Plus Valia Tax is always the legal responsibility of the seller or transferor, on the basis that they are the one who has enjoyed and benefitted from the property during the period of ownership. Historically, the buyer has sometimes agreed to pay this tax (or has inadvertantly signed a contract holding the buyer liable for this tax in the small print!). However today, in 99% of cases, the seller pays this tax.
Recent Legal Developments
Following the economic crisis in Spain between 2008 and 2013, property prices dropped significantly across the board, particularly for less desirable properties. As a result, many sellers were forced to sell properties for less than they paid for them. Sadly however, the Town Halls refused to acknowledge this economic reality and continued to demand Plus Valia tax, even though the land in question had not actually increased in value.
However, on 16th February 2018 the Spanish Supreme Court finally ruled that where a property is sold for a loss, Plus Valia Tax is not payable.
Perhaps unsurprisingly, most, if not all, Town Halls have dragged their heels in acknowledging this court ruling, or even denying that it applies in certain instances. Many will happily allow sellers to unwittingly pay this tax without checking the correct information.
Plus Valia declarations must be filed at the local Town Hall within 30 days AFTER completing a property sale before a Spanish notary. Then, where a seller is satisfied that they have made a loss, they should still complete the declaration form, but either mark on the form (or put in an accompanying letter) that as they have made a loss, they do not accept that any Plus Valia Tax is payable.
When contacted in 2018 after release of the Court Judgment, the official position taken by most Town Halls in Tenerife was to deny any knowledge of the situation, or to suggest that they were taking legal advice and would issue updates in due course. However, some were simply advising the tax should be paid upfront and then they would consider issuing a refund afterwards.
However, Tenerife Solicitors strongly advise all sellers that have made a genuine loss NOT to pay the tax upfront and to simply mark the paperwork as specified above.
It is possible that some Town Halls will seek to challenge the assumption of loss-making, particularly when the declared sale price is ridiculously low. In that instance, it could be theoretically difficult for some sellers to produce acceptable evidence as to the true value. The obvious option is to obtain an ‘official valuation’ for the property, but that would require the consent of the new buyer to provide a surveyor with access to the property. The only good news is that of those ‘loss-making’ cases that Tenerife Solicitors has filed on behalf of conveyancing clients, none of the Town Halls have legally challenged the assumption that a loss was made.
Meanwhile, for those sellers that made a loss and who have already paid the estimated Plus Valia tax (possibly before the Court Judgment was issued), there is still the possibility to reclaim the tax paid from the Town Hall. However, please note that the time limit for doing so is 4 years from the deadline for payment (i.e. 4 years and 30 days after the notary completion of the property sale). Any such claim will doubtless be complicated, so legal advice should be sought in each instance.
9. CORPORATE TAX (Limited Companies)
Corporate Tax (‘Impuestos de Sociedades’) is payable on the net profit of the company, once VAT and other permissible expenses have been deducted.
The standard rate that applies to most companies is 25%. However, there are reductions available to newly formed companies, namely 15% for limited companies, 20% for cooperatives, 10% for associations and foundations and 1% for investment companies.
Corporate tax issues are particularly complicated. As such, we strongly recommend getting professional advice from a qualified Asesor or Contable (accountant).
10. ZEC ZONE Business Tax Reduction Scheme
What is the ZEC Zone Scheme?
The Canary Islands Special Zone or La Zona Especial Canarias (ZEC) was inaugurated back in 2000 as an initiative to help create new jobs, investment and social development in the Canary Islands.
The ZEC Scheme is perhaps one of Europe’s best kept secrets, where ZEC participants can benefit from a highly skilled workforce, a perfect all-year-round climate and a very low corporate tax rate. The Canary Islands are also a part of Spain and the EU, bringing stability and predictability.
The ZEC zone covers all 7 main Canary Islands, namely Tenerife, Fuerteventura, Gran Canaria, Lanzarote, La Palma, La Gomera and El Hierro. Due to its location, the ZEC zone is ideal for companies who want to be based in Europe whilst also having easy access to African countries.
With access to several major maritime shipping channels and 8 airports across the islands, which handle over 40 million passengers annually, ZEC businesses can stay connected, making international business simple.
Best of all, ZEC Companies pay Corporation Tax at special reduced rates of between 1% and 5% on profits generated from ZEC approved activities. The rate varies depending on Net Creation of Employment, The length of inclusion in the ZEC register, Whether the activity is new or pre-existing and the Type of Activity itself.
What are the requirements for a ZEC company?
- Your company must be physically headquartered in the ZEC zone. For companies providing Services, the business may operate from anywhere in the ZEC area. However, companies producing goods must operate in designated trade areas on each island. For example, in Gran Canaria: The Port of La Luz and Las Palmas, plus Gando Airport. Or in Tenerife: Port of Santa Cruz, Los Rodeos or Reina Sofia Airports, or Granadilla Industrial Estate.
- Your company may carry out manufacturing, commercial or service activities within the Canary Islands. However, ZEC Companies may not offer financial services.
- At least one Director (Administrador) must reside full time in the Canary Islands.
- You must make a minimum ‘fixed asset’ investment of €100,000 in Tenerife or Gran Canaria, or €50,000 in any of the other 5 islands.
- You must create between 3 – 5 new jobs (depending on the area) within the first months of ZEC approval and maintain the same minimum number for the duration of your ZEC status.
How do I apply for ZEC status?
You must prepare and file an Application Form with the ZEC Consortium (see link to Form below) and pay a €600 application fee. The following documentation must be included with the application:
- A copy of the ID or passport of the applicant
- Proof of deposit or guarantee for the required the registration fee
- Professional or business profile of the applicant and the technical qualifications of the staff you intend to hire
- Bank Letter of Credit / Good Standing for the applicant
- Any other relevant documentation that will assist the ZEC Consortium to better understand the scope of the business project
The Consortium Board, after receiving a favourable report from the Technical Commission, shall grant or deny the authorization, expressly, within the space of two months to be counted from the date of receipt of the application at the ZEC Consortium.
The technical staff attached to the Investor Service Agency, in the corresponding office of the ZEC, shall inform and advise the applicants to fulfil the formalities.
The ZEC Application Form can be downloaded: HERE
For more information, visit the official ZEC website: HERE