2016 is the second half of a two-year tax project which was published last year, so there are no surprises from a tax point of view. In this post we am looking at the rates for the year 2016. The tax rates have decreased further this year.
In our blog this time last year we commented that the cut in tax rates was to be expected for an election year. Well although the governing Partido Popular won the general elections in December, it was not enough to gain an absolute majority and Spain is, at this point in time, still without a permanent government. Clearly tax cuts will only take you so far ….
As always, you will find the full updated tax rates and allowances on our tax database starting www.spainaccountants.com/tax.html
Income tax
Tax bands (rates valid for Madrid)
Tax rates have decreased across the board, as follows:
| From (EUR) | To (EUR) | State Tax % | Regional Tax % | Total Tax % |
| 0 | 12,450 | 9.50 | 9.50 | 19.00 |
| 12,450 | 20,200 | 12.00 | 12.00 | 24.00 |
| 20,200 | 35.200 | 15.00 | 15.00 | 30.00 |
| 35,200 | 60,000 | 18.50 | 18.50 | 37.00 |
| 60,000 + | 22.50 | 22.50 | 45.00 |
Personal allowances
The 2015-2016 tax project has seen big increases in the personal allowance and children’s allowances:
Personal allowance
| Under 65 years old | 5,550 Euros |
| 65+ | 6,700 Euros |
| 75+ | 8,100 Euros |
Children’s allowance
| First child | 2,400 Euros |
| Second child | 2,700 Euros |
| Third child | 4,000 Euros |
| Each further child | 4,500 Euros |
The system for calculating the employment-related personal allowance has been changed, as follows:
For taxpayers with salaries of less than 14,450 Euros and other income less than 6,500 Euros, there are the following deductions:
| Earnings not more than 11,250 | 3,700 Euros |
| Earnings 11,250 to 14,450 | 3,700 – 1.15625 x (Earnings – 11,250) |
| Earnings 14,450 + | 0 |
In addition, there is also a general allowance of 2,000 Euros applicable independent of the income of the taxpayer.
Tax on capital gains, savings and dividends
This has been reduced across the board, and in 2016 is as follows.
Capital gains
Residents
First 6,000 Euros: 19%
6,000 – 50,000 Euros: 21%
50,000 + Euros: 23%
Non-residents: 19%
Savings and dividends
Residents and non-residents
First 6,000 Euros: 19%
6,000 – 50,000 Euros: 21%
50,000 + Euros: 23%
Tax credits and deductions
The tax credit for payments to rent a property, which was applicable to low-earners, was abolished from 2015 onwards.
The 1,500 Euros tax free amount on dividends was also abolished. Further to the previous abolition of the proportionate tax credit on dividends which was much more beneficial, there is now no tax credit at all given for dividends received from Spanish companies. Although the tax on dividends has been reduced, this is rather harsh from a tax point of view, especially for companies owned by the taxpayer- as there is no compensation for the underlying company tax alread paid- so dividends are actually taxed twice.
Company tax
As of 1st January 2015, the general rate of company tax in Spain has been reduced from 30% to 28% in 2015 and 25% in 2016.
For small and reduced-sized companies, up to 2014 there were which have now been eliminated (as the reduction in the general tax rate renders them meaningless), except for a transitory period in 2015, when the rate is 25%, except for the profit over 300k Euros for medium-sized companies where the tax is 28%.
A company is defined as small if the turnover in the previous year was less than 5 million Euros and the company has between 1 and 24 employees.
A company is defined as reduced-sized if the turnover in the previous year was less than 10 million Euros.
As of 1st January 2015, there has been introduced a new lower tax-rate for newly-formed companies which applies to the first two years in which it obtains a taxable profit. The rate is 15%.
You can find further information on our services on our website www.spainaccountants.com .