For two years now there has been no change to the income tax rates and allowances in Spain. With the new government in Spain led by the Socialist Party of Pedro Sanchez, it is fair to expect that there will be some kind of tax shake-up.
However Sanchez has a minority government after being put into power without elections following the forcing out of the Popular Party´s Mariano Rajoy by a no-confidence vote, so he will need the support of other parties to pass the new Budget and tax changes for 2019 and onwards.
For us here at Spain Accountants, the priority of the government should be not so much to change tax rates, but to deal with two easy-to-solve issues that are holding Spain back in competitiveness.
Firstly, the astonishingly backwards Spanish Tax Office system for incorporating businesses in the European Union´s Intracommunity VAT registration system (VIES). I will deal with this in another article to be posted later today.
Secondly, the Social Security contribution for the self-employed (autonomos). Now over the last couple of years, Spain has introduced limited reforms which allow newly-registered self-employed businesses to pay a reduced flat rate Social Security. However these flat rates only last for 18 months and after that time, the business must pay Social Security at the full rate, around 300 Euros per month, regardless of whether they are making a profit and how much.
Now businesses take time to succeed. Of course some will fail, and the current Social Security legislation is adding to the failure rate. Or encouraging new businesses to stay out of the Tax and Social Security system entirely and operating in the black market.
So real reform is required, to bring Spain up to level in competitiveness with its sister economies around the world, and introduce a Social Security contributions rate for the self-employed that is in direct proportion to the profit actually made !
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