Spain Tax & Business Guide - Deloitte

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Basic facts
Population 43.5m Inflation 3.4% (2005)*
Main languages Castilian Spanish, Catalan, Basque GDP per head US$25,890*
Currency Euro (ƒ) GDP growth 3.4% (2005)*
Economic communities European Economic Area, EU, OECD, WTO
GDP sources 4.0% agriculture, 29.5% industry, 66.5% services
*Economist Intelligence Unit.
Political environment

Spain is a constitutional monarchy. Executive power rests with a bicameral parliament, or Cortes.

The government is led by Jos» Luis RodrÃguez Zapatero of the Spanish Socialist WorkersÌ Party (PSOE). New elections are due in March 2008.
Foreign trade and investment
Exports US$194.5bn (2005)* Imports US$280.1bn (2005)*
*Economist Intelligence Unit.

Leading exports: Intermediate products, consumer goods and capital goods.

Main export markets: EU countries, primarily France, Germany, Italy and the UK; and Latin America.

Spain has a track record in attracting foreign investment, particularly ÏgreenfieldÓ industrial projects, but traditionally protects certain ÏstrategicÓ sectors. National and foreign investors are eligible on an equal footing for subsidies, subsidised credits and tax breaks.
Business and financing
Business forms Sociedad an€nima, limited liability company

The most common form for foreign investment is the sociedad an€nima (SA). Smaller companies prefer the sociedad de responsabilidad limitada (SRL), or limited liability company because it has lower capital requirements. Branches offer no local tax advantages.

Madrid, the capital, is the main financial centre, although Barcelona is also important as a banking centre.
Labour environment
Unemployment rate 9.2% (2005)* Minimum wage ƒ540.6 (monthly)
*Economist Intelligence Unit.

Dismissal laws are among the strictest in the EU.

Only a minority of workers belong to trade unions.

Employers pay 30.6% of payroll for healthcare, the unemployment fund and other contributions; employees contribute 6.35% for healthcare.

European Economic Area (EEA) nationals do not need work permits; the government limits the number of work permits issued for non-EEA nationals.
Taxation
Corporate tax
Main rate 35%

Resident companies are taxed on their worldwide income; non-resident companies are taxed only on Spanish-source income. A company is resident if it is incorporated in Spain or if its legal seat or place of effective management is in Spain. The general corporate tax rate is 35%, and companies with a turnover under ƒ8m are taxed at 30% on the first ƒ120,202.41 of profits. A branch remittance tax of 15% is levied in certain circumstances.

Under a proposed tax reform, the general corporate tax rate would be gradually reduced to 25% for companies with a turnover under ƒ8m, and 30% for other companies.
Individual tax
Progressive rates to 45%

Resident individuals are taxed on their worldwide income; non-residents are taxed only on their Spanish-source income. An individual who stays in Spain for more than 183 days in a calendar year, or whose centre of vital interests is in Spain, is regarded as resident for tax purposes. Income tax is imposed at progressive rates to 45% on aggregate income, including dividends, interest and royalties received. An imputation credit may be available for dividends received from resident companies.

An expatriate moving to Spain to work may opt for a special regime for expatriates, subject to certain conditions. Under the expatriate regime, a flat rate of 25% is imposed for the year of arrival and the five following years, but the personal deductions available to residents cannot be used.

Under a proposed tax reform, the individual income tax rate would be reduced to 42% in 2007.
Capital gains
Generally taxed as income

Capital gains of companies are generally taxed as income. Short-term gains of individuals (on assets held for less than one year) are also taxed as income. Long-term gains (on assets held for more than one year) are subject to a separate capital gains tax rate of 15%. Gains on an individualÌs primary residence are exempt if the proceeds are reinvested in a new primary residence. Rollover relief is available for gains on the sale of a participation in a qualifying collective investment institution, where the proceeds are reinvested in similar participations.
Indirect tax
VAT standard rate 16% Lower rates 7%, 4%

Value-added tax (VAT) applies to most transactions at the standard rate of 16%. The lower rate of 7% applies to food, dwellings, certain transport services and tourism. The 4% rate applies to basic necessities. Exports and export-related services are zero-rated. Exemptions include financial operations and insurance contracts, leases of immovable property, medical services and education.

Registration is compulsory for businesses.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

Companies make three advance tax payments, based either on the previous yearÌs liability or on the results for the relevant part of the current year. A final tax return must be filed within 25 days after the accounts are approved (which must be within six months after the accounting year-end). The balance of tax due is payable with the return. Employment income is taxed by withholding. Individuals must make three advance tax payments in respect of business and professional income. A self-assessment tax return must be filed by individuals between May 1st and June 30th following the end of the tax year. Final tax is payable in two instalments: 60% by June 20th and the remainder by November 5th following the end of the tax year.
Additional tax information
Withholding taxes Dividends, Interest and Royalties 15%. Rates may be reduced under an applicable tax treaty or EU directive.
Tax treaties Spain has concluded more than 55 tax treaties.
Dividends Dividends are taxable (with an imputation credit for dividends from resident companies). There is a participation exemption.
Revenue protection There is transfer-pricing, thin-capitalisation (with non-EU countries) and offshore subsidiary (CFC) legislation.
Groups Consolidated filing is possible.
Incentives Oil and mining; venture capital; majority investment in non-EU countries; special zones; tax relief for foreign experts.
Other taxes Capital duty, Excise duty, Immovable property transfer tax, Import duty, Inheritance and gift tax, Net wealth tax, Stamp duty, Tax on the constitution and transfer of rights, Tax on transfer of property and official documents.